As filed with the Securities and Exchange Commission on October 8, 1997
Registration No. 333-[ ]
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM F-4/S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
----------------------
GRUPO IUSACELL, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
IUSACELL GROUP, INC.
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4812
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
General Counsel Sara P. Hanks, Esq.
Grupo Iusacell, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
----------------------
Approximate date of commencement of proposed exchange sale of the
securities to the public: As soon as practicable after the Registration
Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant a Rule 415 under the Securities Act of
1933, please check the following box. |_|
----------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Per Note(1) Aggregate Offering Price(2) Registration Fee(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
10% Series B Senior Notes due 2004 U.S.$150,000,000 100% U.S.$150,000,000 U.S.$45,455
====================================================================================================================================
</TABLE>
(1) Calculated in accordance with Rule 457(f)(2) under the Securities Act.
(2) Determined solely for the purposes of calculating the registration fee in
accordance with Rule 457 promulgated under the Securities Act.
----------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission
(the "SEC"), acting pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
SOS TELECOMUNICACIONES, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
SOS TELECOMMUNICATIONS, INC.
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4812
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
SOS Telecomunicaciones, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
================================================================================
IUSACELL, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
IUSACELL, INC.
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4812
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
Iusacell, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
<PAGE>
SISTECEL, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
SISTECEL, INC
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7363
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
Sistecel, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
================================================================================
COMUNICACIONES CELULARES DE OCCIDENTE, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
CELLULAR COMMUNICATIONS OF THE WEST, INC.
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4812
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
Comunicaciones Celulares de Occidente, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
<PAGE>
TELECOMUNICACIONES DEL GOLFO, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
GULF TELECOMMUNICATIONS, INC.
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4812
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
Telecomunicaciones del Golfo, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
================================================================================
SISTEMAS TELEFONICOS PORTATILES CELULARES, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
PORTABLE CELLULAR TELEPHONE SYSTEMS, INC.
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4812
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
Sistemas Telefonicos Portatiles Celulares, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
<PAGE>
INMOBILIARIA MONTES URALES 460, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
MONTES URALES 460 REAL ESTATE, INC.
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6531
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
Inmobiliaria Montes Urales, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
================================================================================
IUSANET, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
IUSANET, INC.
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7374
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
Iusanet, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
<PAGE>
MEXICAN CELLULAR INVESTMENTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
N/A
(Translation of Registrant's Name Into English)
United States of America 58-1871277
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4812
(Primary Standard Industrial
Classification Code Number)
CSC - Atlanta
100 Peachtree Street
Atlanta, GA 30303
(404) 589-9479
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
Mexican Cellular Investments Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED [ ], 1997
PRELIMINARY PROSPECTUS
Offer to Exchange all Outstanding 10% Senior Notes Due 2004
for 10% Series B Senior Notes Due 2004
of
Grupo Iusacell, S.A. de C.V.
The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New
York City time, on [ ], 1997 (as such date may be extended, the "Expiration
Date")
--------------------
Grupo Iusacell, S.A. de C.V. ("Iusacell" or the "Company"), a limited
liability company with variable capital (sociedad anonima de capital variable)
organized under the laws of the United Mexican States ("Mexico"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and in
the accompanying Letter of Transmittal (which together will constitute the
"Exchange Offer"), to exchange (i) up to U.S.$150.0 million aggregate principal
amount of its 10% Series B Senior Notes due 2004 (the "New Notes") for a like
principal amount of its 10% Senior Notes due 2004 outstanding on the date hereof
(the "Old Notes" and, together with the New Notes, the "Notes"). The New Notes
have been registered under the Securities Act of 1933, as amended (the
"Securities Act") pursuant to a Registration Statement (as defined herein) of
which this Prospectus forms a part. The terms of the New Notes are identical in
all material respects to those of the Old Notes except for (i) certain transfer
restrictions and registration rights relating to the Old Notes and (ii) certain
provisions of the Old Notes that would require an increase in their interest
rates were the Old Notes not exchanged for New Notes, or otherwise registered
pursuant to the Securities Act, within specified periods.
Principal of the New Notes will be due on July 15, 2004. Interest will
accrue on the New Notes from the last date to which interest was paid on the Old
Notes or, if no interest has been paid thereon, from their date of issue (July
25, 1997) and will be payable semi-annually in cash in arrears on January 15 and
July 15 of each year, commencing January 15, 1998. The New Notes are redeemable
at the option of the Company, in whole or in part, at any time on or after July
15, 2001 and prior to maturity, at the redemption prices indicated herein, plus
accrued interest, if any, to the redemption date. In addition, at any time and
from time to time prior to July 15, 2000, the Company may redeem in the
aggregate up to 35% of the original principal amount of the Notes with the
proceeds of one or more Public Equity Offerings (as defined), at a redemption
price of 110% of the principal amount to be redeemed, plus accrued interest, if
any, to the redemption date, provided that at least 65% of the original
aggregate principal amount of the Notes remains outstanding after each such
redemption. In the event of certain changes affecting Mexican taxation of the
New Notes, the New Notes will also be redeemable at any time in whole, but not
in part, at the option of the Company at 100% of the principal amount thereof,
plus any accrued interest to the redemption date. The New Notes will not be
subject to any sinking fund requirement. In addition, in the event of a Change
in Control (as defined herein), holders of the New Notes shall have the right to
require the Company to purchase all or a portion of such holder's New Notes at a
repurchase price equal to 101% of their principal amount, plus accrued and
unpaid interest, if any, to the date of repurchase. There can be no assurance
that the Company will have the financial resources necessary to repurchase the
New Notes in such circumstances. See "Description of Notes".
The New Notes will be unsecured, senior obligations of the Company ranking
pari passu in right of payment with all other existing and future senior
obligations of the Company and will rank senior to all other existing and future
subordinated indebtedness of the Company. The New Notes will be unconditionally
guaranteed on an unsecured, senior subordinated basis by certain subsidiaries of
the Company (the "Subsidiary Guarantors"). However, the New Notes and the
Subsidiary Guarantees (as defined) will be effectively subordinated to any
secured indebtedness of the Company and its subsidiaries to the extent of the
value of the assets securing such secured indebtedness. In addition, the
Subsidiary Guarantors will guarantee the Credit Facility (as defined), and the
Subsidiary Guarantees will be subordinated to such guarantee obligations under
the Credit Facility. The New Notes also will be effectively subordinated to
obligations of subsidiaries of the Company which are not Subsidiary Guarantors.
The Subsidiary Guarantees could also be effectively subordinated to all the
obligations of the Subsidiary Guarantors under certain circumstances. As of
March 31, 1997, after giving effect to the Financing (as defined) and the
application of the proceeds thereof, the Company and the Subsidiary Guarantors
had approximately Ps. 2,183.0 million (U.S.$275.3 million) of senior obligations
outstanding, of which Ps. 991.3 million (U.S.$125.0 million) was secured,
assuming no amounts were outstanding under the U.S.$100.0 million senior secured
Revolving Credit Facility (as defined). As of March 31, 1997, after giving
effect to the Financing and the application of the proceeds thereof,
subsidiaries of the Company which are not Subsidiary Guarantors had total
balance sheet liabilities (including trade payables and accrued liabilities but
excluding intercompany payables) of approximately Ps. 64.4 million (U.S.$8.1
million). See "Risk Factors-Asset Encumbrance; Subordination of Subsidiary
Guarantees," "-Holding Company Structure," "-Possible Limitations on
Enforceability of Guarantees" and "Description of Notes-Ranking."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a
<PAGE>
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company and the
Subsidiary Guarantors have agreed that, for a period of 180 days after the
Expiration Date (as defined herein), they will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution".
--------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF RISK FACTORS THAT
HOLDERS OF OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Prospectus is [______], 1997.
<PAGE>
The Company will not receive any proceeds from the Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution". The Company will pay all the expenses
incident to the Exchange Offer. Tenders of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to the Expiration Date (as defined) for
the Exchange Offer. In the event the Company terminates the Exchange Offer and
does not accept for exchange any Old Notes with respect to the Exchange Offer,
the Company will promptly return such Old Notes to the holder thereof. See "The
Exchange Offer".
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company under an Exchange and Registration Rights Agreement
dated July 15, 1997 (the "Exchange and Registration Rights Agreement") entered
into among the Company, the Subsidiary Guarantors and Chase Securities Inc. and
Salomon Brothers Inc as representatives for the initial purchasers of the Old
Notes ("Initial Purchasers"). The Old Notes were issued in a separate offering
(the "Offering") in reliance upon, and subsequently resold by the Initial
Purchasers thereof pursuant to, exemptions from the registration provisions of
the Securities Act (including those provided by Section 4(2) thereof, and Rule
144A and Regulation S promulgated thereunder). The net proceeds of the Offering,
together with borrowings under the Credit Facility, were used to repay existing
debt equal to U.S.$210.8 million, of which U.S.$65.4 million repaid an existing
debt to The Chase Manhattan Bank, an affiliate of Chase Securities, Inc., and to
fund capital expenditures. See "Use of Proceeds".
The Company is making the Exchange Offer in reliance on the position of
the staff of the Securities and Exchange Commission (the "Commission") as set
forth in certain no-action letters addressed to other parties in other
transactions. However, the Company has not sought its own no-action letter and
there can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
Based upon these interpretations by the staff of the Commission, the Company
believes that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold and otherwise transferred by
a holder thereof, other than (i) a broker-dealer who purchased such Old Notes
directly from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person that is an "affiliate" (as
defined in Rule 405 of the Securities Act) of the Company without compliance
with the registration and prospectus delivery provisions of the Securities Act
provided that such New Notes are acquired in the ordinary course of such
holder's business and that such holder is not participating and has no
arrangement or understanding with any person to participate, in the distribution
of such New Notes. Holders of Old Notes accepting an Exchange Offer will
represent to the Company in the Letter of Transmittal that such conditions have
been met. Any holder who participates in the Exchange Offer for the purpose of
participating in a distribution of the New Notes may not rely on the position of
the staff of the Commission as set forth in these no-action letters and would
have to comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transaction.
Each broker-dealer (other than an "affiliate" of the Company) that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Notes as a result of market-making
activities or other trading activities and will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 90 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution". Any broker-dealer who is an affiliate of the Company may not rely
on such no-action letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction. See "The Exchange Offer".
The New Notes are new securities for which there is currently no market.
The Company presently does not intend to apply for listing of the New Notes on
any securities exchange or for quotation through the National Association of
Securities Dealers Automatic Quotation System ("NASDAQ"). Chase Securities Inc.
and Salomon Brothers Inc have advised the Company that, following completion of
the Exchange Offer, they presently intend
i
<PAGE>
to make a market in the New Notes. However, Chase Securities Inc. and Salomon
Brothers Inc are not obligated to do so and any market-making activities with
respect to the New Notes may be discontinued at any time without notice. Chase
Securities Inc. and Salomon Brothers Inc may act as principal or agent in such
transactions. There can be no assurance that an active market for the New Notes
will develop.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and preferences and will be
subject to the limitations applicable thereto under the Indenture (as defined
herein). Following consummation of the Exchange Offer, the holders of Old Notes
will continue to be subject to the existing restrictions upon transfer thereof
and the Company will have no further obligation to such holders to provide for
the registration under the Securities Act of the Old Notes held by them. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Old Notes could be adversely affected. It is
not expected that an active market for the Old Notes will develop while they are
subject to restrictions on transfer.
The Company will accept for exchange any and all Old Notes that are
validly tendered and not withdrawn on or prior to 5:00 p.m., New York City time,
on the date the Exchange Offer expires, which will be [ ], 1997 (the "Expiration
Date"), unless the Exchange Offer is extended (in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended). Tenders of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date, unless previously
accepted for exchange by the Company. The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes being tendered for exchange. However,
the Exchange Offer is subject to certain conditions which may be waived by the
Company and to the terms and provisions of the Registration Rights Agreement.
Old Notes may be tendered only in denominations of U.S.$1,000 and integral
multiples thereof. See "The Exchange Offer--Solicitation of Tenders; Fees and
Expenses". The New Notes will bear interest from the last interest payment date
of the Old Notes to occur prior to the issue date of the New Notes or, if no
such interest has been paid, from the issue date of the Old Notes (July 25,
1997). Holders of the Old Notes whose Old Notes are accepted for exchange will
not receive interest on such Old Notes for any period subsequent to the last
interest payment date to occur prior to the issue date of the New Notes, if any,
and will be deemed to have waived the right to receive any interest payment on
the Old Notes accrued from such interest payment date or, if no such interest
has been paid, from the issue date of the Old Notes.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of [ ], 1997.
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY AND ITS
SUBSIDIARIES OR ANY INITIAL PURCHASER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY AND ITS SUBSIDIARIES
SINCE SUCH DATE.
THE DISTRIBUTION OF THIS PROSPECTUS AND THE OFFER, SALE AND DELIVERY OF
THE NOTES IN CERTAIN JURISDICTIONS MAY BE RESTRICTED BY LAW. NO ACTION HAS BEEN
OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY THAT WOULD PERMIT A PUBLIC
OFFERING OF THE NOTES OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY
JURISDICTION OUTSIDE THE UNITED STATES WHERE ACTION FOR THAT PURPOSE IS
REQUIRED. SEE "PLAN OF DISTRIBUTION" FOR A DESCRIPTION OF CERTAIN RESTRICTIONS
ON OFFERS, SALES
ii
<PAGE>
AND DELIVERIES OF THE NEW NOTES AND ON THE DISTRIBUTION OF THIS PROSPECTUS AND
OTHER OFFERING MATERIALS.
iii
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Exchange Act
applicable to foreign private issuers and in accordance therewith files reports,
including reports on Form 20-F, and other information with the Commission.
Reports and other information filed by the Company with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may be obtained by mail
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such material may also be accessed
electronically by means of the Commission's home page on the Internet
(http://www.sec.gov). Such reports and other information may also be inspected
at the office of the New York Stock Exchange, 11 Wall Street, New York, New York
10005. As a foreign private issuer, the Company is exempt from certain
provisions of the Exchange Act prescribing the furnishing and content of proxy
statements. For so long as any of the Notes remain outstanding and the Company
is no longer a reporting Company under the Exchange Act, the Company has agreed
to make available to any prospective purchaser of the Notes or beneficial owner
of the Notes the information required by Rule 144A(d)(4) under the Securities
Act, unless the Company is exempt from reporting pursuant to Rule 12g3-2(b)
under the Exchange Act. Any request for the agreements summarized herein should
be directed to the Vice President of Investor Relations, care of Grupo Iusacell,
S.A. de C.V., Montes Urales 460, 3rd Floor, Col. Lomas de Chapultepec, Deleg.
Miguel Hidalgo, C.P. 11000, Mexico, D.F. (telephone 011-525-104-4100).
Iusacell will file with the Trustee and provide holders of the Notes with
copies of all reports required to be filed by the Company with the Commission
under the Exchange Act, including annual reports in English, which will include
a review of operations and annual audited financial statements prepared in
conformity with Mexican GAAP, together with a reconciliation of net income and
total shareholders' equity to U.S. GAAP. See "Description of Notes-Certain
Covenants-Provision of Financial Information."
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
Iusacell has been advised by De Ovando y Martinez del Campo, S.C., special
Mexican counsel to Iusacell, that no treaty exists between the United States and
Mexico for the reciprocal enforcement of foreign judgments. Mexican courts have
enforced judgments rendered in the United States by virtue of the legal
principles of reciprocity and comity, consisting of the review in Mexico of the
United States judgment in order to ascertain whether certain basic principles of
due process and public policy have been complied with without reviewing the
merits of the subject matter of the case. Nevertheless, Iusacell has been
advised by De Ovando y Martinez del Campo, S.C. that there is doubt as to the
enforceability, in original actions in Mexican courts, of liabilities predicated
solely on the United States federal securities laws and as to the enforceability
in Mexican courts of judgments of United States courts obtained in actions
predicated upon the civil liability provisions of the United States federal
securities laws.
Iusacell is a variable capital corporation (sociedad anonima de capital
variable) organized under the laws of Mexico. A majority of the directors and
officers of the Company and certain experts named herein reside outside the
United States (principally in Mexico). All or a substantial portion of the
assets of these persons and of Iusacell are located outside the United States.
As a result, it may not be possible for investors to effect service of process
within the United States upon such persons or Iusacell or to enforce against
them in the United States judgments obtained in United States courts predicated
upon the civil liability provisions of the federal securities laws or other laws
of the United States.
The Company has appointed CT Corporation System, New York, New York, as
its agent to receive service of process with respect to any actions arising out
of or relating to the New Notes or the Indenture (as defined herein) and has
submitted to the jurisdiction of the U.S. federal and state courts sitting in
New York City in respect of such actions.
Unless stated otherwise, references herein to "Pesos" or "Ps. " are to
Mexican Pesos, and references to "U.S. dollars," "$" or "U.S.$" are to United
States dollars. Iusacell publishes its financial statements in Pesos.
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Pursuant to Mexican GAAP (as defined), financial data for all periods in the
financial statements included herein, unless otherwise indicated elsewhere
herein, have been restated in constant March 31, 1997 Pesos. Restatement into
constant March 31, 1997 Pesos is made by multiplying the relevant nominal Peso
amount by the inflation index for the period between the end of the period to
which such nominal Peso amount relates and March 31, 1997. The inflation index
used in this Prospectus for 1992 figures is 2.3754, for 1993 figures is 2.1993,
for 1994 figures is 2.0544, for 1995 figures is 1.3519, for December 31, 1996
figures is 1.0586 and for March 31, 1996 figures is 1.2477. All references in
this Prospectus to the prices and rates for the Company's services and products
are, however, stated in nominal Pesos. Unless otherwise indicated, U.S. dollar
amounts have been translated from Pesos at an exchange rate of Ps. 7.9300 per
U.S. dollar, the exchange rate at March 31, 1997 reported by the Federal Reserve
Bank of New York as its noon buying rate for Pesos (the "Noon Buying Rate"). On
October 2, 1997, the Noon Buying Rate was Ps. 7.7575 per U.S. dollar. Certain
amounts set forth herein may be slightly inconsistent due to rounding.
The Company's principal executive offices are located at Montes Urales
460, Lomas de Chapultepec, Delegacion Miguel Hidalgo, C.P. 11000, Mexico, D.F.,
Mexico; and its telephone number is 525-104-4100.
------------
The Company has been authorized by the Comision Nacional Bancaria y de
Valores (the "CNBV") to register the New Notes in the Special Section of the
Registro Nacional de Valores e Intermediarios (the "RNVI" or the "National
Registry of Securities and Intermediaries") maintained by the CNBV. Registration
of the Notes in the RNVI does not imply any certification as to the investment
quality of the Notes, the solvency of the Company or the accuracy or
completeness of the information contained herein. The Notes may not be offered
publicly in Mexico. This Prospectus may not be publicly distributed in Mexico.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Certain terms used herein are defined either in the Glossary of
Certain Telecommunications Terms which begins on page A-1 of this Prospectus or
elsewhere in this Prospectus. All financial data have been restated in constant
March 31, 1997 Pesos, except as otherwise indicated. References to "Bell
Atlantic" in this Prospectus shall mean Bell Atlantic Corporation or one or more
of its subsidiaries, as the context may require.
Overview
Grupo Iusacell, S.A. de C.V. ("Iusacell" or the "Company") is the largest
non-wireline cellular telecommunications company in Mexico, owning and operating
the non-wireline cellular concessions in four contiguous regions in Mexico.
These regions include Mexico City, one of the world's most populous cities, and
the cities of Guadalajara, Puebla, Veracruz, Leon, Acapulco and San Luis Potosi,
and combined represent approximately 65.1 million POPs or 70% of Mexico's
population. The Company had a total of 250,727 cellular subscribers at March 31,
1997, and an average monthly cellular revenue per subscriber during the three
months ended March 31, 1997 of Ps. 469 (approximately U.S.$59). In addition to
its core cellular services, the Company also provides a wide range of other
telecommunications services, including paging, long distance, local telephony
and data transmission.
In February 1997, Bell Atlantic, a diversified telecommunications company,
assumed control of the Board of Directors and management of Iusacell. Bell
Atlantic has invested approximately U.S.$1.1 billion since 1993 for its 42.1%
economic interest in the Company. Prior to 1997, Bell Atlantic participated
substantially in the financial and technological operations of the Company. In
February 1997, Bell Atlantic appointed a new Iusacell management team, which has
assumed control of Iusacell's operations, including marketing, distribution and
customer service, and has developed, and is in the process of implementing, a
comprehensive operating and strategic plan.
The new management team at Iusacell is able to draw extensively upon Bell
Atlantic's expertise in the development and implementation of the Company's new
operating strategy. Iusacell's Chief Executive Officer is also President of Bell
Atlantic's international wireless operations and has significant experience with
Bell Atlantic's wireless operations in the United States. The Company's Chief
Operating Officer was formerly the Chief Financial Officer of Iusacell and has
29 years of experience with Bell Atlantic in a variety of operating and
financial roles. Iusacell's current Chief Financial Officer has 13 years of
experience with Bell Atlantic. In June 1997, the Company appointed as its
Director General a Mexican citizen with extensive experience in multinational
operations, who most recently had been president of the Mexican cellular company
which operates the non-wireline cellular concessions in two contiguous northern
regions in which Iusacell does not currently have cellular operations. The new
management team is supported by other personnel from Bell Atlantic.
Competitive Strengths
Large Subscriber Base. Iusacell has built a base of 250,727 cellular
subscribers at March 31, 1997, including both "contract" and "prepay"
subscribers. Approximately 65% of that cellular subscriber base consists of
customers who purchase cellular services pursuant to fixed-term contracts with
the Company. The Company believes that these customers seek the convenience of
uninterrupted mobile cellular service and access to high quality customer
service and are willing to pay a monthly fee for the choice of value-added
services such as call waiting and *911. Customers who purchase cellular services
in advance through prepay calling cards represent the remaining 35% of
Iusacell's cellular customers. The prepay subscribers are attractive to the
Company due to their higher average per minute airtime charges, lower
acquisition costs and the absence of billing costs, credit concerns and
collection risk. The Company's large customer base allows Iusacell to cross-sell
its services to over a quarter of a million existing customers through a
"one-stop-shopping" approach.
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Proven Bell Atlantic Expertise. Iusacell has begun the implementation of a
broad strategic and operating plan modelled upon Bell Atlantic's wireless
success in the United States and Europe. Bell Atlantic is one of the largest
cellular operators in the United States, serving over 4.6 million subscribers
along the East Coast and in the Southwest. Bell Atlantic also has substantial
investments in other wireless telecommunications companies, including PrimeCo
Personal Communications L.P. in the United States, Omnitel Pronto Italia S.p.A.
in Italy, Eurotel Praha S.R.D. in the Czech Republic and Eurotel Bratislava
S.R.D. in the Slovak Republic. Iusacell believes that Bell Atlantic's extensive
experience in the development and implementation of marketing programs designed
to promote substantial subscriber growth will provide the Company with a
significant competitive advantage in the Mexican cellular market.
Significant Brand Equity. The Company believes that its call quality,
customer care and accurate billing contribute to its strong, favorable brand
awareness. Recent independent market research shows that the Company's contract
customers are very satisfied with the overall services they are receiving. In
order to maximize brand equity, management has consolidated its brand names
under the single, well-recognized IUSACELL brand name.
Established Technological Platform. Iusacell has an existing integrated
network infrastructure that serves as the backbone for its core cellular
business and provides a platform for bundled product offerings, such as paging,
long distance and other telecommunications services. With the benefit of Bell
Atlantic's expertise, the Company has invested in digital switching systems,
dedicated microwave links, cell sites and other network infrastructure. The
Company has a network of five cellular switches, 236 cell sites and 42
repeaters, which covers approximately 70% of the Company's total POPs. The
Company believes that its network provides an excellent platform for
technological innovations such as a CDMA overlay which the Company plans to
begin implementing in the first quarter of 1998.
Comprehensive Geographic Coverage. The four contiguous regions in which
the Company provides cellular service are among the most attractive cellular
markets in Mexico based upon total POPs and demographic characteristics. The
regions of Mexico covered by Iusacell's concessions include Mexico City, the
nation's economic and political capital, and other parts of the country with
high concentrations of industry, tourism and agriculture. The Company's
geographic footprint covers 65.1 million POPs, with total Covered POPs of 46.1
million.
Experienced Management Team. The four senior members of the new management
team appointed by Bell Atlantic have an aggregate of 62 years of experience in
the telecommunications industry. Individually, the Company's operating managers
have established track records of producing subscriber growth, penetrating new
markets and developing new telecommunications product offerings. Iusacell's
management team is complemented by experienced Bell Atlantic telecommunications
executives and consultants.
Business Strategy
Iusacell's new management team has developed, and is in the process of
implementing, a comprehensive operating and strategic plan primarily focused on
increasing Iusacell's subscriber base, subscriber usage, revenues and
profitability in its core wireless businesses. This strategic plan incorporates
the following key elements:
New Product Offerings and Salesforce Incentives. Iusacell has introduced
new product and pricing packages targeted both at high-usage contract customers,
who favor value-added products, and at low-usage prepay customers. The Company
considers its contract customers to be particularly receptive to bundled product
offerings that include paging, long distance and other telecommunications
services. In addition, the Company is considering marketing its cellular
services to users who typically place calls from within a single region
("limited zone" customers). In May 1997, the Company's salesforce compensation
plan was overhauled to be largely performance based and to reward the sales of
value-added products as well as any migration of qualified prepay customers to
contract plans.
Enhanced Distribution. Iusacell has developed a plan to improve the
distribution of its products based upon the Bell Atlantic model which emphasizes
consistent, standardized merchandising through a well-balanced mix of
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company-owned stores and independent distributors conveniently located
throughout the Company's operating regions. By the end of 1999, the Company
intends to have significantly increased the number of Iusacell-owned and
operated customer service centers, incorporating a new, uniform store design. In
1997, in addition to opening a number of customer service centers with the new
store design, the Company plans to refurbish its existing 57 Iusacell-owned and
operated customer service centers. In March 1997, Iusacell signed a contract
with Precel, S.A. de C.V. ("Precel"), formerly one of the largest distributors
for the Company's competitor, adding 75 locations, thereby increasing Iusacell's
total points of sale in Mexico City by over 40% and reducing the competition's
distribution presence. Iusacell plans to enter into agreements with other
distributors to further increase its points of sale.
Digital Network and Expanded Footprint. The Company plans to launch a
fully digital CDMA network in order to upgrade its existing integrated network
infrastructure. The overlay will begin in Region 9 in the first quarter of 1998,
with the overlay in the remaining regions to be launched by mid-1999. Iusacell
believes that it will be the first cellular operator in Mexico with a commercial
launch of a digital network. The Company believes that, based on its and Bell
Atlantic's evaluation of both CDMA and TDMA technologies, CDMA technology is
superior to TDMA. As part of its strategy to improve customer satisfaction, the
Company plans to augment capacity by adding a total of 61 new cell sites in
1997. In addition, the Company plans to expand its geographic coverage into
northern Mexico by acquiring or forming strategic alliances with cellular
concession holders or by acquiring PCS licenses in the 1.9 GHz frequency band.
Revitalized Customer Service. Iusacell's marketing strategy emphasizes
proactive and timely customer service. The Company utilizes welcome packages,
customer satisfaction calls, Executive Blue Chip programs for corporate
customers and customized billing to communicate its commitment to its customers.
In addition, Iusacell's customer service centers offer "one-stop-shopping" for
cellular, paging, long distance, local telephony and data transmission services
as a convenience to its customers. Iusacell continues to focus on reducing its
fraud rate, as evidenced by its plan to deploy CDMA technology with its proven
encryption benefits. The Company is considering other fraud prevention measures,
including the introduction of authenticated handsets and fingerprinting for
analog signals, the investigation of cloning activities and restrictions on
international long distance dialing. Iusacell is also installing a new prepay
operating system which is expected to improve customer satisfaction through
automated card activation and account information, provide voice messaging and
other value-added services, and lower the cost of support for prepay services.
Realignment of Organizational Structure. Iusacell has consolidated its
business divisions in order to increase operating efficiencies, to facilitate
cross-marketing of services and to reduce duplicative costs. Overall headcount
was reduced by approximately 10% in April 1997 with the elimination of over 230
positions not directly associated with sales and distribution. Furthermore, the
Company has signed a long-term lease in Mexico City that will consolidate
corporate activities previously conducted at five separate locations.
Redesigned Brand Image and Promotional Campaigns. Iusacell recently
launched its newly designed brand logo and product packages with a new
advertising campaign targeted at higher usage customers. For the first time, all
product offerings will be marketed under the single, well-recognized IUSACELL
brand name. As a result, the Company expects to increase brand awareness and
customer loyalty, thereby increasing usage in its addressable market.
Local Telephony Service Offerings. Iusacell has historically provided
local telephony in Mexico on a limited basis through a mobile nationwide IMTS
radiotelephony network and through both rural and public cellularbased telephony
programs. The Company also has approximately 18,000 customers who participate in
a trial of local wireless service in the 450 MHz frequency band, which the
Company began in 1994. The Company plans to expand its 450 MHz service or pursue
other alternatives for the provision of local telephony on a larger scale,
including limited zone product offerings in the 800 MHz (cellular) or 1.9 GHz
(PCS) frequency bands using digital technology that permits mobility.
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Strategic Price Increases for Cellular Service. Since April 1997, Iusacell
has announced a weighted average increase of 15% for the per minute airtime
price on its contract and prepay plans and has announced a weighted average
increase of 8.3% for the fixed monthly charge on its contract plans. The Company
intends to implement future price increases to the extent economic and
competitive conditions permit. For a discussion of the Company's experiences
with the recent price increases, see "-Recent Developments."
The Telecommunications Industry in Mexico
Underserved Telephony Market. The Company believes that there is
substantial unmet demand for telephone service in Mexico as demonstrated by the
relatively low level of wireline and cellular penetration and the long customer
wait for landline service. According to the International Telecommunications
Union ("ITU"), an agency of the United Nations, as of December 31, 1995 there
were approximately 9.6 lines per 100 inhabitants in Mexico, which is lower than
the teledensity rates in certain other Latin American countries and
substantially lower than those in developed countries such as the United States.
The ITU forecasts that Mexican teledensity will reach 14.6 lines per 100
inhabitants by the end of the year 2000.
Expected Recovery in Consumer Spending. The Company expects consumer
spending to recover following the recent economic crisis in Mexico. According to
forecasts by WEFA, GDP growth is expected to be 5.4% and 6.4% in 1997 and 1998,
respectively. With GDP per capita expected to increase by an average of 4.0%
during this period based on an annual population growth rate of 1.8% (as
forecasted by WEFA), the Company anticipates increased demand for its services.
Changing Competitive Dynamics. The Company's cellular competitor is Radio
Movil DIPSA, S.A. de C.V. ("Telcel"), a wholly owned subsidiary of Telefonos de
Mexico, S.A. de C.V. ("Telmex"), which holds the wireline cellular concessions
in all nine regions of Mexico. The Company believes that Telmex faces increasing
competition, especially in the long distance market, which was fully opened to
competition in January 1997. Telmex's major long distance competitors include
two joint ventures in which AT&T Corp. ("AT&T") and MCI Communications
Corporation ("MCI") are the strategic partners.
In late 1995, the Company brought a suit charging Telmex with unlawfully
cross-subsidizing Telcel's cellular phone operations. The Company believes that
the increased competition in the long distance market is hindering Telmex's
ability to continue to cross-subsidize Telcel.
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The Financing
In conjunction with the Offering of the Old Notes, the Company obtained a
commitment from The Chase Manhattan Bank ("Chase") to provide (i) a U.S.$125.0
million five-year senior secured term loan facility (the "Term Facility") and
(ii) a U.S.$100.0 million five-year senior secured revolving credit facility
(the "Revolving Credit Facility" and, together with the Term Facility, the
"Credit Facility"). In addition, the Company obtained a commitment from Bell
Atlantic to provide up to U.S.$150.0 million in subordinated convertible debt
financing (the "Bell Atlantic Facility"). For a discussion of the availability,
terms and conditions of the Bell Atlantic Facility, see "Certain
Transactions-Bell Atlantic Facility."
The net proceeds from the Offering, together with borrowings under the
Credit Facility (the "Financing"), have been applied to: (i) repay U.S.$44.7
million of Banco Mexicano, S.A. ("Banco Mexicano") senior debt and related
interest (the "Banco Mexicano Facility"); (ii) repay U.S.$29.0 million of Banco
Nacional de Mexico, S.A. ("Banamex") senior debt and related interest (the
"Banamex Facility"); (iii) repay U.S.$65.4 million of Chase senior debt and
related interest (the "Chase Facility"); (iv) repay U.S.$46.0 million of Banco
del Atlantico, S.A. ("Banco del Atlantico") senior debt and related interest
(the "Banco del Atlantico Facility"); (v) repay U.S.$25.7 million of Bell
Atlantic New Zealand Holdings, Inc. ("BANZHI") subordinated debt and related
interest (the "BANZHI Loans" and, together with the Banco Mexicano Facility, the
Banamex Facility, the Chase Facility and the Banco del Atlantico Facility, the
"Existing Indebtedness") and (vi) fund capital expenditures to upgrade its
network infrastructure, including the implementation of a CDMA overlay, to build
out its cellular, long distance, local telephony and paging networks, to
redesign Iusacell-owned and operated customer service centers and to support
existing operations and new business opportunities. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Capital Expenditures."
Chase is an affiliate of Chase Securities Inc., one of the Initial
Purchasers.
The following table sets forth the sources and uses of funds in connection
with the Financing:
(U.S. Dollars in Millions)
Sources:
Term Facility(1) ................................ $125.0
Proceeds from Sale of Old Notes ................. 150.0
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Total Sources ........................... $275.0
======
Uses:
Refinance Existing Indebtedness ................. $210.8
Capital Expenditures ............................ 55.2
Transaction Fees and Expenses ................... 9.0
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Total Uses .............................. $275.0
======
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(1) The Company also has available U.S.$100.0 million under the Revolving
Credit Facility U.S.$125.0 million (less accrued interest) under the Bell
Atlantic Facility. For a discussion of the availability, terms and
conditions of the Bell Atlantic Facility, as well as the Revolving Credit
Facility, see "Certain Transactions-Bell Atlantic Facility" and
"Description of Credit Facility."
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The Exchange Offer
The Exchange Offer......... The Company is offering to exchange pursuant to the
Exchange Offer (i) up to an aggregate principal
amount of U.S.$150.0 million of its 10% Series B
Senior Notes due 2004 (the "New Notes") for a like
principal amount of its 10% Senior Notes due 2004
(the "Old Notes") properly tendered on or prior to
the Expiration Date and not withdrawn. The New
Notes and Old Notes are collectively hereinafter
referred to as the "Notes". The New Notes have been
registered under the Securities Act, pursuant to
the Registration Statement of which this Prospectus
is a part.
Expiration Date;
Withdrawal of Tender..... The Exchange Offer will expire at 5:00 p.m. New
York City time, on [ ], 1997, or such later date
and time to which it is extended by the Company.
The tender of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to the
Expiration Date.
Certain Conditions
to the Exchange Offer.... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. The
Company currently expects that each of the
conditions will be satisfied and that no waivers
will be necessary. See "The Exchange Offer--Certain
Conditions to the Exchange Offer."
Procedures for Tendering
Old Notes................ Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or such facsimile, together
with such Old Notes and any other required
documentation, to the Exchange Agent (as defined)
at the address set forth therein. See "The Exchange
Offer--Procedures for Tendering Old Notes."
Use of Proceeds............ There will be no proceeds to the Company from the
exchange of New Notes for Old Notes pursuant to the
Exchange Offer.
Exchange Agent............. First Union National Bank (the "Exchange Agent") is
serving as the Exchange Agent in connection with
the Exchange Offer.
Tax Consequences........... The exchange of New Notes for Old Notes pursuant to
the Exchange Offer will not be a taxable event for
U.S. federal income tax purposes. Such exchange
will also not constitute a taxable event for
Mexican tax purposes. See "Taxation."
Remaining Old Notes........ Any Old Notes not tendered and accepted in the
Exchange Offer will remain outstanding and will be
entitled to all the rights and preferences and will
be subject to the limitations applicable thereto
under the Indenture. Following consummation of the
Exchange Offer, the holders of Old Notes will
continue to be subject to the
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existing restrictions upon transfer thereof and the
Company will have no further obligation to such
holders to provide for the registration under the
Securities Act of the Old Notes held by them. To
the extent that Old Notes are tendered and accepted
in the Exchange Offer, a holder's ability to sell
untendered Old Notes could be adversely affected.
It is not expected that an active market for the
Old Notes will develop while they are subject to
restrictions on transfer.
Consequences of Exchanging Old Notes pursuant to the Exchange Offer
The Company is making the Exchange Offer in reliance on the position of
the staff of the Commission as set forth in certain no-action letters addressed
to other parties in other transactions. However, the Company has not sought its
own no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange Offer
as in such other circumstances. Based upon these interpretations by the staff of
the Commission, the Company believes that the New Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale, resold
and otherwise transferred by a holder thereof, other than (i) a broker-dealer
who purchased such Old Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an "affiliate" (as defined in Rule 405 of the Securities Act) of
the Company without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of such New Notes. Holders of Old Notes
accepting an Exchange Offer will represent to the Company in the Letter of
Transmittal that such conditions have been met. Any holder who participates in
the Exchange Offer for the purpose of participating in a distribution of the New
Notes may not rely on the position of the staff of the Commission as set forth
in these no-action letters and would have to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction.
Each broker-dealer (other than an "affiliate" of the Company) that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Notes as a result of market-making
activities or other trading activities and will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 90 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution". Any broker-dealer who is an affiliate of the Company may not rely
on such no-action letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction. See "The Exchange Offer."
The New Notes are new securities for which there is currently no market.
The Company presently does not intend to apply for listing of the New Notes on
any securities exchange or for quotation through NASDAQ. Chase Securities Inc.
and Salomon Brothers Inc have advised the Company that, following completion of
the Exchange Offer, they presently intend to make a market in the New Notes.
However, Chase Securities Inc. and Salomon Brothers Inc are not obligated to do
so and any market-making activities with respect to the New Notes may be
discontinued at any time without notice. Chase Securities Inc. and Salomon
Brothers Inc may act as principal or agent in such transactions. There can be no
assurance that an active market for the New Notes will develop.
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The New Notes
Issuer..................... Grupo Iusacell, S.A. de C.V.
Securities Offered......... U.S.$150,000,000 principal amount of 10% Series B
Senior Notes due 2004 (the "New Notes").
Maturity................... July 15, 2004.
Interest Payment Dates..... Interest on the New Notes will be payable
semi-annually on each January 15 and July 15,
commencing January 15, 1998.
Sinking Fund............... None.
Subsidiary Guarantees...... The New Notes will be unconditionally guaranteed on
an unsecured, senior subordinated basis (the
"Subsidiary Guarantees") by the Company's existing
wholly owned subsidiaries, other than Ownership
Regulated Subsidiaries (as defined) and
subsidiaries owning less than U.S.$10,000 of
assets, and, in the future, by certain other
subsidiaries of the Company. See "Risk
Factors-Asset Encumbrance; Subordination of
Subsidiary Guarantees," "-Holding Company
Structure," "-Possible Limitations on
Enforceability of Guarantees" and "Description of
Notes-Subsidiary Guarantees."
Optional Redemption........ The New Notes will be redeemable at the option of
the Company, in whole or in part, at any time on or
after July 15, 2001, at the redemption prices set
forth herein, plus accrued interest, if any, to the
redemption date. In addition, at any time and from
time to time prior to July 15, 2000, the Company
may redeem in the aggregate up to 35% of the
original principal amount of the New Notes with the
proceeds of one or more Public Equity Offerings (as
defined) at a redemption price of 110% of the
principal amount to be redeemed, plus accrued
interest, if any, to the redemption date, provided
that at least 65% of the original aggregate
principal amount of the New Notes remains
outstanding after each such redemption. See
"Description of Notes-Optional Redemption."
Redemption for Tax Reasons. In the event that, as a result of certain changes
in Mexican law, the Company becomes obligated to
pay Additional Amounts (as defined) at a rate in
excess of 15% per annum imposed on interest
payments under the New Notes, then, at the
Company's option, the New Notes may be redeemed at
any time in whole, but not in part, at a price
equal to 100% of the outstanding principal amount
thereof, plus accrued interest, if any, to the
redemption date (together with Additional Amounts
payable in respect of such payment). See
"Description of Notes-Redemption for Tax Reasons."
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8
<PAGE>
- --------------------------------------------------------------------------------
Change of Control.......... Upon a Change of Control (as defined), holders of
the New Notes will have the right to require the
Company to repurchase all or any part of the New
Notes at a repurchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. The
Company may not have sufficient funds or the
financial resources necessary to satisfy its
obligations to repurchase the Notes and other
indebtedness that may become payable upon a Change
of Control. See "Description of Notes-Change of
Control."
Ranking.................... The New Notes will rank pari passu in right of
payment with all existing and future senior
unsecured obligations of the Company and will rank
senior in right of payment to all subordinated
indebtedness of the Company. However, the New Notes
and the Subsidiary Guarantees will be effectively
subordinated to any secured indebtedness of the
Company and its subsidiaries to the extent of the
value of the assets securing such secured
indebtedness. In addition, the Subsidiary
Guarantors will guarantee the Credit Facility, and
the Subsidiary Guarantees will be subordinated to
such guarantee obligations under the Credit
Facility, as well as certain other senior
indebtedness. The New Notes will be effectively
subordinated to obligations of subsidiaries of the
Company which are not Subsidiary Guarantors. The
Subsidiary Guarantees could also be effectively
subordinated to all of the obligations of the
Subsidiary Guarantors under certain circumstances.
As of March 31, 1997, after giving effect to the
Financing and the application of the proceeds
thereof, the Company and the Subsidiary Guarantors
would have had approximately Ps. 2,183.0 million
(U.S.$275.3 million) of senior indebtedness
outstanding, of which Ps. 991.3 million (U.S.$125.0
million) would have been secured indebtedness,
assuming no amounts would have been outstanding
under the U.S.$100.0 million senior secured
Revolving Credit Facility. As of March 31, 1997,
after giving effect to the Financing and the
application of the proceeds thereof, subsidiaries
of the Company which are not Subsidiary Guarantors
would have had total balance sheet liabilities
(including trade payables and accrued liabilities
but excluding intercompany payables) of
approximately Ps. 64.4 million (U.S.$8.1 million).
See "Risk Factors-Asset Encumbrance; Subordination
of Subsidiary Guarantees," "-Holding Company
Structure," "-Possible Limitations on
Enforceability of Guarantees" and "Description of
Notes-Ranking."
Additional Amounts......... Subject to certain exceptions, if Mexican taxes are
deducted or withheld from payments on the New
Notes, the Company will pay Additional Amounts to
the extent necessary so that, after such deduction
or withholding, the holders of the Notes receive
the stated amount due. See "Description of
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
Notes--Additional Amounts." Mexican withholding
taxes are expected to apply. See "Mexican
Taxation."
Certain Covenants.......... The Indenture contains limitations on, among other
things, (a) the ability of the Company and the
Restricted Subsidiaries to Incur additional
Indebtedness, (b) the making of Restricted
Payments, including Investments, by the Company and
the Restricted Subsidiaries, (c) payment
restrictions affecting Restricted Subsidiaries, (d)
Asset Dispositions, (e) transactions with
Affiliates, (f) the issuance and sale of Capital
Stock of Restricted Subsidiaries, (g) the creation
or existence of certain Liens, (h) limitations on
engaging in business other than Related Businesses,
(i) limitations on Sale/Leaseback Transactions and
(j) certain consolidations, mergers and transfers
of assets (as each such capitalized term is defined
in "Description of Notes"). Such covenants are
subject to significant exceptions. See "Description
of Notes--Certain Covenants."
Use of Proceeds............ There will be no proceeds to the Company from the
exchange of New Notes for Old Notes pursuant to the
Exchange Offer. See "Use of Proceeds."
Book-Entry Settlement;
Delivery and Form.......... The New Notes issued pursuant to the Exchange Offer
will be issued in global form (the "New Global
Note") and will be deposited with a custodian for,
and registered in the name of, The Depositary Trust
Company ("DTC") or its nominee. Interests in the
New Global Note will be shown on transfers thereof
will be effected only through, records maintained
by DTC (with respect to participants' interests)
and its direct and indirect participants, including
the Morgan Guaranty Trust Company of New York,
Brussels office as operator of the Euroclear System
(the "Euroclear System") and Cedel Bank, societe
anonyme ("Cedel"). Except in certain limited
circumstances, certificated Notes will not be
issued in exchange for beneficial interests in the
New Global Note. See "Book Entry; Delivery and
Form".
Listing.................... The New Notes will not be listed on any securities
exchange or quoted through NASDAQ.
Governing Law.............. The New Notes will be, and the Indenture is,
governed by, and construed in accordance with, the
law of the State of New York, United States of
America.
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10
<PAGE>
Recent Developments
The Company's revenues for the second quarter of 1997 were Ps. 428.5
million, a 12.6% increase over revenues for the first quarter of 1997. The
Company's EBITDA for the second quarter of 1997 (as defined in Note 5 under
"Selected Historical and Pro Forma Consolidated Financial and Operating Data")
was Ps. 70.3 million, a 3.6% decrease as compared to EBITDA for the first
quarter. As a percentage of revenues, EBITDA was 16.5% in the second quarter as
compared with 19% in the first quarter. EBITDA for the second quarter was 11%
lower than the pro forma first quarter EBITDA shown in the "Selected Historical
and Pro Forma Consolidated Financial and Operating Data." Net loss in the second
quarter, which amounted to Ps. 67.1 million, was more than double the net loss
in the first quarter. For purposes of the foregoing comparisons, first quarter
results have been restated to constant June 30, 1997 Pesos to reflect second
quarter inflation, which was approximately 2.8%.
The Company's total number of cellular subscribers increased by 12.4% in
the second quarter to 281,740, including 176,134 contract subscribers (an 8%
increase from March 31, 1997) and 105,606 prepay subscribers (a 20% increase
from March 31, 1997). Average monthly MOUs per subscriber were 106 in the second
quarter, as compared with 108 in the first quarter, while nominal average
monthly revenue per subscriber declined to Ps. 463 in the second quarter from
Ps. 469 in the first quarter. Contract churn declined from 3.1% in the first
quarter to 2.7% in the second quarter, and the monthly average of prepay
turnover decreased to approximately 16.9% through June 30, 1997.
The growth in second quarter total revenues was primarily generated by the
increase in the number of cellular subscribers, as well as a substantial
increase in telephone equipment sales and other revenue. Second quarter results
were adversely affected by substantial costs (approximately Ps. 8.2 million)
associated with leasing lines from Telmex in order to meet the Company's
obligations under its long distance concession, without a commensurate increase
in long distance subscribers and because of lower than expected long distance
revenues during the quarter. The Company expects such leased line costs to
continue, but is unable to predict when or whether it will be able to generate
sufficient long distance revenues to offset such costs. The Company capitalizes
the costs relating to the installation of such leased lines.
Although second quarter results benefitted from the incremental revenue
associated with the increase in the number of subscribers, such results were
adversely affected by a significant reduction in average monthly MOUs per prepay
subscriber, which the Company believes likely was in response to the price
increases announced in April and May 1997. Average MOUs per contract customer
have, however, remained relatively stable since the price increases were
implemented. The Company believes that second quarter results do not reflect the
anticipated benefits of the price increases because the price increases were not
fully implemented until June 1997 and because of the reduction in usage by
prepay customers. The Company cannot determine the extent to which its
subscribers have reduced usage in response to price increases.
The higher net loss in the second quarter was a result of the foregoing
factors and a significantly lower gain from monetary position due to the lower
level of inflation during the period.
On August 14, 1997 the Company and Telmex entered into a settlement
agreement with respect to the fees charged by Telmex to Iusacell through May 31,
1997 for interconnection services, switched long distance services and certain
other services billed by Telmex as of the date of the settlement agreement. The
Company paid Telmex Ps. 170.0 million (U.S.$21.8 million) of which Ps. 22.2
million (U.S.$2.8 million) constituted value-added tax and Ps. 28.6 million
(U.S.$3.7 million) were accounted for as interest expense.
In August 1997, the Company and Telmex also entered into amendments to the
current interconnection agreement pursuant to which Iusacell agreed to pay
Telmex an interim interconnection rate of Ps. 0.31 (U.S.$0.04) per minute
retroactive to June 1, 1997 (as opposed to the Ps. 0.45 (U.S.$0.056) per minute
rate previously charged by Telmex) and Telmex agreed to extend to the Company
the 38% discount available to other large business customers for use of its long
distance network. Iusacell and Telmex are currently negotiating the terms of an
entirely new interconnection agreement the terms of which will also be
retroactive to June 1, 1997. The Company anticipates that this new
interconnection agreement will implement an even lower interconnection rate and
will provide for some form of reciprocal payments by Telmex for interconnecting
with Iusacell's networks.
On September 30, 1997, the Company consummated the sale of its direct and
indirect minority interests in its Ecuadorean cellular company, Consorcio
Ecuatoriano de Telecommunicaciones S.A. ("Conecel"), and its Ecuadorean paging
company Corptilor, S.A. to a corporation controlled by the controlling
shareholder of the majority shareholder of these companies. At the closing,
Iusacell received U.S.$29.4 million in cash consideration for its direct
interests in these companies and anticipates receiving an additional U.S.$3.4
million in respect of its indirect interests by the end of 1997.
- --------------------------------------------------------------------------------
11
<PAGE>
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Summary Historical and Pro Forma Consolidated Financial and Operating Data
The following table sets forth summary historical financial and other data
of the Company for each of the five years ended December 31, 1996 and for the
three months ended March 31, 1996 and 1997, and certain pro forma financial and
other data for the year ended December 31, 1996 and the three months ended March
31, 1997.
The summary historical financial information as of and for the years ended
December 31, 1995 and 1996 and the summary historical financial information for
the year ended December 31, 1994, have been derived from the audited
consolidated financial statements of Iusacell and its subsidiaries and the
related notes thereto (the "Audited Consolidated Financial Statements"), which
have been audited by Coopers & Lybrand, Despacho Roberto Casas Alatriste,
independent accountants, and Mancera S.C., a member of Ernst & Young
International, independent accountants, respectively (except for two
subsidiaries, whose financial statements were reviewed by Coopers & Lybrand,
Despacho Roberto Casas Alatriste, independent accountants, and Prieto Ruiz de
Velasco y Cia., S.C., independent accountants, respectively), and are included
elsewhere herein. The summary historical financial information for the years
ended December 31, 1992 and 1993 is derived from the consolidated financial
statements of the Company, which have been audited by Mancera, S.C., a member of
Ernst & Young International, and are not included herein. The summary historical
financial information as of and for the three months ended March 31, 1996 and
1997 has been derived from the unaudited consolidated financial statements of
Iusacell and its subsidiaries and the related notes thereto (the "Unaudited
Consolidated Financial Statements," and, together with the Audited Consolidated
Financial Statements, the "Consolidated Financial Statements"), which have been
reviewed by Coopers & Lybrand, Despacho Roberto Casas Alatriste, independent
accountants, and are included elsewhere herein. Interim results for the three
months period ended March 31, 1997, are not necessarily indicative of results
that can be expected in future periods.
The pro forma financial data have been derived from the Unaudited Pro
Forma Consolidated Financial Information and the related notes thereto (the
"Unaudited Pro Forma Consolidated Financial Information"), which have been
reviewed by Coopers & Lybrand, Despacho Roberto Casas Alatriste, independent
accountants, and are included elsewhere herein. The pro forma information does
not purport to represent what the Company's results would have actually been if
the Financing and the cost savings resulting from the elimination in April 1997
of certain managerial and administrative positions had occurred on the dates
indicated nor does such information purport to project the results of the
Company for any future period.
The summary financial and other data below should be read in conjunction
with "Unaudited Pro Forma Consolidated Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements included elsewhere herein. Except as
otherwise indicated, all financial statements included herein have been prepared
in accordance with generally accepted accounting principles in Mexico ("Mexican
GAAP"), which differ in significant respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). See Note 19 to the Audited
Consolidated Financial Statements. In accordance with Mexican GAAP, the
financial statements included herein recognize certain effects of inflation and
restate data for prior periods in constant March 31, 1997 Pesos. See Notes 3 and
4 to the Audited Consolidated Financial Statements included elsewhere in this
Prospectus.
The unaudited consolidated financial information for the second quarter
ended June 30, 1997, presented under "Recent Developments" has been prepared in
accordance with Mexican GAAP. Significant differences between Mexican GAAP and
U.S. GAAP are described in Note 19 to the Audited Consolidated Financial
Statements included elsewhere herein. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-- General." For the six months
ended June 30, 1997 there were no additional differences which had not been
quantified with respect to their occurrence in the Audited Consolidated
Financial Statements as of December 31, 1994, 1995 and 1996.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
Summary Historical and Pro Forma Consolidated Financial and Operating Data
<TABLE>
<CAPTION>
Year Ended December 31,
Pro Forma Pro Forma
1992 1993 1994 1995 1996 1996(1) 1996 1996(1)
------- ------- ------- ------- ------- --------- ----------- --------
(Millions of constant March 31, 1997 Pesos, except ratios (Millions of U.S. dollars,
and operating data(2)) except ratios and
operating data(3))
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Service revenues .... Ps.1,158.7 Ps. 1,434.5 Ps. 2,003.2 Ps. 1,615.5 Ps. 1,464.0 Ps. 1,464.0 U.S.$ 184.6 U.S.$ 184.6
Telephone equipment
and other revenues .. 72.2 128.3 273.3 287.8 236.1 236.1 29.8 29.8
------- ------- ------- ------- ------- ------- ------- -------
Total ........... 1,230.9 1,562.8 2,276.5 1,903.3 1,700.1 1,700.1 214.4 214.4
Cost of sales .......... 304.7 466.5 716.5 752.0 668.4 668.4 84.3 84.3
Operating expenses ..... 469.3 628.1 969.1 840.7 736.5 693.7 92.9 87.5
Depreciation and
amortization ........ 124.3 241.8 583.2 669.7 604.6 614.8 76.2 77.5
------- ------- ------- ------- ------- ------- ------- -------
Operating profit (loss) 332.6 226.4 7.7 (359.1) (309.4) (276.8) (39.0) (34.9)
Integral financing cost
(gain)(4) ........... 128.6 426.3 678.7 376.9 (129.3) (210.5) (16.3) (26.5)
Net income (loss) ...... Ps. 200.9 Ps. (205.0) Ps. (701.1) Ps. (769.2) Ps. (363.3) Ps. (249.5) U.S.$(45.8) U.S.$(31.5
Other Financial Data:
EBITDA(5) .............. Ps. 457.0 Ps. 468.1 Ps. 590.9 Ps. 310.6 Ps. 295.2 Ps. 338.0 U.S.$ 37.2 U.S.$ 42.6
EBITDA margin(6) ....... 37.1% 30.0% 26.0% 16.3% 17.4% 19.9% 17.4% 19.9%
Capital expenditures ... Ps. 740.0 Ps. 670.3 Ps. 1,229.9 Ps. 471.3 Ps. 211.2 NA U.S.$ 26.6 NA
Interest expense, net .. 175.5 295.5 204.0 173.3 281.1 194.3 35.4 24.5
Ratio of EBITDA to
interest expense, net 2.6x 1.6x 2.9x 1.8x 1.1x 1.7x 1.1x 1.7x
U.S. GAAP (13):
Total revenues ......... 2,276.5 1,903.3 1,793.3 1,793.3 226.1 226.1
Operating profit (loss). 7.7 (359.1) (636.4) (603.8) (80.3) (76.1)
Adjusted EBITDA (6) .... 590.9 310.6 266.9 309.7 33.6 39.0
Net loss ............... (685.1) (363.2) (141.7) (28.0) (17.8) (3.5)
Total assets ........... 7,888.6 7,933.9 6,623.2 NA 835.2 NA
Total stockholders'
equity .............. 5,433.5 3,711.2 3,012.5 NA 379.9 NA
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating Data:
Subscribers:
Contract subscribers 114,838 127,361 194,723 208,802 161,277
Prepay subscribers .. -- -- -- 1,399 71,629
------- ------- ------- ------- -------
Total(7) ........ 114,838 127,361 194,723 210,201 232,906
Gross subscriber
additions .............. 86,295 68,551 117,539 103,733 119,968
Average subscribers(8) . 89,930 121,100 161,042 202,462 221,554
Contract churn(9) ...... 3.0% 3.7% 2.7% 3.6% 4.3%
Average monthly MOUs
per subscriber(10) .. 237 211 179 140 117
Nominal average
monthly cellular revenue
per subscriber(11) ..... Ps. 736 Ps. 638 Ps. 595 Ps. 464 Ps. 490
Nominal cost to acquire
a new subscriber(12) ... Ps. 3,738 Ps. 5,808 Ps. 5,717 Ps. 6,143 Ps. 6,076
</TABLE>
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13
<PAGE>
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Summary Historical and Pro Forma Consolidated Financial and Operating Data
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------------
Pro Forma Pro Forma
1996 1997 1997(1) 1997 1997(1)
------- ------- --------- ------- ---------
(Millions of constant March 31, 1997 Pesos, (Millions of U.S. dollars,
except ratios and operating data(2)) except ratios and
operating data(3))
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Service revenues .......................................... Ps. 398.6 Ps. 318.8 Ps. 318.8 U.S.$ 40.2 U.S.$ 40.2
Telephone equipment and other revenues .................... 53.9 51.5 51.5 6.5 6.5
------- ------- ------- ------- -------
Total ................................................. 452.5 370.3 370.3 46.7 46.7
Cost of sales ................................................ 151.4 131.9 131.9 16.6 16.6
Operating expenses ........................................... 176.8 167.3 157.0 21.1 19.8
Depreciation and amortization ................................ 157.9 132.9 135.4 16.8 17.1
------- ------- ------- ------- -------
Operating profit (loss) ...................................... (33.6) (61.8) (54.1) (7.8) (6.8)
Integral financing cost (gain)(4) ............................ (143.9) (39.9) (44.9) (5.0) (5.7)
Net income (loss) ............................................ Ps. 105.9 Ps. (32.2) Ps. (19.5) U.S.$ (4.1) U.S.$ (2.5)
Other Financial Data:
EBITDA(5) .................................................... Ps. 124.3 Ps. 71.1 Ps. 81.4 U.S.$ 9.0 U.S.$ 10.3
EBITDA margin(6) ............................................. 27.5% 19.2% 22.0% 19.2% 22.0%
Capital expenditures ......................................... Ps. 13.2 Ps. 31.6 NA U.S.$ 4.0 NA
Interest expense, net ........................................ 73.0 54.8 44.8 6.9 5.6
Ratio of EBITDA to interest expense, net ..................... 1.7x 1.3x 1.8x 1.3x 1.8x
Balance Sheet Data:
Working capital ..............................................Ps. (1,348.3) Ps. (1,232.2) Ps. 373.1 U.S.$ (155.4) U.S.$ 47.0
Property and equipment, net .................................. 3,912.6 3,353.4 3,353.4 422.9 422.9
Total assets ................................................. 6,782.0 6,018.9 6,744.7 759.0 850.5
Total debt ................................................... 1,668.5 1,457.0 2,183.0 183.8 275.3
Total stockholders' equity ................................... 4,103.8 3,838.2 3,838.2 484.0 484.0
</TABLE>
Three Months Ended
March 31,
1996 1997
--------- ---------
Operating Data:
Subscribers:
Contract subscribers ..................... 208,714 162,855
Prepay subscribers ....................... 2,163 87,872
--------- ---------
Total(7) ............................. 210,877 250,727
Gross subscriber additions .................. 20,354 32,951
Average subscribers(8) ...................... 210,539 241,817
Contract churn(9) ........................... 3.9% 3.1%
Average monthly MOUs per subscriber(10) ..... 126 108
Nominal average monthly cellular revenue per
subscriber(11) .............................. Ps. 516 Ps. 469
Nominal cost to acquire a new subscriber(12) Ps. 6,899 Ps. 5,057
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14
<PAGE>
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Notes to Summary Historical and Pro Forma Consolidated
Financial and Operating Data
(1) The pro forma statement of operations data for the year ended December 31,
1996 and the three months ended March 31, 1997 give effect to the
Financing as well as to cost savings resulting from the elimination in
April 1997 of certain managerial and administrative positions, as though
they had occurred as of January 1, 1996. The pro forma balance sheet data
as of March 31, 1997 give effect to the Financing as though it had
occurred as of March 31, 1997. See "Unaudited Pro Forma Consolidated
Financial Information."
(2) Pursuant to Mexican GAAP, financial data for all periods included herein
have, unless otherwise indicated elsewhere herein, been restated in
constant March 31, 1997 Pesos. Restatement into constant March 31, 1997
Pesos is made by multiplying the relevant nominal Peso amount by the
inflation index for the period between the end of the period to which such
nominal Peso amount relates and March 31, 1997. The inflation index used
in this Prospectus for 1992 figures is 2.3754, for 1993 figures is 2.1993,
for 1994 figures is 2.0544, for 1995 figures is 1.3519, for December 31,
1996 figures is 1.0586 and for March 31, 1996 figures is 1.2477.
(3) Peso amounts were converted to U.S. dollars at the exchange rate of
Ps.7.9300 per U.S.$1.00 reported as the Noon Buying Rate on March 31,
1997. Such conversions should not be construed as representations that the
Peso amounts actually represent such U.S. dollar amounts or could be
converted into U.S. dollars at the rate indicated, or at all. See "Risk
Factors-Peso Devaluation; Exchange Controls."
(4) Integral financing cost (gain) consists of net interest expense, foreign
exchange losses or gains and gains or losses on net monetary position.
(5) "EBITDA" is defined herein as operating profit (loss) plus the sum of
depreciation, amortization and, under U.S. GAAP, non-cash items, and is
presented because the Company believes that EBITDA provides useful
information regarding the Company's debt service ability. EBITDA as
presented in this Prospectus (under both Mexican GAAP and U.S. GAAP)
differs from EBITDA as defined in the Indenture. EBITDA in this Prospectus
has not been reduced to reflect the additional expenses the Company would
have incurred had Iusacell expensed, rather than, as is its current
practice under Mexican GAAP and as is permitted under U.S. GAAP, amortized
(over 18 months) the cost of cellular telephones Iusacell gives to its
contract customers. These additional expenses will be deducted from the
determination of EBITDA under the Indenture. EBITDA under U.S. GAAP would
be decreased by the amount of capitalized pre-operating expenses (net of
capitalized pre-operating revenues) for Iusacell's 450 MHz local wireless
subsidiary which, beginning in 1996, are expensed. Under Mexican GAAP,
these net pre-operating expenses are capitalized. Adjusted EBITDA under
U.S. GAAP in this Prospectus is "adjusted" from EBITDA under U.S. GAAP by
not expensing these pre-operating amounts, which adjustment is consistent
with EBITDA under the Indenture as the Company's 450 MHz local wireless
subsidiary will be an Unrestricted Subsidiary (as defined) under the
Indenture. For the year ended December 31, 1996, Adjusted EBITDA under
U.S. GAAP is different from EBITDA under Mexican GAAP in that the amount
of a reserve for employee severance is expensed under U.S. GAAP (with a
corresponding decrease in Adjusted EBITDA), while such reserve amount is
considered an extraordinary item under Mexican GAAP (with no effect on
EBITDA). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 19 to the Audited Consolidated
Financial Statements. EBITDA should not be considered in isolation or as a
substitute for the consolidated income statements or the consolidated
statements of changes in financial position prepared in accordance with
Mexican GAAP or as a measure of profitability or liquidity.
(6) EBITDA margin is calculated by dividing EBITDA by total revenues for the
respective period.
(7) Total subscribers refers to the Company's subscribers in its operating
regions at the end of the respective periods. A prepay customer is
included as a subscriber if, at the end of a period, the customer's prepay
card has not yet expired. See "Business-Cellular Services-Prepay
Turnover."
(8) Average subscribers represents the rolling monthly average number of
subscribers for each of the respective periods.
(9) Contract churn for a given period is calculated by dividing, for each
month in that period, the total number of contract subscribers
disconnected in such month by the number of contract subscribers at the
beginning of such month and dividing the sum of the resulting quotients
for all months in such period by the number of months in such period. For
a discussion of prepay turnover, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Increase in Prepay
Subscribers Base."
(10) Average monthly MOUs per subscriber is calculated by dividing the total
MOUs for the respective period by the average number of subscribers for
such period and dividing the resulting quotient by the number of months in
such period.
(11) Nominal average monthly cellular revenue per subscriber is calculated by
dividing the total cellular service revenue for the respective period (in
nominal Pesos) by the average number of subscribers for such period and
dividing the resulting quotient by the number of months in such period.
(12) Nominal cost to acquire a new subscriber represents sales, marketing and
advertising costs, plus the costs of cellular phones Iusacell gives to its
contract customers, for the respective period (in nominal Pesos) divided
by the gross customer additions for such period.
(13) See Note 19 to the Audited Consolidated Financial Statements for a
discussion of certain differences between U.S. GAAP and Mexican GAAP.
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15
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RISK FACTORS
Purchasers of the New Notes offered hereby should carefully consider the
following risk factors, as well as other information set forth in this
Prospectus, prior to making an investment in the New Notes. To the extent it
relates to the Mexican government or Mexican macroeconomic data, the following
information has been extracted from official publications of the Mexican
government and has not been independently verified.
Recent Negative Operating Results
The Company has experienced net losses for each of the four years in the
period ended December 31, 1996 and for the six months ended June 30, 1997. See
"Summary-Recent Developments." For the year ended December 31, 1996 and for the
three months ended March 31, 1997, the Company's earnings were insufficient to
cover its fixed charges by Ps. 320.7 million (U.S.$40.4 million) and Ps. 36.7
million (U.S.$4.6 million), respectively. After giving pro forma effect to the
Financing and the application of the net proceeds thereof as if it had occurred
on January 1, 1996, the Company's earnings would have been insufficient to cover
its fixed charges by Ps. 211.6 million (U.S.$26.7 million) for the year ended
December 31, 1996 and by Ps. 25.1 million (U.S.$3.2 million) for the three
months ended March 31, 1997. The Company's revenues declined by 16.4% and 10.7%
in 1995 and 1996, respectively, and EBITDA declined by 47.4% and 5.0% in such
years. The Company's revenues and EBITDA declined by 18.2% and 42.8%,
respectively, in the first quarter of 1997 from the first quarter of 1996. The
Company also experienced a 22.8% reduction in the number of its contract
customers during 1996 (contract customers increased by less than 1% during the
first quarter of 1997). There can be no assurance that the Company will be able
to reverse these trends in the near future or that, if the Company were unable
to do so, such continuing losses and declines would not affect the Company's
ability to service the Notes or to access credit or refinance its indebtedness,
including the Notes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." EBITDA is used in this paragraph as
defined in Note 5 to "Summary-Summary Historical and Pro Forma Consolidated
Financial and Operating Data."
Mexican Governmental, Political, Economic and Social Factors
The Company is a Mexican corporation with substantially all of its
operations situated in Mexico, and approximately 99.5% of its revenues in 1996
resulted from sales generated within Mexico. Accordingly, the economic
environment within Mexico, which is significantly affected by actions taken by
the Mexican government, can be expected to have a significant impact on the
Company's business, financial condition and results of operations and on the
Company's ability to meet its obligations under the Notes.
Beginning in December 1994, Mexico experienced an economic crisis
characterized by exchange rate instability, high inflation, high domestic
interest rates, negative economic growth and reduced consumer purchasing power.
The Noon Buying Rate rose from Ps. 3.4662 per U.S.$1.00 on December 19, 1994 to
Ps. 5.000 per U.S.$1.00 on December 31, 1994, Ps. 7.7400 per U.S.$1.00 on
December 31, 1995, Ps. 7.8810 per U.S.$1.00 on December 31, 1996 and Ps. 7.8870
per U.S.$1.00 on July 15, 1997. See "-Peso Devaluation; Exchange Controls."
Mexican GDP declined by 6.2% in 1995, grew by 5.1% during 1996 and grew at an
annualized rate of 5.1% in the first quarter of 1997. The annual rate of
inflation, as measured by changes in the Mexican National Consumer Price Index
(Indice Nacional de Precios al Consumidor or the "INPC"), was 52.0% and 27.7% in
1995 and 1996, respectively, after having been only 7.1% in 1994. For the first
quarter of 1997, the non-annualized inflation rate was 5.9%. Concerns over the
Mexican economy also led to sharply higher interest rates in 1995 and 1996, both
domestically and externally, on Mexican public and private sector debt and to
sharply reduced opportunities for refinancing or refunding maturing debt issues
(including the Company's indebtedness). Mexican interest rates, which had
reached a low of 8.8% per annum for 28-day Cetes (Mexican treasury bills) in
February 1994, rose through most of 1994 and increased substantially in 1995,
when interest rates on 28-day Cetes averaged 48.3%. Interest rates on 28-day
Cetes averaged 31.3% in 1996. On September 30, 1997, the interest rate on 28-day
Cetes was 16.65%. In response to the economic situation, the Mexican government
entered into an international economic recovery package and announced a series
of measures which initially limited and may in the future limit the growth of
the Mexican economy.
These economic conditions substantially reduced the purchasing power of
the Mexican population and, as a consequence, had a material adverse effect on
the Company's 1995 and 1996 financial condition and results of operations. In
1996, the Company experienced a 22.8% reduction in the number of its contract
customers. In response to this trend
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and to meet the needs of its existing customers, the Company began to offer
prepay cards in June 1996. Prepay card subscribers now represent approximately
35% of the Company's total number of subscribers. Prepay customers generate
substantially lower average monthly revenues and minutes of use, and have
substantially higher turnover rates, than contract customers. In addition, the
shorter duration of a prepay customer's commitment (currently up to 60 days) as
compared to a contract customer's commitment (on average 18 months), could cause
the Company's prepay subscriber base to be adversely affected more quickly and
substantially than its contract subscriber base in the event of future negative
economic developments. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Increase in Prepay Subscriber Base."
Due to market and economic conditions, the Company was unable to increase
its rates sufficiently in 1995, 1996 and the first quarter of 1997 to keep pace
with inflation and may not be able to do so in the future. While the Mexican
economy has begun to recover, such recovery has not yet resulted, and may not
result, in a significant improvement in consumer purchasing power, which
continues to adversely affect the Company. There can be no assurance that the
economic recovery will continue or that the economy will return to the growth
levels existing prior to the crisis. There is a risk that any political,
economic or social responses to the economic situation, over which the Company
has no control (and which could include, among other things, social unrest and
labor disruptions), may impair the Company's business, financial condition and
results of operations and adversely affect the Company's ability to access
credit, refinance its existing indebtedness and meet its obligations under the
Notes.
On July 6, 1997, Mexico held elections for, among other offices, all
members of the Mexican Chamber of Deputies, 32 members of the Mexican Chamber of
Senators and the mayor of Mexico City. As a result of these elections, for the
first time in seven decades, the Partido Revolucionario Institucional will not
hold a majority of the seats in the Mexican Chamber of Deputies or the office of
mayor of Mexico City. Iusacell cannot predict the impact these elections will
have on Mexican economic, regulatory and social policy or the consequences
thereof on the business, financial condition and results of operations of the
Company.
Peso Devaluation; Exchange Controls
While the Company's sales are almost entirely denominated in Pesos, the
vast majority of its obligations are denominated in U.S. dollars, and the
Company is therefore exposed to Peso devaluation risk. The Peso has been subject
to substantial devaluation against the U.S. dollar in the past, particularly
since December 1994, and may be subject to further significant devaluation in
the future. The Company does not currently have in place and does not intend to
enter into hedging transactions with respect to this risk. Therefore, further
declines in the value of the Peso relative to the U.S. dollar could adversely
affect the Company's ability to meet its obligations under the Notes, the Credit
Facility and other U.S. dollar-denominated obligations.
The Mexican economy has experienced balance of payment deficits and
shortages in foreign exchange reserves. While the Mexican government does not
currently restrict the ability of Mexican or foreign persons or entities to
convert Pesos to foreign currencies generally, and U.S. dollars in particular,
it has done so in the past and no assurance can be given that the Mexican
government will not institute a restrictive exchange control policy in the
future. Any such restrictive exchange control policy could prevent or restrict
the Company's access to U.S. dollars to meet its U.S. dollar obligations under
the Notes and could also have a material adverse effect on the Company's
business, financial condition and results of operations. The impact of any such
measures adopted by the Mexican government on the Mexican economy cannot be
accurately predicted. See "Exchange Rates."
Substantial Leverage; Ability to Service Debt
As of March 31, 1997, the Company's total consolidated indebtedness, as
adjusted to give effect to the Financing and the application of the proceeds
thereof, would have been Ps. 2,183.0 million (U.S.$275.3 million), or
approximately 36.3% of its total capitalization, assuming no amounts would have
been outstanding under the U.S.$100.0 million Revolving Credit Facility.
Historically, the Company's cash generated from operating activities has not
been sufficient to meet its debt service, working capital and capital
expenditure requirements, and the Company has relied on additional borrowings
and capital contributions to meet such funding needs. The degree to which the
Company is leveraged and the covenants set forth in the Indenture and the Credit
Facility may adversely affect the Company's ability to finance its future
operations, to compete effectively against better capitalized competitors and to
withstand downturns in its business or the
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economy generally, and could limit its ability to pursue business opportunities
that may be in the interests of the Company and its securityholders. See
"-Capital Requirements," "Capitalization," "Description of Credit Facility" and
"Description of Notes-Certain Covenants."
Asset Encumbrance; Subordination of Subsidiary Guarantees
Although the New Notes will be senior obligations of the Company ranking
pari passu in right of payment with all other existing and future senior
obligations of the Company, like the Old Notes, the New Notes will not be
secured by any of the Company's assets. The Company's obligations under the
Credit Facility will be secured by a pledge of all capital stock held by the
Company and the Subsidiary Guarantors and, subject to applicable regulations and
approvals, by security interests in all cellular concessions held by the Company
and its subsidiaries and all assets used in or arising out of the commercial
operation of such concessions. Accordingly, if an event of default occurs under
the Credit Facility, the lenders under the Credit Facility will have a prior
right to substantially all of the assets of the Company and the Subsidiary
Guarantors, and may foreclose upon such assets to the exclusion of the holders
of the Notes, notwithstanding the existence of an event of default under the
Indenture. In such event, the assets of the Company and the Subsidiary
Guarantors securing the Credit Facility would first be used to repay in full
amounts outstanding under the Credit Facility, resulting in all or a portion of
such assets being unavailable to satisfy the claims of holders of the Notes and
other unsecured indebtedness. In addition, the Indenture permits the Company and
the Restricted Subsidiaries to incur certain other secured indebtedness. Under
certain circumstances, after the closing of the Financing, the aggregate amount
available under the Credit Facility may be increased by up to U.S.$100.0
million. If an event of default occurs under any such permitted secured
indebtedness, the lenders thereunder will have a prior right to the assets of
the Company and the Subsidiary Guarantors securing such indebtedness. In the
event of a foreclosure by such lenders, there can be no assurance that there
will be sufficient assets to pay any amounts due on the Notes.
The Indebtedness evidenced by the Subsidiary Guarantees of the New Notes,
like the Old Notes, will be subordinated to the prior payment in full of all
Indebtedness of the Company outstanding under the Credit Facility as well as to
certain refinancing indebtedness with respect thereto. By reason of such
subordination, in the event of an insolvency, liquidation or other statutory
reorganization of the Company, the lenders under the Credit Facility, or any
such refinancing indebtedness, must be paid in full before the holders of the
Notes may be paid pursuant to the Subsidiary Guarantees; consequently, there may
be insufficient assets remaining after payment of claims of such lenders to pay
amounts due on the Notes. In addition, under certain circumstances, no payments
to holders of Notes may be made pursuant to the Subsidiary Guarantees if a
default exists under the Credit Facility. Furthermore, the guarantees of the
Credit Facility by the Subsidiary Guarantors will be secured by security
interests in substantially all of the assets of the Subsidiary Guarantors and,
along with other secured indebtedness of the Subsidiary Guarantors, will
effectively rank senior to the Company and the Subsidiary Guarantees, which are
unsecured. On March 31, 1997, after giving effect to the Financing and the
application of the proceeds thereof, the aggregate amount of such secured
indebtedness of the Company and the Subsidiary Guarantors would have been
approximately Ps. 991.3 million (U.S.$125.0 million), assuming no amounts are
outstanding under the U.S.$100.0 million Revolving Credit Facility. See
"Description of Credit Facility" and "Description of Notes-Ranking" and
"-Subsidiary Guarantees."
Holding Company Structure
The Company's operations are conducted through its direct and indirect
subsidiaries. As a holding company, the Company has no independent operations
and, therefore, is dependent on the cash flows of its subsidiaries and other
entities to meet its own obligations, including the payment of principal of and
interest on the Notes. There can be no assurance that the Company will obtain
sufficient funds from its subsidiaries in order to make payments on its
indebtedness, including the Notes.
Because certain of the Company's subsidiaries do not guarantee the payment
of the Notes, the claims of holders of the Notes will be effectively
subordinated to the claims of creditors of such subsidiaries. The Company's
paging, long distance, 450 MHz local wireless and microwave subsidiaries will
not be Subsidiary Guarantors until such time as applicable law or regulation
shall no longer prohibit the Company from owning a majority of the voting stock
thereof, supermajority shareholder approval shall not be required for such
subsidiary to make guarantees and such subsidiaries are otherwise Restricted
Subsidiaries, which designation is in the discretion of the Company (see
"-Potential Lack of Control Over Certain Subsidiaries"). The Company's local 450
MHz wireless subsidiary will be designated as an Unrestricted
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Subsidiary. The Company's other non-wholly owned subsidiaries (as well as
subsidiaries owning assets having a fair market value of less than U.S.$10,000)
also will not be Subsidiary Guarantors. As of March 31, 1997, the total balance
sheet liabilities of the Company's subsidiaries which are not Subsidiary
Guarantors (including trade payables and accrued liabilities but excluding
intercompany payables) were Ps. 64.4 million (U.S.$8.1 million). These
subsidiaries may have other liabilities, including contingent liabilities, which
could be substantial. In addition, if the Subsidiary Guarantees were held to be
invalid for any reason, trade creditors and holders of indebtedness of the
Subsidiary Guarantors would generally have priority as to the assets of the
Subsidiary Guarantors over claims of the Company and the holders of the
Company's indebtedness, including the Notes. In this case, claims of holders of
the Notes would also be effectively subordinated to claims of creditors of the
Subsidiary Guarantors. As of March 31, 1997, the total balance sheet liabilities
of all the Company's subsidiaries (including trade payables and accrued
liabilities but excluding intercompany payables) were Ps. 677.2 million
(U.S.$85.4 million). See "-Possible Limitations on Enforceability of
Guarantees," "Description of Notes-Ranking," "-Subsidiary Guarantees" and Note
20 to the Audited Consolidated Financial Statements.
Mexican corporations may only pay dividends out of net income after
approval by shareholders of the financial statements reflecting such net income
and the payment of such dividends and after all prior losses have been
recovered. In addition, payments of dividends by a Mexican company are subject
to corporate taxes at the prevailing 34% rate unless made out of taxed retained
earnings. Such provisions of Mexican law could reduce dividends received by the
Company from its subsidiaries.
Possible Limitations on Enforceability of Guarantees
The Subsidiary Guarantees provide a basis for a direct claim against the
Subsidiary Guarantors; however, it is possible that the Subsidiary Guarantees
may not be enforceable. The Company has been advised by its Mexican counsel, De
Ovando y Martinez del Campo, S.C., that the laws of Mexico do not prevent the
Subsidiary Guarantees from being valid, binding and enforceable against the
Subsidiary Guarantors in accordance with their terms, provided they are in
compliance with certain requirements under Mexican law. The Company has been
advised by Rogers & Wells, United States counsel for Iusacell, that the
obligation of each Subsidiary Guarantor may be subject to review under U.S.
state or federal fraudulent transfer laws. Under such laws, if a court in a
lawsuit by an unpaid creditor or representative of creditors of a subsidiary of
the Company, such as a trustee in bankruptcy or such Subsidiary Guarantor as
debtor-in-possession, were to find that at the time such obligation was
incurred, such Subsidiary Guarantor, among other things, (a) did not receive
fair consideration or reasonably equivalent value therefor and (b) (i) was
insolvent, (ii) was rendered insolvent, (iii) was engaged in a business or
transaction for which its remaining unencumbered assets constituted unreasonably
small capital or (iv) intended to incur or believed that it would incur debts
beyond its ability to pay such debts as they matured, such court could avoid
such Subsidiary Guarantor's obligation and direct the return of any payments
made thereunder to such Subsidiary Guarantor or to a fund for the benefit of its
creditors. Moreover, regardless of the factors identified in the foregoing
clauses (i) through (iv), such court could avoid such obligation and direct such
repayment if it found that the obligation was incurred with an intent to hinder,
delay or defraud such Subsidiary Guarantor's creditors.
Under Mexican law there are provisions that affect or may affect
creditors' rights generally or the rights of certain creditors in particular.
Those provisions include, among other things, (i) a creditor's right to request
the nullity of action taken by a debtor to the prejudice of such creditor and
(ii) priority given to preferred creditors, pursuant to which labor claims,
claims of tax authorities for unpaid taxes and claims of secured creditors or
creditors with a special privilege under law will have priority over claims of
unsecured creditors.
The measure of insolvency for purposes of the foregoing will vary
depending upon the law of the jurisdiction being applied. Generally, however, an
entity would be considered insolvent if the sum of its debts is greater than all
of its property (including collection rights) at a fair valuation or if the
present fair salable value of its assets is less than the amount that will be
required to pay its probable liability on its existing debts as they become
absolute and matured.
Furthermore, the Subsidiary Guarantors may be or become subject to
contractual restrictions on their ability to make payments on the Subsidiary
Guarantees. If a Subsidiary Guarantor is sold, merged or consolidated in a
transaction in which it is not the surviving entity, such Subsidiary Guarantor
will be released from all obligations under its Subsidiary Guarantee so long as
the proceeds from such transaction are applied as described under "Description
of Notes-Certain
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Covenants-Limitation on Sale of Assets and Subsidiary Stock." See "-Asset
Encumbrance; Subordination of Subsidiary Guarantees."
If the Subsidiary Guarantees were not enforceable, the Notes would
effectively be subordinated to all liabilities, including trade payables and
accrued liabilities, of the Subsidiary Guarantors. On March 31, 1997, after
giving effect to the Financing and the application of the proceeds thereof, the
Subsidiary Guarantors had total balance sheet liabilities of approximately Ps.
376.2 million (U.S.$47.4 million), in addition to their guarantee obligations
under the Credit Facility. Additionally, the Subsidiary Guarantors have other
liabilities, including contingent liabilities, which may be substantial. See
"Description of Notes-Subsidiary Guarantees."
Potential Lack of Control Over Certain Subsidiaries
Mexican telecommunications and foreign investment laws limit foreign
ownership of companies holding concessions to provide telecommunications
services other than cellular service, including local telephony and domestic and
international long distance, to not more than 49% of the voting capital stock
thereof. Certain telecommunications concessions, including nearly all paging
concessions, also explicitly restrict foreign ownership to the aforementioned
percentage. These laws and concessions also generally prohibit foreign control
over such companies by other means.
In February 1997, Mexico's Comision Nacional de Inversiones Extranjeras
(the "Mexican Foreign Investment Commission") conditioned its approval of Bell
Atlantic assuming management control over the Company and its subsidiaries upon
the requirement that, within a renewable period of 180 days, Iusacell transfer
at least 51% of the voting shares of the Company's subsidiaries providing long
distance (Iusatel, S.A. de C.V.) and local wireless services
(Iusatelecomunicaciones, S.A. de C.V.) to Mexican nationals on terms acceptable
to the Mexican Foreign Investment Commission. Iusacell intends to comply with
this condition by transferring 51% of the voting shares of these subsidiaries to
Mexican nationals while retaining a larger equity interest through the ownership
of "neutral" limited-voting stock (inversion neutra). See "Business-Government
Regulation-Foreign Ownership Restrictions." Although Iusacell has commenced
negotiations with Mexican nationals for this purpose, Iusacell cannot anticipate
whether it will be able to negotiate a definitive transfer agreement with any
such Mexican nationals, what the terms of any such definitive transfer agreement
will be or whether such terms will be acceptable to the Mexican Foreign
Investment Commission or whether any such transfer will be consummated. Iusacell
expects that it will retain rights relating to the management and operations of
such subsidiaries commensurate with the magnitude of its interests therein.
However, there can be no assurance that the Company will be able to obtain such
rights with respect to the management and operations of such subsidiaries or
access its proportionate share of their cash flow.
Pursuant to a joint venture with Infomin, S.A. de C.V. ("Infomin"), a
Mexican corporation, the Company holds a 51% interest in Infotelecom, S.A. de
C.V. ("Infotelecom"), an entity which engages in the commercialization and
provision of paging services. Infomin holds a concession to provide national
paging services. Although the joint venture agreement between Iusacell and
Infomin contemplates that Infomin will ultimately transfer its paging concession
to Infotelecom, Infomin's paging concession prohibits foreign ownership of more
than 49% of the voting shares of the entity holding the concession. As a result,
the transfer of Infomin's paging concession to Infotelecom cannot be effected so
long as Bell Atlantic continues to control the management of Iusacell and the
Company continues to hold more than 49% of the voting shares of Infotelecom. The
Company's paging services are currently provided only through Infotelecom. See
"Business-Other Services-Paging."
Because of the above described foreign ownership restrictions, the
Company's paging, long distance, 450 MHz local telephony and microwave
subsidiaries will not be Subsidiary Guarantors. To the extent other subsidiaries
of the Company are subject to similar restrictions (such as in the case of PCS
concession holders), such other subsidiaries also will not be Subsidiary
Guarantors. See "-Holding Company Structure."
Potential Inability to Fund a Change of Control Offer or Acceleration of Notes
Upon the occurrence of a Change of Control (as defined under "Description
of Notes--Change of Control"), the Company will be required to offer to
repurchase all outstanding Notes at 101% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase. The occurrence of certain
of the events that would constitute a Change of Control could constitute a
default under existing and future indebtedness of the Company, which could
result
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in such indebtedness becoming due and payable. In addition, upon the occurrence
of an Event of Default (as defined under "Description of Notes--Events of
Default") (including a cross-default to other indebtedness for borrowed money)
the maturity of the Notes may be accelerated. The source of funds for any
repurchase of the Notes or acceleration and any such other payments will be the
Company's available cash, cash generated from operations or other sources,
including additional capital raised from a new controlling person or otherwise.
However, there can be no assurance that the Company will have sufficient funds
to purchase all the Notes that might be delivered by holders thereof seeking to
accept the offer to purchase or upon acceleration. See "Description of
Notes--Change of Control".
Increased Competition; Disputes with Telmex
The Company faces significant competition from Telcel in providing
cellular services in each region in which the Company operates. As a subsidiary
of Telmex, Telcel has significantly greater financial and other resources than
those available to the Company. Telcel operates a nationwide cellular network
under concessions from the Mexican government and has only one competitor in
each region in which it operates. This nationwide network and concession,
together with Telcel's relationship with Telmex, its established customer base
and its ability to use Telmex's installed telecommunications systems give it a
substantial competitive advantage over the Company. In addition, the Company
believes that Telcel may benefit from unlawful cross-subsidies by Telmex, which
allow Telcel to charge rates below cost for cellular services. Competition is
substantial and the Company bears significant promotional expenses, including
the provision of cellular telephones to contract subscribers free of charge or
at a substantial discount. Competitive conditions also contributed in 1996 and
the first quarter of 1997 to a substantial increase in prepay customers, who
generate significantly lower average monthly cellular revenues and MOUs than
contract subscribers, and substantially higher turnover relative to contract
churn. In addition, the shorter duration of a prepay customer's commitment
(currently up to 60 days) as compared to a contract customer's commitment (on
average 18 months), could cause the Company's prepay subscriber base to be
adversely affected more quickly and substantially than its contract subscriber
base by negative competitive developments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Increase in Prepay
Subscriber Base" and "Business-Competition." There can be no assurance that the
Company will be able to compete effectively against Telcel.
The Company expects to face increased competition from other companies
providing comparable services utilizing emerging technologies which may be
introduced in the future, including enhanced specialized mobile radio, PCS and
satellite telephone. PCS and certain local telephony bandwidth auctions are
scheduled by the Mexican government for the fall of 1997 and are expected to
result in increased price competition. In addition, the Company's concessions do
not prevent the Mexican government from licensing other companies to provide
similar services in the regions now served by the Company. As the Company
expands its local telephony services it will increasingly face competition from
Telmex and other companies seeking to provide local services. See "-Mexican
Government Regulation" and "Business-Competition."
The Company also competes with Telmex and other companies for long
distance customers. Telmex's existing, nationwide customer base and installed
landline network give it a substantial competitive advantage over the Company.
The SCT has granted long distance concessions to nine other companies, including
joint ventures in which major international telecommunications companies such as
AT&T and MCI have significant ownership interests, and more concessions may
still be granted. Presubscription balloting is currently taking place in certain
cities, whereby telephone customers choose their long distance carrier. The
Company has chosen not to commit significant marketing resources to the
balloting process and has fared poorly in initial balloting results.
In data transmission services, the Company competes with Telmex and
Telecomm, S.A., the Mexican state entity, which operates in, and participates in
the regulation of, the Mexican data transmission industry, as well as with over
1,000 private networks.
In paging services, the Company competes with established companies such
as Comunicaciones Mtel, S.A. de C.V. ("Skytel"), Operadora Biper, S.A. de C.V.
("Biper"), Comunicacion Dinamica Metropolitana, S.A. de C.V. ("Codime"),
Marcatel S.A. de C.V. ("Marcatel") and Buscatel, S.A. de C.V. ("Buscatel"), a
subsidiary of Telmex. Certain of the Company's paging competitors have already
established nationwide paging networks, giving them a significant operational
and marketing advantage over the Company.
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Telmex and certain other competitors have significantly greater financial
and other resources than those available to the Company, which limits the
ability of the Company to compete effectively. See "-Ability to Implement New
Services" and "Business-Competition."
The Company and other non-wireline cellular companies are currently
involved in a dispute with Telmex over the rates that Telmex charges for
cellular interconnection services. Telmex is the exclusive provider of cellular
interconnection services to the landline network in Mexico and has, on several
occasions over the last two years, unilaterally increased interconnection rates.
The Company and the other cellular operations have disputed the increases and
continue to pay Telmex the interconnection rate in effect prior to the
increases. While the Company believes that Telmex's actions are in violation of
its agreement with the Company and, therefore, the Company is not obligated to
pay Telmex at the increased rates, there can be no assurance that the Company
will not be required to pay Telmex increased rates for cellular interconnection
services either on a going-forward basis or retroactively. The billed, disputed
interconnection charges, together with other amounts withheld by the Company for
services for which it believes Telmex should be paying the Company totalled
approximately Ps. 111.2 million (U.S.$14.0 million) as of March 31, 1997, and
are continuing to accrue. In addition, Telmex has asserted that Iusacell owes
interest on such disputed charges in the amount of approximately Ps. 43.5
million (U.S.$5.5 million) as of March 31, 1997. See "Manangement's Discussion
and Analysis of Financial Condition and Results of Operations-Recent
Developments."
The Company has filed a complaint with Mexico's Comision Federal de
Competencia (the "Mexican Federal Competition Commission") against Telmex and
Telcel, claiming that the two companies have engaged in monopolistic practices
in the Mexican telecommunications market, including unlawful cross-subsidies by
Telmex of Telcel's cellular phone operations and discriminatory practices
against the Company. The disputes with Telmex have had and may continue to have
an adverse effect on the Company's business relationship with Telmex, which is
the largest participant in the Mexican telecommunications market. See
"Business-Legal Proceedings."
Capital Requirements
In order to implement its operating strategy through 2001, the Company
will be required to make significant expenditures. The Company expects capital
expenditures for 1997, 1998 and 1999 to total approximately U.S.$308 million.
Significant additional expenditures may be required under the terms of the
Company's concessions.
The Company believes that it has sufficient financing for its capital
expenditures in 1997 and the first half of 1998. As the Company makes additional
investments in its cellular network and pursues long distance and local
telephony opportunities (including PCS), it will need additional funds in the
second half of 1998 and beyond to the extent the Bell Atlantic Facility is not
drawn upon. The terms of the Company's concessions may also require the Company
to make certain other significant investments in its various networks for which
additional funds would be required during 1997 and 1998. There can be no
assurance as to whether the Company can obtain any such additional funds on
acceptable terms or at all. The Indenture and the Credit Facility limit the
ability of the Company to incur debt. See "-Substantial Leverage; Ability to
Service Debt," "-Rapid Technological Change," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources-Capital Expenditures," "Certain
Transactions" and "Description of Notes."
Rapid Technological Change
Inherent in the global telecommunications industry is the need to adapt to
rapid and significant changes in technology, which generally requires
significant capital expenditures. While the Company currently provides cellular
service primarily using analog technology, it has, in order to remain
competitive, already begun to implement digital technology and plans to begin
implementing a CDMA overlay in the first quarter of 1998. There can be no
assurance that CDMA or any other digital technology selected by the Company in
its cellular business will not be challenged by competition from new or improved
digital technologies supporting cellular service or other services such as PCS
in the near future or that technological changes will not adversely affect the
Company's competitive position or require write-downs of obsolete technology. In
connection with the planned CDMA overlay, the Company may record substantial
non-cash losses relating to the write-off of assets deployed in its existing
network. PCS auctions are scheduled by the Mexican government for the fall of
1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Local Telephony in the 450 MHz Frequency Band; CDMA
Overlay" and "-Liquidity and Capital Resources-Capital Expenditures" and
"Business-Network and Equipment-Cellular Services."
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Risks of Expansion
The Company's strategy contemplates the pursuit of strategic opportunities
in the wireless business in Mexico, and the Company is currently pursuing
several such opportunities (although to date no agreements with respect to such
opportunities have been entered into). The Company's strategy also contemplates
expanding into new telecommunications services, including PCS. Iusacell
currently intends to participate in the auction for PCS bandwidth scheduled by
the Mexican government for the fall of 1997. Each of these opportunities and new
business ventures will require the devotion of substantial management resources
and may require significant capital investments. Furthermore, such opportunities
will be subject to risks inherent in the integration of new business enterprises
into the Company's existing operations. There can be no assurance that any of
the strategic opportunities will be consummated. Moreover, the Company may incur
significant costs and expenses in connection with the consummation and
implementation of these opportunities. There can be no assurance that these
expenditures will ultimately result in the integration of profitable operations
with the Company's existing business. See "Business-Business Strategy."
Ability to Implement New Services
The ability of the Company to expand its paging and long distance services
and to implement local telephony services, including PCS, in accordance with its
plans will depend on a number of factors over which the Company has limited or
no control. These factors include, among others, the Company's ability to
acquire concessions for spectrum at commercially acceptable prices, raise
sufficient capital, obtain required governmental approvals, negotiate reasonable
interconnection agreements, obtain certain rights of way for fiber optic cables,
successfully deploy certain technologies, secure leases for base stations, hire
additional qualified personnel and develop an adequate customer base. Any of
these factors could cause significant delays in, or impede or reduce the scope
of, the implementation of the new services.
The Company has experienced substantial delays in obtaining the SCT's
approval of its technical and economic plans for local wireless service in the
450 MHz frequency band. However, on June 10, 1997, the SCT and the Company
reached agreement on a process by which the Company could obtain a concession
issued and recognized by the SCT to provide local wireless service in the 450
MHz frequency band. The Company's ability to implement local wireless service in
the 450 MHz frequency band is conditioned upon the acquisition of concessions to
provide such service at a commercially acceptable cost (which will be affected
by the outcome of the auctions in the 450 MHz and 1.9 GHz (PCS) frequency bands
scheduled for the fall of 1997) as well as the approval by the SCT of the
Company's technical and economic plans for such service. There can be no
assurance that such concessions can be acquired at a commercially acceptable
cost or that such approval will be granted. In the alternative, the Company may
consider providing local telephony service in other frequency bands. Any such
service could also require regulatory approvals and the payment of substantial
fees to acquire or modify concessions, and the Company may record substantial
non-cash losses in connection with write-downs of assets related to its 450 MHz
local wireless service. There can be no assurance that any approval which may be
required in connection with any such service would be granted. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Local
Telephony in the 450 MHz Frequency Band; CDMA Overlay" and "Business-Other
Services-Local Telephony."
Cellular Fraud
The fraudulent use of cellular telecommunications networks imposes a
significant cost upon cellular service providers, who must bear the cost of
services provided to fraudulent users. In addition to loss of revenue as a
result of fraudulent use, the Company also suffers cash costs due to its
obligation to reimburse carriers for the cost of services provided to fraudulent
users accessing long distance services or out-roaming in the region of another
operator. These cash costs approximated Ps. 32.6 million (U.S.$4.0 million) in
1996 and Ps. 9.6 million (U.S.$1.2 million) in the first quarter of 1997.
Reports have appeared that there has been an increase in cellular fraud.
Although technology has been developed to combat the fraudulent use of
telecommunications networks, it does not eliminate fraudulent use entirely.
Significant expenditures are required periodically to acquire and utilize
anti-fraud technology. For the year ended December 31, 1996, costs incurred by
the Company in the prevention of fraud were approximately Ps. 1.6 million
(U.S.$0.2 million), and the Company expects to spend approximately Ps. 25.4
million (U.S.$3.2 million) in 1997 for fraud prevention. While the Company makes
use of anti-fraud technology and plans to introduce enhancements in 1997, it
still expects to have substantial costs due to cellular fraud. There can be no
assurance
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that fraud or the costs of anti-fraud initiatives will not have an adverse
effect upon the Company's business, financial condition and results of
operations.
Mexican Government Regulation
The terms of the concessions pursuant to which the Company provides its
services are subject to government regulation. There can be no assurance that
additional concessions to provide services similar to or the same as those
provided or expected to be provided by the Company will not be granted to
potential competitors, or that the value of the Company's concessions will not
otherwise be affected by government action.
The Mexican government, through the SCT, has granted concessions to
certain of the Company's subsidiaries to provide cellular communications service
in four different regions. The SCT has the right to terminate a concession,
without compensation, before the expiration of its term in the event a
concessionaire fails to perform its obligations under, or violates the terms of,
the concession or applicable law. The Mexican government, through the SCT, may
also temporarily seize all assets related to a concession in the event of
natural disaster, war, significant public disturbance or threats to internal
peace and for other reasons of economic or public order. In addition, the
Mexican government has the statutory right to expropriate any concession and
claim all assets related thereto for reasons of public interest (rescate).
Mexican law provides for compensation in connection with losses and damages
related to temporary seizure or expropriation. However, there can be no
assurance as to the adequacy or timing of compensation obtained in any such
case. See "Business-Government Regulation."
The Company is also subject to regulation by the SCT with respect to its
paging, long distance and local telephony services and its microwave
transmission facilities. As with its cellular concessions, the Company's right
to operate these services and facilities is subject to compliance with various
conditions specified in the concessions and applicable law, and such concessions
may be revoked, temporarily seized or expropriated in terms similar to those
described in the prior paragraph. The Company has not yet received the
concession or SCT approval of its technical and economic plans necessary to
commercialize local wireless services using the 450 MHz frequency band. See
"-Ability to Implement New Services." The Mexican government intends to auction
bands of frequencies for microwave links within the next thirty days. The
Company currently intends to participate in such auctions.
Finally, if the Company were to be deemed by the SCT and the Comision
Federal de Telecomunicaciones (the "Mexican Federal Telecommunications
Commission") to be a dominant carrier within a particular telecommunications
service, then the Company could also be subject to, among other things,
obligations relating to maximum prices and minimum service quality.
Relationship with Principal Shareholders
Pursuant to the bylaws of Iusacell, Bell Atlantic has the ability to
determine the outcome of any action requiring the approval of the Company's
shareholders, except that the concurrence of Carlos Peralta Quintero and his
affiliated companies (collectively, the "Peralta Group") is required in order to
change the nationality, corporate nature or corporate purpose of the Company, to
amend the Company's bylaws, to merge or dissolve the Company, to spin off parts
of the Company, to increase or reduce the fixed capital of the Company, to issue
bonds or preferred capital stock, to redeem shares of capital stock, to cancel
the registration of the Series L Shares of the Company on the Mexican Stock
Exchange or any other securities exchange, to sell or acquire, or exercise
withdrawal rights with respect to, shares of other companies if the relevant
consideration exceeds 20% of the stockholders' equity of the Company and with
respect to any other matter which pursuant to applicable law or the Company's
bylaws may require a special quorum at the relevant shareholders' meeting. In
addition, Bell Atlantic and the Peralta Group have entered into a shareholders
agreement which, among other things, governs the appointment of the Company's
board of directors and grants the Peralta Group the right to approve certain
actions of the Company. See "Controlling Shareholders."
In early 1996, Carlos Peralta, formerly Vice Chairman of the Board of
Directors of the Company and currently a Director of the Company, publicly
stated that he had, in April 1994, transferred U.S.$50.0 million to bank
accounts controlled by Raul Salinas de Gortari, for an investment in a venture
capital fund to be organized by Mr. Salinas. Mr. Salinas, brother of the former
President of Mexico, currently faces charges in connection with the
assassination of a prominent politician, as well as charges of "inexplicable
enrichment" (which is a crime under Mexican law), related to
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more than U.S.$100.0 million allegedly being held by him in non-Mexican bank
accounts under an assumed name. Mr. Salinas may also face other criminal
charges, such as tax evasion. Various press reports in Mexico and
internationally have speculated that the U.S.$50.0 million transfer may have
represented payment for governmental favors and not an investment in a venture
capital fund. Mr. Peralta has denied such allegations. The Company has not made
any payments to Mr. Salinas, and is not aware of any wrongdoing by Mr. Peralta.
The Company is of the opinion that all concessions it holds were granted
in compliance with applicable Mexican laws. However, there can be no assurance
that Mexican governmental authorities will not attempt to challenge the validity
of the concessions or to take other actions that could be detrimental to the
Company with respect to its concessions. Nor can there be any assurance that Mr.
Peralta's alleged involvement with Mr. Salinas or other factors will not result
in a forced divestiture or attachment of Mr. Peralta's holding in the Company.
Apparently prompted by Mr. Peralta's disclosure, in February 1996 the
Mexican federal tax authorities started tax audits on the Company, certain
subsidiaries of the Company and Mr. Peralta. The Company has no reason to
believe that such audits have adversely affected or will adversely affect its
operations, financial condition or results of operations. On March 2, 1997, a
warrant for Mr. Peralta's arrest was issued following his indictment on charges
of tax evasion. Mr. Peralta obtained an injunction (amparo) against execution of
the arrest warrant and, on April 28,1997, was acquitted of all related charges.
The Secretaria de Hacienda y Credito Publico (the "Mexican Ministry of Finance")
and the Prosecutor General's Office of Mexico are appealing the acquittal.
The Company's business activities have required, and will in the future
require, licenses and approvals from the Mexican government. There can be no
assurance that Mr. Peralta's public statements and indictment and the Mexican
government's inquiries will not impact the Company's ability to obtain
concessions, licenses and approvals for business opportunities in the future,
including those required for the long distance and local telephony services, or
to obtain the renewal of existing concessions, licenses and approvals. Various
press reports had speculated that Mr. Peralta's public statements contributed to
the delay in Iusacell and the SCT reaching agreement regarding the Company's
local wireless service in the 450 MHz frequency band.
Additionally, there can be no assurance that the publicity surrounding Mr.
Peralta's statements or indictment will not have a negative impact on consumer
perceptions of the Company and will not adversely affect the Company's business,
financial condition and results of operations.
Dependence on Bell Atlantic Personnel
The majority of the Company's senior management team, including its Chief
Executive Officer, Chief Operating Officer and Chief Financial Officer, are
employees of Bell Atlantic whose services are provided to Iusacell on a
consulting or seconded basis. If these employees were not made available to
Iusacell by Bell Atlantic (because Bell Atlantic was no longer the controlling
shareholder of Iusacell or otherwise), the Company's results of operations and
financial condition could be materially adversely affected. See "Management" and
"Certain Transactions."
Different Accounting Standards
Mexican companies listed on the Bolsa Mexicana de Valores, S.A. de C.V.
(the "Mexican Stock Exchange"), including Iusacell, must prepare their financial
statements in accordance with Mexican GAAP, which differs in significant
respects from U.S. GAAP, including the treatment of minority interest, deferred
income taxes, capitalized pre-operating expenses and revenues for the Company's
450 MHz local wireless project, extraordinary charges and the resulting changes
in gains and losses in monetary positions. In particular, all such Mexican
companies must incorporate the effects of inflation directly in their accounting
records and in published financial statements. The effects of inflation
accounting under Mexican GAAP are not eliminated in the reconciliation to U.S.
GAAP. For this and other reasons, the presentation of Mexican financial
statements and reported earnings may differ from that of companies in other
countries. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 19 to the Audited Consolidated Financial
Statements.
Consequences of Failure to Exchange
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Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. See "The Exchange
Offer--Consequences of Failure to Exchange; Resale of New Notes."
Possible Limitations on Sale of New Notes
To comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with. The Company has
agreed to register or qualify the sale of the New Notes in such jurisdictions
only in limited circumstances and subject to certain conditions. See "The
Exchange Offer--Consequences of Failure to Exchange; Resale of New Notes."
Transfer of New Notes Only in Accordance with DTC Procedures
Ownership of beneficial interests in the New Notes will be shown on, and
the transfer of that ownership will be effected only through, records maintained
by DTC or its nominee and the records of DTC's participants. The laws of some
jurisdictions may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Those laws may impair the
ability to transfer beneficial interests in the New Notes. Because DTC can only
act on behalf of participants, which in turn act on behalf of owners of
beneficial interests held through such participants and certain banks, the
ability of a person having a beneficial interest in a New Note to pledge or
transfer such interest to persons or entities that do not participate in the DTC
system may be impaired. See "Description of the Notes--Book Entry; Delivery and
Form."
Absence of Active Trading Market; Transfer Restrictions; Possible Volatility
The New Notes are new securities for which there is currently no market.
The Company presently does not intend to apply for listing of the New Notes on
any securities exchange or for quotation through NASDAQ. Although the Initial
Purchasers have informed the Company that they intend to make a market in the
New Notes, they are not obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, there can be no assurance
as to the development or liquidity of any trading market for the New Notes.
The Company filed a registration statement under the Securities Act with
respect to the New Notes registration statement, however, the Commission has
broad discretion to determine whether any registration statement will be
declared effective and may delay or deny the effectiveness of any such
registration statement filed by the Company for a variety of reasons. Failure to
have the registration statement declared effective could adversely affect the
liquidity and price of the Notes. See "Exchange and Registration Rights
Agreement."
Mexican securities are, to varying degrees, influenced by economic and
market conditions in other countries. Although economic conditions are different
in each country, investors' reactions to developments in one country may have
effects on the securities of issuers in other countries, including Mexico. There
can be no assurance that the Notes or the Company's ability to meet its
obligations under the Notes would not be adversely affected by any such
developments.
Payment of Judgments in Pesos
Under Mexican monetary law, in the event that proceedings were brought in
Mexico seeking to enforce the Company's or a Subsidiary Guarantor's obligations
under the Notes or the Subsidiary Guarantees, the Company or such Subsidiary
Guarantor would not be required to discharge such obligations in a currency
other than Mexican currency. An obligation in a currency other than Mexican
currency, which is payable in Mexico, may be satisfied in Mexican currency at
the rate of exchange in effect on the date and in the place payment occurs. The
applicable exchange rate is currently determined by Banco de Mexico every
banking day in Mexico and published the following banking day in the Diario
Oficial de la Federacion.
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Forward-Looking Information is Subject to Risk and Uncertainty
This Prospectus contains forward-looking statements. These forward-looking
statements reflect the Company's views with respect to future events and
financial performance. Actual events and results could differ materially from
those projected in the forward-looking statements as a result of the risk
factors set forth above, as well as factors discussed below. The words
"believe," "expect," "anticipate," "intend" and "plan" and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. The risk factors described above, and many other factors,
could cause actual events and results to differ materially from historical
results or those anticipated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
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RATINGS
The Company's senior indebtedness has been rated B+ by Standard & Poor's
Rating Services, a division of The McGraw-Hill Companies, Inc. ("S&P") and B2 by
Moody's Investors Service, Inc. ("Moody's", and together with S&P, the "Rating
Agencies").
Future events, such as events affecting the Company, could have an adverse
impact on the ratings of the Notes. There is no assurance that any such rating
will continue for any period of time or that it will not be reviewed, revised,
suspended or withdrawn entirely by the applicable Rating Agency as a result of
changes in, or unavailability of, information if, in such Rating Agency's
judgment, circumstances so warrant. There is no obligation on the part of the
Company or any other person to maintain any particular rating of the Notes.
There can be no assurance that any of the Rating Agencies will provide
surveillance or that, even if any of the Rating Agencies commence providing
surveillance that, they will continue to do so. Changes affecting the Company
may have an adverse effect on the rating of the Notes, and thus the market value
of the Notes.
A security rating is not a recommendation to buy, sell or hold securities.
Each security rating should be considered independently of similar ratings on
different securities. There can be no assurance as to whether any rating agency
not requested to rate the Notes will nonetheless issue a rating and, if so, what
such rating would be. A rating assigned to the Notes by a rating agency that has
not been requested by the Company to do so may be lower than the ratings
assigned by the Rating Agencies.
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THE EXCHANGE OFFER
General
The Company hereby offers upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to U.S.$150.0 million aggregate principal amount of New Notes for a
like aggregate principal amount of Old Notes, properly tendered on or prior to
the Expiration Date and not withdrawn as permitted pursuant to the procedures
described below. The Exchange Offer is being made with respect to all of the Old
Notes. The New Notes evidence the same debt as the Old Notes and are issued
under and are entitled to the same benefits under the Indenture as the Old
Notes.
As of the date of this Prospectus, U.S.$150.0 million aggregate principal
amount of the Old Notes was outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about [ ], 1997, to all
registered holders of Old Notes. The Company's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions set
forth under "--Certain Conditions to the Exchange Offer" below and to the terms
and provisions of the Registration Rights Agreement (as defined below).
Purpose of the Exchange Offer
The Old Notes were issued by the Company on July 25, 1997 in transactions
exempt from the registration requirements of the Securities Act. Accordingly,
the Old Notes may not be offered, resold, or otherwise transferred in the United
States unless so registered or unless an applicable exemption from the
registration and prospectus delivery requirements of the Securities Act is
available.
In connection with the issuance and sale of the Old Notes, the Company
entered into an Exchange and Registration Rights Agreement, dated as of July 15,
1997 (the "Registration Rights Agreement"). The Registration Rights Agreement
requires the Company to file with the Commission a registration statement
relating to the Exchange Offer within 75 calendar days after the issue date of
the Old Notes, and to use its best reasonable efforts to cause the registration
relating to the Exchange Offer to become effective under the Securities Act
within 150 calendar days after the issue date of the Old Notes and the Exchange
Offer to be consummated within 180 calendar days after the issue date of the Old
Notes. The Exchange Offer is being made by the Company to satisfy its
obligations with respect to the Registration Rights Agreement.
Expiration Date; Extension; Termination; Amendment
The Exchange Offer will expire at 5:00 p.m., New York City time, on ,
1997, unless the Company, in its sole discretion, has extended the period of
time for which the Exchange Offer is open (such date, as it may be extended, is
referred to herein as the "Expiration Date"). The Company expressly reserves the
right, at any time or from time to time, to extend the period of time during
which the Exchange Offer is open, and thereby delay acceptance for exchange of
any Old Notes, by giving oral notice (promptly confirmed in writing) or written
notice to the Exchange Agent and by giving written notice of such extension to
the holders thereof or by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a release through
the Dow Jones News Service, in each case, no later than 9:00 a.m. New York City
time, on the next business day after the previously scheduled Expiration Date.
During any such extension, all Old Notes previously tendered will remain subject
to the Exchange Offer unless properly withdrawn.
In addition, the Company expressly reserves the right to terminate or to
amend the Exchange Offer, and not to accept for exchange any Old Notes not
theretofore accepted for exchange, upon the occurrence of any of the events
specified below under "--Certain Conditions to the Exchange Offer". If any such
termination or amendment occurs, the Company will notify the Exchange Agent and
will either issue a press release or give oral or written notice to the holders
of the Old Notes as promptly as practicable in the manner set forth above with
respect to an extension of the Expiration Date.
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For purposes of the Exchange Offer, a "business day" means any day other
than a Saturday, a Sunday or a date on which banking institutions in New York
City are not required to be open, and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.
Procedures For Tendering Old Notes
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the Letter of
Transmittal.
Except as set forth below, a holder of Old Notes who wishes to tender Old
Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal to the Exchange Agent at the address set
forth in such Letter of Transmittal on or prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the holder of Old Notes
must comply with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO INSURE TIMELY DELIVERY. NO OLD NOTES NOR THE LETTER OF TRANSMITTAL
SHOULD BE SENT TO THE COMPANY.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on the
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a clearing agency, an insured
credit union, a savings association or a commercial bank or trust company having
an office or a correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of the person other than
a signer of the Letter of Transmittal, the Old Notes surrendered for exchange
must be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the registered holder thereof with the
signature thereon guaranteed by an Eligible Institution.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by (i) the Old Notes (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility) is received by the Exchange Agent, or (ii) a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect (as
provided above) from an Eligible Institution is received by the Exchange Agent.
Issuances of New Notes in exchange for Old Notes tendered pursuant to a Notice
of Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) by an Eligible Institution will be made only against
timely deposit of the Letter of Transmittal (and any other required documents)
and the tendered Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and
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conditions of the Exchange Offer as to any particular Old Notes either before or
after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of Old
Notes for exchange must be cured within such reasonable period of time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being acquired
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the holder, that neither the holder nor any such
person has an arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the holder nor any such other
person is an "affiliate" as defined under Rule 405 of the Securities Act, of the
Company, or if it is an affiliate it will comply with the registration and
prospectus requirements of the Securities Act to the extent applicable.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution."
Book-Entry Transfer
The Exchange Agent will make a request within two business days after the
date of this Prospectus to establish accounts with respect to the Old Notes at
the Book-Entry Transfer Facility. The Book-Entry Transfer Facility for the
purpose of facilitating the Exchange Offer, and, subject to the establishment
thereof, any financial institution that is a participant in the Book-Entry
Transfer Facility's systems, may make book-entry delivery of Old Notes by
causing the transfer of such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility, the Letter of Transmittal with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures.
Guaranteed Delivery Procedures
If a holder of Old Notes desires to accept the Exchange Offer and time
will not permit the Letter of Transmittal or Old Notes to reach the Exchange
Agent before the Expiration Date or the procedure for book-entry transfer cannot
be completed on a timely basis, a tender may be effected if the Exchange Agent
has received at its address set forth below on or prior to the Expiration Date,
a letter, telegram or facsimile transmission from an Eligible Institution
setting forth the name and address of the tendering holder, the names in which
the Old Notes are registered and, if possible, the certificate numbers of the
Old Notes to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the Expiration Date, the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation of such Old Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility, will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Old Notes being tendered
by the above-described method are deposited with the Exchange Agent within the
time period set forth above (accompanied or preceded by a properly completed
Letter of Transmittal and any other required documents), the Company may, at its
option, reject the tender. Copies of Notice of Guaranteed Delivery which may be
used by Eligible Institutions for the purposes described in this paragraph are
available from the Exchange Agent.
31
<PAGE>
Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal, sent by
telegram, telex, facsimile transmission (receipt confirmed by telephone) or
letter must be received by the Exchange Agent prior to the Expiration Date at
its address set forth below. Any such notice of withdrawal must specify the name
of the person having tendered the Old Notes to be withdrawn, identify the Old
Notes to be withdrawn (including the amount of such Old Notes), and (where
certificates of Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing holder
thereof. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing holder thereof must also submit the serial numbers
of the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the procedure
for book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company in
its sole discretion, which determination will be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the holder thereof without cost to such holder (or, in the case
of Old Notes tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account with
such Book-Entry Transfer Facility specified by the holder thereof) as soon as
practicable after such withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures described under "--Procedures for Tendering Old Notes" above
at any time on or prior to the Expiration Date.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will accept, promptly after the Expiration Date, all Old
Notes properly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date and will issue the New Notes promptly after such acceptance. See
"--Certain Conditions to the Exchange Offer" below. For purposes of the Exchange
Offer, the Company shall be deemed to have accepted properly tendered Old Notes
for exchange when, as and if the Company has given oral and written notice
thereof to the Exchange Agent, with written confirmation of any oral notice to
be given promptly thereafter.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that the surrendered Old
Note.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed appropriate
Letter of Transmittal and all other required documents. If any tendered Old
Notes are not accepted for any reason set forth in the terms and conditions of
the Exchange Offer, such unaccepted Old Notes will be returned without expense
to the tendering holder thereof or, in the case of Old Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described below, such
unaccepted Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration of
the Exchange Offer.
Certain Conditions to the Exchange Offer
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, any of the following events shall occur:
32
<PAGE>
(i) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or any governmental agency seeking to restrain or
prohibit or prevent the Company from proceeding with the Exchange Offer or
assessing or seeking any damages as a result thereof, or that might result
in a material adverse effect on the contemplated benefits of the Exchange
Offer to the Company; or
(ii) there shall be proposed, enacted, promulgated or deemed applicable to
the Exchange Offer by any government or governmental agency or authority
any law or regulation, including any applicable interpretation of the
staff of the Commission, that might in the sole judgment of the Company
result in any of the consequences described in clause (i).
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its reasonable judgment. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement, of which this Prospectus constitutes a part, or the
qualification of the Indenture under the Trust Indenture Act of 1939 (the
"TIA"). In any such event the Company is required to use every reasonable effort
to obtain the withdrawal of any stop order at the earliest possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange.
Exchange Agent
First Union National Bank has been appointed as the Exchange Agent for the
Exchange Offer. All tendered Old Notes, the executed Letter of Transmittal, and
other related documents should be directed to the Exchange Agent at the address
set forth in the Letter of Transmittal. Questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notices of Guaranteed Delivery should be directed
to the Exchange Agent at the address set forth in the Letter of Transmittal.
First Union National Bank also acts as Trustee under the Indenture.
Solicitation of Tenders; Fees and Expenses
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this and other related documents to the beneficial owners of the Old
Notes and in handling or forwarding tenders for their customers.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately U.S.$300,000, which includes fees and expenses of the Exchange
Agent, Trustee, registration fees, accounting, legal, printing and related fees
and expenses.
No person has been authorized to give information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not
33
<PAGE>
being made to (nor will tenders be accepted from or on behalf of) holders of Old
Notes in any jurisdiction in which the making of the Exchange Offer or the
acceptance thereof would not be in compliance with the laws of such
jurisdiction.
Transfer Taxes
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith except that holders who instruct
the Company to register New Notes in the name of, or request Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon. See "Mexican Taxation--Exchange Offer."
Accounting Treatment
The New Notes will be recorded at the carrying value of the Old Notes as
reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting principles will be recognized by the
Company upon the exchange of New Notes for Old Notes. Expenses incurred in
connection with the issuance of the New Notes will be amortized over the term of
the New Notes.
Consequences of Failure to Exchange; Resale of New Notes
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. Old Notes not exchanged pursuant to
the Exchange Offer will continue to remain outstanding in accordance with their
terms. In general, the Old Notes may not be offered or sold unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the Old
Notes under the Securities Act. However, (i) if an Initial Purchaser so requests
with respect to Old Notes not eligible to be exchanged for New Notes in the
Exchange Offer and held by it following consummation of the Exchange Offer or
(ii) if any holder of Old Notes is not eligible to participate in the Exchange
Offer or, in the case of any holder of Old Notes that participates in the
Exchange Offer, does not receive freely tradeable New Notes in exchange for Old
Notes, the Company is obligated to file a registration statement on the
appropriate form under the Securities Act relating to the Old Notes held by such
persons.
Based on certain no-action letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company believes that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes from the Company
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes. If any
holder has any arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such holder (i)
could not rely on the applicable interpretations of the staff of the Commission
and (ii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction. Thus,
any New Notes acquired by such holder will not be freely transferable except in
compliance with the Securities Act. A broker-dealer who holds Old Notes that
were acquired for its own account as a result of market-making or other trading
activities may be deemed to be an "underwriter" within the meaning of the
Securities Act and must, therefore, deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of New Notes.
Each such broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
in the Letter of Transmittal that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights
34
<PAGE>
Agreement and subject to certain specific limitations therein, to register or
qualify the New Notes for offer or sale under the securities or blue sky laws of
such jurisdictions as any holder of the Old Notes reasonably requests in
writing.
Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of the Old Notes are
urged to consult their financial and tax advisors in making their own decision
on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of the Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights, and limitations applicable thereto, under the Indenture, except for
any such rights under the Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of
the Exchange Offer. See "Description of Notes". All untendered Old Notes will
continue to be subject to the restrictions on transfer set forth in the
applicable Indenture. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered Old Notes could be
adversely affected.
The Company may in the future seek to acquire untendered Old Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plan to acquire any Old Notes which are
not tendered in the Exchange Offer.
35
<PAGE>
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
New Notes offered hereby, the terms of which are identical in all material
respects to those of the Old Notes. The issuance of the New Notes will not
result in any change in the aggregate indebtedness of the Company.
The net proceeds from the sale of the Old Notes under the Offering of
approximately U.S.$143.9 million (after deducting discounts and other expenses
of the Offering), together with borrowings under the Credit Facility has been
applied to: (i) repay the Banco Mexicano Facility and related interest in an
amount equal to U.S.$44.7 million, (ii) repay the Banamex Facility and related
interest, in an amount equal to U.S.$29.0 million, (iii) repay the Chase
Facility and related interest in an amount equal to U.S.$65.4 million, (iv)
repay the Banco del Atlantico Facility and related interest in an amount equal
to U.S.$46.0 million, (v) repay the BANZHI Loans and related interest in an
amount equal to U.S.$25.7 million and (vi) fund capital expenditures to upgrade
its network infrastructure, including the implementation of a CDMA overlay,
build out its cellular, long distance, local telephony and paging networks,
redesign Iusacell-owned and operated customer service centers and support
existing operations and new business opportunities. The actual amount of capital
expenditures to be made will depend upon, among other factors, the acquisition
of spectrum in the 450 MHz, 1.9 GHz (PCS) or microwave frequency bands by
concession, lease or otherwise, the receipt of any required government
concessions, permits or authorizations, market demand for services, the receipt
of rights of way and the leasing of any required facilities or land. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources -Capital Expenditures."
The Banco Mexicano Facility consisted of two loans maturing on January 28,
2004 and November 14, 2004 and having accrued interest at annual rates of the
six-month London Interbank Offering Rate ("LIBOR") plus 4.00% and six-month
LIBOR plus 3.75%, respectively. The Banamex Facility consisted of five loans
maturing on March 31, 1998, September 19, 2001, December 15, 2001, April 15,
2002 and July 15, 2002 and having accrued interest at annual rates of seven-year
Treasury Notes plus 5.00%, six-month LIBOR plus 2.94%, six-month LIBOR plus
2.94%, Banamex's funding rate plus 2.00% and 12.55%, respectively. The Chase
Facility matured on July 31, 1997 and accrued interest at an annual rate of
30-day LIBOR plus 5.00%. The Banco del Atlantico Facility consisted of two loans
which matured on August 22, 1997 and September 7, 1997 and accrued interest at
annual rates of six-month LIBOR plus 4.00%. The proceeds of the loans under the
Banco del Atlantico Facility have been used to fund capital expenditures. The
BANZHI Loans consisted of five subordinated demand notes having accrued interest
at annual rates of one-month or six-month LIBOR plus 4.00% or 5.00%. The
proceeds of the BANZHI Loans have been used for working capital purposes.
Chase is an affiliate of Chase Securities Inc., one of the Initial
Purchasers.
Pending the application of the proceeds to fund capital expenditures, the
Company may use such proceeds to reduce short-term and dollar denominated
borrowings and will otherwise invest such funds in high-quality liquid
short-term obligations.
36
<PAGE>
EXCHANGE RATES
This Prospectus contains translations of certain Peso amounts into U.S.
dollars at specified rates solely for the convenience of the reader. These
translations should not be construed as representations that the Peso amounts
actually represent such U.S. dollar amounts or could be converted into U.S.
dollars at the rate indicated, or at all. The following table sets forth, for
the periods indicated, the high, low, average and period-end free market rate,
or, as the case may be, Noon Buying Rate (as defined), all expressed in nominal
Pesos per U.S. dollar. The Federal Reserve Bank of New York commenced
publication of the Noon Buying Rate on November 8, 1993. The Noon Buying Rate at
October 2, 1997 was Ps. 7.7575 to U.S.$1.00.
Free Market/Noon Buying Rate(1)
-------------------------------
High Low Average(2) Period-End
---- --- ---------- ----------
Year ended December 31, 1992........ 3.183 3.060 3.094 3.183
Year ended December 31, 1993........ 3.240 3.102 3.124 3.108
Year ended December 31, 1994(3)..... 5.750 3.105 3.385 5.000
Year ended December 31, 1995........ 8.050 5.270 6.447 7.740
Year ended December 31, 1996........ 8.045 7.325 7.600 7.881
Six months ended June 30, 1997......
(1) Source: Banco de Mexico through November 7, 1993; Federal Reserve Bank of
New York since November 8, 1993.
(2) Average of month-end rates.
(3) Beginning on December 22, 1994, Banco de Mexico discontinued regular open
market transactions to stabilize the Peso.
Except for the period from September through December 1982 during a
liquidity crisis suffered by Mexico, Banco de Mexico, the Mexican central bank,
consistently has made foreign currency available to Mexican private sector
entities (such as the Company) to meet their foreign currency obligations.
Nevertheless, in the event of renewed shortages of foreign currency, there can
be no assurance that Banco de Mexico would continue to make foreign currency
available to private sector companies or individuals, or that foreign currency
needed by the Company to service foreign currency obligations, including the
Notes, could be purchased in the open market without substantial additional
cost. See "Risk Factors-Peso Devaluation; Exchange Controls."
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges for each year in the five-year period ended December
31, 1996 in accordance with Mexican GAAP and for each year in the two-year
period ended December 31, 1996 in accordance with U.S. GAAP. The ratio of
earnings to fixed charges covers continuing operations, and for this purpose (a)
earnings consist of income (loss) before income taxes plus fixed charges and (b)
fixed charges consist of interest expense on all debt (including capitalized
interest), amortization of defined financing costs and a percentage of rental
expense deemed to be interest. Earnings were inadequate to cover fixed charges
in 1993, 1994, 1995 and 1996. The fixed charge coverage deficiency for the years
1993, 1994, 1995 and 1996 in accordance with Mexican GAAP amounted to Ps. 201.0
million (U.S.$25.3 million), Ps. 1.2 billion (U.S.$150.4 million), Ps. 1.4
billion (U.S.$177.2 million) and Ps. 320.7 million (U.S.$40.4 million),
respectively. The fixed charge coverage deficiency for the years 1995 and 1996
in accordance with U.S. GAAP amounted to Ps. million (U.S.$ million) and Ps.
million (U.S.$ million), respectively.
Year ended December 31,
-----------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
Mexican GAAP................................ 2.0x - - - -
U.S. GAAP................................... - - -
37
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Iusacell and its
consolidated subsidiaries as of March 31, 1997 and as adjusted to give effect to
the Financing and the use of proceeds thereof. This table should be read in
conjunction with "Use of Proceeds," "Selected Historical and Pro Forma
Consolidated Financial and Operating Data," "Unaudited Pro Forma Consolidated
Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1997
----------------------- -----------------------------
Actual As Adjusted Actual As Adjusted
----------- ----------- ------------ ----------------
(Millions of constant (Millions of U.S. dollars)(1)
March 31, 1997 Pesos)
<S> <C> <C> <C> <C>
Cash ............................... Ps. 58.0 Ps. 712.5 U.S.$ 7.3 U.S.$ 89.8
=========== =========== =========== ===========
Short-term debt:(2)
Chase Facility ..................... Ps. 514.3 Ps. -- U.S.$ 64.8 U.S.$ --
Banco del Atlantico Facility ....... 278.3 -- 35.1 --
Banco Mexicano Facility ............ 0.7 -- 0.1 --
BANZHI Loans ....................... 51.5 -- 6.5 --
Current maturities of long-term debt 105.9 -- 13.4 --
----------- ----------- ----------- -----------
Total short-term debt ........ 950.7 -- 119.9 --
Long-term debt:(2)
Banco Mexicano Facility ............ 320.4 -- 40.4 --
Banamex Facility ................... 183.8 -- 23.2 --
Finance lease facility(3) .......... 2.2 2.2 0.3 0.3
Term Facility(4) ................... -- 991.3 -- 125.0
Notes offered hereby ............... -- 1,189.5 -- 150.0
----------- ----------- ----------- -----------
Total long-term debt ......... 506.3 2,183.0 63.9 275.3
Stockholders' equity:
Contributed capital ................ 5,867.1 5,867.1 739.9 739.9
Earned capital ..................... (2,034.0) (2,034.0) (256.5) (256.5)
Minority interest .................. 5.1 5.1 0.6 0.6
----------- ----------- ----------- -----------
Total stockholders' equity ... 3,838.2 3,838.2 484.0 484.0
----------- ----------- ----------- -----------
Total capitalization ......... Ps. 5,295.2 Ps. 6,021.2 U.S.$ 667.8 U.S.$ 759.3
=========== =========== =========== ===========
</TABLE>
- ----------
(1) Peso amounts were converted to U.S. dollars at the Noon Buying Rate of Ps.
7.9300 per U.S.$1.00 on March 31, 1997. Such conversions should not be
construed as representations that the Peso amounts actually represent such
U.S. dollar amounts or could be converted into U.S. dollars at the rate
indicated, or at all. See "Risk Factors-Peso Devaluation; Exchange
Controls."
(2) All of the Company's short and long-term debt is denominated in U.S.
dollars.
(3) Represents vendor financing for handsets.
(4) In addition to the Company's $125.0 million Term Facility, the Revolving
Credit Facility will permit borrowings in an aggregate principal amount of
up to $100.0 million, all of which will be available at the closing of the
Financing. The Company has also obtained a commitment from Bell Atlantic
to provide the Bell Atlantic Facility in an aggregate principal amount of
up to U.S.$150.0 million. For a discussion of the availability, terms and
conditions of the Bell Atlantic Facility, see "Certain Transactions-Bell
Atlantic Facility."
38
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL
AND OPERATING DATA
Set forth below are selected historical and pro forma consolidated
financial and operating data of the Company for each of the five fiscal years in
the period ended December 31, 1996 and for the three month periods ended March
31, 1996 and 1997, and certain pro forma financial and other data for the year
ended December 31, 1996 and the three months ended March 31, 1997.
The selected consolidated financial data of the Company as of and for each
of the years ended December 31, 1995 and 1996 have been derived from the Audited
Consolidated Financial Statements and the related notes thereto included
elsewhere herein, which have been audited by Coopers & Lybrand, Despacho Roberto
Casas Alatriste, independent accountants. The selected consolidated financial
data of the Company for the year ended December 31, 1994 has been derived from
the Audited Consolidated Financial Statements and the related notes thereto
included elsewhere herein, which have been audited by Mancera, S.C., a member of
Ernst & Young International, independent accountants (except for two
subsidiaries, whose financial statements were reviewed by Coopers & Lybrand,
Despacho Roberto Casas Alatriste, independent accountants, and Prieto Ruiz de
Velasco y Cia., S.C., independent accountants, respectively). The selected
consolidated financial information of the Company as of December 31, 1994 and as
of and for the years ended December 31, 1992 and 1993 has been derived from
audited consolidated financial statements of the Company which are not included
herein. The selected consolidated financial data as of and for the three months
ended March 31, 1996 and 1997 have been derived from the Unaudited Consolidated
Financial Statements and the related notes thereto included elsewhere herein,
which have been reviewed by Coopers & Lybrand, Despacho Roberto Casas Alatriste,
independent accountants. Interim results for the three month period ended March
31, 1997 are not necessarily indicative of results that can be expected in
future periods. The pro forma financial data have been derived from the
Unaudited Pro Forma Consolidated Financial Information and the related notes
thereto included elsewhere herein, which have been reviewed by Coopers &
Lybrand, Despacho Roberto Casas Alatriste, independent accountants. The pro
forma information does not purport to represent what the Company's results would
have actually been if the Financing and the cost savings related to the
elimination in April 1997 of certain managerial and administrative positions had
occurred on the dates indicated nor does such information purport to project the
results of the Company for any future period.
The selected consolidated financial and other data below should be read in
conjunction with "Unaudited Pro Forma Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements included elsewhere in this
Prospectus. Except as otherwise indicated, all of the financial statements
included herein have been prepared in accordance with Mexican GAAP, which
differs in significant respects from U.S. GAAP. Note 19 to the Audited
Consolidated Financial Statements provides a description of the principal
differences between Mexican GAAP and U.S. GAAP as they relate to Iusacell and a
reconciliation to U.S. GAAP of net income and total stockholders' equity. In
accordance with Mexican GAAP, the financial statements included herein recognize
certain effects of inflation and restate data for prior periods in constant
March 31, 1997 Pesos. See Notes 3 and 4 to the Audited Consolidated Financial
Statements included elsewhere in this Prospectus. The effect of inflation
accounting under Mexican GAAP has not been eliminated in the reconciliation to
U.S. GAAP. See Note 19 to the Audited Consolidated Financial Statements.
The unaudited consolidated financial information for the second quarter
ended June 30, 1997, presented under "Recent Developments" has been prepared in
accordance with Mexican GAAP. Significant differences between Mexican GAAP and
U.S. GAAP are described in Note 19 to the Audited Consolidated Financial
Statements included elsewhere herein. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-General." For the six months
ended June 30, 1997 there were no additional differences which had not been
quantified with respect to their occurrence in the Audited Consolidated
Financial Statements as of December 31, 1994, 1995 and 1996.
Iusacell holds the non-wireline cellular concession in Region 9, and in
1993 and 1994 acquired the holders of the non-wireline cellular concessions in
each of Regions 5, 6 and 7. The financial information for the first six months
of 1993 reflects the Company's results of operations in Region 9 only. Beginning
July 1, 1993, the financial results of Regions 6 and 7 were consolidated in the
financial statements of the Company. Prior to that date, the results of those
regions were reflected in the Company's consolidated financial statements as
equity in net income (loss) in associated companies, using the equity method of
accounting. The assets and liabilities of Region 5 were consolidated into the
financial statements of the Company as of January 1, 1994 and the results of
Region 5 were not reflected in the consolidated financial statements of the
Company for 1993.
39
<PAGE>
Selected Historical and Pro Forma Consolidated Financial and Operating Data
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------------
Pro Forma Pro Forma
1992 1993 1994 1995 1996 1996(1) 1996 1996(1)
------- ------- ------- ------- ------- ------- --------------- --------
(Millions of constant March 31, 1997 Pesos, (Millions of U.S. dollars,
except ratios and operating data(2)) except ratios and opera-
ting data(3))
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Service revenues ........ Ps. 1,158.7 Ps. 1,434.5 Ps. 2,003.2 Ps. 1,615.5 Ps. 1,464.0 Ps. 1,464.0 U.S.$ 184.6 U.S.$ 184.6
Telephone equipment
and other revenues ..... 72.2 128.3 273.3 287.8 236.1 236.1 29.8 29.8
------- ------- ------- ------- ------- ------- ------- -------
Total .................. 1,230.9 1,562.8 2,276.5 1,903.3 1,700.1 1,700.1 214.4 214.4
Cost of sales:
Cost of services ........ 243.5 353.2 582.2 592.2 536.7 536.7 67.7 67.7
Cost of telephone
equipment and other .... 61.2 113.3 134.3 159.8 131.7 131.7 16.6 16.6
------- ------- ------- ------- ------- ------- ------- -------
Total .................. 304.7 466.5 716.5 752.0 668.4 668.4 84.3 84.3
Gross profit ............... 926.2 1,096.3 1,560.0 1,151.3 1,031.7 1,031.7 130.1 130.1
Operating expenses ......... 469.3 628.1 969.1 840.7 736.5 693.7 92.9 87.5
Depreciation and
amortization ............ 124.3 241.8 583.2 669.7 604.6 614.8 76.2 77.5
------- ------- ------- ------- ------- ------- ------- -------
Operating profit (loss) .... 332.6 226.4 7.7 (359.1) (309.4) (276.8) (39.0) (34.9)
Integral financing cost
(gain):
Interest expense, net ... 175.5 295.5 204.0 173.3 281.1 194.3 35.4 24.5
Foreign exchange (gain)
loss, net .............. 19.8 18.9 524.7 705.2 (62.1) (56.5) (7.8) (7.1)
Gain on net monetary
position ............... (66.7) (121.1) (50.0) (501.6) (348.3) (348.3) (43.9) (43.9)
Financing cost incurred
in the acquisition of
Regions 5, 6, and 7 .... -- 233.0 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total .................. 128.6 426.3 678.7 376.9 (129.3) (210.5) (16.3) (26.5)
Equity participation in net
(income) loss of
associated companies .... (11.6) (7.3) (3.0) 39.1 6.0 6.0 0.8 0.8
Other income ............... 23.5 3.6 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
continuing operations
before asset tax,
employee profit
sharing, minority interest
and extraordinary item .. 239.1 (189.0) (668.0) (775.1) (186.1) (72.3) (23.5) (9.1)
Provisions for:
Asset tax ............... 52.0 22.9 32.5 29.1 35.2 35.2 4.4 4.4
Employee profit sharing . 3.8 -- 0.6 2.1 -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total .................. 55.8 22.9 33.1 31.2 35.2 35.2 4.4 4.4
Income (loss) before
minority interest and
extraordinary item ...... 183.3 211.9 (701.1) (806.2) (221.3) (107.5) (27.9) (13.5)
Minority interest .......... -- 6.9 -- 37.0 3.2 3.2 0.4 0.4
Extraordinary item(4) ...... 17.6 -- -- -- 145.2 145.2 18.3 18.3
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) .......... Ps. 200.9 Ps. (205.0) Ps. (701.1) Ps. (769.2) Ps. (363.3) Ps. (249.5) U.S.$(45.8) U.S.$ (31.5)
======= ======= ======= ======= ======= ======= ======= =======
Other Financial Data:
EBITDA(5) .................. Ps. 457.0 Ps. 468.1 Ps. 590.9 Ps. 310.6 Ps. 295.2 Ps. 338.0 U.S.$ 37.2 U.S.$ 42.6
EBITDA margin(6) ........... 37.1% 30.0% 26.0% 16.3% 17.4% 19.9% 17.4% 19.9%
Capital expenditures ....... Ps. 740.0 Ps. 670.3 Ps. 1,229.9 Ps. 471.3 Ps. 211.2 NA U.S.$ 26.6 NA
Interest expense, net ...... 175.5 295.5 204.0 173.3 281.1 194.3 35.4 24.5
Ratio of EBITDA to
interest expense, net ... 2.6x 1.6x 2.9x 1.8x 1.1x 1.7x 1.1x 1.7x
Ratio of earnings to fixed
charges(7) .............. 2.0x -- -- -- -- -- -- --
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------------
Pro Forma Pro Forma
1992 1993 1994 1995 1996 1996(1) 1996 1996(1)
------- ------- ------- ------- ------- ------- --------------- --------
(Millions of constant March 31, 1997 Pesos, (Millions of U.S. dollars,
except ratios and operating data(2)) except ratios and opera-
ting data(3))
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital.......... Ps. (466.2) Ps. 196.4 Ps. (381.5) Ps.(1,444.4) Ps.(1,629.8) NA U.S.$ (205.5) NA
Property and equipment,
net................... 2,036.9 2,873.8 4,476.3 4,286.1 3,307.4 NA 417.1 NA
Total assets............. 2,880.6 6,336.3 7,888.6 7,285.6 5,961.0 NA 751.7 NA
Total debt............... 1,560.8 1,888.9 1,445.3 1,659.7 1,404.6 NA 177.1 NA
Total stockholders' equity 975.9 4,081.7 5,606.5 4,388.0 3,333.9 NA 420.4 NA
U.S. GAAP (8):
Total revenues ......................................... 2,276.5 1,903.3 1,793.3 1,793.3 226.1 226.1
Operating profit (loss) ................................ 7.7 (359.1) (635.4) (603.8) (60.3) (76.1)
Adjusted EBITDA (5) .................................... 590.9 310.6 266.9 309.7 33.6 39.0
Net loss ............................................... (685.1) (363.2) (141.7) (28.0) (17.8) (3.5)
Total assets ........................................... 7,888.6 7,933.9 6,623.2 NA 835.2 NA
Total stockholders' equity ............................. 5,433.5 3,711.2 3,012.5 NA 379.9 NA
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating Data:
Subscribers:
Contract subscribers .. 114,838 127,361 194,723 208,802 161,277
Prepay subscribers .... -- -- -- 1,399 71,629
--------- --------- -------- --------- --------
Total(9) ............. 114,838 127,361 194,723 210,201 232,906
Gross subscriber additions 86,295 68,551 117,539 103,733 119,968
Average subscribers(10) .. 89,930 121,100 161,042 202,462 221,554
Contract churn(11) ....... 3.0% 3.7% 2.7% 3.6% 4.3%
Average monthly MOUs
per subscriber(12) ....... 237 211 179 140 117
Nominal average monthly
cellular revenue per
subscriber(13) ........ Ps. 736 Ps. 638 Ps. 595 Ps. 464 Ps. 490
Nominal cost to acquire a
new subscriber(14) .... Ps. 3,738 Ps. 5,808 Ps. 5,71 Ps. 6,143 Ps. 6,076
</TABLE>
41
<PAGE>
Selected Historical and Pro Forma Consolidated Financial and Operating Data
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------------------------------
Pro Forma Pro Forma
1996 1997 1997(1) 1997 1997(1)
------------ ------------ ----------- ------------ -----------
(Millions of constant March 31, 1997 Pesos, (Millions of U.S. dollars,
except ratios and operating data(2)) except ratios and
operating data(3))
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Service revenues ............................ Ps. 398.6 Ps. 318.8 Ps. 318.8 U.S. $ 40.2 U.S. $ 40.2
Telephone equipment and other revenues ...... 53.9 51.5 51.5 6.5 6.5
------------ ------------ ----------- ------------ -----------
Total .................................... 452.5 370.3 370.3 46.7 46.7
Cost of sales:
Cost of services ............................ 131.2 103.6 103.6 13.0 13.0
Cost of telephone equipment and other ....... 20.2 28.3 28.3 3.6 3.6
------------ ------------ ----------- ------------ -----------
Total .................................... 151.4 131.9 131.9 16.6 16.6
Gross profit .................................. 301.1 238.4 238.4 30.1 30.1
Operating expenses ............................ 176.8 167.3 157.0 21.1 19.8
Depreciation and amortization ................. 157.9 132.9 135.4 16.8 17.1
------------ ------------ ----------- ------------ -----------
Operating profit (loss) ....................... (33.6) (61.8) (54.1) (7.8) (6.8)
Integral financing cost (gain):
Interest expense, net ....................... 73.0 54.8 44.8 6.9 5.6
Foreign exchange (gain) loss, net ........... (49.8) 16.9 21.9 2.1 2.8
Gain on net monetary position ............... (167.1) (111.6) (111.6) (14.0) (14.0)
------------ ------------ ----------- ------------ -----------
Total .................................... (143.9) (39.9) (44.9) (5.0) (5.7)
Equity participation in net income (loss) of
associated companies ........................ 0.1 (0.3) 0.3 -- --
Other income .................................. -- -- -- --
Income (loss) from continuing operations before
asset tax, employee profit sharing, minority
interest and extraordinary item ............. 110.2 (21.6) (8.9) (2.8) (1.1)
Provisions for:
Asset tax ................................... 8.2 10.8 10.8 1.3 1.3
Employee profit sharing ..................... -- -- -- -- --
------------ ------------ ----------- ------------ -----------
Total .................................... 8.2 10.8 10.8 1.3 1.3
Income (loss) before minority interest and
extraordinary item .......................... 102.0 (32.4) (19.7) (4.1) (2.5)
Extraordinary item(4) ......................... -- -- -- -- --
Minority interest ............................. 3.9 0.2 0.2 -- --
------------ ------------ ----------- ------------ -----------
Net income (loss) ............................. Ps. 105.9 Ps. (32.2) Ps. (19.5) U.S. $ (4.1) U.S. $ (2.5)
============ ============ =========== ============ ===========
Other Financial Data:
EBITDA(5) ..................................... Ps. 124.3 Ps. 71.1 Ps. 81.4 U.S. $ 9.0 U.S. $ 10.3
EBITDA margin(6) .............................. 27.5% 19.2% 22.0% 19.2% 22.0%
Capital expenditures .......................... Ps. 13.2 Ps. 31.6 NA U.S. $ 4.0 NA
Interest expense, net ......................... 73.0 54.8 44.8 6.9 5.6
Ratio of EBITDA to interest expense, net ...... 1.7x 1.3x 1.8x 1.3x 1.8x
Ratio of earnings to fixed charges(7) ......... 2.5x -- -- -- --
Balance Sheet Data:
Working capital ............................... Ps. (1,348.3) Ps. (1,232.2) Ps. 373.1 U.S. $(155.4) U.S. $ 47.0
Property and equipment, net ................... 3,912.6 3,353.4 3,353.4 422.9 422.9
Total assets .................................. 6,782.0 6,018.9 6,744.7 759.0 850.5
Total debt .................................... 1,668.5 1,457.0 2,183.0 183.8 275.3
Total stockholders' equity .................... 4,103.8 3,838.2 3,838.2 484.0 484.0
</TABLE>
42
<PAGE>
Three Months Ended March 31,
-------------------------------------
1996 1997
------------------ ----------------
Operating Data:
Subscribers:
Contract subscribers.................... 208,714 162,855
Prepay subscribers...................... 2,163 87,872
--------- ---------
Total(9)............................. 210,877 250,727
Gross subscriber additions................ 20,354 32,951
Average subscribers(10)................... 210,539 241,817
Contract churn(11)........................ 3.9% 3.1%
Average monthly MOUs per subscriber(12)... 126 108
Nominal average monthly cellular revenue per
subscriber(13).......................... Ps. 516 Ps. 469
Nominal cost to acquire a new subscriber(14) Ps. 6,899 Ps. 5,057
43
<PAGE>
Notes to Selected Historical and
Pro Forma Consolidated Financial and Operating Data
(1) The pro forma statement of operating data for the year ended December 31,
1996 and the three months ended March 31, 1997 give effect to the
Financing, as well as to the cost savings resulting from the elimination
in April 1997 of certain managerial and administrative positions as though
they had occurred as of January 1, 1996. The pro forma balance sheet data
as of December 31, 1996 and March 31, 1997 give effect to the Financing as
though it had occurred as of December 31, 1996 and March 31, 1997,
respectively. See "Unaudited Pro Forma Consolidated Financial
Information."
(2) Pursuant to Mexican GAAP, financial data for all periods included herein
have, unless otherwise indicated elsewhere herein, been restated in
constant March 31, 1997 Pesos. Restatement into constant March 31, 1997
Pesos is made by multiplying the relevant nominal Peso amount by the
inflation index for the period between the end of the period to which such
nominal Peso amount relates and March 31, 1997. The inflation index used
in this Prospectus for 1992 figures is 2.3754, for 1993 figures is 2.1993,
for 1994 figures is 2.0544, for 1995 figures is 1.3519, for December 31,
1996 figures is 1.0586 and for March 31, 1996 figures is 1.2477.
(3) Peso amounts were converted to U.S. dollars at the exchange rate of Ps.
7.9300 per U.S.$1.00 reported as the Noon Buying Rate on March 31, 1997.
Such conversions should not be construed as representations that the Peso
amounts actually represent such U.S. dollar amounts or could be converted
into U.S. dollars at the rate indicated, or at all. See "Risk Factors-Peso
Devaluation; Exchange Controls."
(4) For 1996, the extraordinary item represents restructuring expenses
associated with the reorganization of and change in management control of
the Company, the write off of certain obsolete network equipment and an
additional reserve for doubtful accounts. See Notes 2, 4(d) and 8(b) to
the Audited Consolidated Financial Statements.
(5) "EBITDA" is defined herein as operating profit (loss) plus the sum of
depreciation, amortization and, under U.S. GAAP, non-cash items, and is
presented because the Company believes that EBITDA provides useful
information regarding the Company's debt service ability. EBITDA as
presented in this Prospectus (under both Mexican GAAP and U.S. GAAP)
differs from EBITDA as defined in the Indenture. EBITDA in this Prospectus
has not been reduced to reflect the additional expenses the Company would
have incurred had Iusacell expensed, rather than, as is its current
practice under Mexican GAAP and as is permitted under U.S. GAAP, amortized
(over 18 months) the cost of cellular telephones Iusacell gives to its
contract customers. These additional expenses will be deducted from the
determination of EBITDA under the Indenture. EBITDA under U.S. GAAP would
be decreased by the amount of capitalized pre-operating expenses (net of
capitalized pre-operating revenues) for Iusacell's 450 MHz local wireless
subsidiary which, beginning in 1996, are expensed. Under Mexican GAAP,
these net pre-operating expenses are capitalized. Adjusted EBITDA under
U.S. GAAP in this Prospectus is "adjusted" from EBITDA under U.S. GAAP by
not expensing these pre-operating amounts, which adjustment is consistent
with EBITDA under the Indenture as the Company's local 450 MHz wireless
subsidiary will be an Unrestricted Subsidiary under the Indenture. For the
year ended December 31, 1996, Adjusted EBITDA under U.S. GAAP is different
from EBITDA under Mexican GAAP in that the amount of a reserve for
employee severance is expensed under U.S. GAAP (with a corresponding
decrease in Adjusted EBITDA), while such reserve amount is considered an
extraordinary item under Mexican GAAP (with no effect on EBITDA). See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 19 to the Audited Consolidated Financial
Statements. EBITDA should not be considered in isolation or as a
substitute for the consolidated income statements or the consolidated
statements of changes in financial position prepared in accordance with
Mexican GAAP or as a measure of profitability or liquidity.
(6) EBITDA margin is calculated by dividing EBITDA by the total revenues for
the respective period.
(7) The ratio of earnings to fixed charges covers continuing operations, and
for this purpose (a) earnings consist of income (loss) before income taxes
plus fixed charges and (b) fixed charges consist of interest expense on
all debt (including capitalized interest), amortization of deferred
financing costs and a percentage of rental expense deemed to be interest.
Earnings were inadequate to cover fixed charges in 1993, 1994, 1995, 1996
and the first three months of 1997. The fixed charge coverage deficiency
for the years ended December 31, 1993, 1994, 1995 and 1996 and the three
months ended March 31, 1997 amounted to Ps. 201.0 million (U.S.$25.3
million), Ps. 1.2 billion (U.S.$150.4 million), Ps. 1.4 billion
(U.S.$177.2 million), Ps. 320.7 million (U.S.$40.4 million) and Ps. 36.7
million (U.S.$4.6 million) respectively. On a pro forma basis, the fixed
charge coverage deficiency for the year ended December 31, 1996 and for
the three months ended March 31, 1997 amounted to Ps. 211.6 million
(U.S.$26.7 million) and Ps. 25.1 million (U.S.$3.2 million), respectively.
(8) See Note 19 to the Audited Consolidated Financial Statements for a
discussion of certain differences between U.S. GAAP and Mexican GAAP.
(9) Total subscribers refers to the Company's subscribers in its operating
regions at the end of the respective periods. A prepay customer is
included as a subscriber if, at the end of period, the customer's prepay
card has not yet expired. See "Business-Cellular Services-Prepay
Turnover."
(10) Average subscribers represents the rolling monthly average number of
subscribers for the respective periods.
(11) Contract churn for a given period is calculated by dividing for each month
in that period the total number of contract subscribers disconnected in
such month by the number of contract subscribers at the beginning of such
month and dividing the sum of the resulting quotients for all months in
such period by the number of months in such period. For a discussion of
prepay turnover, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Increase in Prepay Subscriber Base."
(12) Average monthly MOUs per subscriber is calculated by dividing the total
MOUs for the respective period by the average number of subscribers for
such period and dividing the quotient by the number of months in such
period.
(13) Nominal average monthly cellular revenue per subscriber is calculated by
dividing the total cellular service revenue for the respective period (in
nominal Pesos) by the average number of subscribers for such period and
dividing the quotient by the number of months in such period.
(14) Nominal cost to acquire a new subscriber represents sales, marketing and
advertising costs, plus the cost of cellular telephones Iusacell gives to
its cellular customers, for the respective period (in nominal Pesos)
divided by the gross customer additions for such period.
44
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Financial Information has
been derived by the application of pro forma adjustments to the Company's
historical consolidated financial statements included elsewhere in this
Prospectus. The unaudited pro forma consolidated statements of income for the
periods presented give effect to (i) the Financing and the application of the
proceeds thereof and (ii) the cost savings related to the elimination in April
1997 of certain managerial and administrative positions (collectively, the "Pro
Forma Adjustments"), as if each had occurred on January 1, 1996. The unaudited
pro forma consolidated balance sheet as of March 31, 1997 gives effect to the
Financing and the application of the proceeds thereof as if they had occurred on
March 31, 1997. The Unaudited Pro Forma Consolidated Financial Information has
been reviewed by Coopers & Lybrand, Despacho Roberto Casas Alatriste,
independent accountants.
The Unaudited Pro Forma Consolidated Financial Information is for
comparative purposes only and does not purport to represent what the Company's
financial position or results of operations would actually have been had the
events occurred on the assumed dates or to project the Company's financial
position or results of operations for any future date or future period. The
Unaudited Pro Forma Consolidated Financial Information should be read in
conjunction with the Company's historical consolidated financial statements and
related notes included elsewhere in this Prospectus. The Pro Forma Adjustments,
as described in the accompanying notes to the Unaudited Pro Forma Consolidated
Financial Information, are based on available information and certain
assumptions which management believes are reasonable.
The Unaudited Pro Forma Consolidated Financial Information assumes no
amounts are outstanding under the U.S.$100.0 million Revolving Credit Facility
and the U.S.$150.0 million Bell Atlantic Facility. See "Capitalization."
The information included in the pro forma consolidated statement of income
and the pro forma consolidated balance sheet is in accordance with Mexican GAAP.
The notes to the Unaudited Pro Forma Consolidated Financial Information include
a reconciliation of pro forma income in accordance with Mexican GAAP to pro
forma income in accordance with U.S. GAAP for the year ended December 31, 1996.
45
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
As of March 31, 1997
<TABLE>
<CAPTION>
Actual Adjustments Pro Forma(a) Pro Forma(a)
---------- ---------------- ------------ ------------
(Thousands of constant March 31, 1997 Pesos) (Thousands of
U.S. dollars)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents .............. Ps. 57,950 Ps. 1,189,500(b) Ps. 712,453 U.S.$ 89,843
991,250(c)
(1,454,877)(d)
(71,370)(e)
Accounts receivable:
Trade, net .......................... 144,501 144,501 18,222
Related parties ..................... 8,946 8,946 1,128
Recoverable taxes and other ......... 148,600 148,600 18,739
---------- ---------------- ------------ ------------
302,047 302,047 38,089
Inventories ............................ 71,759 71,759 9,049
---------- ---------------- ------------ ------------
Total current assets .............. 431,756 654,503 1,086,259 136,981
Investment in associated companies ..... 94,931 94,931 11,971
Property and equipment, net ............ 3,353,392 3,353,392 422,874
Other assets ........................... 705,131 71,370(e) 776,501 97,919
Excess of cost of investments in
subsidiaries over book value, net ... 1,433,662 1,433,662 180,790
---------- ---------------- ------------ ------------
Total assets ...................... Ps. 6,018,872 Ps. 725,873 Ps. 6,744,745 U.S.$ 850,535
========== ================ ============ ============
Current liabilities:
Notes payable .......................... Ps. 793,353 Ps. (793,353)(f) Ps.-- U.S.$ --
Current portion of long-term debt ...... 105,907 (105,907)(f) -- --
Trade accounts payables ................ 256,709 256,709 32,372
Related parties ........................ 119,536 (51,545)(g) 67,991 8,574
Taxes and other payable ................ 371,286 371,286 46,820
Income tax and employee profit sharing . 17,195 17,195 2,168
---------- ---------------- ------------ ------------
Total current liabilities ......... 1,663,986 (950,805) 713,181 89,934
---------- ---------------- ------------ ------------
Long-term debt ......................... 506,272 1,189,500(b) 2,182,950 275,277
991,250(c)
(504,072)(h)
Trade accounts payable, long-term ...... 8,300 8,300 1,047
Commitments and contingencies .......... 2,123 2,123 268
---------- ---------------- ------------ ------------
Total liabilities ................. 2,180,681 725,873 2,906,554 366,526
---------- ---------------- ------------ ------------
Stockholders' equity:
Capital contributions ............... 5,867,099 5,867,099 739,861
Earned capital ...................... (2,034,019) (2,034,019) (256,497)
Minority interest ................... 5,111 5,111 645
---------- ---------------- ------------ ------------
Total stockholders' equity ........ 3,838,191 3,838,191 484,009
---------- ---------------- ------------ ------------
Total liabilities and stockholders'
equity ......................... Ps. 6,018,872 Ps. 725,873 Ps. 6,744,745 U.S.$ 850,535
========== ================ ============ ============
</TABLE>
46
<PAGE>
Notes to Unaudited Pro Forma Consolidated Balance Sheet
(Thousands of constant March 31, 1997 Pesos and U.S. dollars)
(a) The pro forma balance sheet data assumes that the following transactions
occurred on March 31, 1997:
(1) the sale of Ps. 1,189,500 (U.S.$150,000) of the Notes;
(2) the borrowing of Ps. 991,250 (U.S.$125,000) under the Term Facility;
and
(3) the repayment of Existing Indebtedness consisting of (i) short-term
debt amounting to Ps. 793,353 (U.S.$100,045), (ii) long-term debt
amounting to Ps. 609,979 (U.S.$76,920) of which Ps. 105,907
(U.S.$13,355) was repayable within a year and (iii) related party
liabilities amounting to Ps. 51,545 (U.S. $6,500). The terms and
conditions of the Existing Indebtedness are described in Note 10 to
the Unaudited Consolidated Financial Statements.
(b) Reflects gross proceeds of Ps. 1,189,500 (U.S.$150,000) from the sale of
the Notes.
(c) Reflects the borrowing of Ps. 991,250 (U.S.$125,000) under the Term
Facility.
(d) Reflects the repayment of the Existing Indebtedness.
(e) Reflects payment of new debt issuance costs of Ps. 71,370 (U.S.$9,000)
related to the Financing.
(f) Reflects the repayment of Ps. 899,260 (U.S.$113,400) of short-term debt
and current portion of long-term debt.
(g) Reflects the repayment of Ps. 51,545 (U.S.$6,500) of BANZHI Loans.
(h) Reflects the repayment of Ps. 504,072 (U.S.$63,565) of long-term debt
excluding the current portion of long-term debt.
47
<PAGE>
Unaudited Pro Forma Consolidated Statement of Income
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Actual Adjustments Pro Forma(a) Pro Forma(a)
------------- ----------- ------------- ---------------
(Thousands of constant March 31, 1997 Pesos, (Thousands of U.S.
except per share amounts) dollars, except per
share amounts)
<S> <C> <C> <C> <C>
Revenues:
Services.................................. Ps. 1,463,998 Ps. 1,463,998 U.S. $ 184,615
Telephone equipment sales and other....... 236,140 236,140 29,778
------------- ----------- ------------- --------------
Total................................... 1,700,138 1,700,138 214,393
Cost of sales:
Cost of services.......................... 536,737 536,737 67,684
Cost of telephone equipment and other..... 131,651 131,651 16,602
------------- ----------- ------------- --------------
Total................................... 668,388 668,388 84,286
------------- ----------- ------------- --------------
Gross profit.............................. 1,031,750 1,031,750 130,107
Operating expenses........................... 736,547 Ps. (42,800)(b) 693,747 87,484
Depreciation and amortization................ 604,602 10,196 (c) 614,798 77,528
------------- ----------- ------------- --------------
Operating loss (profit)................... 309,399 (32,604) 276,795 34,905
------------- ----------- ------------- --------------
Integral financing cost:
Interest expense, net..................... 281,067 (86,782)(d) 194,285 24,500
Foreign exchange loss (gain), net......... (62,115) 5,600 (e) (56,515) (7,127)
Gain from monetary position............... (348,293) (348,293) (43,921)
------------- ----------- ------------- --------------
Total................................... (129,341) (81,182) (210,523) (26,548)
------------- ----------- ------------- --------------
Equity participation in net (income) loss
of associated companies................... 5,993 5,993 756
Provisions for:
Assets tax................................ 35,199 35,199 4,439
Employee profit sharing................... -- -- --
Minority interest............................ (3,179) (3,179) (401)
Extraordinary item........................... 145,192 145,192 18,309
------------- ----------- ------------- --------------
Net income (loss)............................ Ps. (363,263) Ps. 113,786 Ps. (249,477) U.S. $ (31,460)
============= =========== ============= ==============
Net income (loss) per share.................. Ps. (0.37) Ps. (0.25) U.S. $ (0.03)
============= ============= ==============
Weighted average number of shares
outstanding............................... 981,624 981,624 981,624
============= ============= ==============
</TABLE>
48
<PAGE>
Unaudited Pro Forma Consolidated Statement of Income
For the Three Month Period Ended March 31, 1997
<TABLE>
<CAPTION>
Actual Adjustments Pro Forma(a) Pro Forma(a)
------------ --------------- ------------ -------------------
(Thousands of constant March 31, 1997 Pesos, (Thousands of U.S.
except per share amounts) dollars, except per
share amounts)
<S> <C> <C> <C> <C>
Revenues:
Services.................................. Ps. 318,766 Ps. 318,766 U.S.$ 40,197
Telephone equipment sales and other....... 51,474 51,474 6,491
------------ --------------- ------------ -------------
Total................................... 370,240 370,240 46,688
Cost of sales:
Cost of services.......................... 103,645 103,645 13,070
Cost of telephone equipment and other..... 28,317 28,317 3,571
------------ --------------- ------------ -------------
Total................................... 131,962 131,962 16,641
------------ --------------- ------------ -------------
Gross profit.............................. 238,278 238,278 30,048
Operating expenses........................... 167,295 Ps. (10,300)(b) 156,995 19,798
Depreciation and amortization................ 132,883 2,549 (c) 135,432 17,078
------------ --------------- ------------ -------------
Operating loss (profit)................... 61,900 (7,751) 54,149 6,828
------------ --------------- ------------ -------------
Integral financing cost:
Interest expense, net..................... 54,810 (10,035)(d) 44,775 5,646
Foreign exchange loss (gain), net......... 16,890 5,000(e) 21,890 2,760
Gain from monetary position............... (111,600) (111,600) (14,073)
------------ --------------- ------------ -------------
Total................................... (39,900) (5,035) (44,935) (5,667)
------------ --------------- ------------ -------------
Equity participation in net (income) loss
of associated companies................... (331) (331) (42)
Provisions for:
Assets tax................................ 10,822 10,822 1,365
Employee profit sharing................... -- -- --
Minority interest............................ (242) (242) (30)
------------ --------------- ------------ -------------
Net income (loss)............................ Ps. (32,249) Ps. 12,786 Ps. (19,463) U.S.$ (2,454)
============ =============== ============ =============
Net income (loss) per share.................. Ps. (0.03) Ps. (0.02) U.S.$ (0.002)
============ ============ =============
Weighted average number of shares
outstanding (thousands)................... 1,035,094 1,035,094 1,035,094
============ ============ =============
</TABLE>
49
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statements of Income
(Thousands of constant March 31, 1997 Pesos and
U.S. dollars, except per share amounts)
(a) The pro forma consolidated statements of income data assume the following
transactions occurred on January 1, 1996:
(1) the sale of Ps. 1,189,500 (U.S.$150,000) of the Notes;
(2) the borrowing of Ps. 991,250 (U.S.$125,000) under the Term Facility;
and
(3) the repayment of Existing Indebtedness consisting of (i) short-term
debt amounting to Ps. 793,353 (U.S.$100,045) and (ii) long-term debt
amounting to Ps. 609,979 (U.S.$76,920) of which Ps. 105,907
(U.S.$13,355) was repayable within a year and (iii) related party
liabilities amounting to Ps. 51,545 ($6,500). The terms and
conditions of the Existing Indebtedness are described in Note 10 to
the Unaudited Consolidated Financial Statements.
(b) Reflects the pro forma cost savings related to the elimination of certain
managerial and administrative positions in April 1997 in connection with the
reorganization that followed Bell Atlantic's assumption of management control.
The pro forma adjustments give effect to the cost savings resulting from this
reduction in personnel as though it had occurred as of January 1, 1996.
Management does not have plans to replace such personnel and does not anticipate
that the staff reductions will affect the operating revenues of the Company.
(c) Reflects the amortization of deferred finance charges arising from the
payment of debt issuance costs. These costs amount to Ps. 71,370 (U.S.$9,000)
and are being amortized over the 7-year term of the Notes.
(d) Reflects the Financing and the application of the proceeds thereof as though
they had occurred as of January 1, 1996. The adjustments do not include any
interest income assumed to have been derived from the proceeds of the Financing.
Net reduction in interest expense was determined as follows:
<TABLE>
<CAPTION>
Year Three Months
Ended Ended
December 31, March 31,
1996 1997
------------ ------------
<S> <C> <C>
Interest expense of the Notes calculated at an 1 9,737
assumed rate of 10% .................................. Ps. 118,950 Ps. 2
Interest expense of the Term Facility calculated at an
assumed rate of three-month LIBOR + 175 basis points
(7.60%) .............................................. 75,335 18,834
------------ ------------
Increase in interest expense as a result of the Financing 194,285 48,571
------------ ------------
Total reduction in the interest expense from
the repayment of Existing Indebtedness ............... (281,067) (58,606)
------------ ------------
Net reduction in interest expense ....................... Ps. (86,782) Ps. (10,035)
============ ============
</TABLE>
(e) The adjustment to the foreign exchange gain or loss represents the foreign
exchange loss incurred as a result of holding an increased amount of net
monetary liabilities denominated in U.S. dollars.
50
<PAGE>
(f) The pro forma consolidated statements of income are prepared on the basis of
Mexican GAAP. A description and quantification of the significant differences
between Mexican GAAP and U.S. GAAP is included in the Audited Consolidated
Financial Statements of the Company. Pro forma net income, under Mexican GAAP,
is reconciled to pro forma net income on a U.S. GAAP basis for the year ended
December 31, 1996 as follows:
Pro forma net loss under Mexican GAAP ................. Ps. 249,477
U.S. GAAP adjustments:
Deferred income taxes ............................... (179,675)
450 MHz service ..................................... 64,106
Gain on net monetary position ....................... (105,957)
-----------
Total adjustments under U.S. GAAP ..................... (221,526)
-----------
Pro forma net loss under U.S. GAAP .................... Ps. 27,951
===========
Pro forma U.S. GAAP loss per share .................... Ps. 0.03
===========
A Ps. 145,192 (U.S.$18,309) charge relating to the restructuring of the
Company's operations, which was recorded as an extraordinary charge under
Mexican GAAP, would be classified as an item of operating expense under U.S.
GAAP.
51
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All Peso amounts discussed herein are presented in thousands of constant
March 31, 1997 Pesos in accordance with Mexican GAAP, except as otherwise
indicated.
General
The following discussion and analysis is intended to facilitate an
understanding and assessment of significant changes and trends in the historical
results of operations and financial condition of Iusacell and factors affecting
the Company's financial resources. It should be read in conjunction with the
Consolidated Financial Statements and the notes thereto appearing elsewhere in
this Prospectus. The Consolidated Financial Statements have been prepared in
accordance with Mexican GAAP, which differs in significant respects from U.S.
GAAP. Note 19 to the Audited Consolidated Financial Statements provides a
description of the principal differences between Mexican GAAP and U.S. GAAP as
they relate to the Company, and a reconciliation to U.S. GAAP of the Company's
net income and total stockholders' equity as of and for the years ended December
31, 1994, 1995 and 1996.
As a Mexican company, Iusacell maintains its financial records in Pesos.
Pursuant to Bulletin B-10, "Recognition of the Effects of Inflation on Financial
Information," and Bulletin B-12, "Statement of Changes in Financial Position,"
issued by the Mexican Institute of Public Accountants, the Company's financial
statements are reported in period-end Pesos to adjust for the interperiod
effects of inflation. In calendar years 1994, 1995, and 1996, the rates of
inflation in Mexico, as measured by changes in the INPC, were 7.1%, 52.0%, and
27.7% respectively. In the first three months of 1996 and 1997, the INPC
inflation rates were 8.3% and 5.9%, respectively. The presentation of financial
information in period-end, or constant, currency units is intended to eliminate
the distorting effect of inflation on the financial statements and to permit
comparisons across comparable periods in comparable monetary units. Except where
otherwise indicated, financial data for all periods in the Consolidated
Financial Statements and throughout this Prospectus have been restated in
constant Pesos as of March 31, 1997. References in this Prospectus to "real"
amounts are to inflation-adjusted Pesos and to "nominal" amounts are to
unadjusted historical Pesos. Bulletin B-10 requires the Company to restate
nonmonetary assets at current replacement cost, to restate nonmonetary
liabilities using the INPC and to restate the components of stockholders' equity
using the INPC. The effects of these inflation accounting principles have not
been eliminated in the reconciliation to U.S. GAAP. See Note 19 to the Audited
Consolidated Financial Statements.
In reporting under Mexican GAAP and in accordance with Bulletin B-10, the
Company is required to quantify all financial effects of operating and financing
the business under inflationary conditions. For presentation purposes, "integral
financing cost (gain)" refers to the combined financial effects of: (i) net
interest expense or interest income; (ii) net foreign exchange gains or losses;
and (iii) net gains or losses on monetary position. Net foreign exchange gains
or losses reflect the impact of changes in foreign exchange rates on assets and
liabilities denominated in currencies other than Pesos. A foreign exchange loss
arises if a liability is denominated in a foreign currency which appreciates
relative to the Peso between the time the liability is incurred and the date it
is repaid, as the appreciation of the foreign currency results in an increase in
the amount of Pesos which must be exchanged to repay the specified amount of the
foreign currency liability. The gain or loss on monetary position refers to the
gains or losses realized from holding net monetary assets or liabilities and
reflects the impact of inflation on monetary assets and liabilities. For
example, a gain on monetary position results from holding net monetary
liabilities in Pesos during periods of inflation, as the purchasing power of the
Peso declines over time.
Peso Devaluation and Inflation
On December 20, 1994, the Mexican government responded to exchange rate
pressures by increasing the upper limit of the then existing free market
Peso/U.S. dollar exchange rate band by 15% and, two days later, by eliminating
the band altogether to allow the Peso to fluctuate freely against the U.S.
dollar. This resulted in a major devaluation of the Peso relative to the U.S.
dollar. By December 31, 1994, the Noon Buying Rate, which had been Ps. 3.4662 to
U.S.$1.00 on December 19, 1994, was Ps. 5.0000 to U.S.$1.00, representing a
44.3% devaluation. The Peso continued to decline against the U.S. dollar during
1995, closing at a Noon Buying Rate of Ps. 7.7400
52
<PAGE>
to U.S.$1.00 on December 31, 1995, which represented a 54.8% devaluation
relative to the U.S. dollar. On December 31, 1996, the Noon Buying Rate was Ps.
7.8810 to U.S.$1.00, representing a 1.8% decline of the Peso as compared to
December 31, 1995. Cumulatively, the value of the Peso declined 127.4% from
December 19, 1994 to December 31, 1996. On March 31, 1997, the Noon Buying Rate
was Ps. 7.9300 to U.S.$1.00, and on September 2, 1997, the Noon Buying Rate was
Ps.7.7575 to U.S.$1.00.
The Mexican government's response to the devaluation and ensuing high
levels of inflation was to enact a series of fiscal and monetary measures which,
among other things, restricted credit and the money supply, raised prices for
public goods and services, and restricted federal spending. As a result, the
annual inflation rate declined from 52.0% in 1995 to 27.7% in 1996, and GDP grew
by 5.1% in 1996 compared to a contraction of 6.2% in 1995. Preliminary estimates
of annualized GDP growth and inflation for the three months ended March 31, 1997
were 5.1% and 5.9%, respectively. GDP growth in 1996 and the first quarter of
1997 was largely concentrated in the export and construction sectors of the
economy, with little recovery in the consumer segment.
Impact on the Company's Results of Operations
The general economic conditions in Mexico resulting from inflation and the
devaluation of the Peso have had an overall negative impact on the Company's
results of operations primarily as a result of the following factors:
(i) The devaluation resulted in a significant decrease in the
purchasing power of Mexican consumers, resulting in a decrease in the
demand for cellular telephony.
(ii) Due to competitive market conditions and the overall state of
the Mexican economy, the Company was not able to increase its prices in
line with the significant inflation in the economy.
(iii) The significant inflation led to an upward restatement of the
Company's assets and therefore resulted in a substantial increase in
depreciation and amortization expense in 1995, which had an adverse impact
on the Company's earnings. In 1996, while there was still significant
inflation, depreciation and amortization expense decreased as the result
of a substantial reduction in capital expenditures and the reduction in
the carrying value of dollar-acquired non-monetary assets in accordance
with the rules of the Mexican Stock Exchange (which in turn resulted from
the fact that the rate of inflation exceeded that of devaluation).
(iv) The significant devaluation of the Peso as compared to the U.S.
dollar in 1994 and 1995 resulted in the recording of exchange losses given
the Company's net U.S. dollar liability position in both years. In 1996,
the Company recorded a gain because of the appreciation of the Peso
against the U.S. dollar during a significant portion of the year.
(v) A portion of the Company's costs and expenses (e.g.,
depreciation and amortization and interest expense) is denominated in U.S.
dollars or calculated on the basis of Peso/U.S. dollar devaluation, while
almost all of the Company's revenues are denominated in Pesos, which, in a
period of Peso devaluation, had a negative impact on the Company's
margins.
Impact on the Company's Financial Condition
The general economic conditions in Mexico resulting from inflation and the
devaluation of the Peso have had an overall negative impact on the Company's
financial condition as a result of the following factors:
(i) The majority of the Company's indebtedness is denominated in
U.S. dollars. As a result, the Peso carrying amount of such debt increased
to reflect the additional Pesos required to meet such foreign liabilities.
(ii) Whenever the inflation rate exceeds the rate of devaluation, as
was the case in 1996 and in the first quarter of 1997, the carrying value
of the Company's assets purchased in foreign currencies will
53
<PAGE>
be reduced. This is because, assuming the foreign currency value of a
given asset remains unchanged between periods, the value of such asset for
the prior period is restated upwards using the inflation rate, while the
valuation of such asset for the current period is restated using a foreign
exchange rate which increased at a lower rate.
Increase in Prepay Subscriber Base
In June 1996, the Company introduced its Control Plus prepay program in
response to economic conditions in Mexico and to a prepay cellular card program
offered by Telcel. Control Plus has been extremely popular, and prepay customers
have increased from an insignificant percentage of the Company's subscriber base
in June 1996 to 35.1% at March 31, 1997. The Company expects that the percentage
of its customers who subscribe to cellular service on a prepay basis will
continue to increase.
The Company believes that prepay programs represented an effective means
of attracting and retaining subscribers during a difficult economic and
competitive environment in 1996. However, the Company also believes that prepay
plans are attractive to a wider range of cellular consumers than just those
experiencing financial difficulties. In addition to helping customers control
costs, Control Plus has no monthly bill and allows customers to prepay for
cellular services in cash. Iusacell is marketing these features to new classes
of potential customers and, as a result, expects prepay plans to continue to
help the Company increase cellular market penetration, grow its customer base
and generate positive cash flow. Compared to the average contract plan, prepay
plans involve higher per minute airtime charges, a lower cost to acquire new
subscribers (principally because the Company does not provide a phone to such
customers, as it does with its contract subscribers), and no billing expenses or
credit or collection risk. Prepay customers are also potential customers for the
Company's other services and products, and the Company intends to focus
marketing efforts on "migrating" qualified prepay customers to higher revenue
contract plans. In addition, the Company is considering new methods to increase
minutes of use by its prepay customers.
Prepay customers, on average, have substantially lower MOUs than contract
customers and do not pay monthly fees and, as a result, generate substantially
lower average monthly revenues per customer. Moreover, because prepay cards
expire after 60 days, prepay customers have more frequent opportunities to
decide whether to renew service with the Company or to choose the Company's
competitor as their cellular carrier. If a prepay customer "turns over" his or
her prepay card by not adding credit to the card prior to its 60-day expiration,
the customer loses his or her assigned telephone number and must reapply for a
new number, which may be obtained either from the Company or from the Company's
competitor. Iusacell believes that, because the Company currently waives its
activation fee for customers who have previously turned over while Telcel
generally does not, such customers currently have an incentive to choose the
Company's Control Plus program when reapplying for telephone numbers.
Between May 31, 1996 and March 31, 1997, the number of the Company's
prepay customers increased from 2,730 to 87,872. Since the Company's first
Control Plus customers began to turn over, a monthly average of 17.6% (measured
through May 31, 1997) of the Company's total prepay customers have turned over.
This turnover statistic, however, does not account for customers who reactivated
Control Plus prepay service after their cards expired. The Company is evaluating
different methods of determining turnover, as the current method is dependent
upon, among other things, the number of days of use the Company permits before
expiration of the prepay cards (currently 60 days). Iusacell is installing a new
prepay operating system which the Company expects will enable the Company to
better track those customers who turn over by determining the percentage of
customers who subsequently purchase prepay cards from the Company and the time
period between such purchases. In addition, Iusacell anticipates that the new
prepay operating system, together with initiatives to increase the number of
distribution points for prepay cards, improve customer care and otherwise
improve the convenience of the Company's prepay program, will enhance the
Company's ability to retain prepay customers. See "Risk Factors-Mexican
Governmental, Political, Economic and Social Factors" and "-Increased
Competition; Disputes with Telmex."
54
<PAGE>
In 1996, the Company experienced a 22.8% reduction in the number of
contract customers, who generate higher average revenue per subscriber than do
prepay customers. Many of these contract customers migrated to the Company's
prepay program, resulting in lower revenues and cash flow from these customers.
Iusacell did not introduce Control Plus until June 1996. Consequently, results
of operations in 1996 do not fully reflect the shift from contract to prepay
customers (which shift is more clearly reflected in the comparison between the
first quarters of 1996 and 1997). If the year-end mix of contract and prepay
customers had been in effect throughout 1996, the effect of the lower per
customer revenues and cash flow resulting from the shift in Iusacell's
subscriber mix would have been significantly greater. The Company believes,
however, that this effect would have been partially offset by having been able
to offer Control Plus prior to June 1996 to its credit-challenged contract
customers who were otherwise switching to Telcel's prepay plan and to those
prospective customers who were choosing Telcel's prepay plan in the absence of
alternatives. The Company anticipates further growth in its prepay subscriber
base and an increase in the percentage of total subscribers who are prepay
customers, as well as growth in the number of contract subscribers. There can be
no assurance, however, that the Company will in fact achieve such growth.
Local Telephony in the 450 MHz Frequency Band; CDMA Overlay
The Company has experienced substantial delays in obtaining the SCT's
approval of its technical and economic plans for local wireless service in the
450 MHz frequency band. However, on June 10, 1997, the SCT and the Company
reached agreement on a process by which the Company could obtain a concession
issued and recognized by the SCT to provide local wireless service in the 450
MHz frequency band. Under this agreement Iusacell would convert and consolidate
certain of its existing concessioned radiotelephony frequencies into 450 MHz
spectrum in Regions 4, 5, 6, 7 and 9 and would have a right of first refusal to
acquire the concessions to provide local wireless service over such frequencies
at prices derived from the prices of the winning bids in the auctions for 450
MHz and 1.9 GHz (PCS) frequency bands scheduled by the Mexican government for
the fall of 1997. Until the conclusion of such auctions, Iusacell has received a
provisional authorization to use 450 MHz spectrum to provide local wireless
service to up to 50,000 terminals.
As a result of the delays experienced by the Company and the uncertainty
relating to the Company's ability, at a commercially acceptable cost, to
implement full scale local wireless service in the 450 MHz frequency band, the
Company is exploring alternatives for providing local telephony services,
including limited zone wireless service in the 800 MHz (cellular) or 1.9 GHz
(PCS) frequency bands deploying digital technology that permits mobility. At
this time, however, the Company has not made a decision as to which alternative
to pursue and continues with its trial program to provide local wireless service
in the 450 MHz frequency band. If the Company were to determine not to continue
to pursue local wireless service in the 450 MHz frequency band, the Company
would record substantial non-cash losses.
The Company believes that approximately 75% of the fixed assets currently
employed in its 450 MHz trial service could be used in its cellular operations
(with the cost of each such asset being depreciated over its remaining useful
life). No assurance can be given that the Company will be able to sell the
remaining fixed assets or that any such sale would be made at or in excess of
book value. If such remaining fixed assets are sold for less than their book
value, the Company would be required to write off such assets to the extent of
the deficiency between their book value and the sale proceeds. At March 31,
1997, the book value of the fixed assets (including capitalized interest)
deployed in the Company's 450 MHz local wireless service totaled Ps. 616.2
million (U.S.$77.7 million). Assuming that 25% of these fixed assets could not
be sold, the non-cash charge to Iusacell's earnings would be Ps. 154.0 million
(U.S.$19.4 million).
In addition, if the Company's 450 MHz local wireless project were to be
discontinued, Iusacell would also be required to write off the pre-operating
expenses (net of pre-operating revenues) from the project that the Company has
been capitalizing in accordance with Mexican GAAP. At March 31, 1997, a total of
Ps. 66.0 million (U.S.$8.3 million) of such capitalized pre-operating expenses
(net of pre-operating revenues) for the 450 MHz local wireless project were
included in "Other assets" on the Company's balance sheet.
Between the write-off of fixed assets (assuming 25% of them were not able
to be used or sold) and the write-off of net capitalized pre-operating expenses,
the Company's total non-cash loss in the event of a
55
<PAGE>
discontinuation of the 450 MHz local wireless project would have been Ps. 220.0
million (U.S.$27.7 million) at March 31, 1997. See Note 19 to the Audited
Consolidated Financial Statements and Note 17 to the Unaudited Consolidated
Financial Statements.
The Company is party to certain agreements regarding the supply and
servicing of equipment for its 450 MHz local wireless service, including an
agreement with a foreign supplier under which Iusacell contracted to buy
approximately U.S.$315 million of equipment and services (see "Business-Network
and Equipment"). These agreements will be terminated if the Company does not
deploy its 450 MHz local wireless service, and the costs, if any, to the Company
associated with the termination of these agreements would be in addition to the
non-cash losses described above. Such costs could be substantial. See
"Business-Network and Equipment-Other Services."
The Company plans to launch a fully digital CDMA overlay network in 1998
in order to upgrade its existing integrated network infrastructure. The overlay
will begin in Region 9 in the first quarter of 1998, with the overlay for the
remaining regions to be launched by mid-1999. Depending on the choice of vendor
for CDMA equipment, the Company may be required to discontinue using a
substantial portion of its existing network infrastructure, particularly the
TDMA technology now being used for internal purposes in Region 9 and,
accordingly, could record substantial non-cash losses in respect thereof. The
Company cannot anticipate the magnitude of any such potential write-off at this
time. The Company anticipates maintaining its analog (AMPS) infrastructure
following implementation of the CDMA overlay to continue to provide service to
its existing analog subscriber base. See "Business-Network and Equipment."
Recent Developments
The Company's revenues for the second quarter of 1997 were Ps. 428.5
million, a 12.6% increase over revenues for the first quarter of 1997. The
Company's EBITDA for the second quarter of 1997 (as defined in Note 5 under
"Selected Historical and Pro Forma Consolidated Financial and Operating Data")
was Ps. 70.3 million, a 3.6% decrease as compared to EBITDA for the first
quarter. As a percentage of revenues, EBITDA was 16.5% in the second quarter as
compared with 19% in the first quarter. EBITDA for the second quarter was 11%
lower than the pro forma first quarter EBITDA shown in the "Selected Historical
and Pro Forma Consolidated Financial and Operating Data." Net loss in the second
quarter, which amounted to Ps. 67.1 million, was more than double the net loss
in the first quarter. For purposes of the foregoing comparisons, first quarter
results have been restated to constant June 30, 1997 Pesos to reflect second
quarter inflation, which was approximately 2.8%.
The Company's total number of cellular subscribers increased by 12.4% in
the second quarter to 281,740, including 176,134 contract subscribers (an 8%
increase from March 31, 1997) and 105,606 prepay subscribers (a 20% increase
from March 31, 1997). Average monthly MOUs per subscriber were 106 in the second
quarter, as compared with 108 in the first quarter, while nominal average
monthly revenue per subscriber declined to Ps. 463 in the second quarter from
Ps. 469 in the first quarter. Contract churn declined from 3.1% in the first
quarter to 2.7% in the second quarter, and the monthly average of prepay
turnover decreased to approximately 16.9% through June 30, 1997.
The growth in the second quarter total revenues was primarily generated by
the increase in the number of cellular subscribers, as well as a substantial
increase in telephone equipment sales and other revenue. Second quarter results
were adversely affected by substantial costs (approximately Ps. 8.2 million)
associated with leasing lines from Telmex in order to meet the Company's
obligations under its long distance concession, without a commensurate increase
in long distance subscribers and because of lower than expected long distance
revenue during the quarter. The Company expects such leased line costs to
continue, but is unable to predict when or whether it will be able to generate
sufficient long distance revenues to offset such costs. The Company capitalizes
the costs relating to the installation of such leased lines.
Although second quarter results benefitted from the incremental revenue
associated with the increase in the number of subscribers, such results were
adversely affected by a significant reduction in average monthly MOUs per prepay
subscriber, which the Company believes likely was in response to the price
increases announced in April and May 1997. Average MOUs per contract customer
have, however, remained relatively stable since the price increases were
implemented. The Company believes that second quarter results do not reflect the
56
<PAGE>
anticipated benefits of the price increases because the price increases were not
fully implemented until June 1997 and because of the reduction in usage by
prepay customers. The Company cannot determine the extent to which its
subscribers have reduced usage in response to the price increases.
The higher net loss in the second quarter was a result of the foregoing
factors and a significantly lower gain from monetary position due to the lower
level of inflation during the period.
On August 14, 1997, the Company and Telmex entered into a settlement
agreement with respect to the fees charged by Telmex to Iusacell through May 31,
1997 for interconnection services, switched long distance services and certain
other services billed by Telmex as of the date of the settlement agreement. The
Company paid Telmex Ps. 170.0 million (U.S.$21.8 million) of which Ps. 22.2
million (U.S.$2.8 million) constituted value-added tax and Ps. 28.6 million
(U.S.$3.7 million) were accounted for as interest expense.
In August 1997, the Company and Telmex also entered into amendments to the
current interconnection agreement pursuant to which Iusacell agreed to pay
Telmex an interim interconnection rate of Ps. 0.31 (U.S.$0.04) per minute
retroactive to June 1, 1997 (as opposed to the Ps. 0.45 (U.S.$0.056) per minute
rate previously charged by Telmex) and Telmex agreed to extend to the Company
the 38% discount available to other large business customers for use of its long
distance network. Iusacell and Telmex are currently negotiating the terms of an
entirely new interconnection agreement the terms of which will also be
retroactive to June 1, 1997. The Company anticipates that this new
interconnection agreement will implement an even lower interconnection rate and
will provide for some form of reciprocal payments by Telmex for interconnecting
with Iusacell's networks.
On September 30, 1997, the Company consummated the sale of its direct and
indirect minority interests in its Ecuadorean cellular company, Conecel, and its
Ecuadorean paging company Corptilor, S.A. to a corporation controlled by the
controlling shareholder of the majority shareholder of these companies. At the
closing, Iusacell received U.S.$29.4 million in cash consideration for its
direct interests in those companies and anticipates receiving an additional
U.S.$3.4 million in respect of its indirect interests by the end of 1997.
Results of Consolidated Operations
The following table sets forth for the periods indicated the percentage
relationships which certain amounts bear to revenues:
57
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
----------------------------- -----------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Cellular service revenues ....................... 83.1% 68.1% 70.2% 80.5% 79.8%
Other service revenues .......................... 4.9 16.8 15.9 7.6 6.3
----- ----- ----- ----- -----
Total service revenues ...................... 88.0 84.9 86.1 88.1 86.1
Telephone equipment and other revenues .......... 12.0 15.1 13.9 11.9 13.9
----- ----- ----- ----- -----
Total ....................................... 100.0 100.0 100.0 100.0 100.0
Cost of sales:
Cost of services ................................ 25.6 31.1 31.6 29.0 28.0
Cost of telephone equipment and other ........... 5.9 8.4 7.7 4.5 7.6
----- ----- ----- ----- -----
Total ....................................... 31.5 39.5 39.3 33.5 35.6
Gross profit ...................................... 68.5 60.5 60.7 66.5 64.4
Operating expenses ................................ 42.6 44.2 43.3 39.1 45.2
Depreciation and amortization ..................... 25.6 35.2 35.6 34.9 35.9
----- ----- ----- ----- -----
Operating profit (loss) ........................... 0.3 (18.9) (18.2) (7.5) (16.7)
Integral financing cost (gain):
Interest expense, net ........................... 9.0 9.1 16.5 16.1 14.8
Foreign exchange (gain) loss, net ............... 23.0 37.0 (3.7) (11.0) 4.6
Gain on net monetary position ................... (2.2) (26.3) (20.5) (36.9) (30.1)
----- ----- ----- ----- -----
Total ....................................... 29.8 19.8 (7.7) (31.8) (10.7)
Equity participation in net income (loss) of
associated companies ............................ 0.1 (2.0) (0.4) -- --
Income (loss) from continuing operations before
asset tax, employee profit sharing, minority
interest and extraordinary item ................. (29.4) (40.7) (10.9) 24.3 (6.0)
Provision for asset tax and employee profit sharing 1.4 1.6 2.1 1.8 2.9
Minority interest ................................. -- 1.9 0.1 0.9 --
Extraordinary item ................................ -- -- 8.5 -- --
----- ----- ----- ----- -----
Net income (loss) ................................. (30.8)% (40.4)% (21.4)% 23.4% (8.9)%
===== ===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Revenues
Total revenues consist of cellular service revenues, revenues from other
services and telephone equipment and other revenues. The Company's service
revenues are principally derived from the provision of cellular telephone
service in Mexico. Other service revenues consist of revenues from the provision
of telecommunication services in Mexico other than cellular and, until December
1996, from revenues derived from the Company's consolidated 51% investment in
Iusatel Chile, S.A. de C.V. ("Iusatel Chile"), a Chilean long distance provider.
The Company sold its 51% stake in Iusatel Chile in December 1996. See
"Business-International Joint Ventures." Telephone equipment and other revenues
consist primarily of revenues from sales of cellular telephone equipment and
accessories, as well as revenues attributable to out-roaming (which revenues are
passed through to the applicable host operator).
58
<PAGE>
The following table sets forth the source of the Company's revenues for
the three months ended March 31, 1996 and 1997.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1997
----------------- ------------------
Ps. % Ps. % % Change
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Cellular service revenues ............ 364.2 80.5% 295.5 79.8% (18.9)%
Other service revenues ............... 34.4 7.6 23.3 6.3 (32.3)
----- ----- ----- -----
Total service revenues ............. 398.6 88.1 318.8 86.1 (20.0)
Telephone equipment and other revenues 53.9 11.9 51.5 13.9 (4.5)
----- ----- ----- -----
Total revenues ..................... 452.5 100.0% 370.3 100.0% (18.2)%
===== ===== ===== =====
</TABLE>
Cellular Services. The table below sets forth cellular service revenues by
source and operating region for the three months ended March 31, 1996 and 1997.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1996(1)
---------------------------------------------------------
Regions 5, 6 and 7
Region 9 Combined Total
--------------- --------------- ---------------
Ps. % Ps. % Ps. %
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Airtime(2) ...................... 79.8 35.4% 40.6 29.3% 120.4 33.1%
Monthly fees .................... 109.7 48.6 64.7 46.6 174.4 47.9
Long distance(3) ................ 12.2 5.4 10.3 7.4 22.5 6.2
Value-added services(4) ......... 22.3 9.9 12.3 8.9 34.6 9.5
In-roaming(5) ................... 1.5 0.7 10.7 7.8 12.2 3.3
Activation fees ................. -- -- 0.1 -- 0.1 --
----- ----- ----- ----- ----- -----
Total cellular service revenues 225.5 100.0% 138.7 100.0% 364.2 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997(1)
---------------------------------------------------------
Regions 5, 6 and 7
Region 9 Combined Total
--------------- --------------- ---------------
Ps. % Ps. % Ps. %
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Airtime(2) ...................... 66.8 38.9% 41.5 33.6% 108.3 36.7%
Monthly fees .................... 74.3 43.2 48.9 39.6 123.2 41.7
Long distance(3) ................ 20.3 11.8 11.8 9.5 32.1 10.9
Value-added services(4) ......... 7.7 4.5 8.1 6.6 15.8 5.3
In-roaming(5) ................... 2.8 1.6 13.2 10.7 16.0 5.4
Activation fees ................. -- -- 0.1 -- 0.1 --
----- ----- ----- ----- ----- -----
Total cellular service revenues 171.9 100.0% 123.6 100.0% 295.5 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
(1) Figures reflect intercompany eliminations. These figures do not include
revenues derived from paging, long distance, local telephony or data
transmission services.
(2) Airtime is charged on a per-minute basis for peak (Monday to Friday, 8:00
A.M. to 10:00 P.M.) and non-peak airtime.
(3) Long distance revenues generated by cellular subscribers were passed
through to Telmex prior to August 11, 1996. Since that date, such revenues
have been retained by the Company.
(4) Includes fees for value-added services such as call waiting, call
transfer, emergency service, secretarial service and conference calling,
and revenues from activation bonds, insurance-related charges payable by
subscribers, rural and public telephony and the Company's cellular
magazine. Does not include charges for related airtime. Customers using
certain value-added services such as news, weather, sports and
entertainment reports are charged only for airtime, which is therefore
included in airtime.
59
<PAGE>
(5) See "Business-Cellular Services-Roaming" for a discussion of the
differences between in-roaming and out-roaming and the revenues associated
therewith. In-roaming revenues are reflected in total service revenues and
are paid to the Company by operators from other regions. Out-roaming
revenues are reflected in telephone equipment and other revenues and are
passed through to the applicable host operator.
Cellular service revenues declined by 18.9% to Ps. 295.5 million
(U.S.$37.3 million) in the first quarter of 1997 from Ps. 364.2 million
(U.S.$45.9 million) in the first quarter of 1996 and represented 79.8% and 80.5%
of total revenues in the first quarters of 1997 and 1996, respectively. Revenues
declined despite an 18.9% increase in total subscribers, while total MOUs
remained relatively stable. One of the reasons for the decline in revenues on a
constant Peso basis was the Company's inability to increase its prices in line
with inflation, which, in accordance with Mexican GAAP, is applied to the prior
reporting period to achieve constant Peso comparisons. The Company was not able
to implement any price increase during the twelve months ended March 31, 1997,
over which period inflation was 24.8%.
Cellular service revenues, particularly revenues from monthly fees and
value-added services, also declined because of the 28.2% decrease in the number
of contract subscribers in 1996. This revenue decline was partially offset by
the airtime revenue generated by the Company's prepay customers under the
Control Plus program, which was launched in June 1996. However, average monthly
revenues generated by Control Plus customers are substantially lower than those
generated by contract subscribers because Control Plus tends to attract lower
volume users who pay no monthly fee, although such users are charged, on
average, higher per minute airtime rates. The proportion of the Company's
customers that subscribes to the Company's prepay program as opposed to the
Company's contract plans has grown significantly since the introduction of
Control Plus. The Company believes that the trend towards the increased
percentage of total subscribers and the significance to the Company's revenues
of prepay plan subscribers are likely to continue.
The decline in cellular service revenues in the first quarter of 1997 from
the first quarter of 1996 was also partially offset as the Company began to
market "bundled" cellular and long distance services in the first quarter of
1997 to its existing and potential cellular subscriber base. Long distance
cellular revenues increased 42.7% to Ps. 32.1 million (U.S.$4.1 million) from
Ps. 22.5 million (U.S.$2.8 million) in the first three months of 1997 and 1996,
respectively.
Iusacell had 250,727 and 210,877 cellular subscribers at March 31, 1997
and 1996, respectively. For the twelve month period ended March 31, 1997, prepay
subscribers increased from a negligible percentage of total subscribers to 35.1%
of total subscribers and the number of contract subscribers declined by 22.0%.
Contract subscribers decreased to 162,855 from 208,714, and prepay subscribers
grew to 87,872 from 2,163. A prepay customer is included as a customer if, at
the end of the period, the customer's prepay card has not yet expired. See
"-Increase in Prepay Subscriber Base."
In the first quarter of 1997, contract subscriber churn remained
relatively flat at an average monthly level of 3.13%, compared to 3.10% during
the first quarter of 1996. Contract churn for the first quarter of 1997 reflects
net increases in contract subscribers, which reversed the previous downward
trend in contract customers experienced in 1996 when many such customers
migrated to prepay plans. In the first quarter of 1996, Iusacell experienced net
decreases in contract subscribers following the introduction by the Company's
competitor of its prepay plan. However, for the first two months of that
quarter, the Company had net increases in the number of contract subscribers.
For a discussion of prepay turnover, see "-Increase in Prepay Subscriber Base."
Average MOUs for the first quarter of 1997 were 108, a decrease of 14.3%
compared to the average of 126 MOUs in the first quarter of 1996. This decline
in MOUs was largely due to the significant increase in the number of the
Company's prepay customers, who generate substantially lower average MOUs than
contract customers. In addition, the Company has experienced a trend toward
lower MOUs as Iusacell's expanded customer base is now attracting subscribers
who tend to generate fewer MOUs.
Nominal average monthly cellular revenue per subscriber declined 9.1% to
Ps. 469 in the first quarter of 1997 from Ps. 516 in the first quarter of 1996.
The nominal average monthly cellular revenue per subscriber in the
60
<PAGE>
first quarter of 1997 was lower than in the first quarter of 1996 due to lower
average MOUs generated by prepay subscribers, as well as the trend towards lower
MOUs per subscriber as the Company expands its customer base.
Other Services. Other service revenues decreased by 32.3% to Ps. 23.3
million (U.S.$2.9 million) from Ps. 34.4 million (U.S.$4.3 million) in the first
quarters of 1997 and 1996, respectively, and represented 6.3% and 7.6% of total
revenues in the first quarters of 1997 and 1996, respectively. This decrease was
principally due to the sale of the Company's interest in Iusatel Chile in
December 1996. Revenues derived from Iusatel Chile were Ps. 15.9 million
(U.S.$2.0 million) in the first quarter of 1996.
Telephone Equipment and Other. Telephone equipment and other revenues
decreased 4.5% to Ps. 51.5 million (U.S.$6.5 million) in the first quarter of
1997 from Ps. 53.9 million (U.S.$6.8 million) in the first quarter of 1996. This
decline was primarily due to a 29.2%, or Ps. 12.2 million (U.S.$1.5 million),
decrease in out-roaming revenue, which was partially offset by a Ps. 8.0 million
(U.S.$1.0 million), increase in sales of handsets.
Cost of Sales
Iusacell's cost of sales includes cost of services, cost of telephone
equipment and other costs. Total cost of sales decreased 12.9% to Ps. 131.9
million (U.S.$16.6 million) in the first quarter of 1997 from Ps. 151.4 million
(U.S.$19.1 million) in the first quarter of 1996. As a percentage of total
revenues, cost of sales increased to 35.6% in the first quarter of 1997 from
33.5% in the first quarter of 1996.
Cost of Services. Cost of services decreased 21.0% to Ps. 103.6 million
(U.S.$13.1 million) in the first quarter of 1997 from Ps. 131.2 million
(U.S.$16.5 million) in the first quarter of 1996, and decreased to 32.5% from
32.9% of total service revenues in such quarters. Cost of services declined as
its primary components, fees paid to the Mexican government and interconnection
fees, vary based on revenues, which declined in the first quarter of 1997.
Cost of Telephone Equipment and Other. Despite the lower rate of inflation
in the first quarter of 1997 relative to the rate of inflation in the first
quarter of 1996, cost of telephone equipment and other costs increased by 40.1%
to Ps. 28.3 million (U.S.$3.6 million) in the first quarter of 1997 from Ps.
20.2 million (U.S.$2.5 million) in the first quarter of 1996, and, as a
percentage of telephone equipment and other revenues, increased to 55.0% in the
first quarter of 1997 from an unusually low 37.5% in the first quarter of 1996.
The cost of a cellular handset given to a contract customer is amortized over 18
months (the average length of the Company's cellular contract), instead of being
expensed in the period in which the customer received the telephone. If these
handset costs had been expensed instead of amortized, the Company's cost of
telephone equipment and other costs would have increased by Ps. 11.5 million
(U.S.$1.4 million) and Ps. 14.5 million (U.S.$1.8 million) in the first quarters
of 1997 and 1996, respectively. See Note 4(f) to the Unaudited Consolidated
Financial Statements. In connection with the Company's CDMA overlay to be
launched in 1998, the Company expects to provide digital handsets at no or
little cost to the customers.
Operating Expenses
Operating expenses decreased 5.4% to Ps. 167.3 million (U.S.$21.1 million)
in the first quarter of 1997 from Ps. 176.8 million (U.S.$22.3 million) in the
first quarter of 1996, and, as a percentage of total revenues, increased to
45.2% in the first quarter of 1997 from 39.1% in the first quarter of 1996.
Notwithstanding the decrease in revenues in the first quarter of 1997 from the
first quarter of 1996, sales and advertising expenses were relatively stable at
Ps. 111.6 million (U.S.$14.1 million) and Ps. 110.3 million (U.S.$13.9 million)
for the first quarter of 1997 and 1996, respectively. General and administrative
expenses declined 13.6% to Ps. 73.7 million (U.S.$9.3 million) from Ps. 85.3
million (U.S.$10.8 million), primarily due to the elimination of general and
administrative expenses from Iusatel Chile and a decline in consulting fees in
the first quarter of 1997. In accordance with Mexican GAAP, pre-operating
expenses (net of pre-operating revenues) associated with the Company's provision
of local wireless service in the 450 MHz band on a trial basis (as well as with
certain other services of the Company) are capitalized rather than, as has been
required under U.S. GAAP since the beginning of 1996,
61
<PAGE>
expensed. The pre-operating expenses (net of pre-operating revenues) that were
capitalized in the first quarter of 1997 and 1996 equalled Ps. 18.0 million
(U.S.$2.3 million) and Ps. 18.9 million (U.S.$2.4 million), respectively.
Depreciation and Amortization
Depreciation and amortization expenses decreased by 15.8% to Ps. 132.9
million (U.S.$16.8 million) in the first quarter of 1997 from Ps. 157.9 million
(U.S.$19.9 million) in the first quarter of 1996. The decline in depreciation
and amortization is attributable to the reduction in the carrying value of fixed
assets during the first quarter of 1997 as recorded in accordance with Bulletin
B-10. In connection with the Company's CDMA overlay to be launched in 1998, the
Company anticipates an increase in amortization expenses as customers trade in
their analog handsets for digital handsets provided by the Company at no or
little cost to the customers. See "-Local Telephony in the 450 MHz Frequency
Band; CDMA Overlay."
Operating Loss
In the quarter ended March 31, 1997, the Company recorded an operating
loss of Ps. 61.8 million (U.S.$7.8 million) as compared to an operating loss of
Ps. 33.6 million (U.S.$4.2 million) in the quarter ended March 31, 1996.
Integral Financing Cost (Gain)
Total integral financing represented a gain for the first three months of
1997 and 1996 of Ps. 39.9 million (U.S.$5.0 million) and Ps. 143.9 million
(U.S.$18.1 million), respectively. The lower gains reported in the first three
months of 1997 are attributable to a foreign exchange loss of Ps. 16.9 million
(U.S.$2.1 million) in 1997 compared to a foreign exchange gain of Ps. 49.8
million (U.S.$6.3 million) in 1996, as well as (due to the lower inflation rate)
a lower gain from monetary correction of Ps. 111.6 million (U.S.$14.1 million)
in 1997 compared to Ps. 167.1 million (U.S.$21.1 million) in 1996. Interest
expense declined 25% to Ps. 54.8 million (U.S.$6.9 million) for the first three
months of 1997 from Ps. 73.0 million (U.S.$9.2 million) for the first three
months in 1996, primarily due to the Company's conversion to equity of U.S.$70.1
million of shareholder debt in February 1997.
Equity Participation in Net Income (Loss) of Associated Companies
The Company recorded equity participation in net income of associated
companies of Ps. 0.3 million (U.S.$0.04 million) in the first quarter of 1997 as
compared to a loss of Ps. 0.1 million (U.S.$0.01 million) in the first quarter
of 1996. This increase was due to operating improvements in the Company's
Ecuadorean affiliate. See "Business-International Joint Ventures."
Net Income (Loss)
As a result of the factors described above, the Company's net loss was Ps.
32.2 million (U.S.$4.1 million) in the first quarter of 1997 as compared to net
income of Ps. 105.9 million (U.S.$13.4 million) in the first quarter of 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues
The following table sets forth the source of the Company's revenues for
the years ended December 31, 1995 and 1996.
62
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1995
------------------- -------------------
Ps. % Ps. % % Change
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Other service revenues ............... 320.0 16.8 269.6 15.9 (15.8)
------- ------- ------- -------
Total service revenues ............. 1,615.5 84.9 1,464.0 86.1 (9.4)
Telephone equipment and other revenues 287.8 15.1 236.1 13.9 (18.0)
------- ------- ------- -------
Total revenues ..................... 1,903.3 100.0% 1,700.1 100.0% (10.7)%
======= ======= ======= =======
</TABLE>
Cellular Services. The table below sets forth the cellular service
revenues by source and operating region for 1995 and 1996.
<TABLE>
<CAPTION>
Year Ended December 31, 1995(1)
---------------------------------------------------------------------
Regions 5, 6 and 7
Region 9 Combined Total
------------------- ------------------- -------------------
Ps. % Ps. % Ps. %
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Airtime(2) ...................... 331.9 39.4% 156.9 34.7% 488.8 37.7%
Monthly fees .................... 360.6 42.8 200.5 44.3 561.1 43.3
Long distance(3) ................ 53.3 6.3 36.1 8.0 89.4 6.9
Value-added services(4) ......... 69.2 8.2 41.6 9.2 110.8 8.6
In-roaming(5) ................... 26.4 3.1 15.6 3.4 42.0 3.2
Activation fees ................. 1.7 0.2 1.7 0.4 3.4 0.3
------- ------- ------- ------- ------- -------
Total cellular service revenues 843.1 100.0% 452.4 100.0% 1,295.5 100.0%
======= ======= ======= ======= ======= =======
<CAPTION>
Year Ended December 31, 1996(1)
---------------------------------------------------------------------
Regions 5, 6 and 7
Region 9 Combined Total
------------------- ------------------- -------------------
Ps. % Ps. % Ps. %
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Airtime(2) ........................ 263.5 36.1% 153.6 33.0% 417.1 34.9%
Monthly fees ...................... 332.9 45.7 211.8 45.5 544.7 45.6
Long distance(3) .................. 48.6 6.7 40.5 8.7 89.1 7.5
Value-added services(4) ........... 57.4 7.9 31.4 6.7 88.8 7.4
In-roaming(5) ..................... 26.5 3.6 27.9 6.0 54.4 4.6
Activation fees ................... -- -- 0.3 0.1 0.3 --
------- ------- ------- ------- ------- -------
Total cellular service revenues 728.9 100.0% 465.5 100.0% 1,194.4 100.0%
======= ======= ======= ======= ======= =======
</TABLE>
- ----------
(1) Figures reflect intercompany eliminations. These figures do not include
revenues derived from paging, long distance, local telephony and data
transmission services.
(2) Airtime is charged on a per-minute basis for peak (Monday to Friday, 8:00
A.M. to 10:00 P.M.) and non-peak airtime.
(3) Long distance revenues generated by cellular subscriber were passed
through to Telmex prior to August 11, 1996. Since that date, such revenues
have been retained by the Company.
(4) Includes fees for value-added services such as call waiting, call
transfer, emergency service, secretarial service and conference calling,
and revenues from activation bonds, insurance-related charges payable by
subscribers, rural and public telephony and the Company's cellular
magazine. Does not include charges for related airtime. Customers using
certain value-added services such as news, weather, sports and
entertainment reports are charged only for airtime, which is therefore
included in airtime.
(5) See "Business-Cellular Services-Roaming" for a discussion of the
differences between in-roaming and out-roaming and the revenues associated
therewith. In-roaming revenues are reflected in total service revenues and
are paid to the Company by operators from other regions. Out-roaming
revenues are reflected in telephone equipment and other revenues and are
passed through to the applicable host operator.
63
<PAGE>
Cellular service revenues declined by 7.8% to Ps. 1,194.4 million
(U.S.$150.6 million) from Ps. 1,295.5 million (U.S.$163.4 million) and
represented 70.2% and 68.1% of total revenues in 1996 and 1995, respectively.
Despite a 10.8% increase in total subscribers, revenues declined primarily due
to a 9.1% decrease in total MOUs. The Company experienced a significant change
in the composition of its subscriber base between 1996 and 1995 with the
introduction of the Company's Control Plus program in June 1996. Average monthly
revenues generated by Control Plus customers are substantially lower than those
generated by contract subscribers because Control Plus tends to attract lower
volume users who pay no monthly fee, although such users are charged, on
average, higher per minute airtime rates. The decline in the number of contract
subscribers also resulted in a decline in revenues from value-added services.
The proportion of the Company's customers that subscribes to the Company's
prepay plan as opposed to the Company's contract plans has grown significantly
since the introduction of Control Plus. The Company believes that the trend
towards the increased percentage of total subscribers and the significance to
the Company's revenues of prepay plan subscribers are likely to continue.
Iusacell had 232,906 and 210,201 cellular subscribers at December 31, 1996
and 1995, respectively. During the year ended December 31, 1996, prepay
subscribers increased from a negligible percentage of total subscribers to 30.8%
of total subscribers, and the number of contract subscribers declined by 22.8%.
Contract subscribers decreased to 161,277 at December 31, 1996 from 208,802 at
December 31, 1995, and prepay subscribers grew to 71,629 at December 31, 1996
from 1,399 at December 31, 1995. A prepay customer is included as a customer if,
at the end of the period, the customer's prepay card has not yet expired. See
"-Increase in Prepay Subscriber Base."
During 1996, contract subscriber churn increased to an average monthly
level of 4.28% compared to 3.62% during 1995, which the Company believes was due
to the continuing effect of the Mexican recession on the consumer segment of the
economy and the migration of contract plan customers to the prepay programs of
the Company and its competitor. For a discussion of prepay turnover, see
"-Increase in Prepay Subscriber Base."
Average MOUs for 1996 were 117, a decrease of 16.4% compared to the
average of 140 MOUs in 1995. This decline in MOUs was largely due to the
significant increase in the number of the Company's prepay customers, who
generate substantially average lower MOUs than contract customers. In addition,
the Company has experienced a trend toward lower MOUs as Iusacell's expanded
customer base is now attracting subscribers who tend to generate fewer MOUs.
During the second half of 1996, the Company introduced three new contract
plans-Flex 75, Flex 150 and Tu Tiempo-which are designed to encourage higher
MOUs, retain and increase contract subscribers and migrate qualified prepay
customers to contract plans. See "Business-Marketing Strategy-Pricing." Nominal
average monthly cellular revenue per subscriber increased 5.6% to Ps. 490 in
1996 from Ps. 464 in 1995.
Other Services. Other service revenues decreased by 15.8% to Ps. 269.6
million (U.S.$34.0 million) in 1996 from Ps. 320.0 million (U.S.$40.4 million)
in 1995. The decline in other services revenue was caused by the Company's
inability to raise prices to keep pace with the rate of inflation (27.7%) in
1996, offset in part by the Company's new paging and long distance services
launched in August 1996. Revenues derived from Iusatel Chile, which the Company
sold in December 1996, were Ps. 63.5 million (U.S.$8.0 million).
Telephone Equipment and Other. Telephone equipment and other revenues
decreased 18.0% to Ps. 236.1 million (U.S.$29.8 million) in 1996 from Ps. 287.8
million (U.S.$36.3 million) in 1995. This decline reflected fewer sales and
upgrades of handsets. The decline in 1996 from 1995 was partially offset by a
significant increase in sales of used handsets from inventory.
Cost of Sales
Total cost of sales decreased 11.1% to Ps. 668.4 million (U.S.$84.3
million) in 1996 from Ps. 752.0 million (U.S.$94.8 million) in 1995. As a
percentage of total revenues, total cost of sales decreased to 39.3% in 1996
from 39.5% in 1995.
64
<PAGE>
Cost of Services. Cost of services decreased by 9.4% to Ps. 536.7 million
(U.S.$67.7 million) in 1996 from Ps. 592.2 million (U.S.$74.7 million) in 1995,
and were 36.7% of total service revenues in each period. Cost of services
remained relatively constant as its primary components were revenue-based fees
paid to the Mexican government and minute-based interconnection fees.
Cost of Telephone Equipment and Other. Cost of telephone equipment and
other costs decreased by 17.6% to Ps. 131.7 million (U.S.$16.6 million) in 1996
from Ps. 159.8 million (U.S.$20.2 million) in 1995 and, as a percentage of
telephone equipment and other revenues, increased slightly to 55.8% in 1996,
compared to 55.5% in 1995. The decline in costs is attributable to the reduced
demand for telephone equipment in 1996, itself a result of continued adverse
conditions in the consumer segment of the Mexican economy, as well as the
popularity of the Company's prepay program, where the subscriber typically
already owns a cellular handset. The cost of a cellular handset given to a
contract customer is amortized over 18 months (the average length of the
Company's cellular contract), instead of being expensed in the period in which
the customer received the telephone. If these handset costs had been expensed
instead of amortized, the Company's cost of telephone equipment and other costs
would have increased by Ps. 72.5 million (U.S.$9.1 million) and Ps. 7.9 million
(U.S.$1.0 million) in 1996 and 1995, respectively. See Note 4(f) to the Audited
Consolidated Financial Statements. In connection with the Company's CDMA overlay
to be launched in 1998, the Company expects to provide digital handsets at no or
little cost to the customers.
Operating Expenses
Operating expenses decreased by 12.4% to Ps. 736.5 million (U.S.$92.9
million) in 1996 from Ps. 840.7 million (U.S.$106.0 million) in 1995, and, as a
percentage of revenues, decreased in 1996 to 43.3% as compared to 44.2% in 1995.
The decrease in operating expenses was principally due to lower sales and
advertising costs, partially offset by a slight increase in corporate overhead
expenses. In accordance with Mexican GAAP, pre-operating expenses (net of
pre-operating revenues) associated with the Company's provision, on a trial
basis, of local wireless service in the 450 MHz band (as well as with certain
other services of the Company) are capitalized rather than (as has been required
under U.S. GAAP since the beginning of 1996) expensed. The amount of these
pre-operating expenses (net of pre-operating revenues) that were capitalized
instead of expensed in 1996 equalled Ps. 64.0 million (U.S.$8.1 million). U.S.
GAAP would not have required that these pre-operating amounts be expensed in
1995, given the more developmental stage of the Company's 450 MHz project at
that time. See Notes 17 and 19 to the Audited Consolidated Financial Statements.
Depreciation and Amortization
Depreciation and amortization expenses decreased by 9.7% to Ps. 604.6
million (U.S.$76.2 million) in 1996 from Ps. 669.7 million (U.S.$84.5 million)
in 1995. The decline in depreciation and amortization in 1996 compared to 1995
is attributable to the reduction in the carrying value of fixed assets during
1996 recorded in accordance with Bulletin B-10, as well as, to a lesser extent,
substantially lower capital expenditures in 1996. In connection with the
Company's CDMA overlay to be launched in 1998, the Company anticipates an
increase in amortization expenses as customers trade in their analog handsets
for digital handsets provided by the Company at no or little cost to the
customers. See "-Local Telephony in the 450 MHz Frequency Band; CDMA Overlay."
Operating Loss
In 1996, the Company recorded an operating loss of Ps. 309.4 million
(U.S.$39.0 million) as compared to an operating loss of Ps. 359.1 million
(U.S.$45.3 million) in 1995.
Integral Financing Cost (Gain)
Integral financing gain was Ps. 129.3 million (U.S.$16.3 million) in 1996
compared to a cost of Ps. 376.9 million (U.S.$47.5 million) in 1995 due
principally to a foreign exchange gain of Ps. 62.1 million (U.S.$7.8 million) in
1996 compared to a foreign exchange loss of Ps. 705.1 million (U.S.$88.9
million) in 1995. The foreign exchange gain was due to the slight appreciation
of the Peso as compared to the U.S. dollar for a
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significant period during 1996 compared to a significant devaluation of the Peso
in 1995. The integral financing gain was partially offset by a decrease in gain
on monetary position of 30.5% to Ps. 348.3 million (U.S.$43.9 million) in 1996
from Ps. 501.5 million (U.S.$63.2 million) in 1995 reflecting the lower rate of
inflation in 1996. Net interest expense increased 62.3% to Ps. 281.1 million
(U.S.$35.4 million) in 1996 from Ps. 173.3 million (U.S.$21.9 million) in 1995.
The increase in interest expense was due to higher levels of borrowing in 1996,
including borrowings under the Chase Facility and the full year effect of the
U.S.$48.0 million in vendor financing arranged with Northern Telecom Limited in
November 1995.
Equity Participation in Net Loss of Associated Companies
Equity participation in net loss of associated companies decreased by
84.7% to a loss of Ps. 6.0 million (U.S.$0.8 million) in 1996 from a loss of Ps.
39.1 million (U.S.$4.9 million) in 1995. This decrease was due to operating
improvements in the Company's Ecuadorean affiliate. See "Business -
International Joint Ventures."
Extraordinary Item
In 1996, the Company recorded a Ps. 145.2 million (U.S.$18.3 million)
extraordinary charge consisting primarily of restructuring expenses associated
with the reorganization and the change in management control of the Company,
which occurred in February 1997. See Notes 2, 4(d) and 8(b) to the Audited
Consolidated Financial Statements.
Net Loss
As a result of the factors described above, net loss decreased 52.8% to
Ps. 363.3 million (U.S.$45.8 million) in 1996 from Ps. 769.2 million (U.S.$97.0
million) in 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues
The following table sets forth the source of revenues for the Company for
the fiscal years ended December 31, 1994 and 1995.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1994
------------------- -------------------
Ps. % Ps. % % Change
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cellular service revenues ............ 1,891.7 83.1% 1,295.5 68.1% (31.5)%
Other service revenues ............... 111.5 4.9 320.0 16.8 187.0
------- ------- ------- -------
Total service revenues ............. 2,003.2 88.0 1,615.5 84.9 (19.4)
Telephone equipment and other revenues 273.3 12.0 287.8 15.1 5.3
------- ------- ------- -------
Total revenues ..................... 2,276.5 100.0% 1,903.3 100.0% (16.4)%
======= ======= ======= =======
</TABLE>
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Cellular Services. The table below sets forth the cellular service
revenues by source and operating region for 1994 and 1995.
<TABLE>
<CAPTION>
Year Ended December 31, 1994(1)
---------------------------------------------------------------------
Regions 5, 6 and 7
Region 9 Combined Total
------------------- ------------------- -------------------
Ps. % Ps. % Ps. %
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Airtime(2) ...................... 594.2 48.5% 282.9 42.6% 877.1 46.4%
Monthly fees .................... 412.6 33.6 218.5 32.8 631.1 33.3
Long distance(3) ................ 66.2 5.4 62.8 9.4 129.0 6.8
Value-added services(4) ......... 111.6 9.1 56.0 8.4 167.6 8.9
In-roaming(5) ................... 25.6 2.1 36.8 5.5 62.4 3.3
Activation fees ................. 16.1 1.3 8.4 1.3 24.5 1.3
------- ------- ------- ------- ------- -------
Total cellular service revenues 1,226.3 100.0% 665.4 100.0% 1,891.7 100.0%
======= ======= ======= ======= ======= =======
<CAPTION>
Year Ended December 31, 1995(1)
---------------------------------------------------------------------
Regions 5, 6 and 7
Region 9 Combined Total
------------------- ------------------- -------------------
Ps. % Ps. % Ps. %
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Airtime(2) ...................... 331.9 39.4% 156.0 34.7% 488.8 37.7%
Monthly fees .................... 360.6 42.8 200.5 44.3 561.1 43.3
Long distance(3) ................ 53.3 6.3 36.1 8.0 89.4 6.9
Value-added services(4) ......... 69.2 8.2 41.6 9.2 110.8 8.6
In-roaming(5) ................... 26.4 3.1 15.6 3.4 42.0 3.2
Activation fees ................. 1.7 0.2 1.7 0.4 3.4 0.3
------- ------- ------- ------- ------- -------
Total cellular service revenues 843.1 100.0% 452.4 100.0% 1,295.5 100.0%
======= ======= ======= ======= ======= =======
</TABLE>
- ----------
(1) Figures reflect intercompany eliminations. These figures do not include
revenues derived from paging, long distance, local telephony and data
transmission.
(2) Airtime is charged on a per-minute basis for peak (Monday to Friday, 8:00
A.M. to 10:00 P.M.) and non-peak airtime.
(3) Long distance revenues generated by cellular subscribers were passed
through to Telmex.
(4) Includes fees for value-added services such as call waiting, call
transfer, emergency service, secretarial service and conference calling,
and revenues from activation bonds, insurance-related charges payable by
subscribers, rural and public telephony and the Company's cellular
magazine. Does not include charges for related airtime. Customers using
certain value-added services such as news, weather, sports and
entertainment reports are charged only for airtime, which is therefore
included in airtime.
(5) See "Business-Cellular Services-Roaming" for a discussion of the
differences between in-roaming and out-roaming and the revenues associated
therewith. In-roaming revenues are reflected in total service revenues and
are paid to the Company by operators from other regions. Out-roaming
revenues are reflected in telephone equipment and other revenues and are
passed through to the applicable host operator.
Cellular service revenues declined by 31.5% to Ps. 1,295.5 million
(U.S.$163.4 million) from Ps. 1,891.7 million (U.S.$238.5 million) and
represented 68.1% and 83.1% of total revenues in 1995 and 1994, respectively.
Revenues declined despite a 7.9% increase in total subscribers. The principal
reason for this decrease was the Company's inability, due to competitive market
conditions, to increase its prices in line with inflation. The Company raised
prices by an average of approximately 20% during 1995, when the inflation rate
was 52.0%. In 1995, the number of contract subscribers increased 14,079.
Iusacell had 210,201 and 194,723 cellular subscribers at December 31, 1995 and
1994, respectively.
During 1995, contract subscriber churn increased to an average monthly
level of 3.62% compared to 2.67% during 1994, which the Company believes was due
to the impact of the Peso devaluation on consumer demand.
Average MOUs for 1995 were 140, a decrease of 21.8% compared to the
average of 179 MOUs in 1994. This decline in MOUs was largely due to the impact
of the Peso devaluation on consumer demand. In addition, the
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Company has experienced a trend toward lower MOUs as Iusacell's expanded
customer base attracts subscribers who tend to generate fewer MOUs. As a result
of this decline in MOUs, nominal average monthly cellular revenue per subscriber
declined 22% to Ps. 464 in 1995 from Ps. 595 in 1994.
Other Services. Other service revenues increased substantially to Ps.
320.0 million (U.S.$40.4 million) in 1995 from Ps. 111.5 million (U.S.$14.1
million) in 1994. This increase is principally due to revenues from the
Company's data transmission services, which Iusacell began providing in 1995.
Telephone Equipment and Other. Telephone equipment and other revenues
increased to Ps. 287.8 million (U.S.$36.3 million) in 1995 from Ps. 273.3
million (U.S.$34.5 million) in 1994, an increase of 5.3%. This increase is
primarily due to an 11% increase in outroaming revenues, offset by a 16% decline
in sales of handsets and accessories.
Cost of Sales
Total cost of sales increased 5.0% to Ps. 752.0 million (U.S.$94.8
million) in 1995 from Ps. 716.5 million (U.S.$90.4 million) in 1994.
Cost of Services. Cost of services increased by 1.7% to Ps. 592.2 million
(U.S.$74.7 million) in 1995 from Ps. 582.2 million (U.S.$73.4 million) in 1994,
and increased to 36.7% of total service revenues in 1996 from 29.1% of total
service revenues in 1995. The increase was largely due to an increase in
technical expenses and the cost of delivering data services, which the Company
initiated in 1995.
Cost of Telephone Equipment and Other. Cost of telephone equipment and
other costs increased by 18.9% to Ps. 159.8 million (U.S.$20.2 million) in 1995
from Ps. 134.3 million (U.S.$16.9 million) in 1994 and, as a percentage of
telephone equipment and other revenues, increased to 55.5% in 1995, compared to
49.2% in 1994. The increase largely resulted from the effect of the Peso
devaluation since the Company purchased equipment in U.S. dollars and sold it in
Pesos. For a discussion of the Company's accounting policy for the cost of
cellular handsets given to customers, see "-Year Ended December 31, 1996
Compared to Year Ended December 31, 1995" and Note 4(f) to the Audited
Consolidated Financial Statements.
Operating Expenses
Operating expenses decreased 13.2% to Ps. 840.7 million (U.S.$106.0
million) in 1995 from Ps. 969.1 million (U.S.$122.2 million) in 1994, and as a
percentage of revenues, increased to 44.2% in 1995 from 42.6% in 1994. Sales and
advertising expenses declined 15.7% in 1995 as a result of the economic
downturn, while corporate overhead expenses increased 9.2% in 1995. There were
no pre-operating expenses in 1995 or 1994 that, under U.S. GAAP, would have been
required to be expensed, but, under Mexican GAAP, would have been permitted to
be capitalized.
Depreciation and Amortization
Depreciation and amortization expenses increased to Ps. 669.7 million
(U.S.$84.5 million) in 1995 from Ps. 583.2 million (U.S.$73.5 million) in 1994.
The upward revaluation of dollar-denominated assets due to the Peso devaluation
as well as depreciation associated with new capital investments principally
accounted for this increase.
Operating Profit (Loss)
The Company recorded an operating loss of Ps. 359.1 million (U.S.$45.3
million) in 1995 as compared to an operating profit of Ps. 7.7 million (U.S.$1.0
million) in 1994.
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Integral Financing Cost (Gain)
Integral financing cost decreased by 44.5% to Ps. 376.9 million (U.S.$47.5
million) in 1995 from Ps. 678.7 million (U.S.$ 85.6 million) in 1994 due
principally to an increase in gains on monetary position to Ps. 501.5 million
(U.S.$63.2 million) from Ps. 50.0 million (U.S.$6.3 million). The increased
gains on monetary position were the result of an increase in the net amount of
total debt outstanding and substantially increased inflation in 1995. Net
interest expense declined to Ps. 173.3 million (U.S.$21.9 million) in 1995 from
Ps. 204.0 million (U.S.$25.7 million) in 1994, a decrease of 15.0%. This
decrease in interest expense principally resulted from the retirement of high
interest debt with the proceeds of the Company's U.S.$148.7 million global
equity offering in June 1994.The decrease in integral financing costs was
partially offset by the fact that net foreign exchange losses increased to a
loss of Ps. 705.1 million (U.S.$88.9 million) in 1995 from a loss of Ps. 524.7
million (U.S.$66.2 million) in 1994, an increase of 34.4%, principally as a
result of the Peso devaluation.
Equity Participation in Net Income (Loss) of Associated Companies
Equity participation in net income (loss) of associated companies
decreased substantially to a loss of Ps. 39.1 million (U.S.$4.9 million) in 1995
from income of Ps. 3.0 million (U.S.$0.4 million) in 1994. This decline was
primarily attributable to losses sustained by the Company's Ecuadorean affiliate
as a result of the economic crisis experienced throughout Latin America in 1995.
Net Income (Loss)
Net Income (Loss)
As a result of the factors described above, net loss increased 9.7% to Ps.
769.2 million (U.S.$97.0 million) in 1995 from Ps. 701.1 million (U.S.$88.4
million) in 1994.
Income Tax, Asset Tax and Employees' Profit Sharing
The Company prepares its tax returns on a consolidated basis, thereby
benefitting from the ability to offset losses incurred by certain subsidiaries
against the gains of others within the consolidated group.
Iusacell and its subsidiaries are subject to an alternative net asset tax
which is levied on the average value of substantially all assets less certain
liabilities. This tax, which was 2% in 1994 and 1.8% in 1995 and 1996, is
required to be paid if the amount of the asset tax exceeds the computed income
tax liability. The Company provided for Ps. 32.5 million (U.S.$4.1 million), Ps.
29.1 million (U.S.$3.7 million) and Ps. 35.2 million (U.S.$4.4 million) of net
asset taxes for 1994, 1995 and 1996, respectively. These taxes may be applied in
subsequent years against income tax payments, to the extent income tax
liabilities for such years exceed the net asset tax calculation. Due to net
losses, the Company paid no income taxes in 1994, 1995 and 1996 and paid the
asset taxes specified above. See Note 12 to the Audited Consolidated Financial
Statements for a discussion of the Company's tax loss.
While Iusacell has no employees at the holding company level, the
Company's subsidiaries are required under Mexican law to pay their employees, in
addition to their required compensation and benefits, profit sharing in an
aggregate amount equal to 10% of the taxable income of the relevant subsidiary
(calculated without reference to inflation adjustments or amortization of tax
loss carryforwards). In 1994, 1995 and the first quarter of 1997, statutory
profit sharing totalled Ps. 0.6 million (U.S.$0.1 million), Ps. 2.1 million
(U.S.$0.3 million) and Ps. 0.3 million (U.S.$0.04 million), respectively. There
was no statutory profit sharing in 1996.
Liquidity and Capital Resources
Liquidity. Historically, the Company's liquidity has been provided by cash
from operations, vendor financing, short and long-term borrowings and capital
contributions. Total debt as of March 31, 1997 was Ps. 1,457.0 million
(U.S.$183.7 million), a decrease of Ps. 211.5 million (U.S.$26.7 million)
compared to March 31, 1996. Substantially all of the Company's debt outstanding
at March 31, 1997 was U.S. dollar denominated and unhedged. As of March 31,
1997, the Company's bank debt, without accrued interest, consisted primarily of
(i) U.S.$64.8 million under the Chase Facility, (ii) U.S.$35.1 million under the
Banco del Atlantico Facility,
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<PAGE>
(iii) U.S.$40.5 million under the Banco Mexicano Facility and (iv) U.S.$23.2
million under the Banamex Facility. All outstanding amounts of principal and
accrued interest on each of these facilities were repaid with proceeds of the
Financing. The issuance of the New Notes will not result in any change in the
aggregate indebtedness of the Company. See "Use of Proceeds."
On February 18, 1997, as part of the transactions relating to the
assumption of management control by Bell Atlantic, U.S.$32.9 million of credit
facilities acquired or provided by Bell Atlantic were converted into
approximately 47.0 million shares of the Company's capital stock.
Simultaneously, U.S.$37.2 million in loans from the Peralta Group was converted
into approximately 53.1 million shares of the Company's capital stock. These
conversions, together with earlier share acquisitions, resulted in Bell Atlantic
owning 44.6% of the Company's voting shares and the Peralta Group owning 52.3%
of the Company's voting shares. In addition, Bell Atlantic committed to provide
the Company with the Bell Atlantic Facility in an aggregate principal amount of
U.S.$150.0 million. For a description of the availability, terms and conditions
of the Bell Atlantic Facility, see "Certain Transactions-Bell Atlantic
Facility."
Interest payments on the Notes and interest and principal payments under
the Credit Facility will represent significant cash requirements for the
Company. See "Risk Factors-Substantial Leverage; Ability to Service Debt." As a
result of the Financing, the Company has outstanding approximately U.S.$275.3
million of indebtedness, including the U.S.$150.0 million principal amount of
the Notes and the U.S.$125.0 million Term Facility. The Company also has
available U.S.$100.0 million under the Revolving Credit Facility. The Notes have
no amortization requirements until their maturity date in 2004. The Term
Facility has amortization requirements of U.S.$18.8 million in 2000, U.S.$51.2
million in 2001 and U.S.$55.0 million in 2002. Assuming the Revolving Credit
Facility is fully drawn, it will have amortization requirements of U.S.$15.0
million in 2000, U.S.$41.0 million in 2001 and U.S.$44.0 million in 2002.
The Company believes that funds from operating activities and the proceeds
of the Financing, including borrowings under the Revolving Credit Facility, will
be adequate to meet its debt service and principal payment requirements, working
capital requirements and a portion of its capital expenditure needs, although no
assurance can be given in this regard. The Company's future operating
performance and ability to service and repay the Notes and borrowings under the
Credit Facility will be subject to future economic and competitive conditions
and to financial, business and other factors, many of which are beyond the
Company's control. See "-Capital Expenditures," "Description of Credit Facility"
and "Description of Notes."
The Company's principal source of funds during the first quarter of 1997
was from financing activities, which totaled Ps. 590.1 million (U.S.$74.4
million), and primarily consisted of the shareholder facilities described above
and increased borrowings under the Banco del Atlantico Facility. During the
first quarter of 1996, the Company's principal source of funds was from
operating activities, which generated a total of Ps. 51.9 million (U.S.$6.5
million). During 1996 and 1995, the Company's principal source of funds also was
from operating activities, which totaled Ps. 469.3 million (U.S.$59.2 million)
and Ps. 557.3 million (U.S.$70.3 million), respectively. This 15.8% decrease in
1996 from 1995 was largely due to (i) a decrease in depreciation and
amortization of Ps. 70.3 million from 1995 reflecting a downward revaluation of
assets due to lower inflation in 1996 compared to 1995, (ii) a lower
contribution from trade accounts payable resulting from stricter payment terms
imposed by key suppliers and (iii) taxes and other payables became a use of
funds rather than a source of funds.
The Company's operations used funds totaling Ps. 375.9 million (U.S.$47.4
million) during the first quarter of 1997, primarily as a result of increases in
(i) recoverable taxes and other and (ii) amounts due from related parties. Net
cash provided by operating activities during the first quarter of 1996 totaled
Ps. 51.9 million (U.S.$6.5 million).
Net cash provided by financing activities increased to Ps. 590.1 million
(U.S.$74.4 million) in the first quarter of 1997 from Ps. 11.8 million (U.S.$1.5
million) in the first quarter of 1996. Net cash used in financing activities in
1996 totaled Ps. 349.3 million (U.S.$44.0 million), compared with Ps. 214.7
million (U.S.$27.1 million) in resources provided by financing activities in
1995. In 1996, the Company repaid Ps. 407.2
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million (U.S.$51.3 million) of various long-term obligations, offset in part by
a Ps. 57.9 million (U.S.$7.3 million) increase in notes payable.
Resources used for investing activities increased to Ps. 252.4 million
(U.S.$31.8 million) during the first quarter of 1997 compared to Ps. 62.9
million (U.S.$7.9 million) during the first quarter of 1996. During the first
quarter of 1997, capital expenditures increased to Ps. 31.6 million (U.S.$4.0
million) compared to Ps. 13.2 million (U.S.$1.7 million) in the first quarter of
1996.
During 1996, the Company's investing activities used resources of Ps. 56.2
million (U.S.$7.1 million) as compared to Ps. 851.3 million (U.S.$107.4 million)
used in 1995. This decrease was due to a decline in capital expenditures, which
totalled Ps. 211.2 million (U.S.$26.6 million) in 1996, as compared to Ps. 471.3
million (U.S.$59.4 million) in 1995. As a result of financial constraints caused
in part by the economic situation in Mexico, the Company reduced its capital
expenditure program in 1996, with outlays principally limited to expansion of
the cellular network and the startup of long distance and paging.
Capital Expenditures. The Company expects to have substantial capital
expenditures to upgrade its network infrastructure, build out its cellular, long
distance, local telephony and paging networks, redesign Iusacell-owned and
operated customer service centers and support existing operations and new
business opportunities. The degree and timing of capital expenditures will
remain strongly dependent on the competitive environment and economic
developments in Mexico, including inflation and exchange rates, as well as on
the timing of regulatory actions and on the availability of suitable financing.
The Company expects capital expenditures for 1997, 1998 and 1999 to total
approximately U.S.$308 million, of which approximately U.S.$65 million will be
invested during 1997. Approximately U.S.$235 million, or 75% of the total of
U.S.$308 million, will be for the development of its wireless network, including
the deployment of the CDMA digital network beginning in the first quarter of
1998 and ongoing upgrades to the network infrastructure that will support the
Company's existing analog and planned digital networks. The balance of U.S.$73
million will be (i) invested in its long distance and other networks, (ii) used
to redesign Iusacell-owned and operated customer service centers, (iii) used to
fund certain non-network infrastructure, such as the prepay operating platform,
an advanced fraud detection system and upgrades to its billing and other
management information systems, and (iv) used for other corporate purposes.
The Company's 1997-1999 capital expenditure program will, beginning in
1998, require additional financing, which the Company expects will be available
in the form of additional secured bank financing, vendor financing or export
credit agency financing. In the event that these sources of financing would be
unavailable, the Company expects to be able to borrow under the U.S.$150.0
million Bell Atlantic Facility. To the extent that financing is not available,
the Company could be required to substantially limit its capital expenditure
plans. The Indenture and the Credit Facility will limit the ability of the
Company to incur debt, and the degree to which the Company is leveraged may also
adversely affect its ability to obtain additional financing. See "Risk
Factors-Substantial Leverage; Ability to Service Debt" and "-Capital
Requirements."
After 1999, the Company expects to finance its capital expenditure program
with funds from operating activities. Capital expenditures after 1999 will
continue to be substantial, and there can be no assurance that the Company's
results from operations will improve sufficiently to generate enough funds to
support these capital expenditures.
The Company estimates that full compliance with the coverage and
technological investment requirements in its long distance concession will
require at least U.S.$175.0 million in capital expenditures (a substantial
majority of which is not provided for in the above described capital expenditure
program). If the Company does not satisfy such requirements, it could be subject
to certain fines and penalties and potentially lose its long distance
concession. The Company is currently evaluating the commercial feasibility of
complying with the concession and may request that relevant government
authorities modify the terms of such concession to reflect the results of such
evaluation and any corresponding revisions to Iusacell's business plan. See
"Business-Other Services-Long Distance."
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Dividend Policy. The Company has not paid and currently has no plans to
initiate dividend payments. In addition, the Indenture and the Credit Facility
will limit the Company's ability to pay dividends. See "Description of Credit
Facility" and "Description of Notes."
U.S. GAAP Reconciliation
The principal differences between Mexican GAAP and U.S. GAAP as they
relate to the Company are the treatment of minority interest, deferred income
taxes, capitalized pre-operating expenses and revenues for the Company's 450 MHz
local wireless project, extraordinary charges and gains and losses on monetary
position. See Note 19 to the Audited Consolidated Financial Statements.
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BELL ATLANTIC RELATIONSHIP
Since making its initial investment in the Company in late 1993, Bell
Atlantic has become increasingly involved in the management and operations of
Iusacell. From late 1993 through February 1997, Bell Atlantic participated
substantially in the financial and technological operations of the Company.
Today, Bell Atlantic personnel seconded to Iusacell and Bell Atlantic
consultants are integrally involved in managing the day-to-day operations and
defining and implementing the long-term strategy of Iusacell. In particular,
Bell Atlantic seconded employees are now directing the Company's marketing,
distribution, customer service and financial operations. See "Risk
Factors-Dependence on Bell Atlantic Personnel."
Bell Atlantic is one of the largest cellular providers in the United
States, serving 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.
In February 1997, Bell Atlantic assumed control of the Board of Directors
and management of Iusacell from the Peralta Group. The Peralta Group, however,
still retains 52.3% of the voting stock of the Company and certain veto rights.
In February 1997 Bell Atlantic also converted U.S.$32.9 million of debt into
equity, committed to provide the Company up to U.S.$150.0 million of
subordinated convertible debt financing (which will be evidenced by the Bell
Atlantic Facility) and granted the Peralta Group put options with respect to all
outstanding shares of the Company held by the Peralta Group. See "Certain
Transactions" and "Controlling Shareholders." As a result of these transactions,
Bell Atlantic currently owns approximately 42.1% of the economic interest of
Iusacell and approximately 44.6% of the Company's voting rights. Bell Atlantic
consolidates Iusacell's financial results for financial reporting purposes.
Recently, Iusacell appointed a new Chief Executive Officer, Director General,
Chief Operating Officer and Chief Financial Officer in order to implement the
Company's operating strategies. See "Controlling Shareholders" and "Management."
Bell Atlantic, 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 during 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"). Reports and
information filed by these companies with the Commission may be inspected and
copied at the public reference facilities maintained by the Commission as
described in "Available Information."
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Neither Bell Atlantic or any of its affiliates (other than the Company and
the Subsidiary Guarantors) nor the Peralta Group will guarantee or otherwise be
legally obligated or responsible in any way for payment of the Notes.
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BUSINESS
Company Overview
Iusacell is the largest non-wireline cellular telecommunications company
in Mexico, owning and operating the non-wireline cellular concessions in four
contiguous regions in Mexico. These regions include Mexico City, one of the
world's most populous cities, and the cities of Guadalajara, Puebla, Veracruz,
Leon, Acapulco and San Luis Potosi, and combined represent approximately 65.1
million POPs or 70% of Mexico's population. The Company had a total of 250,727
cellular subscribers at March 31, 1997, and an average monthly cellular revenue
per subscriber during the three months ended March 31, 1997 of Ps. 469
(approximately U.S.$59). In addition to its core cellular services, the Company
also provides a wide range of other telecommunications services including
paging, long distance, local telephony and data transmission. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"-Cellular Services" and "-Other Services."
In February 1997, Bell Atlantic, a diversified telecommunications company,
assumed control of the Board of Directors and management of Iusacell. Bell
Atlantic has invested approximately U.S.$1.1 billion since 1993 for its 42.1%
economic interest in the Company. Prior to 1997, Bell Atlantic participated
substantially in the financial and technological operations of the Company. In
February 1997, Bell Atlantic appointed a new Iusacell management team, which has
assumed control of Iusacell's operations, including marketing, distribution and
customer service, and has developed, and is in the process of implementing, a
comprehensive operating and strategic plan.
The new management team at Iusacell is able to draw extensively upon Bell
Atlantic's expertise in the development and implementation of the Company's new
operating strategy. Iusacell's Chief Executive Officer is also President of Bell
Atlantic's international wireless operations and has significant experience with
Bell Atlantic's wireless operations in the United States. The Company's Chief
Operating Officer was formerly the Chief Financial Officer of Iusacell and has
29 years of experience with Bell Atlantic in a variety of operating and
financial roles. Iusacell's current Chief Financial Officer has 13 years of
experience with Bell Atlantic. In June 1997, the Company appointed as its
Director General a Mexican citizen with extensive experience in multinational
operations, who most recently had been president of the Mexican cellular company
which operates the non-wireline cellular concessions in two contiguous northern
regions in which Iusacell does not currently have cellular operations. The new
management team is supported by other personnel from Bell Atlantic.
Competitive Strengths
Large Subscriber Base. Iusacell has built a base of 250,727 cellular
subscribers at March 31, 1997, including both "contract" and "prepay"
subscribers. Approximately 65% of that cellular subscriber base consists of
customers who purchase cellular services pursuant to fixed term contracts with
the Company. The Company believes that these customers seek the convenience of
uninterrupted mobile cellular service and access to high quality customer
service and are willing to pay a monthly fee for the choice of value-added
services such as call waiting and *911. Customers who purchase cellular services
in advance through prepay calling cards represent the remaining 35% of
Iusacell's cellular customers. The prepay subscribers are attractive to the
Company due to their higher average per minute airtime charges, lower
acquisition costs and the absence of billing costs, credit concerns and
collection risk. The Company's large customer base allows Iusacell to cross-sell
its services to over a quarter of a million existing customers through a
"one-stop-shopping" approach. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Increase in Prepay Subscriber
Base."
Proven Bell Atlantic Expertise. Iusacell has begun the implementation of a
broad strategic and operating plan modelled upon Bell Atlantic's wireless
success in the United States and Europe. Bell Atlantic is one of the largest
cellular operators in the United States, serving over 4.6 million subscribers
along the East Coast and in the Southwest. Bell Atlantic also has substantial
investments in other wireless telecommunications companies, including PrimeCo
Personal Communications L.P. in the United States, Omnitel Pronto Italia S.p.A.
in Italy, Eurotel Praha S.R.D. in the Czech Republic and Eurotel Bratislava
S.R.D. in the Slovak Republic. Iusacell believes that Bell Atlantic's extensive
experience in the development and implementation of marketing programs designed
to promote
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substantial subscriber growth will provide the Company with a significant
competitive advantage in the Mexican cellular market.
Significant Brand Equity. The Company believes that its call quality,
customer care and accurate billing contribute to its strong, favorable brand
awareness. Recent independent market research shows that the Company's contract
customers are very satisfied with the overall services they are receiving. In
order to maximize brand equity, management has consolidated its brand names
under the single, well-recognized IUSACELL brand name.
Established Technological Platform. Iusacell has an existing integrated
network infrastructure that serves as the backbone for its core cellular
business and provides a platform for bundled product offerings, such as paging,
long distance and other telecommunications services. With the benefit of Bell
Atlantic's expertise, the Company has invested in digital switching systems,
dedicated microwave links, cell sites and other network infrastructure. The
Company has a network of five cellular switches, 236 cell sites and 42
repeaters, which covers approximately 70% of the Company's total POPs. The
Company believes that its network provides an excellent platform for
technological innovations such as the CDMA overlay which the Company plans to
begin implementing in the first quarter of 1998.
Comprehensive Geographic Coverage. The four contiguous regions in which
the Company provides cellular service are among the most attractive cellular
markets in Mexico based upon total POPs and demographic characteristics. The
regions of Mexico covered by Iusacell's concessions include Mexico City, the
nation's economic and political capital, and other parts of the country with
high concentrations of industry, tourism and agriculture. The Company's
geographic footprint covers 65.1 million POPs, with total Covered POPs of 46.1
million.
Experienced Management Team. The four senior members of the new management
team appointed by Bell Atlantic have an aggregate of 62 years of experience in
the telecommunications industry. Individually, the Company's operating managers
have established track records of producing subscriber growth, penetrating new
markets and developing new telecommunications product offerings. Iusacell's
management team is complemented by experienced Bell Atlantic telecommunications
executives and consultants.
Business Strategy
Iusacell's new management team has developed, and is in the process of
implementing, a comprehensive operating and strategic plan primarily focused on
increasing Iusacell's subscriber base, subscriber usage, revenues and
profitability in its core wireless businesses. This strategic plan incorporates
the following key elements:
New Product Offerings and Salesforce Incentives. Iusacell has introduced
new product and pricing packages targeted both at high-usage contract customers,
who favor value-added products, and at low-usage prepay customers. The Company
considers its contract customers to be particularly receptive to bundled product
offerings that include paging, long distance and other telecommunications
services. In addition, the Company is considering marketing its cellular
services to limited zone customers. In May 1997, the Company's salesforce
compensation plan was overhauled to be largely performance based and to reward
the sales of value-added products as well as any migration of qualified prepay
customers to contract plans.
Enhanced Distribution. Iusacell has developed a plan to improve the
distribution of its products based upon the Bell Atlantic model which emphasizes
consistent, standardized merchandising through a well-balanced mix of
company-owned stores and independent distributors conveniently located
throughout the Company's operating regions. By the end of 1999, the Company
intends to have significantly increased the number of Iusacell-owned and
operated customer service centers, incorporating a new, uniform store design. In
1997, in addition to opening a number of customer service centers with the new
store designs, the Company plans to refurbish its existing 57 Iusacell-owned and
operated customer service centers. In March 1997, Iusacell signed a contract
with Precel, formerly one of the largest distributors for the Company's
competitor, adding 75 locations, thereby increasing Iusacell's total points of
sale in Mexico City by over 40% and reducing the competition's distribution
presence. Iusacell plans to enter into agreements with other distributors to
further increase its points of sale.
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Digital Network and Expanded Footprint. The Company plans to launch a
fully digital CDMA network in order to upgrade its existing integrated network
infrastructure. The overlay will begin in Region 9 in the first quarter of 1998,
with the overlay in the remaining regions to be launched by mid-1999. Iusacell
believes that it will be the first cellular operator in Mexico with a commercial
launch of a digital network. The Company believes that, based on its and Bell
Atlantic's evaluation of both CDMA and TDMA technologies, CDMA technology is
superior to TDMA. As part of its strategy to improve customer satisfaction, the
Company plans to augment capacity by adding a total of 61 new cell sites in
1997. In addition, the Company plans to expand its geographic coverage into
northern Mexico by acquiring or forming strategic alliances with cellular
concession holders or by acquiring PCS licenses in the 1.9 GHz frequency band.
Revitalized Customer Service. Iusacell's marketing strategy emphasizes
proactive and timely customer service. The Company utilizes welcome packages,
customer satisfaction calls, Executive Blue Chip programs for corporate
customers and customized billing to communicate its commitment to its customers.
In addition, Iusacell's customer service centers offer "one-stop-shopping" for
cellular, paging, long distance, local telephony and data transmission services
as a convenience to its customers. Iusacell continues to focus on reducing its
fraud rate, as evidenced by its plan to deploy CDMA technology with its proven
encryption benefits. The Company is considering other fraud prevention measures,
including the introduction of authenticated handsets and fingerprinting for
analog signals, the investigation of cloning activities and restrictions on
international long distance dialing. Iusacell is also installing a new prepay
operating system which is expected to improve customer satisfaction through
automated card activation and account information, provide voice messaging and
other value-added services, and to lower the cost of support for prepay
services.
Realignment of Organizational Structure. Iusacell has consolidated its
business divisions in order to increase operating efficiencies, to facilitate
cross-marketing of services and to reduce duplicative costs. Overall headcount
was reduced by approximately 10% in April 1997 with the elimination of over 230
positions not directly associated with sales and distribution. Furthermore, the
Company has signed a long-term lease in Mexico City that will consolidate
corporate activities previously conducted at five separate locations.
Redesigned Brand Image and Promotional Campaigns. Iusacell recently
launched its newly designed brand logo and product packages with a new
advertising campaign targeted at higher usage customers. For the first time, all
product offerings will be marketed under the single, well-recognized IUSACELL
brand name. As a result, the Company expects to increase brand awareness and
customer loyalty, thereby increasing usage in its addressable market.
Local Telephony Service Offerings. Iusacell has historically provided
local telephony in Mexico on a limited basis through a mobile nationwide IMTS
radiotelephony network and through both rural and public cellularbased telephony
programs. The Company also has approximately 18,000 customers who participate in
a trial of local wireless service in the 450 MHz frequency band, which the
Company began in 1994. The Company plans to expand its 450 MHz service or pursue
other alternatives for the provision of local telephony on a larger scale,
including limited zone product offerings in the 800 MHz (cellular) or 1.9 GHz
(PCS) frequency bands using digital technology that permits mobility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Local Telephony in the 450 MHz Frequency Band; CDMA Overlay."
Strategic Price Increases for Cellular Service. Since April 1997, Iusacell
has announced a weighted average increase of 15% for the per minute airtime
price on its contract and prepay plans and has announced a weighted average
increase of 8.3% for the fixed monthly charge on all its contract plans. The
Company intends to implement future price increases to the extent economic and
competitive conditions permit. For a discussion of the Company's experiences
with the recent price increases, see "Management's Discussion and Analysis of
Financial Condition and Results of Operation-Recent Developments."
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The Telecommunications Industry in Mexico
Market Liberalization
The Mexican government initiated its efforts to liberalize the
telecommunications industry in 1989, dividing Mexico into nine geographic
regions for the provision of cellular service. Two concessions were granted in
each region, one to Telcel and the other to an independent operator, in order to
provide an alternative for cellular customers. In addition, Telmex was required
to interconnect non-wireline cellular operators to its network in an effort to
facilitate competition.
In December 1990, the Mexican government initiated the privatization of
Telmex, then the sole provider of landline local, long distance and wireline
cellular services, when it sold 20.4% of the equity and 50.1% of the voting
power in Telmex to a private consortium for U.S.$1.76 billion. The winning
consortium consisted of Grupo Carso, S.A. de C.V., a Mexican conglomerate which
owns or otherwise controls a majority of the consortium's voting interest, SBC
Communications Inc. and France Telecom S.A. Subsequent to the original
privatization, the Mexican government further reduced its holdings in Telmex
through additional transactions and has now substantially completed the
privatization process.
Telcel obtained the wireline cellular concession in each of the nine
cellular regions and is therefore Mexico's largest cellular operator. The
non-wireline concession holders and the regions in which they serve are: (i)
Baja Celular, S.A. de C.V. in Region 1; (ii) Movitel del Noroeste, S.A. de C.V.
in Region 2; (iii) Telefonia Celular de Norte, S.A. de C.V. in Region 3; (iv)
Celular de Telefonia, S.A. de C.V. in Region 4 ; (v) Portatel del Sureste, S.A.
de C.V. in Region 8; and (vi) subsidiaries of the Company in Regions 5, 6, 7 and
9. Motorola, Inc. is a controlling or significant shareholder in the
aforementioned five non-Company concession holders. Telcel is the sole
competitor for each non-wireline company.
In connection with the privatization of Telmex in 1990, the Mexican
government granted Telmex a concession to provide public domestic and
international long distance telephone service with an exclusivity period of six
years. In August 1996, the exclusivity period expired, and full open competition
commenced in January 1997. Currently, a presubscription balloting process is
being conducted on a city by city basis to enable customers to choose a long
distance provider.
The SCT has also granted long distance concessions to the following
applicants: (i) Alestra S. de R.L. de C.V.; (ii) Avantel, S.A. de C.V.; (iii)
Marcatel S.A. de C.V.; (iv) Investcom, S.A. de C.V.; (v) Miditel, S.A. de C.V.;
(vi) Amaritel, S.A. de C.V.; (vii) PCM "Extensa", S.A. de C.V.; (viii) Bestel,
S.A. de C.V. (ix) Telinor, S.A. de C.V.; and (x) Iusatel, S.A. de C.V.
("Iusatel"), a subsidiary of Iusacell. Each concession has a nationwide scope
and a thirty-year term and authorizes domestic and international long distance
services and value-added services, including voice and data transmission
services.
The Mexican government has initiated the liberalization process for
competition in local telephony service. Accordingly, the SCT has already granted
three concessions for local telephone service and has officially announced its
plans to auction spectrum in the 450 MHz, 1.9 GHz (PCS) and 3.4-3.7 GHz
frequency bands for local wireless service during the fall of 1997.
Growth Opportunities
Underserved Telephony Market. The Company believes that there is
substantial unmet demand for telephone service in Mexico as demonstrated by the
relatively low level of wireline and cellular penetration and the long customer
wait for landline service. According to the International Telecommunications
Union ("ITU"), an agency of the United Nations, as of December 31, 1995, there
were approximately 9.6 lines per 100 inhabitants in Mexico, which is lower than
the teledensity rates in certain other Latin American countries and
substantially lower than those in developed countries such as the United States.
The ITU forecasts that Mexican teledensity will reach 14.6 lines per 100
inhabitants by the end of the year 2000.
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The following table presents, for major Latin American countries and the
United States, telephone lines in service per 100 inhabitants as of December 31,
1995.
Selected Telephone Penetration
Lines in service per
Country 100 inhabitants(1)
- ------- ------------------
United States........................................... 62.6
Uruguay................................................. 19.6
Argentina............................................... 16.0
Chile................................................... 13.2
Venezuela............................................... 11.1
Colombia................................................ 10.0
Mexico.................................................. 9.6
Brazil.................................................. 7.5
Peru.................................................... 4.7
- ----------
(1) Source: International Telecommunications Union-World Telecommunications
Development Report 1997.
Expected Recovery in Consumer Spending. The Company expects consumer
spending to recover following the recent economic crisis in Mexico. According to
WEFA forecasts, GDP growth is expected to be 5.4% and 6.4% in 1997 and 1998,
respectively. With GDP per capita expected to increase by an average of 4.0%
during this period based on an annual population growth rate of 1.8% (as
forecasted by WEFA), the Company anticipates increased demand for its services.
Changing Competitive Dynamics
The Company's cellular competitor is Telcel, a wholly owned subsidiary of
Telmex, which holds the wireline cellular concessions in all nine regions of
Mexico. The Company believes that Telmex faces increasing competition,
especially in the long distance market, which was fully opened to competition in
January 1997. Telmex's major long distance competitors include two joint
ventures in which AT&T and MCI are the strategic partners.
In late 1995, the Company brought a suit charging Telmex with unlawfully
cross-subsidizing Telcel's cellular phone operations. The Company believes that
the increased competition in the long distance market is hindering Telmex's
ability to continue to cross-subsidize Telcel. See "-Legal Proceedings."
Cellular Services
History and Overview
Iusacell's predecessor became the first Mexican provider of cellular
telecommunications services in 1989, when it commenced operation of the
non-wireline cellular network in Region 9. Through a series of transactions from
1990 to 1994, Iusacell acquired 100% beneficial ownership interests in the
entities which hold the non-wireline cellular concessions in Regions 5, 6 and 7.
Regions 5, 6, 7 and 9 are among the most attractive cellular markets in Mexico
based upon total POPs and demographic characteristics. These regions cover a
contiguous geographic area in central Mexico, which allows Iusacell to achieve
certain economies of scale.
Iusacell's regions cover a variety of industries. Region 9 includes Mexico
City, which has the greatest concentration of service and manufacturing
industries and is also the center of Mexico's public and financial services
sectors. Region 5 includes Guadalajara, Mexico's second largest city and the
commercial and service center of western Mexico. Region 6 includes Leon and San
Luis Potosi and has historically been dominated by the agricultural
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sector, although it has recently begun to develop as an automobile manufacturing
center. Region 7 includes Puebla, Veracruz and Acapulco and contains major
operations of the Mexican petrochemical industry.
Subscribers and System Usage
As of March 31, 1997, Iusacell had a total of 137,425 cellular subscribers
in Region 9. Of this number, 68% were contract plan subscribers and 32% were
prepay customers. According to Company customer profiles, professionals comprise
a large portion of its Region 9 cellular subscriber base. The Company offers a
number of value-added services designed specifically to fulfill the demands of
this important group of contract subscribers. For example, Iusacell offers
secretarial services and provides English-speaking operators to serve the large
English-speaking market in Region 9. The Company also provides financial news
reporting, emergency services, entertainment information, reservations services
and sports reports. The Company believes that these value-added services help
increase contract subscriber usage and also enhance Iusacell's market image as a
full service cellular provider. Furthermore, the Company also believes that a
strong distribution network is necessary in order to develop and sustain a
significant presence in this important market. The Company believes it has
particularly strengthened its competitive position in Region 9 by entering into
a distribution contract with Precel, which increased the Company's number of
independent distributors in Region 9 by 40%. See "-Marketing
Strategy-Distribution."
As of March 31, 1997, Iusacell had a combined total of 113,302 cellular
subscribers in Regions 5, 6 and 7. Of this number, 61% were contract plan
subscribers and 39% were prepay customers. The Company believes that its
subscriber base in these regions consists of subscribers engaged in a variety of
occupations. Due to the lower landline penetration outside of Region 9, the
subscriber base in Regions 5, 6 and 7 includes a number of users who purchase
cellular services as a principal means of telecommunications. Compared to Region
9, the marketing programs in these regions have focused more on the benefits
inherent in basic cellular service, such as mobility and convenience, than on
the benefits that value-added services provide. Although few value-added
services are currently being offered to contract subscribers, Iusacell is
evaluating the feasibility of offering a broader range of value-added services
similar to those offered to its contract subscribers in Region 9.
The table below sets forth information regarding the cellular subscriber
base for Region 9 and Regions 5, 6 and 7 combined at the dates or for the
periods indicated.
Selected Cellular Subscriber Base Data
<TABLE>
<CAPTION>
Year Ended December 31, Three Months
------------------------------------ Ended March 31,
1994 1995 1996 1997
-------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Region 9
Total POPs (in millions) ............... 23.3 23.8 24.3 24.5
Covered POPs (in millions) ............. 19.9 20.3 22.1 22.3
Percentage of population covered ....... 85.4% 85.3% 91.0% 91.0%
Subscribers:
Contract ............................. 127,138 129,099 94,218 94,108
Prepay ............................... -- 1,399 36,100 43,317
-------- -------- -------- --------
Total ......................... 127,138 130,498 130,318 137,425
Non-wireline penetration(1) ............ 0.55% 0.55% 0.54% 0.56%
Average monthly MOUs per subscriber(2) . 186 154 133 126
Nominal average monthly cellular revenue
per subscriber(3) .................... Ps.586 Ps.469 Ps. 496 Ps. 490
Nominal average monthly cellular revenue
per subscriber(4) .................... U.S.$178 U.S.$73 U.S.$65 U.S.$62
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Regions 5, 6 and 7 Combined
Total POPs (in millions) ............... 38.9 39.7 40.3 40.6
Covered POPs (in millions) ............. 19.6 20.0 23.4 23.8
Percentage of population covered ....... 50.4% 50.4% 58.1% 58.6%
Subscribers:
Contract ............................. 67,585 79,703 67,059 68,747
Prepay ............................... -- -- 35,529 44,555
-------- -------- -------- --------
Total ................................ 67,585 79,703 102,588 113,302
Non-wireline penetration(1) ............ 0.17% 0.20% 0.25% 0.28%
Average monthly MOUs per subscriber(2) . 165 117 94 86
Nominal average monthly cellular revenue
per subscriber(3) .................... Ps. 612 Ps. 457 Ps. 481 Ps. 442
Nominal average monthly cellular revenue
per subscriber(4) .................... U.S.$186 U.S.$71 U.S.$63 U.S.$56
</TABLE>
(1) Non-wireline penetration represents the end of period non-wireline
subscribers divided by the end of period POPs.
(2) Average monthly MOUs per subscriber is calculated by dividing the total
MOUs for the respective period by the average number of subscribers for
such period and dividing the resulting quotient by the number of months in
such period.
(3) Nominal average monthly cellular revenue per subscriber is calculated by
dividing the total cellular service revenue for the respective period (in
nominal Pesos) by the average number of subscribers for such period and
dividing the resulting quotient by the number of months in such period.
(4) Calculated as described in Note (3) above, converted to U.S. dollars using
the Noon Buying Rate for the relevant period. See "Exchange Rates."
Contract Churn
Contract churn measures both voluntarily and involuntarily disconnected
subscribers. The Company calculates contract churn for a given period by
dividing, for each month in that period, the total number of contract
subscribers disconnected in such month by the number of contract subscribers at
the beginning of such month and dividing the sum of the resulting quotients for
all months in such period by the number of months in such period. Voluntarily
disconnected subscribers encompass subscribers who choose to (i) no longer
subscribe to cellular service, (ii) become a prepay customer of the Company or
(iii) obtain cellular service (either on a contract or a prepay basis) from the
Company's competitor. Involuntarily disconnected subscribers encompass customers
whose service is terminated after failing to meet the Company's payment
requirements. The Company believes that a significant part of its contract churn
in 1996 and the first quarter of 1997 was due to customers switching from its
contract plans to a prepay program. Following the introduction of Telcel's
prepay program in February 1996, the Company launched its Control Plus prepay
plan in June 1996 in order to attract, service and retain subscribers. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Increase in Prepay Subscriber Base."
Prepay Turnover
Currently, a prepay customer is no longer considered a customer of the
Company when 60 days have elapsed since the customer purchased and activated, or
added credit to, his or her last prepay card. The customer's telephone number is
then deactivated, and he or she is considered to have turned over. The Company's
current prepay customers who want to continue to have cellular service must
choose to (i) continue to be prepay customers of the Company by purchasing
another card, (ii) become contract customers of the Company or (iii) become
customers (either on a contract or a prepay basis) of Telcel. Due to the higher
turnover among its prepay customers, the Company is attempting to migrate its
qualified prepay customers to contract plans, where customer loyalty and
retention have been historically higher. The Company is evaluating different
methods of determining turnover, as the current method is dependent upon, among
other things, the number of days of use the Company permits before expiration of
prepay cards (currently 60 days). Iusacell is installing a new prepay operating
system which the Company expects will better track those customers who turn
over. Iusacell anticipates that this new operating
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system, together with initiatives to increase the number of distribution points
for prepay cards, improve customer care and otherwise improve the convenience of
the Company's prepay program, will enhance the Company's ability to retain
prepay customers. See "Risk Factors-Mexican Governmental, Political, Economic
and Social Factors," "-Increased Competition; Disputes with Telmex" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Increase in Prepay Subscriber Base."
Roaming
Iusacell offers its contract cellular subscribers nationwide and
international service via roaming agreements. Subscribers can make calls from
any location in Mexico served by a non-wireline cellular operator, and can
receive any call made to the subscriber's number ("automatic call delivery")
regardless of the region in Mexico in which such subscriber is located. Iusacell
also provides cellular services to all subscribers of other non-wireline
cellular operators in Mexico while such subscribers are temporarily located in a
region served by Iusacell.
An operator (a "host operator") providing service to another operator's
subscriber temporarily located in its service region (an "in-roamer") earns
usage revenue. Iusacell bills such other operator (the "home operator") of an
in-roamer for the in-roamer's usage. In the case of roaming by a Iusacell
subscriber in the region of a host operator (an "out-roamer"), Iusacell is
billed by the host operator for the subscriber's usage. Iusacell remits the
billed amount to the host operator and bills its own customer, the out-roamer,
without any mark-up. As a result, Iusacell retains the collection risk for
roaming charges incurred by its own subscribers. Conversely, roaming charges
billed by Iusacell for in-roaming usage by subscribers of other non-wireline
operators are the responsibility of those operators. Roaming charges between
non-wireline operators are settled monthly. Interconnection charges owed to
Telmex and long-distance charges owed to the carrier as a result of roaming are
the responsibility of the host operator. In addition to higher per minute
charges for airtime (as compared to home region rates), the host operator is
entitled to receive a fee for each day roaming service is initiated. During
1996, in-roaming fees and usage revenue represented 3.2% of Iusacell's total
revenues.
Iusacell has signed over sixty agreements with United States and other
foreign operators to provide its subscribers with international roaming
capabilities. These operators include Bell Atlantic NYNEX Mobile, AT&T Wireless,
BellSouth Mobility, Rogers Cantel and AirTouch Communications. Iusacell is
continually reviewing opportunities to enter into agreements with other cellular
operators to expand its international roaming capabilities. In addition,
Iusacell provides, through the National Automatic Cellular Network, automatic
call delivery throughout most of the United States (including Puerto Rico) and
Canada, whereby Iusacell subscribers may receive telephone calls from Mexico
without the caller having to dial access codes.
Other Services
Paging
On December 14, 1995 the Company and Infomin formed Infotelecom as a joint
venture to market national and international paging services. The Company owns
51% of Infotelecom, while Infomin owns the other 49%. Infomin has a concession,
which expires on July 20, 2009, to provide nationwide paging services in Mexico.
Under the Infotelecom joint venture agreement, Infomin is obligated to
contribute this concession to Infotelecom. Due to restrictions on foreign
ownership under the paging concession, however, Infomin cannot contribute its
paging license to the joint venture so long as Bell Atlantic continues to
control the management of Iusacell and the Company continues to hold more than
49% of the voting shares of Infotelecom. See "Risk Factors-Potential Lack of
Control Over Certain Subsidiaries."
Pursuant to a marketing agreement that the Company has entered into with
Infomin, Infotelecom has the right to market national paging services on behalf
of Infomin, and Infotelecom is required to make monthly payments to Infomin
equal to 5% of all gross revenues for the preceding month. This payment
represents the amount which Infomin as the concession holder must pay the SCT
for the right to provide paging services.
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Infotelecom began marketing paging services in August 1996 and service is
now provided in Mexico City, Guadalajara, Monterrey, Puebla, Cuernavaca, Toluca
and Ciudad Juarez. Infotelecom plans to expand the marketing of paging services
to 30 cities by 2001. The Company plans to take advantage of its existing
cellular network and of its operating and administrative resources in order to
achieve cost efficiencies in the provision of paging services. As of March 31,
1997, Infotelecom had 6,203 paging customers.
Under the joint venture agreement, the Company and Infomin valued the
Infomin paging concession at U.S.$10.5 million, and the Company agreed to fund
the first U.S.$10.5 million of Infotelecom's capital needs before Infomin would
be required to make pro rata cash contributions. Auctions for paging spectrum
held after execution of this joint venture agreement have valued nationwide
paging concessions as low as Ps. 1.0 million. Because of this valuation
disparity and the restrictions against foreign ownership of Infomin's paging
concession, Iusacell is exploring alternatives for the provision of paging
services. As of March 31, 1997, the Company had loaned Infotelecom approximately
Ps. 61.4 million (U.S.$7.7 million) to fund capital expenditures and operating
losses. In the event the Company determines, independently or jointly with
Infomin, to abandon or liquidate the Infotelecom joint venture, there can be no
assurance as to how much, if any, of such loaned amounts Iusacell would be able
to recover.
Long Distance
In August 1996, Iusacell became one of Telmex's first competitors in long
distance service when Iusacell began to provide long distance services to its
subscriber base in Mexico pursuant to the 30-year concession Iusatel was awarded
from the SCT on October 16, 1995. The Company's competitors in long distance
include the nine other companies granted concessions as well as Telmex, the
former long distance monopoly. The Company believes that competition in the
Mexican long distance market will stimulate growth in demand for long distance
service.
The Company currently provides long distance service using its own
switches and transmission equipment and a combination of fiber optic lines,
satellite transmission and lines leased from Telmex. At March 31, 1997, the
Company provided long distance service in 21 cities to approximately 275,000
customers, approximately 269,000 of which were existing customers for the
Company's other services, and anticipates providing service in at least 60
cities by mid-1998. The Company has chosen not to commit significant marketing
resources to the current presubscription balloting process among long distance
providers in Mexico and has fared poorly in initial balloting results.
The Company's long distance concession provides for certain coverage and
technological investment requirements. If the Company does not satisfy such
requirements, it could be subject to certain fines and penalties and potentially
lose its long distance concession. The Company is currently evaluating the
commercial feasibility of complying with the concession and may request that
relevant government authorities modify the terms of such concession to reflect
the results of such evaluation and any corresponding revisions to Iusacell's
business plan. See "-Government Regulation-Concessions and Permits-Long Distance
Concession" and "Management's Discussion and Analysis of Financial Condition and
Results of Operation-Liquidity and Capital Resources-Capital Expenditures."
Local Telephony
Iusacell operates a mobile nationwide IMTS radiotelephone network in the
440-450 MHz, 485-495 MHz and 138-144 MHz frequency bands, providing local
radiotelephone services to commercial and non-commercial customers across
Mexico. As of March 31, 1997, Iusacell had 1,598 IMTS radiotelephone subscribers
with average monthly billings of approximately Ps. 848 (U.S.$107) per customer.
Iusacell is considering the cessation of IMTS service with the migration of IMTS
subscribers to other wireless services or local telephony services.
The Company also operates public and rural telephony programs, utilizing
available cellular capacity. These programs provide telecommunications services
through cellular telephones in phone booths, intercity buses and rural areas.
The provision of services in this way fulfills the terms of the Company's
concessions for the provision of cellular telephone service and utilizes the
Company's cellular network to provide telecommunications coverage in
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areas with little or no basic service. As of March 31, 1997, Iusacell had 2,630
cellular telephones in service under its public and rural telephony programs.
As of March 31, 1997, Iusacell was providing, on a trial basis pending
approval from the SCT, local wireless service in the 450 MHz frequency band to
17,980 customers in selected markets in Mexico. The Company believes that there
is substantial unmet demand for telephone service in Mexico as demonstrated by
the relatively low level of residential, business line and cellular penetration
and long customer wait for landline service. See "-The Telecommunications
Industry in Mexico-Growth Opportunities." Iusacell has developed a rate plan for
local wireless service in the 450 MHz frequency band which, while differing in
some respects from the plan used by Telmex, would result in a target revenue
range which approximates a typical Telmex customer's monthly bill.
The Company has experienced substantial delays in obtaining the SCT's
approval of its technical and economic plans for local wireless service in the
450 MHz frequency band. However, on June 10, 1997, the SCT and the Company
reached agreement on a process by which the Company could obtain a concession
issued and recognized by the SCT to provide local wireless service in the 450
MHz frequency band. Under this agreement, Iusacell would convert and consolidate
certain of its existing concessioned radiotelephony frequencies into 450 MHz
spectrum in Regions 4, 5, 6, 7 and 9 and would have a right of first refusal to
acquire the concessions to provide local wireless service over such frequencies
at prices derived from the prices of the winning bids in the auctions for 450
MHz and 1.9 GHz (PCS) frequency bands scheduled by the Mexican government for
the fall of 1997. Until the conclusion of such auctions, Iusacell has received a
provisional authorization to use 450 MHz spectrum to provide local wireless
service to up to 50,000 subscribers.
As a result of the delays experienced by the Company and the uncertainty
relating to the Company's ability, at a commercially acceptable cost, to obtain
concessions to provide local wireless service in the 450 MHz frequency band, the
Company is exploring alternatives for providing local telephony services,
including limited zone wireless services in the 800 MHz (cellular) or 1.9 GHz
(PCS) frequency bands deploying digital technology that permits mobility. If the
Company were to determine that it would be preferable to pursue such an
alternative rather than to continue to pursue local wireless service in the 450
MHz frequency band, such alternative could require the acquisition of
concessions, other regulatory approvals and the payment of substantial fees, and
the Company would record substantial non-cash losses in writing off assets
relating to its 450 MHz local wireless service. See "-Government
Regulation-Concessions and Permits-Local Telephony", "Risk Factors-Ability to
Implement New Services" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Local Telephony in the 450 MHz Frequency
Band; CDMA Overlay."
In expanding its local telephone services, the Company plans to capitalize
on synergies between its cellular and local wireless services, utilizing its
existing cellular network for connections with the local subscribers' premises.
Furthermore, the Company believes that local wireless service requires a lower
infrastructure investment per line than landline service.
Iusacell also has applied for a license to provide local wireline service,
including dedicated circuits, local switching and data service. While the
Company currently does not anticipate that the provision of local wireline
service will become a significant part of its services, the Company may provide,
on a case-by-case basis, local wireline telephone service as part of its overall
provision of telecommunications services.
Data Transmission
Iusacell began providing data transmission services in 1993. The Company
provides both public and private data transmission through its cellular network,
utilizing CDPD technology. The Company provides its data transmission services
primarily to the financial services and consumer products industries.
Marketing Strategy
With the assumption of control by Bell Atlantic, Iusacell has redefined
its strategy for achieving profitable growth, particularly in its cellular
business. The Company seeks to increase its average monthly revenue per
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subscriber, increase its cellular subscriber base, decrease the cost of
acquiring additional subscribers, reduce contract churn and prepay turnover by
improving its marketing efforts to its existing and potential cellular
subscribers.
The Company's subscribers consist of contract and prepay customers who can
be classified as high, moderate or low-usage customers. Iusacell is implementing
distribution, advertising, customer service support and pricing plans targeted
to each specific customer segment.
Contract Subscribers
Contract subscribers seek uninterrupted mobile cellular service, including
long distance, access to high-quality customer service and the ability to choose
among value-added services such as call waiting and *911 services, all for one
monthly fee.
High-usage contract subscribers include corporate customers,
professionals, owners of small to medium-sized businesses and other subscribers
who have a high need for mobility and who rely on cellular service daily. These
subscribers are willing to pay a higher monthly fee in exchange for a large
block of free minutes, a lower airtime rate and a full range of value-added
services and customer service conveniences. These subscribers are concentrated
in the Company's premium plans. The Company is aggressively pursuing customer
growth in this segment through targeted marketing and distribution (customer
service centers, corporate representatives, direct salesforce), advertising
campaigns (business and leisure publications, moving billboards) and pricing
plans.
Moderate-usage contract subscribers include some professionals, small
business owners and residential customers who use cellular services frequently
and require the reliability of a contract plan, but do not generate the monthly
MOUs of high-usage contract subscribers. The Company plans to continue to
generate revenue from this segment through targeted distribution (customer
service centers, direct salesforce, distributors), advertising and pricing
plans.
While the Company does not target low-usage contract customers as
aggressively as other customers, it provides service options to meet the
requirements of this subscriber group. The low-usage contract plan segment
consists primarily of residential customers and small business owners who prefer
the reliability of contract plan service, but whose usage may not justify the
inclusion of various value-added services in the fixed monthly charge. The
Company targets this segment through its group of independent distributors and,
to some extent, through its commission agents and advertising programs. Three
pricing plans are currently offered to meet the needs of low-usage customers.
Prepay Subscribers
Since the inception of the Company's prepay plan in 1996, the number of
prepay subscribers has grown to represent approximately 35% of Iusacell's
subscribers at March 31, 1997. A prepay subscriber can activate a cellular phone
at a Company customer service center, purchase a prepaid card with a fixed
amount of credit to be used over a period of no more than 60 days, and credit
the prepaid card value to the subscriber's account either at a customer service
center or by a phone call. Such a customer will have access to cellular service
(including long distance, but without roaming capability and limited access to
*911 emergency service) until the credit is fully used or until the card expires
at the end of 60 days, whichever occurs first.
The prepay market is composed of customers who typically cannot afford to
purchase a contract plan, do not have the credit profile required to purchase a
contract plan or seek cellular services for emergency or limited use only.
Iusacell believes that prepay plans are attractive to a wide range of cellular
customers. In addition to helping customers control costs, Control Plus has no
monthly bill and allows customers to prepay for cellular services in cash.
Iusacell is now marketing these features to new classes of potential customers.
Currently, prepay subscribers lose their phone numbers 60 days following the
purchase and activation of their most recently purchased card, whether or not
there is credit remaining on such card. The Company has recently implemented a
program under which prepay customers can reacquire their number for a fee within
30 days after expiration. In an effort to discourage turnover, the Company
charges an activation fee for prepay subscribers. The Company has recently
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waived this fee in response to market conditions. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Increase in Prepay
Subscriber Base."
Iusacell believes the prepay service offerings provide an opportunity to
improve margins due to higher average per minute airtime charges, the lower cost
to acquire prepay subscribers and the absence of billing costs, credit concerns
and payment risk. Iusacell is installing a new prepay operating system, allowing
it to better track the usage patterns and identity of its prepay subscribers.
The new operating system also is expected to improve customer satisfaction
through automated reactivation, voice messaging and other value-added services,
and to lower the cost of support for prepay services. The Company anticipates
that the new operating system, together with initiatives to increase the number
of distribution points for prepay cards, will improve customer care and
otherwise improve the convenience of the Company's prepay program, and will
enhance the Company's ability to retain prepay customers.
Distribution
Iusacell targets the various segments of its subscriber base through five
sales and distribution channels: customer service centers, independent
distributors, corporate representatives, a direct salesforce and commission
sales agents. The Company is aggressively increasing the number of its points of
distribution in order to acquire additional subscribers.
Historically, Iusacell's salesforce compensation was based largely upon
salary and a commission structure which encouraged the sale of prepay cards.
Since the assumption of control of the Company by Bell Atlantic, the Company has
overhauled its sales compensation plan. The new plan, implemented in May 1997,
is designed to motivate the salesforce within each distribution channel through
monetary incentives. In addition, this new plan will provide training so that
the salesforce is encouraged to activate profitable and loyal accounts,
cross-sell the full line of the Company's service offerings and maintain the
Iusacell standards in advertising, promotions and customer service.
Customer Service Centers. Iusacell has reconfigured each of its customer
service centers to offer one-stop-shopping for a variety of cellular, long
distance and paging services, as well as accessories. Walk-in customers can
subscribe to cellular service contract plans, purchase prepay cards, sign up for
long distance service and purchase equipment such as handsets, pagers and
accessories. In an effort to maximize customer loyalty, reduce contract churn
and prepay turnover and to increase average monthly revenue per subscriber
through cross-selling, the Company plans to significantly increase the number of
Iusacell-owned and operated customer service centers by the end of 1999,
incorporating a new, uniform store design. In 1997, in addition to opening a
number of new customer service centers, the Company expects to complete the
redesign of its existing 57 owned and operated customer service centers.
Independent Distributors. In order to broaden its market, Iusacell
maintains relationships with a broad network of 61 exclusive distributors in 164
locations. This includes a new distribution contract with Precel, formerly one
of Telcel's largest distributors, to obtain exclusive distribution in 75
locations. The Company's distribution arrangement with Precel increased the
number of Company locations in Regions 5, 7 and 9, by 7, 3 and 65 locations,
respectively, and significantly reduced Telcel's distribution presence in Mexico
City. In order to ensure that Iusacell's standards are maintained at all
distribution points, the Company provides assistance to its distributors in
training, promotions and advertising and provides information on its customer
base to allow the distributors to service the Company's customers effectively.
Corporate Representatives. To service the needs of its large corporate and
other high-usage customers, the Company has created a dedicated corporate sales
group, which, at March 31, 1997, included 70 full-time sales representatives.
This group of trained representatives seeks to increase sales to high-usage
customers by (i) "bundling" combinations of services into customized packages
designed to meet customers' requirements, (ii) developing and marketing new
services to satisfy the demands of such customers and (iii) educating corporate
purchasing managers about alternative pricing plans and services. The Company
plans to increase the size and geographic reach of this salesforce in the
future.
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Direct Salesforce. As of March 31, 1997, the Company employed 15 direct
sales representatives to target moderate-usage contract plan subscribers. These
direct sales representatives travel extensively to deliver personalized service
to subscribers such as small and medium-sized businesses and individuals. The
Company carefully selects, trains and motivates this salesforce to maintain
Iusacell's service standards.
Commission Sales Agents. The Company retains commission agents as a
flexible salesforce in Regions 5, 6 and 7. The agents function as cellular
service brokers for the Company, working out of their own premises to better
target their customers. These agents provide additional distribution outlets
with minimal Company support. As of March 31, 1997, the Company had an
arrangement with 59 commission sales agents who distribute the Company's product
with no direct costs to Iusacell.
Advertising
Iusacell has launched an integrated media plan emphasizing the benefits of
the Company's products and supported by the Iusacell brand image, the logo for
which was recently redesigned. For the first time, all product offerings are
under the single, well-recognized IUSACELL brand name. The media plan targets
the Company's subscribers through a coordinated print, radio, television and
fixed and moving outdoor advertising campaign. A key element of this integrated
media plan is the periodic agency review wherein the sales results of a given
campaign are evaluated. The integrated media plan enables the Company to
negotiate more favorable advertising rates. Print advertisements prominently
feature an ad-response telephone number to solicit new customer inquiries. A
24-hour line is staffed with trained representatives who are equipped to answer
questions regarding services and products. The Company believes that this
24-hour line helps to convey the image of Iusacell as a high-quality, customer
service-oriented telecommunications service provider.
Customer Service
Iusacell views superior customer service as essential in order to
distinguish itself in the competitive Mexican cellular telecommunications
market. The Company provides training for its customer service representatives
to ensure that each customer receives prompt attention, informed answers to any
inquiries and satisfactory resolution of any concerns. The Company believes that
enhanced customer service, especially after-sales support, is integral in
developing brand loyalty and supports the efforts of its salesforce to
cross-sell the Company's services and products. For prepay customers, Iusacell
is installing a new operating system that will better track the usage patterns
and identities of these subscribers. The new operating system will improve
customer satisfaction through automated activation, voice messaging and other
value-added services and will lower the cost of support services. To further
enhance customer service, Iusacell has installed dedicated personal computer
terminals linked to the Company's billing system so that each customer service
representative, either personally or through the 24-hour service line, can
handle customer inquiries, billing questions and account payments with real-time
data and a full customer profile in hand. Customer data gathered from such
sources as the activation process, the billing system and exit interviews with
customers who terminate service, will allow Iusacell to better tailor its
marketing strategy to each customer. Along with providing information as to how
the Company can improve its customer service, this data is expected to enable
representatives from each of the distribution channels to better target their
sales approach to each customer when cross-selling the Company's services and
products.
Pricing
Since 1994, Iusacell has offered a variety of flexible pricing options for
its cellular service. The primary components of the contract pricing plans
include monthly fees, per minute usage charges and a certain number of free
minutes per month. Additionally, the Company's prepay program markets cards
which credit a finite number of Pesos to a customer's account, to be utilized
over a period of no more than 60 days.
The contract pricing plans are designed to target high, moderate and
low-usage contract subscribers. High-usage customers are typically willing to
pay higher monthly fees in exchange for larger blocks of free minutes,
value-added services, a free handset and lower per minute airtime charges under
a single contract. The Company offers the Productivity and Premium plans which
are specifically targeted at the high end of the market.
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Moderate-usage contract subscribers typically prefer pricing options which have
a lower monthly charge, fewer free minutes and higher per minute airtime charges
than those options chosen by high-usage customers. The Company offers the Flex
75 and Flex 150 plans to satisfy the needs of the moderate-usage contract
subscriber base. In addition, on June 7, 1997, the Company launched its Ganador
(Winner) plan which is distinct in that it offers, at no additional charge,
three-way-dialing, call forwarding and call waiting, and comes with a choice of
handsets, including the latest model from Nokia. To satisfy the more limited
needs of the low-usage contract subscribers, the Company offers the Security,
Standard and Tu Tiempo plans, which offer a moderately priced, fixed monthly
charge coupled with a high per minute airtime charge and relatively few free
minutes.
In contrast to contract subscribers, prepay customers typically generate
low levels of cellular usage, do not have access to value-added services (except
for purchasers of Control Plus Ps. 500 cards) or roaming, generally already own
a handset and often cannot afford to or do not have the credit profile to
purchase contract plan cellular services. Other prepay customers include
vacationers and travelling business people who require cellular service for
short periods of time. In addition to helping customers control costs, Control
Plus has no monthly bill and allows customers to prepay for cellular services in
cash. In June 1996, the Company introduced Control Plus, a prepay cellular
telephone service whereby a customer may bring a handset to a customer service
center for activation and purchase a prepay card in denominations of Ps. 100,
Ps. 250 and Ps. 500 from a customer service center or any of a variety of
vendors, including newsstands, lottery stands, supermarkets and other retail
outlets. Once the card is purchased and the handset is activated, the customer
can call the Company with the card's serial number to credit the corresponding
value of cellular service to the customer's account. When this credit occurs,
the service is active and ready for the customer's use. A phone number is
assigned at the time of activation. That number is terminated when 60 days have
elapsed from the date of the last credit.
With the exception of Tu Tiempo and Control Plus, all packages include a
selection of free cellular handsets. The table below sets forth the various
contract and prepay plan rate options implemented by the Company as of May 20,
1997 (except in the case of Ganador, which was introduced on June 7, 1997).
Cellular Rate Options
<TABLE>
<CAPTION>
Fixed Peak Non-Peak Free Contract
Monthly Activation per Minute per Minute Monthly Period
Charge Fee (1) Charge (2) Charge (2) Minutes (months)
----------- ---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Contract Plans:
Premium................. Ps. 1,039 Ps. -- Ps. 1.80 Ps. 1.25 600 12
Productivity ........... 729 -- 2.30 1.65 300 12
Flex 150 ............... 419 -- 2.60 1.75 150 18
Flex 75 ................ 259 -- 3.30 2.15 75 18
Ganador ................ 299 -- 2.25 1.30 100 18
Standard ............... 239 -- 2.60 1.95 30 24
Security ............... 169 -- 3.90 2.25 30 24
Tu Tiempo .............. 99 149 2.75 2.75 -- --
C300 ................... 569 140 1.50 1.00 300 6
R150 ................... 259 130 2.25 1.40 150 12
Prepay Plans:
Control Plus Ps.500 Card -- -- 2.78 2.78 -- NA
Control Plus Ps.250 Card -- 49 3.16 3.16 -- NA
Control Plus Ps.100 Card . -- 99 3.45 3.45 -- NA
</TABLE>
- ----------
(1) Iusacell waives activation fees from time to time in response to market
conditions. It is currently waiving the activation fees for its Control
Plus cards.
(2) Peak per minute charges currently apply to usage between 8:00 A.M. and
10:00 P.M. Monday through Friday. Non-peak per-minute charges apply at all
other times.
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Since April 1997, the Company has announced two price increases for its
cellular plans. On April 1, 1997, the Company announced a weighted average
increase of 15% for the per minute airtime price on all its contract and prepay
plans. This weighted average price increase was calculated by applying the
actual price increases announced in April 1997 to both peak and non-peak per
minute airtime charges for each of the Company's contract and prepay plans,
weighted by the ratio of each plan's contribution to overall airtime revenues
during the month of April 1997. On May 20, 1997, the Company announced a
weighted average increase of 8.3% for the fixed monthly charges on all its
contract plans. This weighted average price increase was calculated by applying
the actual price increases announced on May 20, 1997 for all the Company's
contract plans, weighted by the ratio of each plan's contribution to overall
monthly fixed charges during the month of April 1997.
For a discussion of the Company's experiences with the recent price
increases, see "Management's Discussion and Analysis of Financial Condition and
Results of Operation-Recent Developments." Since Iusacell announced these price
increases, Telcel has responded by raising the per minute prices on its prepay
plans. The Company intends to continually review its market pricing and will
attempt to increase prices, if economic and competitive conditions permit, to
keep pace with inflation. See "Risk Factors-Mexican Governmental, Political,
Economic and Social Factors" and "-Increased Competition; Disputes with Telmex."
Activation, Billing and Collection Procedures
The Company can activate a phone within 30 minutes of receiving credit
approval for customers who intend to pay their monthly charges with a credit
card. For customers who intend to pay their monthly charges in cash, there is a
credit review process of no longer than 48 hours prior to the delivery and
activation of a cellular telephone and a requirement of a security deposit in an
amount equal to double the assigned credit limit. For Control Plus customers,
activation time is 30 minutes or less. The Company believes that its ability to
activate a cellular telephone number promptly gives the Company a competitive
advantage over Telcel.
The Company mitigates its credit exposure in four ways: (i) for those
customers paying by credit card, by obtaining a credit report from the Bureau
Nacional de Credito ("National Credit Bureau"), a Mexican affiliate of
TransUnion Corporation; (ii) by requiring payment to be made by credit card or,
for those customers who do not pay by credit card, by requiring security
deposits and conducting a credit investigation; (iii) by requiring that
customers paying by credit card purchase a bond, which provides for payment in
the event of customer defaults; and (iv) by utilizing prepay cards, which
eliminate all credit risk.
The Company has instituted customer retention procedures whereby a
late-paying customer is contacted by a service representative prior to
termination to urge such customer to settle his or her account and to inquire
about the reasons for nonpayment. Iusacell believes that these follow-up
procedures help decrease the rate of nonpayment and improve customer goodwill by
allowing Iusacell to address any customer grievances which may have led to
customer delinquency, thereby helping to retain potentially profitable accounts.
Iusacell has also implemented a system to monitor MOU levels and the
number of calls to certain geographic areas in order to identify abnormal usage
by contract subscribers. When abnormal usage is detected, Iusacell contacts the
subscriber to determine whether such usage has been authorized. The Company
believes that these procedures are effective in reducing the number of billing
disputes with subscribers and losses due to cellular fraud.
Billing is administered using a customized version of Bell Canada's "Link"
billing system in Regions 6, 7 and 9 and the Communication Administration System
in Region 5. The Company's current billing and call-rating capacity is
sufficient to service its existing subscriber base. In connection with the
planned implementation of CDMA, the Company plans to upgrade its current billing
system to accommodate future subscriber growth. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation-Liquidity and Capital
Resources-Capital Expenditures." The Company compiles billing information on a
real-time basis by transmitting the information via dedicated microwave
facilities from the Company's switching stations to its billing system.
Protective and disaster recovery measures are taken in connection with all
billing information. Iusacell continues to evaluate alternative billing and
account management system solutions in order to accommodate future growth.
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Network and Equipment
Cellular Services
Iusacell's integrated cellular network is currently composed of five
cellular switches, 236 cell sites and 42 repeaters, and covers approximately 70%
of total regional POPs. Iusacell currently uses analog technology to link its
subscribers and its cellular network. The Company plans to launch a digital CDMA
overlay network in 1998, which will significantly enhance network performance.
The overlay will begin in Region 9 in the first quarter of 1998, with the
remaining regions to be completed during the remainder of that year.
The Company has elected to deploy CDMA technology instead of TDMA
technology based on its and Bell Atlantic's evaluation of the two technologies.
For the past year, Iusacell has used TDMA technology for internal purposes
across 106 cell sites in Region 9. Bell Atlantic is successfully using CDMA
technology in several of its U.S. markets to favorable customer response. CDMA
offers significantly greater call-carrying capacity and superior voice quality
and is more compatible for future upgrading than TDMA. The Company believes that
it will be the first cellular operator in Mexico to launch a fully digital CDMA
network. Iusacell will maintain transmitting equipment to serve both analog and
digital formats, and the Company expects to market dual-mode cellular telephones
capable of sending and receiving both analog and digital transmissions. See
"Risk Factors-Rapid Technological Change." Depending on the choice of vendor for
CDMA equipment, the Company may be required to discontinue using a substantial
portion of its existing network infrastructure, particularly the TDMA technology
now being used for internal purposes in Region 9 and, accordingly, could record
substantial non-cash losses in respect thereof. The Company cannot anticipate
the magnitude of any such potential write-off at this time. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Local
Telephony in the 450 MHz Frequency Band; CDMA Overlay."
Iusacell's cellular network consists of digital switching systems that are
capable of serving multiple markets. Regions 6, 7 and 9 are served by four
Northern Telecom DMS 250 (MTX) switches, and Region 5 is served by one Motorola
switch (EMX 2500). All switching equipment is fully networked. Iusacell
installed its first mobile switching center in 1989 in Region 9 and currently
operates 141 cell sites, providing telephone coverage to substantially all of
the populated territory and major highway routes of Region 9. Regions 5, 6 and 7
currently operate with a total of 95 cell sites, resulting in cellular telephone
coverage in all major population centers as well as along the principal highway
routes in the regions. Iusacell plans to install an additional 39 cell sites and
31 repeaters in its regions during 1997 in an effort to increase geographic
coverage, as well as boost call-carrying capacity within areas already covered.
The Company increases call-carrying capacity and coverage by three principal
means: "cell splitting," deploying "micro-cells," and using cell site repeaters
or enhancers. Approximately 70% of the cells in Region 9 were created as a
result of cell splitting.
Digital microwave links between cell sites and the landline system are
supplied by various equipment manufacturers. The entire microwave network
consists of 329 individual microwave point to point links (hops). Taking
advantage of the ability of its various switching systems to run customized
software, Iusacell has developed a proprietary software package which is able to
track and report, in real-time, all aspects of network performance, including
traffic analysis, call quality and alarms. Iusacell seeks to upgrade and improve
its cellular network as new technologies become available.
The Company has a network operations and control center in Mexico City,
which oversees, administers and provides technical support to all regions. The
Company plans to upgrade its control center, utilizing a more flexible platform,
capable of adjusting to an increasingly more complex network. This effort is
currently under evaluation and implementation of the new system is expected
during the first half of 1998.
Other Services
Iusacell provides paging services primarily using its own cellular network
facilities. For long distance, the Company uses fiber optics and
state-of-the-art digital systems. In particular, Iusacell uses its three long
distance switches and its own transmission equipment, as well as other
facilities leased from Telmex.
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Iusacell provides private data transmission services primarily using
excess capacity in the Company's microwave backbone in its existing cellular
network in Region 9, its X.25 packet switching network and its nationwide
satellite transmission through Satelitron, S.A. de C.V. ("Satelitron"), a shared
hub for private networks which is being developed as part of a joint venture
with Hughes Network Systems and other entities. Iusacell also provides private
and public data transmission through its cellular network, utilizing CDPD
technology.
The Company's local wireless network, if implemented in the 450 MHz
frequency band, is expected to be based on the most modern digital switching,
transmission and subscriber connection equipment that is readily available and
commercially feasible. The Company intends to utilize its existing
infrastructure to the extent possible. If the Company opts to provide local
wireless service through its 800 MHz or 1.9 GHz frequency bands, the digital
technology that would be employed would offer additional features such as
out-of-zone mobility.
In April 1994, the Company and Northern Telecom Limited ("Nortel") entered
into a five-year, U.S.$315.0 million agreement (the "Nortel Agreement") pursuant
to which Nortel has in the past supplied and, upon approval of the Company's
technical and economic plans by the SCT, will continue to supply network
switching equipment, switching center transmission equipment and radio base
station equipment, as well as associated software and technical services, for
the development of the 450 MHz local wireless network. The Nortel Agreement is
currently suspended and will terminate if the Company's technical and economic
plans for the 450 MHz project are not approved by, or if the Company does not
receive a concession to provide local wireless telephony in the 450 MHz
frequency band from, the SCT on or before December 31, 1997. The Company has
made U.S.$26.8 million in purchases under the Nortel Agreement to date and, if
the suspension is lifted, anticipates making a total of U.S.$288.2 million in
additional purchases under the agreement. In addition, the Company has made an
advance payment of U.S.$15.0 million for future purchases as required under the
agreement. The Company has also entered into a U.S.$5.0 million agreement with
Nortel for the purchase of 12,000 450 MHz local wireless terminals and a
U.S.$82.0 million purchase agreement with Telrad Telecommunications Electronics
Industries, Ltd. ("Telrad") for terminals. Although the Company believes that it
has no further liability under the Telrad contract and would have no further
liability under the Nortel Agreement if it were unable to acquire the necessary
concession or receive the required approval from the SCT on or before December
31, 1997, there can be no assurance that Telrad or Nortel will not seek legal
redress against the Company or that Telrad or Nortel will not succeed in
obtaining damages from the Company. See "Risk Factors-Ability to Implement New
Services" and "-Mexican Government Regulation."
Infrastructure Synergies
While cellular transmitters are unique to cellular service, towers can be
used for cellular and paging transmissions, and the same physical infrastructure
(land, shelter, etc.) can be used for cellular, paging and long distance
equipment. Synergies also exist in maintenance, workforce training and equipment
purchasing. For example, since plugs (electronic circuit boards used in
switches) can be used in both cellular and long distance switches, a
proportionately lower inventory of plugs can be maintained. The Company believes
that, as it expands its non-cellular offerings, these synergies will allow it to
reduce its infrastructure costs significantly and will reduce the time needed
for implementation of a new service.
For a discussion of the Company's capital expenditure plans for its
cellular and other services, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital
Resources-Capital Expenditures."
Competition
The offering of cellular services in Mexico is currently a regulated
duopoly in each region. Iusacell's cellular competitor in all regions in which
it provides service is Telcel, the holder of the wireline cellular concession
for service throughout Mexico and the country's largest cellular provider.
Cellular systems compete principally on the basis of quality of
telecommunications services, customer service, roaming capabilities, value-added
services, breadth of coverage area and, more recently, price. Operators are
largely free to set their own rates, provided such rates are set on the basis of
cost. See "-Government Regulation."
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While Iusacell currently faces limited competition from entities providing
telecommunications services utilizing other existing technologies, the Company
will likely face increased competition from technologies being developed or to
be developed in the future. Emerging technologies such as enhanced specialized
mobile radio, PCS and satellite telephone will compete with current cellular
services. The Mexican government has announced its intention to auction spectrum
in the 450 MHz, 1.9 GHz (PCS) and 3.4-3.7 GHz frequency bands in the fall of
1997. Several of the Company's competitors have announced their intention to
enter these auctions to obtain access to the local wireless markets.
In paging services, the Company competes with established companies such
as Comunicaciones MTEL (Skytel), S.A. de C.V., Enlaces Radiofonicos, S.A. de
C.V. (Digitel), Telecomunicaciones Elektra, S.A. de C.V. (Biper), Grupo Radio
Beep, S.A. de C.V., Codime and Buscatel, S.A. de C.V., a Telmex subsidiary. In
addition, several new concessions have been awarded in the last year. Other
companies have publicly announced their intention to provide similar services in
Mexico.
In providing long distance telephone service, Iusacell faces competition
from ten other concession holders, including Telmex and joint venture companies
in which AT&T and MCI have beneficial ownership interests. Presubscription
balloting is currently taking place in certain cities whereby telephone
customers choose their long distance carrier. The Company has chosen not to
commit significant marketing resources to the balloting process and has fared
poorly in initial balloting results.
In the local telephony market, the Company expects to face significant
competition from both Telmex, the existing monopoly, and new competitors
entering this market through the upcoming 450 MHz and 1.9 GHz (PCS) auctions.
In providing data transmission services, Iusacell competes for customers
with Telmex and Telecom. In addition, the Company believes that the current
Mexican data transmission industry includes over 1,000 private networks that
provide data transmission services.
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" and
"Risk Factors-Increased Competition; Disputes with Telmex."
International Joint Ventures
On September 30, 1997, the Company consummated the sale of its direct and
indirect minority interests in its Ecuadorean cellular company, Conecel, and its
Ecuadorean paging company Corptilor, S.A. to a corporation controlled by the
controlling shareholder of the majority shareholder of these companies. At the
closing, Iusacell received U.S.$29.4 million in cash consideration for its
direct interests in these companies and anticipates receiving an additional
U.S.$3.4 million in respect of its indirect interests by the end of 1997.
In December 1996, Iusacell agreed to sell its wholly-owned subsidiary,
Iusatel Chile, a Chilean long distance company, to Inversiones Druma, S.A.
("Inversiones") for U.S.$5.0 million. The sale transaction also includes a
capitalization of U.S.$13.3 million of obligations of the Company to Iusatel
Chile. In March 1997, Inversiones notified Iusacell that it seeks to rescind the
transaction due to alleged omissions and misrepresentations and therefore was
not going to pay the purchase price. Iusacell intends to seek to enforce the
December 1996 agreement.
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Government Regulation
Telecommunications systems in Mexico are regulated by the SCT and the
Mexican Federal Telecommunications Commission, an independent regulatory body
within the SCT, pursuant to the Ley Federal de Telecomunicaciones (the "1995
Telecommunications Law"), which became effective on June 8, 1995, although
certain rules set forth in the Ley de Vias Generales de Comunicacion, the
Reglamento de Telecomunicaciones and the rules promulgated thereunder
(collectively, the "Original Communications Laws") generally remain effective.
These laws and regulations define the regulatory structure applicable to the
nationwide telecommunications infrastructure and the provision of
telecommunications services. They govern, among other things, applications to
install, maintain and operate telecommunications systems; the establishment of
technical standards for the provision of telecommunications services; and the
granting, revocation and modification of concessions and permits. In particular,
concessions and permits granted under the Original Communications Laws (which is
the case for most concessions and permits granted to the Company and its
subsidiaries) should be governed by the Original Communications Laws, except for
provisions included in the 1995 Telecommunications Law which grant rights
enhancing those set forth in the Original Communications Laws. However, rates
charged by holders of concessions and permits granted under the Original
Communications Laws will continue to require prior approval from the SCT, unless
such concession or permit is amended.
Concessions and Permits
To provide public telecommunications services in Mexico through a public
network, the service provider must first obtain a concession from the SCT.
Pursuant to the 1995 Telecommunications Law, concessions for public networks may
not exceed a term of 30 years, and concessions for radioelectric spectrum may
not exceed a term of 20 years. Concessions may be extended for a term equivalent
to the term for which the concession was originally granted. Concessions
specify, among other things, (i) the type of network, system or service, (ii)
the allocated spectrum, if applicable, (iii) the geographical region in which
the holder of the concession may provide the service, (iv) the required capital
expenditure program, (v) the term during which such service may be provided,
(vi) the payment, where applicable, required to be made to acquire the
concession, including, where applicable, the participation of the Mexican
government in the revenues of the holder of the concession, and (vii) any other
rights and obligations affecting the concession holder. In addition to
concessions, the SCT may also grant permits for (i) establishing, operating or
exploiting private telecommunications services not constituting a public network
and (ii) installing, operating or exploiting transmission-ground stations. There
is no specified maximum term for permits. Under the 1995 Telecommunications Law,
only registration with the SCT is required to provide value-added
telecommunications services.
Under the 1995 Telecommunications Law and the Ley de Inversion Extranjera
(the "Foreign Investment Law"), concessions may only be granted to Mexican
individuals and to Mexican corporations whose foreign investment participation
does not exceed 49% of the voting shares thereof or who are not otherwise
controlled by non-Mexicans, except that, in the case of concessions for cellular
communications services, foreign investment participation may exceed 49% with
the prior approval of the Mexican Foreign Investment Commission. There are no
foreign investment participation restrictions in respect of operations conducted
under permits. See "Risk Factors-Potential Lack of Control Over Certain
Subsidiaries."
A concession or a permit may be terminated pursuant to the 1995
Telecommunications Law upon: (i) expiration of its term, (ii) resignation by the
concession holder or the permit holder, (iii) revocation, (iv) expropriation or
(v) dissolution or bankruptcy of the concession holder or the permit holder.
A concession or a permit may be revoked prior to the end of its term under
certain circumstances, such as: (i) unauthorized interruption of service, (ii)
the taking of any action that impairs the rights of other concessionaires or
permit holders, (iii) failure to comply with the obligations or conditions
specified in the concession or permit, (iv) failure to provide interconnection
services with other holders of telecommunications concessions and permits, (v)
loss of the concession or permit holder's Mexican nationality, (vi) unauthorized
assignment, transfer or encumbrance of the concession or permit, any rights
thereunder or assets used for the exploitation of the concession or permit,
(vii) failure to pay to the Mexican government its fee for the concession
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or, where applicable, its participation in the revenues of the holder of the
concession and (viii) participation of any foreign government in the capital
stock of the holder of the concession. In addition, the SCT may establish for
any concession further events which could result in revocation of that
concession.
The Mexican government, through the SCT, may also temporarily seize all
assets related to a concession or permit in the event of a natural disaster,
war, significant public disturbance or threats to internal peace and for other
reasons related to preserving public order or for economic reasons. In addition,
the government has the statutory right to expropriate related assets for public
interest reasons. Under Mexican law, the Mexican government is obligated to
compensate the owner of the assets in the case of a statutory expropriation or
temporary seizure, except in the event of war. If the Mexican government
temporarily seizes such assets, it must indemnify the concession holder for all
losses and damages, including lost revenues. In the case of an expropriation,
the amount of the compensation is to be determined by appraisers. If the party
affected by the expropriation disagrees with the amount appraised, such party
may initiate judicial action against the government. Should no agreement be
reached on the amount of the indemnity in the case of a seizure or
expropriation, such determination will be made by an independent appraiser.
Iusacell is not aware of any instance in which the SCT has exercised any of the
foregoing powers in connection with a cellular company.
The Original Concession. Iusacell's right to provide radiotelephony, local
wireless and data transmission services nationwide, as well as cellular service
in Region 9, is based upon the concession granted to the predecessor of
Iusacell's wholly owned subsidiary, SOS Telecomunicaciones, S.A. de C.V.
("SOS"), on April 1, 1957, as amended (the "Original Concession"). The term of
the Original Concession is 50 years, and it expires on April 1, 2007. The
Original Concession may, however, be revoked prior to such date in the event
that SOS fails to comply with its terms or applicable law. In consideration for
the Original Concession, SOS must make payments to the Mexican government equal
to 5% of all gross revenues derived from services provided through its Region 9
cellular network and payments in an amount which is the greater of (i) 4% of all
gross revenues and (ii) 10% of net income, in either case, derived from services
provided through its nationwide radiocommunication network. Under the terms of
the Original Concession, SOS must continually modernize its services. In
updating its services, SOS must submit technical and economic plans for approval
by the SCT. In determining whether to approve these plans, the SCT is authorized
to consider whether the plans sufficiently address factors such as the public
interest and efficiency and uniformity in telecommunications throughout Mexico.
The Original Concession is renewable upon timely application to the SCT,
provided that SOS has complied with all of the requirements of the Original
Concession and agrees to any new terms and conditions established by the SCT at
the time of such renewal.
Initially, the Original Concession authorized only the installation and
commercial operation of nationwide mobile (vehicle-installed) radiotelephone
public service in the 132-144 Mhz frequency range. Since then, however, the
Original Concession has been amended numerous times, thereby allowing Iusacell
to expand the types of telecommunications services which it may offer. In 1978,
the Original Concession was amended to grant SOS an additional allocation in the
440-450 MHz and 485-495 MHz frequency ranges in return for yielding a portion of
its 132-144 MHz frequency range allocation. SOS retained the frequencies between
138 and 144 MHz. Between 1986 and 1989, the Original Concession was further
amended to enable SOS to provide fixed rural radiotelephone service, to offer
telex and data transmission with the obligation to link its subscribers to the
network owned by Telecom, and to interconnect its radiocommunications ground
stations through satellite. In 1989, SOS was authorized to install, operate and
maintain a mobile public radiocommunications network with cellular technology in
the 825-835 MHz and 870-880 MHz frequency ranges in Region 9. In 1990, SOS was
authorized to carry intra-regional cellular-to-cellular communications
throughout Region 9 without being required to interconnect with the long
distance carrier. In 1992, SOS was authorized to provide public data
transmission service nationwide through its radio communications networks
without the obligation to link its subscribers to the Telecom network. In 1993,
SOS was granted an additional 5 MHz band in the 800 MHz frequency range for the
provision of cellular service, due to the high volume of cellular traffic
experienced in Region 9. In the same year, SOS was authorized to improve its
radiocommunications public service in the 440-450 MHz and 485-495 MHz frequency
ranges by utilizing digital technology and to interconnect its
telecommunications systems through fiber optic, satellite and microwave
technologies. The SCT also clarified the ability, and indeed the obligation, of
SOS to interconnect customers of its nationwide radio communications network
regardless of whether such customers use fixed, mobile or portable telephones.
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In accordance with the 1995 Telecommunications Law, SOS applied to renew
the Original Concession in March 1995. Given the nearly 10 years remaining on
the term of the Original Concession, the Company does not expect any definitive
determination by the SCT with respect to the renewal application in the near
term.
Cellular Concessions. Mexico is divided into nine cellular regions. The
SCT has allocated cellular telephone system frequencies in each region from the
825-835 and 870-880 MHz frequency bands ("Band A") and from the 835-845 and
880-890 MHz frequency bands ("Band B") of the radio spectrum. In each region,
Telcel, the holder of the wireline cellular concession, is assigned Band B, and
the holder of the non-wireline cellular concession in each region is assigned
Band A.
In Region 9, Iusacell holds the right to provide cellular service pursuant
to an authorization granted to SOS by the SCT in 1989 under the Original
Concession. In Regions 5, 6 and 7, Iusacell holds the right to provide cellular
service through its subsidiaries Comcel, Sistemas Telefonicos Portatiles
Celulares, S.A. de C.V. ("Portacel") and Telecomunicaciones del Golfo, S.A. de
C.V. ("Telgolfo"), respectively. See Note 2 to the Audited Consolidated
Financial Statements. Comcel, Portacel and Telgolfo each hold 20-year
concessions expiring in 2010 which authorize these subsidiaries to install,
operate, maintain and exploit mobile public radiotelephone networks with
cellular technology for commercial use in Band A. In consideration for these
authorizations and concessions, the subsidiaries made initial payments to the
Mexican government and, in addition, must make payments as follows:
Percent of Gross
Revenues Payable To
Mexican Government
------------------
Comcel............................................... 8%
Portacel............................................. 7
Telgolfo............................................. 8
By the terms of their concessions, Comcel, Portacel and Telgolfo must
continually modernize their services after receiving approval of their technical
and economic plans from the SCT. In determining whether to approve these plans,
the SCT is authorized to consider whether the plans sufficiently address factors
such as the public interest and efficiency and uniformity in telecommunications
throughout Mexico. These concessions may be revoked or terminated prior to their
expiration dates in the event the concession holder fails to comply with certain
conditions set forth in the concessions or applicable law. The concessions may,
however, be renewed for a term equal to the original term upon timely
application to the SCT, provided that the concession holder had complied with
all of the requirements of its concession and agrees to any new terms and
conditions established by the SCT at the time of such renewal.
Paging. On December 14, 1995, the Company and Infomin formed Infotelecom
as a joint venture to market national and international paging services. Infomin
has a concession, which expires on July 20, 2009, to provide nationwide paging
services in Mexico. Although the joint venture agreement between Iusacell and
Infomin contemplates that Infomin will ultimately transfer its paging concession
to Infotelecom, Infomin's paging concession prohibits foreign ownership of more
than 49% of the voting shares of the entity holding the concession. As a result,
Infomin will be unable to contribute its paging license to the joint venture so
long as Bell Atlantic continues to control the management of Iusacell and
Iusacell continues to hold more than 49% of the voting shares of Infotelecom.
See "Risk Factors-Potential Lack of Control over Certain Subsidiaries" and
"-Other Services-Paging." Infotelecom is required to make monthly payments to
Infomin equal to 5% of all gross revenues for the preceding month. This payment
represents the amount which Infomin as concession holder must pay the SCT for
the right to provide paging service.
Long Distance Concession. Iusacell's right to provide international long
distance services is based upon a long distance concession granted by the SCT to
Iusatel on October 16, 1995. The term of the long distance concession is 30
years and may be renewed upon timely application to the SCT, for an equal period
of time, provided that Iusatel complies with certain requirements. Pursuant to
the concession, Iusatel is required to comply with certain technical
specifications and must serve with its own facilities a minimum of 60 cities by
May 31, 1998
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and 22 additional cities by December 31, 2000. See "-Other Services-Long
Distance" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources-Capital Expenditures."
Local Telephony. Iusacell believes its right to provide local telephony
service is derived from the Original Concession. The Original Concession, as
originally granted, permitted the Company to provide radiocommunications service
to vehicle-mounted terminal equipment nationwide. In 1986, the SCT amended the
Original Concession to authorize the Company to provide fixed public
radiotelephony service in rural areas nationwide in accordance with plans to be
approved by the SCT. In 1990, the Reglamento de Telecomunicaciones was
promulgated by the Mexican government which further modified the Original
Concession. These regulations classified radiocommunications services on the
basis of the networks used to provide such services rather than upon the basis
of subscriber terminal equipment. Radiocommunications networks are generally
classified as either "fixed" or "mobile." Iusacell's radiocommunications network
is a mobile network. In 1993 the SCT clarified the ability, and indeed the
obligation, of SOS to interconnect customers of its nationwide
radiocommunications network regardless of whether such customers use fixed,
mobile or portable telephones.
Pursuant to the Original Concession, the commencement of construction and
marketing of local wireless service in the 450 MHz frequency band on a
commercial basis requires the prior approval of the SCT. The Company has
experienced substantial delays in obtaining the SCT's approval of its technical
and economic plans for local wireless service in the 450 MHz frequency band.
However, on June 10, 1997, the SCT and the Company reached agreement on a
process by which the Company could obtain a concession issued and recognized by
the SCT to provide local wireless service in the 450 MHz frequency band. Under
this agreement, Iusacell would convert and consolidate certain of its existing
concessioned radiotelephony frequencies into 450 MHz spectrum in Regions 4, 5,
6, 7 and 9 and would have a right of first refusal to acquire the concessions to
provide local wireless service over such frequencies at prices derived from the
prices of the winning bids in the auctions for 450 MHz and 1.9 GHz (PCS)
frequency bands scheduled by the Mexican government for the fall of 1997. Until
the conclusion of such auctions, Iusacell has received a provisional
authorization to use 450 MHz spectrum to provide local wireless service to up to
50,000 subscribers.
The Company is exploring alternatives for providing local telephony
services, including limited zone wireless services in the 800 MHz (cellular) or
1.9 GHz (PCS) frequency bands deploying digital technology that will permit
mobility. If the Company were to determine that it would be preferable to pursue
such an alternative, the acquisition of concessions, other regulatory approvals
and the payment of substantial fees could be required. See "Risk Factors-Ability
to Implement New Services" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Local Telephony in the 450 MHz
Frequency Band; CDMA Overlay."
Data Transmission. Iusacell's right to offer telex and provide public data
transmission service throughout Mexico is derived from the Original Concession.
Iusacell utilizes its allocations in the 138-144 MHz, 440-450 MHz and 485-495
MHz frequency bands nationwide to provide data transmission services.
Satellite Transmission Permit. On December 15, 1991, Satelitron, a joint
venture formed among Hughes Network Systems, Iusacell and two other investors,
was granted a 15-year permit to provide dedicated circuit services and private
networks through Mexican satellites or any other satellites designated by the
Mexican government. The Satelitron permit is renewable for 15 additional years
upon timely application to the SCT, provided Satelitron has complied with all of
the requirements of the permit and agrees to any new terms and conditions
established by the SCT at the time of such renewal. Under this permit,
Satelitron is required to make monthly payments to the SCT equal to 2.5% of all
gross revenues derived from its provision of access to its satellite bandwidth,
and 2.5% of all such gross revenues to Telecom for supervision and supporting
services.
Dedicated Microwave Circuit Services Permit. On December 8, 1993, the SCT
authorized SOS to use its microwave network's excess capacity to provide
dedicated circuit services. In accordance with the terms of this permit, these
dedicated microwave circuits cannot be interconnected to public exchange
networks, and the service must only be provided through the links of the
microwave network authorized by the SCT. On February 1, 1994, the SCT authorized
SOS to carry voice, data and video conferencing through these dedicated circuit
services.
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Value-Added Services Permit. On June 17, 1993, SOS was granted a permit to
provide through its public network the following value-added telecommunications
services to its cellular subscribers: (i) secretarial service, (ii) voice mail
and (iii) data transmission. The term of this permit is the same as that of the
authorization for using the Region 9 cellular network through which the
value-added services are to be provided. Under this permit SOS is required to
make annual payments to the Mexican government equal to 5% of all gross revenues
derived directly from the provision of these services. In October 1994, Comcel,
Telgolfo and Portacel were each granted a permit to provide secretarial services
under the same terms granted to SOS, including the making of the aforementioned
payments to the Mexican government.
Foreign Ownership Restrictions
Pursuant to the 1995 Telecommunications Law and the Foreign Investment
Law, holders of concessions to provide telecommunications services in Mexico
(including long distance and local telephony, but not cellular service) cannot
have a majority of their voting shares owned by, and cannot be otherwise
controlled by, foreign persons. In February 1997, the Mexican Foreign Investment
Commission conditioned its approval of Bell Atlantic assuming management control
over the Company and its subsidiaries upon the requirement that, within a
renewable period of 180 days, Iusacell would transfer at least 51% of the voting
shares of Iusatelecomunicaciones and Iusatel to Mexican investors on terms
acceptable to the Foreign Investment Commission. Iusacell intends to comply with
this requirement by transferring 51% of the voting shares of these subsidiaries
to Mexican nationals while retaining a larger equity interest through the
ownership of "neutral" limited-voting shares (inversion neutra).
Iusacell has commenced discussions with Mexican nationals with respect to
the sale of the requisite voting interest in Iusatelecomunicaciones and Iusatel.
Iusacell intends that, as part of any such transfer, it will enter into a
shareholders agreement with the purchaser that will contain adequate protections
for Iusacell, including governance rights commensurate with Iusacell's equity
interest in such subsidiaries. There can be no assurance, however, that a sale
can be effected on such terms, or at all, or whether such terms will be
acceptable to the Mexican Foreign Investment Bureau. See "Risk Factors-Potential
Lack of Control Over Certain Subsidiaries."
In order to participate in the auctions for concessions for microwave
frequencies scheduled to be held in July 1997, the Company recently formed a
joint venture with Jose Ramon Elizondo, a Director of the Company and a Mexican
investor. The Company has petitioned the Mexican 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
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power. All tariffs for telecommunications services (other than value-added
services) must be registered with the Federal Telecommunications Commission
prior to becoming effective.
United States Regulation
Bell Atlantic, like all other regional Bell operating companies, was
subject to a consent decree (the "Decree") entered in a United States federal
court in 1982 resulting from antitrust litigation brought by the United States
Department of Justice against AT&T. The Decree required AT&T to divest itself of
its local telephone companies. Under the Decree, Bell Atlantic was prohibited
from providing interLATA (long distance) telecommunications, engaging in the
manufacture of customer premises equipment ("CPE"), or engaging in the
manufacture or sale of telecommunications equipment.
The Telecommunications Act of 1996 (the "1996 Act"), which became
effective on February 8, 1996, includes provisions that would open local
telephony markets to competition and would permit regional Bell operating
companies, such as Bell Atlantic, to provide interLATA services (long distance)
and video programming and to engage in manufacturing. Under the 1996 Act, Bell
Atlantic was allowed to provide certain interLATA (long distance) services
immediately upon enactment, including interLATA (long distance) services
originating outside the states where its subsidiaries provide local exchange
telephone services or interLATA (long distance) services that are "incidental"
to other permitted business such as wireless services. However, the ability of
Bell Atlantic and its affiliates to engage in businesses previously prohibited
by the Decree, including providing interLATA (long distance) services
originating in the states where Bell Atlantic's subsidiaries provide local
exchange telephone service, and manufacturing CPE or telecommunications
equipment, is largely dependent on satisfying certain conditions contained in
the 1996 Act and any regulations promulgated thereunder.
As a company affiliated with Bell Atlantic, the operations of Iusacell had
been subject to the Decree and the various waivers granted thereunder. Bell
Atlantic obtained waivers under the Decree in 1986 and 1993 that together
permitted it to conduct business outside the United States, subject to certain
exceptions and restrictions. Under such exceptions and restrictions, a foreign
telecommunications entity affiliated with Bell Atlantic (an "FTE"), such as
Iusacell, could not provide interexchange (long distance) telecommunications
services between points in the United States or own any international
telecommunications facilities in the United States. As to telecommunications
traffic between the United States and a foreign country, an FTE could provide
only the foreign "half" of such traffic. An FTE was also subject to certain
prohibitions on discrimination in handling traffic to and from the United States
and limitations on interests it could own in international cables and satellite
facilities to and from the United States. Finally, an FTE was subject to
prohibitions on exporting to the United States any telecommunications equipment
or CPE manufactured outside the United States.
The 1996 Act eliminated the restrictions under the Decree that preclude an
FTE from providing the United States "half" of traffic originating in a foreign
county, from exporting to the United States telecommunications equipment or CPE
manufactured outside the United States and, subject to the same conditions that
Bell Atlantic must satisfy under the 1996 Act and any regulations promulgated
thereunder only with respect to interLATA (long distance) telecommunications
services originating in Bell Atlantic's local exchange territories, from
providing interLATA (long distance) telecommunications services between points
in the United States or international long distance service originating in the
United States and owning international telecommunications facilities in the
United States. Under the 1996 Act, Iusacell may now provide both the foreign
"half" and the United States "half" of telecommunications traffic originating in
Mexico (or any other foreign country) and may now carry "transit" traffic (that
is, international telecommunications traffic which, though routed through the
United States, neither originates nor terminates in the United States) through
the United States. In addition, Iusacell may, on a resale basis, carry United
States originated traffic bound for Mexico (or other foreign countries) so long
as the point of interconnection is, and the traffic originates, outside the
states where Bell Atlantic's subsidiaries provide local exchange telephone
service. Activities permitted by the 1996 Act are not subject to the
prohibitions set forth in the Decree and the waivers issued thereunder on
discrimination in handling traffic to and from the United States and on
limitations on interests an FTE could own in international cables and satellite
facilities to and from the United States.
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In 1996, Iusatel applied for and received authorization under Section 214
of the Communications Act of 1934 to become a facilities-based provider of
international long distance services from the United States (the "Section 214
Authorization"). The Section 214 Authorization was transferred to a Peralta
Group entity in January 1996 in anticipation of the consummation of the 1996
Share Conversion Agreement (as defined). Upon the completion of the
restructuring of Iusatel to comply with the 1995 Telecommunications Law and the
Foreign Investment Law, Iusatel and such Peralta Group entity will seek to
formally return control of the Section 214 Authorization to Iusatel. The Company
has not yet determined whether it will engage in activities permitted by the
1996 Act or, upon any reassignment to Iusatel, the Section 214 Authorization. If
the Company chooses to engage in such activities, no definitive prediction can
be made as to the specific impact of such activities on the Company's business,
financial condition or results of operations.
Other laws of the United States may restrict certain activities of
Iusacell by virtue of Bell Atlantic's ownership interest. Such laws may include
the United States Trading with the Enemy Act, the United States Cuban Democracy
Act, the Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996 and
other laws and regulations that restrict trade with, and investments in, certain
countries, including Cuba, and the United States Foreign Corrupt Practices Act.
The New Shareholders Agreement contains, and the predecessor agreement
thereto contained, certain provisions, designed to require Iusacell to refrain
from taking any actions that would cause Bell Atlantic to be in violation of
applicable law.
Employees
As of March 31, 1997, the Company and its subsidiaries had an aggregate of
2,339 full-time and part-time employees, of whom approximately 23% were members
of a labor union. In April 1997, as part of its reorganization, Iusacell
implemented a headcount reduction. As of May 31, 1997, Iusacell had
approximately 1,996 employees. The Company has never experienced a work stoppage
and management considers its relationship with its employees to be good.
Properties
Throughout the regions served by its cellular operations, Iusacell
operates 57 customer service centers and a total of 236 cell sites, 42
repeaters, five mobile switching centers, two switches for local wireless
service and three switches for long distance service.
The Company generally leases the land where the Iusacell customer service
centers, cell sites and mobile switching centers are located. Iusacell owns and
leases administrative offices in Mexico City as well as in Guadalajara, Puebla,
Monterrey, Leon and Ciudad Juarez. The Company generally owns its cellular
network equipment subject to certain liens.
Legal Proceedings
Although Iusacell is a party to certain legal proceedings in the ordinary
course of its business, the Company's management believes that none of these
proceedings, individually or in the aggregate, is likely to have a material
adverse effect on the Company.
On August 14, 1997 the Company and Telmex entered into a settlement
agreement with respect to the fees charged by Telmex to Iusacell through May 31,
1997 for interconnection services, switched long distance services and certain
other services billed by Telmex as of the date of the settlement agreement. The
Company paid Telmex Ps. 170.0 million (U.S.$21.8 million) of which Ps. 22.2
million (U.S.$2.8 million) constituted value-added tax and Ps. 28.6 million
(U.S.$3.7 million) were accounted for as interest expense. The billed, disputed
interconnection charges had totalled approximately Ps. 79 million (U.S.$9.9
million) as of March 31, 1997.
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In August 1997, the Company and Telmex also entered into amendments to the
current interconnection agreement pursuant to which Iusacell agreed to pay
Telmex an interim interconnection rate of Ps. 0.31 (U.S.$0.04) per minute
retroactive to June 1, 1997 (as opposed to the Ps. 0.45 (U.S.$0.056) per minute
rate previously charged by Telmex) and Telmex agreed to extend to the Company
the 38% discount available to other large business customers for use of its long
distance network. Iusacell and Telmex are currently negotiating the terms of an
entirely new interconnection agreement the terms of which will also be
retroactive to June 1, 1997. The Company anticipates that this new
interconnection agreement will implement an even lower interconnection rate and
will provide for some form of reciprocal payments by Telmex for interconnecting
with Iusacell's networks.
A ruling by the Federal Competition Commission is still pending on the
suit filed by the Company in November 1995, against Telmex and Telcel, claiming
that the two companies have engaged in monopolistic practices in the Mexican
telecommunications market, including unlawful cross-subsidies by Telmex of
Telcel's cellular phone operations. Telmex and Telcel filed eight motions
against the suit, all of which motions were rejected by the Federal Competition
Commission. In February 1997, the Federal Competition Commission imposed a fine
of Ps. 847,500 (U.S.$107,537) on Telmex and Telcel for their refusal to provide
the expert appointed by the Company with the necessary information to prepare
his opinion on the cross-subsidies claim. Telmex and Telcel filed for an
injunction (amparo) against the Federal Competition Commission asserting that
Mexican antitrust laws do not apply to Telmex and Telcel and questioning the
constitutionality of the Federal Competition Commission. 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 (U.S.$6.3 million) penalty for
alleged late payments of fees in connection with the original granting of the
cellular concession for Region 5. Comcel filed a request for review of the order
with the SCT on August 22, 1996, which 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, although
there can be no assurance that the Company will not be required to pay the
penalty.
The Company's minority partners in Rentacell, S.A. de C.V. ("Rentacell"),
by notarized letter, charged the Company with (i) failing to provide it with
certain developmental and operational support services purportedly mandated by
contract and (ii) using software purportedly owned by Rentacell to operate
Iusacell's prepay business. The Company and its partners in Rentacell have
reached a verbal settlement of their various business disputes, pursuant to
which Iusacell has agreed to pay such Rentacell partners Ps. 18.5 million in
consideration of the purchase of the 30% of the shares of capital stock of
Rentacell which the Company does not already own. The Company expects the
settlement to be formalized and consummated by the end of October 1997.
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CONTROLLING SHAREHOLDERS
The Peralta Group currently owns approximately 47.7% of the economic
interest of Iusacell and approximately 52.3% of the Company's voting rights.
Bell Atlantic currently owns approximately 42.1% of the economic interest of
Iusacell and approximately 44.6% of the Company's voting rights. The following
table sets forth the ownership of all classes of the capital stock of Iusacell
by the Peralta Group and Bell Atlantic. Excluding shares held by the Peralta
Group as disclosed below, the Company's remaining directors and executive
officers as a group own less than 1% of the outstanding Series D shares and less
than 5% of the outstanding Series L shares.
Identity of
Title of Class Person or Group Amount Owned Percent of Class
- -------------- --------------- ------------ ----------------
Series A...................... Peralta Group 332,966,159 44.6%
Bell Atlantic 413,787,251 55.4
Series B...................... Bell Atlantic 5,562,450 100.0
Series D...................... Peralta Group 158,613,110 84.9
Series L...................... Peralta Group 27,834,000 18.6
Bell Atlantic 38,792,690 25.9
In February 1997, Bell Atlantic and the Peralta Group consummated certain
of the transactions contemplated by the 1996 Share Conversion Agreement entered
into among the Peralta Group, Bell Atlantic and the Company (the "1996 Share
Conversion Agreement"). As a result of the surrender to the Company by Bell
Atlantic and the Peralta Group of shares of certain series of the Company's
capital stock for conversion into shares of other series of the Company's
capital stock, Bell Atlantic obtained management control of Iusacell despite the
Peralta Group maintaining a majority of the voting rights pertaining to the
Company's capital stock. Bell Atlantic paid the Peralta Group U.S.$50.0 million
as consideration for such conversions. In addition, Bell Atlantic granted the
Peralta Group put options with respect to all outstanding shares of the Company
held by the Peralta Group; the Peralta Group has the right to put one-third of
the total number of its current outstanding Iusacell shares to Bell Atlantic on
December 31 of each of 1997, 1998 and 1999 at a per share price of U.S.$0.85,
U.S.$0.96 and U.S.$1.07, respectively. In order to effect the change of
management control, the bylaws of the Company were amended. Pursuant to these
amendments to Iusacell's bylaws, Bell Atlantic has the ability to determine the
outcome of any action requiring the approval of the Company's shareholders,
except that the Peralta Group's concurrence is currently required in order to
change the nationality, corporate nature or corporate purpose of the Company, to
amend the Company's bylaws, to merge or dissolve the Company, to spin off parts
of the Company, to increase the fixed capital of the Company, to issue bonds or
preferred capital stock, to redeem shares of capital stock, to cancel the
registration of the Series L Shares of the Company on the Mexican Stock Exchange
or any other securities exchange, to sell or acquire, or exercise withdrawal
rights with respect to, shares of other companies if the relevant consideration
exceeds 20% of the stockholders' equity of the Company and with respect to any
other matter which, pursuant to applicable law or the Company's bylaws, may
require a special quorum at the relevant shareholders meeting.
In accordance with the bylaws of the Company and the Amended and Restated
Shareholders Agreement dated as of February 18, 1997 (the "New Shareholders
Agreement"), Iusacell's Board of Directors consists of 21 members. The Series A
shareholders have the right to appoint ten Series A Directors and their
alternates, the Series B shareholders have the right to appoint nine Series B
Directors and their alternates, the Series D shareholders have the right to
appoint one Series D Director and an alternate and the Series L shareholders
have the right to appoint one Series L Director and an alternate. Pursuant to
the New Shareholders Agreement, Bell Atlantic and the Peralta Group each have
the right to nominate two Series A Directors and their respective alternates and
have agreed to vote their respective Series A shares to elect all such nominees.
Bell Atlantic and the Peralta Group have also agreed to consult with each other
to attempt to agree upon the remaining six Series A Directors and their
alternates; in the absence of any such agreement, Bell Atlantic, as holder of a
majority of the Series A Shares, has the right to nominate and elect such
remaining Series A Directors and their alternates.
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The Company's bylaws provide that resolutions of the Board of Directors
shall be valid when approved by a majority of the vote of the members present,
including the favorable vote of at least one Series A Director and one Series B
Director. As a result, the Directors nominated by Bell Atlantic have the power
under the bylaws to approve, without the affirmative vote of any other
Directors, all resolutions of the Board of Directors. The New Shareholders
Agreement, however, grants the Peralta Group supermajority rights with respect
to certain transactions. For actions of the Board of Directors, a "supermajority
vote" means the affirmative vote of a majority of the members of the Board of
Directors, including at least one Series A Director, one Series B Director and
one Series D Director. The following transactions are subject to a supermajority
vote by the Company's Board of Directors: (i) acquisitions of
non-telecommunications businesses for a purchase price in excess of U.S.$30.0
million; (ii) certain acquisitions, joint ventures and mergers within the
telecommunications business involving assets in excess of U.S.$100.0 million;
(iii) certain dispositions of assets for a consideration in excess of U.S.$30.0
million in any twelve month period; (iv) certain incurrences of indebtedness
after January 1, 1998 in an amount exceeding U.S.$100.0 million in the aggregate
within any twelve month period; (v) certain issuances of capital stock in an
amount exceeding U.S.$50.0 million in the aggregate within any twelve month
period; (vi) entering into, amending or terminating contracts with or for the
benefit of certain affiliates of the Company, except for any renewals or
extensions on substantially similar terms of certain consulting and seconded
employee arrangements with Bell Atlantic affiliates; (vii) termination or
disposition of any telecommunication transmission business with annual revenues
of more than U.S.$10.0 million in each of the two most recent fiscal years; and
(viii) certain terminations of concessions relating to telecommunications
operations.
After January 1, 1998, each of Bell Atlantic Latin America Holdings, Inc.
("BALAH") and Bell Atlantic International, Inc. ("BAII"), acting on behalf of
itself, its affiliates and its transferees, and one member of the Peralta Group,
acting on behalf of the Peralta Group and its transferees, will have the right
to cause Iusacell to facilitate two registered secondary public offerings of its
shares, subject to certain minimum ownership requirements. In addition, after
January 1, 1998, each of BALAH and BAII and such Peralta Group member has a
one-time option to cause Iusacell to effect a six-month shelf registration of
its shares. After one party's exercise of its registration rights, all other
parties having registration rights may elect to include their shares in the
offering. Any party holding registration rights may not exercise such rights
during the 90-day period commencing on the effective date of any registration
statement filed by Iusacell for a primary equity offering in which gross
proceeds are expected to exceed U.S.$30.0 million. The New Shareholders
Agreement also provides that if Iusacell registers any equity securities for a
primary or secondary offering after January 1, 1998, it must permit BALAH and
BAII and the Peralta Group (and anyone to whom they have transferred shares
otherwise than in a public offering) to include their shares in such offering.
Iusacell has agreed to bear all expenses of any of the above-described primary
or secondary offerings (other than the fees of counsel to the holders of the
registration rights). In addition, the Company has agreed not to effect any
public sale or distribution of securities similar to those being registered
during the period commencing 21 days prior to the effective date of a
registration statement covering the registered securities and continuing until
90 days following such effective date.
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MANAGEMENT
Iusacell is currently managed by a 21-member Board of Directors (the
"Board of Directors"). The Directors nominated by Bell Atlantic have the power
under the Company's bylaws to approve, without the affirmative vote of any other
Directors, all resolutions of the Board of Directors. However, the New
Shareholders Agreement grants the Peralta Group supermajority rights with
respect to certain transactions. See "Controlling Shareholders."
Pursuant to the New Shareholders Agreement, Mr. Lawrence T. Babbio,
Jr., Vice Chairman of Bell Atlantic, automatically became the Chairman of the
Board of Directors of Iusacell upon the death of Mr. Alejo Peralta, founder of
Iusacell, on April 8, 1997. That position was reaffirmed at the annual
shareholders' meeting of Iusacell on April 10, 1997.
Generally, the Board of Directors is authorized to elect or appoint
Iusacell's executive officers as well as officers of wholly owned subsidiaries
and employees or agents of the Company. However, Mr. Babbio (or his successor as
Chairman of the Board of Directors, as the case may be) has the power under the
New Shareholders Agreement to appoint and dismiss the Chief Executive Officer,
President, Director General, Chief Operating Officer and Director of the
Cellular Division of Iusacell. If Bell Atlantic no longer has control of the
Board of Directors, the Chief Financial Officer and the two principal officers
responsible for strategic and network planning at Iusacell will continue to be
nominated by Bell Atlantic, provided that Bell Atlantic maintains certain
minimum ownership requirements.
Directors and Executive Officers
The following table sets forth certain information with respect to
the current directors and principal executive officers of the Company:
Name Age Position(s)
--- --------------------------------------
Lawrence T. Babbio, Jr.......... 52 Chairman of the Board of Directors and
Series A Director
* Thomas A. Bartlett.............. 39 President and Chief Executive Officer
and Series B Director
Fulvio V. del Valle............. 47 Director General
* Edward R. Kingman, Jr........... 49 Executive Vice President and Chief
Operating Officer and Series L Director
* Howard F. Zuckerman............. 53 Vice President-Finance and Audit and
Chief Financial Officer and Series B
Director
Carlos Peralta Quintero......... 45 Series A Director
Luis Felipe Gonzalez Munoz...... 42 Series A Director
William O. Albertini............ 54 Series A Director
Dennis Strigl................... 51 Series A Director
Manuel Somoza Alonso............ 50 Series A Director
Jose Ramon Elizondo Anaya....... 43 Series A Director
Rodolfo Garcia Muriel........... 52 Series A Director
Gabriel Alarcon Velazquez....... 60 Series A Director
Eduardo Rihan Azar.............. 75 Series A Director
Thomas R. McKeough.............. 50 Series B Director
* Noah S. Asher................... 35 Vice President-Administration and
Series B Director
* Ruben G. Perlmutter............. 39 Vice President-Mergers and Acquisitions
and General Counsel and Series B
Director
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Mack E. Treece.................. 38 Series B Director
Robert Van Brunt................ 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
- ----------
(*) Indicates an employee of Bell Atlantic who is currently serving as an
officer of Iusacell pursuant to consulting or secondment arrangements. See
"Risk Factors- Dependence on Bell Atlantic Personnel" and "Certain
Transactions."
Lawrence T. Babbio, Jr. has been a member of the Board of Directors
of Iusacell since November 1993, became Vice Chairman of the Board in February
1994 and, upon the death of Alejo Peralta y Diaz Ceballos on April 8, 1997,
became Chairman of the Board. Since 1966, Mr. Babbio has served in a variety of
capacities with affiliates of Bell Atlantic and its predecessors. In 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.
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Gabriel Alarcon Velazquez has been a member of the Board of
Directors of Iusacell since November 1993. He is currently president and chief
executive officer of the Mexican newspaper El Heraldo de Mexico, Grupo Alarcon,
S.A. de C.V. and Cadena Real, S.A. de C.V. He is also currently on the board of
directors of Grupo Financiero Bancomer, S.A. de C.V. and Grupo Financiero
Interacciones, S.A. de C.V. Mr. Alarcon was chief executive officer of Portacel
from 1989 to 1993. Mr. Alarcon holds a degree in business administration from
Instituto Tecnologico Autonomo de Mexico.
William O. Albertini has been a member of the Board of Directors of
Iusacell since November 1993. Since 1967, Mr. Albertini has served in a variety
of capacities with affiliates of Bell Atlantic and its predecessors. 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.
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Rodolfo Garcia Muriel was an alternate member of the Board of
Directors of the Company from November 1993 to May 1994 and became a Director in
May 1994. He is currently general director of Compania Industrial de Parras,
S.A. de C.V. Mr. Garcia Muriel has been a member of the boards of directors of
Cementos Mexicanos, S.A. de C.V., Cementos Maya, S.A., Cementos Tolteca, S.A. de
C.V., and Grupo Financiero InverMexico, S.A. de C.V. He also served as chairman
of the boards of directors of Corporacion Industrial Mexico Francia, Fondo de
Optimacion de Capitales, Consejo Regional Metropolitano de Banco Mexicano,
Parras Cone de Mexico, S.A. de C.V. and Lavapar, S.A. de C.V., and is currently
the vice president of the National Chamber of the Textile Industry (Canaitex).
Luis Felipe Gonzalez Munoz has been a member of the Board of
Directors of Iusacell since April 1997 and between May 1994 and December 1996;
between December 1996 and April 1997, Mr. Gonzalez was an alternate member of
the Board of Directors. Mr. Gonzalez is a member of the Finance and Audit
Committee. Mr. Gonzalez has served as chief financial officer of Industrias
Unidas, S.A. de C.V. since November 1993. For more than ten years prior thereto,
Mr. Gonzalez was employed by Vitrocrisa, S.A. de C.V. and its affiliates,
including as director of administration, finance and human resources from
September 1990 until July 1993, and as director of administration and finance
from February 1988 to September 1990. Mr. Gonzalez is a member of the board of
directors of Grupo Industrial Iusa, S.A. de C.V., Propulsora de Negocios, S.A.
de C.V., Cambridge Lee Industries Inc. and Hilpar, S.A. de C.V. Mr. Gonzalez
holds an undergraduate business administration degree and M.B.A. from the
Instituto Tecnologico y de Estudios Superiores de Monterrey.
Edward R. Kingman, Jr. has been Executive Vice President and Chief
Operating Officer of Iusacell since February 1997 and a member of the Board of
Directors of Iusacell since April 1997. Prior thereto, between December 1993 and
February 1997, he served as Senior Vice President, Chief Financial Officer and
Treasurer of Iusacell, and was an alternate member of the Board of Directors
from April 1995 until April 1997. Previously, Mr. Kingman served as vice
president of finance at Bell Atlantic Network Services, Inc., executive director
of finance for Bell Atlantic Network Services, Inc., principal financial
executive, treasurer and controller for Bell Atlantic-Washington, D.C. (formerly
The Chesapeake and Potomac Telephone Company) and treasurer of each of Bell
Atlantic-Maryland (formerly The Chesapeake and Potomac Telephone Company of
Maryland), Bell Atlantic-Virginia (formerly The Chesapeake and Potomac Telephone
Company of Virginia) and Bell Atlantic-West Virginia (formerly The Chesapeake
and Potomac Telephone Company of West Virginia). Mr. Kingman holds an
undergraduate degree in communications from the American University. Mr.
Kingman's post-graduate training includes an M.B.A. from the American University
and he has advanced post-graduate training in finance from Harvard University
and the University of Pennsylvania.
Javier Martinez del Campo Lanz has been a member of the Board of
Directors of Iusacell since February 1997. Mr. Martinez del Campo has been a
partner in the law firm of De Ovando y Martinez del Campo, S.C. and its
predecessors since 1984. Mr. Martinez del Campo serves on the board of directors
of Grupo Gigante, S.A. de C.V. and is a member of the boards of directors or
secretary of several other Mexican subsidiaries of foreign corporations. Mr.
Martinez del Campo holds a law degree from the Universidad Anahuac and a masters
degree in comparative law from the University of San Diego.
Thomas R. McKeough has been a member of the Board of Directors of
Iusacell since June 1994. Since 1984, Mr. McKeough has been a member of the
legal department of Bell Atlantic and its affiliates, with principal
responsibilities for mergers and acquisitions and for the legal affairs of Bell
Atlantic Enterprises International, Inc. for more than five years. In December
1994, Mr. McKeough was elected vice president-mergers and acquisitions and
associate general counsel of Bell Atlantic. Prior thereto, from December 1992 to
December 1994, Mr. McKeough served as assistant general counsel of Bell
Atlantic, and from November 1988 to December 1992 as general attorney, mergers
and acquisitions and enterprises. Mr. McKeough holds an undergraduate degree
from Providence College and a law degree from the University of Pennsylvania Law
School.
Ruben G. Perlmutter has served as Vice President, Mergers &
Acquisitions and General Counsel and a member of the Board of Directors of
Iusacell since February 1997. From November 1993 through February 1997, Mr.
Perlmutter was employed as an attorney by Bell Atlantic Network Services, Inc.
For more than four years prior
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thereto, Mr. Perlmutter was a corporate associate at Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel, a New York law firm. Mr. Perlmutter holds degrees from
Harvard College and Harvard Law School.
Eduardo Rihan Azar was an alternate member of the Board of Directors
from November 1993 to May 1994 and has been a member of the Board of Directors
of Iusacell since May 1994. Mr. Rihan is president of Acco Mexicana, S.A. de
C.V., Wearever de Mexico, S.A. de C.V., Mex-Internacional, S.A. de C.V.,
Inmobiliaria Chihuahua, S.A. de C.V. and Promotora de Maquiladoras DNC, S.A. de
C.V. Mr. Rihan serves as a member of the board of directors of Baja del Mar,
S.A. de C.V., Grupo Iusa, S.A. de C.V. and Desarrollo Industrial de Tijuana,
S.A. de C.V. Mr. Rihan attended the University of Southern California where he
studied chemical engineering.
Manuel Somoza Alonso has been a member of the Board of Directors of
Iusacell since February 1997. Since 1966, Mr. Somoza has served in a variety of
capacities within the banking and brokerage industries. Since April 1996, Mr.
Somoza has served as chairman of the board of directors of Somoza, Cortina y
Asociados, Casa de Bolsa and, since December 1996, as chairman of the board of
directors of Grupo Financiero BanCrecer, S.A. Prior thereto, from November 1991
through June 1995, Mr. Somoza served as director general of Grupo Financiero
Invermexico, S.A. de C.V. and, from April through June 1995, as director general
of Banco Mexicano. Mr. Somoza serves on the board of directors of Bolsa Mexicana
de Valores, S.A. de C.V., Corporacion Industrial San Luis, S.A. de C.V. and
Mexicana de Inversiones Femac, S.A. de C.V. Mr. Somoza holds an undergraduate
degree in economics from Universidad Anahuac and received an M.B.A. from the
Instituto Tecnologico y de Estudios Superiores de Monterrey.
Dennis 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 accountant and auditor by Deloitte, Haskins &
Sells. Mr. Van Brunt received an undergraduate degree in commerce, with a
concentration in accounting, from Rider University.
Howard F. Zuckerman has been Vice President and Chief Financial
Officer of Iusacell since February 1997 and a member of the Board of Directors
of Iusacell since April 1997. Since March 1984, Mr. Zuckerman has served in a
variety of financial management positions with affiliates of Bell Atlantic. In
May 1993, he was appointed vice president, finance of the carrier services
division (serving the United States interexchange carrier market) of Bell
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Atlantic Network Services, Inc., the service company for Bell Atlantic's
regulated operations. For more than nine years prior thereto, Mr. Zuckerman had
served in a variety of executive capacities with Bell Atlantic Enterprises
International, Inc. and related affiliates of the unregulated businesses of Bell
Atlantic, including chief financial officer of Bell Atlantic Investment
Development Corporation from 1988 to 1992 and director of accounting of Bell
Atlantic Enterprises, Inc. From 1975 to 1983, Mr. Zuckerman held financial
management positions with Squibb Corporation, a diversified pharmaceutical
company based in the United States, and was appointed an Assistant Corporate
Controller in July 1982. From 1970 to 1975, Mr. Zuckerman was employed by the
audit division of the New York office of Arthur Andersen & Co. Mr. Zuckerman is
a Certified Public Accountant in New York and New Jersey. He holds an economics
degree from Cornell University and an M.B.A. from the University of Chicago.
Alternate Directors
The Company's bylaws authorize Alternate Directors to serve on the
Board of Directors in place of Directors who are unable to attend meetings or
otherwise participate in the activities of the Board of Directors. The Series A
Alternate Directors are Marco Antonio de la Torre Barranco, Gabriel Alarcon
Brockmann, Victor Barreiro Cortes, Antonio Cortina Icaza, Carlos Garcia Muriel,
Ignacio Gomez Morin, Roberto Legriba Castilla, Alejandro Portilla Garceran,
Manuel Romano M. and Pedro Santamarina N. The Series B Alternate Directors are
Katherine A. Dunne, Jose Estandia F., Teresa Gomez Fernandez del Castillo,
Silvia Malagon Soberanes, Armando Olivares, Pilar Olmedo Martell, and Xavier
Sanchez Gavito. The Series D Alternate Director is Francisco Jose Flores
Melendez. The Series L Alternate Director is David A. Riffelmacher.
Committees of the Board of Directors
The Company has established Executive, Finance and Audit, Human
Resources and Compensation, and Strategic Planning and Technology Committees of
the Board of Directors. All decisions of these committees require a majority
vote of their members, including the favorable vote of at least one member
appointed by each of the Series A and Series B shareholders, except for
decisions on matters over which the New Shareholders Agreement provides for a
supermajority vote. See "Controlling Shareholders."
The Executive Committee, an administrative and decision-making body
of the Board of Directors, may act for the Board of Directors except where
Mexican law requires action of the Board of Directors. The members of the
Executive Committee are Messrs. Albertini, Asher, Babbio, Bartlett, Canales,
McKeough, Peralta and Strigl. The Finance and Audit Committee recommends the
Company's independent public accountants, reviews Iusacell's annual consolidated
financial statements, provides oversight of Iusacell's auditing, accounting,
financial reporting and internal control functions, and reviews with management
and the Company's independent public accountants the plans and results of the
auditing function. The members of the Finance and Audit Committee are Messrs.
Albertini, Bartlett, Canales, Gonzalez, McKeough and Treece. The Human Resources
and Compensation Committee reviews, evaluates and makes recommendations to the
Board of Directors regarding Iusacell's executive compensation standards and
practices, including salaries, bonus distributions, grants under the Stock
Purchase Plan (as defined) and deferred compensation arrangements. The members
of the Human Resources and Compensation Committee are Messrs. Asher, Bartlett,
McKeough and Rihan. The Strategic Planning and Technology Committee reviews and
advises management with respect to long-term business goals, strategies and
resource allocations, and monitors and assesses the Company's technology
strategies, policies and investments. The members of the Strategic Planning and
Technology Committee are Messrs. Babbio, Bartlett, Peralta and Strigl.
Compensation
The aggregate amount of compensation paid by the Company during the
year ended December 31, 1996 to all directors and executive officers as a group
was Ps. 32.8 million (U.S.$4.1 million). As part of its general compensation
policy, the Company conducts periodic reviews of its management and employees to
determine bonus compensation.
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Executive Employee Stock Purchase Plan
In March 1997, Iusacell adopted an executive employee stock purchase
plan (the "Stock Purchase Plan") in order to help retain key executives and
better align their interests with those of the Company. The Stock Purchase Plan
is administered by a management trust with the assistance of the trust division
of Bancrecer, S.A. Under the Stock Purchase Plan, the technical committee of the
management trust (the "Technical Committee"), which is composed of certain
executive officers of the Company, determines the executive employees to whom
Series L Shares of Iusacell will be offered for purchase under the Stock
Purchase Plan. The Technical Committee determines the number of Series L Shares
to be offered for purchase to such executive employees, the purchase price per
share for such purchase rights (which will be the closing price for the Series L
Shares on the Mexican Stock Exchange on the business day selected by the
Technical Committee as the date of sale), the vesting schedule for such purchase
rights, the payment terms and all other terms and conditions therefor. The
number of Series L Shares that may be granted under the Stock Purchase Plan
cannot exceed 4.9% of the aggregate number of issued and outstanding Iusacell
shares.
In December 1996, the shareholders of Iusacell approved the issuance
of 7,812,500 Series L Shares for sale under the Stock Purchase Plan. In March
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 Ps. 13.82 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.
CERTAIN TRANSACTIONS
General Policy
The Company adopted a policy on transactions with related parties in
November 1993 in connection with the acquisition by Bell Atlantic of its
holdings in the Company. This policy provides that the Company will not, and
will not permit any of its subsidiaries to, enter into any contract or
transaction with or for the benefit of any of their affiliates (other than
transactions with, between or among wholly-owned subsidiaries), including any
member of the Peralta Group and Bell Atlantic and its subsidiaries, which is not
at a price and on other terms at least as favorable to the Company or the
subsidiary as those which could be obtained on an arm's-length basis from an
unaffiliated third party. Because certain of the transactions described below
were effected before adoption of this policy, certain of these transactions were
not necessarily effected on an arm's-length basis.
Bell Atlantic Facility
Prior to or concurrently with the closing of the Financing, Bell
Atlantic and the Company will enter into a debenture purchase agreement to
elaborate the terms of the Bell Atlantic Facility. The convertible subordinated
debentures (the "Debentures") to be issued under the Bell Atlantic Facility will
mature on December 31, 1999, and will bear interest at an annual rate equal to
six-month LIBOR plus 500 basis points, payable semi-annually in cash or by
issuance of additional Debentures, at the option of Bell Atlantic, subject to
the terms of the Subordination Agreement (as defined) described below.
The principal amount of the Debentures will be convertible at any
time prior to maturity into Series A Shares of the Company at a conversion price
of U.S.$0.70 per share. Any Debentures issued in lieu of cash interest will be
convertible at any time prior to maturity into Series A Shares at a conversion
price equal to the average closing price on the New York Stock Exchange of the
American Depository Receipts evidencing Series D American Depositary Shares and
Series L American Depositary Shares of the Company over 10 trading days
preceding such
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interest payment date. The Debentures will be transferable only to affiliate of
Bell Atlantic, subject to certain exceptions to be agreed upon.
Bell Atlantic has agreed to enter into a subordination agreement
(the "Subordination Agreement") with Chase, as administrative agent under the
Credit Facility, the Trustee (as defined herein), on behalf of the holders of
the Notes, and the Company. The Subordination Agreement will provide that no
payments of principal, interest or other amounts may be made with respect to the
Debentures if a default or event of default has occurred and is continuing or
would result therefrom under the Credit Facility or the Indenture. In addition,
the Subordination Agreement will also prohibit the payment of principal, cash
interest and other amounts (except for certain withholding taxes) except to the
extent permitted under the covenant described in "Description of Notes-Certain
Covenants-Limitation on Restricted Payments." The Credit Agreement will contain
a similar prohibition on such payments. No amendments, waivers or other
modifications of the Bell Atlantic Facility that would or could have a negative
adverse effect on the holders of the Notes will be permitted except with the
consent of the Required Lenders (as defined under the Credit Facility) and the
consent of the Trustee or the holders of a majority of the principal amount of
the Notes. Breaches of the Subordination Agreement by Bell Atlantic or the
Company will constitute a default under the Credit Facility and the Indenture.
Iusacell intends to satisfy its future funding needs with borrowings
under the Credit Facility and from other independent sources such as additional
bank debt, export credit agency financing and vendor financing. If such
financing is not available, the Company intends to borrow under the Bell
Atlantic Facility. Iusacell may also use the Bell Atlantic Facility to cover any
short-term funding deficiencies. Because Bell Atlantic controls Iusacell, there
can be no assurance, however, that Iusacell will be permitted to borrow under
the Bell Atlantic Facility. The Indenture permits the Company to borrow up to an
aggregate amount of U.S.$12.0 million under the Bell Atlantic Facility for
purposes of funding Iusacell's local 450 MHz wireless subsidiary, which
initially will be an Unrestricted Subsidiary under the Indenture. Any Debentures
issued in connection with such borrowings must be promptly converted into Series
A Shares of Iusacell. In the Subordination Agreement, Bell Atlantic will
covenant not to cause or permit the termination of the Bell Atlantic Facility.
During the first and second quarters of 1997, the Company borrowed
an aggregate principal amount of U.S.$25.0 million in BANZHI Loans. See "Use of
Proceeds."
Other Transactions
Iusacell and certain subsidiaries of Bell Atlantic have entered into
a series of consulting and secondment agreements pursuant to which Bell Atlantic
has agreed, for an indefinite term, to provide Iusacell with management,
technical, marketing, legal and other consulting services and certain seconded
employees. Seconded employees generally agree to expatriate assignments of two
to three years duration, with such employees' salaries being paid by Bell
Atlantic and reimbursed by the Company. Bell Atlantic charges the Company for
the provision of consulting services at cost. With respect to consulting
services rendered in the 1996 fiscal year, Iusacell has been invoiced by Bell
Atlantic for a total of U.S.$3.6 million, which amount includes a fixed
management consulting fee of U.S.$1.1 million for the services of certain senior
Bell Atlantic officials, U.S.$1.5 million in reimbursement of the actual cost of
seconded employees and U.S.$1.1 million in respect of other consulting services.
As part of the 1996 Share Conversion Agreement, consulting services for 1997
after the close of business on February 18, 1997 and for subsequent years will
not include a fixed management consulting fee for the services provided by
certain senior Bell Atlantic officials. With respect to consulting services
rendered in the first quarter of 1997, Iusacell has been invoiced by Bell
Atlantic for a total of U.S.$0.7 million in respect of consulting services and
U.S.$0.7 million for reimbursement of the actual cost of seconded employees. See
"Risk Factors-Dependence on Bell Atlantic Personnel."
Pursuant to the 1996 Share Conversion Agreement, in February 1997,
Fiusa Pasteje, S.A. de C.V., a member of the Peralta Group ("FIUSA"), and BAII,
an affiliate of Bell Atlantic, converted U.S.$37.2 million and U.S.$32.9 million
of Iusacell indebtedness, respectively, into Series A Shares and Series D Shares
at a conversion price of U.S.$0.70 per share. The indebtedness converted by
FIUSA represented indebtedness acquired by FIUSA
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from Merrill Lynch International Bank Limited, Merchant Bank in August 1996
(plus accrued interest thereon) and U.S.$6.0 million in loans made to Iusacell
by FIUSA in December 1996 and January 1997 at an annual interest rate of LIBOR
plus 500 basis points (plus accrued interest thereon). FIUSA received 4,390,619
Series A Shares and 48,754,000 Series D Shares upon such conversion. The
indebtedness converted by BAII represented indebtedness acquired by BAII from
Chase in February 1997 and U.S.$6.0 million in loans made to Iusacell by BAII in
January and February 1997 at an annual interest rate of LIBOR plus 500 basis
points (plus accrued interest thereon). BAII received 47,017,491 Series A Shares
upon such conversion. See "Controlling Shareholders."
Desarrollo de Sistemas de Seguridad Privada, S.A. de C.V.
("Desarrollo"), a member of the Peralta Group, and Sistecel S.A. de C.V., a
wholly owned subsidiary of the Company, entered into a Services Agreement dated
January 2, 1996 pursuant to which Desarrollo provided security and secretarial
services for Mr. Peralta. The total amount charged by Desarrollo to Iusacell in
1996 was approximately U.S.$400,000. As part of the 1996 Share Conversion
Agreement, this arrangement was terminated effective at the close of business on
February 18, 1997.
Inmobiliaria Montes Urales 460, S.A. de C.V., a subsidiary of the
Company, leases office space to Servicios Corporativos IUSA, S.A. de C.V.
("Servicios"), a member of the Peralta Group pursuant to one-year leases which
are re-priced on January 1 of each year. Currently, payments under the lease
equal U.S.$15,347 per month. In addition, Servicios has agreed to pay Iusacell
Ps. 0.7 million for the purchase of certain vehicles for Mr. Carlos Peralta.
The Peralta Group owns Fraccionadora y Constructora Mexicana, S.A.
de C.V. ("Fracomex"), a company engaged in real estate investment and management
that has entered into lease agreements with certain subsidiaries of the Company.
The total amount paid by Iusacell to Fracomex per month is approximately
U.S.$27,000 (such amount being based upon the market rate for such services). In
1996 these payments totalled approximately U.S.$320,000.
In 1996, Inmobiliaria Reforma Lomas Altas, S.A. de C.V., a company
controlled by the Peralta Group, acquired certain office space from a subsidiary
of Iusacell for approximately Ps. 16.4 million.
Industrias Unidas, S.A. de C.V. ("IUSA"), a company controlled by
the Peralta Group, leases land, buildings, houses and a warehouse to Iusacell at
IUSA's industrial complex in Pasteje. In addition, IUSA has agreed to sell to
Iusacell equipment to provide energy and air conditioning services to the leased
buildings. Iusacell pays IUSA approximately U.S.$26,600 per month for the
foregoing leases and paid Ps. 1.6 million for the purchased equipment. In
addition, Iusatelecomunicaciones, a subsidiary of the Company, has agreed to pay
to IUSA approximately Ps. 32,200 for reimbursement of payroll and related
expenses for workers providing technical service in Pasteje. In turn, IUSA has
agreed to pay Iusacell for cellular telephone services provided in the
operations of automatic teller machines installed at Pasteje, at cost plus 10%.
Iusacell owns 68.3% of Cellular Solutions de Mexico, S.A. de C.V.
("Cellular Solutions"), a company involved in the sale of cellular accessories.
Mr. Marco Antonio de la Torre Barranco, an alternate director of the Company,
owns the remaining 31.7% of Cellular Solutions. Iusacell and Mr. de la Torre own
70% and 15%, respectively, of Rentacell, S.A. de C.V., a company engaged in the
Mexican cellular telephone rental business. Iusacell owns 75% of Promotora
Celular, S.A. de C.V. ("Promotora"), a company involved in distributing cellular
services for Iusacell. Mr. de la Torre owns 10% of Promotora.
Mr. Marco Antonio Mestre Cardenas, an Alternate Director of Iusacell
until December 1996, is the controlling shareholder of Administracion de
Riesgos, Agente de Seguros S.A., a company which provides insurance brokerage
services for Iusacell.
Iusacell and Jose Ramon Elizondo Anaya, a Director of the Company,
have organized Punto-a-Punto Iusacell, S.A. de C.V. to participate in the
auctions for microwave frequencies scheduled to be held in July 1997. Iusacell
owns 94.9% of the economic interest and 49% of the voting shares of this
company; Mr. Elizondo owns 51% of the voting shares thereof.
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DESCRIPTION OF CREDIT FACILITY
The Credit Facility was provided by a syndicate of banks and other
financial institutions, led by Chase, as administrative agent (in such capacity,
the "Agent"), in an aggregate principal amount of U.S.$225.0 million. Chase
Securities Inc., one of the Initial Purchasers, acted as advisor, arranger and
syndication agent in connection with the Credit Facility. The following is a
summary of the principal terms of the Credit Facility and is subject to and
qualified in its entirety by reference to the definitive credit documentation
relating hereto, which will be available upon request from the Company when
completed.
Structure. The Credit Facility consists of (i) the five-year senior
secured Term Facility in an aggregate principal amount of U.S.$125.0 million and
(ii) the five-year senior secured Revolving Credit Facility in an aggregate
principal amount of U.S.$100.0 million. Although the Company obtained a
commitment from the lenders under the Term Facility to lend an aggregate
principal amount of U.S.$150.0 million thereunder, the Company only borrowed an
aggregate principal amount of U.S.$125.0 million under the Term Facility.
Borrowings under the Term Facility, together with the net proceeds from the
Offering, were used to refinance the Existing Indebtedness and to fund certain
capital expenditures of the Company as described under "Use of Proceeds."
Proceeds of borrowings under the Revolving Credit Facility will be used to fund
other capital expenditures and for general corporate purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
Guarantees, Security. The obligations of the Company under the
Credit Facility are unconditionally guaranteed, jointly and severally, by each
of the Subsidiary Guarantors. The Credit Facility and the guarantees thereof are
secured by, subject to applicable regulatory approvals, (i) a valid and
perfected first priority pledge of all the capital stock and equity interests
held by the Company, any guarantors thereunder or any subsidiary owning an
interest in any of such guarantors, subject to certain exceptions, and (ii) all
cellular concessions and, to the extent related to such concessions, all assets
used in the construction, exportation, repair and maintenance of the relevant
means of communications, and all capital contributions, cash in hand and
receivables and rights arising for the benefit of the relevant concessions. See
"Risk Factors-Asset Encumbrance; Subordination of Subsidiary Guarantees,"
"-Holding Company Structure," "-Possible Limitations on Enforceability of
Guarantees" and "Description of Notes-Ranking."
Availability. The availability of the Credit Facility is subject to
various conditions precedent typical of bank loans, including the absence of any
material adverse change on the part of the Company in particular or in the
financial, banking or capital markets in general. Loans under the Term Facility
were made available in a single drawing on July 25, 1997 (the "Closing Date"),
subject to an additional drawing as described below. Amounts repaid or prepaid
under the Term Facility may not be reborrowed. Loans under the Revolving Credit
Facility will be available at any time after the Closing Date and prior to the
termination of the Revolving Credit Facility commitments, which will not be
later than the first anniversary of the Closing Date. Amounts repaid or prepaid
under the Revolving Credit Facility may be reborrowed prior to the termination
of the Revolving Credit Facility. The Company may request from time to time
until December 31, 1999 that the commitments and loans under the Term Facility
or the Revolving Credit Facility be increased in an aggregate principal amount
not to exceed U.S.$100.0 million (with a minimum increase of U.S.$25.0 million).
Amortization, Interest. Loans outstanding under each of the Term
Facility and the Revolving Credit Facility bear interest at a rate per annum
equal to (at the Company's option) (i) one-, two-, three- or six-month LIBOR
plus 1.75% or (ii) an Alternate Base Rate (equal to the higher of the Agent's
prime rate, the reserve adjusted secondary market rate for certificates of
deposit plus 1% per annum and the Federal Funds effective rate plus 1/2 of 1%
per annum). The Term Facility has amortization requirements of U.S.$18.8 million
in 2000, U.S.$51.2 million in 2001 and U.S.$55.0 million in 2002. Assuming the
Revolving Credit Facility is fully drawn, it will have amortization requirements
of U.S.$15.0 million in 2000, U.S.$41.0 million in 2001 and U.S.$44.0 million in
2002.
Each of the Term Facility and the Revolving Credit Facility will
mature on the fifth anniversary of the Closing Date.
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Prepayments. The Company may prepay loans and permanently reduce
commitments under the Credit Facility, in whole or in part, at any time. In
addition, the Company will be required to make mandatory prepayments of loans
under the Term Facility (and, after the Term Facility shall have been prepaid in
full, to prepay and reduce commitments under the Revolving Credit Facility) in
amounts equal to (i) 50% of the Company's consolidated excess cash flow for each
fiscal year and (ii) 100% of the net proceeds of asset dispositions (other than
from dispositions of the Company's interests in its Ecuadorean and Chilean
investments, the Company's corporate headquarters and certain asset sales in the
ordinary course of business). However, up to 50% of the net proceeds of any such
asset disposition may be held by the Company for reinvestment in certain assets
and, if so reinvested within 12 months from the date of such disposition, will
not be required to be applied to prepay and reduce loans and commitments under
the Credit Facility. Prepayments will be applied ratably against the remaining
amortization payments due in respect of the Term Facility or the Revolving
Credit Facility, as the case may be.
Fees. The Company is required to pay the lenders under the Credit
Facility, on a quarterly basis, a commitment fee equal to 0.50% per annum on the
undrawn portion of the commitments under the Revolving Credit Facility. The
Company is also required to pay annual administration fees and agent,
arrangement and other similar fees.
Covenants. The Credit Facility contains a number of covenants that,
among other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, prepay other indebtedness or
amend other debt instruments and material agreements, pay dividends or make
distributions, create liens on assets, enter into sale and leaseback
transactions and other lease financings, make loans or investments, make
acquisitions, engage in mergers or consolidations, change the business conducted
by the Company and its subsidiaries, or engage in certain transactions with
affiliates and otherwise restrict certain corporate activities. In addition,
under the Credit Facility, the Company is required to comply with specified
financial ratios and tests, including minimum interest coverage ratios, maximum
leverage ratios and maximum capital expenditure levels.
Events of Default. The Credit Facility contains customary events of
default, including defaults relating to payments, breach of representations and
warranties, breach of covenants, cross-defaults and cross-acceleration to
certain other indebtedness, certain events of bankruptcy and insolvency,
judgment defaults, actual or asserted invalidity of any security interest,
change of control, any adverse event with respect to cellular concessions or
material permits, any governmental action to compulsorily acquire a substantial
part of the assets of the Company and any event limiting the acquisition or
transfer of foreign exchange by the Company in performing its obligations under
the Credit Facility.
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DESCRIPTION OF NOTES
General
The Old Notes were issued and the New Notes offered hereby will be
issued under an Indenture dated as of July 25, 1997 (the "Indenture"), among the
Company, the Subsidiary Guarantors and First Union National Bank, as Trustee
(the "Trustee"), a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
The following summary of certain provisions of the Indenture does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part thereof by the TIA (as
defined). For purposes of this Section "Description of Notes" only, the term
"Company" shall mean Grupo Iusacell, S.A. de C.V. alone, and shall not include
any of its subsidiaries. Certain terms used herein and not otherwise defined
have the meanings set forth in "-Certain Definitions."
The New Notes will have terms substantially identical in all
material respects to the Old Notes (except that the New Notes will not (i)
contain terms with respect to transfer restrictions under the Securities Act and
(ii) contain certain provisions that would require an increase in their interest
rates were the Old Notes not exchanged for New Notes, or otherwise be registered
pursuant to the Securities Act, within specified periods. The New Notes will not
be listed on any stock exchange nor quoted on NASDAQ.
Principal of, premium, if any, and interest on the Notes will be
payable, and the Notes may be exchanged or transferred, at the office or agency
of the Company in the Borough of Manhattan, The City of New York (which
initially shall be the corporate trust office of the Trustee, at 40 Broad
Street, New York, New York 10004), except that, at the option of the Company,
payment of interest may be made by check mailed to the registered Holders of the
Notes at their registered addresses.
The New Notes will be issued only in fully registered form, without
coupons, in denominations of U.S.$1,000 and any integral multiple of U.S.$1,000.
No service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
Terms of the New Notes
The New Notes will be unsecured senior obligations of the Company,
of U.S.$150.0 million aggregate principal amount, and will mature on July 15,
2004. Each New Note will bear interest at a rate per annum shown on the front
cover of this Prospectus from July 25, 1997, or from the most recent date to
which interest has been paid or provided for, payable in cash semiannually to
Holders of record at the close of business on January 1 or July 1 immediately
preceding the interest payment date on January 15 and July 15 of each year,
commencing January 15, 1998.
Optional Redemption
The Notes will be redeemable, at the option of the Company, in whole
or in part, at any time on or after July 15, 2001, and prior to maturity, upon
not less than 30 nor more than 60 days' prior notice mailed by first-class mail
to each Holder's registered address, at the following redemption prices
(expressed as a percentage of principal amount), plus accrued interest, if any,
to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the 12-month period commencing on July 15 of the years
set forth below:
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Redemption
Period Price
- ------ ----------
2001.......................................... 105.000%
2002.......................................... 102.500%
2003.......................................... 100.000%
In addition, at any time and from time to time prior to July 15,
2000, the Company may redeem in the aggregate up to 35% of the original
aggregate principal amount of the Notes with the proceeds of one or more Public
Equity Offerings by the Company at a redemption price (expressed as a percentage
of the principal amount thereof) of 110% plus accrued interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
provided, however, that at least 65% of the original aggregate principal amount
of the Notes must remain outstanding after each such redemption.
Selection
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of U.S.$1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the notice
of redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
Mandatory Redemption
The Company is not required to make mandatory redemption or sinking
fund payments with respect to the Notes.
Redemption for Tax Reasons
The Notes may be redeemed, at the option of the Company, in whole
but not in part, at any time, upon giving not less than 30 nor more than 60
days' notice by mail to the Holders of the Notes (which notice will be
irrevocable), at a price equal to 100% of the outstanding principal amount
thereof plus accrued interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date) and including Additional Amounts payable
in respect of such payment, if the Company determines and certifies to the
Trustee immediately prior to the giving of such notice that as a result of any
amendment to, or change in, the laws (or any regulations or rulings promulgated
thereunder) of Mexico or any political subdivision thereof or taxing authority
therein, or any amendment to or change in an official interpretation or
application regarding such laws, regulations or rulings, which amendment,
change, application or interpretation becomes effective on or after July 15,
1997, the Company pays, or would be obligated for reasons outside its control,
and after taking reasonable measures available to it to avoid such obligation,
to pay, Additional Amounts in respect of any Note pursuant to the terms and
conditions thereof which exceed the Additional Amounts that would have been
payable if Mexican withholding tax at a rate of 15% would be imposed on payments
to Holders ("Excessive Additional Amounts"); provided, however, that (i) no such
notice of redemption may be given earlier than 90 days prior to the earliest
date on which the Company would, but for such redemption, be obligated to pay
such Excessive Additional Amounts and (ii) at the time such notice is given, the
Company's obligation to pay such Additional Amounts (including any Excessive
Additional Amounts) remains in effect; provided further, however, that such
notice shall not be deemed effectively given if on the date on which the notice
is given, the Company no longer has an obligation to pay Excessive Additional
Amounts as a result of a subsequent change in law.
Prior to the publication of any notice of redemption pursuant to
this provision, the Company will deliver to the Trustee (a) an Officers'
Certificate stating that the Company is entitled to effect such redemption and
setting forth a statement of facts showing that the conditions precedent to the
right of the Company so to redeem have
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occurred and (b) an opinion of Mexican legal counsel acceptable to the Trustee
to the effect that the Company has or will become obligated to pay such
Excessive Additional Amounts as a result of an amendment or change referred to
in this provision.
Additional Amounts
All payments in respect of the Notes will be made after withholding
or deduction for any taxes, duties, assessments or governmental charges of
whatever nature imposed, levied, collected, withheld or assessed by Mexico or
any political subdivision thereof or taxing authority therein. The Company or
any Subsidiary Guarantor, as appropriate, will pay such additional amounts
("Additional Amounts") as will result in receipt by the Holders of such amounts
as would have been received by them had no such withholding or deduction been
required, except that no such Additional Amounts will be payable with respect to
any payment on any Note to the extent:
(a) that any such taxes, duties, assessments or other governmental
charges would not have been imposed but for a connection between the
Holder or beneficial owner of such Note and Mexico or any political
subdivision thereof or taxing authority therein, other than the holding of
such Note and the receipt of payments with respect to such Note;
(b) of any such taxes, duties, assessments or other governmental
charges with respect to a Note presented for payment more than 30 days
after the date on which such payment became due and payable or the date on
which payment thereof is duly provided for and notice thereof given to the
Holders pursuant to the terms of the Indenture, whichever occurs later,
except to the extent that the Holder of such Note would have been entitled
to such Additional Amounts on presenting such Note for payment on any date
during such 30-day period; or
(c) of any such estate, inheritance, gift or other similar taxes
imposed with respect to such Note.
Any reference herein, in the Indenture or in the Notes to principal,
premium or interest, or any other payment in respect of the Notes, will be
deemed also to refer to any Additional Amounts which may be payable.
The Company or other Person making such payment will provide the
Trustee with documentation evidencing the payment of Mexican taxes in respect of
which the Company or such Person has paid any Additional Amounts, which
documentation shall be legally sufficient to obtain foreign tax credits for U.S.
Federal income tax purposes. Copies of such documentation will be made available
to the Holders upon request therefor.
Ranking
The indebtedness evidenced by the New Notes, like the Old Notes,
will be unsecured Senior Indebtedness of the Company, will rank pari passu in
right of payment with all existing and future Senior Indebtedness of the
Company, will be senior in right of payment to all existing and future
Subordinated Obligations of the Company and will be Guaranteed on an unsecured,
senior subordinated basis by Subsidiaries of the Company which generate a
substantial majority of the Company's revenue, and certain future Subsidiaries
of the Company. The Notes and the Subsidiary Guarantees will be effectively
subordinated to any Secured Indebtedness of the Company and its subsidiaries
(including Indebtedness under the Credit Facility) to the extent of the value of
the assets securing such Secured Indebtedness. See Note 20 to the Audited
Consolidated Financial Statements.
As further described below, the payment of any Subsidiary Guarantee
will be subordinate in right of payment to the prior payment in full of all
Designated Senior Indebtedness. Each Subsidiary Guarantee will rank pari passu
with all other Senior Subordinated Indebtedness of the applicable Subsidiary
Guarantor and will be senior in right of payment to all existing and future
Subordinated Obligations of such Subsidiary Guarantor. The Company has agreed
that no Subsidiary Guarantor will Incur any Indebtedness that is subordinate in
right of payment to any Senior Indebtedness of such Subsidiary Guarantor unless
such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured
Indebtedness of a
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Subsidiary Guarantor is not deemed to be subordinate or junior to Secured
Indebtedness merely because it is unsecured. The Notes and the Subsidiary
Guarantees will also be effectively subordinated to Indebtedness (including
trade payables), contingent liabilities and obligations in respect of any
Preferred Stock of Subsidiaries, including future Subsidiaries, of the Company
that are not Subsidiary Guarantors. The Company's Ownership Regulated
Subsidiaries and non-Wholly Owned Subsidiaries will not be Subsidiary
Guarantors. In addition, the Subsidiary Guarantees could be effectively
subordinated to all the obligations of the Subsidiary Guarantors under certain
circumstances. See "Risk Factors-Asset Encumbrance; Subordination of Subsidiary
Guarantees," "-Holding Company Structure" and "- Possible Limitations on
Enforceability of Guarantees."
At March 31, 1997, after giving effect to the Financing and the
application of the proceeds thereof as described under "Use of Proceeds," the
outstanding Senior Indebtedness of the Company and the Subsidiary Guarantors
would have been Ps. 2,183.0 million (U.S.$275.3 million), of which Ps. 991.3
million (U.S.$125.0 million) would have been Secured Indebtedness, assuming no
amounts would have been outstanding under the U.S.$100.0 million senior secured
Revolving Credit Facility. Although the Indenture and the Credit Facility
contain limitations on the amount of additional Indebtedness which the Company
and the Restricted Subsidiaries may Incur, the amount of such additional
Indebtedness could be substantial. See "-Certain Covenants-Limitation on
Indebtedness." At March 31, 1997, the aggregate balance sheet liabilities
(including trade payables and accrued liabilities but excluding intercompany
payables) of Subsidiaries of the Company which were not Subsidiary Guarantors
was Ps. 64.4 million (U.S.$8.1 million).
The Subsidiary Guarantors may not pay any principal of, or premium
(if any) or interest on, the Notes or make any deposit for the purpose of the
discharge of liabilities under the Indenture, or otherwise purchase, redeem or
otherwise retire any Notes pursuant to the Subsidiary Guarantees (collectively,
"pay the Notes"), if (i) any amount due in respect of any Designated Senior
Indebtedness is not paid when due or (ii) any other default under any Designated
Senior Indebtedness occurs and the maturity thereof is accelerated in accordance
with its terms, unless, in either case, such default has been cured or waived
and any such acceleration has been rescinded or such Designated Senior
Indebtedness has been paid in full. However, the Subsidiary Guarantors may pay
the Notes without regard to the foregoing if the Company and the Trustee receive
written notice approving such payment from the Representative of the Designated
Senior Indebtedness with respect to which either of the events set forth in
clauses (i) and (ii) of the immediately preceding sentence has occurred and is
continuing.
During the continuance of any default (other than a default
described in clause (i) or (ii) of the second preceding sentence) with respect
to any Designated Senior Indebtedness pursuant to which the maturity thereof may
be accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, the Subsidiary Guarantors may not pay the Notes for a period (a
"Payment Blockage Period") commencing upon the receipt by the Trustee (with a
copy to the Company) of written notice (a "Blockage Notice") of such default
from the Representative of the Designated Senior Indebtedness specifying an
election to effect a Payment Blockage Period and ending 179 days thereafter (or
earlier if such Payment Blockage Period is terminated (i) by written notice to
the Trustee and the Company from the Representative of the Designated Senior
Indebtedness, (ii) because the default giving rise to such Blockage Notice is no
longer continuing or (iii) because such Designated Senior Indebtedness has been
repaid in full). Notwithstanding the provisions described in the immediately
preceding sentence, unless the Representative of the Designated Senior
Indebtedness or holders of Designated Senior Indebtedness have accelerated the
maturity of such Designated Senior Indebtedness, the Subsidiary Guarantors may
resume payments on the Notes after the end of such Payment Blockage Period,
including any missed payments. The Notes shall not be subject to more than one
Payment Blockage Period in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness during such
period.
Upon any payment or distribution of the assets of a Subsidiary
Guarantor upon a total or partial liquidation or dissolution or reorganization
of or similar proceeding relating to such Subsidiary Guarantor or its property,
the holders of Designated Senior Indebtedness will be entitled to receive
payment in full of such Designated Senior Indebtedness before Holders of the
Notes are entitled to receive any such payment, and, until all Designated Senior
Indebtedness is paid in full, any payment or distribution to which Holders of
the Notes would be entitled but for the subordination provisions of the
Indenture will be made to holders of such Designated Senior Indebtedness as
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their respective interests may appear. If a payment or distribution is made to
Holders of the Notes that, due to the subordination provisions of the Indenture,
should not have been made to them, such Holders are required to hold such
payment or distribution in trust for the holders of Designated Senior
Indebtedness and pay it over to them as their respective interests may appear.
If payment of the Notes is accelerated because of an Event of
Default and a demand for payment is made on a Subsidiary Guarantor pursuant to
the Subsidiary Guarantee, the Trustee shall promptly notify the holders of
Designated Senior Indebtedness or the Representative of such holders of such
demand. If any Designated Senior Indebtedness is outstanding, no Subsidiary
Guarantor may pay the Notes until five Business Days after such holders or the
Representative of the Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, the Subsidiary Guarantors may pay the Notes only
if the subordination provisions of the Indenture otherwise permit payment at
that time.
By reason of the subordination provisions contained in the
Indenture, and the security interests in the assets of the Company and its
Subsidiaries granted in favor of the holders of Indebtedness under the Credit
Facility (or that may be granted in the future to holders of other Designated
Senior Indebtedness), such holders may recover more, ratably, than the Holders
of the Notes in the event of the insolvency of the Company.
The terms of the subordination provisions described above will not
apply to payments from money or the proceeds of U.S. Government Obligations held
in trust by the Trustee for the payment of principal of and interest on the
Notes pursuant to the provisions described under "-Defeasance."
Subsidiary Guarantees
The Subsidiary Guarantors and, in the future, certain other
subsidiaries of the Company (as described below), as primary obligors and not
merely as sureties, will unconditionally Guarantee on an unsecured, senior
subordinated basis the performance and punctual payment when due, whether at
Stated Maturity, by acceleration or otherwise, of all obligations of the Company
under the Indenture and the Notes, whether for payment of principal of or
interest on the Notes, expenses, indemnification or otherwise (all such
obligations guaranteed by such Subsidiary Guarantors being herein called the
"Guaranteed Obligations") by executing a Subsidiary Guarantee. Such Subsidiary
Guarantors will agree to pay, in addition to the amount stated above, any and
all expenses (including reasonable counsel fees and expenses) incurred by the
Trustee or the Holders in enforcing any rights under the Subsidiary Guarantee.
Each Subsidiary Guarantee is a continuing guarantee and shall (a) remain in full
force and effect until payment in full of all the Guaranteed Obligations, (b) be
binding upon each Subsidiary Guarantor and (c) inure to the benefit of and be
enforceable by the Trustee, the Holders and their successors, transferees and
assigns. Each of the Company's existing Wholly Owned Subsidiaries (including
those holding the Company's four cellular service concessions) will be a
Subsidiary Guarantor, other than those engaged in the Company's long-distance,
local 450 MHz wireless and certain microwave operations, each of which is
expected to become a majority-owned Subsidiary of the Company following the
Issue Date in accordance with applicable laws and regulations restricting
foreign ownership of such Subsidiaries and other than those Subsidiaries whose
assets have a fair market value of less than U.S.$10,000. See
"Business-Government Regulation." The Company currently has seven non-Wholly
Owned Subsidiaries (the Company's Colombian and Chilean Subsidiaries, as well as
the Subsidiaries engaged in the Company's paging, satellite transmission,
accessories and hotel services businesses and a Subsidiary engaged in
distribution activities), none of which will initially be Subsidiary Guarantors.
The Company will cause each Person (other than an Ownership Restricted
Subsidiary) that becomes a Restricted Subsidiary following the Issue Date to
execute and deliver to the Trustee a Subsidiary Guarantee at such time as such
Person becomes a Restricted Subsidiary. The Company will also cause each
Subsidiary of the Company (other than an Ownership Restricted Subsidiary) in
existence on the Issue Date which is not a Subsidiary Guarantor to execute and
deliver a Subsidiary Guarantee upon the earlier of the time that the Company or
a Restricted Subsidiary acquires 100% of the outstanding Capital Stock thereof
and the time that such Subsidiary is not prohibited from making such Guarantee
without the approval of such Subsidiary's other shareholders and, in either
case, such Subsidiary is a Restricted Subsidiary. The Company will cause each
Ownership Regulated Subsidiary to execute and deliver a Subsidiary Guarantee
upon the later of the time that applicable laws and regulations shall not
prohibit the making of such a Subsidiary Guarantee and the time that such
Subsidiary is not prohibited from making such Guarantee
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without the approval of such Subsidiary's other shareholders and, in either
case, such Ownership Regulated Subsidiary is a Restricted Subsidiary. However,
in no event shall the Company be required to cause a Subsidiary of the Company
to become a Subsidiary Guarantor if, at the applicable time, the aggregate fair
market value of such Subsidiary's assets is less than U.S.$10,000; provided,
however, that, subject to the foregoing three sentences, at such time as the
aggregate fair market value of such assets equals or exceeds U.S.$10,000, the
Company shall cause such Subsidiary to execute and deliver a Subsidiary
Guarantee. See "-Certain Covenants-Future Subsidiary Guarantors" and "Risk
Factors-Asset Encumbrance; Subordination of Subsidiary Guarantees."
If a Subsidiary Guarantee were to be rendered voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally, it could be
subordinated by a court to all other obligations (including Guarantees and other
contingent liabilities) of the applicable Subsidiary Guarantor and, depending on
the amount of such obligations, a Subsidiary Guarantor's liability on its
Subsidiary Guarantee could be reduced to zero. See "Risk Factors-Possible
Limitations on Enforceability on Guarantees."
Pursuant to the Indenture, a Subsidiary Guarantor may consolidate
with, merge with or into, or transfer all or substantially all its assets to,
any other Person to the extent described below under "- Certain Covenants-Merger
and Consolidation." If the Capital Stock of a Subsidiary Guarantor is sold by
the Company or any Subsidiary of the Company (or any pledgee of the Company)
where, after such sale, such Subsidiary Guarantor is no longer a Subsidiary of
the Company, or if a Subsidiary Guarantor is consolidated or merged with or into
any person other than the Company or a Subsidiary where such Subsidiary
Guarantor is not the surviving entity to such consolidation or merger, such
Subsidiary Guarantor shall be automatically and unconditionally released and
discharged from all obligations under its Subsidiary Guarantee and the Indenture
without any further action required on the part of the Trustee or any Holder,
provided such sale, consolidation or merger (or, in the case of a sale by such a
pledgee, the disposition of the proceeds of such sale) complies with the
covenant described below under "-Certain Covenants-Limitation on Sales of Assets
and Subsidiary Stock."
Change of Control
Upon the occurrence of any of the following events (each a "Change
of Control"), each Holder will have the right to require the Company to
repurchase all or any part of such Holder's Notes at a purchase price in cash
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date):
(i) (A) the Permitted Holders cease to possess, directly or
indirectly, the power to elect a majority of the members of the Board of
Directors and thereby direct or cause the direction of the management or
policies of the Company, whether through the ownership of voting
securities or by contract, or (B) individuals elected by the Permitted
Holders cease to constitute a majority of the members of the Board of
Directors;
(ii) the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of at least 30% in the aggregate of the total voting power of
the Voting Stock of the Company, whether as a result of issuance of
securities of the Company, any merger, consolidation, liquidation or
dissolution of the Company, any direct or indirect transfer of securities
by any Permitted Holder or otherwise (for purposes of this clause (ii),
the Permitted Holders shall be deemed to own beneficially any Voting Stock
of an entity (the "specified entity") held by any other entity (the
"parent entity") so long as the Permitted Holders beneficially own (as so
defined), directly or indirectly, in the aggregate a majority of the
voting power of the Voting Stock of the parent entity);
(iii) (A) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders, is
or becomes the beneficial owner (as defined in clause (ii) above, except
that such person shall be deemed to have "beneficial ownership" of all
shares that any such person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 30% of the total voting power of the Voting Stock
of the
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Company and (B) the Permitted Holders "beneficially own" (as defined in
clause (ii) above), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the Company
than such other person and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the Board of Directors (for the purposes of this clause (iii), such
other person shall be deemed to own beneficially any Voting Stock of a
specified entity held by a parent entity, if such other person
"beneficially owns" (as defined in this clause (iii)), directly or
indirectly, more than 30% of the voting power of the Voting Stock of such
parent entity and the Permitted Holders "beneficially own" (as defined in
clause (i) above), directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent entity
and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the board of
directors of such parent entity); or
(iv) the sale, conveyance, transfer, lease or other disposition of
all or substantially all the assets of the Company, whether in one or more
transactions or to one or more Persons, other than a sale, conveyance,
transfer, lease or other disposition of all or substantially all the
assets of the Company to a Person that is controlled by the Permitted
Holders.
Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder with a copy to the Trustee stating: (1) that a
Change of Control has occurred and that such Holder has the right to require the
Company to purchase such Holder's Notes at a purchase price in cash equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of repurchase (subject to the right of Holders of record on a record
date to receive interest on the relevant interest payment date); (2) the
circumstances and relevant facts and financial information regarding such Change
of Control; (3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and (4) the
instructions determined by the Company, consistent with this covenant, that a
Holder must follow in order to have its Notes purchased.
The Company will comply, to the extent applicable, with Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of Notes pursuant to this covenant. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this paragraph by virtue thereof.
The Change of Control purchase feature is a result of negotiations
between the Company and the Initial Purchasers. Management has no present
intention to engage in a transaction involving a Change of Control, although it
is possible that the Company would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
The occurrence of certain of the events which would constitute a
Change of Control would constitute a default under the Credit Facility. Future
Indebtedness of the Company may contain prohibitions of certain events which
would constitute a Change of Control or require such Indebtedness to be
repurchased upon a Change of Control. Moreover, the exercise by the Holders of
their right to require the Company to repurchase the Notes could cause a default
under other Indebtedness, even if the Change of Control itself does not, due to
the financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to the Holders upon a repurchase may be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases.
Certain Covenants
Set forth below are certain covenants contained in the Indenture.
All calculations required to be made pursuant to the Indenture will be made
using amounts determined according to GAAP and translated into Dollar
Equivalents.
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Limitation on Indebtedness. (a) The Company will not, and will not
permit any Restricted Subsidiary to, Incur, directly or indirectly, any
Indebtedness; provided, however, that the Company or any Restricted Subsidiary
may Incur Indebtedness if on the date thereof (after giving effect to such
Incurrence and the application of the proceeds thereof) the Company's Leverage
Ratio would be equal to or less than 7.5:1, if such Indebtedness is Incurred on
or prior to July 15, 1999 and 6.5:1 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness
under the Credit Facility (as the same may be amended from time to time without
increasing the committed amount outstanding, except as otherwise permitted by
this covenant) and any Refinancing Indebtedness with respect thereto, including
in connection with Permitted Securitization Transactions, in an aggregate
principal amount on the date of Incurrence which, when added to all other
Indebtedness Incurred pursuant to this clause (i) and then outstanding, shall
not exceed U.S.$350.0 million less the sum of (A) the aggregate amount of
Indebtedness Incurred and then outstanding pursuant to clause (ix) below and (B)
the aggregate amount of all prepayments and required payments of principal
applied to reduce the aggregate amount available to be borrowed under the Credit
Facility or any Refinancing Indebtedness with respect thereto, including
pursuant to "-Limitation on Sales of Assets and Subsidiary Stock"; (ii)
Subordinated Obligations under the Bell Atlantic Facility or under other credit
facilities granted to the Company by Strategic Investors, provided that (A) any
such other credit facility shall have a final maturity that is no less than one
year later than the final maturity of the Notes and shall otherwise be on terms
no less favorable to the Holders than the terms of the Bell Atlantic Facility as
in effect on the Issue Date (including with respect to the subordination and
other provisions set forth in the Subordination Agreement) and (B) participation
by any member of the Peralta Group in such other credit facility shall be
limited to a pro-rata portion thereof corresponding to the portion of the
outstanding Capital Stock of the Company then beneficially owned by the Peralta
Group; (iii) Indebtedness of the Company owing to and held by any Wholly Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by the
Company or any Wholly Owned Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock or any other event that results in any
such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of any such Indebtedness (except to the Company or a Wholly
Owned Subsidiary) will be deemed, in each case, to constitute the Incurrence of
such Indebtedness by the issuer thereof; (iv) Indebtedness represented by the
Notes, any Indebtedness (other than the Indebtedness described in clauses (i)
through (iii) above) outstanding on the Issue Date and any Refinancing
Indebtedness Incurred in respect of any Indebtedness described in this clause
(iv), clause (viii) below or paragraph (a) above; (v) Indebtedness (A) not in
excess of an amount equal to the sum of (1) U.S.$5.0 million in respect of
performance bonds, bankers' acceptances, letters of credit and surety bonds
provided by the Company and the Restricted Subsidiaries in the ordinary course
of their business and which do not secure other Indebtedness and (2) U.S.$10.0
million with respect to any such performance bonds provided to secure
telecommunications concessions, permits and similar governmental instruments of
the Company and the Restricted Subsidiaries or (B) under Currency Agreements and
Interest Rate Agreements, in each case entered into for bona fide hedging
purposes of the Company in the ordinary course of business; provided, however,
that such Currency Agreements and Interest Rate Agreements do not increase the
Indebtedness of the Company outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder; (vi) Indebtedness
(other than Indebtedness permitted to be Incurred pursuant to paragraph (a) or
any other clause of this paragraph (b)) in an aggregate principal amount on the
date of Incurrence which, when added to all other Indebtedness Incurred pursuant
to this clause (vi) and then outstanding, will not exceed U.S.$15.0 million;
(vii) Indebtedness represented by the Subsidiary Guarantees and Guarantees of
Indebtedness Incurred pursuant to clause (i) above; (viii) Indebtedness incurred
in connection with the Company making an offer to purchase the Notes pursuant to
any Change of Control, as described above under the heading "Change of Control,"
provided that 100% of the proceeds of such Indebtedness shall be used to
repurchase Notes or to pay expenses or fees of the Company reasonably incurred
in connection therewith; (ix) Indebtedness Incurred in respect of Capitalized
Lease Obligations, Purchase Money Indebtedness and any Refinancing Indebtedness
with respect thereto, provided that (A) the principal amount of such
Indebtedness does not exceed 100% of the Fair Market Value of the property or
assets subject to such Capitalized Lease Obligations, Purchase Money
Indebtedness or Refinancing Indebtedness and (B) the aggregate principal amount
of all Indebtedness Incurred and then outstanding under this clause does not
exceed U.S.$100.0 million less the amount, if any, by which all Indebtedness
Incurred and then outstanding pursuant to clause (i) above exceeds U.S.$250.0
million; and (x) Indebtedness Incurred by the Company, all the proceeds of which
are promptly used by the trust
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administering the Company's executive employees' stock purchase plan to purchase
from the Company shares of the Company's Series L Common Stock, provided that
such Indebtedness is repaid in full within three Business Days following the
date of Incurrence.
(c) Notwithstanding the foregoing in paragraph (b), neither the
Company nor any Restricted Subsidiary may Incur any Indebtedness pursuant to
paragraph (b) above if the proceeds thereof are used, directly or indirectly, to
repay, prepay, redeem, defease, retire, refund or refinance any Subordinated
Obligation unless such Indebtedness (i) will be subordinated to the Notes to at
least the same extent as such Subordinated Obligation, (ii) has a Stated
Maturity no earlier than the Stated Maturity of such Subordinated Obligation and
(iii) has an Average Life at the time such Indebtedness is Incurred that is
equal to or greater than the Average Life of such Subordinated Obligation.
(d) Notwithstanding any other provision of this covenant, neither
the Company nor any Restricted Subsidiary shall be deemed to have Incurred any
Indebtedness solely as a result of fluctuations in the exchange rates of
currencies; provided, however, that to determine the amount of Indebtedness
outstanding at any time, the currency exchange rates in effect at the time of
such determination shall be used. For purposes of determining the outstanding
principal amount of Indebtedness Incurred pursuant to this covenant, (i)
Indebtedness Incurred pursuant to the Credit Facility prior to or on the date of
the Indenture shall be treated as Incurred pursuant to clause (i) of paragraph
(b) above, (ii) Indebtedness permitted by this covenant need not be permitted
solely by reference to one provision permitting such Indebtedness but may be
permitted in part by one such provision and in part by one or more other
provisions of this covenant permitting such Indebtedness and (iii) in the event
that Indebtedness or any portion thereof meets the criteria of more than one of
the types of Indebtedness described in this covenant, the Company, in its sole
discretion, shall classify such Indebtedness and only be required to include the
amount of such Indebtedness in one of such clauses.
(e) The Company will not permit any Subsidiary Guarantor to,
directly or indirectly, Incur any Indebtedness that is subordinate or junior in
right of payment to any other Senior Indebtedness of such Subsidiary Guarantor
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. No
Subsidiary Guarantor will, directly or indirectly, Guarantee any Indebtedness of
the Company that is subordinated in right of payment to any other Indebtedness
of the Company unless such Guarantee is subordinate in right of payment to, or
ranks pari passu with, the applicable Subsidiary Guarantee. In addition, a
Subsidiary Guarantor may not, directly or indirectly, Incur any Secured
Indebtedness which is not Senior Indebtedness of such Subsidiary Guarantor
unless contemporaneously therewith effective provision is made to secure the
applicable Subsidiary Guarantee equally and ratably with (or on a senior basis
to, in the case of Indebtedness subordinated in right of payment to such
Subsidiary Guarantee) such Secured Indebtedness for so long as such Secured
Indebtedness is secured by a Lien.
Limitation on Indebtedness of Non-Guarantor Subsidiaries.
Notwithstanding the covenant "- Limitation on Indebtedness" above, the Company
shall not permit any Restricted Subsidiary which is not a Subsidiary Guarantor
to, directly or indirectly, Incur any Indebtedness except: (i) Indebtedness
outstanding on the Issue Date and any Refinancing Indebtedness with respect
thereto; and (ii) Indebtedness Incurred pursuant to clause (iii), (v) or (ix) of
paragraph (b) under "- Limitation on Indebtedness".
Limitation on Restricted Payments. (a) The Company will not, and
will not permit any Restricted Subsidiary, directly or indirectly, to (i)
declare or pay any dividend or make any distribution on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving the Company) except dividends or distributions payable
solely in its Capital Stock (other than Disqualified Stock) and except dividends
or distributions payable to the Company or another Restricted Subsidiary (and,
if such Restricted Subsidiary is not wholly owned, to its other shareholders on
a pro rata basis), (ii) purchase, redeem, retire or otherwise acquire for value
any Capital Stock of the Company or any Restricted Subsidiary held by Persons
other than the Company or a Wholly Owned Subsidiary, (iii) purchase, repurchase,
redeem, defease or otherwise acquire or retire for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund payment any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a principal
installment or final maturity, in each case due within one year of the date of
acquisition), (iv) pay any principal, cash interest or other amounts with
respect to the Bell Atlantic
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Facility (other than for Mexican withholding taxes with respect to interest paid
in kind in the form of additional Debentures in an amount not to exceed 15% of
the aggregate principal amount of such additional Debentures) or (v) make any
Investment (other than a Permitted Investment) in any Person (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement, payment or Investment being herein referred to as a "Restricted
Payment") if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Company could not Incur at least U.S.$1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"-Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted
Payment and all other Restricted Payments (the amount so expended, if other than
in cash, to be determined in good faith by the Board of Directors, whose
determination will be conclusive and evidenced by a resolution of the Board of
Directors) declared or made subsequent to the Issue Date would exceed the sum
of: (A) the excess of (I) Cumulative EBITDA over (II) the product of 1.5 and
Cumulative Interest Expense; (B) the aggregate Net Cash Proceeds received by the
Company from the issue or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company or an employee stock ownership plan or other trust
established by the Company or any of its Subsidiaries, provided that Net Cash
Proceeds received by the Company from payments in respect of purchases of its
Capital Stock by employees of the Company pursuant to its executive employees'
stock purchase plan shall be included in the calculation of the amount of Net
Cash Proceeds under this clause (B) to the extent that such payments are not
financed, directly or indirectly, by the Company or any Subsidiary of the
Company); (C) the amount by which Senior Indebtedness of the Company or the
Restricted Subsidiaries is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary of the Company) subsequent to
the Issue Date of any Senior Indebtedness of the Company or the Restricted
Subsidiaries convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash or other
property distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange); and (D) the amount equal to the net reduction in
Investments (excluding any Joint Venture Investment) in Unrestricted
Subsidiaries resulting from (i) payments of dividends, repayments of the
principal of loans or advances or other transfers of assets to the Company or
any Restricted Subsidiary from Unrestricted Subsidiaries or (ii) the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in
each case as provided in the definition of "Investment") not to exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments previously made
by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary,
which amount was included in the calculation of the amount of Restricted
Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(i) any purchase or redemption of Capital Stock of the Company or Subordinated
Obligations made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan or other trust established by the Company or any of its
Subsidiaries); provided, however, that (A) such purchase or redemption will be
excluded in the calculation of the amount of Restricted Payments under clause
(3) of the foregoing paragraph (a) and (B) the Net Cash Proceeds from such sale
will be excluded from clause (3)(B) of the foregoing paragraph (a) but only to
the extent of the Net Cash Proceeds applied to such purchase or redemption; (ii)
any purchase or redemption of Subordinated Obligations made by exchange for, or
out of the proceeds of the substantially concurrent sale of Refinancing
Indebtedness which is expressly subordinated in right of payment to the Notes or
the Subsidiary Guarantees, as the case may be, to the same extent as the
Subordinated Obligations to be purchased or redeemed and is permitted to be
Incurred pursuant to paragraph (b) of the covenant described under "-Limitation
on Indebtedness"; provided, however, that such purchase or redemption will be
excluded in the calculation of the amount of Restricted Payments under clause
(3) of the foregoing paragraph (a); (iii) dividends paid within 60 days after
the date of declaration thereof if at such date of declaration such dividend
would have complied with this covenant; provided, however, that such dividend
will be included in the calculation of the amount of Restricted Payments under
clause (3) of the foregoing paragraph (a); or (iv) Investments, not to exceed in
the aggregate U.S.$10.0 million, by the Company or any Restricted Subsidiary in
Persons engaged in Related Businesses; provided, however, that the amount of
such Investments will be included in the calculation of the amount of Restricted
Payments under clause (3) of the foregoing paragraph (a).
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any
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consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (ii) make any loans or advances to the Company or any other
Restricted Subsidiary or (iii) transfer any of its property or assets to the
Company or any other Restricted Subsidiary, except: (1) any encumbrance or
restriction pursuant to an agreement in effect at or entered into on the Issue
Date; (2) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary prior to the date on which such Restricted Subsidiary was
acquired by the Company (other than Indebtedness Incurred as consideration in,
in contemplation of, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was otherwise acquired by the Company) and outstanding on such
date; (3) any encumbrance or restriction pursuant to an agreement constituting
Refinancing Indebtedness of Indebtedness Incurred pursuant to an agreement
referred to in clause (1) or (2) of this covenant or this clause (3) or
contained in any amendment to an agreement referred to in clause (1) or (2) of
this covenant or this clause (3); provided, however, that the encumbrances and
restrictions contained in any such refinancing agreement or amendment are no
less favorable to the Noteholders than encumbrances and restrictions contained
in such agreements; (4) in the case of clause (iii), any encumbrance or
restriction (A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease, license or
similar contract, or (B) contained in security agreements or mortgages permitted
under the Indenture and securing Indebtedness of a Restricted Subsidiary to the
extent such encumbrance or restrictions restrict the transfer of the property
subject to such security agreements or mortgages; and (5) any restriction with
respect to a Restricted Subsidiary imposed pursuant to an agreement entered into
for the sale or disposition of all or substantially all the Capital Stock or
assets of such Restricted Subsidiary pending the closing of such sale or
disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company
will not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from Senior Indebtedness at the time
of such Asset Disposition) at least equal to the fair market value of the
shares, property and other assets subject to such Asset Disposition, (ii) 85% of
the consideration thereof received by the Company or such Restricted Subsidiary
is in the form of cash, Temporary Cash Investments or other assets of a type
ordinarily used in a Related Business that are to be used by the Company or a
Restricted Subsidiary in the conduct of its business, except that (A) up to 80%
of the consideration received by the Company in connection with any disposition
of the Company's equity interests in Conecel may be in the form of promissory
notes that must be paid in cash within three years following the consummation of
such disposition and (B) this clause (ii) shall not apply to any disposition of
the Company's equity interests in Iusatel Chile, and (iii) the proceeds of such
Asset Disposition are applied as set forth in the remainder of this paragraph.
An amount equal to 100% of the Net Available Cash from such Asset Disposition
may be applied by the Company (or such Restricted Subsidiary, as the case may
be) within 365 days after the later of the date of such Asset Disposition or the
receipt of such Net Available Cash, to the extent the Company elects (or is
required by the terms of any Senior Indebtedness), (x) to prepay, repay or
purchase Senior Indebtedness (other than Senior Indebtedness owed to the Company
or an Affiliate of the Company); provided, however, that in connection with any
such prepayment, repayment or purchase, the Company or such Restricted
Subsidiary will permanently retire such Senior Indebtedness and will cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased or (y) to reinvest in
Additional Assets (including by means of an Investment in Additional Assets by a
Restricted Subsidiary with Net Available Cash received by the Company or another
Restricted Subsidiary). Any Net Available Cash from an Asset Disposition that is
not used in accordance with the preceding sentence within 365 days from the
later of the date of such Asset Disposition or the receipt of Net Available Cash
relating thereto shall constitute "Excess Proceeds." When the aggregate amount
of Excess Proceeds exceeds U.S.$5.0 million (taking into account income earned
on such Excess Proceeds), the Company shall make an Offer (as defined below) to
purchase Notes pursuant to and subject to the conditions set forth in section
(b) of this covenant. To the extent that any portion of the Excess Proceeds
remains after compliance with the preceding sentence and provided that all
Holders have been given the opportunity to tender the Notes for repurchase in
accordance with the Indenture, the Company or such Restricted Subsidiary may use
such remaining amount for any purpose not prohibited by the Indenture. Pending
application of Net Available Cash pursuant to this provision, such Net Available
Cash shall be invested in Temporary Cash Investments.
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For the purposes of this covenant, (x) the assumption of Senior
Indebtedness of the Company (other than Disqualified Stock of the Company) or
any Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Senior Indebtedness in connection with
such Asset Disposition and (y) securities received by the Company or any
Restricted Subsidiary from the transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash shall be deemed to be "cash."
(b) In the event of an Asset Disposition that requires the purchase
of Notes pursuant to the fourth sentence of paragraph (a) of this covenant, the
Company will be required to use the Excess Proceeds to purchase Notes tendered
pursuant to an offer by the Company for the Notes (the "Offer") at a purchase
price of 100% of their principal amount plus accrued and unpaid interest, if
any, to the date of purchase (subject to the right of Holders of record on the
relevant record date to receive interest on the relevant interest payment date)
in accordance with the procedures (including prorationing in the event of
oversubscription) set forth in the Indenture.
(c) The Company will comply, to the extent applicable, with Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of Notes pursuant to this covenant. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) The Company will
not, and will not permit any Restricted Subsidiary to, directly or indirectly,
enter into or conduct any transaction or series of related transactions
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with any Affiliate of the Company (an "Affiliate
Transaction") on terms (i) that are less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could be obtained at
the time of such transaction in arm's-length dealings with a Person who is not
such an Affiliate, (ii) that, in the event such Affiliate Transaction involves
an aggregate amount in excess of U.S.$1.0 million, have not been approved by a
majority of the members of the Board of Directors having no personal stake in
such Affiliate Transaction and (iii) that, in the event such Affiliate
Transaction involves an amount in excess of U.S.$5.0 million, have not been
determined to be fair to the Company or such Restricted Subsidiary from a
financial point of view pursuant to the written opinion of an investment banking
firm of national standing or other recognized independent expert with experience
appraising the terms of the type of transaction or series of related
transactions.
(b) The provisions of the foregoing paragraph (a) will not prohibit
(i) any Restricted Payment permitted to be paid pursuant to the covenant
described under "-Limitation on Restricted Payments," (ii) the payment of
reasonable fees to directors of the Company and its Subsidiaries who are not
employees of the Company or its Subsidiaries, (iii) transactions pursuant to the
Secondment Agreement, provided that, in the event such transactions involve an
aggregate amount exceeding U.S.$10.0 million in any calendar year, such
transactions to the extent they exceed U.S.$10.0 million must be approved by a
majority of the members of the Board of Directors having no personal stake
therein and must be determined to be fair to the Company and the applicable
Restricted Subsidiaries from a financial point of view pursuant to a written
opinion of an investment banking firm or other expert as provided in paragraph
(a) above, (iv) transactions pursuant to the Master Technical Services
Agreement, provided that, in the event such transactions involve an aggregate
amount exceeding U.S.$3.0 million in any calendar year, such transactions to the
extent they exceed U.S.$3.0 million must be approved by a majority of the
members of the Board of Directors having no personal stake therein and, in the
event such transactions involve an aggregate amount exceeding U.S.$5.0 million
in any calendar year, such transactions to the extent they exceed U.S.$5.0
million must be determined to be fair to the Company and the applicable
Restricted Subsidiaries from a financial point of view pursuant to a written
opinion of an investment banking firm or other expert as provided in paragraph
(a) above, (v) transactions pursuant to the Bell Atlantic Facility or (vi) any
transaction between the Company and a Wholly Owned Subsidiary or between Wholly
Owned Subsidiaries.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company will not sell any shares of Capital Stock of a
Restricted Subsidiary, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Capital Stock except: (i) to
the Company or a Wholly Owned Subsidiary, (ii) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute
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a Subsidiary of the Company, (iii) in respect of capital contributions to
Restricted Subsidiaries which are not Wholly Owned Subsidiaries and (iv) in
connection with the recapitalization of any Ownership Regulated Subsidiary that
results in Persons other than the Company owning a majority of the Voting Stock
thereof. Any such sale or issuance permitted by clause (ii), (iii) or (iv) above
will be treated as an Asset Disposition and must comply with the terms of the
covenant described under "-Limitation on Sales of Assets and Subsidiary Stock."
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist any
Lien on any of its property or assets (including Capital Stock of Subsidiaries
of the Company), whether owned on the Issue Date or thereafter acquired,
securing any obligation unless contemporaneously therewith (or prior thereto)
effective provision is made to secure the Notes or the Subsidiary Guarantees, as
the case may be, on an equal and ratable basis with (or on a senior basis to, in
the case of Indebtedness subordinated in right of payment to the Notes or the
relevant Subsidiary Guarantee) such obligation. The preceding sentence will not
require the Company or any Restricted Subsidiary to secure the Notes or the
relevant Subsidiary Guarantee in any manner if the Lien consists of Permitted
Liens.
Provision of Financial Information. So long as any Notes are
outstanding, the Company will file with the Trustee and provide Holders of
Notes: (i) within 180 days after the end of each fiscal year of the Company,
annual reports on Form 20-F (or any successor form) containing information
required to be contained therein (or required in such successor form); (ii)
within 60 days after the end of each of the first three fiscal quarters of each
fiscal year, reports on Form 6-K (or any successor form) containing unaudited,
consolidated financial statements for such quarter; and (iii) promptly from time
to time after the occurrence of an event required to be therein reported, such
other reports on Form 6-K (or any successor form). At any time when the Company
is not required to be subject to Section 13(a) or 15(d) of the Exchange Act (or
any successor provision thereto), the Company will file with the Trustee and
provide Holders of Notes (i) within 180 days after the end of each fiscal year
of the Company, annual audited consolidated financial statements and (ii) within
60 days after the end of each of the first three fiscal quarters of each fiscal
year, unaudited, consolidated financial statements for such quarter, and, unless
it is exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act,
will make available the information contemplated by Rule 144A(d)(4) under the
Securities Act upon the request of a Holder of a Note to such Holder or to a
prospective purchaser of a Note from such holder. The financial statements
referred to in this paragraph will, unless otherwise required by applicable law
or by the SEC, be prepared in accordance with GAAP; provided that all annual,
audited consolidated financial statements will contain a reconciliation to U.S.
GAAP (as defined under "-Certain Definitions") of net income and stockholders'
equity.
Future Subsidiary Guarantors. The Company will cause: (i) each
Person (other than an Ownership Regulated Subsidiary) that becomes a Restricted
Subsidiary following the Issue Date to execute and deliver to the Trustee a
Subsidiary Guarantee at the time such Person becomes a Restricted Subsidiary;
(ii) each Subsidiary (other than an Ownership Regulated Subsidiary) in existence
on the Issue Date which is not a Subsidiary Guarantor on the Issue Date to
execute and deliver to the Trustee a Subsidiary Guarantee upon the earlier of
the time that such Subsidiary becomes a Wholly Owned Subsidiary and the time
that such Subsidiary is not prohibited from making such Guarantee without the
approval of such Subsidiary's other shareholders, and, in either case, such
Subsidiary is a Restricted Subsidiary; and (iii) each Ownership Regulated
Subsidiary to execute and deliver to the Trustee a Subsidiary Guarantee upon the
later of the time that applicable laws and regulations shall not prohibit the
Guarantee of the Notes by such Ownership Regulated Subsidiary and the time that
such Subsidiary is not prohibited from making such Guarantee without the
approval of such Subsidiary's other shareholders, and, in either case, such
Ownership Regulated Subsidiary is a Restricted Subsidiary. References in this
covenant to "other shareholders" shall not include the Company or any of its
Affiliates. However, in no event will the Company be required to cause a
Subsidiary of the Company to become a Subsidiary Guarantor if the aggregate fair
market value of such Subsidiary's assets is less than U.S.$10,000; provided,
however, that, subject to the foregoing three sentences, at such time as the
aggregate fair market value of such assets equals or exceeds U.S.$10,000, the
Company shall cause such Subsidiary to execute and deliver a Subsidiary
Guarantee.
Limitation on Lines of Business. The Company will not, and will not
permit any Restricted Subsidiary to, engage in any business other than a Related
Business.
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Limitation on Sale/Leaseback Transactions. The Company will not, and
will not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (a) the Company or such
Subsidiary would be entitled to (i) Incur Indebtedness in an amount equal to the
Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to
the covenant described under "-Limitation on Indebtedness" and "-Limitation on
Indebtedness of Non-Guarantor Subsidiaries" and (ii) create a Lien on such
property securing such Attributable Debt without securing the Notes or the
Subsidiary Guarantees, as the case may be, pursuant to the covenant described
under "-Limitation on Liens" and (b) the transfer of such property is permitted
by, and the Company applies the proceeds of such transaction in compliance with,
the covenant described under "-Limitation on Sale of Assets and Subsidiary
Stock".
Merger and Consolidation
Neither the Company nor any Subsidiary Guarantor will consolidate
with or merge with or into any Person (other than a consolidation or merger of a
Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor
and other than a consolidation or merger of a Subsidiary Guarantor where the
resulting or surviving Person is not the Company or a Subsidiary of the
Company), or in one transaction or a series of transactions, sell, convey,
transfer, lease or dispose of all or substantially all its assets, unless: (i)
the resulting, surviving or transferee Person (the "Successor Company") will be
a corporation organized and existing under the laws of Mexico, the United States
of America, any State thereof or the District of Columbia and the Successor
Company (if not the Company) will expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company or such Subsidiary Guarantor, as the
case may be, under the Notes and the Indenture; (ii) immediately after giving
effect to such transaction (and treating any Indebtedness which becomes an
obligation of the Successor Company or any Restricted Subsidiary as a result of
such transaction as having been Incurred by the Successor Company or such
Restricted Subsidiary at the time of such transaction), no Default will have
occurred and be continuing; (iii) immediately after giving effect to such
transaction, the Successor Company would be able to Incur an additional
U.S.$1.00 of Indebtedness under paragraph (a) of the covenant described under
"-Limitation on Indebtedness"; (iv) in the case of a conveyance, transfer, lease
or disposition of all or substantially all of the Company's or any Subsidiary
Guarantor's assets, such assets shall have been transferred as an entirety or
virtually as an entirety to one Person; and (v) the Company will have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger or transfer and such supplemental indenture (if
any) comply with the Indenture. In addition, the Company shall deliver to the
Trustee (A) an Opinion of Counsel to the effect that Holders of the Notes will
not recognize income, gain or loss for U.S. Federal income tax purposes as a
result of such transaction and will be subject to U.S. Federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such transaction had not occurred and (B) an Opinion of Counsel in
Mexico to the effect that Holders of the Notes will not recognize income, gain
or loss for Mexican tax purposes as a result of such transaction and will be
subject to Mexican taxes (including withholding taxes) on the same amounts, in
the same manner and at the same times as would have been the case if such
transaction had not occurred.
The Successor Company will succeed to, and be substituted for, and
may exercise every right and power of, the Company or such Subsidiary Guarantor,
as the case may be, under the Indenture, but the predecessor company in the case
of a lease of all or substantially all its assets will not be released from the
obligation to pay the principal of and interest on the Notes or obligations
pursuant to the Subsidiary Guarantees, as the case may be.
Notwithstanding the foregoing clauses (ii) and (iii), any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company.
Defaults
An Event of Default is defined in the Indenture as (i) a default in
any payment of interest on any Note when due, continued for 30 days, (ii) a
default in the payment of principal of any Note when due at its Stated Maturity,
upon optional redemption, upon required repurchase, upon declaration or
otherwise, (iii) the failure by the Company or any Subsidiary Guarantor to
comply with its obligations under the covenant described under "-Merger and
Consolidation" above, (iv) the failure by the Company to comply for 30 days
after notice with any of its obligations under the covenants described under
"-Change of Control," "-Certain Covenants" or "-Additional Amounts"
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above (in each case, other than a failure to purchase Notes), (v) the failure by
the Company or any Subsidiary Guarantor to comply for 60 days after notice with
its other agreements contained in the Notes or the Indenture, (vi) the failure
by the Company or any Significant Subsidiary to pay any Indebtedness within any
applicable grace period after final maturity or the acceleration of any such
Indebtedness by the holders thereof because of a default if the total amount of
such Indebtedness unpaid or accelerated exceeds U.S.$5.0 million or its foreign
currency equivalent (the "cross acceleration provision"), (vii) certain events
of bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary (the "bankruptcy provisions"), (viii) the rendering of any judgment
or decree for the payment of money in excess of U.S.$10.0 million or its foreign
currency equivalent against the Company or a Significant Subsidiary if (A) an
enforcement proceeding thereon is commenced or (B) such judgment or decree
remains outstanding for a period of 60 days following such judgment and is not
discharged, waived or stayed (the "judgment default provision"), (ix) any
Subsidiary Guarantee ceases to be in full force and effect (except as
contemplated by the terms thereof) or any Subsidiary Guarantor denies or
disaffirms its obligations under the Indenture or any Subsidiary Guarantee and
such Default continues for 10 days (the "guarantee default provision") or (x)
the failure by Bell Atlantic, the Company or any of their respective successors,
assigns or other Transferees (as defined in the Subordination Agreement) to
comply with any of its obligations under the Subordination Agreement.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
However, a default under clause (iv) or (v) will not constitute an
Event of Default until the Trustee or the Holders of 25% in principal amount of
the outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified in clause (iv) or (v) after receipt
of such notice.
If an Event of Default (other than a Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Notes by notice to the Company may declare the principal of and
accrued but unpaid interest on all the Notes to be due and payable. Upon such a
declaration, such principal and interest will be due and payable immediately. If
an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company occurs, the principal of and interest on all the
Notes will become immediately due and payable without any declaration or other
act on the part of the Trustee or any Holders. Under certain circumstances, the
Holders of a majority in principal amount of the outstanding Notes may rescind
any such acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
Holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other Holder or that would involve the Trustee in personal liability. Prior
to taking any action under the Indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
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The Indenture provides that if a Default occurs and is continuing
and is known to the Trustee, the Trustee must mail to each Holder notice of the
Default within the earlier of 90 days after it occurs or 30 days after it is
known to a Trust Officer or written notice of it is received by the Trustee.
Except in the case of a Default in the payment of principal of, premium (if any)
or interest on any Note, the Trustee may withhold notice if and so long as a
committee of its Trust Officers in good faith determines that withholding notice
is in the interests of the Noteholders. In addition, the Company is required to
deliver to the Trustee, within 120 days after the end of each fiscal year, a
certificate indicating whether the signers thereof know of any Default that
occurred during the previous year. The Company also is required to deliver to
the Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Defaults, their status and what action the
Company is taking or proposes to take in respect thereof.
Amendments and Waivers
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the Holders of a majority in principal amount of the Notes
then outstanding. However, without the consent of each Holder of an outstanding
Note affected, no amendment or waiver of the Indenture may, among other things,
(i) reduce the amount of Notes whose Holders must consent to an amendment or
waiver, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "Optional
Redemption" and "-Redemption for Tax Reasons" above, (v) make any Note payable
in money other than that stated in the Note, (vi) impair the right of any Holder
to receive payment of principal of and interest on such Holder's Notes on or
after the due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such Holder's Notes, (vii) make any change in the
amendment or waiver provisions which require each Holder's consent, (viii)
modify the Subsidiary Guarantees in any manner adverse to the Holders or (ix)
make any change in the subordination provisions with respect to the Subsidiary
Guarantees that adversely affects the rights of any Holder under such
provisions. However, no amendment or waiver may make any change that adversely
affects the rights under the subordination provisions of any holder of
Designated Senior Indebtedness of any Subsidiary Guarantor then outstanding
unless the holders of such Designated Senior Indebtedness (or any group or
representative thereof) consent to such change.
Without the consent of any Holder, the Company and Trustee may amend
the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Company under the Indenture (provided that the Company delivers to the Trustee
(i) an Opinion of Counsel to the effect that Holders of the Notes will not
recognize income, gain or loss for U.S. Federal income tax purposes as a result
of such assumption by a successor corporation and will be subject to U.S.
Federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such assumption had not occurred and (ii)
an Opinion of Counsel in Mexico to the effect that Holders of the Notes will not
recognize income, gain or loss for Mexican tax purposes as a result of such
assumption by a successor corporation and will be subject to Mexican taxes
(including withholding taxes) on the same amounts, in the same manner and at the
same times as would have been the case if such assumption had not occurred), to
provide for uncertificated Notes in addition to or in place of certificated
Notes (provided that the uncertificated Notes are issued in registered form for
purposes of Section 163(f) of the Code or in a manner such that the
uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to
change the subordination provisions to limit or terminate the benefits of any
holder of Designated Senior Indebtedness of the Subsidiary Guarantors, to add
further Guarantees with respect to the Notes or to release Subsidiary Guarantors
from the Subsidiary Guarantees as provided by the terms of the Indenture, to
secure the Notes, to add to the covenants of the Company for the benefit of the
Noteholders or to surrender any right or power conferred upon the Company, to
make any change that does not adversely affect the rights of any Holder or to
comply with any requirement of the SEC in connection with the qualification of
the Indenture under the TIA.
The consent of the Noteholders is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
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After an amendment under the Indenture becomes effective, the
Company is required to mail to Noteholders a notice briefly describing such
amendment. However, the failure to give such notice to all Noteholders, or any
defect therein, will not impair or affect the validity of the amendment.
The Subordination Agreement may be amended with the consent of the
Holders of a majority in principal amount of the Notes then outstanding and, in
certain circumstances, by the Trustee without the consent of any Holder.
Transfer and Exchange
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Noteholder to pay any taxes
required by law or permitted by the Indenture. The Company is not required to
transfer or exchange any Note selected for redemption or to transfer or exchange
any Note for a period of 15 days prior to a selection of Notes to be redeemed.
The Notes will be issued in registered form and the registered Holder of a Note
will be treated as the owner of such Note for all purposes.
Defeasance
The Company at any time may terminate all its obligations under the
Notes and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under "Certain Covenants", the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Subsidiaries of the
Company, the judgment default provision and the guarantee default provision
described under "Defaults" above and the limitations contained in clause (iii)
under "Merger and Consolidation" above ("covenant defeasance"). If the Company
exercises its legal defeasance option or its covenant defeasance option, each
Subsidiary Guarantor will be released from all of its obligations with respect
to its Subsidiary Guarantee.
The Company may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option. If the Company exercises
its legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto. If the Company exercises its
covenant defeasance option, payment of the Notes may not be accelerated because
of an Event of Default specified in clause (iv), (v) with respect to
Subsidiaries of the Company, (vi), (vii) with respect to Subsidiaries of the
Company, (viii) or (ix) under "Defaults" above or because of the failure of the
Company to comply with clause (iii) under "Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must
irrevocably deposit in trust (the "defeasance trust") with the Trustee money or
U.S. Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of (i)
an Opinion of Counsel to the effect that Holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law) and (ii) an
Opinion of Counsel in Mexico to the effect that Holders of the Notes will not
recognize income, gain or loss for Mexican tax purposes as a result of such
deposit and defeasance and will be subject to Mexican taxes (including
withholding taxes) on the same amounts, in the same manner and at the same times
as would have been the case if such deposit and defeasance had not occurred.
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Concerning the Trustee
First Union National Bank is to be the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes.
Governing Law
The Indenture provides that it and the Notes will be governed by,
and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
Under the Mexican Monetary Law (Ley Monetaria de los Estados Unidos
Mexicanos), in the event that proceedings were brought in Mexico seeking to
enforce in Mexico the Company's obligations under the Notes, the Company would
not be required to discharge such obligations in Mexico in a currency other than
Mexican currency. According to such law, an obligation in a currency other than
Mexican currency, which is payable in Mexico, may be satisfied in Pesos at the
rate of exchange in effect on the date and in the place payment occurs. Such
rate is currently determined by Banco de Mexico every business banking day in
Mexico and published the following business banking day in the Mexican Diario
Oficial de la Federacion.
Consent to Jurisdiction and Service of Process
The Indenture provides that the Company and each Subsidiary
Guarantor will irrevocably appoint CT Corporation System as its agent for
service of process in any suit, action or proceeding with respect to the
Indenture or the Notes brought in any Federal or state court located in New York
City and submit to the jurisdiction thereof.
Certain Definitions
"Additional Assets" means (i) any property (other than cash, cash
equivalents or securities) to be owned by the Company or a Restricted Subsidiary
and used in a Related Business, (ii) the costs of improving or developing any
property owned by the Company or a Restricted Subsidiary which is used in a
Related Business and (iii) Investments in any other Person engaged primarily in
a Related Business (including the acquisition from third parties of Capital
Stock of such Person) as a result of which such other Person becomes a
Restricted Subsidiary.
"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of "-Certain Covenants-Limitation on Sales of Assets and Subsidiary
Stock" and "-Limitation on Transactions with Affiliates" only, "Affiliate" shall
also mean any beneficial owner of shares representing 5% or more of the total
voting power of the Voting Stock (on a fully diluted basis) of the Company or of
rights or warrants to purchase such Voting Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"Annualized EBITDA" means, with respect to any Person, such Person's
Pro Forma EBITDA for such Person's two most recent fiscal quarters ended at
least 45 days prior to the determination date, multiplied by two.
"Asset Disposition" means any sale, lease, transfer, issuance or
other disposition of shares of Capital Stock of a Subsidiary (other than
directors' qualifying shares), property or other assets (each referred to for
the purposes of this definition as a "disposition") by the Company or any of its
Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Restricted Subsidiary, (ii) a disposition of inventory in the
ordinary course of business, (iii) for purposes of the provisions described
under "-Certain Covenants-Limitation on Sales of Assets and Subsidiary Stock"
only, a disposition subject to (and complying with)
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the covenant described under "-Certain Covenants-Limitation on Restricted
Payments", (iv) Permitted Securitization Transactions and (v) Joint Venture
Investments to the extent permitted pursuant to clause (ix) of the definition of
"Permitted Investment."
"Attributable Debt" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, (i) if such Sale/Leaseback Transaction
is a Capitalized Lease Obligation, the amount of Indebtedness represented
thereby according to the definition of "Capitalized Lease Obligation" and (ii)
in all other instances, the present value (discounted at the interest rate borne
by the Notes, compounded annually) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect
to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of the numbers of years (including fractions thereof)
from the date of determination to the dates of each successive scheduled
principal payment of such Indebtedness or redemption or similar payment with
respect to such Preferred Stock multiplied by the amount of such payment by (ii)
the sum of all such payments.
"Bell Atlantic Facility" means the debenture purchase agreement,
which will be entered into prior to or on the Issue Date, between the Company
and Bell Atlantic, without giving effect to any subsequent amendment, waiver or
other modification thereof.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or other
day on which banking institutions in New York State are authorized or required
by law to close.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required
to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP; and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under such
lease.
"Chase" means The Chase Manhattan Bank.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Current Liabilities" means, as of any date of
determination, the aggregate amount of liabilities of the Company and its
Consolidated Restricted Subsidiaries which may properly be classified as current
liabilities (including taxes accrued as estimated), after eliminating (i) all
intercompany items between the Company and any Restricted Subsidiary and (ii)
all current maturities of long-term Indebtedness.
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its Consolidated Restricted Subsidiaries,
plus, to the extent Incurred by the Company and its Subsidiaries in such period
but not included in such interest expense, (i) interest expense attributable to
Capitalized Lease Obligations, (ii) amortization of debt discount and debt
issuance cost, (iii) capitalized interest, (iv) noncash interest expense, (v)
commissions, discounts and other fees and charges with respect to letters of
credit and bankers' acceptance financing, (vi) interest accruing on any
Indebtedness of any other Person to the extent such Indebtedness is Guaranteed
by the Company or any Restricted Subsidiary; provided that payment of such
amounts by the Company or any Restricted Subsidiary is being made to, or is
sought by, the holders of such Indebtedness pursuant to such
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Guarantee, (vii) net costs associated with Hedging Obligations (including
amortization of fees and premiums) permitted under the Indenture, (viii)
Preferred Stock dividends in respect of all Preferred Stock of Subsidiaries of
the Company and Disqualified Stock of the Company held by Persons other than the
Company or a Wholly Owned Subsidiary and (ix) the cash contributions to any
employee stock ownership plan or similar trust to the extent such contributions
are used by such plan or trust to pay interest or fees to any Person (other than
the Company) in connection with Indebtedness Incurred by such plan or trust;
provided, however, that Consolidated Interest Expense shall not include any
expense of any Unrestricted Subsidiary to the extent the related Indebtedness is
not Guaranteed or paid by the Company or any Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net income
(loss) of the Company and its Consolidated Subsidiaries; provided, however, that
there shall not be included in such Consolidated Net Income: (i) any net income
(loss) of any Person if such Person is not a Restricted Subsidiary, except that
(A) subject to the limitations contained in clause (iv) below, the Company's
equity in the net income of any such Person for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to the limitations
contained in clause (iii) below) and (B) the Company's equity in a net loss of
any such Person (other than an Unrestricted Subsidiary) for such period shall be
included in determining such Consolidated Net Income; (ii) any net income (loss)
of any person acquired by the Company or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition; (iii) any net
income (loss) of any Restricted Subsidiary if such Restricted Subsidiary is
subject to restrictions, directly or indirectly, on the payment of dividends or
the making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company, except that (A) subject to the limitations contained
in clause (iv) below, the Company's equity in the net income of any such
Restricted Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash that could have been distributed by
such Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend (subject, in the case of a dividend that
could have been made to another Restricted Subsidiary, to the limitation
contained in this clause) and (B) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining such
Consolidated Net Income; (iv) any gain (but not loss) realized upon the sale or
other disposition of any asset of the Company or its Consolidated Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) that is not sold or
otherwise disposed of in the ordinary course of business and any gain (but not
loss) realized upon the sale or other disposition of any Capital Stock of any
Person; (v) any extraordinary gain or loss; and (vi) the cumulative effect of a
change in accounting principles. Notwithstanding the foregoing, for the purpose
of the covenant described under "-Certain Covenants-Limitation on Restricted
Payments" only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the
extent such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Tangible Assets" means, as of any date of
determination, the sum of the total assets (less accumulated depreciation and
amortization, allowances for doubtful receivables, other applicable reserves and
other properly deductible items) of the Company and its Consolidated Restricted
Subsidiaries, after giving effect to purchase accounting and after deducting
therefrom Consolidated Current Liabilities and, to the extent otherwise
included, the amounts of (without duplication): (i) the excess of cost over fair
market value of assets or businesses acquired; (ii) any revaluation or other
write-up in book value of assets subsequent to the last day of the fiscal
quarter of the Company immediately preceding the Issue Date as a result of a
change in the method of valuation in accordance with GAAP; (iii) unamortized
debt discount and expenses and other unamortized deferred charges, goodwill,
patents, trademarks, service marks, trade names, copyrights, licenses,
organization or developmental expenses and other intangible items; (iv) minority
interests in Consolidated Subsidiaries held by Persons other than the Company or
any Restricted Subsidiary; (v) treasury stock; (vi) cash set aside and held in a
sinking or other analogous fund established for the purpose of redemption or
other retirement of Capital Stock to the extent such obligation is not reflected
in Consolidated Current Liabilities; and (vii) Investments in and assets of
Unrestricted Subsidiaries.
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"Consolidation" means the consolidation of the amounts of each of
the Subsidiaries of a Person with those of such Person in accordance with GAAP
consistently applied; provided, however, that, in the case of the Company,
"Consolidation" will not include consolidation of the accounts of any
Unrestricted Subsidiary, but the interest of the Company or any Restricted
Subsidiary in an Unrestricted Subsidiary will be accounted for as an investment.
The term "Consolidated" has a correlative meaning.
"Credit Facility" means the credit agreement dated as of or prior to
the Issue Date, as amended, waived or otherwise modified from time to time,
among the Company, the lenders named therein and Chase, as administrative agent
(except to the extent that any such amendment, waiver or other modification
thereto would be prohibited by the terms of the Indenture, unless otherwise
agreed to by the Holders of at least a majority in aggregate principal amount of
Notes at the time outstanding).
"Cumulative EBITDA" means, at any date of determination, the
cumulative EBITDA of the Company from and after the first day of the fiscal
quarter of the Company following the end of the most recent fiscal quarter of
the Company preceding the Issue Date to the end of the most recent fiscal
quarter of the Company ending at least 45 days prior to the taking of any action
for the purpose of which the determination is being made.
"Cumulative Interest Expense" means, at any date of determination,
the aggregate amount of Consolidated Interest Expense Incurred by the Company
from and after the first day of the fiscal quarter of the Company following the
end of the most recent fiscal quarter of the Company preceding the Issue Date to
the end of the most recent fiscal quarter of the Company ending at least 45 days
prior to the taking of any action for the purpose of which the determination is
being made.
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement as to
which such Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) Senior Indebtedness under
the Credit Facility and (ii) any Refinancing Indebtedness with respect thereto
Incurred in accordance with the provisions described in clause (i) of paragraph
(b) under "-Certain Covenants-Limitation on Indebtedness" which constitutes
Senior Indebtedness and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness", provided that, in the case of the foregoing clause (ii),
at the date of determination, the aggregate principal amount of such Senior
Indebtedness then outstanding, together with any available lending commitment
with respect thereto, is not less than $35.0 million.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable or exercisable) or upon the
happening of any event (i) matures or is or could become mandatorily redeemable
pursuant to a sinking fund obligation or otherwise, (ii) is or could become
convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is
or could become redeemable at the option of the Holder thereof, in whole or in
part, in each case on or prior to the first anniversary of the Stated Maturity
of the Notes.
"Dollar Equivalent" means, with respect to any monetary amount in a
currency other than U.S. dollars, at any time for the determination thereof, the
amount of U.S. dollars obtained by converting such foreign currency involved in
such computation into U.S. dollars at the noon buying rate for the purchase of
U.S. dollars with the applicable foreign currency reported by the Federal
Reserve Bank of New York, or if no noon buying rate is so reported, at the spot
rate for the purchase of U.S. dollars with the applicable foreign currency as
quoted by The Chase Manhattan Bank in New York City at approximately 11:00 a.m.
(New York City time), (i) with respect to the calculation of Leverage Ratio,
Cumulative EBITDA and Cumulative Interest Expense, as of the end of the most
recent fiscal quarter of the Company ending at least 45 days prior to the taking
of any action for the purpose of which the determination is being made or (ii)
with respect to the monetary amount of a transaction occurring subsequent to the
end of such fiscal quarter, on the date two Business Days prior to such
determination.
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"EBITDA" for any period means the Consolidated Net Income for such
period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income and asset tax expense and employee profit
sharing expense, (ii) Consolidated Interest Expense, (iii) depreciation expense,
(iv) amortization expense, (v) foreign exchange losses that are reported below
the "Operating profit (loss)" line on the Company's consolidated income
statements and (vi) all non-cash items that are reported below the "Operating
profit (loss)" line on the Company's consolidated income statements, including
monetary losses (other than items that will require cash payments and for which
an accrual or reserve is, or is required by GAAP to be, made), less the
following to the extent included in calculating such Consolidated Net Income:
(i) income and asset tax benefit, (ii) foreign exchange gains that are reported
below the "Operating profit (loss)" line on the Company's consolidated
statements of income, and (iii) all non-cash items that are reported below the
"Operating profit (loss)" line on the Company's consolidated statements of
income, including monetary gains (other than items that will result in the
receipt of cash payments), in each case for such period. In addition, the cost
of handsets given to customers in such period shall be deducted from EBITDA to
the extent not already deducted in determining Consolidated Net Income.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization of, a Subsidiary of the
Company shall be added to Consolidated Net Income to compute EBITDA only to the
extent (and in the same proportion) that the net income (loss) of such
Subsidiary was included in calculating Consolidated Net Income and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior approval (or with
approval that has been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Subsidiary or its stockholders.
"Fair Market Value" means, with respect to any property, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided, (i) if such property has a Fair Market
Value of less than U.S.$5.0 million, by an Officer of the Company or (ii) if
such Property has a Fair Market Value in excess of U.S.$5.0 million, by a
majority of the Board of Directors and evidenced by a resolution, dated within
30 days of the relevant transaction, of the Board of Directors promptly
delivered to the Trustee.
"GAAP" means generally accepted accounting principles in Mexico as
in effect as of the Issue Date. All ratios and computations based on GAAP
contained in the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Subsidiary or a Subsidiary
Guarantor (whether by merger, consolidation, acquisition or otherwise) shall be
deemed to be Incurred by such Person at the time it becomes a Subsidiary or a
Subsidiary Guarantor, as the case may be; provided further, that solely for
purposes of determining compliance with "-Certain Covenants-Limitation on
Indebtedness," amortization of debt discount shall not be deemed to be the
Incurrence of Indebtedness; provided further, that in the case of
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Indebtedness sold at a discount, the amount of such Indebtedness Incurred shall
at all times be the aggregate principal amount at Stated Maturity.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto); (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services (except Trade Payables), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services; (v) all Capitalized Lease
Obligations and all Attributable Debt of such Person; (vi) the amount of all
obligations of such Person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock or, with respect to the Company, any
Preferred Stock of the Restricted Subsidiaries (but excluding, in each case, any
accrued dividends); (vii) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of Indebtedness of such Person shall
be the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other Persons;
(viii) all Indebtedness of other Persons to the extent Guaranteed by such
Person; and (ix) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations
described above at such date. The amount of Indebtedness with respect to Hedging
Obligations shall be (x) zero, if such Hedging Obligation is permitted pursuant
to clause (b)(v)(B) of "-Certain Covenants-Limitation on Indebtedness" or (y)
the notional amount of such Hedging Obligation, if such Hedging Obligation is
not so permitted.
"Initial Purchasers" means Chase Securities Inc. and Salomon
Brothers Inc.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect advance
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person), loan or
other extension of credit (including by way of Guarantee or similar arrangement)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and the covenant described under "-Certain
Covenants-Limitation on Restricted Payments," (i) "Investment" shall include the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of any Subsidiary of the Company at the
time that such Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
"Issue Date" means the date on which the Notes are originally
issued.
"Joint Venture Investment" means any sale, lease, transfer, issuance
or other disposition of shares of Capital Stock of a Subsidiary, property or
other assets by the Company or any of the Restricted Subsidiaries (including any
disposition by means of a merger, consolidation or similar transaction) which is
engaged in or used
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in, as applicable, a Related Business, in exchange for which the Company or a
Restricted Subsidiary receives Capital Stock of another Person (other than the
Company or a Restricted Subsidiary) engaged primarily in a Related Business,
provided that the fair market value of such Capital Stock is at least equal to
the fair market value of such shares, property or assets that are the subject of
such disposition.
"Leverage Ratio" means the ratio of (i) the outstanding consolidated
Indebtedness of a Person and its Subsidiaries (or in the case of the Company,
the Restricted Subsidiaries) divided by (ii) the Annualized EBITDA of such
Person.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Master Technical Services Agreement" means the Master Technical
Services Agreement by and between Bell Atlantic International, Inc. and
Sistecel, S.A. de C.V., effective as of January 1, 1997, without giving effect
to any amendment, waiver or other modification thereof.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a promissory note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to the shares, properties or other assets that are the
subject of such Asset Disposition or received in any other noncash form)
therefrom, in each case net of (i) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition, in accordance with the terms of any Lien upon such assets, or
which must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition and (iv) appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
assets disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Officer" of any Person means the Chairman of the Board, the Chief
Executive Officer, the Director General, the Chief Financial Officer, the Chief
Operating Officer, the President, any Vice President, the Treasurer or the
Secretary of such Person.
"Officers' Certificate" means a certificate signed by two Officers
of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who
is acceptable to the Trustee. The counsel may be an employee of or counsel to
the Company or the Trustee.
"Ownership Regulated Subsidiaries" means each of Infotelecom (paging
services), Iusatel (long distance services), Iusatelecomunicaciones (local
wireless services), Punto-a-Punto Iusacell, S.A. de C.V. (certain microwave
operations) and any other Subsidiary of the Company, in each case as to which
applicable law or regulation prohibits the Company from owning a majority of the
Voting Stock thereof.
"Peralta Group" means Carlos Peralta Quintero and his Affiliates
(other than the Company and its Subsidiaries).
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"Permitted Holders" means Bell Atlantic and any Affiliate of Bell
Atlantic.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) a Restricted Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary and
not exceeding U.S.$3.0 million in the aggregate outstanding at any one time;
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (viii) any securities or other
Investments received in compliance with the covenant described under "-Certain
Covenants-Limitation on Sales of Assets and Subsidiary Stock"; (ix) Joint
Venture Investments in an aggregate amount not to exceed the greater of (A)
U.S.$50 million and (B) 5% of Consolidated Net Tangible Assets, provided that
the amount of any such Joint Venture Investment shall be deemed to equal the
Fair Market Value at the time of disposition of the shares of Capital Stock,
property or other assets disposed of in connection with such Joint Venture
Investment; and (x) Iusatelecomunicaciones as an Unrestricted Subsidiary in an
aggregate amount not to exceed U.S.$12.0 million, provided such Investment is
made with the proceeds of borrowings under the Bell Atlantic Facility that are
promptly converted into Capital Stock of the Company pursuant to the terms of
the Bell Atlantic Facility.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under worker's compensation laws, unemployment insurance
laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States government bonds
to secure surety bonds to which such Person is a party, or deposits as security
for contested taxes or import duties or for the payment of rent, in each case
Incurred in the ordinary course of business; (b) Liens imposed by law, such as
carriers', warehousemen's and mechanics' Liens, in each case for sums not yet
due or being contested in good faith by appropriate proceedings; (c) Liens for
property taxes not yet due or payable or subject to penalties for non-payment
and which are being contested in good faith by appropriate proceedings; (d)
Liens in favor of issuers of surety bonds or letters of credit issued pursuant
to the request of and for the account of such Person in the ordinary course of
its business; (e) survey exceptions, encumbrances, easements or reservations of,
or rights of others for, licenses, rights-of-way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real properties or Liens incidental to the conduct
of the business of such Person or to the ownership of its properties which were
not Incurred in connection with Indebtedness and which do not in the aggregate
materially adversely affect the value of said properties or materially impair
their use in the operation of the business of such Person; (f) Liens on property
or assets that are the subject of Indebtedness permitted under clause (ix) of
paragraph (b) under "-Certain Covenants-Limitation on Indebtedness" (other than
the Refinancing Indebtedness referred to in such clause (ix) which Refinancing
Indebtedness shall be the subject of clause (o) below); provided, however, that
(x) any such Lien is limited to the specific property or asset being financed
or, in the case of real property or fixtures, including additions and
improvements, the real property on which such asset is attached, (y) such
Indebtedness is Incurred solely for the purpose of financing the acquisition,
construction or lease of such property or asset and (z) such Indebtedness is
incurred within 365 days after the later of the acquisition, completion of
construction, repair, improvement or addition or commencement of full operation
of such property or asset by the Company or a Restricted Subsidiary; (g) Liens
existing on the Issue Date; (h) Liens on property of a Person at the time such
Person becomes a Subsidiary; provided, however, such Liens are not created,
Incurred or assumed in connection with, or in contemplation of, such Person
becoming such a Subsidiary of the Company; provided further, however, that such
Liens may not extend to any other property owned by the Company or any
Restricted Subsidiary; (i) Liens on
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property at the time the Company or a Restricted Subsidiary acquired the
property, including any acquisition by means of a merger or consolidation with
or into the Company or any Restricted Subsidiary; provided, however, that such
Liens are not created, Incurred or assumed in connection with, or in
contemplation of, such acquisition; provided further, however, that the Liens
may not extend to any other property owned by the Company or any Restricted
Subsidiary; (j) Liens securing Indebtedness or other obligations of a Restricted
Subsidiary owing to the Company or a Wholly Owned Subsidiary; (k) Liens securing
Hedging Obligations so long as the related Indebtedness is, and is permitted to
be under the Indenture, secured by a Lien on the same property securing such
Hedging Obligations; (l) Liens in an aggregate amount not in excess of U.S.$10.0
million or its foreign currency equivalent at any time outstanding securing one
or more judgments or decrees against the Company or one of its Subsidiaries, so
long all such judgments or decrees are being contested in good faith and any
appropriate legal proceedings which may have been duly initiated for the review
of any such judgment or decree shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have expired;
(m) leases and subleases (other than Sale/Leaseback Transactions) of real
property entered into in the ordinary course of the business of the Company or
the applicable Restricted Subsidiary which do not interfere with the ordinary
conduct of the business of the Company or any Restricted Subsidiary, and which
are made on customary and usual terms applicable to similar properties; (n) any
interest or title by a lessor or sublessor, or any Lien in favor of a landlord,
arising under any real or personal property lease under which the Company or any
of the Restricted Subsidiaries is a lessee, sublessee or subtenant and which the
Company or such Restricted Subsidiary entered into in the ordinary course of its
business (other than any Lien securing any Capitalized Lease Obligation,
Purchase Money Indebtedness or Sale/Leaseback Transaction); and (o) Liens to
secure any refinancing, refunding, extension, renewal or replacement (or
successive refinancings, refundings, extensions, renewals or replacements) as a
whole, or in part, of any Indebtedness secured by any Lien referred to in the
foregoing clauses (f), (g), (h) and (i); provided, however, that (x) such new
Lien shall be limited to all or part of the same property that secured the
original Lien (plus improvements on such property) and (y) the Indebtedness
secured by such Lien at such time is not increased to any amount greater than
the sum of (A) the outstanding principal amount or, if greater, committed amount
of the Indebtedness described under clause (f), (g), (h) or (i) at the time the
original Lien became a Permitted Lien under the Indenture and (B) an amount
necessary to pay any fees and expenses, including premiums, related to such
refinancing, refunding, extension, renewal or replacement.
"Permitted Securitization Transaction" means any sale, discount,
conveyance or other disposition of receivables generated through the Company's
Consolidated operations that (i) is made without representation or warranty
(except for representations and warranties normally and customarily given by
sellers and servicers in connection with asset securitization transactions),
(ii) is made pursuant to bona fide transactions with third parties for Fair
Market Value, (iii) in respect of which the Company and the Restricted
Subsidiaries neither incur nor accept any risk other than risk in respect of the
representations and warranties as described in clause (i) above, risk arising in
connection with the obligation to service such receivables and other risks
normally and customarily incurred or accepted by sellers and servicers and their
affiliates in connection with asset securitization transactions and (iv) the
Company in good faith accounts for as, and intends that such transactions will
be characterized under U.S. GAAP (as defined below) as, a "true sale" and not a
liability.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Principal" of a Note means the principal of the Note plus the
premium, if any, payable on the Note which is due or overdue or is to become due
at the relevant time.
"Pro Forma EBITDA" means for any Person, for any period, the EBITDA
of such Person as determined on a Consolidated basis in accordance with GAAP
consistently applied after giving effect to the following: (i) if,
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during or after such period, such Person or any of its Subsidiaries shall have
made any disposition of any Person or business, Pro Forma EBITDA of such Person
and its Subsidiaries shall be computed so as to give pro forma effect to such
disposition as if such disposition occurred at the beginning of such period,
(ii) if, during or after such period, such Person or any of its Subsidiaries
completes an acquisition of any Person or business which immediately after such
acquisition is a Subsidiary of such Person or whose assets are held directly by
such Person or a Subsidiary of such Person, Pro Forma EBITDA shall be computed
so as to give pro forma effect to the acquisition of such Person or business as
if such acquisition occurred at the beginning of such period and (iii) if during
or after such period, such Person or any of its Subsidiaries Incurs or repays
any Indebtedness, Pro Forma EBITDA shall be computed so as to give pro forma
effect to such Incurrence or repayment; provided, however, that, with respect to
the Company, all the foregoing references to "Subsidiary" or "Subsidiaries"
shall be deemed to refer only to "Restricted Subsidiaries."
"Public Equity Offering" means an underwritten primary public
offering of common stock of the Company pursuant to an effective registration
statement under the Securities Act.
"Purchase Money Indebtedness" means Indebtedness (i) consisting of
the deferred purchase price of property, conditional sale obligations,
obligations under any title retention agreement and other purchase money
obligations, in each case where the maturity of such Indebtedness does not
exceed the anticipated useful life of the asset being financed, and (ii)
Incurred in the ordinary course of business solely to finance the acquisition,
construction or lease by the Company or a Restricted Subsidiary of such asset,
including repairs, additions and improvements thereto.
"Refinancing Indebtedness" means Indebtedness that is Incurred to
refund, refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances" and "refinanced"
shall have a correlative meaning) any Indebtedness existing on the date of the
Indenture or Incurred in compliance with the Indenture (including Indebtedness
of the Company that refinances Indebtedness of any Restricted Subsidiary (to the
extent permitted in the Indenture) and Indebtedness of any Restricted Subsidiary
that refinances Indebtedness of another Restricted Subsidiary) including
Indebtedness that refinances Refinancing Indebtedness; provided, however, that
(i) the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being refinanced, (ii) the Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being refinanced, (iii) the Refinancing Indebtedness shall not be senior in
right of payment to the Indebtedness being refinanced and (iv) such Refinancing
Indebtedness is Incurred in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less than
the sum of (A) the aggregate principal amount (or if issued with original issue
discount, the aggregate accreted value) then outstanding of the Indebtedness
being refinanced, and (B) the amount of prepayment premiums, if any, owed, not
in excess of the amount provided for by the preexisting prepayment provisions of
such Indebtedness being refinanced; provided further, however, that Refinancing
Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary that
refinances Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary.
"Related Business" means any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means the trustee, agent or representative (if any)
for an issue of Designated Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other
than an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Restricted
Subsidiary leases it from such Person, other than leases between the Company and
a Restricted Subsidiary or between Restricted Subsidiaries.
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"Secondment Agreement" means the Agreement for the Reimbursement of
Compensation Expense (Secondment Agreement) by and between Bell Atlantic
International, Inc. and Sistecel, S.A. de C.V. , effective as of January 1,
1997, without giving effect to any subsequent amendment, waiver or other
modification thereof.
"Secured Indebtedness" means any Indebtedness of the Company or a
Restricted Subsidiary secured by a Lien.
"Senior Indebtedness" means all Indebtedness of the Company or a
Restricted Subsidiary including interest thereon, whether outstanding on the
Issue Date or thereafter Incurred, unless in the instrument creating or
evidencing such Indebtedness or pursuant to which the same is outstanding it is
provided, in the case of the Company or a Restricted Subsidiary which is not a
Subsidiary Guarantor, that such obligations are junior in right of payment to
the Notes or, in the case of a Subsidiary Guarantor, that such obligations are
not superior in right of payment to the applicable Subsidiary Guarantee;
provided, however, that Senior Indebtedness shall not include (i) any obligation
of the Company or any Subsidiary of the Company to any other Subsidiary of the
Company, (ii) any liability for federal, state, local, foreign or other taxes
owed or owing by the Company or any Subsidiary of the Company, (iii) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including Guarantees thereof or instruments evidencing such
liabilities), (iv) (a) any Indebtedness or obligation of the Company or a
Restricted Subsidiary (whether or not a Subsidiary Guarantor) which is
subordinate or junior in any respect to any other Indebtedness or obligation of
the Company or such Restricted Subsidiary, including Subordinated Obligations,
and (b) any Indebtedness or obligation of a Subsidiary Guarantor which ranks
pari passu in right of payment with the applicable Subsidiary Guarantee, (v) any
obligations with respect to any Capital Stock or (vi) any Indebtedness Incurred
in violation of the Indenture.
"Senior Subordinated Indebtedness" means, with respect to a
Subsidiary Guarantor, its Subsidiary Guarantee and any other Indebtedness of
such Subsidiary Guarantor that specifically provides that such Indebtedness is
to rank pari passu with such Subsidiary Guarantee and is not by its terms
subordinated to any Indebtedness or other obligation of such Subsidiary
Guarantor which is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would
be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02
under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security or
Indebtedness, the date specified in such security or credit document as the
fixed date on which the final payment of principal of such security or
Indebtedness is due and payable, including pursuant to any mandatory redemption
or prepayment provision (but excluding any provision providing for the
repurchase of such security or prepayment of such Indebtedness at the option of
the holder thereof or creditor thereunder upon the happening of any contingency
beyond the control of the issuer or borrower unless such contingency has
occurred).
"Strategic Investor" means any Person beneficially owning at least
10% of the Company's outstanding Capital Stock (on a fully diluted basis) and
any Affiliate of such Person.
"Subordinated Obligation" means any Indebtedness (whether
outstanding on the Issue Date or thereafter Incurred) of the Company or any
Restricted Subsidiary that is subordinate or junior in right of payment to the
Notes or the Subsidiary Guarantees, as the case may be, pursuant to a written
agreement.
"Subordination Agreement" means the Subordination Agreement dated as
of or prior to the Issue Date, among Bell Atlantic, Chase, as administrative
agent under the Credit Facility, and the Trustee, on behalf of the Holders.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person or (ii) one or
more Subsidiaries of such Person; provided, however, that each Ownership
Regulated Subsidiary shall be deemed to be
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a Subsidiary of the Company for so long as (a) the Company beneficially owns a
majority of the outstanding Capital Stock thereof and (b) applicable law or
regulation prohibits the Company from beneficially owning a majority of the
Voting Stock of such Ownership Regulated Subsidiary.
"Subsidiary Guarantee" means any Guarantee of the Notes that may
from time to time be executed and delivered by a Subsidiary of the Company
pursuant to the terms of the Indenture.
"Subsidiary Guarantor" means any Subsidiary that has issued a
Subsidiary Guarantee.
"Temporary Cash Investments" means any of the following: (i) direct
obligations of the United States of America or any agency or instrumentality
thereof with a maturity of 365 days or less from the date of acquisition and
other obligations issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof);
(ii) demand deposits, certificates of deposit or Eurodollar deposits
with a maturity of 365 days or less from the date of acquisition of any
financial institution which at the date of acquisition has combined capital and
surplus and undivided profits of not less than U.S.$500.0 million (or any
foreign currency equivalent thereof) and has outstanding indebtedness rated at
least A by Standard & Poor's Ratings Group and at least A2 by Moody's Investors
Service, Inc.;
(iii) commercial paper, loan participation interests, medium term
notes, asset backed securities and other promissory notes, including floating or
variable rate obligations, issued by any Person other than the Company or an
Affiliate of the Company, with a remaining maturity of 365 days or less from the
date of acquisition and rated at least A-1 or A-, as applicable, by Standard &
Poor's Rating Group and at least P-1 or A3, as applicable, by Moody's Investors
Service, Inc.;
(iv) repurchase agreements and reverse repurchase agreements
relating to marketable obligations directly or indirectly issued or
unconditionally guaranteed by the United States of America or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; provided,
however, that the terms of such agreements comply with the guidelines set forth
in the Federal Financial Agreements of Depositary Institutions with Securities
Dealers and Others, as adopted by the Comptroller of the Currency;
(v) securities with maturities of six months or less from the date
of acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least A by Standard &
Poor's Ratings Group or A2 by Moody's Investors Service, Inc.;
(vi) instruments backed by letters of credit of institutions
satisfying the requirements of clause (ii) above;
(vii) Certificados de la Tesoreria de la Federacion (Cetes), Bonos
de Desarrollo del Gobierno Federal (Bondes) or Bonos Ajustables del Gobierno
Federal (Ajustabonos), in each case, issued by the Mexican government and having
a maturity of 365 days or less from the date of acquisition;
(viii) any other instruments issued or guaranteed by the Mexican
government and denominated and payable in pesos and having a maturity of 365
days or less from the date of acquisition;
(ix) demand deposits, certificates of deposit and bankers'
acceptances denominated in pesos and issued by any of the five top-rated banks
(as evaluated by any internationally recognized rating agency) organized under
the laws of Mexico or any state thereof; and
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(x) investment funds which invest solely in any of the instruments
described in clauses (i) through (ix) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date of the Indenture.
"Trade Payables" means, with respect to any Person, any accounts
payable or any indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person arising in the ordinary course of business
in connection with the acquisition of goods or services.
"Trustee" means the party named as such in the Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means any Officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
"Unrestricted Subsidiary" means (i) Iusatelecomunicaciones (local
wireless service), (ii) any Subsidiary of the Company that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (iii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any other Subsidiary of the Company that
is not a Subsidiary of the Subsidiary to be so designated; provided, however,
that either (A) the Subsidiary to be so designated has total consolidated assets
of U.S.$1,000 or less or (B) if such Subsidiary has consolidated assets greater
than U.S.$1,000, then such designation would be permitted under "-Certain
Covenants-Limitation on Restricted Payments." The Board of Directors may
designate any Unrestricted Subsidiary, including Iusatelecomunicaciones, to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation (x) the Company could Incur U.S.$1.00 of additional
Indebtedness under paragraph (a) of "-Certain Covenants-Limitation on
Indebtedness" and (y) no Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the Issue Date, including those set
forth (i) in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock
of such corporation then outstanding and normally entitled to vote in the
election of directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which (other than directors' qualifying shares) is owned by the
Company or another Wholly Owned Subsidiary.
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EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
The Company, the Subsidiary Guarantors and the Initial Purchasers
entered into the Exchange and Registration Rights Agreement prior to the
issuance of the Old Notes. Pursuant to the Exchange and Registration Rights
Agreement, the Company and the Subsidiary Guarantors agreed, among other things,
that if (i) because of any change in law or applicable interpretations thereof
by the Commission or its staff, the Company and the Subsidiary Guarantors are
not permitted to effect the Exchange Offer as contemplated hereby, (ii) for any
other reason the Exchange Offer is not consummated by January 21, 1998, (ii) an
Initial Purchaser so requests with respect to Notes or Private Exchange Notes
(as defined) not eligible to be exchanged for New Notes in the Exchange Offer,
(iv) any applicable law or interpretations do not permit one or more holders of
Notes to participate in the Exchange Offer, (v) any holder of Notes that
participates in the Exchange Offer does not receive freely transferable New
Notes in exchange for tendered Notes, or (vi) the Company so elects, then the
Company and the Subsidiary Guarantors will file with the Commission a shelf
registration statement (the "Shelf Registration Statement") to cover resales of
Transfer Restricted Securities by such holders who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. For purposes of the foregoing, "Transfer Restricted
Securities" means (i) each Old Note until the date on which such Note has been
exchanged for a freely transferable New Note in the Exchange Offer, (ii) each
Old Note or Private Exchange Note until the date on which it has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iii) each Old Note or Private Exchange
Note until the date on which it is distributed to the public pursuant to Rule
144 under the Securities act or is saleable pursuant to Rule 144(k) under the
Securities Act.
The Company and the Subsidiary Guarantors will use their reasonable
best efforts to consummate the Exchange Offer as promptly as practicable, but in
any event prior to January 21, 1998. If applicable, the Company and the
Subsidiary Guarantors will use their reasonable best efforts to keep the Shelf
Registration Statement effective for a period of two years after the Issue Date.
If the Exchange Offer is not consummated on or prior to January 21,
1998, or, if applicable, the Shelf Registration Statement is filed and declared
effective on or prior to December 22, 1997 but shall thereafter cease to be
effective (at any time that the Company and the Subsidiary Guarantors are
obligated to maintain the effectiveness thereof) without being succeeded within
30 days by an additional Registration Statement filed and declared effective
(each such event, a "Registration Default"), the Company and each of the
Subsidiary Guarantors will be obligated, jointly and severally, to pay
liquidated damages to each holder of Transfer Restricted Securities, during the
period of one or more such Registration defaults, in an amount equal to
U.S.$0.192 per week per U.S.$1,000 principal amount of transfer Restricted
Securities held by such holder until the Exchange Offer is consummated or the
Shelf Registration Statement is declared effective or again becomes effective,
as the case may be. All accrued liquidated damages shall be paid to holders in
the same manner as interest payments on the Notes on semi-annual payment dates
which correspond to interest payment dates for the Notes. Following the cure of
all Registration Defaults, the accrual of liquidated damages will cease.
The Exchange and Registration Rights Agreement also provides that
the Company (i) shall make available for a period of 180 days after the
consummation of the Exchange Offer a prospectus meeting the requirements of the
Securities Act to any broker-dealer for use in connection with any resale of any
such New Notes and (ii) shall pay all expenses incident to the Exchange Offer
(including reasonable, customary and documented expenses of one counsel, in each
relevant jurisdiction, to the Initial Purchasers) and will indemnify certain
holders of the Notes (including any broker-dealer) against certain liabilities,
including liabilities under the Securities Act. A broker-dealer which delivers
such a prospectus to purchasers in connection with such resales will be subject
to certain of the civil liability provisions under the Securities Act and will
be bound by the provisions of the exchange and Registration Rights Agreement
(including certain indemnification rights and obligations).
If, prior to the consummation of the Exchange Offer, any person
holds any Notes acquired by it that have, or that are reasonably likely to be
determined to have, the status of an unsold allotment in an initial
distribution, or any holder of Notes is not entitled to participate in the
Exchange Offer, the Company will, upon the request of any such holder,
simultaneously with the delivery of the New Notes in the Exchange Offer, issue
and deliver to any such holder, in exchange for the Old Notes held by such
holder, a like aggregate principal amount of debt securities
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of the Company (the "Private Exchange Notes") that are identical in all material
respects to the New Notes, except for the transfer restrictions relating to such
Private Exchange Notes, and the Company shall use its reasonable best efforts to
cause the Private Exchange Notes to bear the same CUSIP number as the New Notes.
Each holder of Old Notes who wishes to exchange such Notes for New
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any Exchange Notes to be received by it will
be acquired in the ordinary course of its business; (ii) it has no arrangement
or understanding with any person to participate in the distribution of the New
Notes; (iii) it is not an "affiliate" (as defined in Rule 405 under the
Securities act) of the Company, a Subsidiary Guarantor or an Exchanging Dealer
(as defined), or if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable; and (iv) it is not an Initial Purchaser holding Notes that
have, or that are reasonably likely to have, the status of an unsold allotment
in an initial distribution.
If the holder is not a broker-dealer, it will be required to
represent that it is not engaged in, and does not intend to engage in, the
distribution of the New Notes. If the holder is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities (an
"Exchanging Dealer"), it will be required to acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes.
Holders of the Old Notes will be required to make certain
representations to the Company (as described above) in order to participate in
the Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement in order to have their Old
Notes included in the Shelf Registration Statement and benefit form the
provisions regarding liquidated damages set forth in the preceding paragraphs. A
holder who sells Old Notes pursuant to the Shelf Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sale and will be bound by the provisions of the Exchange and
Registration Rights Agreement which are applicable to such a holder (including
certain indemnification obligations).
For so long as Notes are outstanding and the Company is no longer a
reporting company under the Exchange Act, the Company and the Subsidiary
Guarantors will continue to provide to holders of the Notes and to prospective
purchasers of the Notes the information required by Rule 144A(e)(4) under the
Securities act, unless the Company is exempt from reporting pursuant to Rule
12g3-2(b) under the Exchange Act.
The foregoing description of the Exchange and Registration Rights
Agreement is a summary only, does not purport to be complete and is qualified in
its entirety by reference to all provisions of the Exchange and Registration
Rights Agreement. The Company will provide a copy of the Exchange and
Registration Rights Agreement to prospective purchasers of Notes identified to
the Company by an Initial Purchaser upon request.
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UNITED STATES TAXATION
The following is Rogers & Wells', New York, opinion regarding the
material United States Federal income tax consequences resulting from the
beneficial ownership of New Notes and the exchange of the Old Notes for the New
Notes. This summary does not purport to consider all the possible United States
Federal tax consequences of the purchase, ownership and disposition of the New
Notes and is not intended to reflect the individual tax position of any
beneficial owner. The summary is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), its legislative history, existing and proposed
regulations thereunder, published rulings and court decisions, all as currently
in effect and all subject to change at any time, perhaps with retroactive
effect. It deals only with Notes held as capital assets by initial purchasers
(unless otherwise specified) and does not purport to deal with purchasers in
special tax situations, such as financial institutions, tax-exempt
organizations, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding Notes as a hedge against currency
risks or as a position in a "straddle" for tax purposes, or persons whose
functional currency (as defined in section 985 of the Code) is not the United
States dollar. The summary does not include any description of the tax laws of
any state, local or foreign governments that may be applicable to the New Notes
or the Holders thereof. Prospective holders of the New Notes should consult
their own tax advisors concerning the application of United States Federal
income tax laws to their particular situations as well as any consequences of
the exchange, ownership and disposition of the Notes arising under the laws of
any other taxing jurisdiction.
As used herein, the term "United States Holder" or "U.S. Holder"
means a beneficial owner of a New Note who or which is (i) a citizen or resident
of the United States, (ii) a corporation created or organized in or under the
laws of the United States or of any state thereof (including the District of
Columbia), or (iii) any other person who is subject to United States Federal
income taxation on a net income basis with respect to the Notes. As used herein,
the term "non-United States Holder" or "non-U.S. Holder" means a beneficial
owner of a Note that is not a United States Holder. In the case of a holder of
Notes that is a partnership for United States tax purposes, each partner will
take into account its allocable share of income or loss from the Notes, and will
take such income or loss into account under the rules of taxation applicable to
such partner, taking into account the activities of the partnership and the
partner.
Tax Consequences to United States Holders
Payments of Interest and Additional Amounts
Generally, payments of interest and Additional Amounts will be
taxable to a United States Holder as ordinary income at the time such payments
are accrued or are received, in accordance with the United States Holder's
regular method of accounting for Federal income tax purposes.
Market Discount
A Note will be treated as purchased at a market discount (a "Market
Discount Note") if the amount for which a United States Holder purchased the
Note is less than the Note's stated redemption price at maturity and such excess
is greater than or equal to 1/4 of one percent of such Note's stated redemption
price at maturity multiplied by the number of complete years to the Note's
maturity. If such excess is not sufficient to cause the Note to be a Market
Discount Note, then such excess constitutes "de minimis market discount."
Any gain recognized on the maturity or disposition of a Market
Discount Note will be treated as ordinary income to the extent that such gain
does not exceed the accrued market discount on such Note. Alternatively, a U.S.
Holder of a Market Discount Note may elect to include market discount in income
currently over the life of the Note. Such election shall apply to all debt
instruments with market discount acquired by the electing U.S. Holder on or
after the first day of the first year to which the election applies and may not
be revoked without the consent of the IRS.
Market discount accrues on a straight-line basis unless the U.S.
Holder elects to accrue such market discount on a constant yield basis. Such an
election shall apply only to the Note with respect to which it is made
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and may not be revoked without the consent of the IRS. A U.S. Holder of a Market
Discount Note that does not elect to include market discount in income currently
generally will be required to defer deductions for interest on borrowings
allocable to such Note in an amount not exceeding the accrued market discount on
such Note until the maturity or disposition of such Note.
Acquisition Premium
Generally, a United States Holder that purchases a New Note for an
amount that is in excess of its principal amount due at maturity will be
considered to have purchased the New Note with "amortizable bond premium" equal
to such excess. A U.S. Holder of such a New Note may elect to amortize such
premium using a constant yield method over the remaining term of the New Note
and may offset interest and Additional Amounts otherwise required to be included
in respect of the New Note during any taxable year by the amortized amount of
such excess for the taxable year. Any election to amortize bond premium with
respect to any Note (or general debt obligation) applies to all taxable debt
obligations held by the Holder at the beginning of the first taxable year to
which the election applies and to all debt obligations thereafter acquired in
all subsequent tax years. The election may not be revoked without the consent of
the IRS.
On June 27, 1996, the Treasury Department proposed new Regulations
concerning the proper tax treatment of amortizable bond premium. The newly
proposed Regulations would substantially revise existing Regulations concerning
the amortization of bond premium. The proposed effective date of the newly
proposed Regulations is 60 days after the date that the Regulations are
finalized. Until such time as the proposed Regulations become effective, the
treatment of amortizable bond premium continues to be governed by the existing
Regulations. U.S. Holders of New Notes should consult their own tax advisers
concerning the appropriate treatment of amortizable bond premium.
Sale, Exchange or Retirement of a Note
Except as discussed above, upon the sale, exchange or retirement of
a New Note, a United States Holder generally will recognize taxable gain or loss
equal to the difference between the amount realized on the sale, exchange or
retirement (other than amounts representing accrued and unpaid interest) and
such U.S. Holder's adjusted tax basis in the New Note. A U.S. Holder's adjusted
tax basis in a New Note generally will equal such U.S. Holder's initial
investment in the New Note increased by any accrued market discount included in
income, and decreased by the amount of any principal payments and any
amortizable bond premium applied to reduce interest or Additional Amounts with
respect to such New Note. Such gain or loss generally will be long-term capital
gain or loss if the New Note has been held for more than one year at the time of
such sale, exchange or retirement.
Foreign Tax Credit
Interest and Additional Amounts
Interest and Additional Amounts paid on Notes will constitute income
from sources outside the United States, and, with certain exceptions, will be
grouped together with other items of "passive" income, for purposes of computing
the foreign tax credit allowable to a U.S. Holder. If the interest and
Additional Amounts are subject to a withholding tax imposed by a foreign country
at a rate of 5 percent or more, the interest and Additional Amounts may be
considered "high withholding tax interest" for purposes of computing the foreign
tax credit. If a U.S. Holder is predominantly engaged in the active conduct of a
banking, insurance, financing or similar business, the interest and Additional
Amounts may be considered "financial services income" for purposes of computing
the foreign tax credit.
Effect of Withholding Taxes
A United States Holder will be required to include foreign
withholding taxes, if any, imposed on payments on a New Note (including any
Additional Amounts payable by the Company) in gross income as interest income.
Such treatment will be required regardless of whether, as will generally be
true, the Company is required to pay
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additional amounts so that the amount of Mexican withholding taxes does not
reduce the net amount actually received by the Holder of the New Note.
Subject to certain limitations, a U.S. Holder may be entitled to a
credit against its United States Federal income tax liability, or a deduction in
computing its United States Federal taxable income, for foreign income taxes
withheld by the Company (which, as described above, would include amounts
withheld on Additional Amounts paid by the Company with respect to Mexican
taxes). A U.S. Holder may be required to provide the IRS with a certified copy
of the receipt evidencing payment of withholding tax imposed in respect of
payments on the New Notes in order to claim a foreign tax credit in respect of
such foreign withholding tax.
Non-U.S. Holders
Subject to the discussion of backup withholding below, (a) payment
of principal, interest and Additional Amounts by the issuer to a Non-U.S. Holder
will not be subject to United States Federal income or withholding tax, (b) gain
realized by a Non-U.S. Holder on the sale or redemption of the New Notes is not
subject to United States Federal income tax or withholding tax and (c) the New
Notes are not subject to United States Federal estate tax, if held by an
individual who was a Non-U.S. Holder at the time of his death. Special rules may
apply in the case of Non-U.S. Holders (i) that are engaged in a U.S. trade or
business, (ii) that are former citizens or former long-term residents of the
United States, "controlled foreign corporations," "foreign personal holding
corporations," corporations which accumulate earnings to avoid U.S. Federal
income tax, and certain foreign charitable organizations, each within the
meaning of the Code, or (iii) certain non-resident aliens individuals who are
present in the United States for 183 days or more during a taxable year. Such
persons are urged to consult their U.S. tax advisor before exchanging Notes.
Information Reporting and Backup Withholding
For each calendar year in which the New Notes are outstanding, each
DTC participant or indirect participant holding an interest in a New Note on
behalf of a beneficial owner of a New Note and each paying agent making payments
in respect of a New Note will generally be required to provide the IRS with
certain information, including such beneficial owner's name, address and
taxpayer identification number (either such beneficial owner's Social Security
number or its employer identification number, as the case may be), and the
aggregate amount of interest, principal and Additional Amounts paid to such
beneficial owner during the calendar year. These reporting requirements,
however, do not apply with respect to certain beneficial owners, including
corporations, securities broker-dealers, other financial institutions,
tax-exempt organizations, qualified pension and profit sharing trusts and
individual retirement accounts.
In the event that a beneficial owner of a New Note fails to
establish its exemption from such information reporting requirements or is
subject to the reporting requirements described above and fails to supply its
correct taxpayer identification number in the manner required by applicable law,
or underreports its tax liability, as the case may be, the DTC participant or
indirect participant holding such interest on behalf of such beneficial owner or
paying agent making payments in respect of a New Note may be required to
"backup" withhold a tax equal to 31% of each payment of interest, principal and
Additional Amounts with respect to New Notes. This backup withholding tax is not
an additional tax and may be credited against the beneficial owner's United
States Federal income tax liability if the required information is furnished to
the IRS. Compliance with the identification procedures contained within IRS Form
W-8 will establish an exemption from information reporting and backup
withholding for those non-U.S. Holders who are not exempt recipients.
Prospective purchasers of New Notes are advised to consult their own
tax advisers as to the consequences of an exchange of New Notes, including,
without limitation, (i) the applicability and effect of any state, local or
non-U.S. tax laws to which they may be subject, and of any legislative or
administrative changes in law, (ii) the United States Federal income tax
consequences of foreign withholding taxes by the Company (and of the payment by
the Company of Additional Amounts with respect thereto) and (iii) the
availability of a credit or deduction for foreign withholding taxes.
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Exchange Offer
No gain or loss will be realized for U.S. federal income tax
purposes upon an exchange of the Old Notes for the New Notes pursuant to the
Exchange Offer, because the Old Notes will be exchanged for property that does
not differ materially either in kind or extent from the Old Notes. A U.S. Holder
will have the same basis and holding period in the New Notes that it had in the
Old Notes immediately prior to the exchange.
The Company believes that the possibility of liquidated damages
being paid to U.S. Holders upon a Registration Default, as described in
"Exchange and Registration Rights Agreement", will not cause the New Notes to be
deemed to be issued with more than a de minimis amount of original issue
discount. If, contrary to the Company's expectations, liquidated damages become
payable upon the New Notes, such payments would be included in the U.S. Holder's
income as interest income. The time at which such liquidated damages would be so
included would depend upon the facts at the time liquidated damages become
payable.
Under Treasury regulations dealing with contingent payments, a
holder might be required to include liquidated damages in income in a period
prior to the receipt of cash in respect thereof.
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MEXICAN TAXATION
The following is a summary of the principal consequences under
Mexican federal tax law, as currently in effect, and the Tax Treaty (as defined
below), of the purchase, ownership and disposition of the New Notes by an
initial purchaser that is not a resident of Mexico and that will not hold New
Notes or a beneficial interest therein in connection with the conduct of a trade
or business through a permanent establishment or a fixed base in Mexico (a
"Foreign Holder"). For purposes of Mexican taxation, an individual is a resident
of Mexico if such person has established his home in Mexico, unless such person
has resided in another country for more than 183 days, whether consecutive or
not, during a calendar year and can demonstrate that such person has become a
resident of that country for tax purposes. In general, a legal entity
established under Mexican law is a resident of Mexico. A permanent establishment
or a fixed base in Mexico will be regarded as a resident of Mexico, and such
permanent establishment or fixed base will be required to pay taxes in Mexico in
accordance with applicable law in respect of all income attributable thereto.
This summary is based on the federal tax laws of Mexico as in effect
on the date of this Prospectus, as well as regulations thereunder now in effect.
All of the foregoing are subject to change, which change could apply
retroactively and could affect the validity of this summary.
Prospective purchasers of the New Notes should consult their tax
advisors as to Mexican or other tax consequences of the purchase, ownership and
disposition of the New Notes, including the application to their particular
situations of the tax considerations discussed below, as well as the application
of state, local, foreign or other tax laws.
United States/Mexico and Other Tax Treaties
The United States and Mexico have signed and ratified a Convention
for the Avoidance of Double Taxation and the Prevention of Tax Evasion with
Respect to Taxes on Income and Protocols thereto (collectively, the "Tax
Treaty"). The Tax Treaty is currently in effect and provisions of the Tax Treaty
that may affect holders of the New Notes that are residents of the United States
(as defined in the Tax Treaty) are summarized below. The United States and
Mexico have also entered into an agreement that covers the exchange of
information with respect to tax matters.
Mexico has also entered into and is negotiating several other
similar tax treaties for the avoidance of double taxation with several other
countries. Prospective purchasers of the New Notes should consult their own tax
advisors as to the tax consequence, if any, of such treaties.
Taxation of Payments of Interest and Principal
Under Mexico's Income Tax Law (the "Income Tax Law"), payments of
interest made by the Company in respect of the New Notes to a Foreign Holder
will be subject to a Mexican withholding tax assessed at a rate of 15% assuming
that the New Notes are, as contemplated, (i) placed outside of Mexico through a
bank or broker (as is the case), and (ii) as expected, registered with the
Special Section of the RNVI. Pursuant to the Income Tax Law, payments of
interest made by the Company in respect of the New Notes to a Foreign Holder
will be subject to a reduced 4.9% Mexican withholding tax rate (the "Reduced
Rate") if (x) the effective beneficiary resides in a country which has entered
into a treaty to avoid double taxation with Mexico which is in effect, (y) the
requirements for the application of a lower rate established in the applicable
treaty are satisfied and (z) the requirements set forth in (i) and (ii) above
are satisfied.
Notwithstanding the foregoing, pursuant to general rules issued by
the Ministry of Finance and Public Credit (the "Reduced Rate Regulation"),
payments of interest made by the Company to Foreign Holders with respect to the
New Notes will be subject to withholding taxes imposed at the Reduced Rate until
March 1998 (or thereafter if, as has been the case in the past, the
effectiveness of a rule equivalent to the Reduced Rate Regulation is extended),
regardless of the place of residence or tax regime applicable to the Foreign
Holder recipient of such interest, if (a) the requirements set forth in (i) and
(ii) above are satisfied, (b) the Company timely files with the Ministry of
Finance and Public Credit certain information relating to the issuance of the
New Notes and this
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Prospectus after completion of the transaction contemplated by this Prospectus,
(c) the Company timely files with the Ministry of Finance and Public Credit,
after the date of each interest payment under the New Notes, information
representing that no party related to the Company (which is defined under the
Reduced Rate Regulation as parties other than (x) shareholders of the Company
that own, directly or indirectly, individually or collectively with related
persons (within the meaning of the Reduced Rate Regulation) more than 10% of the
voting stock of the Company, or (y) corporations more than 20% of the stock of
which is owned directly or indirectly, individually or collectively, with
related persons of the Company), directly or indirectly, is the effective
beneficiary of 5% or more of the aggregate amount of each such interest payment,
and (d) the Company maintains records which evidence compliance with (c) above.
In the event the effectiveness of the Reduced Rate Regulation is not
extended beyond March 1998, other reduced rates of Mexican withholding income
tax may apply. In particular under the Tax Treaty, the rate would be reduced to
10% for certain holders that are residents of the United States (within the
meaning of the Tax Treaty) under certain circumstances contemplated therein. The
10% rate will be further reduced to 4.9% starting on January 1, 1999.
Interest paid on New Notes held by a non-Mexican pension or
retirement fund will be exempt from Mexican withholding tax provided any such
fund (i) has been duly incorporated as such pursuant to the laws of its country
of origin, (ii) is exempt from income tax in such country, and (iii) has been
registered with the Ministry of Finance and Public Credit for that purpose.
The Company has agreed, subject to certain exceptions and
limitations, to pay Additional Amounts in respect of the above-mentioned Mexican
withholding taxes to the holders of New Notes. See "Description of New
Notes-Additional Amounts."
Under the Income Tax Law, a Foreign Holder will not be subject to
any Mexican taxes in respect of payments of principal made by the Company in
connection with the Notes.
Taxation of Dispositions
Capital gains resulting from the sale or other disposition of the
New Notes by a Foreign Holder will not be subject to Mexican income or other
taxes.
Transfer and Other Taxes
There are no Mexican stamp, registration, or similar taxes payable
by a Foreign Holder in connection with the purchase, ownership or disposition of
the New Notes. A Foreign Holder of New Notes will not be liable for Mexican
estate, gift, inheritance or similar tax with respect to the New Notes.
Exchange Offer
No gain or loss will be realized for Mexican federal income tax
purposes upon an exchange of the Old Notes for the New Notes pursuant to the
Exchange Offer. If liquidated damages are paid by the Company to Foreign Holders
upon a Registration Default, as described under "Exchange and Registration
Rights Agreement," such payment will not be subject to Mexican withholding.
Under current Mexican law, the registration of a New Note in the name of a
person other than the registered tendering holder of the Old Note, absent any
consideration, may result in the imposition of a transfer tax.
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BOOK-ENTRY; DELIVERY AND FORM
The Old Notes were initially issued in the form of two registered
Notes in global form without coupons. Each such global Note was deposited on the
Closing Date with, or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of Cede & Co., as nominee of DTC, and remains in the
custody of the Trustee pursuant to the FAST Balance Certificate Agreement
between DTC and the Trustee.
Except as set forth in "--Certificated Notes," it is expected that
the New Notes issued pursuant to the Exchange Offer will be issued in global
form (the "New Global Note").
DTC has advised the Company that it is (i) a limited purpose trust
company organized under the laws of the State of New York, (ii) a member of the
Federal Reserve System, (iii) a "clearing corporation" within the meaning of the
Uniform Commercial Code, as amended, and (iv) a "clearing agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its participants (collectively, the "Participants") and facilitates the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Holders who are not Participants may
beneficially own securities held by or on behalf of DTC only through
Participants or Indirect Participants.
The Company expects that, pursuant to procedures established by DTC,
(i) upon deposit of the New Global Note, DTC will credit the accounts of
Participants designated by the Initial Purchasers with an interest in the New
Global Note and (ii) ownership of the New Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to the interests of Participants), the Participants and the
Indirect Participants. Transfers between participants in Euroclear or Cedel will
be effected in the ordinary way in accordance with their respective rules and
operating procedures. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own and that
security interests in negotiable instruments can only be perfected by delivery
of certificates representing the instruments. Consequently, the ability to
transfer New Notes or to pledge the New Notes as collateral will be limited to
such extent.
So long as DTC or its nominee is the registered owner of the New
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the New Notes represented by the Global Note for all
purposes under the Indenture. Except as provided below, owners of beneficial
interests in the New Global Note will not be entitled to have New Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any directions, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in New Notes represented by the New Global Note to pledge
or transfer such interest to persons or entities that do not participate in
DTC's system, or to otherwise take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Accordingly, each holder owning a beneficial interest in a Global
Note must rely on the procedures of DTC and, if such holder is not a Participant
or an Indirect Participant, on the procedures of the Participant through which
such holder owns its interest (including Euroclear or Cedel, if applicable), to
exercise any rights of a holder of New Notes under the Indenture or the New
Global Note. The Company understands that under existing industry practice, in
the event the Company requests any action of holders of New Notes, or a holder
that is an owner of a beneficial interest in the New Global Note desires to take
any action that DTC, as the holder of the New Global Note, is entitled to take,
DTC would authorize the Participants to take such action and the Participants
would authorize holders owning through such Participants to take such action or
would otherwise act upon the instruction of such holders. Neither the Company
nor the Trustee will have any responsibility or liability for any aspect of the
records
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relating to or payments made on account of New Notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such Notes.
Payments with respect to the principal of, and premium, if any, and
interest on, any New Notes represented by the New Global Note registered in the
name of DTC or its nominee on the applicable record date will be payable by the
Trustee to or at the direction of DTC or its nominee in its capacity as the
registered holder of the New Global Note representing such New Notes under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the New Notes, including the New Global Note,
are registered as the owners thereof for the purpose of receiving such payment
and for any and all other purposes whatsoever. Consequently, neither the Company
nor the Trustee has or will have any responsibility or liability for the payment
of such amounts to owners of beneficial interests in the New Global Note
(including principal, premium, if any, and interest), or to immediately credit
the accounts of the relevant Participants with such payment, in amounts
proportionate to their respective holdings in principal amount of beneficial
interests in the New Global Note as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the owners of beneficial interests
in the New Global Note will be governed by standing instructions and customary
industry practice (and, in the case of Cedel or Euroclear, in accordance with
their respective rules and procedures) and will be the responsibility of the
Participants or the Indirect Participants and DTC.
Certificated Securities
If (i) the Company notifies the Trustee in writing that DTC is no
longer willing or able to act as a depositary or DTC ceases to be registered as
a clearing agency under the Exchange Act and the Company is unable to locate a
qualified successor within 90 days, (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of New Notes in
definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by DTC of the New Global Note, New Notes in
physical, certificated form ("Certificated Securities") will be issued to each
person that DTC identifies as the beneficial owner of the New New Notes
represented by the New Global Note. Upon any such issuance, the Trustee is
required to register such Certificated Securities in the name of such person or
persons (or the nominee of any thereof) and cause the same to be delivered
thereto.
Neither the Company nor the Trustee shall be liable for any delay by
DTC or any Participant (including Euroclear or Cedel) or Indirect Participant in
identifying the beneficial owners of the related New Notes and each of the
Company and the Trustee may conclusively rely on, and shall be protected in
relying on, instructions from DTC for all purposes (including with respect to
the registration and delivery, and the respective principal amounts, of the New
Notes to be issued).
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver this
Prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer who holds Old Notes acquired for its own account as a result of
market-making activities or other trading activities (a "Participating
Broker-Dealer") in connection with resales of New Notes received in exchange for
Old Notes. For a period of 90 days after the Expiration Date, the Company will
make this Prospectus, amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale, provided that such
Participating Broker-Dealer indicates in the Letter of Transmittal that it is a
broker-dealer. In addition, until [ ], 1997, (90 days after the date of this
Prospectus), all dealers effecting transactions in the New Notes may be required
to deliver a prospectus.
Neither the Company nor any of the Subsidiary Guarantors will
receive any proceeds from the exchange of Old Notes for New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, or at prices related
to such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through broker-dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealers and/or the purchasers of any New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any person that participates in the distribution of such New
Notes may be deemed an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of New Notes and any commissions or
concessions received by any such broker-dealer may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer other than commissions or concessions of
any broker-dealers and will indemnify the holder of the Old Notes (including
Participating Broker-Dealers) participating in the Exchange Offer against
certain liabilities, including liabilities under the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that
receives New Notes pursuant to the Exchange Offer agrees that, upon receipt of
notice from the Company of the happening of any event which makes any statement
in this Prospectus untrue in any material respect or which requires the making
of any changes in this Prospectus in order to make the statements therein not
misleading (which notice the Company agrees to deliver promptly to such
broker-dealer), such broker-dealer will suspend use of the Prospectus until the
Company has amended or supplemented this Prospectus to correct such misstatement
or omission and has furnished copies of the amended or supplemented Prospectus
to such broker-dealer. If the Company gives any such notice to suspend the use
of the Prospectus, it will extend the 180-day period referred to above by the
number of days during the period from and including the date of the giving of
such notice up to and including when broker-dealers shall have received copies
of the supplemented or amended Prospectus necessary to permit resales of New
Notes.
Based on existing interpretations of the Securities Act by the staff
of the Commission set forth in the several no-action letters to third parties,
and subject to the immediately following sentence, the Company believes that the
New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by the holders thereof without further
compliance with the registration and prospectus delivery provisions of the
Securities Act. However, any holder of Old Notes who is an "affiliate" of the
Company or who intends to participate in the Exchange Offer for the purpose of
distributing the New Notes (i) will not be able to rely on the interpretation by
the staff of the Commission set forth in the above-mentioned no-action letters,
(ii) will not be able to tender its Old Notes in the Exchange Offer and (iii)
must comply with the registration and prospectus delivery
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requirements of the Securities Act in connection with any sale or transfer of
the Old Notes unless such sale or transfer is made pursuant to an exemption from
such requirements.
Each holder of the Old Notes (other than certain specified holders)
who wishes to exchange Old Notes for New Notes in the Exchange Offer will be
required to represent that (i) it is not an affiliate of the Company, (ii) any
New Notes to be received by it were acquired in the ordinary course of its
business and (iii) at the time of the commencement of the Exchange Offer, it has
not arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the New Notes. In addition, in connection with
any resales of New Notes, any Participating Broker-Dealer who acquired the Old
Notes of its own account as a result of market-making activities or other
trading activities must deliver a prospectus meeting the requirements of the
Securities Act. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the New Notes (other than a resale of an unsold allotment from the original
sale of the Notes) with this Prospectus. Under the Exchange and Registration
Rights Agreement, the Company is required to allow Participating Broker-Dealers
and other persons, if any, subject to similar prospectus delivery requirements,
to use this Prospectus in connection with the resale of such New Notes.
Except as aforesaid, this Prospectus may not be used for any offer
to resell, resale or other retransfer of New Notes.
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Old Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
There has not been any market for the New Notes. The New Notes will
not be listed on any securities exchange and will not be quoted through NASDAQ.
The Company has been advised by Chase Securities Inc. and Salomon Brothers Inc
that they presently intend to make a market in the New Notes; however, Chase
Securities Inc. and Salomon Brothers Inc are not obligated to do so and any
market making may be discontinued at any time. In addition, such market making
activity may be limited during the Exchange Offer. See "Exchange and
Registration Rights Agreement." Therefore, there can be no assurance that an
active market for the New Notes will develop or as to the liquidity of any such
market.
LEGAL MATTERS
Certain legal matters will be passed upon by Rogers & Wells, New
York, New York, special United States counsel for Iusacell, with respect to
matters of New York law, and by De Ovando y Martinez del Campo, S.C., Mexico
City, Mexico, special Mexican counsel to Iusacell, with respect to matters of
Mexican law. As to certain matters of Mexican law, Rogers & Wells will rely,
without independent verification, on the opinion of De Ovando y Martinez del
Campo, S.C.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Grupo Iusacell, S.A. de
C.V. and subsidiaries as of and for the years ended December 31, 1995 and 1996,
have been included herein in reliance on the report of Coopers & Lybrand,
Despacho Roberto Casas Alatriste, given on the authority of that firm as experts
in accounting and auditing. The consolidated financial statements of Grupo
Iusacell, S.A. de C.V. and subsidiaries as of and for the year ended December
31, 1994, have been included herein in reliance on the report of Mancera, S.C.,
a member of Ernst & Young International, given on the authority of that firm as
experts in accounting and auditing. As stated in the report of Mancera, S.C.,
which appears elsewhere herein, such report is based in part upon the report of
Prieto, Ruiz de Velazco y Cia., S.C., a member of Clark, Kenneth Leventhal, and
in part upon the report of Coopers & Lybrand, Despacho Roberto Casas Alatriste.
With respect to the Unaudited Consolidated Financial Statements of Grupo
Iusacell, S.A. de C.V. and subsidiaries as of and for the three month period
ended March 31, 1996 and 1997, appearing in this Prospectus, Coopers & Lybrand,
Despacho Roberto Casas Alatriste have applied
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review procedures in accordance with standards for reviews established by the
Mexican Institute of Accountants, which do not differ in any significant respect
from the standards established by the American Institute of Certified Public
Accountants. However, their report dated July 15, 1997 appearing elsewhere
herein does not express an opinion on the Unaudited Consolidated Financial
Statements of Grupo Iusacell, S.A. de C.V. Coopers & Lybrand, Despacho Roberto
Casas Alatriste has not carried out any significant or additional audit tests
beyond those which would have been necessary if their report had not been
included in this Prospectus. Accordingly, the degree of reliance on their report
on such information should be restricted in the light of the limited nature of
the review procedures applied. Coopers & Lybrand, Despacho Roberto Casas
Alatriste are not subject to the liability provisions of the Securities Act of
1933 for their report on the unaudited interim consolidated financial
information because their report is not a "report" or "a part" of the
registration statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Securities Act. The pro forma condensed
balance sheet of Grupo Iusacell, S.A. de C.V. and subsidiaries as of March 31,
1997, and the pro forma condensed statements of income for the year ended
December 31, 1996 and the three month period ended March 31, 1997, appearing in
this Prospectus, have been reviewed by Coopers & Lybrand, Despacho Roberto Casas
Alatriste, independent accountants, as stated in their report appearing
elsewhere herein.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
Reports of Independent Accountants....................................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............................................. F-6
Consolidated Income Statements for the years ended December 31, 1994, 1995 and 1996...................... F-7
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1994, 1995
and 1996............................................................................................... F-8
Consolidated Statements of Changes in Financial Position for the years ended December 31, 1994, 1995 and
1996................................................................................................... F-9
Notes to Audited Consolidated Financial Statements....................................................... F-10
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
Review Report of Independent Accountants................................................................. F-43
Consolidated Balance Sheets as of March 31, 1996 and 1997................................................ F-44
Consolidated Income Statements for the three months ended March 31, 1996 and 1997........................ F-45
Consolidated Statements of Changes in Stockholders' Equity for the three months ended March 31, 1996 and
1997................................................................................................... F-46
Consolidated Statements of Changes in Financial Position for the three months ended March 31, 1996 and
1997................................................................................................... F-47
Notes to Unaudited Consolidated Financial Statements..................................................... F-48
Report of Independent Accountants on Unaudited Pro Forma Consolidated Financial Information.............. F-69
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Grupo Iusacell, S.A. de C.V.:
We have audited the accompanying consolidated balance sheet of Grupo
Iusacell, S.A. de C.V. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, changes in stockholders' equity,
and changes in financial position for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards in Mexico, which are not significantly different than U.S. auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement and are prepared in accordance with generally
accepted accounting principles. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provides a
reasonable basis for our opinion.
As of December 31, 1996, the Company established a reserve for restructuring
costs for Ps.145,192,000, which was charged to the income statement as an
extraordinary expense (see Notes 2, 4.d and 8.b to the consolidated financial
statements).
In our opinion, the consolidated financial statements referred to above
present fairly in all material respects the consolidated financial position of
Grupo Iusacell, S.A. de C.V. and subsidiaries as of December 31, 1996 and 1995,
and the consolidated results of its operations, changes in stockholders' equity
and changes in its consolidated financial position for the years then ended, in
conformity with accounting principles generally accepted in Mexico.
Accounting principles generally accepted in Mexico vary in certain respects
from accounting principles generally accepted in the United States. In our
opinion, based on our audits, application of accounting principles generally
accepted in the United States would have affected the determination of the
amount shown as net loss for the years ended December 31, 1996 and 1995 and the
total amount of stockholders' equity at December 31, 1996 and 1995 to the extent
summarized in Note 19 to the consolidated financial statements.
COOPERS & LYBRAND
Despacho Roberto Casas Alatriste
Juan Manuel Ferron Solis
PUBLIC ACCOUNTANT
Mexico City, D.F., Mexico.
February 21, 1997
(June 26, 1997 for
Note 20 and September
30, 1997 for Note 18.b,
18.c and 18.d)
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Grupo Iusacell, S.A. de C.V. and Subsidiaries
We have audited the consolidated balance sheet of Grupo lusacell, S.A. de
C.V. and subsidiaries as of December 31, 1994 and the related consolidated
income statements, changes in stockholders' equity and changes in financial
position, for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of two consolidated subsidiaries in 1994, which statements
reflect total revenues constituting 14% of the related consolidated total. Those
financial statements were audited by other independent auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to data
included for these subsidiaries, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards in Mexico and the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Grupo lusacell, S.A.
de C. V. and subsidiaries as of December 31, 1994 and the consolidated results
of operations changes in stockholders' equity, and changes in its consolidated
financial position for the year then ended in conformity with accounting
principles generally accepted in Mexico which differ in certain respects from
those followed in the United States (see Note 19 to the consolidated Financial
Statements).
Mancera, S.C.
A Member of Ernst & Young
International, L.L.P.
Mexico City,
February 17, 1995
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
SOS Telecomunicaciones, S.A. de C.V.
We have audited the balance sheet of SOS Telecomunicaciones, S.A. de C.V. at
December 31, 1994, and the related statements of income, changes in
stockholders' equity, and changes in financial position for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Mexico and the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SOS Telecomunicaciones, S.A.
de C.V. at December 31, 1994, and the results of their operations, changes in
stockholders' equity and changes in its financial position for the year then
ended in conformity with accounting principles generally accepted in Mexico
which differ in certain respects from those followed in the United States.
Prieto, Ruiz de Velasco y Cia., S.C.
Ignacio Pineda Luna C.P.A.
PARTNER
Mexico City
February 10, 1995
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Comunicaciones Celulares de Occidente, S.A. de C.V.
We have audited the balance sheet of Comunicaciones Celulares de Occidente,
S.A. de C.V. as of December 31, 1994, and the related statements of income,
changes in stockholders' equity, and changes in financial position for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards in Mexico, which are not significantly different than U.S. auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement and are prepared in accordance with generally accepted accounting
principles. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in
all material respects the financial position of Comunicaciones Celulares de
Occidente, S.A. de C.V. and subsidiaries as of December 31, 1994, and the
consolidated results of its operations, changes in stockholders' equity and
changes in its consolidated financial position for the year then ended, in
conformity with accounting principles generally accepted in Mexico, which vary
in certain respects from accounting principles generally accepted in the United
States.
COOPERS & LYBRAND
Despacho Roberto Casas Alatriste
Juan Manuel Ferron Solis
PUBLIC ACCOUNTANT
Mexico City, D.F., Mexico.
February 10, 1995
F-5
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
(NOTES 1, 2, 3 AND 4)
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997)
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents.................................................................. Ps. 178,102 Ps. 96,750
Accounts receivable:
Trade, net of Ps.118,479 and Ps.98,988 of allowance for doubtful accounts (Note 4.d)..... 178,637 140,359
Related parties (Note 5)................................................................. 33,590 7,522
Recoverable taxes and other.............................................................. 60,661 86,003
------------- -------------
272,888 233,884
------------- -------------
Inventories (Note 6)....................................................................... 162,661 106,437
------------- -------------
Total current assets................................................................... 613,651 437,071
INVESTMENT IN ASSOCIATED COMPANIES (Note 7).................................................. 86,220 93,516
PROPERTY AND EQUIPMENT, net (Note 8)......................................................... 4,286,080 3,307,418
OTHER ASSETS, net (Note 9)................................................................... 744,483 660,763
EXCESS OF COST OF INVESTMENTS IN SUBSIDIARIES OVER BOOK VALUE, net of accumulated
amortization of Ps.117,202 in 1995 and Ps.165,600 in 1996 (Note 4.i)....................... 1,555,168 1,462,276
------------- -------------
Total assets........................................................................... Ps.7,285,602 Ps.5,961,044
============= =============
LIABILITIES
CURRENT:
Notes payable (Note 10).................................................................... Ps. 686,529 Ps. 744,428
Current portion of long-term debt (Note 10)................................................ 140,971 112,332
Trade accounts payable (Note 11)........................................................... 886,306 461,588
Related parties (Note 5)................................................................... 71,242 374,061
Taxes and other payables................................................................... 271,433 367,798
Income tax (Note 12)....................................................................... 1,237 6,507
Employee profit sharing (Note 12).......................................................... 341 132
------------- -------------
Total current liabilities................................................................ 2,058,059 2,066,846
------------- -------------
LONG-TERM DEBT (Note 10)..................................................................... 832,426 547,949
TRADE ACCOUNTS PAYABLE, LONG-TERM (Note 11).................................................. 5,191 10,328
COMMITMENTS AND CONTINGENCIES (Notes 4.K and 13)............................................. 1,954 2,015
------------- -------------
Total liabilities........................................................................ 2,897,630 2,627,138
------------- -------------
STOCKHOLDERS' EQUITY
CONTRIBUTED CAPITAL (Note 14):
Capital stock:
Nominal.................................................................................... 2,356,153 2,356,153
Restatement................................................................................ 2,872,580 2,872,580
------------- -------------
5,228,733 5,228,733
------------- -------------
Capital contributed:
Nominal.................................................................................... 18,655 18,655
Restatement................................................................................ 37,689 37,689
------------- -------------
56,344 56,344
------------- -------------
5,285,077 5,285,077
------------- -------------
EARNED CAPITAL (Note 15):
Accumulated losses:
Legal reserve.............................................................................. 3,080 3,080
For prior years............................................................................ (326,193) (1,095,439)
For the year............................................................................... (769,246) (363,263)
------------- -------------
(1,092,359) (1,455,622)
Excess (deficit) from restatement.......................................................... 220,876 (501,112)
------------- -------------
Total majority stockholders' equity...................................................... 4,413,594 3,328,343
MINORITY INTEREST............................................................................ (25,622) 5,563
------------- -------------
Total stockholders' equity............................................................. 4,387,972 3,333,906
------------- -------------
Total liabilities and stockholders' equity............................................. Ps.7,285,602 Ps.5,961,044
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(NOTES 1, 2, 3 AND 4)
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997)
<TABLE>
<CAPTION>
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
REVENUES
Services.................................................... Ps. 2,003,185 Ps. 1,615,433 Ps. 1,463,998
Telephone equipment and other revenues...................... 273,278 287,840 236,140
--------------- --------------- ---------------
2,276,463 1,903,273 1,700,138
--------------- --------------- ---------------
COST OF SALES
Cost of services............................................ 582,161 592,259 536,737
Cost of telephone equipment and other....................... 134,363 159,761 131,651
--------------- --------------- ---------------
716,524 752,020 668,388
--------------- --------------- ---------------
Gross profit.............................................. 1,559,939 1,151,253 1,031,750
OPERATING EXPENSES............................................ 969,131 840,650 736,547
DEPRECIATION AND AMORTIZATION (Notes 4.h
and 8)...................................................... 583,217 669,711 604,602
--------------- --------------- ---------------
Operating profit (loss)................................... 7,591 (359,108) (309,399)
--------------- --------------- ---------------
INTEGRAL FINANCING COST (GAIN) (Notes 4.b and 16)
Interest expense, net....................................... 204,024 173,249 281,067
Foreign exchange loss (gain), net........................... 524,647 705,137 (62,115)
Gain on net monetary position............................... (49,969) (501,535) (348,293)
--------------- --------------- ---------------
678,702 376,851 (129,341)
--------------- --------------- ---------------
EQUITY PARTICIPATION IN NET (INCOME) LOSS OF ASSOCIATED
COMPANIES (Note 7).......................................... (3,098) 39,141 5,993
--------------- --------------- ---------------
Loss from continuing operations before assets tax employee
profit sharing, minority interest and extraordinary
item...................................................... (668,013) (775,100) (186,051)
--------------- --------------- ---------------
PROVISIONS FOR (Note 12)
Assets tax.................................................. 32,462 29,093 35,199
Employee profit sharing..................................... 647 2,082 --
--------------- --------------- ---------------
33,109 31,175 35,199
--------------- --------------- ---------------
Loss before minority interest and extraordinary item...... (701,122) (806,275) (221,250)
MINORITY INTEREST............................................. 45 37,029 3,179
--------------- --------------- ---------------
Loss before extraordinary item.............................. (701,077) (769,246) (218,071)
EXTRAORDINARY ITEM
Reorganization charge (Notes 2, 4.d and 8.b)................ -- -- 145,192
--------------- --------------- ---------------
Net loss for the year....................................... (Ps. 701,077) (Ps. 769,246) (Ps. 363,263)
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
1994, 1995 AND 1996
(NOTES 1, 2, 3 AND 4)
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF
CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997)
<TABLE>
<CAPTION>
ACCUMULATED LOSSES
CAPITAL ----------------------------------------- (DEFICIT)
STOCK CAPITAL LEGAL FOR THE PRIOR EXCESS FROM MINORITY
SUBSCRIBED CONTRIBUTIONS RESERVE YEAR YEARS RESTATEMENT INTEREST
-------------- -------------- --------- -------------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... Ps.3,562,076 Ps.56,344 Ps.3,080 Ps.(205,078) Ps.579,962 Ps.85,019 Ps.11,338
Application of 1993 net
loss................... 205,078 (205,078)
Sale of capital stock.... 1,824,341
Costs of stock issuance.. (157,684)
Recognition of the
effects of inflation on
the financial
statements............. 559,051
Minority interest for the
year................... (4,092)
Net loss for the year.... (701,077)
Balance at December 31,
1994................... 5,228,733 56,344 3,080 (701,077) 374,884 644,070 7,246
-------------- ------------- --------- ------------- -------------- ------------- -----------
Application of 1994 net
loss................... 701,077 (701,077)
Recognition of the
effects of inflation on
the financial
statements............. (423,194)
Minority interest for the
year................... (32,868)
Net loss for the year.... (769,246)
Balance at December 31,
1995................... 5,228,733 56,344 3,080 (769,246) (326,193) 220,876 (25,622)
-------------- ------------- --------- ------------- -------------- ------------- -----------
Application of 1995 net
loss................... 769,746 (769,246)
Recognition of the
effects of inflation on
the financial
statements............. (721,988)
Minority interest for the
year................... 31,185
Net loss for the year.... (363,263)
Balance at December 31,
1996................... 5,228,733 56,344 3,080 (363,263) (1,095,439) (501,112) 5,563
============== ============= ========= ============= ============== ============= ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
--------------
<S> <C>
Balance at December 31,
1993................... Ps.4,092,741
Application of 1993 net
loss................... --
Sale of capital stock.... 1,824,341
Costs of stock issuance.. (157,684)
Recognition of the
effects of inflation on
the financial
statements............. 559,051
Minority interest for the
year................... (4,092)
Net loss for the year.... (701,077)
--
Balance at December 31,
1994................... 5,613,280
-------------
Application of 1994 net
loss................... --
Recognition of the
effects of inflation on
the financial
statements............. (423,194)
Minority interest for the
year................... (32,868)
Net loss for the year.... (769,246)
Balance at December 31,
1995................... 4,387,972
-------------
Application of 1995 net
loss................... --
Recognition of the
effects of inflation on
the financial
statements............. (721,988)
Minority interest for the
year................... 31,185
Net loss for the year.... (361,263)
Balance at December 31,
1996................... 3,333,906
=============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-8
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(NOTES 1, 2, 3 AND 4)
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997)
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Loss before extraordinary item...................................... (Ps. 701,077) (Ps. 769,246) (Ps. 218,071)
Items not requiring the use of resources:
Depreciation and amortization..................................... 592,182 674,912 604,602
Equity participation in net loss (income) of associated
companies....................................................... (3,098) 39,141 5,993
Minority interest................................................. (45) (37,029) (3,179)
------------- ------------- -------------
(112,038) (92,222) 389,345
Resources provided by (used in) operating activities:
Trade accounts receivable......................................... (71,258) 124,035 38,278
Related parties................................................... 99,838 39,877 328,887
Recoverable taxes and other....................................... (48,230) 79,188 (25,342)
Inventories....................................................... (112,076) 47,692 56,224
Trade accounts payable............................................ 495,130 272,617 (419,582)
Taxes and other payables.......................................... (20,807) 85,560 96,365
Income tax........................................................ -- 1,237 5,270
Employee profit sharing........................................... 300 (842) (209)
Other............................................................. 555 186 61
------------- ------------- -------------
Resources provided by operating activities before extraordinary
item.......................................................... 231,415 557,328 469,297
Extraordinary item: Reorganization charge........................... -- -- 145,192
------------- ------------- -------------
Resources provided by operating activities...................... 231,415 557,328 324,105
------------- ------------- -------------
FINANCING ACTIVITIES:
(Payments of) proceeds from long-term debt........................ 556,009 27,765 (104,869)
Principal payments on long-term debt.............................. (675,436) (437,928) (302,293)
Net change in notes payable....................................... (324,169) 624,898 57,898
Proceeds from issuance of common stock, net of costs of
issuance.......................................................... 1,666,655 -- --
------------- ------------- -------------
Resources provided by (used in) financing activities............ 1,223,061 214,735 (349,264)
------------- ------------- -------------
INVESTING ACTIVITIES:
Purchase of property and equipment................................ (1,229,942) (471,262) (211,247)
Sale (acquisition) of common stock of associated companies........ (153,787) (51,305) 21,074
Disposal (purchase) of other assets............................... (529,427) (328,755) 133,980
------------- ------------- -------------
Resources used in investing activities.......................... (1,913,156) (851,322) (56,193)
------------- ------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................... (458,681) (79,259) (81,352)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR.............. 716,042 257,361 178,102
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR.................... Ps. 257,361 Ps. 178,102 Ps. 96,750
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-9
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
1. ENTITY AND NATURE OF BUSINESS
Grupo Iusacell, S.A. de C.V. (the "Company") is a holding company which was
incorporated on October 6, 1992. Its subsidiaries are primarily engaged in the
wireless telecommunications business and hold concessions to operate cellular
telephone systems in four proximate market areas ("Regions") in Mexico. In
October 1995, the Company received a concession from the Mexican Government to
operate as a long distance carrier and started its operations in this market on
August 11, 1996. During 1996, the Company signed a joint venture agreement for
the operation of nationwide and international paging services. The Company
started to provide paging services in August 1996.
The Peralta Family and Bell Atlantic Corporation ("Bell Atlantic") hold
substantial ownership interests (direct or indirect) in the Company.
On November 26, 1996, the Company's shareholders announced that they signed
an agreement in principle to change the management control of Grupo Iusacell,
S.A. de C.V., from the Peralta Family to Bell Atlantic, subject to certain
Mexican Government approvals. Bell Atlantic assumed such management control on
February 18, 1997 (see Notes 14 and 18).
The Company and its subsidiaries are referred to collectively herein as the
"Group" or "Grupo Iusacell".
2. ACQUISITIONS AND GROUP REORGANIZATION
ACQUISITION OF REGION 6 AND 7
In 1993, the Company obtained ownership of Sistemas Telefonicos Portatiles
Celulares, S.A. de C.V. ("Portacel") and Telecomunicaciones del Golfo, S.A. de
C.V. ("Telgolfo"). Portacel and Telgolfo hold the non-wireline cellular
concessions for Region 6 and Region 7, respectively.
The cost incurred in 1993 to acquire control of Portacel and Telgolfo
amounted to Ps. 850,574, of which Ps. 725,610 represented the excess of
investment cost over the book value.
In February 1994 the Company purchased the remaining minority ownership
interest of Telgolfo for Ps. 51,843, of which Ps. 48,256 represented the excess
of investment cost over the book value.
ACQUISITION OF REGION 5
In 1993, the Company acquired 67% of Hermes Telecomunicaciones, S.A. de C.V.
("Hermes"), a company that owns 51% of Comunicaciones Celulares de Occidente,
S.A. de C.V. ("Comcel"). Comcel holds the non-wireline cellular concession for
Region 5. The Company could not exercise significant influence over Comcel as an
arbitration proceeding was initiated by a minority shareholder of Comcel.
Although this arbitration was settled in November 1993, the settlement agreement
provided for a stand-still arrangement until January 3, 1994. The expenses
related to the arbitration were charged to excess of cost of investment in
subsidiaries over book value in 1994. Accordingly, the Company's investment in
Comcel was accounted for using the cost basis of accounting from the date of
acquisition through December 30, 1993. In December 1993, the Company reached an
agreement to purchase the remaining interests in both Comcel and Hermes. The
Company's cost of acquiring Comcel and Hermes totaled Ps. 1,110,674, of which
Ps. 900,422 represented the excess of investment cost over the book value.
F-10
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
2. ACQUISITIONS AND GROUP REORGANIZATION (CONTINUED)
OTHER ACQUISITIONS
In 1994, the Company acquired 51% of Telecomunicaciones Digitales
Internacionales, S.A. de C.V. (now Iusatel Chile, S.A. de C.V.). The Company
purchased this ownership interest for Ps. 20,430, which was the book value of
the shares acquired. During 1996, the Company increased its ownership in Iusatel
Chile, S.A. de C.V. from 51% to 100% through the capitalization of certain
liabilities and the payment of U.S.$100 to the minority shareholders. In
December 1996, the Company sold its debt and equity in Iusatel Chile, S.A. de
C.V. for U.S.$5,000. Payment was received in the form of three promissory notes
which mature between March and July 1997.
In August 1994, the Company increased its ownership in Compania Colombiana
de Telefonia Celular, S.A. ("Telecel") from 28.5% to 63.25%, by acquiring an
additional 34.75% interest. The cost to acquire this interest was Ps. 32,859, of
which Ps. 23,277 represented the excess of investment cost over the book value.
In March 1995, the Company increased its ownership interest in Telecel through a
capital contribution of Ps. 772. Through this contribution, the Company
increased its ownership in Telecel from 63.25% to 70.14%.
On December 13, 1994, Iusacell, S.A. de C.V. (subsidiary company) acquired
99.99% of Inmobiliaria Montes Urales 460, S.A. de C. V.. The cost was Ps.
70,977, of which Ps. 13,337 represented the excess of investment cost over the
book value.
In August 1995, the Company acquired from a related party 100% of Iusatel,
S.A. de C.V. Starting August 11, 1996 Iusatel began to provide national and
international long distance basic telephone services pursuant to a concession
received from the Mexican Government in October 1995.
In August 1995, the Company incorporated as a new subsidiary, Grupo Iusacell
de Nicaragua, S.A.. This company holds the shares of a company named Radio
Telefonia Rural de Nicaragua, S.A. which in July 1995 entered into a joint
venture agreement with the Nicaraguan Telecommunications Ministry for the
provision of fixed wireless local telephone services. In May 1996, the
Nicaraguan Telecommunications Ministry revoked the agreement. As of December 31,
1996, the Company has not made any investment in this project and has no
commitments for any such investments.
In December 1995, the Company signed a joint venture agreement with Infomin,
S.A. de C.V., a Mexican company which holds a fifteen-year concession to provide
nationwide and international paging services through July 2009. Pursuant to this
agreement, in March 1996, the Company and Infomin established a joint venture
company, Infotelecom, S.A. de C.V., which is owned 51% and 49% by the Company
and Infomin, respectively. The Company committed to contribute up to
U.S.$10,500; as of December 31, 1996 the Company has invested U.S.$3,300 in the
joint venture.
In January 1996, the Company increased its ownership in Rentacell, S.A. de
C.V. from 33.33% to 70%. As of December 31, 1995 the investment in Rentacell,
S.A. de C.V. was accounted for using the equity method. Starting January 1996,
the Company consolidated the assets, liabilities and operating results of this
subsidiary which rents cellular phones.
F-11
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
2. ACQUISITIONS AND GROUP REORGANIZATION (CONTINUED)
GROUP REORGANIZATION
In late 1995 and during 1996, the Company's subsidiaries were reorganized.
This reorganization consisted of the following operations:
At an extraordinary stockholders' meeting held on December 29, 1995, the
subsidiaries, Telcom Celular, S.A. de C.V. (Region 7) and Portacom, S.A. de C.V.
(Region 6) were merged with and into Iusacell, S.A. de C.V.. This merger was
made based on the financial statements of the three companies as of December 31,
1995.
At an extraordinary stockholders' meeting held on December 29, 1995,
Servicios Corporativos Iusacell, S.A. de C.V. was merged with and into Sistecel,
S.A. de C.V.. This merger was made based on the financial statements of both
companies as of December 31, 1995.
At an extraordinary stockholders' meeting held on December 31, 1996, the
respective stockholders of Hermes Telecomunicaciones, S.A. de C.V., GMD
Comunicaciones, S.A. de C.V. and Portaserv, S.A. de C.V., voted to dissolve
these companies. From such date, these three companies will not perform any
transactions except those necessary to wind-up their pending businesses.
At the end of 1996, and based on the reorganization of the Company and the
change in the managerial and administrative control of the Group, the Company
established a reserve of Ps. 145,192 for the restructuring expenses associated
with the reorganization. The plan provides for the termination of 252 employees
in the second quarter of 1997. This reserve, due to its characteristics of being
non-recurrent and unusual, has been presented as an extraordinary item in the
consolidated income statement. This reserve is as follows:
<TABLE>
<S> <C>
Provision for loss on sale of building........................... Ps.76,318
Employee severance............................................... 28,313
Fixed assets obsolescence reserve................................ 35,125
Change in estimate for allowance for doubtful accounts........... 5,436
</TABLE>
F-12
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
2. ACQUISITIONS AND GROUP REORGANIZATION (CONTINUED)
SUMMARY
The subsidiary companies which are included within the consolidated
financial statements are as follows (directly or indirectly):
<TABLE>
<CAPTION>
OWNERSHIP
AS OF
DECEMBER 31,
------------------------
SUBSIDIARY 1995 1996
- --------------------------------------------------------------------------- ----- -----
<S> <C> <C>
S.O.S. Telecomunicaciones, S.A. de C.V..................................... 100% 100%
Iusacell, S.A. de C.V...................................................... 100% 100%
Servicios Corporativos Iusacell, S.A. de C.V............................... 100% --
Sistecel, S.A. de C.V...................................................... 100% 100%
Satelitron, S.A. de C.V.................................................... 51% 51%
Comunicaciones Celulares de Occidente, S.A. de C.V. (Region 5)............. 100% 100%
Sistemas Telefonicos Portatiles Celulares, S.A. de C.V. (Region 6)......... 100% 100%
Telecomunicaciones del Golfo, S.A. de C.V. (Region 7)...................... 100% 100%
Inflight Phone de Mexico, S.A de C.V....................................... 100% 100%
GMD Comunicaciones, S.A. de C.V............................................ 100% 100%
Hermes Telecomunicaciones, S.A. de C.V..................................... 100% 100%
Inmobiliaria Montes Urales 460, S.A. de C.V................................ 100% 100%
Portacom, S.A. de C.V...................................................... 100% --
Portaserv, S.A. de C.V..................................................... 100% 100%
Telcom Celular, S.A. de C.V................................................ 100% --
Mexican Cellular Investments, Inc.......................................... 100% 100%
Iusanet, S.A. de C.V....................................................... 100% 100%
Iusatel Chile, S.A. de C.V................................................. 51% --
Compania Colombiana de Telefonia Celular, S.A.............................. 70% 70%
Promotora Celular, S.A. de C.V............................................. 75% 75%
Cellular Solutions de Mexico, S.A. de C.V.................................. 68% 68%
Iusatelecomunicaciones, S.A. de C.V........................................ 100% 100%
Iusatel, S.A. de C.V....................................................... 100% 100%
Grupo Iusacell Nicaragua, S.A.............................................. 100% 100%
Infotelecom, S.A. de C.V................................................... -- 51%
Rentacell, S.A. de C.V..................................................... 33% 70%
</TABLE>
F-13
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
3. BASIS OF PRESENTATION
A) BASIS OF PRESENTATION
The Group's consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in Mexico ("Mexican
GAAP").
The consolidated financial statements for the two periods have been
presented in thousands of constant Mexican pesos as of March 31, 1997 as
required by Bulletin B-10, "Recognition of the Effects of Inflation on Financial
Information", as amended, issued by the Mexican Institute of Public Accountants
("Bulletin B-10"). All amounts presented in U.S. dollars are in thousands.
The amounts as of December 31, 1994, 1995 and 1996, presented in the
financial statements and in the notes have been restated based on the inflation
rate in order to present them in pesos of purchasing power as of March 31, 1997.
B) CONSOLIDATED FINANCIAL STATEMENTS
Those companies in which the Group holds 50% or more of the capital stock
and exercises control over operating and financing activities are included in
the consolidated financial statements.
All significant intercompany balances and transactions have been eliminated
in consolidation.
C) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
4. ACCOUNTING POLICIES
A summary of the Group's significant accounting policies is as follows:
A) MONETARY UNIT
The statements are presented in Mexican pesos, the currency that, based on
the Mexican laws, must be used to prepare the accounting records of the Company
and of its Mexican subsidiaries. All amounts presented in the 1994, 1995 and
1996 consolidated financial statements are expressed in thousands of Mexican
pesos.
B) EFFECTS OF INFLATION ON THE FINANCIAL STATEMENTS
The consolidated financial statements of the Group have been prepared in
accordance with Bulletin B-10. The Third Amendment of Bulletin B-10, effective
for fiscal years beginning January 1, 1990 and thereafter, requires the
restatement of all comparative financial statements to constant Mexican pesos as
F-14
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
of the date of the most recent balance sheet presented. Accordingly, the
consolidated financial statements have been restated as follows:
- Consolidated income statements for the current and prior year have been
restated to constant Mexican pesos as of December 31, 1996 using the NCPI
(National Consumer Price Index), published by Banco de Mexico (The
Mexican Central Bank) from the periods in which the transactions (income
and expenses ) occurred.
- Bulletin B-12, "Statement of Changes in Financial Information", issued
by the Mexican Institute of Public Accountants ("Bulletin B-12"),
addresses the appropriate presentation of the statement of changes in
financial position where financial statements have been restated to
constant pesos as of the latest balance sheet date. Bulletin B-12
identifies the generation and application of resources representing
differences between beginning and ending balance sheet balances in
constant Mexican pesos, excluding the effect of holding non-monetary
assets. Bulletin B-12 also provides that monetary and foreign exchange
gains and losses should not be eliminated from resources provided by
operating activities, nor from financing activities.
The items which originate from the recognition of effects of inflation on
financial information are as follows:
Restatement of non-monetary assets:
Inventories are valued at the average price of the purchases made during the
period, and are restated using the NCPI, without exceeding the net realizable
value.
Property and equipment other than real estate are stated at net replacement
cost. Real estate properties are stated at their fair market value. Net
replacement cost and fair market values were determined from appraisals
performed by independent appraisers registered with the Comision Nacional
Bancaria y de Valores (Mexican National Banking and Securities Commission). The
last appraisal is dated December 31, 1996.
Property and equipment are depreciated using the straight-line method, based
on the restated values. Useful lives are determined by independent appraisers.
The average annual rates used by the Company are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Buildings and facilities................................................ 3% 3% 3%
Communication equipment................................................. 7% 8% 10%
Furniture and fixtures.................................................. 11% 9% 8%
Transportation equipment................................................ 17% 19% 15%
Computer equipment...................................................... 23% 23% 21%
Cellular rental telephones.............................................. 41% 50% 49%
</TABLE>
Investments in associated companies are accounted for using the equity
method based on the investees' equity adjusted for the effects of inflation in
accordance with Bulletin B-10.
F-15
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
Restatement of stockholders' equity:
The common stock and retained earnings accounts include the effect of
restatement determined by applying the NCPI factor from the date capital was
contributed or earned. The restatement represents the amount required to
maintain the contributions and accumulated results in constant Mexican pesos as
of March 31, 1997.
The excess or deficit from restatement of capital is an element of
stockholders' equity that includes surplus or deficit from holding non-monetary
assets, which represents the excess or deficit in specific values of net
non-monetary assets in comparison with the increase attributable to general
inflation as measured by the NCPI.
Integral financing cost (gain):
Integral financing result comprises net interest expense, foreign exchange
gains and losses, and gains and losses from net monetary position.
Foreign exchange gains and losses on transactions denominated in currency
other than Mexican pesos result from fluctuations in exchange rates from the
date transactions are recorded to the time of settlement or valuation at the end
of the period.
Gains and losses from monetary position represent the effects of inflation,
as measured by the NCPI, on the Group's monetary assets and liabilities at the
beginning of each month. If monetary liabilities exceed monetary assets, there
is a gain from monetary position. Otherwise, if monetary liabilities are less
than monetary assets, there is a resulting loss from monetary position.
C) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of short term, fixed rate
investments and bank deposits. The Company invests its excess cash in deposits
with major banks. The investments are carried at cost plus accrued interest,
which approximates market value. These investments are highly liquid cash
equivalents, having a maturity of ninety days or less when acquired.
D) ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company cancels services to those customers with invoices that are 60
days past due. Beginning in 1996, the Company began to fully reserve accounts
receivable that were 90 days past due. Prior to 1996, the Company fully reserved
accounts receivable over 120 days past due. The accumulated effect at the
beginning of the year for the change of this estimate was Ps. 5,406 and such
amount is presented as part of the reorganization reserve. During 1994, 1995 and
1996 the Company wrote off accounts receivable against this allowance for Ps.
39,202, Ps. 72,997 and Ps. 70,909, respectively. The charge to income for the
year, to increase the allowance for doubtful accounts, amounted to Ps. 63,555,
Ps. 82,576 and Ps. 70,909, in 1994, 1995 and 1996, respectively.
F-16
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
E) INVESTMENT IN ASSOCIATED COMPANIES
Long-term investments in common stock of companies in which the Group owns
not less than 20% nor more than 50% of the entity's voting common stock and over
which the Company can exercise significant influence are accounted for using the
equity method. Under the equity method such investments are carried at cost
adjusted for the Company's share of the net income or losses of these companies
and the effects of their restatement of non-monetary assets. There are
immaterial transactions with such associated companies that have been eliminated
before recognizing the equity method.
Investments of less than 20% of an entity's voting common stock or over
which the Company cannot exercise significant influence are stated at cost.
F) CELLULAR TELEPHONES
Cellular telephones given to customers through an exclusive service
contract, are amortized over the initial contract period. The amortization is
periodically reviewed and adjusted if the customer does not fulfill the original
agreement. The cost of such telephones is included in other assets, net of
amortization.
The cost of cellular telephones sold to customers is recorded as a cost of
telephone equipment sold. Telephones leased to customers are included in fixed
assets and are depreciated over the initial contract period, generally two
years.
G) CONCESSIONS
Costs related to the acquisition of concessions issued by the Mexican
Government to provide cellular telephone services have been capitalized and are
included in other assets. Such costs are amortized on a straight-line basis over
a twenty year period, which is the period of the concession. The Mexican
Government requires that the Company comply with the specific requirements of
each concession. The Company has substantially complied with such requirements
through December 31, 1996, except for certain informational requirements of the
authorities. The Company believes this does not expose the concession to any
regulatory risk.
H) ADVERTISING
Prepaid media advertising costs are included in other assets in the
accompanying balance sheet. Such costs are expensed, as incurred, and are
included in current operating expenses. Advertising expenses amounted to Ps.
191,809, Ps. 109,319 and Ps. 113,399, for 1994, 1995 and 1996, respectively.
F-17
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
I) EXCESS OF COST OF INVESTMENT IN SUBSIDIARIES OVER BOOK VALUE
The excess of cost over the book value of net assets of acquired
subsidiaries is amortized on a straight-line basis over twenty years.
Amortization expense was Ps. 81,571, Ps. 81,269 and Ps. 92,892 in 1994, 1995 and
1996, respectively.
The carrying amount applicable to each acquired subsidiary is reviewed if
the facts and circumstances suggest that it might be impaired.
J) INCOME TAXES AND EMPLOYEE PROFIT SHARING
Income taxes are computed in accordance with the partial liability method,
as required by Bulletin D-4, "Accounting treatment for Income Tax and Employee
Profit Sharing", issued by the Mexican Institute of Public Accountants
("Bulletin D-4"), under which deferred income taxes are provided for
identifiable, non-recurring temporary differences (i.e., those expected to
reverse over a definite period of time) at rates in effect at the time such
differences arise, and reversed at the rates in effect at the time such
differences reverse. In accordance with Bulletin D-4, the Company did not make a
provision for deferred taxes as of December 31, 1994, 1995 and 1996.
Employee profit sharing is a statutory labor obligation payable to employees
which is determined on the basis of each subsidiary's pre-tax income as adjusted
in accordance with the provisions of the Mexican Labor Law and the Mexican Tax
Law.
K) SENIORITY PREMIUMS
In accordance with Mexican Labor Law, the Group's employees are entitled to
seniority premiums after 15 years of service or upon dismissal, disability or
death. The Group follows Bulletin D-3, "Labor Obligations", issued by the
Mexican Institute of Public Accountants ("Bulletin D-3"). Under Bulletin D-3,
the actuarially determined projected benefit obligation is computed using
estimates of salaries that will be in effect at the time of payment. Personnel
not yet eligible for seniority premiums are also included in the determination
of the obligation with necessary adjustments made in accordance with the
probability that these employees will reach the required seniority. At December
31, 1996, the average seniority of the employees is less than 3 years.
Also, in accordance with Mexican Labor Law, the Company is liable for
severance payments to employees who are dismissed under certain circumstances.
Such compensation is recognized when paid.
The Company has no employee pension plans and does not provide any other
post retirement benefits.
L) REVENUE RECOGNITION
Cellular air time is recorded as revenue when provided. Sales of equipment
and related services are recorded when goods and services are delivered.
Cellular access charges are billed in advance and
F-18
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
recognized when the services are provided. Other revenue, mainly from paging and
long distance services, are recognized on provision of these services.
M) FOREIGN CURRENCY TRANSACTIONS
Foreign currency transactions are recorded at the exchange rates in effect
at the transaction date. Assets and liabilities denominated in foreign
currencies are translated to Mexican pesos using the exchange rates in effect at
the time of settlement or valuation at each balance sheet date with resulting
exchange differences being recognized as exchange gains or losses.
5. RELATED PARTIES
The Peralta Family and Bell Atlantic hold substantial ownership interests
(direct or indirect) in the Company. In addition, the Peralta Family holds
ownership interests in various other entities, primarily Industrias Unidas, S.A.
de C.V. ("IUSA") and related entities which are customers of or suppliers to the
Company.
A summary of related party accounts and notes receivable as of December 31,
is as follows:
<TABLE>
<CAPTION>
1995 1996
------------ -----------
<S> <C> <C>
IUSA and related entities......................................... Ps. 29,642 Ps. 4,418
Peralta Family entities........................................... 3,948 3,104
------------ -----------
Total........................................................... Ps. 33,590 Ps. 7,522
============ ===========
</TABLE>
Accounts receivable result from the sale of cellular telephone services,
operating lease contracts and the transfer during 1995 to IUSA of the investment
in a real estate project.
Accounts and notes payable to related parties as of December 31, are as
follows:
<TABLE>
<CAPTION>
1995 1996
------------ --------------
<S> <C> <C>
IUSA and related entities...................................... Ps. 17,948 Ps. 725
Peralta Family entities........................................ 21 557
FIUSA Pasteje.................................................. -- 303,140
Bell Atlantic.................................................. 53,273 69,639
------------ --------------
Total........................................................ Ps. 71,242 Ps. 374,061
============ ==============
</TABLE>
The payable accounts result from the leasing of some facilities and services
received. The notes payable to FIUSA Pasteje and Bell Atlantic result from the
financing of the Company's operations.
F-19
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
5. RELATED PARTIES (CONTINUED)
Following is an analysis of the related party transactions described above
for the years ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Service revenue................................... Ps. 7,178 Ps. 11,530 Ps. 9,927
Lease income...................................... 426 2,333 2,112
Interest income................................... 9,678 436 --
------------ ------------ ------------
Total income.................................. Ps. 17,282 Ps. 14,299 Ps. 12,039
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ --------------
<S> <C> <C> <C>
Commission expenses.............................. Ps. 10,029 Ps. 16,791 Ps. 3,287
Technical expenses............................... 21,558 36,473 63,307
Lease expenses................................... 2,217 2,614 6,354
Interest expense................................. 6,894 14,730 31,501
Operating expenses............................... -- 11,755 6,741
------------ ------------ --------------
Total expenses............................... Ps. 40,698 Ps. 82,363 Ps. 111,190
============ ============ ==============
</TABLE>
6. INVENTORIES
As of December 31, inventories are made up by the following:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Cellular telephones and accessories........................... Ps. 144,738 Ps. 86,840
Allowance for obsolete and slow-moving inventories............ 52,176 34,279
-------------- --------------
Net....................................................... 92,562 52,561
Advances to suppliers......................................... 70,099 53,876
-------------- --------------
Total inventories......................................... Ps. 162,661 Ps. 106,437
============== ==============
</TABLE>
7. INVESTMENT IN ASSOCIATED COMPANIES
As of December 31, the Group's investment in associated companies is as
follows:
<TABLE>
<CAPTION>
1995 1996
--------------------------- ---------------------------
ENTITY OWNERSHIP INVESTMENT OWNERSHIP INVESTMENT
- -------------------------------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Editorial Celular, S.A. de C.V........ 40.00% Ps. 3,676 40.00% Ps. 2,327
Consorcio Ecuatoriano de
Telecomunicaciones, S.A............. 27.53% 74,601 27.53% 81,511
Rentacell, S.A. de C.V................ 33.33% (290) -- --
Other................................. 8,233 9,678
---------- ----------
Total............................. Ps. 86,220 Ps. 93,516
========== ==========
</TABLE>
F-20
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
7. INVESTMENT IN ASSOCIATED COMPANIES (CONTINUED)
Starting in 1996, Rentacell, S.A. de C.V. is being consolidated (see Note
2).
Summarized financial information for these associated companies accounted
for by the equity method as of and for the years ended December 31, 1995 and
1996, is as follows:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Total assets.................................................. Ps. 552,980 Ps. 477,900
Total liabilities............................................. 346,838 253,421
Revenues...................................................... 280,126 260,034
Gross income (loss)........................................... (13,947) 13,515
Net income (loss)............................................. (54,008) 5,664
Group's share of net loss..................................... (39,141) (5,993)
</TABLE>
8. PROPERTY AND EQUIPMENT
a) At December 31, property and equipment consist of:
<TABLE>
<CAPTION>
1995 1996
---------------- ----------------
<S> <C> <C>
Buildings and facilities.................................. Ps. 1,086,365 Ps. 975,519
Communication equipment................................... 3,845,372 3,209,722
Furniture and fixtures.................................... 59,715 64,188
Transportation equipment.................................. 32,094 36,333
Computer equipment........................................ 177,771 177,032
Cellular rental telephones................................ 22,816 24,701
---------------- ----------------
5,224,133 4,487,495
Accumulated depreciation.................................. (1,322,334) (1,487,966)
---------------- ----------------
3,901,799 2,999,529
Land...................................................... 41,425 34,956
Construction in progress.................................. 224,602 157,356
Advances to suppliers..................................... 118,254 115,577
---------------- ----------------
Ps. 4,286,080 Ps. 3,307,418
================ ================
</TABLE>
b) Depreciation expense was Ps. 171,036, Ps. 292,812 and Ps. 304,199 for
1994, 1995 and 1996, respectively. In 1996, the Company established an
obsolescence reserve of Ps. 35,125 for certain communication equipment, which is
included in the accumulated depreciation and is part of the restructuring
expenses classified as an extraordinary item.
F-21
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
9. OTHER ASSETS
At December 31, other assets consist of the following:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Concessions..................................................... Ps. 172,790 Ps. 161,715
Cellular telephones to be amortized............................. 260,225 94,920
Prepaid expenses................................................ 69,068 46,726
Advertising expenses............................................ 59,479 --
Preoperating expenses........................................... 152,018 352,416
Other........................................................... 30,903 4,986
------------- -------------
Ps. 744,483 Ps. 660,763
============= =============
</TABLE>
Cellular telephones amortization expense was Ps. 272,120, Ps. 292,224 and
Ps. 207,510 in 1994, 1995 and 1996, respectively.
Preoperating expenses mainly represent the investment in the Project 450
(see Note 17).
10. NOTES PAYABLE AND LONG-TERM DEBT
At December 31, the notes payable and long-term debt consist of the
following:
Notes payable at December 31, are as follows:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Short-term loan of U.S.$24,282 bearing interest at a variable rate of LIBOR plus
5.75% and maturing on February 28, 1997........................................... Ps. -- Ps. 202,436
Unsecured business short-term loan of U.S.$65,000 bearing interest at a variable
rate of LIBOR plus 4% and maturity dates from February through March 1997......... 511,921 541,992
Short-term loan of Ps. 6,000 bearing interest at a fixed rate of 57% and maturing on
February 23, 1996................................................................. 8,111 --
Short-term loan of U.S.$4,842 bearing interest at a fixed rate of 5.30% and maturing
on March 13, 1996................................................................. 48,863 --
Short-term loan of U.S.$5,086 bearing interest at a fixed rate of 10.25% and
maturing on March 13, 1996........................................................ 51,319 --
Short-term loan of U.S.$6,296 bearing interest at variable rates that range from
11.09% to 11.8% and maturity dates from April to November 1996.................... 65,871 --
Other............................................................................... 444 --
------------- -------------
Total........................................................................... Ps. 686,529 Ps. 744,428
============= =============
</TABLE>
F-22
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
10. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
Long-term debt at December 31, consists of:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Medium term loan of U.S.$134 bearing interest at a variable rate
of LIBOR plus 3% and maturing on February 18, 1998. Interest
and principal are payable semiannually commencing August
1993.......................................................... Ps. 2,340 Ps. 1,118
Long-term loan of U.S.$2,096 bearing interest at a rate of
Treasury Notes plus 5% maturing September 30, 1998. Interest
and principal are payable semiannually commencing September
1993.......................................................... 32,893 17,474
Obligations for equipment under capitalized leases for U.S.$593
at a variable rate of LIBOR plus 2.5% maturing on December 28,
1998. Interest and principal are payable semiannually
commencing June 1994.......................................... 9,501 4,943
Long-term loan of U.S.$18,000 bearing interest at a variable
rate of LIBOR plus 2.9375% maturing December 2001. Interest
and principal are payable semiannually commencing June 15,
1994.......................................................... 113,777 150,069
Long-term loan of U.S.$3,333 bearing interest at a rate of LIBOR
plus 2.4375% maturing April 15, 2002. Interest and principal
are payable semiannually commencing April 1993................ 41,210 27,786
Long-term loan of U.S.$7,935 bearing interest at a rate of
12.55% maturing on July 15, 2002. Interest and principal are
payable semiannually commencing January 1994.................. 96,857 66,155
Long-term loan of U.S.$33,952 bearing interest at a variable
rate of LIBOR plus 4% maturing on January 28, 2004. Interest
and principal are payable semiannually commencing June
1994.......................................................... 380,312 283,057
</TABLE>
F-23
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
10. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Long-term loan of U.S.$13,156 bearing interest at a variable
rate of LIBOR plus 3.75% maturing on November 14, 2004.
Interest and principal are payable semiannually commencing
July 1994..................................................... Ps. 25,438 Ps. 109,679
Long-term loan of U.S.$10,726 bearing interest at a variable
rate of LIBOR plus 2.9375% maturing on December 19, 2001.
Interest and principal are payable semiannually commencing
March 1996.................................................... 112,214 --
Long-term loan of U.S.$16,445 bearing interest at a variable
rate of LIBOR plus 3.75% maturing on November 14, 2004.
Interest and principal are payable semiannually commencing May
1995.......................................................... 154,845 --
Other........................................................... 4,010 --
------------- -------------
Total........................................................... Ps. 973,397 Ps. 660,281
Less current portion.......................................... 140,971 112,332
------------- -------------
Ps. 832,426 Ps. 547,949
============= =============
</TABLE>
LIBOR at December 31, 1996 was 6%.
Certain loan agreements, among other conditions, impose certain restrictive
covenants such as maintenance of certain ratios, restrictions on incurring of
additional debt, and restrictions on the sale or lease of the Group's assets.
Long term maturities for the years subsequent to December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
YEAR
- ------------------------------------------------------------------------------- -------------
<S> <C>
1998........................................................................... Ps. 111,339
1999........................................................................... 100,069
2000........................................................................... 100,067
2001........................................................................... 100,067
2002........................................................................... 51,903
2003 and thereafter............................................................ 84,504
-------------
Ps. 547,949
=============
</TABLE>
At December 31, 1996 unused lines of credit totaled Ps. 665,763 (U.S.$
85,000). The Company has paid no commitment fees for these lines of credit.
At December 31, 1995 and 1996 assets collateralizing long-term debt include
substantially all assets, (including the Government concessions) of Region 5 and
6, and their property and equipment.
The Group leases certain communication equipment and transportation
equipment under agreements which are classified as capital leases. Most
equipment leases have purchase options at the end of
F-24
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
10. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
the original lease term. Leased capital assets, included in property and
equipment at December 31, 1995 and 1996, are as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Communication equipment............................................ Ps. 21,585 Ps. 24,204
Transportation equipment........................................... 2,477 --
----------- -----------
Total equipment leased......................................... 24,062 24,204
Accumulated depreciation........................................... (3,797) (4,766)
----------- -----------
Net equipment leased........................................... Ps. 20,265 Ps. 19,438
=========== ===========
</TABLE>
11. TRADE ACCOUNTS PAYABLE
At December 31, trade accounts payable consist of the following:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Current accounts................................................ Ps. 306,316 Ps. 270,851
Notes payable................................................... 579,990 190,737
------------- -------------
Total......................................................... Ps. 886,306 Ps. 461,588
------------- -------------
Long-term notes payable......................................... Ps. 5,191 Ps. 10,328
============= =============
</TABLE>
As of December 31, 1996, the Company has only partially paid amounts
invoiced by Telefonos de Mexico, S.A. de C.V. ("Telmex") since it believes that
Telmex did not have the legal right to charge certain invoiced amounts. These
disputed charges are being negotiated with Telmex. At December 31, 1996 the
Company has established adequate reserves to cover these liabilities.
Additionally, the Group's subsidiaries have claimed from Telmex the payment of
certain fees for reciprocal termination charges which the Company has the right
to collect, based on the Federal Telecommunications Law (Ley Federal de
Telecomunicaciones) published on June 7, 1995 and the regulations issued
thereunder.
12. INCOME TAX, ASSETS TAX AND EMPLOYEE PROFIT SHARING
In December 1993, the Mexican tax authorities granted the Group permission
to file a consolidated income tax return commencing with the tax year beginning
January 1, 1994.
The income tax rate is 34%. The provision for income tax differs from the
statutory income tax rate due to temporary and permanent differences in the
determination of the income for tax reporting and financial reporting purposes.
The most significant temporary differences are the tax deduction for inventory
purchases and certain liability accruals which are deductible only when paid for
tax purposes. The most important permanent items are the differences between
book and tax depreciation, the goodwill amortization and non-deductible
expenses.
F-25
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
12. INCOME TAX, ASSETS TAX AND EMPLOYEE PROFIT SHARING (CONTINUED)
In accordance with Mexican accounting principles, no deferred taxes have
been provided on temporary differences since such differences are of a recurring
nature and their realization cannot be foreseen in a defined period of time.
The 1.8% (2% in 1994) net assets tax is calculated on the average value of
substantially all assets less certain liabilities. This tax is required to be
paid if this computation exceeds the amount of income tax. The 1.8% assets tax
paid may be utilized as a credit against future income tax in the years in which
the Company generates an income tax in excess of the assets tax. The assets tax
is available as a carry forward for up to ten years and is subject to
restatement based on the National Consumer Price Index when used. As of December
31, 1996, the net assets tax available as a carry forward is Ps. 83,194.
At December 31, 1996, the Group had the following net operating losses for
income tax purposes that may be carried forward and applied against future
taxable earnings:
<TABLE>
<CAPTION>
YEAR OF LOSS AMOUNT OF LOSS EXPIRATION YEAR
- -------------------------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
1991............................................................................ Ps. 17,474 2001
1992............................................................................ 260 2002
1993............................................................................ 388,931 2003
1994............................................................................ 821,344 2004
1995............................................................................ 424,397 2005
1996............................................................................ 28,166 2006
</TABLE>
These losses are indexed for inflation from the year incurred to the sixth
month of the year utilized. Accordingly, these amounts include the inflation up
to June 1996. Losses include Ps. 237,327 and Ps. 157,684 of capital stock
issuance costs expensed for tax purposes in 1993 and 1994. Such amounts were
charged to stockholders' equity in the consolidated financial statements.
Employee profit sharing, generally (10%), is computed on taxable income,
with adjustments to exclude inflationary effects and the restatement of
depreciation expense. In the years ended December 31, 1994 and 1996 there was no
profit sharing expense. In the year ended December 31, 1995 employee profit
sharing expense amounted to Ps. 2,082.
F-26
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
12. INCOME TAX, ASSETS TAX AND EMPLOYEE PROFIT SHARING (CONTINUED)
The effective rate reconciliation as of December 31, is as follows:
<TABLE>
<CAPTION>
DESCRIPTION 1994 1995 1996
- ------------------------------------------------------------------ -------------- -------------- --------------
<S> <C> <C> <C>
Income tax benefit at statutory rate.............................. (Ps.226,934) (Ps.263,534) (Ps.124,867)
Add (deduct):
Inventory purchases less cost of sales........................ (40,123) (83,518) (33,775)
Depreciation and amortization (19,682) (122,454) (100,667)
Differences between interest and inflationary gains or
losses...................................................... 25,699 206,516 152,498
Net assets tax................................................ 31,422 29,093 35,199
Application of income tax loss carryforwards.................. 192,119 150,993 10,193
Provision for doubtful accounts............................... 13,662 6,706 (1,313)
Telephones to be amortized.................................... (23,643) 79,513 54,164
Goodwill amortized............................................ 27,733 23,729 25,631
Other......................................................... 52,209 2,050 18,136
-------------- -------------- --------------
Effective income tax expense at effective rate.................... Ps.32,462 Ps.29,093 Ps.35,199
============== ============== ==============
</TABLE>
The effective income tax expense represents basically 1.8% tax on assets,
which is the alternative minimum tax in Mexico.
13. COMMITMENTS AND CONTINGENCIES
As of December 31, 1996 the Company has the following commitments and
contingent liabilities:
a) The Company has entered into operating lease agreements for
administrative offices, sales branches, and service facilities. Such lease
agreements expire at various dates through 2002. Some contain options for
renewal. Rental expense was Ps. 42,267, Ps. 50,921 and Ps. 50,046 for the years
ended December 31, 1994, 1995 and 1996, respectively.
Future minimum rental payments under existing leases with terms in excess of
one year as of December 31, 1996 are as follows:
1997............................................................. Ps.33,007
1998............................................................. 17,489
1999............................................................. 15,038
2000............................................................. 11,652
Thereafter....................................................... 6,249
b) For the taxes and penalties that the tax authorities may collect if they
disagree with the criteria applied by the Company regarding the calculation of
some taxes, rights and federal contributions as a result of prior years' tax
returns. As of this date there has been no notification of disagreement from the
authorities. In February 1996, the Tax authorities (Secretaria de Hacienda y
Credito Publico) started an audit in three companies of the Group (Grupo
Iusacell, S.A. de C.V., Iusacell, S.A. de C.V. and SOS
F-27
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Telecomunicaciones, S.A. de C.V.). The Company does not anticipate that any tax
difference or penalties will be originated by this audit which would be material
to the Company's financial position, results of operations or liquidity.
c) Mitsubishi Electronics America Inc. filed a complaint in the United
States on July 18, 1996 against Grupo Iusacell, S.A. de C.V. and Bell Atlantic
Corporation. Essentially, Mitsubishi alleges that it had a contract with Grupo
Iusacell for the sale of telephone terminals and that Iusacell has breached the
contract by not purchasing the terminals. Mitsubishi alleges the contract was
for the sale of 60,000 units at a cost of U.S.$0.510 each. Grupo Iusacell has
filed a motion to dismiss for lack of personal jurisdiction. Based on the
opinion of external lawyers and because of the pending motions it is too early
to evaluate the possibility of settlement or the extent of Grupo Iusacell's
exposure, if any, to loss by judgment.
d) In 1996, the Company received a notification from the authorities
requesting the payment of surcharges related to the purchase completed in three
installments in 1990 of the Region 5 concession. This Region was bought by Grupo
Iusacell in 1993 (see Note 2). The opinion of external counsel is that this
request is legally unfounded.
14. CONTRIBUTED CAPITAL
Series A, B and D represent shares entitling the holder of each share to one
vote at the Company's stockholders' meetings. The stockholders of Series L
shares may vote only in limited circumstances as described in the Company's
by-laws. Stockholder actions on certain matters require approval by both Series
A and Series B stockholders.
Series A shares must always represent not less than 51% of the capital stock
with full voting rights and, until February 1997, were only acquirable by
Mexicans. Series B, D and L shares may be acquired by foreigners or Mexicans.
Series B and D shares cannot exceed 24.5% of the total capital stock. Series
L shares cannot exceed 19% of the total capital stock. Series L shares are not
considered in determining the amount or proportion of foreign investment in the
Company as long as the shares are listed on the Mexican Stock Exchange.
In May 1994, the stockholders authorized a 10 for 1 stock split applicable
to all outstanding shares of capital stock at December 31, 1993. Information
contained in these consolidated financial statements has been retroactively
adjusted to reflect this split.
On May 20, 1994, 28,291,350 series D and 66,013,150 series L shares were
issued and sold through a public offering for Ps. 1,824,341. Capital stock
includes Ps. 1,426,371 of amounts paid in excess of nominal value. Fees charged
by outside advisors for assisting in this sale amounted to Ps. 157,684 and were
charged to stockholders' equity. In addition 23,957,620 series A shares were
converted into an equal number of series L shares. The converted series A shares
were canceled.
As mentioned in Note 1, on November 26, 1996, the Company's shareholders
signed an agreement in principle to change the controlling interest of Grupo
Iusacell to Bell Atlantic. Following the signed
F-28
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
14. CONTRIBUTED CAPITAL (CONTINUED)
agreement, on December 18, 1996, at an extraordinary stockholders' meeting, the
following resolutions modifying the Company's by-laws were adopted:
1) Series A shares may be acquired by Mexicans and/or foreigners.
2) The conversion of 200,000,000 Series "B" shares and 166,769,760
Series "D" shares, for 366,769,760 Series "A" shares.
3) The conversion of 100,000,000 Series "A" shares for 100,000,000
Series "D" shares.
These resolutions were subject to the authorizations requested before the
Foreign Investment National Commission and the Competition Federal Commission
(see Note 18).
Subject to the above mentioned authorizations and the adoption of such
resolutions, the stockholders decided to increase the fixed portion of the
capital stock by up to Ps. 766,000 through the issuance of up to 74,163,591
Series "A" shares and up to 54,407,837 Series "D" shares. The present holders of
the Series "D" shares had the right to acquire additional Series "D" shares in
order to allow them to keep their actual ownership proportion; this right
expired fifteen days after the publication of these resolutions in the Diario
Oficial de la Federacion (Mexican Federal Official Journal) (See Note 18). After
such term expires the remaining shares will be offered for their subscription
and payment as follows:
a) Up to 57,142,857 Series "A" shares to Bell Atlantic Latin America
Holdings, Inc. through the capitalization of certain liabilities.
b) Up to 17,020,734 Series "A" shares and up to 54,407,837 Series "D"
shares to FIUSA Pasteje, S.A. de C.V. through the capitalization of certain
liabilities.
At the same stockholders' meeting, a Stock Purchase Plan for the Company's
executives was approved. In this regard, the stockholders decided to increase
the fixed portion of the capital stock of up to Ps. 106,000 through the issuance
of up to 15,625,000 Series "L" shares. The present holders of the Series "L"
shares had the right to acquire additional shares in order to allow them to keep
their actual ownership proportion; this right expired fifteen days after the
publication of these resolutions in the Diario Oficial de la Federacion (Mexican
Federal Official Journal). After such term expires the remaining shares will be
canceled, except for 7,812,500 shares which will be designated to the above
mentioned Stock Purchase Plan.
F-29
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
14. CONTRIBUTED CAPITAL (CONTINUED)
The changes in the number of shares of common stock for the period January
1, 1994 through December 31, 1996 are analyzed as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------
<S> <C>
January 1, 1994 balance (restated for stock split)........................ 887,319,930
May 20, 1994--issuance of common stock through primary public
offering.............................................................. 94,304,500
-----------------
December 31, 1994 balance................................................. 981,624,430
No changes.............................................................. --
-----------------
December 31, 1995 balance................................................. 981,624,430
No changes.............................................................. --
-----------------
December 31, 1996 balance................................................. 981,624,430
=================
</TABLE>
At December 31, 1995 and 1996, the authorized and outstanding shares of
common stock, without par value, consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Series A.................................................................. 428,575,540
Series B.................................................................. 205,562,450
Series D.................................................................. 204,920,220
Series L.................................................................. 142,566,220
-----------------
Total................................................................... 981,624,430
=================
</TABLE>
15. EARNED CAPITAL
In accordance with the Mexican Corporate Law, a legal reserve must be
created, and annually increased by 5% of the annual net earnings until it
reaches 20% of the common stock amount. This reserve is not available for
dividends, but may be used to reduce a deficit or may be transferred to capital.
As defined in the Federal Income Tax Law, a tax on dividends is calculated
based on the paid dividends which exceed the taxable net income. The accumulated
taxable net income of the Company as of December 31, 1996 was approximately Ps.
68,477.
The Company cannot pay dividends until it collects them from its
subsidiaries. Two subsidiaries (Comcel in Region 5 and Portacel in Region 6)
have bank debt that partially restricts their ability to pay dividends to the
holding company if certain financial ratios are not met. As of December 31,
1996, such ratios were met. Both companies have accumulated losses at December
31, 1996.
F-30
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
The earned capital accounts consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------
ACCUMULATED
ADJUSTMENTS
HISTORICAL FOR
VALUE INFLATION TOTAL
---------------- ------------- --------------
<S> <C> <C> <C>
Legal reserve.................................................... Ps. 1,499 Ps. 1,581 Ps. 3,080
Accumulated losses from prior years.............................. (325,251) (942) (326,193)
Net loss for the year............................................ (805,911) 36,665 (769,246)
Excess from restatement.......................................... -- 220,876 220,876
---------------- ------------ --------------
Total.......................................................... (Ps. 1,129,663) Ps. 258,180 (Ps. 871,483)
================ ============ ==============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------
ACCUMULATED
ADJUSTMENTS
HISTORICAL FOR
VALUE INFLATION TOTAL
---------------- -------------- ----------------
<S> <C> <C> <C>
Legal reserve................................................. Ps. 1,499 Ps. 1,581 Ps. 3,080
Accumulated losses from prior years........................... (1,131,162) 35,723 (1,095,439)
Net loss for the year......................................... (515,635) (152,372) (363,263)
Deficit from restatement...................................... -- (501,112) (501,112)
---------------- -------------- ----------------
Total....................................................... (Ps. 1,645,298) (Ps. 311,436) (Ps. 1,956,734)
================ ============== ================
</TABLE>
16. FOREIGN CURRENCY POSITION
The balance sheet as of December 31, includes assets and liabilities
denominated in U.S. dollars as follows:
<TABLE>
<CAPTION>
1995 1996
--------------- ---------------
<S> <C> <C>
Monetary assets................................................................ U.S.$ 16,028 U.S.$ 12,752
Monetary liabilities........................................................... 234,538 254,629
--------------- ---------------
Net liability position in U.S. dollars....................................... U.S.$ 218,510 U.S.$ 241,877
--------------- ---------------
Equivalent in nominal Mexican pesos............................................ Ps. 1,691,180 Ps. 1,894,502
=============== ===============
</TABLE>
F-31
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
16. FOREIGN CURRENCY POSITION (CONTINUED)
During 1994, 1995 and 1996, interest expense paid and interest income
collected on assets and liabilities denominated in U.S. dollars were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Interest income.................................................. U.S.$ 2,935 U.S.$ 7,749 U.S.$ 18,298
Interest expense................................................. 14,660 28,779 52,011
-------------- -------------- --------------
Net interest expense........................................... U.S.$ 11,725 U.S.$ 21,030 U.S.$ 33,713
-------------- -------------- --------------
-------------- -------------- --------------
Equivalent in nominal Mexican pesos.............................. Ps.58,566 Ps.162,764 Ps.264,057
============== ============== ==============
</TABLE>
The exchange rate as of December 31, 1994, 1995 and 1996 was Ps. 4.995, Ps.
7.7396 and Ps. 7.8325 per U.S.$ 1, respectively. At the issuance date of these
consolidated financial statements the exchange rate in effect was Ps. 7.778 per
U.S.$ 1.
17. PROJECT 450
During 1994, the Company created a subsidiary to be in charge of providing
fixed wireless local telephony services (Project 450). At December 31, the
following has been incurred during the start-up phase of the project:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Fixed assets.............................................................. Ps.454,081 Ps.422,407
Capitalized interest...................................................... 32,306 144,032
Inventory................................................................. 14,809 21,263
Pre-operating expenses.................................................... 43,006 64,086
------------- -------------
Total..................................................................... Ps.544,202 Ps.651,788
============= =============
</TABLE>
Capitalized interest and pre-operating expenses are included in "Other
assets" in the attached consolidated balance sheet (see Note 9).
The Company has an agreement with a foreign supplier under which it
anticipates buying approximately U.S.$ 315,000 of network switching equipment
and radio base station equipment as well as associated software and technical
services for the development of the local wireless network, in a five year
period commencing when the Ministry of Communications and Transportation ("SCT")
grants the required licenses. The SCT has announced that by the end of 1997 it
will auction the frequencies in the 450 MHz band to enable operators to provide
services therein.
The realization of these assets is subject to the acquisition of this
frequency. However, the Company's management believes that at least 75% of such
fixed assets could be used in its cellular operations.
18. SUBSEQUENT EVENTS
a) New Share Ownership
On February 12, 1997, Grupo Iusacell's new share ownership and management
control structure described more fully in the Notes 1 and 14, received the
required Mexican Government authorizations.
F-32
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
18. SUBSEQUENT EVENTS (CONTINUED)
The increase in the fixed portion of the capital stock, agreed at the
extraordinary stockholder's meeting held on December 18, 1996 (see Note 14), was
approved on February 18, 1997. The subscription of shares was as follows:
a) Bell Atlantic........................... 47,017,491 Series "A" shares
b) Peralta Family.......................... 4,390,619 Series "A" shares
48,754,000 Series "D" shares
After such subscription and the resolutions adopted to modify the Company's
by-laws, Series B shares cannot exceed 29.1% of the total capital stock and
Series D shares cannot exceed 19.9% of the total capital stock.
b) Telmex Settlement
On August 14, 1997, a settlement was reached with Telmex for disputed
cellular interconnection charges and other services. As a result of the
settlement the Company paid a total amount of Ps.170,000 to Telmex related
to disputed amounts for the period June 1995 to May 1997. Of this total
amount, Ps.22.2 million pesos constituted value-added tax and Ps.28.6
million pesos were accounted for as interest expense. As of December 31,
1996, the Company had sufficient accruals to cover the amounts in dispute at
that date.
c) Sale of Conecel
On September 30, 1997, the Company sold its direct interest in Consorcio
Ecuatoriano de Telecomunicaciones and its Ecuadorean paging company,
Corptilor, S.A. for U.S.$29.4 million and expects to record a gain on the
sale.
d) Purchase of Rent A Cell
The Company has agreed to purchase the remaining 30% of Rent a cell which it
did not already own for Ps.18,500. The Company's management expects the
purchase to take place during October 1997.
19. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP")
The Company's consolidated financial statements are prepared based on
accounting principles generally accepted in Mexico ("Mexican GAAP"), which
differ in certain significant respects from United States generally accepted
accounting principles ("U.S. GAAP").
The following reconciliation to U.S. GAAP does not include the reversal of
the adjustments to the financial statements for the effects of inflation
required under Mexican Bulletin B-10. The application of Bulletin B-10
represents a comprehensive measure of the effects of price-level changes in the
financial statements based on historical cost for Mexican and U.S. accounting
purposes. The principal differences, other than inflation accounting, between
Mexican and U.S. GAAP are listed below, together with an explanation where
appropriate, of the adjustments that affect consolidated net income and
stockholders' equity for each of the years ended December 31, 1994, 1995 and
1996.
A) DEFERRED INCOME TAXES AND EMPLOYEE PROFIT SHARING
Under Mexican GAAP deferred income taxes are provided for identifiable,
non-recurring timing differences (those expected to reverse over a definite
period of time) at rates in effect at the time such differences originate.
Benefits from loss carryforwards are not allowed to be recognized before the
period in which the carryforward is utilized. For purposes of this
reconciliation to U.S. GAAP the Company has applied Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), for
all periods presented.
SFAS 109 requires an asset and liability method of accounting whereby
deferred taxes are recognized for the tax consequences of all temporary
differences between the financial statements carrying amounts and the related
tax basis of assets and liabilities. Under U.S. GAAP, the effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.
SFAS 109 requires deferred tax assets to be reduced by a valuation allowance
if, based in the weight of available evidence, including cumulative losses in
recent years, it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
As described in Note 12, Mexican tax law requires payment of a 1.8% (2% in
1994) tax on the Company's net assets which may be used to offset future income
tax obligations. Under Mexican GAAP
F-33
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
19. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED)
the net asset tax is charged to the provision for income taxes. Under SFAS 109,
such amounts are treated as a deferred tax benefit and offset by a valuation
allowance, if required.
Employee profit sharing expense, which is based on each subsidiary's taxable
income after certain statutory adjustments, is included in the income tax
provision under Mexican GAAP. The provision for employee profit sharing is
charged to operations for U.S. GAAP purposes.
B) CAPITALIZED INTEREST
Under Mexican GAAP, capitalization of interest on assets under construction
is allowed but not required. For Mexican GAAP purposes the Company began
capitalizing interest on January 1, 1995. Prior to such date interests costs
were expensed for Mexican GAAP. Under Mexican GAAP, interest on those
obligations which are identified as relating to construction projects is subject
to capitalization. For U.S. GAAP purposes interest is capitalized by applying
the weighted average rate of borrowings to the average amount of accumulated
expenditures for the asset. In 1994, the interest capitalized under Mexican GAAP
was adjusted to reconcile with U.S. GAAP. For the years ended December 31, 1995
and 1996, there was no difference in the amounts capitalized under Mexican and
U.S. GAAP. As of December 31, 1995 and 1996, the capitalized interest amounted
to Ps. 30,351 and Ps.160,540 respectively.
C) ACQUISITIONS
Under Mexican GAAP, assets and liabilities of acquired subsidiaries are
carried over to the acquiring entity's financial statements at their book value
as of the date of acquisition. The excess of cost over such book value is
recorded as "excess of cost of investment in subsidiaries over book value"
("goodwill") in the accompanying balance sheets.
Under U.S. GAAP, for acquisitions accounted for using the purchase method,
the cost of acquiring another entity is allocated to the tangible and
identifiable intangible assets based on their fair values at the date of
acquisition and liabilities assumed are recorded at their then current fair
values. Any excess of cost over such fair values is recorded as goodwill.
In the accompanying balance sheet the concessions acquired in the
acquisitions of Regions 5, 6 and 7, have been recorded at their book value under
Mexican GAAP and not at their fair value as required by U.S. GAAP. Substantially
all goodwill recorded under Mexican GAAP would be assigned to cellular
concessions under U.S. GAAP. However, since acquired concessions are amortized
over the same twenty year period as goodwill, there is no effect on U.S. GAAP
net income or stockholders' equity.
D) INVESTMENT IN PROJECT 450
Under Mexican GAAP amounts of capital expenditures, the related finance
costs and pre-operating costs related to the Project 450 have been capitalized.
Under U.S. GAAP the amount of these pre-operating costs that meet the
definition of deferred start up costs would be expensed as incurred.
F-34
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
19. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED)
E) MINORITY INTEREST
Under Mexican GAAP, the minority interest in consolidated subsidiaries is
presented as a separate component within the stockholders' equity section of the
consolidated balance sheet. For U.S. GAAP purposes, minority interest is not
included in stockholders' equity and accordingly is deducted as a reconciling
item to arrive at U.S. GAAP equity.
F) EARNINGS (LOSS) PER SHARE
Until 1997, there was no requirement for the disclosure of earnings per
share ("EPS") under Mexican GAAP. Under U.S. GAAP, disclosure of earnings per
share is required for public companies. Accordingly, EPS has been computed for
the years ended December 31, 1994, 1995 and 1996, based on the weighted average
number of common shares outstanding during such periods.
G) EFFECT OF INFLATION ACCOUNTING ON U.S. GAAP ADJUSTMENTS
In order to determine the net effect on the financial statements of
recognizing certain of the adjustments described above, it is necessary to
recognize the effects of applying the Mexican GAAP inflation accounting
principles (described in Note 4) to such adjustments.
H) EXTRAORDINARY ITEM
In the financial statements prepared in accordance with Mexican GAAP amounts
of Ps.145,192 relating to restructuring charges have been classified as an
extraordinary item. Under U.S. GAAP such amounts would be classified as
operating expenses.
F-35
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
19. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED)
I) The following is a summary of net loss and stockholders' equity adjusted
to take into account certain material differences between Mexican GAAP and U.S.
GAAP.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------------- --------------- ---------------
Net loss as reported under Mexican GAAP....................... (Ps. 701,077) (Ps. 769,246) (Ps. 363,263)
Deferred income taxes......................................... 59,380 242,148 179,675
Income tax benefit of stock issuance costs, recorded in
capital..................................................... (53,613) -- --
Deferred profit sharing....................................... 14,014 -- --
Capitalized interest expense.................................. (5,447) --
Project 450 investment........................................ -- -- (64,106)
Gain on net monetary position................................. 1,660 163,856 105,957
--------------- --------------- ---------------
Net loss under U.S. GAAP...................................... (Ps. 685,083) (Ps. 363,242) (Ps. 141,737)
=============== =============== ===============
Weighted average number of shares outstanding (thousands)... 945,711 981,624 981,624
=============== =============== ===============
Net loss per share (in Mexican pesos)....................... (Ps. 0.72) (Ps. 0.37) (Ps. 0.14)
=============== =============== ===============
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Stockholders' equity as reported under Mexican GAAP........... Ps. 5,613,280 Ps. 4,387,972 Ps. 3,333,906
Minority interest........................................... (7,245) 25,622 (5,563)
Capitalized interest expense................................ 71,785 -- --
Deferred income taxes....................................... (244,350) (702,430) (251,726)
Project 450 investment...................................... -- -- (64,106)
--------------- --------------- ---------------
Stockholders' equity as reported under U.S. GAAP............ Ps. 5,433,470 Ps. 3,711,164 Ps. 3,012,511
=============== =============== ===============
</TABLE>
In 1994 the income tax benefit of Ps. 53,613 relating to stock issuance
costs, included in the above reconciliation of net loss to U.S. GAAP, would be
recorded directly in the capital contributions account in stockholders' equity
under U.S. GAAP.
J) SUPPLEMENTARY U.S. GAAP DISCLOSURES
1) Cash flow information
Since Statement of Financial Accounting Standards No. 95, "Statement of
Cash Flows" (SFAS 95), does not provide any specific guidance with respect to
inflation adjusted financial statements. For U.S. GAAP purposes, the following
cash flow statement is presented, using U.S. GAAP balance sheets restated for
inflation. Monetary gains and losses, and unrealized foreign exchange gains and
losses have been included as operating cash flow reconciling items. Other items
have been included based on their cash flows, adjusted by inflation.
F-36
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
19. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------------- ------------- -------------
Operating activities:
Net loss under U.S. GAAP.......................................... (Ps. 685,083) (Ps. 363,242) (Ps. 141,737)
Adjustments to reconcile net loss to cash provided by (used in)
operating activities:
Depreciation.................................................. 171,036 292,812 304,200
Amortization.................................................. 417,628 382,101 300,402
Equity in loss (earnings) of associated companies........... (3,098) 39,141 5,994
Increase in allowance for doubtful accounts..................... 75,378 82,576 70,909
Increase in allowance for obsolete and slow-moving
inventories................................................... 33,553 52,176 4,109
Minority interest............................................... (45) (37,029) (3,179)
Deferred income taxes and employee profit sharing............... (19,781) (242,148) (179,675)
Gain (loss) on net monetary position and foreign exchange
losses........................................................ 472,986 (665,391) (608,533)
Group reorganization reserve.................................... -- -- 145,192
Other........................................................... 18,871 -- --
Changes in operating assets and liabilities:
Accounts receivable............................................. (119,488) 7,354 (86,829)
Inventories..................................................... (145,628) (4,484) 52,117
Trade accounts payable and related parties...................... 594,967 489,536 (67,425)
Taxes and other payable......................................... (20,807) 205,372 127,717
Income tax...................................................... 300 395 5,061
Other........................................................... (3,584) 186 61
--------------- ------------- -------------
Net cash provided by (used in) operating activities............... 787,205 239,355 (71,616)
--------------- ------------- -------------
Financing activities:
Proceeds from notes payable and long-term debt.................. 567,640 1,710,543 138,284
Payments of notes payable and long-term debt.................... (1,525,241) (1,177,836) (275,089)
Proceeds from issuance of capital stock
net of issuance costs......................................... 1,614,029 -- --
--------------- ------------- -------------
Total cash provided by (used in) financing activities............. 656,428 532,707 (136,805)
--------------- ------------- -------------
Investing activities:
Purchase of property and equipment, net......................... (Ps. 1,136,754) (Ps. 471,262) (Ps. 211,247)
Acquisition of Regions and investment in associated companies,
net of cash acquired.......................................... (153,786) (51,305) 21,074
Purchase of other assets........................................ (611,773) (328,754) 317,242
--------------- ------------- -------------
Total cash (used in) provided by investing activities............. (1,902,313) (851,321) 127,069
--------------- ------------- -------------
</TABLE>
F-37
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
19. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1994 1995 1996
--------------- ------------- -------------
<S> <C> <C> <C>
Net decrease in cash and cash equivalents......................... Ps. (458,680) Ps. (79,259) Ps. (81,352)
Cash and cash equivalents investments at beginning of year........ 716,041 257,361 178,102
--------------- ------------- -------------
Cash and cash equivalents investments at end of year.............. Ps. 257,361 Ps. 178,102 Ps. 96,750
=============== ============= =============
Interest expense paid............................................. Ps. 145,271 Ps. 138,874 Ps. 164,430
=============== ============= =============
Income tax paid................................................... Ps. 29,185 Ps. 22,518 Ps. 31,592
=============== ============= =============
</TABLE>
Supplemental disclosure of non-cash activities:
As detailed in Note 2, the sale of the investment in Iusatel Chile and the
increase in the participation in the equity of Rentacell, are non-cash
operations.
(2) Deferred income taxes
(i) The charge for income taxes for the years ended December 31, 1994, 1995
and 1996 was as follows
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1994 1995 1996
--------------- ------------- -------------
<S> <C> <C> <C>
Current Income Tax................................................ Ps. 53,613 Ps. -- Ps. --
Asset tax not offset by current taxes............................. 32,462 29,093 35,199
Deferred taxes.................................................... (59,380) (242,148) (179,675)
--------------- ------------- -------------
Total............................................................. Ps. 26,695 Ps.(213,055) Ps.(144,476)
=============== ============= =============
</TABLE>
(ii) Significant components of deferred income taxes under U.S. GAAP are as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1995 1996
-------------- ------------------------------------------------
SFAS 109 applied SFAS 109 applied
to Mexican GAAP to US GAAP Total
balances adjustments
---------------- ---------------- ------------
<S> <C> <C> <C> <C>
Deferred liabilities:
Inventories.................................................. Ps. 55,304 Ps. 36,188 Ps. -- Ps. 36,188
Property and equipment....................................... 1,169,468 898,438 -- 898,438
Cellular telephones to be amortized.......................... 88,476 32,273 -- 32,273
Concessions.................................................. 37,531 11,068 -- 11,068
-------------- ------------ -------------- ------------
Total deferred tax liabilities................................. 1,350,779 977,967 -- 977,967
============== ============ ============== ============
Deferred assets:
Allowance for doubtful accounts.............................. Ps. 39,117 Ps. 33,656 Ps. -- Ps. 33,656
Net operating loss and tax credit carryforward............... 684,757 696,743 -- 696,743
Group reorganization reserve................................. -- 49,365 -- 49,365
Preoperating expenses........................................ -- -- 21,796 21,796
Allowance for deferred tax assets............................ (75,526) (53,526) (21,796) (75,322)
-------------- ------------ -------------- ------------
Total deferred tax assets...................................... 648,348 726,238 -- 726,238
============== ============ ============== ============
Net Deferred tax liabilities................................... Ps. 702,431 Ps. 251,729 Ps. -- Ps. 251,729
============== ============ ============== ============
</TABLE>
The effect of the restatement of non-monetary assets is recorded directly
to stockholders' equity. Accordingly, the deferred taxes related to such assets
would be reflected directly in equity under U.S. GAAP. Deferred taxes recorded
directly to stockholders' equity relating to the restatement of non-monetary
assets were Ps. 192,550, Ps. 664,365 and (Ps. 271,029) for the years ended
December 31, 1994, 1995 and 1996, respectively.
F-38
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
19. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED)
The Company has recorded a deferred tax asset of Ps. 726,240 reflecting the
benefit of tax loss carryforwards (see paragraph 2 above), which expire in
varying amounts between 2001 and 2006. Realization is dependent on generating
sufficient taxable income prior to expiration of the loss carryforwards.
Although realization is not assured, management believes it is more likely than
not that all of the deferred tax asset will be realized. However, the amount of
the deferred tax asset considered realizable could be reduced in the near term
if estimates of future taxable income during the carryforward periods are
reduced.
3) Fair values of financial instruments
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments at December 31, 1995 and
1996.
Cash and cash equivalents: The carrying amount reported in the balance sheet
approximates fair value.
Notes payable: The carrying amount approximates fair value because of the
relatively short period of time between the origin of the obligations and their
expected settlement.
Management believes that the fair value of the Company's long-term debt
is not materially different to its carrying value due to the fact that:
(i) Most of the Company's long-term debt is at variable interest
rates.
(ii) The fixed rate debt is at interest rates which are not
materially different from market rates.
Consequently the carrying values and the fair values of the Company's
long-term debt are as follows:
<TABLE>
<CAPTION>
1995 1996
----------------------------- -----------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
--------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Ps. 973,397 Ps. 973,397 Ps. 660,281 Ps. 660,281
============== ============ ============== ============
</TABLE>
4) Economic environment
The Company is a Mexican corporation with substantially all its operations
situated in Mexico and approximately 99.5% of its revenues in 1996 resulted from
sales generated within Mexico. Accordingly, the economic environment within
Mexico, which is significantly affected by the actions taken by the Mexican
government, can be expected to have significant impact on the Company's
financial condition and results of operations and on the Company's ability to
meet its future obligations. The Company imports handsets, cellular sites and
other telecommunication equipment, while their pricing and receivable are quoted
and stated in Mexican pesos.
F-39
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
19. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED)
5) Disclosure of certain significant risks and uncertainties
The carrying values of the Company's property, plant and equipment are
dependent on the assumption that these assets will continue to be used in the
operations of the Company.
The Company is currently:
i) Planning to introduce digital CDMA technology into its
communications system. The extent to which the current communication
equipment of the Company will become obsolete will depend on the extent to
which digital technology is introduced and the compatibility of the choice
of the digital technology with the Company's existing technology. As yet the
Company has not made a decision regarding the extent of the digital roll out
nor the choice of the equipment supplier.
ii) Exploring alternatives to Project 450 in the provision of local
telephony services. The Company has not made a decision whether to continue
Project 450 or to pursue alternatives and accordingly, is continuing its
trial program to provide local wireless service in the 450 MHz frequency
band.
Based on any such decisions, it is reasonably possible that the estimated
useful lives of the Company's communication equipment will be reduced
significantly in the near term. As a result, the carrying amount of the
Company's communication equipment may be reduced materially in the near term.
The Financial Accounting Standards Board has issued several new pronouncements
that include the following:
SFAS 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", which provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities after December 31, 1996, is not expected to have a material effect
on the financial position and results of operations of the Company due to the
absence of material transactions of this nature.
SFAS 128, "Earnings per Share", effective for financial statements issued for
periods ending after December 15, 1997, simplifies the calculation of earnings
per share by excluding the requirement to calculate common stock equivalents.
Additionally, a restatement of all previously reported earnings per share data
is required as well as a dual presentation of basic and diluted EPS for all
entities with complex capital structures. The new standard has no impact on
historically reported earnings per share by the Company.
SFAS No. 129, "Disclosure of Information about Capital Structure", effective for
fiscal years beginning after December 15, 1997, establishes guidelines for the
reporting and presentation of information about various securities outstanding
and requires disclosure of information about the liquidation preference of
preferred stock and the redemption requirements of all issues of capital stock
that are redeemable in each of the five years following the date of the latest
statement of financial position presented. This standard is not expected to have
a material effect on the disclosures in the financial statements due to the
absence of preferred stock and redeemable capital stock.
SFAS 130, "Reporting Comprehensive Income", effective for fiscal years beginning
after December 15, 1997, establishes guidelines for the reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general purpose financial statements. It requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements; it does not
address issues of recognition or measurement. The Company is currently assessing
the impact of adoption of this standard on its financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", effective for fiscal years beginning after December 15, 1997,
establishes guidelines for the way that public enterprises report information
about operating segments in financial statements. This statement also
established guidelines for related disclosures about products and services,
geographic areas, and major customers. The Company is currently assessing the
impact of adoption of this standard on its financial statements.
20. CONDENSED CONSOLIDATED INFORMATION
In June 1997, the Company is considering issuing U.S.$125,000 of senior
unsecured notes (the "Notes") as part of its refinancing program. The Notes will
be guaranteed on a senior subordinated, unsecured basis pursuant to guarantees
by most of the Company's subsidiaries both directly and indirectly wholly-owned.
The following condensed consolidating information presents:
1. The Parent Company with its investments in subsidiaries accounted for on
the equity method.
2. Condensed combined balance sheet as of December 31, 1996 and condensed
combined statement of income for the year then ended, for the guarantor
subsidiaries.
3. Condensed combined balance sheet as of December 31, 1996 and condensed
combined statement of income for the year then ended, for the non-guarantor
subsidiaries.
4. Elimination entries necessary to consolidate the Parent Company and all
of its subsidiaries.
The condensed information does not include the cash flow statements, since
the non-guarantor subsidiaries are immaterial for this effect.
The condensed information of 1994 and 1995 is not presented since the
non-guarantor subsidiaries were inconsequential in those years.
F-40
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and short-term
investments.................... Ps. 78,358 Ps. 11,169 Ps. 4,968 Ps. 2,255 Ps. 96,750
Accounts receivable:
Trade.......................... -- 137,144 24,272 (21,057) 140,359
Related parties................ 220,826 125,583 -- (338,887) 7,522
Recoverable taxes and other.... 12,952 94,919 46,961 (68,829) 86,003
------------- ------------- -------------- -------------- -------------
312,136 368,815 76,201 (426,518) 330,634
Inventories...................... 10,161 63,094 27,835 5,347 106,437
------------- ------------- -------------- -------------- -------------
Total current assets............. 322,297 431,909 104,036 (421,171) 437,071
------------- ------------- -------------- -------------- -------------
Investment in associated
companies...................... 1,440,304 24,028 -- (1,370,816) 93,516
Property and Equipment, net...... 1,724,593 1,095,194 496,528 (8,897) 3,307,418
Other assets..................... 37,992 263,426 360,835 (1,490) 660,763
Excess of investment cost over
book value 1,441,336 20,885 -- 55 1,462,276
------------- ------------- -------------- -------------- -------------
Total assets..................... Ps. 4,966,522 Ps. 1,835,442 Ps. 961,399 Ps. (1,802,319) Ps. 5,961,044
============= ============= ============== ============== =============
LIABILITIES
Current Liabilities:
Notes payable.................... Ps. 744,428 Ps. 55,574 Ps. -- Ps. (55,574) Ps. 744,428
Current portion of long-term
debt........................... 56,758 -- -- 55,574 112,332
Trade accounts payable........... 306,545 122,079 34,843 (1,879) 461,588
Related parties.................. -- -- 712,946 (338,885) 374,061
Taxes and other payable.......... 172,971 272,879 19,399 (97,319) 367,930
Income tax....................... 6,228 85 194 -- 6,507
------------- ------------- -------------- -------------- -------------
Total current liabilities........ 1,286,930 450,617 767,382 (438,083) 2,066,846
------------- ------------- -------------- -------------- -------------
Long-term debt................... 340,921 207,028 -- -- 547,949
Trade accounts payable, long-
term........................... 10,328 -- -- -- 10,328
Commitments and contingencies.... -- 1,918 42 55 2,015
------------- ------------- -------------- -------------- -------------
Total liabilities................ 1,638,179 659,563 767,424 (438,028) 2,627,138
------------- ------------- -------------- -------------- -------------
Stockholders' equity:
Capital contributions............ 5,285,077 2,583,684 295,461 (2,879,145) 5,285,077
Earned capital................... (1,956,734) (1,407,805) (101,486) 1,509,291 (1,956,734)
Minority interest................ -- -- -- 5,563 5,563
------------- ------------- -------------- -------------- -------------
Total stockholders' equity....... 3,328,343 1,175,879 193,975 (1,364,291) 3,333,906
------------- ------------- -------------- -------------- -------------
Total liabilities and
stockholders' equity........... Ps. 4,966,522 Ps. 1,835,442 Ps. 961,399 Ps. (1,802,319) Ps. 5,961,044
============= ============= ============== ============== =============
Total stockholders' equity
under Mexican GAAP............. Ps. 3,328,343 Ps. 1,175,879 Ps. 193,975 Ps. (1,364,291) Ps. 3,333,906
Minority interest................ (5,563) (5,563)
Deferred income taxes............ (141,592) (46,530) (64,764) 1,160 (251,726)
Project 450 investment........... (64,106) (64,106)
------------- ------------- -------------- -------------- -------------
Total stockholders' equity
under US GAAP.................. Ps. 3,186,751 Ps. 1,065,243 Ps. 129,211 Ps. (1,368,694) Ps. 3,012,511
============= ============= ============== ============== =============
</TABLE>
F-41
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Total revenues................. Ps. 311,997 Ps. 2,398,900 Ps. 90,870 Ps. (1,101,629) Ps. 1,700,138
Total cost of sales............ 5,436 1,073,409 67,059 (477,516) 668,388
-------------------------------------------------------------------------------
Gross profit................. 306,561 1,325,491 23,811 (624,113) 1,031,750
Operating expenses............. 66,627 1,177,328 42,555 (549,963) 736,547
Depreciation and
amortization................. 246,343 357,121 1,403 (265) 604,602
------------- -------------- -------------- --------------- --------------
Operating loss............... (6,409) (208,958) (20,147) (73,885) (309,399)
------------- -------------- -------------- --------------- --------------
Integral financing cost:
Interest expense, net........ 106,308 30,751 82,551 61,457 281,067
Foreign exchange loss, net..... (59,835) (1,052) (1,228) (62,115)
Gain from monetary position.... (151,257) (57,127) (81,580) (58,329) (348,293)
------------- -------------- -------------- --------------- --------------
(104,784) (27,428) (257) 3,128 (129,341)
------------- -------------- -------------- --------------- --------------
Equity participation in net
income (loss) of associated
companies.................... 300,964 -- -- (294,971) 5,993
Provisions for:
Assets tax................... 20,918 50,869 (177) (36,411) 35,199
Employee profit sharing...... -- -- -- -- --
------------- -------------- -------------- --------------- --------------
20,918 50,869 (177) (35,411) 35,199
------------- -------------- -------------- --------------- --------------
Minority interest.............. -- (2,770) -- (409) (3,179)
------------- -------------- -------------- --------------- --------------
Extraordinary item............. 139,756 5,436 -- -- 145,192
Net loss for the year.......... Ps. (363,263) Ps. (235,065) Ps. (19,713) Ps. 254,778 Ps. (363,263)
============= ============== ============== =============== ==============
Net loss for the year
under Mexican GAAP........... Ps. (363,263) Ps. (235,065) Ps. (19,713) Ps. 254,778 Ps. (363,263)
Deferred income taxes.......... 83,354 96,321 179,675
Project 450 investment......... (64,106) (64,106)
Gain on net monetary position.. (141,517) 247,474 105,957
------------- -------------- -------------- --------------- --------------
Net gain (loss) for the year
under US GAAP................ Ps. (421,426) Ps. 44,624 Ps. (19,713) Ps. 254,778 Ps. (141,737)
============= ============== ============== =============== ==============
</TABLE>
F-42
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
We have reviewed the accompanying consolidated financial statements of Grupo
Iusacell, S.A. de C.V. and subsidiaries as of March 31, 1997 and 1996, and for
the three-month periods then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with generally accepted auditing standards
in Mexico, which are not significantly different than U.S. auditing standards. A
review of interim financial information consists principally of applying
analytical procedures to financial data and making inquires of persons
responsible for financial and accounting matters. It is substantially less in
scope than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
Coopers & Lybrand
Despacho Roberto Casas Alatriste
Juan Manuel Ferron Solis
Public Accountant
Mexico City, D.F. Mexico
April 18, 1997
F-43
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND 1997
(NOTES 1, 2, 3 AND 4)
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents.................................................................. Ps. 178,959 Ps. 57,950
Accounts receivable:
Trade, net of Ps.127,519 and Ps.99,171 of allowance for doubtful accounts (Note 4.d)..... 205,199 144,501
Related parties (Note 5)................................................................. 32,201 8,946
Recoverable taxes and other.............................................................. 55,782 148,600
------------- -------------
293,182 302,047
------------- -------------
Inventories (Note 6)....................................................................... 124,136 71,759
------------- -------------
Total current assets................................................................... 596,277 431,756
INVESTMENT IN ASSOCIATED COMPANIES (Note 7).................................................. 73,730 94,931
PROPERTY AND EQUIPMENT, net (Note 8)......................................................... 3,912,568 3,353,392
OTHER ASSETS, net (Note 9)................................................................... 680,065 705,131
EXCESS OF COST OF INVESTMENTS IN SUBSIDIARIES OVER BOOK VALUE, net of accumulated
amortization of Ps.138,436 in 1996 and Ps.185,869 in 1997 (Note 4.i)....................... 1,519,405 1,433,662
------------- -------------
Total assets........................................................................... Ps.6,782,045 Ps.6,018,872
============= ============
LIABILITIES
CURRENT:
Notes payable (Note 10).................................................................... Ps. 813,945 Ps. 793,353
Current portion of long-term debt (Note 10)................................................ 126,892 105,907
Trade accounts payable (Note 11)........................................................... 688,130 256,709
Related parties (Note 5)................................................................... 77,745 119,536
Taxes and other payables................................................................... 233,583 371,286
Income tax (Note 12)....................................................................... 3,370 17,071
Employee profit sharing (Note 12).......................................................... 902 124
------------- -------------
Total current liabilities................................................................ 1,944,567 1,663,986
------------- -------------
LONG-TERM DEBT (Note 10)..................................................................... 727,650 506,272
TRADE ACCOUNTS PAYABLE, LONG TERM (Note 11).................................................. 4,061 8,300
COMMITMENTS AND CONTINGENCIES (Notes 4.k and 13)............................................. 1,979 2,123
------------- -------------
Total liabilities........................................................................ 2,678,257 2,180,681
------------- -------------
STOCKHOLDERS' EQUITY
CONTRIBUTED CAPITAL (Note 14):
Capital stock:
Nominal.................................................................................... 2,356,153 2,937,742
Restatement................................................................................ 2,872,580 2,873,013
------------- -------------
5,228,733 5,810,755
------------- -------------
Capital contributed:
Nominal.................................................................................... 18,655 18,655
Restatement................................................................................ 37,689 37,689
------------- -------------
56,344 56,344
------------- -------------
5,285,077 5,867,099
------------- -------------
EARNED CAPITAL (Note 15):
Accumulated losses:
Legal reserve.............................................................................. 3,080 3,080
For prior years............................................................................ (1,095,439) (1,458,702)
For the year............................................................................... 105,915 (32,249)
------------- -------------
(986,444) (1,487,871)
Excess (deficit) from restatement.......................................................... (165,958) (546,148)
------------- -------------
Total majority stockholders' equity...................................................... 4,132,675 3,833,080
MINORITY INTEREST............................................................................ (28,887) 5,111
------------- -------------
Total stockholders' equity............................................................. 4,103,788 3,838,191
------------- -------------
Total liabilities and stockholders' equity............................................. Ps.6,782,045 Ps.6,018,872
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-44
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND 1997
(NOTES 1, 2, 3 AND 4)
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31,1997)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1996 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
REVENUES
Services........................................................................ Ps. 398,599 Ps. 318,766
Telephone equipment and other revenues.......................................... 53,918 51,474
------------- -------------
452,517 370,240
------------- -------------
COST OF SALES
Cost of services................................................................ 131,148 103,645
Cost of telephone equipment and other........................................... 20,249 28,317
------------- -------------
151,397 131,962
------------- -------------
Gross profit.................................................................. 301,120 238,278
OPERATING EXPENSES................................................................ 176,776 167,295
DEPRECIATION AND AMORTIZATION (Notes 4.h
and 8).......................................................................... 157,933 132,883
------------- -------------
Operating loss................................................................ (33,589) (61,900)
------------- -------------
INTEGRAL FINANCING (GAIN) (Notes 4.b and 16)
Interest expense, net........................................................... 73,035 54,810
Foreign exchange (gain) loss, net............................................... (49,822) 16,890
Gain on net monetary position................................................... (167,075) (111,600)
------------- -------------
(143,862) (39,900)
------------- -------------
EQUITY PARTICIPATION IN NET LOSS (INCOME) OF ASSOCIATED COMPANIES (Note 7)........ 72 (331)
------------- -------------
Income (loss) from continuing operations before assets tax, employee profit
sharing, and minority interest................................................ 110,201 (21,669)
------------- -------------
PROVISIONS FOR (Note 12)
Assets tax...................................................................... 8,109 10,822
Employee profit sharing......................................................... 32 --
------------- -------------
8,141 10,822
------------- -------------
Income (loss) before minority interest........................................ 102,060 (32,491)
MINORITY INTEREST................................................................. 3,855 (242)
------------- -------------
Net income (loss) for the year.................................................. Ps. 105,915 (Ps. 32,249)
============= =============
Weighted Average number of shares outstanding (thousands)......................... 981,624 1,035,094
============= =============
Net earnings (loss) per share (in pesos).......................................... Ps 0.11 Ps (0.03)
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-45
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
1994, 1995 AND 1996 AND THE THREE
MONTH PERIOD ENDED MARCH 31, 1997
(NOTES 1, 2, 3 AND 4)
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF
CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997)
<TABLE>
<CAPTION>
ACCUMULATED LOSSES
CAPITAL ----------------------------------------- (DEFICIT)
STOCK CAPITAL LEGAL FOR THE PRIOR EXCESS FROM
SUBSCRIBED CONTRIBUTIONS RESERVE YEAR YEARS RESTATEMENT
-------------- -------------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.......... Ps.3,562,076 Ps.56,344 Ps.3,080 Ps.(205,078) Ps.579,962 Ps.85,019
Application of 1993 net loss.......... 205,078 (205,078)
Sale of capital stock................. 1,824,341
Costs of stock issuance............... (157,684)
Recognition of the effects of
inflation on the financial
statements.......................... 559,051
Minority interest for the year........
Net loss for the year................. (701,077)
Balance at December 31, 1994.......... 5,228,733 56,344 3,080 (701,077) 374,884 644,070
-------------- ------------- --------- ------------- -------------- -------------
Application of 1994 net loss.......... 701,077 (701,077)
Recognition of the effects of
inflation on the financial
statements.......................... (423,194)
Minority interest for the year........
Net loss for the year................. (769,246)
Balance at December 31, 1995.......... 5,228,733 56,344 3,080 (769,246) (326,193) 220,876
-------------- ------------- --------- ------------- -------------- -------------
Application of 1995 net loss.......... 769,746 (769,246)
Recognition of the effects of
inflation on the financial
statements.......................... (721,988)
Minority interest for the year........
Net loss for the year................. (363,263)
Balance at December 31, 1996.......... 5,228,733 56,344 3,080 (363,263) (1,095,439) (501,112)
-------------- ------------- --------- ------------- -------------- -------------
Application of 1996 net loss.......... 363,263 (363,263)
Increase of capital stock............. 582,022
Recognition of the effects of
inflation on the financial
statements.......................... (45,036)
Minority interest for the period......
Net loss for the period............... (32,249)
Balance at March 31, 1997............. Ps.5,810,755 Ps.56,344 Ps.3,080 Ps.(32,249) Ps.(1,458,702) Ps.(546,148)
============== ============= ========= ============= ============== =============
<CAPTION>
TOTAL
MINORITY STOCKHOLDERS'
INTEREST EQUITY
----------- --------------
<S> <C> <C>
Balance at December 31, 1993.......... Ps.11,338 Ps.4,092,741
Application of 1993 net loss.......... --
Sale of capital stock................. 1,824,341
Costs of stock issuance............... (157,684)
Recognition of the effects of
inflation on the financial
statements.......................... 559,051
Minority interest for the year........ (4,092) (4,092)
Net loss for the year................. (701,077)
--
Balance at December 31, 1994.......... 7,246 5,613,280
----------- -------------
Application of 1994 net loss.......... --
Recognition of the effects of
inflation on the financial
statements.......................... (423,194)
Minority interest for the year........ (32,868) (32,868)
Net loss for the year................. (769,246)
Balance at December 31, 1995.......... (25,622) 4,387,972
----------- -------------
Application of 1995 net loss.......... --
Recognition of the effects of
inflation on the financial
statements.......................... (721,988)
Minority interest for the year........ 31,185 31,185
Net loss for the year................. (361,263)
Balance at December 31, 1996.......... 5,563 3,333,906
----------- -------------
Application of 1996 net loss.......... --
Increase of capital stock............. 582,022
Recognition of the effects of
inflation on the financial
statements.......................... (45,036)
Minority interest for the period...... (452) (452)
Net loss for the period............... (32,249)
Balance at March 31, 1997............. 5,111 Ps.3,838,191
=========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-46
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND 1997
(NOTES 1, 2, 3 AND 4)
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF
CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1996 1997
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) for the year.................................................... Ps.105,915 Ps. (32,249)
Items not requiring the use of resources:
Depreciation and amortization................................................. 157,933 132,883
Equity participation in net loss (income) of associated companies............. 72 (331)
Minority interest............................................................. (3,855) (242)
------------- -------------
260,065 100,061
------------- -------------
Resources provided by (used in) operating activities:
Trade accounts receivable....................................................... (26,912) (4,907)
Related parties................................................................. 7,967 (253,952)
Recoverable taxes and other..................................................... 4,760 (63,065)
Inventories..................................................................... 38,206 34,098
Trade accounts payable.......................................................... (197,557) (204,335)
Taxes and other payable......................................................... (37,362) 5,493
Income tax...................................................................... 2,136 10,600
Employees profit sharing........................................................ 563 (7)
Other........................................................................... 27 119
------------- -------------
Resources provided by (used in) operating activities.......................... 51,893 (375,895)
------------- -------------
FINANCING ACTIVITIES:
(Payments of) proceeds from long-term debt...................................... Ps.(83,456) Ps. 236,173
Principal payments on long-term debt............................................ (33,490) (280,678)
Net change in notes payable..................................................... 128,760 52,550
Increase of capital stock....................................................... -- 582,022
------------- -------------
Resources provided by financing activities.................................... 11,814 590,067
------------- -------------
INVESTING ACTIVITIES:
Purchase of property and equipment.............................................. (13,222) (31,608)
Sale (acquisition) of common stock of associated companies...................... 12,247 (1,594)
Disposal (purchase) of other assets............................................. (62,430) (219,064)
Minority interest............................................................... 540 (179)
------------- -------------
Resources used in investing activities........................................ (62,865) (252,445)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............................. 842 (38,273)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................. 178,117 96,223
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................................ Ps.178,959 Ps. 57,950
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-47
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
1. ENTITY AND NATURE OF BUSINESS
Grupo Iusacell, S.A. de C.V. (the "Company") is a holding Company which was
incorporated on October 6, 1992. Its subsidiaries are primarily engaged in the
wireless telecommunications business and hold concessions to operate cellular
telephone systems in four proximate market areas ("Regions") in Mexico. In
October 1995, the Company received a Concession from the Mexican Government to
operate as a long distance carrier and started its operations in this market on
August 11, 1996. During 1996, the Company signed a joint venture agreement for
the operation of nationwide and international paging services. The Company
started to provide paging services in August, 1996.
The Peralta Family and Bell Atlantic Corporation ("Bell Atlantic") hold
substantial ownership interests (direct or indirect) in the Company.
On November 26, 1996, the Company's shareholders announced that they signed
an agreement in principle to change the management control of Grupo Iusacell,
S.A. de C.V., from the Peralta Family to Bell Atlantic, subject to certain
Mexican Government approvals. Bell Atlantic assumed such management control on
February 18, 1997. (See Note 14.)
The Company and its subsidiaries are referred to collectively herein as the
"Group" or "Grupo Iusacell".
2. ACQUISITIONS AND GROUP REORGANIZATION
ACQUISITION OF REGION 6 AND 7
In 1993, the Company obtained ownership of Sistemas Telefonicos Portatiles
Celulares, S.A. de C.V. ("Portacel") and Telecomunicaciones del Golfo, S.A. de
C.V. ("Telgolfo"). Portacel and Telgolfo hold the non-wireline cellular
concessions for Region 6 and Region 7, respectively.
The cost incurred in 1993 to acquire control of Portacel and Telgolfo
amounted to Ps.845,939, of which Ps.721,656 represented the excess of investment
cost over the book value.
In February 1994 the Company purchased the remaining minority ownership
interest of Telgolfo for Ps.51,560, of which Ps.47,993 represented the excess of
investment cost over the book value.
ACQUISITION OF REGION 5
In 1993, the Company acquired 67% of Hermes Telecomunicaciones, S.A. de C.V.
("Hermes"), a company that owns 51% of Comunicaciones Celulares de Occidente,
S.A. de C.V. ("Comcel"). Comcel holds the non-wireline cellular concession for
Region 5. The Company could not exercise significant influence over Comcel as an
arbitration proceeding was initiated by a minority shareholder of Comcel.
Although this arbitration was settled in November 1993, the settlement agreement
provided for a stand-still arrangement until January 3, 1994. The expenses
related to the arbitration were charged to excess of cost of investment in
subsidiaries over book value in 1994. Accordingly, the Company's investment in
Comcel was accounted for using the cost basis of accounting from the date of
acquisition through December 31, 1993. In December 1993, the Company reached an
agreement to purchase the remaining interests in both Comcel and Hermes. The
Company's cost of acquiring Comcel and Hermes totaled Ps.1,104,622, of which
Ps.895,515 represented the excess of investment cost over book value.
F-48
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
2. ACQUISITIONS AND GROUP REORGANIZATION (CONTINUED)
OTHER ACQUISITIONS
In 1994, the Company acquired 51% of Telecomunicaciones Digitales
Internacionales, S.A. de C.V. (now Iusatel Chile, S.A. de C.V.). The Company
purchased this ownership interest for Ps.30,319, which was the book value of the
shares acquired. During 1996, the Company increased its ownership in Iusatel
Chile, S.A. de C.V. from 51% to 100% through the capitalization of certain
liabilities and the payment of U.S.$100 to the minority shareholders. In
December 1996, the Company sold its debt and equity in Iusatel Chile, S.A. de
C.V. for U.S.$5,000. Payment was received in the form of three promissory notes
which mature between March and July 1997.
In August 1994, the Company increased its ownership in Compania Colombiana
de Telefonia Celular, S.A. ("Telecel") from 28.5% to 63.25%, by acquiring an
additional 34.75% interest. The cost to acquire this interest was Ps.32,680, of
which Ps.23,150 represented the excess of investment cost over book value. In
March 1995, the Company increased its ownership interest in Telecel through a
capital contribution of Ps.767. Through this contribution, the Company increased
its ownership in Telecel from 63.25% to 70.14%.
On December 13, 1994, Iusacell, S.A. de C.V. (subsidiary company) acquired
99.99% of Inmobiliaria Montes Urales 460, S.A. de C.V. The cost was Ps.70,591,
of which Ps.13,264 represented the excess of cost of investment over book value.
In August 1995, the Company acquired from a related party 100% of Iusatel,
S.A. de C.V. Starting August 11, 1996 this company began to provide national and
international long distance basic telephone pursuant to a concession received
from the Mexican Government in October 1995.
In August 1995, the Company incorporated as a new subsidiary, Grupo Iusacell
de Nicaragua, S.A..This company holds the shares of a company named Radio
Telefonia Rural de Nicaragua, S.A. which in July 1995 entered into a joint
venture agreement with the Nicaraguan Telecommunications Ministry for the
provision of fixed wireless local telephone services. In May 1996, the
Nicaraguan Telecommunications Ministry revoked the agreement. As of December 31,
1996, the Company has not made any investment in this project and has no
commitments for any such investments.
In December 1995, the Company signed a joint venture agreement with Infomin,
S.A. de C.V., a Mexican company which holds a fifteen-year concession to provide
nationwide and international paging services through July 2009. Pursuant to this
agreement, in March 1996, the Company and Infomin established a joint venture
company, Infotelecom, S.A. de C.V., which is owned 51% and 49% by the Company
and Infomin, respectively. The Company committed to contribute up to
U.S.$10,500; as of December 31, 1996 the Company has invested U.S.$3,300 in the
joint-venture.
In January 1996, the Company increased its ownership in Rentacell, S.A. de
C.V. from 33.33% to 70%. As of December 31, 1995 the investment in Rentacell,
S.A. de C.V. was accounted for using the equity method. Starting January 1996,
the Company consolidated the assets, liabilities and operating results of this
subsidiary which rents cellular phones.
In December 1996, the Company increased its ownership in Promotora Celular,
S.A. de C.V. from 75% to 100% through the capitalization of certain liabilities.
F-49
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
2. ACQUISITIONS AND GROUP REORGANIZATION (CONTINUED)
GROUP REORGANIZATION
In late 1995 and during 1996, the Company's subsidiaries were reorganized.
This reorganization consisted of the following operations:
At an extraordinary stockholders' meeting held on December 29, 1995, the
subsidiaries, Telcom Celular, S.A. de C.V. (Region 7) and Portacom, S.A. de C.V.
(Region 6) were merged with and into Iusacell, S.A. de C.V. This merger was made
based on the financial statements of the three companies as of December 31,
1995.
At an extraordinary stockholders' meeting held on December 29, 1995,
Servicios Corporativos Iusacell, S.A. de C.V. was merged with and into Sistecel,
S.A. de C.V. This merger was made based on the financial statements of both
companies as of December 31, 1995.
At an extraordinary stockholders' meeting held on December 31, 1996, the
respective stockholders of Hermes Telecomunicaciones, S.A. de C.V., GMD
Comunicaciones, S.A. de C.V. and Portaserv, S.A. de C.V., voted to dissolve
these companies. From such date, these three companies will not perform any
transactions except for those necessary to wind-up their pending businesses.
F-50
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
2. ACQUISITIONS AND GROUP REORGANIZATION (CONTINUED)
SUMMARY
The subsidiary companies which are included within the consolidated
financial statements are as follows (directly or indirectly):
<TABLE>
<CAPTION>
OWNERSHIP AS OF
MARCH 31,
------------------------
<S> <C> <C>
SUBSIDIARY 1996 1997
- ----------------------------------------------------------------------------------- ----- -----
S.O.S. Telecomunicaciones, S.A. de C.V............................................. 100% 100%
Iusacell, S.A. de C.V.............................................................. 100% 100%
Sistecel, S.A. de C.V.............................................................. 100% 100%
Satelitron, S.A. de C.V............................................................ 51% 51%
Comunicaciones Celulares de Occidente, S.A. de C.V. (Region 5)..................... 100% 100%
Sistemas Telefonicos Portatiles Celulares, S.A. de C.V. (Region 6)................. 100% 100%
Telecomunicaciones del Golfo, S.A. de C.V.......................................... 100% 100%
Inflight Phone de Mexico, S.A. de C.V.............................................. 100% 100%
GMD Comunicaciones, S.A. de C.V.................................................... 100% 100%
Hermes Telecomunicaciones, S.A. de C.V............................................. 100% 100%
Inmobiliaria Montes Urales 460, S.A. de C.V........................................ 100% 100%
Portaserv, S.A. de C.V............................................................. 100% 100%
Mexican Cellular Investments, Inc.................................................. 100% 100%
Iusanet, S.A. de C.V............................................................... 100% 100%
Iusatel Chile, S.A. de C.V......................................................... 51% --
Compania Colombiana de Telefonia Celular, S.A...................................... 70% 70%
Promotora Celular, S.A. de C.V..................................................... 75% 100%
Cellular Solutions de Mexico, S.A. de C.V.......................................... 68% 68%
Iusatelecomunicaciones, S.A. de C.V................................................ 100% 100%
Iusatel, S.A. de C.V............................................................... 100% 100%
Grupo Iusacell Nicaragua, S.A...................................................... 100% 100%
Infotelecom, S.A. de C.V........................................................... -- 51%
Rentacell, S.A. de C.V............................................................. 33% 70%
</TABLE>
3. BASIS OF PRESENTATION
A) BASIS OF PRESENTATION
The Group's consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in Mexico ("Mexican
GAAP").
The consolidated financial statements for the two periods have been
presented in thousands of constant Mexican pesos as of March 31, 1997 as
required by Bulletin B-10, "Recognition of the Effects of Inflation on Financial
Information", as amended, issued by the Mexican Institute of Public Accountants
("Bulletin B-10"). All amounts presented in U.S. dollars are in thousands.
The amounts as of March 31, 1996, presented in the financial statements and
in the notes have been restated based on the 1996 inflation rate in order to
present them in Mexican pesos of purchasing power as of March 31, 1997.
F-51
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
3. BASIS OF PRESENTATION (CONTINUED)
In management's opinion, the interim consolidated financial statements as of
March 31, 1996 and 1997 include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of results for such an
interim period. Certain information and note disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted; however, the Company believes that the
disclosures made are adequate to make the information presented not misleading.
The Unaudited Consolidated Financial Statements as of March 31, 1996 and
1997 and for the three-month periods then ended, have been prepared in
accordance with Mexican GAAP. Significant differences between Mexican and U.S.
GAAP are described in note 19 to the Audited Consolidated Financial Statements
included elsewhere herein. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations--U.S. GAAP Reconciliation". As of
March 31, 1996 and 1997, and for the three-month periods then ended, there are
no significant variations that are not quantified with respect to their
occurrence in the Audited Consolidated Financial Statements as of December 31,
1994, 1995, and 1996.
B) CONSOLIDATED FINANCIAL STATEMENTS
Those companies in which the Group holds 50% or more of the capital stock
and exercises control over operating and financing activities are included in
the consolidated financial statements.
All significant intercompany balances and transactions have been eliminated
in consolidation.
C) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
4. ACCOUNTING POLICIES
A summary of the Group's significant accounting policies is as follows:
A) MONETARY UNIT
The statements are presented in Mexican pesos, the currency that, based on
the Mexican laws, must be used to prepare the accounting records of the Company
and of its Mexican subsidiaries. All amounts presented in the 1996 and 1997
consolidated financial statements are expressed in thousands of Mexican pesos.
B) EFFECTS OF INFLATION ON THE FINANCIAL STATEMENTS
The consolidated financial statements of the Group have been prepared in
accordance with Bulletin B-10. The Third Amendment of Bulletin B-10, effective
for fiscal years beginning January 1, 1990 and thereafter, requires the
restatement of all comparative financial statements to constant Mexican pesos as
F-52
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
of the date of the most recent balance sheet presented. Accordingly, the
consolidated financial statements have been restated as follows:
- Consolidated income statements for the current and prior year have been
restated to constant Mexican pesos as of March 31, 1997 using the NCPI
(National Consumer Price Index), published by Banco de Mexico (The
Mexican Central Bank) from the periods in which the transactions (income
and expenses) ocurred.
- Bulletin B-12, "Statement of Changes in Financial Information", issued by
the Mexican Institute of Public Accountants ("Bulletin B-12"), addresses
the appropriate presentation of the statement of changes in financial
position where financial statements have been restated to constant pesos
as of the latest balance sheet date. Bulletin B-12 identifies the
generation and application of resources representing differences between
beginning and ending balance sheet balances in constant Mexican pesos,
excluding the effect of holding non-monetary assets.
The items which originate from the recognition of effects of inflation on
financial information are as follows:
Restatement of non-monetary assets:
Inventories are valued at the average price of the purchases made during the
period, and are restated using the NPCI, without exceeding the net realizable
value.
Property and equipment other than real estate are stated at net replacement
cost. Real estate properties are stated at their fair market value. Net
replacement cost and fair market values were determined from appraisals
performed by independent appraisers registered with the Comision Nacional
Bancaria y de Valores (Mexican National Banking and Securities Commission). The
last appraisal is dated March 31, 1997.
Property and equipment are depreciated using the straight-line method, based
on the restated values. Useful lives are determined by independent appraisers.
The average annual rates used by the Company are as follows:
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
Buildings and facilities....................................................... 3% 3%
Communication equipment........................................................ 10% 9%
Furniture and fixtures......................................................... 8% 9%
Transportation equipment....................................................... 15% 17%
Computer equipment............................................................. 21% 21%
Cellular rental telephones..................................................... 49% 50%
</TABLE>
Investments in associated companies are accounted for using the equity
method based on the investees' equity adjusted for the effects of inflation in
accordance with Bulletin B-10.
Restatement of stockholders' equity:
The common stock and retained earnings accounts include the effect of
restatement determined by applying the NCPI factor from the date capital was
contributed or earned. The restatement represents the amount required to
maintain the contributions and accumulated results in constant Mexican pesos as
of March 31, 1997.
F-53
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
The excess or deficit from restatement of capital is an element of
stockholders' equity that includes surplus or deficit from holding non-monetary
assets, which represents the excess or deficit in specific values of net
non-monetary assets in comparison with or below the increase attributable to
general inflation as measured by the NCPI.
Integral financing result:
Integral financing result comprises net interest expense, foreign exchange
gains and losses, and gains and losses from net monetary position.
Foreign exchange gains and losses on transactions denominated in currency
other than Mexican pesos result from fluctuations in exchange rates from the
date transactions are recorded to the time of settlement or valuation at the end
of the period.
Gains and losses from monetary position represent the effects of inflation,
as measured by the NCPI, on the Group's monetary assets and liabilities at the
beginning of each month. If monetary liabilities exceed monetary assets, there
is a gain from monetary position. Otherwise, if monetary liabilities are less
than monetary assets, there is a resulting loss from monetary position.
C) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of short term, fixed rate
investments and bank deposits. The investments are carried at cost plus accrued
interest, which approximates market value. These investments are highly liquid
cash equivalents, having a maturity of ninety days or less when acquired.
D) ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company cancels service to those customers with invoices that are 60
days past due. Beginning in 1996, the Company began to fully reserve accounts
receivable that were 90 days past due. Prior to 1996, the Company fully reserved
accounts receivable over 120 days past due. The accumulated effect at the
beginning of the year for the change of this estimate was Ps.5,406 and such
amount is presented as part of the reorganization reserve. The charge to income
for the period, to increase the allowance for doubtful accounts, amounted to
Ps.21,503 and Ps.5,368, in 1996 and 1997, respectively.
E) INVESTMENT IN ASSOCIATED COMPANIES
Long-term investments in common stock of companies in which the Group owns
not less than 20% nor more than 50% of the entity's voting common stock and over
which the Company can exercise significant influence are accounted for using the
equity method. Under the equity method such investments are carried at cost
adjusted for the Company's share of the net income or losses of these companies
and the effects of their restatement of non-monetary assets.
Investments of less than 20% of an entity's voting common stock or over
which the Company can not exercise significant influence are stated at cost.
F) CELLULAR TELEPHONES
Cellular telephones given to customers through an exclusive service contract
are amortized over the initial contract period. The amortization is periodically
reviewed and adjusted if the customer does not
F-54
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
fulfill the original agreement. The cost of such telephones are included in
other assets, net of amortization.
The cost of cellular telephones sold to customers is recorded as a cost of
telephone equipment sold. Telephones leased to customers are included in fixed
assets and are depreciated over the initial contract period, generally two
years.
G) CONCESSIONS
Costs related to the acquisition of concessions issued by the Mexican
Government to provide cellular telephone services have been capitalized and are
included in other assets. Such costs are amortized on a straight-line basis over
a twenty year period, which is the period of the concession. The Mexican
Government requires that the Company comply with the specific requirements of
each concession. The Company has substantially complied with such requirements
through March 31, 1997, except for certain informational requirements of the
authorities. The Company believes this does not expose the concessions to any
regulatory risk.
H) ADVERTISING
Prepaid media advertising costs are included in other assets in the
accompanying balance sheet. Such costs are expensed as incurred and are included
in current operating expenses. Advertising expenses amounted to Ps.26,670 and
Ps.36,730, for 1996 and 1997, respectively.
I) EXCESS OF COST OF INVESTMENT IN SUBSIDIARIES OVER BOOK VALUE
The excess of cost over the book value of net assets of acquired
subsidiaries is amortized on a straight-line basis over twenty years.
Amortization expense was Ps.19,855 and Ps.20,269 in 1996 and 1997, respectively.
The carrying amount applicable to each acquired subsidiary is reviewed if
the facts and circumstances suggest that it might be impaired.
J) INCOME TAXES AND EMPLOYEE PROFIT SHARING
Income taxes are computed in accordance with the partial liability method,
as required by Bulletin D-4, "Accounting Treatment for Income Tax Employee
Profit Sharing", issued by the Mexican Institute of Public Accountants
("Bulletin D-4"), under which deferred income taxes are provided for
identifiable, non-recurring temporary differences (i.e., those expected to
reverse over a definite period of time) at rates in effect at the time such
differences arise, and reversed at the rates in effect at the time such
differences reverse. In accordance with Bulletin D-4, the Company did not make a
provision for deferred taxes as of March 31, 1996 and 1997.
Employee profit sharing is a statutory labor obligation payable to employees
which is determined on the basis of each subsidiary's pre-tax income as adjusted
in accordance with the provisions of the Mexican Labor Law and the Mexican Tax
Law.
F-55
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
K) SENIORITY PREMIUMS
In accordance with Mexican Labor Law, the Group's employees are entitled to
seniority premiums after 15 years of service or upon dismissal, disability or
death. The Group follows Bulletin D-3, "Labor Obligations", issued by the
Mexican Institute of Public Accountants ("Bulletin D-3"). Under Bulletin D-3,
the actuarially determined projected benefit obligation is computed using
estimates of salaries that will be in effect at the time of payment. Personnel
not yet eligible for seniority premiums are also included in the determination
of the obligation with necessary adjustments made in accordance with the
probability that these employees will reach the required seniority.
Also, in accordance with Mexican Labor Law, the Company is liable for
severance payments to employees who are dismissed under certain circumstances.
Such compensation is recognized when paid.
The Company has no employee pension plans and does not provide any other
post retirement benefits.
L) REVENUE RECOGNITION
Cellular air time is recorded as revenue when provided. Sales of equipment
and related services are recorded when goods and services are delivered.
Cellular access charges are billed in advance and recognized when the services
are provided. Other revenue, mainly paging and long distance services, are
recognized on provision of these services.
M) FOREIGN CURRENCY TRANSACTIONS
Foreign currency transactions are recorded at the exchange rates in effect
at the transaction date. Assets and liabilities denominated in foreign
currencies are translated to Mexican pesos using the exchange rates in effect at
the time of settlement or valuation at each balance sheet date with resulting
exchange differences being recognized as exchange gains or losses.
N) NEW ACCOUNTING BULLETINS
As of January 1, 1997, the Company adopted the following new bulletins:
1. The Fifth Amendment to Bulletin B-10 requires that the amounts for
non-monetary assets be restated only for changes in the NCPI after December 31,
1996. The specific cost method will no longer be used. Replacement cost at
December 31, 1996 will become the basis for future adjustments for general price
level increases. In May 1997, changes to this Amendment were proposed for
approval of the Mexican Accounting Stardards Commission.
2. Bulletin B-14 requires the disclosure of basic and diluted earnings per
share and the basis for calculating such amounts.
5. RELATED PARTIES
The Peralta Family and Bell Atlantic hold substantial ownership interests
(direct or indirect) in the Company. In addition, the Peralta Family holds
ownership interests in various other entities, primarily
F-56
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
5. RELATED PARTIES (CONTINUED)
Industrias Unidas, S.A. de C.V. ("IUSA") and related entities which are
customers of or suppliers to the Company.
A summary of related party accounts and notes receivable as of March 31, is
as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
IUSA and related entities........................................ Ps. 25,703 Ps. 3,367
Peralta Family entities.......................................... 6,498 5,579
------------ ------------
Total........................................................ Ps. 32,201 Ps. 8,946
============ ============
</TABLE>
Accounts receivable result from the sale of cellular telephone services,
operating lease contracts and the transfer during 1995 to IUSA of the investment
in a real estate project.
Accounts and notes payable to related parties as of March 31, are as
follows:
<TABLE>
<CAPTION>
1996 1997
------------ --------------
<S> <C> <C>
IUSA and related entities...................................... Ps. 16,972 Ps. --
Peralta Family entities........................................ 1,842 2,381
FIUSA Pasteje.................................................. -- 497
Bell Atlantic.................................................. 58,931 116,658
------------ --------------
Total...................................................... Ps. 77,745 Ps. 119,536
============ ============
</TABLE>
The payable accounts result from the leasing of some facilities and services
received. The notes payable to FIUSA Pasteje and Bell Atlantic result from the
financing of the Company's operations.
F-57
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
6. INVENTORIES
As of March 31, inventories are made up by the following:
<TABLE>
<CAPTION>
1996 1997
------------- -----------
<S> <C> <C>
Cellular telephones and accesories............................... Ps.111,578 Ps.66,620
Allowance for obsolete and slow-moving inventories............... (44,683) (26,827)
------------- -----------
Net............................................................ Ps. 66,895 Ps.39,793
Advances to suppliers............................................ 57,241 31,966
------------- -----------
Total inventories.............................................. Ps.124,136 Ps.71,759
============= ===========
</TABLE>
7. INVESTMENT IN ASSOCIATED COMPANIES
As of March 31, the Company's investment in associated companies is as
follows:
<TABLE>
<CAPTION>
1997
--------------------------
<S> <C> <C>
ENTITY OWNERSHIP INVESTMENT
- ------------------------------------------------------------------- ------------- -----------
Editorial Celular, S.A. de C.V..................................... 40.00% Ps. 2,498
Consorcio Ecuatoriano de Telecomunicaciones, S.A................... 27.53% 86,506
Other.............................................................. 5,927
-----------
Total.......................................................... Ps.94,931
===========
</TABLE>
Since 1996, Rentacell, S.A. de C.V. has been consolidated, see Note 2.
F-58
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
8. PROPERTY AND EQUIPMENT
a) At March 31, property and equipment consisted of:
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
<S> <C> <C>
Buildings and facilities.................................... Ps.1,043,510 Ps. 974,547
Communication equipment..................................... 3,527,283 3,183,566
Furniture and fixtures...................................... 61,082 65,384
Transportation equipment.................................... 31,395 36,527
Computer equipment.......................................... 162,000 178,277
Cellular rental telephones.................................. 23,127 24,539
--------------- ---------------
Ps.4,848,397 Ps.4,462,840
Accumulated depreciation.................................... (1,302,541) (1,518,513)
--------------- ---------------
Ps.3,545,856 Ps.2,944,327
Land........................................................ 36,679 34,767
Construction in progress.................................... 213,574 140,879
Advances to suppliers....................................... 116,459 233,419
--------------- ---------------
Ps.3,912,568 Ps.3,353,392
=============== ===============
</TABLE>
b) Depreciation expense was Ps.77,071 and Ps.73,326 for 1996 and 1997,
respectively. In 1996 the Company established an obsolescence reserve of
Ps.34,152 for certain communication equipment, which is included in the
accumulated depreciation and is part of the restructuring expenses classified as
an extraordinary item.
9. OTHER ASSETS
At March 31, other assets consisted of the following:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Concessions..................................................... Ps.170,412 Ps.158,100
Cellular telephones to be amortized............................. 171,380 77,041
Prepaid expenses................................................ 66,295 44,263
Advertising expenses............................................ 35,345 28,309
Preoperating expenses........................................... 218,567 389,014
Other........................................................... 18,066 8,404
------------- -------------
Ps.680,065 Ps.705,131
============= =============
</TABLE>
Cellular telephones amortization expense was Ps.58,319 and Ps.34,395 in 1996
and 1997, respectively.
Preoperating expenses mainly represent the investment in Project 450 (See
Note 17).
F-59
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
10. NOTES PAYABLE AND LONG-TERM DEBT
At March 31, the notes payable and long-term debt consisted of the
following:
Notes payable at March 31, are as follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Short-term loan of U.S.$35,175 bearing interest at a variable
rate of LIBOR plus 4% and maturing on
August 22, 1997............................................... Ps. -- Ps.278,326
Unsecured business short term loan of U.S.$65,000 bearing
interest at a variable rate of LIBOR plus 4% and maturity
dates from February through March 1997........................ 188,350 514,319
Short-term loan of U.S.$40,666 bearing interest at a fixed rate
of LIBOR + 9/16 + 5.5% and maturing on June 28, 1996.......... 382,970 --
Short-term loan of U.S.$5,900 bearing interest at a fixed rate
of LIBOR + 9/16 + 5.5 and maturing on
May 10, 1996.................................................. 55,563 --
Short-term loan U.S.$3,000 bearing interest at a fixed rate of
LIBOR + 9/16 + 5.5 and maturing on
April 18, 1996................................................ 28,253 --
Short-term loan of U.S.$5,308 bearing interest at a fixed rate
of 5.30% and maturing on May 15, 1996......................... 48,377 --
Short-term loan of U.S.$5,576 bearing interest at a fixed rate
of 10.25% and maturing on May 15, 1996........................ 50,818 --
Short-term loan of U.S.$6,296 bearing interest at variable rates
that range from 11.09% to 11.8% and maturity dates from April
to November 1996.............................................. 59,291 --
Other........................................................... 323 708
------------- -------------
Total....................................................... Ps.813,945 Ps.793,353
============= =============
</TABLE>
Long-term debt at March 31, consisted of:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Medium term loan of U.S.$179 bearing interest at a variable rate
of LIBOR plus 3% and maturing on
February 18, 1998. Interest and principal are payable
semiannually commencing August 1993........................... Ps. 1,684 Ps. --
Long-term loan of U.S.$2,096 bearing interest at a rate of T.
Notes plus 5% maturing September 30, 1998. Interest and
principal are payable semiannually commencing September
1993.......................................................... 24,673 16,585
</TABLE>
F-60
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Obligations for equipment under capitalized leases for U.S.$593
at a variable rate of LIBOR plus 2.5% maturing on December 28,
1998. Interest and principal are payable semiannually
commencing June 1994.......................................... 8,552 4,692
Long-term loan of U.S.$20,707 bearing interest at a variable
rate of LIBOR plus 2.9375% maturing December 2001. Interest
and principal are payable semiannually commencing June 15,
1994.......................................................... 195,007 135,359
Long-term loan of U.S.$3,333 bearing interest at a rate of
5.8125% maturing April 15, 2002. Interest and principal are
payable semiannually commencing April 1993.................... 37,095 26,373
Long-term loan of U.S.$7,274 bearing interest at a rate of
12.55% maturing on July 15, 2002. Interest and principal are
payable semiannually commencing January 1994.................. 80,957 57,555
Long-term loan of U.S.$33,809 bearing interest at a variable
rate of LIBOR plus 4% maturing on December 17, 2003. Interest
and principal are payable semiannually commencing June
1994.......................................................... 363,884 267,519
Long-term loan of U.S.$13,156s bearing interest at a variable
rate of LIBOR plus 3.75% maturing on November 14, 2004.
Interest and principal are payable semiannually commencing
July 1994..................................................... Ps.139,382 Ps.104,096
Other........................................................... 3,308 --
------------- -------------
Total....................................................... Ps.854,542 Ps.612,179
Less current portion.................................... 126,892 105,907
------------- -------------
Ps.727,650 Ps.506,272
============= =============
</TABLE>
Certain loan agreements, among other conditions, impose certain restrictive
covenants such as maintenance of certain ratios, restrictions on incurring of
additional debt, and restrictions on the sale or lease of the Company's assets.
At March 31, 1997 total unused lines of credit totaled Ps.672,571
(U.S.$85,000). The Company has paid no commitment fees for these lines of
credit.
At March 31, 1996 and 1997 assets collateralizing long-term debt include
substantially all assets, (including the Government concessions) of Region 5 and
6, and other property and equipment.
The Group leases certain communication equipment and transportation
equipment under agreements which are classified as capital leases. Most
equipment leases have purchase options at the end of
F-61
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
the original lease term. Leased capital assets, included in property and
equipment at March 31, 1996 and 1997, are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Communication equipment............................................ Ps.19,684 Ps.24,072
Transportation equipment........................................... 2,477 --
----------- -----------
Total equipment leased........................................... Ps.22,161 Ps.24,072
Accumulated depreciation........................................... (4,105) (5,241)
----------- -----------
Net equipment leased............................................. Ps.18,056 Ps.18,831
=========== ===========
</TABLE>
11. TRADE ACCOUNTS PAYABLE
At March 31, trade accounts payable consisted of the following:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Current accounts................................................ Ps.209,248 Ps.225,381
Note payable.................................................... 478,882 31,328
------------- -------------
Total....................................................... Ps.688,130 Ps.256,709
------------- -------------
Long-term notes payable......................................... Ps. 4,061 Ps. 8,300
============= =============
</TABLE>
As of March 31, 1997, the Company has only partially paid amounts invoiced
by Telefonos de Mexico, S.A. de C.V. ("Telmex") since it believes that Telmex
did not have the legal right to charge certain invoiced amounts. These disputed
charges are being negotiated with Telmex. At March 31, 1997 the Company has
established adequate reserves to cover these liabilities. Additionally, the
Group's subsidiaries have claimed from Telmex the payment of certain fees for
reciprocal termination changes which the Company has the right to collect based
on the Federal Telecommunications Law (Ley Federal de Telecomunicaciones)
published on June 7, 1995 and the regulations issued thereunder.
12. INCOME TAX, ASSETS TAX AND EMPLOYEE PROFIT SHARING
In December 1993, the Mexican tax authorities granted the Group permission
to file a consolidated income tax return commencing with the tax year beginning
January 1, 1994.
The provision for income tax differs from the statutory income tax rate due
to temporary and permanent differences in the determination of the income for
tax reporting and financial reporting purposes. The most significant temporary
differences are the tax deduction for inventory purchases and certain liability
accruals which are deductible only when paid for tax purposes. The most
important permanent items are the differences between book and tax depreciation,
the goodwill amortization and non deductible expenses.
In accordance with Mexican accounting principles, no deferred taxes have
been provided on temporary differences since such differences are of a recurring
nature and their realization cannot be foreseen in a defined period of time.
F-62
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
The 1.8% (2% in 1994) net assets tax is calculated on the average value of
substantially all assets less certain liabilities. This tax is required to be
paid if this computation exceeds the amount of income tax. The 1.8% assets tax
paid may be utilized as a credit against future income tax in the years in which
the Company generates an income tax in excess of the assets tax. The assets tax
is available as a carry forward for up to ten years and is subject to
restatement based on the National Consumer Price Index when used. As of March
31,1997, the net assets tax available as a carry forward is Ps.88,069.
At March 31, 1997, the Group had the following net operating losses for
income tax purposes that may be carried forward and applied against future
taxable earnings:
<TABLE>
<CAPTION>
YEAR OF LOSS AMOUNT OF LOSS EXPIRATION YEAR
- ----------------------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
1991......................................................................... Ps. 22,192 2001
1992......................................................................... 330 2002
1993......................................................................... 49,394 2003
1994......................................................................... 1,043,107 2004
1995......................................................................... 538,984 2005
1996......................................................................... 35,771 2006
</TABLE>
These losses are indexed for inflation from the year incurred to the year
utilized. Accordingly, these amounts include the inflation up to June 1996.
Losses include Ps.156,825 and Ps.236,034 of capital stock issuance costs
expensed for tax purposes in 1993 and 1994. Such amounts were charged to
stockholders' equity in the consolidated financial statements.
Employee profit sharing is generally computed on taxable income, with
adjustments to exclude inflationary effects and the restatement of depreciation
expense. For the three months ended March 31, 1996 and 1997 there was no profit
sharing expense.
13. COMMITMENTS AND CONTINGENCIES
As of March 31, 1997 the Company has the following commitments and
contingent liabilities:
a) The Company has entered into operating lease agreements for
administrative offices, sales branches, and service facilities. Such lease
agreements expire at various dates through 2002. Some contain options for
renewal. Rental expense was Ps.13,785 and Ps.13,309 for the periods ended
March 31, 1996 and 1997, respectively.
Future minimum rental payments under existing leases with terms in excess of
one year as of December 31, 1996 are as follows:
1997............................................................. Ps.33,007
1998............................................................. 17,489
1999............................................................. 15,038
2000............................................................. 11,652
Thereafter....................................................... 6,249
F-63
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
b) For the taxes and penalties that the tax authorities may collect if
they disagree with the criteria applied by the Company regarding the
calculation of some taxes, rights and federal contributions as a result of
prior years' tax returns. As of this date there has been no notification of
disagreement from the authorities. In February 1996, the Tax authorities
(Secretaria de Hacienda y Credito Publico) started an audit in three
companies of the Group (Grupo Iusacell, S.A. de C.V., Iusacell, S.A. de C.V.
and SOS Telecomunicaciones, S.A. de C.V.). The Company does not anticipate
that any tax difference or penalties will be originated by this audit which
would be material to the Company's financial position or results of
operation.
c) Mitsubishi Electronics America Inc. filed a complaint in the United
States on July 18, 1996 against Grupo Iusacell, S.A. de C.V. and Bell
Atlantic Corporation. Essentially, Mitsubishi alleges that it had a contract
with Grupo Iusacell for the sale of telephone terminals and that Iusacell
has breached the contract by not purchasing the terminals. Mitsubishi
alleges the contract was for the sale of 60,000 units at a cost of
U.S.$0.510 each. Grupo Iusacell has filed a motion to dismiss for lack of
personal jurisdiction. Based on the opinion of external lawyers and because
of the pending motions it is too early to evaluate the possibility of
settlement or the extent of Grupo Iusacell's exposure, if any, to loss by
judgment.
d) In 1996, the Company received a notification from the authorities
requesting the payment of surcharges related to the purchase completed in
three installments in 1990 of the Region 5 concession. This Region was
bought by Grupo Iusacell in 1993 (see Note 2). The opinion of external
counsel is that this request is legally unfunded.
14. CONTRIBUTED CAPITAL
At March 31, 1996 and 1997, the issued and outstanding shares of common
stock of the Company, without par value, are made up as follows:
<TABLE>
<CAPTION>
1996 1997
-------------- ----------------
<S> <C> <C>
Series A................................................... 428,575,540 746,753,410
Series B................................................... 205,562,450 5,562,450
Series D................................................... 204,920,220 186,904,725
Series L................................................... 142,566,220 142,658,784
-------------- ----------------
Total.................................................. 981,624,430 1,081,879,369
============== ================
</TABLE>
Series A, B and D represent shares entitling the holder of each share to one
vote at the Company's stockholders' meetings. The stockholders of Series L
shares may vote only in limited circumstances as described in the Company's
by-laws. Stockholder actions on certain matters require approval by both Series
A and Series B stockholders.
Series A shares must always represent not less than 51% of the capital stock
with full voting rights and, until February 1997, were only acquirable by
Mexicans. Series B, D and L shares may be acquired by foreigners or Mexicans.
F-64
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
Series B and D shares cannot exceed 24.5% of the total capital stock. Series
L shares cannot exceed 19% of the total capital stock. Series L shares are not
considered in determining the amount or proportion of foreign investment in the
Company as long as the shares are listed on the Mexican Stock Exchange.
In May 1994, the stockholders autorized a 10 for 1 stock split applicable to
all outstanding shares of capital stock at December 31, 1993. Information
contained in these consolidated financial statements has been retroactively
adjusted to reflect this split.
On May 20, 1994, 28,291,350 series D and 66,013,150 series L shares were
issued and sold through a public offering for Ps.1,824,341. Capital stock
includes Ps.1,426,371 of amounts paid in excess of nominal value. Fees charged
by outside advisors for assisting in this sale amounted to Ps.157,684 and where
charged to stockholders' equity. In addition 23,957,620 series A shares were
converted into an equal number of series L shares. The converted series A shares
were canceled.
As it is mentioned in Note 1, on November 26, 1996, the Company's
shareholders signed an agreement in principle to change the controlling interest
of Grupo Iusacell to Bell Atlantic. Following the signed agreement, on December
18, 1996, at an extraordinary stockholders' meeting, the following resolutions
modifying the Company's by-laws were adopted:
1) Series A shares may be acquired by Mexicans and / or foreigners.
2) The conversion of 200,000,000 Series "B" shares and 166,769,760
Series "D" shares, for 366,769,760 Series "A" shares.
3) The conversion of 100,000,000 Series "A" shares for 100,000,000
Series "D" shares.
These resolutions were subject to the authorizations requested before the
Foreign Investment National Commission and the Competition Federal Commission.
Subject to the above mentioned authorizations and the adoption of such
resolutions, the stockholders decided to increase the fixed portion of the
capital stock by up to Ps. 766,000 through the issuance of up to 74,163,591
Series "A" shares and up to 54,407,837 Series "D" shares. The present holders of
the Series "D" shares had the right to acquire additional Series "D" shares in
order to allow them to keep their actual ownership proportion; this preferential
right expired fifteen days after the publication of these resolutions in the
Diario Oficial de la Federacion (Mexican Federal Official Journal). After such
term expires the remaining shares will be offered for their subscription and
payment as follows:
a) Up to 57,142,857 Series "A" shares to Bell Atlantic Latin American
Holdings, Inc. through the capitalization of certain liabilities.
b) Up to 17,020,734 Series "A" shares and up to 54,407,837 Series "D"
shares to FIUSA Pasteje, S.A. de C.V. through the capitalization of certain
liabilities.
At the same stockholders' meeting, a Stock Purchase Plan for the Company's
executives was approved. In this regard, the stockholders decided to increase
the fixed portion of the capital stock of up to Ps. 106,000 through the issuance
of up to 15,625,000 Series "L" shares. The present holders of the Series "L"
shares had the right to acquire additional shares in order to allow them to keep
their actual ownership proportion; this preferential right expired fifteen days
after the publication of these resolutions
F-65
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
in the Diario Oficial de la Federacion (Mexican Federal Official Journal). After
such term expires the shares will be canceled, except for 7,812,500 shares which
will be designated to the above mentioned Stock Purchase Plan.
On February 12, 1997, Grupo Iusacell's new share ownership and management
control structure described more fully in the Notes 1 and 14, received the
required Mexican Government authorizations.
The increase in the fixed portion of the capital stock, agreed at the
extraordinary stockholder's meeting held on December 18, 1996 (see Note 14), was
approved on February 18, 1997. The subscription of shares was as follows:
Bell Atlantic........................ 47,017,491 Series "A" shares
Peralta Family....................... 4,390,619 Series "A" shares
48,754,000 Series "D" shares
After such subscription and the resolutions adopted to modify the Company's
by-laws, Series B shares cannot exceed 29.1% of the total capital stock and
Series D shares cannot exceed 19.9% of the total capital stock.
15. EARNED CAPITAL
In accordance with the Mexican Corporate Law, a legal reserve must be
created, and annually increased by 5% of the annual net earnings until it
reaches 20% of the common stock amount. This reserve is not available for
dividends, but may be used to reduce a deficit or may be transferred to capital.
As defined in the Federal Income Tax Law, a tax on dividends is calculated
based on the paid dividends which exceed the taxable net income. The accumulated
taxable net income of the Company as of March 31, 1997 is approximately
Ps.72,490.
The Company cannot pay dividends until it collects them from its
subsidiaries. Two subsidiaries (Comcel in Region 5 and Portacel in Region 6)
have bank debt that partially restricts their ability to pay dividends to the
holding company if certain financial ratios are not met. As of March 31, 1997,
such ratios were met. Both companies have accumulated losses at March 31, 1997.
F-66
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
The earned capital accounts consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------------
ACCUMULATED
ADJUSTMENTS
HISTORICAL FOR
VALUE INFLATION TOTAL
---------------- -------------- ----------------
<S> <C> <C> <C>
Legal reserve............................................... Ps. 1,499 Ps. 1,581 Ps. 3,080
Accumulated losses from prior years......................... (1,131,162) 35,723 (1,095,439)
Net loss for the year....................................... 50,722 55,193 105,915
Deficit from restatement.................................... -- (165,958) (165,958)
---------------- -------------- ----------------
Total....................................................... Ps.(1,078,941) Ps. (73,461) Ps.(1,152,402)
================ ============== ================
<CAPTION>
MARCH 31, 1997
---------------------------------------------------
ACCUMULATED
ADJUSTMENTS
HISTORICAL FOR
VALUE INFLATION TOTAL
---------------- --------------- ----------------
<S> <C> <C> <C>
Legal reserve............................................... Ps. 1,499 Ps. 1,581 Ps. 3,080
Accumulated losses from prior years......................... (1,646,797) 188,095 (1,458,702)
Net loss for the year....................................... (109,012) 76,763 (32,249)
Insufficiency from restatement.............................. -- (546,148) (546,148)
---------------- -------------- ----------------
Total....................................................... Ps.(1,754,310) Ps.(279,709) Ps.(2,034,019)
================ ============== ================
</TABLE>
16. FOREIGN CURRENCY POSITION
The balance sheet as of March 31, includes assets and liabilities
denominated in U.S. dollars as follows:
<TABLE>
<CAPTION>
1996 1997
------------------ ------------------
<S> <C> <C>
Monetary assets....................................... U.S. $ 25,255 U.S. $ 24,316
Monetary liabilities.................................. 234,708 213,412
------------------ ------------------
Net liability position in U.S. dollars................ U.S. $ 209,453 U.S. $ 189,096
------------------ ------------------
Equivalent in nominal Mexican pesos................... Ps. 1,580,930 Ps. 1,496,241
================== ==================
</TABLE>
F-67
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
During 1996 and 1997, interest expense paid and interest income collected on
assets and liabilities denominated in U.S. dollars were as follows:
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Interest income.............................................. U.S.$ 110 U.S.$ 38
Interest expense............................................. 1,149 3,602
-------------- --------------
Net interest expense..................................... U.S.$ 1,039 U.S.$ 3,564
-------------- --------------
Equivalent in nominal Mexican pesos.......................... Ps. 7,842 Ps. 28,201
============== ==============
</TABLE>
The exchange rate as of March 31, 1996 and 1997 was Ps.7.5479 and Ps.7.9126
per 1 U.S. Dollar, respectively. At the issuance date of these consolidated
financial statements the exchange rate in effect was Ps.7.778 per 1 U.S. Dollar.
17. PROJECT 450
During 1994, the Company created a subsidiary to be in charge of providing
fixed wireless telephony services (Project 450). At March 31, 1997, the
following has been incurred during the start-up phase of the project:
Fixed assets................................................... Ps.434,192
Capitalized interest........................................... 182,100
Inventory...................................................... 20,961
Pre-operating expenses......................................... 66,160
----------
Total.......................................................... Ps.703,413
==========
Capitalized interest and pre-operating expenses are included in "Other
assets" in the attached consolidated balance sheet (see Note 9). The Company is
currently participating in trials of the service. The Company has an agreement
with a foreign supplier under which it anticipates buying approximately
U.S.$315,000 of network switching equipment and radio base station equipment as
well as associated software and technical services for the development of the
local wireless network, in a five year period commencing when the Ministry of
Communications and Transportation ("SCT") grants the required licenses. The SCT
has announced that by the end of 1997 it will auction the frequencies in the 450
MHz band to enable operators to provide services therein.
The realization of these assets is subject to the acquisition of this
frequency. However, the Company's management believes that at least 75% of such
fixed assets could be used in its cellular operations.
F-68
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
To the Board of Directors of
Grupo Iusacell, S.A. de C.V.:
We have reviewed the pro forma adjustments reflecting the transactions
described in the notes to the pro forma consolidated financial statements and
the application of those adjustments to the historical amounts for Grupo
Iusacell, S.A. de C.V. and subsidiaries ("the Company") in the pro forma
condensed balance sheet of the Company as of March 31, 1997, and the pro forma
condensed statements of income for the year ended December 31, 1996 and the
three month period ended March 31, 1997, included in this Offering Memorandum.
The historical condensed statement of income for the year ended December 31,
1996 is derived from the historical audited consolidated statement of income of
the Company, appearing elsewhere herein. The historical condensed statement of
income for the three month period ended March 31, 1997 and the historical
condensed balance sheet as of March 31, 1997 were derived from the unaudited
financial statements of the Company as of, and for the period ended, March 31,
1997 appearing elsewhere in this Offering Memorandum. Such pro forma adjustments
are based upon management's assumption described in the notes to the pro forma
consolidated financial statements. Our review was conducted in accordance with
standards established by the American Institute of Certified Public Accountants
and, accordingly, included such procedures as we considered necessary in the
circumstances.
A review is substantially less in scope than an examination, the objective
of which is the expression of an opinion on the pro forma financial information.
Accordingly, we do not express such an opinion.
The objective of this pro forma financial information is to show what the
significant effects on the historical financial information might have been had
the transaction described in the notes to the pro forma consolidated statement
of income occurred at an earlier date. However, the pro forma consolidated
statement of income is not necessarily indicative of the results of operations
that would have been attained had the above-mentioned transactions actually
occurred earlier.
Based on our review, nothing came to our attention that caused us to believe
that management's assumptions do not provide a reasonable basis for presenting
the significant effects directly attributable to the above-mentioned
transactions described in the notes to the pro forma consolidated financial
statements, that the related pro forma adjustments do not give appropriate
effect to those assumptions, or that the pro forma column does not reflect the
proper application of those adjustments to the historical financial statement
amounts in the pro forma consolidated statements of income for the year ended
December 31, 1996 and the three month period ended March 31, 1997 and the pro
forma consolidated balance sheet as of March 31, 1997.
COOPERS & LYBRAND
Despacho Roberto Casas Alatriste
Juan Manual Ferron Solis
Public Accountant
Mexico City, Mexico
July 15, 1997
F-69
<PAGE>
No dealer, salesperson or other person has
been authorized to give any information or
make any representations not contained in
this Prospectus in connection with the offer
made hereby and, if given or made, no such
information or representation should be
relied upon as having been authorized by the
Company or the Initial Purchasers. Neither
the delivery of this Prospectus nor any sale
made hereunder shall, under any
circumstances, create an implication that
there has been no change in the information
set forth herein or in the affairs of the
Company since the date hereof. This
Prospectus does not constitute an offer to
sell or solicitation of an offer to buy the
New Notes by anyone in any jurisdiction in
which such offer or solicitation is not
authorized or in which the person making such
offer or solicitation is not qualified to do
so or to any person to whom it is unlawful to
make such offer or solicitation.
TABLE OF CONTENTS
Summary.......................................... 1
Risk Factors..................................... 16
Use of Proceeds.................................. 36
Exchange Rates................................... 37
Ratio of Earnings to Fixed Charges............... 37
Capitalization................................... 38
Selected Historical and Pro Forma Consolidated
Financial and Operating Data.................... 40
Unaudited Pro Forma Consolidated Financial
Information..................................... 45
Management's Discussion and Analysis of
Financial Condition and Results of Operations.. 52
Bell Atlantic Relationship....................... 73
Business......................................... 75
Controlling Shareholders......................... 101
Management....................................... 103
Certain Transactions............................. 109
Description of Credit Facility................... 112
Description of Notes............................. 114
Exchange and Registration Rights Agreement....... 144
United States Taxation........................... 146
Mexican Taxation................................. 150
Book-Entry; Delivery and Form.................... 152
Plan of Distribution............................. 154
Legal Matters.................................... 155
Independent Accountants.......................... 155
Index to Consolidated Financial Statements....... F-1
Glossary of Certain
Telecommunications Terms....................... A-1
Form of Transferee Letter of Representation...... B-1
Until , 1997 all dealers effecting
transactions in the registered securities,
whether or not participating in this
distribution, may be required to deliver a
prospectus. This is in addition to the
obligation of dealers to deliver a prospectus
when acting as underwriters and with respect
to their unsold allotments or subscriptions.
US$150,000,000
Grupo Iusacell,
S.A. de C.V.
Offer to Exchange All
Outstanding 10%
Senior Notes due 2004
for 10% Series B Senior
Notes due 2004
--------
Prospectus
--------
Dated , 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Under Mexican law, when an officer of a corporation acts within the scope
of his authority, the corporation will answer for any resulting liabilities or
expenses.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
The exhibits shall be provided upon filing.
3.1 -- By-laws (estatutos) of Grupo Iusacell, S.A. de C.V.*
3.2 -- By-laws (estatutos) of SOS Telecomunicaciones, S.A. de
C.V.**
3.3 -- By-laws (estatutos) of Iusacell, S.A. de C.V.**
3.4 -- By-laws (estatutos) of Sistecel, S.A. de C.V.**
3.5 -- By-laws (estatutos) of Comunicaciones Celulares de
Occidente, S.A. de C.V.**
3.6 -- By-laws (estatutos) of Telecomunicaciones del Golfo, S.A.
de C.V.**
3.7 -- By-laws (estatutos) of Sistemas Telefonicos Portatiles
Celulares, S.A. de C.V.**
3.8 -- By-laws (estatutos) of Inmobiliaria Montes Urales 460,
S.A. de C.V.**
3.9 -- By-laws (estatutos) of Iusanet, S.A. de C.V.**
3.10 -- By-laws of Mexican Cellular Investments, Inc.**
4.1 -- Indenture, dated as of July 25, 1997, among Registrant,
First Union National Bank, as Trustee, and holders from
time to time of the Notes.
4.2 -- Form of Note (contained in Exhibit 4.1).
4.3 -- Exchange and Registration Rights Agreement dated July 15,
1997 among Registrant, the Subsidiary Guarantors, Chase
Securities Inc. and Salomon Brothers Inc.
5.1 -- Opinion of De Ovando y Martinez del Campo, S.C., Mexican
counsel to the Registrant, regarding the legality of the
Notes registered hereby.
5.2 -- Opinion of Rogers & Wells, U.S. counsel to the
Registrant, regarding the legality of the Notes
registered hereby.**
8.1 -- Opinion of Rogers & Wells, U.S. counsel to the
Registrant, regarding tax matters.
10.1 -- U.S.$225.0 million Loan Agreement dated as of July 25,
1997 among the Registrant, Chase Securities Inc.; as
arranger, and The Chase Manhattan Bank as administrative
agent and collateral agent.**
10.2 -- U.S.$150.0 million Debenture Purchase Agreement dated
July 25, 1997 between the Registrant and Bell Atlantic
International, Inc.
12.1 -- Ratio of Earnings to Fixed Charges in accordance with
Mexican GAAP.
12.2 -- Ratio of Earnings to Fixed Charges in accordance with
U.S. GAAP.
15.1 -- Acknowledgment by Coopers & Lybrand, Despacho Roberto
Casas Alatriste.
21.1 -- List of subsidiaries of Grupo Iusacell, S.A. de C.V.
23.1 -- Consent of Coopers & Lybrand, Despacho Roberto Casas
Alatriste.
23.2 -- Consent of Mancera, S.C., a member of Ernst & Young
International, L.L.P.**
23.3 -- Consent of Prieto, Ruiz de Velasco y Cia., S.C.**
23.4 -- Consent of De Ovando y Martinez del Campo, S.C.(contained
in Exhibit 5.1).
23.5 -- Consent of Rogers & Wells (contained in Exhibit 5.2).
24.1 -- Powers of attorney (included on signature page to
Registration Statement).
25.1 -- Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939 of First Union National Bank on
Form T-1 pursuant to the Indenture dated July 25, 1997.
99.1 -- Form of Letter of Transmittal for the Notes.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Form of Letter to DTC Participants.
99.4 -- Form of Letter to Clients.
----------
* Previously filed under the Form 20-F Annual Report.
** To be filed by amendment.
<PAGE>
(b) Financial Statement Schedules:
The Schedule of Valuation and Qualifying Accounts is attached hereto.
Item 22. Undertakings
The undersigned Registrant hereby undertakes:
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities
Act and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(2) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(3) For the purpose of determining any liabilities under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(4) The undersigned Registrant hereby undertakes (i) to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means; and (ii) to
arrange or provide for a facility in the U.S. for the purpose of
responding to such requests. The undertaking in subparagraphs (i) above
includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
(5) The undersigned Registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant, Grupo Iusacell, S.A. de C.V., and the Subsidiary Gurantors, SOS
Telecomunicaciones, S.A. de C.V., Iusacell, S.A. de C.V., Sistecel, S.A. de
C.V., Comunicaciones Celulares de Occidente, S.A. de C.V., Telecomunicaciones
del Golfo, S.A. de C.V., Sistemas Telefonicos Portatiles Celulares, S.A. de.
C.V., Inmobiliaria Montes Urales 460, S.A. de C.V., Iusanet, S.A. de C.V. and
Mexican Cellular Investments, Inc., each certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing on Form F-4
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Mexico, Mexico, on
October 8, 1997.
GRUPO IUSACELL, S.A. DE C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Vice President-Mergers and
Acquisitions and General Counsel
SOS TELECOMUNICACIONES, S.A. DE C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Director
IUSACELL, S.A. DE C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Director
<PAGE>
SISTECEL, S.A. DE C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Director
COMUNICACIONES CELULARES DE
OCCIDENTE, S.A. DE C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Director
TELECOMUNICACIONES DEL GOLFO, S.A. DE C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Director
SISTEMAS TELEFONICOS PORTATILES
CELULARES, S.A. de C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Director
<PAGE>
INMOBILIARIA MONTES URALES 460, S.A. DE C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Director
IUSANET, S.A. DE C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Director
MEXICAN CELLULAR INVESTMENTS, INC.
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
President, General Counsel and Director
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Grupo Iusacell, S.A.
de C.V., do hereby constitute and appoint Fulvio V. del Valle and Ruben G.
Perlmutter, and each of them, our true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution in each of them, to do any
and all acts and things in our respective names and on our respective behalves
in the capacities indicated below that Fulvio V. del Valle and Ruben G.
Perlmutter, or any of them, may deem necessary or advisable to enable Grupo
Iusacell, S.A. de C.V. to comply with the Securities Act of 1933, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Registration Statement, including
specifically, but not limited to, power and authority to sign for us in our
respective names in the capacities indicated below any and all amendments
(including post-effective amendments) hereto and to file the same, with all
exhibits thereto and other documents therewith, with the Securities and Exchange
Commission; and we do hereby ratify and confirm all that Fulvio V. del Valle and
Ruben G. Perlmutter, or any of them, shall do or cause to be done by virtue
hereof.
PODER-MANDATO Y FIRMAS
Nosotros, los abajo firmantes directores y ejecutivos de Grupo
Iusacell, S.A. de C.V., otorgamos poder especial en cuanto a derecho se refiere
y designamos a Fulvio V. del Valle y Ruben G. Perlmutter, para que ellos, o
cualquiera de ellos, actuen como nuestros apoderados y mandatarios, con plenos
poderes de sustitucion y delegacion para que realicen todos y cualesquiera
actos, por cuenta y a nombre nuestro en el caracter que se indica mas adelante,
que Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera de ellos, consideren
necesario o conveniente para los fines de que Grupo Iusacell, S.A. de C.V.
cumpla con todos los requisitos del "Securities Act" de 1933, segun texto
vigente y todas las normas, reglamentos y requisitos del "Securities and
Exchange Commission," en relacion con esta Declaracion de Registro, incluyendo
especificamente, pero no limitado a, poder y autorizacion para firmar por todos
y cada uno de nosotros en el caracter indicado mas adelante, todas y cada una de
las enmiendas a la Declaracion de Registro (incluyendo enmiendas posteriores a
la aceptacion por la autoridad mencionada) y para que interpongan y registren la
Declaracion de Registro, con todos sus anexos y otra documentacion necesaria por
ante el "Securities and Exchange Commission"; y en el presente acto ratificamos
y confirmamos todos los actos que Fulvio V. del Valle y Ruben G. Perlmutter, o
cualquiera de ellos, realicen por virtud del presente poder.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
_____________________________ Chairman of the Board of ________, 1997
Lawrence T. Babbio, Jr. Directors and Series A
Director
_____________________________ President and Chief Executive ________, 1997
Thomas A. Bartlett Officer and Series B Director
(Principal Executive Officer)
/s/ Fulvio V. del Valle Director General October 8, 1997
- -----------------------------
Fulvio V. del Valle
_____________________________ Executive Vice President and ________, 1997
Edward R. Kingman, Jr. Chief Operating Officer and
Series L Director
/s/ Howard F. Zuckerman Vice President-Finance and October 8, 1997
- ----------------------------- Audit and Chief Financial
Howard F. Zuckerman Officer and Series B Director
(Principal Financial Officer)
/s/ Noah S. Asher Vice President-Administration October 8, 1997
- ----------------------------- and Series B Director
Noah S. Asher (Principal Accounting Officer)
/s/ Carlos Peralta Quintero Series A Director October 8, 1997
- -----------------------------
Carlos Peralta Quintero
/s/ Luis Felipe Gonzalez Munoz Series A Director October 8, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Series A Director ________, 1997
William O. Albertini
_____________________________ Series A Director ________, 1997
Dennis Strigl
_____________________________ Series A Director ________, 1997
Manuel Somoza Alonso
<PAGE>
/s/ Jose Ramon Elizondo Anaya Series A Director October 8, 1997
- -----------------------------
Jose Ramon Elizondo Anaya
/s/ Rodolfo Garcia Muriel Series A Director October 8, 1997
- -----------------------------
Rodolfo Garcia Muriel
/s/ Gabriel Alarcon Velazquez Series A Director October 8, 1997
- -----------------------------
Gabriel Alarcon Velazquez
_____________________________ Series A Director ________, 1997
Eduardo Rihan Azar
/s/ Thomas R. McKeough Series B Director October 8, 1997
- -----------------------------
Thomas R. McKeough
/s/ Ruben G. Perlmutter Vice President-Mergers and October 8, 1997
- ----------------------------- Acquisitions and General
Ruben G. Perlmutter Counsel and Series B Director
_____________________________ Series B Director ________, 1997
Mack E. Treece
_____________________________ Series B Director ________, 1997
Robert Van Brunt
/s/ Fernando de Ovando Series B Director October 8, 1997
- -----------------------------
Fernando de Ovando
/s/ Javier Martinez del Campo
Lanz Series B Director October 8, 1997
- -----------------------------
Javier Martinez del Campo Lanz
_____________________________ Series D Director ________, 1997
Ernesto Canales Santos
/s/ Donald J. Puglisi Authorized Representative October 8, 1997
- ----------------------------- in the United States of
Donald J. Puglisi Grupo Iusacell, S.A. de C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of SOS
Telecomunicaciones, S.A. de C.V., do hereby constitute and appoint Fulvio V. del
Valle and Ruben G. Perlmutter, and each of them, our true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
in each of them, to do any and all acts and things in our respective names and
on our respective behalves in the capacities indicated below that Fulvio V. del
Valle and Ruben G. Perlmutter, or any of them, may deem necessary or advisable
to enable SOS Telecomunicaciones, S.A. de C.V. to comply with the Securities Act
of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but not limited to, power and authority to
sign for us in our respective names in the capacities indicated below any and
all amendments (including post-effective amendments) hereto and to file the
same, with all exhibits thereto and other documents therewith, with the
Securities and Exchange Commission; and we do hereby ratify and confirm all that
Fulvio V. del Valle and Ruben G. Perlmutter, or any of them, shall do or cause
to be done by virtue hereof.
PODER-MANDATO Y FIRMAS
Nosotros, los abajo firmantes directores y ejecutivos de SOS
Telecomunicaciones, S.A. de C.V., otorgamos poder especial en cuanto a derecho
se refiere y designamos a Fulvio V. del Valle y Ruben G. Perlmutter, para que
ellos, o cualquiera de ellos, actuen como nuestros apoderados y mandatarios, con
plenos poderes de sustitucion y delegacion para que realicen todos y
cualesquiera actos, por cuenta y a nombre nuestro en el caracter que se indica
mas adelante, que Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera de
ellos, consideren necesario o conveniente para los fines de que SOS
Telecomunicaciones, S.A. de C.V. cumpla con todos los requisitos del "Securities
Act" de 1933, segun texto vigente y todas las normas, reglamentos y requisitos
del "Securities and Exchange Commission," en relacion con esta Declaracion de
Registro, incluyendo especificamente, pero no limitado a, poder y autorizacion
para firmar por todos y cada uno de nosotros en el caracter indicado mas
adelante, todas y cada una de las enmiendas a la Declaracion de Registro
(incluyendo enmiendas posteriores a la aceptacion por la autoridad mencionada) y
para que interpongan y registren la Declaracion de Registro, con todos sus
anexos y otra documentacion necesaria por ante el "Securities and Exchange
Commission"; y en el presente acto ratificamos y confirmamos todos los actos que
Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera de ellos, realicen por
virtud del presente poder.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
_____________________________ Principal Executive Officer ________, 1997
Thomas A. Bartlett
/s/ Fulvio V. del Valle Director General and Director October 8, 1997
- -----------------------------
Fulvio V. del Valle
/s/ Howard F. Zuckerman Principal Financial officer October 8, 1997
- -----------------------------
Howard F. Zuckerman
/s/ Noah S. Asher Principal Accounting Officer October 8, 1997
- ----------------------------- and Director
Noah S. Asher
/s/ Luis Felipe Gonzalez Munoz Director October 8, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Director ________, 1997
Edward R. Kingman, Jr.
/s/ Ruben G. Perlmutter Director October 8, 1997
- -----------------------------
Ruben G. Perlmutter
/s/ Donald J. Puglisi Authorized Representative in October 8, 1997
- ----------------------------- the United States of SOS
Donald J. Puglisi Telecomunicaciones, S.A. de
C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Iusacell, S.A. de
C.V., do hereby constitute and appoint Fulvio V. del Valle and Ruben G.
Perlmutter, and each of them, our true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution in each of them, to do any
and all acts and things in our respective names and on our respective behalves
in the capacities indicated below that Fulvio V. del Valle and Ruben G.
Perlmutter, or any of them, may deem necessary or advisable to enable Iusacell,
S.A. de C.V. to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for us in our respective names in the
capacities indicated below any and all amendments (including post-effective
amendments) hereto and to file the same, with all exhibits thereto and other
documents therewith, with the Securities and Exchange Commission; and we do
hereby ratify and confirm all that Fulvio V. del Valle and Ruben G. Perlmutter,
or any of them, shall do or cause to be done by virtue hereof.
PODER-MANDATO Y FIRMAS
Nosotros, los abajo firmantes directores y ejecutivos de Iusacell,
S.A. de C.V., otorgamos poder especial en cuanto a derecho se refiere y
designamos a Fulvio V. del Valle y Ruben G. Perlmutter, para que ellos, o
cualquiera de ellos, actuen como nuestros apoderados y mandatarios, con plenos
poderes de sustitucion y delegacion para que realicen todos y cualesquiera
actos, por cuenta y a nombre nuestro en el caracter que se indica mas adelante,
que Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera de ellos, consideren
necesario o conveniente para los fines de que Iusacell, S.A. de C.V. cumpla con
todos los requisitos del "Securities Act" de 1933, segun texto vigente y todas
las normas, reglamentos y requisitos del "Securities and Exchange Commission,"
en relacion con esta Declaracion de Registro, incluyendo especificamente, pero
no limitado a, poder y autorizacion para firmar por todos y cada uno de nosotros
en el caracter indicado mas adelante, todas y cada una de las enmiendas a la
Declaracion de Registro (incluyendo enmiendas posteriores a la aceptacion por la
autoridad mencionada) y para que interpongan y registren la Declaracion de
Registro, con todos sus anexos y otra documentacion necesaria por ante el
"Securities and Exchange Commission"; y en el presente acto ratificamos y
confirmamos todos los actos que Fulvio V. del Valle y Ruben G. Perlmutter, o
cualquiera de ellos, realicen por virtud del presente poder.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
_____________________________ Principal Executive Officer ________, 1997
Thomas A. Bartlett
/s/ Fulvio V. del Valle Director General and Director October 8, 1997
- -----------------------------
Fulvio V. del Valle
/s/ Howard F. Zuckerman Principal Financial officer October 8, 1997
- -----------------------------
Howard F. Zuckerman
/s/ Noah S. Asher Principal Accounting Officer October 8, 1997
- ----------------------------- and Director
Noah S. Asher
/s/ Luis Felipe Gonzalez Munoz Director October 8, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Director ________, 1997
Edward R. Kingman, Jr.
/s/ Ruben G. Perlmutter Director October 8, 1997
- -----------------------------
Ruben G. Perlmutter
/s/ Donald J. Puglisi Authorized Representative in October 8, 1997
- ----------------------------- the United States of of
Donald J. Puglisi Iusacell, S.A. de C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Sistecel, S.A. de
C.V., do hereby constitute and appoint Fulvio V. del Valle and Ruben G.
Perlmutter, and each of them, our true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution in each of them, to do any
and all acts and things in our respective names and on our respective behalves
in the capacities indicated below that Fulvio V. del Valle and Ruben G.
Perlmutter, or any of them, may deem necessary or advisable to enable Sistecel,
S.A. de C.V. to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for us in our respective names in the
capacities indicated below any and all amendments (including post-effective
amendments) hereto and to file the same, with all exhibits thereto and other
documents therewith, with the Securities and Exchange Commission; and we do
hereby ratify and confirm all that Fulvio V. del Valle and Ruben G. Perlmutter,
or any of them, shall do or cause to be done by virtue hereof.
PODER-MANDATO Y FIRMAS
Nosotros, los abajo firmantes directores y ejecutivos de Sistecel,
S.A. de C.V., otorgamos poder especial en cuanto a derecho se refiere y
designamos a Fulvio V. del Valle y Ruben G. Perlmutter, para que ellos, o
cualquiera de ellos, actuen como nuestros apoderados y mandatarios, con plenos
poderes de sustitucion y delegacion para que realicen todos y cualesquiera
actos, por cuenta y a nombre nuestro en el caracter que se indica mas adelante,
que Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera de ellos, consideren
necesario o conveniente para los fines de que Sistecel, S.A. de C.V. cumpla con
todos los requisitos del "Securities Act" de 1933, segun texto vigente y todas
las normas, reglamentos y requisitos del "Securities and Exchange Commission,"
en relacion con esta Declaracion de Registro, incluyendo especificamente, pero
no limitado a, poder y autorizacion para firmar por todos y cada uno de nosotros
en el caracter indicado mas adelante, todas y cada una de las enmiendas a la
Declaracion de Registro (incluyendo enmiendas posteriores a la aceptacion por la
autoridad mencionada) y para que interpongan y registren la Declaracion de
Registro, con todos sus anexos y otra documentacion necesaria por ante el
"Securities and Exchange Commission"; y en el presente acto ratificamos y
confirmamos todos los actos que Fulvio V. del Valle y Ruben G. Perlmutter, o
cualquiera de ellos, realicen por virtud del presente poder.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
_____________________________ Principal Executive Officer ________, 1997
Thomas A. Bartlett
/s/ Fulvio V. del Valle Director General and Director October 8, 1997
- -----------------------------
Fulvio V. del Valle
/s/ Howard F. Zuckerman Principal Financial officer October 8, 1997
- -----------------------------
Howard F. Zuckerman
/s/ Noah S. Asher Principal Accounting Officer October 8, 1997
- ----------------------------- and Director
Noah S. Asher
/s/ Luis Felipe Gonzalez Munoz Director October 8, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Director ________, 1997
Edward R. Kingman, Jr.
/s/ Ruben G. Perlmutter Director October 8, 1997
- -----------------------------
Ruben G. Perlmutter
/s/ Donald J. Puglisi Authorized Representative in October 8, 1997
- ----------------------------- the United States of of
Donald J. Puglisi Sistecel, S.A. de C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Comunicaciones
Celulares de Occidente, S.A. de C.V., do hereby constitute and appoint Fulvio V.
del Valle and Ruben G. Perlmutter, and each of them, our true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
in each of them, to do any and all acts and things in our respective names and
on our respective behalves in the capacities indicated below that Fulvio V. del
Valle and Ruben G. Perlmutter, or any of them, may deem necessary or advisable
to enable Comunicaciones Celulares de Occidente, S.A. de C.V. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but not limited to, power and authority to
sign for us in our respective names in the capacities indicated below any and
all amendments (including post-effective amendments) hereto and to file the
same, with all exhibits thereto and other documents therewith, with the
Securities and Exchange Commission; and we do hereby ratify and confirm all that
Fulvio V. del Valle and Ruben G. Perlmutter, or any of them, shall do or cause
to be done by virtue hereof.
PODER-MANDATO Y FIRMAS
Nosotros, los abajo firmantes directores y ejecutivos de
Comunicaciones Celulares de Occidente, S.A. de C.V., otorgamos poder especial en
cuanto a derecho se refiere y designamos a Fulvio V. del Valle y Ruben G.
Perlmutter, para que ellos, o cualquiera de ellos, actuen como nuestros
apoderados y mandatarios, con plenos poderes de sustitucion y delegacion para
que realicen todos y cualesquiera actos, por cuenta y a nombre nuestro en el
caracter que se indica mas adelante, que Fulvio V. del Valle y Ruben G.
Perlmutter, o cualquiera de ellos, consideren necesario o conveniente para los
fines de que Comunicaciones Celulares de Occidente, S.A. de C.V. cumpla con
todos los requisitos del "Securities Act" de 1933, segun texto vigente y todas
las normas, reglamentos y requisitos del "Securities and Exchange Commission,"
en relacion con esta Declaracion de Registro, incluyendo especificamente, pero
no limitado a, poder y autorizacion para firmar por todos y cada uno de nosotros
en el caracter indicado mas adelante, todas y cada una de las enmiendas a la
Declaracion de Registro (incluyendo enmiendas posteriores a la aceptacion por la
autoridad mencionada) y para que interpongan y registren la Declaracion de
Registro, con todos sus anexos y otra documentacion necesaria por ante el
"Securities and Exchange Commission"; y en el presente acto ratificamos y
confirmamos todos los actos que Fulvio V. del Valle y Ruben G. Perlmutter, o
cualquiera de ellos, realicen por virtud del presente poder.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
_____________________________ Principal Executive Officer ________, 1997
Thomas A. Bartlett
/s/ Fulvio V. del Valle Director General and Director October 8, 1997
- -----------------------------
Fulvio V. del Valle
/s/ Howard F. Zuckerman Principal Financial officer October 8, 1997
- -----------------------------
Howard F. Zuckerman
/s/ Noah S. Asher Principal Accounting Officer October 8, 1997
- ----------------------------- and Director
Noah S. Asher
/s/ Luis Felipe Gonzalez Munoz Director October 8, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Director ________, 1997
Edward R. Kingman, Jr.
/s/ Ruben G. Perlmutter Director October 8, 1997
- -----------------------------
Ruben G. Perlmutter
/s/ Donald J. Puglisi Authorized Representative in October 8, 1997
- ----------------------------- the United States of of
Donald J. Puglisi Comunicaciones Celulares de
Occidente, S.A. de C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Telecomunicaciones del
Golfo, S.A. de C.V., do hereby constitute and appoint Fulvio V. del Valle and
Ruben G. Perlmutter, and each of them, our true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution in each of them, to
do any and all acts and things in our respective names and on our respective
behalves in the capacities indicated below that Fulvio V. del Valle and Ruben G.
Perlmutter, or any of them, may deem necessary or advisable to enable
Telecomunicaciones del Golfo, S.A. de C.V. to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement,
including specifically, but not limited to, power and authority to sign for us
in our respective names in the capacities indicated below any and all amendments
(including post-effective amendments) hereto and to file the same, with all
exhibits thereto and other documents therewith, with the Securities and Exchange
Commission; and we do hereby ratify and confirm all that Fulvio V. del Valle and
Ruben G. Perlmutter, or any of them, shall do or cause to be done by virtue
hereof.
PODER-MANDATO Y FIRMAS
Nosotros, los abajo firmantes directores y ejecutivos de
Telecomunicaciones del Golfo, S.A. de C.V., otorgamos poder especial en cuanto a
derecho se refiere y designamos a Fulvio V. del Valle y Ruben G. Perlmutter,
para que ellos, o cualquiera de ellos, actuen como nuestros apoderados y
mandatarios, con plenos poderes de sustitucion y delegacion para que realicen
todos y cualesquiera actos, por cuenta y a nombre nuestro en el caracter que se
indica mas adelante, que Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera
de ellos, consideren necesario o conveniente para los fines de que
Telecomunicaciones del Golfo, S.A. de C.V. cumpla con todos los requisitos del
"Securities Act" de 1933, segun texto vigente y todas las normas, reglamentos y
requisitos del "Securities and Exchange Commission," en relacion con esta
Declaracion de Registro, incluyendo especificamente, pero no limitado a, poder y
autorizacion para firmar por todos y cada uno de nosotros en el caracter
indicado mas adelante, todas y cada una de las enmiendas a la Declaracion de
Registro (incluyendo enmiendas posteriores a la aceptacion por la autoridad
mencionada) y para que interpongan y registren la Declaracion de Registro, con
todos sus anexos y otra documentacion necesaria por ante el "Securities and
Exchange Commission"; y en el presente acto ratificamos y confirmamos todos los
actos que Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera de ellos,
realicen por virtud del presente poder.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
_____________________________ Principal Executive Officer ________, 1997
Thomas A. Bartlett
/s/ Fulvio V. del Valle Director General and Director October 8, 1997
- -----------------------------
Fulvio V. del Valle
/s/ Howard F. Zuckerman Principal Financial officer October 8, 1997
- -----------------------------
Howard F. Zuckerman
/s/ Noah S. Asher Principal Accounting Officer October 8, 1997
- ----------------------------- and Director
Noah S. Asher
/s/ Luis Felipe Gonzalez Munoz Director October 8, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Director ________, 1997
Edward R. Kingman, Jr.
/s/ Ruben G. Perlmutter Director October 8, 1997
- -----------------------------
Ruben G. Perlmutter
/s/ Donald J. Puglisi Authorized Representative in October 8, 1997
- ----------------------------- the United States of of
Donald J. Puglisi Telecomunicaciones del Golfo,
S.A. de C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Sistemas Telefonicos
Portatiles Celulares, S.A. de C.V., do hereby constitute and appoint Fulvio V.
del Valle and Ruben G. Perlmutter, and each of them, our true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
in each of them, to do any and all acts and things in our respective names and
on our respective behalves in the capacities indicated below that Fulvio V. del
Valle and Ruben G. Perlmutter, or any of them, may deem necessary or advisable
to enable Sistemas Telefonicos Portatiles Celulares, S.A. de C.V. to comply with
the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but not limited to, power and
authority to sign for us in our respective names in the capacities indicated
below any and all amendments (including post-effective amendments) hereto and to
file the same, with all exhibits thereto and other documents therewith, with the
Securities and Exchange Commission; and we do hereby ratify and confirm all that
Fulvio V. del Valle and Ruben G. Perlmutter, or any of them, shall do or cause
to be done by virtue hereof.
PODER-MANDATO Y FIRMAS
Nosotros, los abajo firmantes directores y ejecutivos de Sistemas
Telefonicos Portatiles Celulares, S.A. de C.V., otorgamos poder especial en
cuanto a derecho se refiere y designamos a Fulvio V. del Valle y Ruben G.
Perlmutter, para que ellos, o cualquiera de ellos, actuen como nuestros
apoderados y mandatarios, con plenos poderes de sustitucion y delegacion para
que realicen todos y cualesquiera actos, por cuenta y a nombre nuestro en el
caracter que se indica mas adelante, que Fulvio V. del Valle y Ruben G.
Perlmutter, o cualquiera de ellos, consideren necesario o conveniente para los
fines de que Sistemas Telefonicos Portatiles Celulares, S.A. de C.V. cumpla con
todos los requisitos del "Securities Act" de 1933, segun texto vigente y todas
las normas, reglamentos y requisitos del "Securities and Exchange Commission,"
en relacion con esta Declaracion de Registro, incluyendo especificamente, pero
no limitado a, poder y autorizacion para firmar por todos y cada uno de nosotros
en el caracter indicado mas adelante, todas y cada una de las enmiendas a la
Declaracion de Registro (incluyendo enmiendas posteriores a la aceptacion por la
autoridad mencionada) y para que interpongan y registren la Declaracion de
Registro, con todos sus anexos y otra documentacion necesaria por ante el
"Securities and Exchange Commission"; y en el presente acto ratificamos y
confirmamos todos los actos que Fulvio V. del Valle y Ruben G. Perlmutter, o
cualquiera de ellos, realicen por virtud del presente poder.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
_____________________________ Principal Executive Officer ________, 1997
Thomas A. Bartlett
/s/ Fulvio V. del Valle Director General and Director October 8, 1997
- -----------------------------
Fulvio V. del Valle
/s/ Howard F. Zuckerman Principal Financial officer October 8, 1997
- -----------------------------
Howard F. Zuckerman
/s/ Noah S. Asher Principal Accounting Officer October 8, 1997
- ----------------------------- and Director
Noah S. Asher
/s/ Luis Felipe Gonzalez Munoz Director October 8, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Director ________, 1997
Edward R. Kingman, Jr.
/s/ Ruben G. Perlmutter Director October 8, 1997
- -----------------------------
Ruben G. Perlmutter
/s/ Donald J. Puglisi Authorized Representative in October 8, 1997
- ----------------------------- the United States of of
Donald J. Puglisi Sistemas Telefonicos
Portatiles Celulares, S.A.
de C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Inmobiliaria Montes
Urales 460, S.A. de C.V., do hereby constitute and appoint Fulvio V. del Valle
and Ruben G. Perlmutter, and each of them, our true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution in each of them,
to do any and all acts and things in our respective names and on our respective
behalves in the capacities indicated below that Fulvio V. del Valle and Ruben G.
Perlmutter, or any of them, may deem necessary or advisable to enable
Inmobiliaria Montes Urales 460, S.A. de C.V. to comply with the Securities Act
of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but not limited to, power and authority to
sign for us in our respective names in the capacities indicated below any and
all amendments (including post-effective amendments) hereto and to file the
same, with all exhibits thereto and other documents therewith, with the
Securities and Exchange Commission; and we do hereby ratify and confirm all that
Fulvio V. del Valle and Ruben G. Perlmutter, or any of them, shall do or cause
to be done by virtue hereof.
PODER-MANDATO Y FIRMAS
Nosotros, los abajo firmantes directores y ejecutivos de
Inmobiliaria Montes Urales 460, S.A. de C.V., otorgamos poder especial en cuanto
a derecho se refiere y designamos a Fulvio V. del Valle y Ruben G. Perlmutter,
para que ellos, o cualquiera de ellos, actuen como nuestros apoderados y
mandatarios, con plenos poderes de sustitucion y delegacion para que realicen
todos y cualesquiera actos, por cuenta y a nombre nuestro en el caracter que se
indica mas adelante, que Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera
de ellos, consideren necesario o conveniente para los fines de que Inmobiliaria
Montes Urales 460, S.A. de C.V. cumpla con todos los requisitos del "Securities
Act" de 1933, segun texto vigente y todas las normas, reglamentos y requisitos
del "Securities and Exchange Commission," en relacion con esta Declaracion de
Registro, incluyendo especificamente, pero no limitado a, poder y autorizacion
para firmar por todos y cada uno de nosotros en el caracter indicado mas
adelante, todas y cada una de las enmiendas a la Declaracion de Registro
(incluyendo enmiendas posteriores a la aceptacion por la autoridad mencionada) y
para que interpongan y registren la Declaracion de Registro, con todos sus
anexos y otra documentacion necesaria por ante el "Securities and Exchange
Commission"; y en el presente acto ratificamos y confirmamos todos los actos que
Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera de ellos, realicen por
virtud del presente poder.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
_____________________________ Principal Executive Officer ________, 1997
Thomas A. Bartlett
/s/ Fulvio V. del Valle Director General and Director October 8, 1997
- -----------------------------
Fulvio V. del Valle
/s/ Howard F. Zuckerman Principal Financial officer October 8, 1997
- -----------------------------
Howard F. Zuckerman
/s/ Noah S. Asher Principal Accounting Officer October 8, 1997
- ----------------------------- and Director
Noah S. Asher
/s/ Luis Felipe Gonzalez Munoz Director October 8, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Director ________, 1997
Edward R. Kingman, Jr.
/s/ Ruben G. Perlmutter Director October 8, 1997
- -----------------------------
Ruben G. Perlmutter
/s/ Donald J. Puglisi Authorized Representative in October 8, 1997
- ----------------------------- the United States of of
Donald J. Puglisi Inmobiliaria Montes Urales
460, S.A. de C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Iusanet, S.A. de C.V.,
do hereby constitute and appoint Fulvio V. del Valle and Ruben G. Perlmutter,
and each of them, our true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution in each of them, to do any and all acts
and things in our respective names and on our respective behalves in the
capacities indicated below that Fulvio V. del Valle and Ruben G. Perlmutter, or
any of them, may deem necessary or advisable to enable Iusanet, S.A. de C.V. to
comply with the Securities Act of 1933, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but not limited to, power
and authority to sign for us in our respective names in the capacities indicated
below any and all amendments (including post-effective amendments) hereto and to
file the same, with all exhibits thereto and other documents therewith, with the
Securities and Exchange Commission; and we do hereby ratify and confirm all that
Fulvio V. del Valle and Ruben G. Perlmutter, or any of them, shall do or cause
to be done by virtue hereof.
PODER-MANDATO Y FIRMAS
Nosotros, los abajo firmantes directores y ejecutivos de Iusanet,
S.A. de C.V., otorgamos poder especial en cuanto a derecho se refiere y
designamos a Fulvio V. del Valle y Ruben G. Perlmutter, para que ellos, o
cualquiera de ellos, actuen como nuestros apoderados y mandatarios, con plenos
poderes de sustitucion y delegacion para que realicen todos y cualesquiera
actos, por cuenta y a nombre nuestro en el caracter que se indica mas adelante,
que Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera de ellos, consideren
necesario o conveniente para los fines de que Iusanet, S.A. de C.V. cumpla con
todos los requisitos del "Securities Act" de 1933, segun texto vigente y todas
las normas, reglamentos y requisitos del "Securities and Exchange Commission,"
en relacion con esta Declaracion de Registro, incluyendo especificamente, pero
no limitado a, poder y autorizacion para firmar por todos y cada uno de nosotros
en el caracter indicado mas adelante, todas y cada una de las enmiendas a la
Declaracion de Registro (incluyendo enmiendas posteriores a la aceptacion por la
autoridad mencionada) y para que interpongan y registren la Declaracion de
Registro, con todos sus anexos y otra documentacion necesaria por ante el
"Securities and Exchange Commission"; y en el presente acto ratificamos y
confirmamos todos los actos que Fulvio V. del Valle y Ruben G. Perlmutter, o
cualquiera de ellos, realicen por virtud del presente poder.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
_____________________________ Principal Executive Officer ________, 1997
Thomas A. Bartlett
/s/ Fulvio V. del Valle Director General and Director October 8, 1997
- -----------------------------
Fulvio V. del Valle
/s/ Howard F. Zuckerman Principal Financial officer October 8, 1997
- -----------------------------
Howard F. Zuckerman
/s/ Noah S. Asher Principal Accounting Officer October 8, 1997
- ----------------------------- and Director
Noah S. Asher
/s/ Luis Felipe Gonzalez Munoz Director October 8, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Director ________, 1997
Edward R. Kingman, Jr.
/s/ Ruben G. Perlmutter Director October 8, 1997
- -----------------------------
Ruben G. Perlmutter
/s/ Donald J. Puglisi Authorized Representative in October 8, 1997
- ----------------------------- the United States of of
Donald J. Puglisi Iusanet, S.A. de C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Mexican Cellular
Investments, Inc., do hereby constitute and appoint Ruben G. Perlmutter as our
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, to do any and all acts and things in our respective names and on
our respective behalves in the capacities indicated below that Ruben G.
Perlmutter may deem necessary or advisable to enable Mexican Cellular
Investments, Inc. to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for us in our respective names in the
capacities indicated below any and all amendments (including post-effective
amendments) hereto and to file the same, with all exhibits thereto and other
documents therewith, with the Securities and Exchange Commission; and we do
hereby ratify and confirm all that Ruben G. Perlmutter shall do or cause to be
done by virtue hereof.
PODER-MANDATO Y FIRMAS
Nosotros, los abajo firmantes directores y ejecutivos de Mexican
Cellular Investments, Inc., otorgamos poder especial en cuanto a derecho se
refiere y designamos a Ruben G. Perlmutter para que actue como nuestro apoderado
y mandatario, con plenos poderes de sustitucion y delegacion para que realice
todos y cualesquiera actos, por cuenta y a nombre nuestro en el caracter que se
indica mas adelante, que Ruben G. Perlmutter considere necesario o conveniente
para los fines de que Mexican Cellular Investments, Inc. cumpla con todos los
requisitos del "Securities Act" de 1933, segun texto vigente y todas las normas,
reglamentos y requisitos del "Securities and Exchange Commission," en relacion
con esta Declaracion de Registro, incluyendo especificamente, pero no limitado
a, poder y autorizacion para firmar por todos y cada uno de nosotros en el
caracter indicado mas adelante, todas y cada una de las enmiendas a la
Declaracion de Registro (incluyendo enmiendas posteriores a la aceptacion por la
autoridad mencionada) y para que interpongan y registren la Declaracion de
Registro, con todos sus anexos y otra documentacion necesaria por ante el
"Securities and Exchange Commission"; y en el presente acto ratificamos y
confirmamos todos los actos que Ruben G. Perlmutter realice por virtud del
presente poder.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Ruben G. Perlmutter President, General Counsel, October 8, 1997
- ----------------------------- Assistant Secretary and Sole
Ruben G. Perlmutter Director (Principal Executive
Officer)
/s/ Howard F. Zuckerman Vice President, Treasurer and October 8, 1997
- ----------------------------- Chief Financial Officer
Howard F. Zuckerman (Principal Financial Officer
and Principal Accounting Officer)
/s/ Carlos Gutierrez Cardona Secretary October 8, 1997
- -----------------------------
Carlos Gutierrez Cardona
/s/ Norma Urzua Villasenor Assistant Secretary October 8, 1997
- -----------------------------
Norma Urzua Villasenor
EXHIBIT 3.1 - BYLAWS (ESTATUTOS) OF GRUPO IUSACELL S.A. de C.V.
(PREVIOUSLY FILED UNDER THE FORM 20-F 1996 ANNUAL REPORT)
EXHIBIT 3.2 - BYLAWS (ESTATUTOS) OF SOS TELECOMUNICACIONES,
S.A. de C.V.
To be filed by amendment
3
EXHIBIT 3.3 - BYLAWS (ESTATUTOS) OF IUSACELL, S.A. de C.V.
To be filed by amendement
4
EXHIBIT 3.4 - BYLAWS (ESTATUTOS) OF SISTEL, S.A. de C.V.
To be filed by amendemnt
5
EXHIBIT 3.5 - BYLAWS (ESTATUTOS) OF COMUNICACIONES
CELULARES DE OCCIDENTE, S.A. de C.V.
To be filed by amendment
6
EXHIBIT 3.6 - BYLAWS (ESTATUTOS) OF TELECOMUNICACIONES
DEL GOLFO, S.A. de C.V.
To be filed by amendment
7
EXHIBIT 3.7 - BYLAWS (ESTATUTOS) OF SISTEMAS TELEFONICAS
PORTATILES CELULARES S.A. de C.V.
To be filed by amendment
8
EXHIBIT 3.8 - BYLAWS (ESTATUTOS) OF INMOBILIARIA MONTES URALES
460, S.A. de C.V.
To be filed by amendment
9
EXHIBIT 3.9 - BYLAWS (ESTATUTOS) OF IUSANET, S.A. de C.V.
To be filed by amendment
10
EXHIBIT 3.10 - BYLAWS (ESTATUTOS) OF MEXICAN CELLULAR
INVESTMENTS, INC.
To be filed by amendment
11
EXHIBIT 4.1 - INDENTURE
12
<PAGE>
EXECUTION COPY
================================================================================
Grupo Iusacell, S.A. de C.V.
10% Senior Notes due 2004
------------------------------------------------------
INDENTURE
Dated as of July 25, 1997
------------------------------------------------------
FIRST UNION NATIONAL BANK,
Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.............................................. 1
SECTION 1.02. Other Definitions........................................ 27
SECTION 1.03. Incorporation by Reference of Trust Indenture Act........ 28
SECTION 1.04. Rules of Construction.................................... 28
SECTION 1.05. GAAP; Dollar Equivalents................................. 29
ARTICLE II
The Securities
SECTION 2.01. Form and Dating.......................................... 29
SECTION 2.02. Execution and Authentication............................. 30
SECTION 2.03. Registrar and Paying Agent............................... 31
SECTION 2.04. Paying Agent To Hold Money in Trust...................... 32
SECTION 2.05. Securityholder Lists..................................... 33
SECTION 2.06. Transfer and Exchange.................................... 33
SECTION 2.07. Replacement Securities................................... 34
SECTION 2.08. Outstanding Securities................................... 35
SECTION 2.09. Temporary Securities..................................... 35
SECTION 2.10. Cancelation.............................................. 35
SECTION 2.11. Defaulted Interest....................................... 36
SECTION 2.12. CUSIP Numbers............................................ 36
SECTION 2.13. Book-Entry Provisions for Global Securities.............. 36
SECTION 2.14. Special Transfer Provisions.............................. 37
ARTICLE III
Redemption
SECTION 3.01. Notices to Trustee....................................... 40
SECTION 3.02. Selection of Securities to be Redeemed................... 40
SECTION 3.03. Notice of Redemption..................................... 40
SECTION 3.04. Effect of Notice of Redemption........................... 41
SECTION 3.05. Deposit of Redemption Price.............................. 42
SECTION 3.06. Securities Redeemed in Part.............................. 42
1
<PAGE>
SECTION 3.07. Optional Redemption...................................... 42
SECTION 3.08. Redemption for Tax Reasons............................... 43
ARTICLE IV
Covenants
SECTION 4.01. Payment of Securities.................................... 44
SECTION 4.02. Provision of Financial Information....................... 44
SECTION 4.03. Limitation on Indebtedness............................... 45
SECTION 4.04. Limitation on Indebtedness of Non-Guarantor
Subsidiaries............................................. 48
SECTION 4.05. Limitation on Restricted Payments........................ 49
SECTION 4.06. Limitation on Restrictions on Distributions from
Restricted Subsidiaries.................................. 51
SECTION 4.07. Limitation on Sales of Assets and Subsidiary Stock....... 52
SECTION 4.08. Limitation on Transactions with Affiliates............... 56
SECTION 4.09. Change of Control........................................ 57
SECTION 4.10. Compliance Certificate................................... 58
SECTION 4.11. Further Instruments and Acts............................. 59
SECTION 4.12. Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries.................................. 59
SECTION 4.13. Limitation on Liens...................................... 59
SECTION 4.14. Limitation on Sale/Leaseback Transactions................ 59
SECTION 4.15. Limitation on Lines of Business.......................... 60
SECTION 4.16. Future Subsidiary Guarantors............................. 60
SECTION 4.17. Additional Amounts....................................... 60
ARTICLE V
Successor Company
SECTION 5.01. When Company May Merge or Transfer Assets................ 62
ARTICLE VI
Defaults and Remedies
SECTION 6.01. Events of Default........................................ 63
SECTION 6.02. Acceleration............................................. 66
SECTION 6.03. Other Remedies........................................... 66
SECTION 6.04. Waiver of Past Defaults.................................. 66
SECTION 6.05. Control by Majority...................................... 67
SECTION 6.06. Limitation on Suits...................................... 67
SECTION 6.07. Rights of Holders to Receive Payment..................... 67
SECTION 6.08. Collection Suit by Trustee............................... 68
SECTION 6.09. Trustee May File Proofs of Claim......................... 68
SECTION 6.10. Priorities............................................... 68
SECTION 6.11. Undertaking for Costs.................................... 69
SECTION 6.12. Waiver of Stay or Extension Laws......................... 69
ARTICLE VII
Trustee
SECTION 7.01. Duties of Trustee........................................ 69
SECTION 7.02. Rights of Trustee........................................ 71
SECTION 7.03. Individual Rights of Trustee............................. 71
SECTION 7.04. Trustee's Disclaimer..................................... 72
SECTION 7.05. Notice of Defaults....................................... 72
SECTION 7.06. Reports by Trustee to Holders............................ 72
SECTION 7.07. Compensation and Indemnity............................... 72
SECTION 7.08. Replacement of Trustee................................... 74
SECTION 7.09. Successor Trustee by Merger.............................. 75
SECTION 7.10. Eligibility; Disqualification............................ 75
SECTION 7.11. Preferential Collection of Claims Against Company........ 75
ARTICLE VIII
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities; Defeasance........ 76
SECTION 8.02. Conditions to Defeasance................................ 77
SECTION 8.03. Application of Trust Money.............................. 78
SECTION 8.04. Repayment to Company.................................... 79
SECTION 8.05. Indemnity for Government Obligations.................... 79
SECTION 8.06. Reinstatement........................................... 79
ARTICLE IX
Amendments
SECTION 9.01. Without Consent of Holders.............................. 79
SECTION 9.02. With Consent of Holders................................. 81
SECTION 9.03. Compliance with Trust Indenture Act..................... 82
SECTION 9.04. Revocation and Effect of Consents and Waivers............. 82
SECTION 9.05. Notation on or Exchange of Securities................... 83
2
<PAGE>
SECTION 9.06. Trustee to Sign Amendments and Waivers.................. 83
SECTION 9.07. Payment for Consent..................................... 84
ARTICLE X
[Intentionally Omitted]
ARTICLE XI
Subsidiary Guarantees
SECTION 11.01. Subsidiary Guarantees................................... 84
SECTION 11.02. Limitation on Liability................................. 87
SECTION 11.03. Successors and Assigns.................................. 87
SECTION 11.04. No Waiver............................................... 87
SECTION 11.05. Modification............................................ 88
SECTION 11.06. Execution of Supplemental Indenture for Future
Subsidiary Guarantors .................................. 88
ARTICLE XII
Subordination of the Subsidiary Guarantees
SECTION 12.01. Agreement to Subordinate................................ 88
SECTION 12.02. Liquidation, Dissolution, Bankruptcy.................... 89
SECTION 12.03. Default on Designated Senior Indebtedness of a
Guarantor Subsidiary.................................... 89
SECTION 12.04. Demand for Payment...................................... 90
SECTION 12.05. When Distribution Must Be Paid Over..................... 91
SECTION 12.06. Subrogation............................................. 91
SECTION 12.07. Relative Rights......................................... 91
SECTION 12.08. Subordination May Not Be Impaired by a Subsidiary
Guarantor............................................... 91
SECTION 12.09. Rights of Trustee and Paying Agent...................... 92
SECTION 12.10. Distribution or Notice to Representative................ 92
SECTION 12.11. Article XII Not To Prevent Events of Default or Limit
Right To Accelerate..................................... 92
SECTION 12.12. Trustee Entitled to Rely................................ 93
SECTION 12.13. Trustee to Effectuate Subordination..................... 93
SECTION 12.14. Trustee Not Fiduciary for Holders of Designated Senior
Indebtedness of a Subsidiary Guarantor.................. 93
SECTION 12.15. Reliance by Holders of Designated Senior Indebtedness
of a Subsidiary Guarantor on Subordination Provisions... 94
SECTION 12.16. Defeasance.............................................. 94
ARTICLE XIII
Miscellaneous
SECTION 13.01. Trust Indenture Act Controls............................ 94
SECTION 13.02. Notices................................................. 94
SECTION 13.03. Communication by Holders with Other Holders............. 95
SECTION 13.04. Certificate and Opinion as to Conditions Precedent...... 95
SECTION 13.05. Statements Required in Certificate or Opinion........... 96
SECTION 13.06. When Securities Disregarded............................. 96
SECTION 13.07. Rules by Trustee, Paying Agent and Registrar............ 97
SECTION 13.08. Legal Holidays.......................................... 97
SECTION 13.09. Governing Law........................................... 97
SECTION 13.10. Waiver of Immunities.................................... 97
SECTION 13.11. Consent to Jurisdiction; Appointment of Agent for
Service of Process; Judgment Currency................... 97
SECTION 13.12. No Recourse Against Others.............................. 100
SECTION 13.13. Successors.............................................. 100
SECTION 13.14. Multiple Originals...................................... 100
SECTION 13.15. Table of Contents; Headings............................. 100
Exhibit A - Form of Face of Initial Security
Exhibit B - Form of Face of Registered Exchange Security
Exhibit C - Form of Face of Private Exchange Security
Exhibit D - Form of Letter of Representation to be Delivered in Connection
with Transfers Pursuant to Regulation D
Exhibit E - Form of Supplemental Indenture
Exhibit F - Form of Letter to be Delivered in Connection with Transfers
Pursuant to Rule 144A
Exhibit G - Form of Letter to be Delivered in Connection with Transfers
Pursuant to Regulation S
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CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- -------
310(a)(1)............................................ 7.10
(a)(2)............................................ 7.10
(a)(3)............................................ N.A.
(a)(4)............................................ N.A.
(b)............................................... 7.08; 7.10
(c)............................................... N.A.
311(a)............................................... 7.11
(b)............................................... 7.11
(c)............................................... N.A.
312(a)............................................... 2.05
(b)............................................... 13.03
(c)............................................... 13.03
313(a)............................................... 7.06
(b)(1)............................................ N.A.
(b)(2)............................................ 7.06
(c)............................................... 7.06
(d)............................................... 7.06
314(a)............................................... 4.02; 4.10;
13.02
(b)............................................... N.A.
(c)(1)............................................ 13.04
(c)(2)............................................ 13.04
(c)(3)............................................ N.A.
(d)............................................... N.A.
(e)............................................... 13.05
(f)............................................... 4.13
315(a)............................................... 7.01
(b)............................................... 7.05; 13.02
(c)............................................... 7.01
(d)............................................... 7.01
(e)............................................... 6.11
316(a)(last
sentence)............................................ 13.06
(a)(1)(A)......................................... 6.05
(a)(1)(B)......................................... 6.04
(a)(2)............................................ N.A.
(b)............................................... 6.07
317(a)(1)............................................ 6.08
(a)(2)............................................ 6.09
(b)............................................... 2.04
318(a)............................................... 13.01
N.A. means Not Applicable.
- ----------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of this Indenture.
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INDENTURE dated as of July 25, 1997, among Grupo Iusacell,
S.A. de C.V., a limited liability stock corporation organized under
the laws of Mexico (the "Company"), each Initial Guarantor (as
defined below) and First Union National Bank, a national banking
association (the "Trustee").
Each party agrees as follows for the benefit of the other parties
and for the equal and ratable benefit of the Holders of the Company's 10% Senior
Notes due 2004 (the "Initial Securities") and, when and if issued pursuant to an
exchange for Initial Securities, the Exchange Securities (as defined).
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Additional Assets" means (i) any property (other than cash, cash
equivalents or Securities) to be owned by the Company or a Restricted Subsidiary
and used in a Related Business, (ii) the costs of improving or developing any
property owned by the Company or a Restricted Subsidiary which is used in a
Related Business and (iii) Investments in any other Person engaged primarily in
a Related Business (including the acquisition from third parties of Capital
Stock of such Person) as a result of which such other Person becomes a
Restricted Subsidiary.
"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of Sections 4.07 and 4.08 only, "Affiliate" shall also mean any
beneficial owner of shares representing 5% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Company or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"Annualized EBITDA" means, with respect to any Person, such Person's
Pro Forma EBITDA for such Person's two most recent fiscal quarters ended at
least 45 days prior to the determination date, multiplied by two.
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"Asset Disposition" means any sale, lease, transfer, issuance or
other disposition of shares of Capital Stock of a Subsidiary (other than
directors' qualifying shares), property or other assets (each referred to for
the purposes of this definition as a "disposition") by the Company or any of its
Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Restricted Subsidiary, (ii) a disposition of inventory in the
ordinary course of business, (iii) for purposes of the provisions of Section
4.07 only, a disposition subject to (and complying with) Section 4.05, (iv)
Permitted Securitization Transactions and (v) Joint Venture Investments to the
extent permitted pursuant to clause (ix) of the definition of "Permitted
Investment".
"Attributable Debt" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, (i) if such Sale/Leaseback Transaction
is a Capitalized Lease Obligation, the amount of Indebtedness represented
thereby according to the definition of "Capitalized Lease Obligation" and (ii)
in all other instances, the present value (discounted at the interest rate borne
by the Securities, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect
to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of the numbers of years (including fractions thereof)
from the date of determination to the dates of each successive scheduled
principal payment of such Indebtedness or redemption or similar payment with
respect to such Preferred Stock multiplied by the amount of such payment by (ii)
the sum of all such payments.
"BAII" means Bell Atlantic International, Inc., a subsidiary of Bell
Atlantic.
"Bell Atlantic" means Bell Atlantic Corporation.
"Bell Atlantic Facility" means the debenture purchase agreement,
entered into on July 25, 1997, between the Company and BAII, without giving
effect to any subsequent amendment, waiver or other modification thereof.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or other
day on which banking institutions in New York State are authorized or required
by law to close.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated)
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equity of such Person, including any Preferred Stock, but excluding any debt
securities convertible into such equity.
"Capitalized Lease Obligation" means an obligation that is required
to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP; and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under such
lease.
"Change of Control" means the occurrence of any of the following
events:
(i)(A) the Permitted Holders cease to possess, directly or
indirectly, the power to elect a majority of the members of the Board of
Directors and thereby direct or cause the direction of the management or
policies of the Company, whether through the ownership of voting
securities or by contract, or (B) individuals elected by the Permitted
Holders cease to constitute a majority of the members of the Board of
Directors;
(ii) the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of at least 30% in the aggregate of the total voting power of
the Voting Stock of the Company, whether as a result of issuance of
securities of the Company, any merger, consolidation, liquidation or
dissolution of the Company, any direct or indirect transfer of securities
by any Permitted Holder or otherwise (for purposes of this clause (ii),
the Permitted Holders shall be deemed to own beneficially any Voting Stock
of an entity (the "specified entity") held by any other entity (the
"parent entity") so long as the Permitted Holders beneficially own (as so
defined), directly or indirectly, in the aggregate a majority of the
voting power of the Voting Stock of the parent entity);
(iii)(A) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders, is
or becomes the beneficial owner (as defined in clause (ii) above, except
that such person shall be deemed to have "beneficial ownership" of all
shares that any such person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 30% of the total voting power of the Voting Stock
of the Company and (B) the Permitted Holders "beneficially own" (as
defined in clause (ii) above), directly or indirectly, in the aggregate a
lesser percentage of the total voting power of the Voting Stock of the
Company than such other person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors (for the purposes of this clause (iii),
such other person shall be deemed to own beneficially any Voting Stock of
a specified entity held by a parent entity, if such other person
"beneficially owns"
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<PAGE>
(as defined in this clause (iii)), directly or indirectly, more than 30%
of the voting power of the Voting Stock of such parent entity and the
Permitted Holders "beneficially own" (as defined in clause (ii) above),
directly or indirectly, in the aggregate a lesser percentage of the voting
power of the Voting Stock of such parent entity and do not have the right
or ability by voting power, contract or otherwise to elect or designate
for election a majority of the board of directors of such parent entity);
or
(iv) the sale, conveyance, transfer, lease or other disposition of
all or substantially all the assets of the Company, whether in one or more
transactions or to one or more Persons, other than a sale, conveyance,
transfer, lease or other disposition of all or substantially all the
assets of the Company to a Person that is controlled by the Permitted
Holders.
"Chase" means The Chase Manhattan Bank.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the indenture securities.
"Consolidated Current Liabilities" means, as of any date of
determination, the aggregate amount of liabilities of the Company and its
Consolidated Restricted Subsidiaries which may properly be classified as current
liabilities (including taxes accrued as estimated), after eliminating (i) all
intercompany items between the Company and any Restricted Subsidiary and (ii)
all current maturities of long-term Indebtedness.
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its Consolidated Restricted Subsidiaries,
plus, to the extent Incurred by the Company and its Subsidiaries in such period
but not included in such interest expense, (i) interest expense attributable to
Capitalized Lease Obligations, (ii) amortization of debt discount and debt
issuance cost, (iii) capitalized interest, (iv) noncash interest expense, (v)
commissions, discounts and other fees and charges with respect to letters of
credit and bankers' acceptance financing, (vi) interest accruing on any
Indebtedness of any other Person to the extent such Indebtedness is Guaranteed
by the Company or any Restricted Subsidiary; provided that payment of such
amounts by the Company or any Restricted Subsidiary is being made to, or is
sought by, the holders of such Indebtedness pursuant to such Guarantee, (vii)
net costs associated with Hedging Obligations (including amortization of fees
and premiums) permitted under this Indenture, (viii) Preferred Stock dividends
in respect of all Preferred Stock of Subsidiaries of the Company and
Disqualified Stock of the Company held by Persons other than the Company or a
Wholly Owned Subsidiary and (ix) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or
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<PAGE>
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust; provided, however,
that Consolidated Interest Expense shall not include any expense of any
Unrestricted Subsidiary to the extent the related Indebtedness is not Guaranteed
or paid by the Company or any Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net income
(loss) of the Company and its Consolidated Subsidiaries; provided, however, that
there shall not be included in such Consolidated Net Income: (i) any net income
(loss) of any Person if such Person is not a Restricted Subsidiary, except that
(A) subject to the limitations contained in clause (iv) below, the Company's
equity in the net income of any such Person for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to the limitations
contained in clause (iii) below) and (B) the Company's equity in a net loss of
any such Person (other than an Unrestricted Subsidiary) for such period shall be
included in determining such Consolidated Net Income; (ii) any net income (loss)
of any person acquired by the Company or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition; (iii) any net
income (loss) of any Restricted Subsidiary if such Restricted Subsidiary is
subject to restrictions, directly or indirectly, on the payment of dividends or
the making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company, except that (A) subject to the limitations contained
in clause (iv) below, the Company's equity in the net income of any such
Restricted Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash that could have been distributed by
such Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend (subject, in the case of a dividend that
could have been made to another Restricted Subsidiary, to the limitation
contained in this clause) and (B) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining such
Consolidated Net Income; (iv) any gain (but not loss) realized upon the sale or
other disposition of any asset of the Company or its Consolidated Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) that is not sold or
otherwise disposed of in the ordinary course of business and any gain (but not
loss) realized upon the sale or other disposition of any Capital Stock of any
Person; (v) any extraordinary gain or loss; and (vi) the cumulative effect of a
change in accounting principles. Notwithstanding the foregoing, for the purpose
of Section 4.05 only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the
extent such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such Section pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Tangible Assets" means, as of any date of
determination, the sum of the total assets (less
5
<PAGE>
accumulated depreciation and amortization, allowances for doubtful receivables,
other applicable reserves and other properly deductible items) of the Company
and its Consolidated Restricted Subsidiaries, after giving effect to purchase
accounting and after deducting therefrom Consolidated Current Liabilities and,
to the extent otherwise included, the amounts of (without duplication): (i) the
excess of cost over fair market value of assets or businesses acquired; (ii) any
revaluation or other write-up in book value of assets subsequent to the last day
of the fiscal quarter of the Company immediately preceding the Issue Date as a
result of a change in the method of valuation in accordance with GAAP; (iii)
unamortized debt discount and expenses and other unamortized deferred charges,
goodwill, patents, trademarks, service marks, trade names, copyrights, licenses,
organization or developmental expenses and other intangible items; (iv) minority
interests in Consolidated Subsidiaries held by Persons other than the Company or
any Restricted Subsidiary; (v) treasury stock; (vi) cash set aside and held in a
sinking or other analogous fund established for the purpose of redemption or
other retirement of Capital Stock to the extent such obligation is not reflected
in Consolidated Current Liabilities; and (vii) Investments in and assets of
Unrestricted Subsidiaries.
"Consolidation" means the consolidation of the amounts of each of
the Subsidiaries of a Person with those of such Person in accordance with GAAP
consistently applied; provided, however, that, in the case of the Company,
"Consolidation" shall not include consolidation of the accounts of any
Unrestricted Subsidiary, but the interest of the Company or any Restricted
Subsidiary in an Unrestricted Subsidiary shall be accounted for as an
investment. The term "Consolidated" has a correlative meaning.
"Credit Facility" means the credit agreement dated as of July 25,
1997, as amended, waived or otherwise modified from time to time, among the
Company, the lenders named therein and Chase, as administrative agent (except to
the extent that any such amendment, waiver or other modification thereto would
be prohibited by the terms of this Indenture, unless otherwise agreed to by the
Holders of at least a majority in aggregate principal amount of Securities at
the time outstanding).
"Cumulative EBITDA" means, at any date of determination, the
cumulative EBITDA of the Company from and after July 1, 1997 to the end of the
most recent fiscal quarter of the Company ending at least 45 days prior to the
taking of any action for the purpose of which the determination is being made.
"Cumulative Interest Expense" means, at any date of determination,
the aggregate amount of Consolidated Interest Expense Incurred by the Company
from and after July 1, 1997 to the end of the most recent fiscal quarter of the
Company ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made.
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other
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<PAGE>
similar agreement as to which such Person is a party or a beneficiary.
"Debentures" means the convertible subordinated debentures sold
pursuant to the Bell Atlantic Facility.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Depositary" means, with respect to the Securities issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
as the Depositary with respect to the Securities, until a successor shall have
been appointed and become such pursuant to the applicable provisions of this
Indenture, and thereafter, "Depositary" shall mean or include such successor.
"Designated Senior Indebtedness" means (i) Senior Indebtedness under
the Credit Facility and (ii) any Refinancing Indebtedness with respect thereto
Incurred in accordance with the provisions of Section 4.03(b)(i) which
constitutes Senior Indebtedness and is specifically designated by the Company in
the instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness", provided that, in the case of the foregoing clause (ii),
at the date of determination, the aggregate principal amount of such Senior
Indebtedness then outstanding, together with any available lending commitment
with respect thereto, is not less than $35.0 million.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable or exercisable) or upon the
happening of any event (i) matures or is or could become mandatorily redeemable
pursuant to a sinking fund obligation or otherwise, (ii) is or could become
convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is
or could become redeemable at the option of the Holder thereof, in whole or in
part, in each case on or prior to the first anniversary of the Stated Maturity
of the Securities.
"Dollar Equivalent" means, with respect to any monetary amount in a
currency other than U.S. dollars, at any time for the determination thereof, the
amount of U.S. dollars obtained by converting such foreign currency involved in
such computation into U.S. dollars at the noon buying rate for the purchase of
U.S. dollars with the applicable foreign currency reported by the Federal
Reserve Bank of New York, or if no noon buying rate is so reported, at the spot
rate for the purchase of U.S. dollars with the applicable foreign currency as
quoted by The Chase Manhattan Bank in New York City at approximately 11:00 a.m.
(New York City time), (i) with respect to the calculation of Leverage Ratio,
Cumulative EBITDA and Cumulative Interest Expense, as of the end of the most
recent fiscal quarter of the Company ending at least 45 days prior to the taking
of any action for the purpose of which the determination is being made or (ii)
with respect to the monetary amount of a transaction occurring subsequent to the
end of such fiscal quarter, on the date two Business Days prior to such
determination.
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"EBITDA" for any period means the Consolidated Net Income for such
period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income and asset tax expense and employee profit
sharing expense, (ii) Consolidated Interest Expense, (iii) depreciation expense,
(iv) amortization expense, (v) foreign exchange losses that are reported below
the "Operating profit (loss)" line on the Company's consolidated income
statements and (vi) all non-cash items that are reported below the "Operating
profit (loss)" line on the Company's consolidated income statements, including
monetary losses (other than items that shall require cash payments and for which
an accrual or reserve is, or is required by GAAP to be, made), less the
following to the extent included in calculating such Consolidated Net Income:
(i) income and asset tax benefit, (ii) foreign exchange gains that are reported
below the "Operating profit (loss)" line on the Company's consolidated
statements of income, and (iii) all non-cash items that are reported below the
"Operating profit (loss)" line on the Company's consolidated statements of
income, including monetary gains (other than items that shall result in the
receipt of cash payments), in each case for such period. In addition, the cost
of handsets given or sold to customers in such period shall be deducted from
EBITDA to the extent not already deducted in determining Consolidated Net
Income. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Subsidiary of
the Company shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the net income (loss) of such
Subsidiary was included in calculating Consolidated Net Income and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior approval (or with
approval that has been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange and Registration Rights Agreement" means the Exchange and
Registration Rights Agreement dated as of the Issue Date by and among the
Initial Purchasers, the Company and the Initial Guarantors, as such agreement
may be amended, modified, or supplemented from time to time in accordance with
the terms thereof.
"Exchange Securities" means the Registered Exchange Securities and
the Private Exchange Securities, collectively.
"Fair Market Value" means, with respect to any property, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value shall be
determined, except as otherwise provided, (i) if such property has a Fair Market
Value of less than U.S.$5.0 million, by an Officer of the Company or (ii) if
such Property has a Fair Market Value in excess of U.S.$5.0 million, by a
majority of the Board
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<PAGE>
of Directors and evidenced by a resolution, dated within 30 days of the relevant
transaction, of the Board of Directors promptly delivered to the Trustee.
"GAAP" means generally accepted accounting principles in Mexico as
in effect as of the Issue Date.
"Global Security" means a Security that is in the form of Exhibit A,
Exhibit B or Exhibit C hereto that includes the Global Security Legend.
"Global Security Legend" means the legend set forth under such
caption in Exhibit A, Exhibit B and Exhibit C hereto.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by agreements
to keep-well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Subsidiary or a Subsidiary
Guarantor (whether by merger, consolidation, acquisition or otherwise) shall be
deemed to be Incurred by such Person at the time it becomes a Subsidiary or a
Subsidiary Guarantor, as the case may be; provided further, that solely for
purposes of determining compliance with Section 4.03, amortization of debt
discount shall not be deemed to be the Incurrence of Indebtedness; provided
further, that in the case of Indebtedness sold at a discount, the amount of such
Indebtedness Incurred shall at all times be the aggregate principal amount at
Stated Maturity.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all
9
<PAGE>
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto); (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except Trade Payables), which purchase price is due more
than six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services; (v) all
Capitalized Lease Obligations and all Attributable Debt of such Person; (vi) the
amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to the
Company, any Preferred Stock of the Restricted Subsidiaries (but excluding, in
each case, any accrued dividends); (vii) all Indebtedness of other Persons
secured by a Lien on any asset of such Person, whether or not such Indebtedness
is assumed by such Person; provided, however, that the amount of Indebtedness of
such Person shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness of such other
Persons; (viii) all Indebtedness of other Persons to the extent Guaranteed by
such Person; and (ix) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations
described above at such date. The amount of Indebtedness with respect to Hedging
Obligations shall be (x) zero, if such Hedging Obligation is permitted pursuant
to Section 4.03(b)(v)(B) or (y) the notional amount of such Hedging Obligation,
if such Hedging Obligation is not so permitted.
"Indenture" means this Indenture as amended or supplemented from
time to time.
"Initial Guarantors" means each of the Subsidiaries of the Company
who are signatories hereto.
"Initial Purchasers" means Chase Securities Inc. and Salomon
Brothers Inc.
"Interest Rate Agreement" means, with respect to any Person, any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect advance
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the Person making the
advance), loan or other extension of credit (including by way of Guarantee or
similar arrangement) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar
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instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and Section 4.05, (i) "Investment" shall include the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of any Subsidiary of the Company at the
time that such Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
"Issue Date" means the date on which the Initial Securities are
originally issued.
"Joint Venture Investment" means any sale, lease, transfer, issuance
or other disposition of shares of Capital Stock of a Subsidiary, property or
other assets by the Company or any of the Restricted Subsidiaries (including any
disposition by means of a merger, consolidation or similar transaction) which is
engaged in or used in, as applicable, a Related Business, in exchange for which
the Company or a Restricted Subsidiary receives Capital Stock of another Person
(other than the Company or a Restricted Subsidiary) engaged primarily in a
Related Business, provided that the fair market value of such Capital Stock is
at least equal to the fair market value of such shares, property or assets that
are the subject of such disposition.
"Leverage Ratio" means the ratio of (i) the outstanding consolidated
Indebtedness of a Person and its Subsidiaries (or in the case of the Company,
the Restricted Subsidiaries) divided by (ii) the Annualized EBITDA of such
Person.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Master Technical Services Agreement" means the Master Technical
Services Agreement by and between Bell Atlantic International, Inc. and Sistecel
S.A. de C.V., effective as of January 1, 1997, without giving effect to any
amendment, waiver or other modification thereof.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a promissory note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to the shares, properties or other assets that are the
subject of such Asset Disposition or received
11
<PAGE>
in any other noncash form) therefrom, in each case net of (i) all legal, title
and recording tax expenses, commissions and other fees and expenses incurred,
and all Federal, state, provincial, foreign and local taxes required to be paid
or accrued as a liability under GAAP, as a consequence of such Asset
Disposition, (ii) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of any
Lien upon such assets, or which must by its terms, or in order to obtain a
necessary consent to such Asset Disposition, or by applicable law be repaid out
of the proceeds from such Asset Disposition, (iii) all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
joint ventures as a result of such Asset Disposition and (iv) appropriate
amounts to be provided by the seller as a reserve, in accordance with GAAP,
against any liabilities associated with the assets disposed of in such Asset
Disposition and retained by the Company or any Restricted Subsidiary after such
Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Officer" of any Person means the Chairman of the Board, the Chief
Executive Officer, the Director General, the Chief Financial Officer, the Chief
Operating Officer, the President, any Vice President, the Treasurer or the
Secretary of such Person; provided that, in the case of the Company, any such
Officer shall be authorized to act pursuant to a duly notarized
power-of-attorney.
"Officers' Certificate" means a certificate signed by two Officers
of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who
is acceptable to the Trustee. The counsel may be an employee of or counsel to
the Company or the Trustee.
"Ownership Regulated Subsidiaries" means each of Infotelecom, S.A.
de C.V.; Iusatel, S.A. de C.V.; Iusatelecomunicaciones, S.A. de C.V.;
Punto-a-Punto Iusacell, S.A. de C.V.; and any other Subsidiary of the Company,
in each case as to which applicable law or regulation prohibits the Company from
owning a majority of the Voting Stock thereof.
"Peralta Group" means Carlos Peralta Quintero and his Affiliates
(other than the Company and its Subsidiaries).
"Permitted Holders" means Bell Atlantic and any Affiliate of Bell
Atlantic.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) a Restricted Subsidiary or a Person which shall,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however,
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<PAGE>
that the primary business of such Restricted Subsidiary is a Related Business;
(ii) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary and
not exceeding U.S.$3.0 million in the aggregate outstanding at any one time;
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (viii) any securities or other
Investments received in compliance with Section 4.07; (ix) Joint Venture
Investments in an aggregate amount not to exceed the greater of (A) U.S.$50.0
million and (B) 5% of Consolidated Net Tangible Assets, provided that the amount
of any such Joint Venture Investment shall be deemed to equal the Fair Market
Value at the time of disposition of the shares of Capital Stock, property or
other assets disposed of in connection with such Joint Venture Investment; and
(x) Iusatelecomunicaciones, S.A. de C.V. as an Unrestricted Subsidiary in an
aggregate amount not to exceed U.S.$12.0 million, provided such Investment is
made with the proceeds of borrowings under the Bell Atlantic Facility that are
promptly converted into Capital Stock of the Company pursuant to the terms of
the Bell Atlantic Facility.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under worker's compensation laws, unemployment insurance
laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States government bonds
to secure surety bonds to which such Person is a party, or deposits as security
for contested taxes or import duties or for the payment of rent, in each case
Incurred in the ordinary course of business; (b) Liens imposed by law, such as
carriers', warehousemen's and mechanics' Liens, in each case for sums not yet
due or being contested in good faith by appropriate proceedings; (c) Liens for
property taxes not yet due or payable or subject to penalties for non-payment
and which are being contested in good faith by appropriate proceedings; (d)
Liens in favor of issuers of surety bonds or letters of credit issued pursuant
to the request of and for the account of such Person in the ordinary course of
its business; (e) survey exceptions, encumbrances, easements or reservations of,
or rights of others for, licenses,
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<PAGE>
rights-of-way, sewers, electric lines, telegraph and telephone lines and other
similar purposes, or zoning or other restrictions as to the use of real
properties or Liens incidental to the conduct of the business of such Person or
to the ownership of its properties which were not Incurred in connection with
Indebtedness and which do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the operation of the
business of such Person; (f) Liens on property or assets that are the subject of
Indebtedness permitted under Section 4.03(b)(ix) (other than the Refinancing
Indebtedness referred to in such clause (ix) which Refinancing Indebtedness
shall be the subject of clause (o) below); provided, however, that (x) any such
Lien is limited to the specific property or asset being financed or, in the case
of real property or fixtures, including additions and improvements, the real
property on which such asset is attached, (y) such Indebtedness is Incurred
solely for the purpose of financing the acquisition, construction or lease of
such property or asset and (z) such Indebtedness is incurred within 365 days
after the later of the acquisition, completion of construction, repair,
improvement or addition or commencement of full operation of such property or
asset by the Company or a Restricted Subsidiary; (g) Liens existing on the Issue
Date; (h) Liens on property of a Person at the time such Person becomes a
Subsidiary; provided, however, such Liens are not created, Incurred or assumed
in connection with, or in contemplation of, such Person becoming such a
Subsidiary of the Company; provided further, however, that such Liens may not
extend to any other property owned by the Company or any Restricted Subsidiary;
(i) Liens on property at the time the Company or a Restricted Subsidiary
acquired the property, including any acquisition by means of a merger or
consolidation with or into the Company or any Restricted Subsidiary; provided,
however, that such Liens are not created, Incurred or assumed in connection
with, or in contemplation of, such acquisition; provided further, however, that
the Liens may not extend to any other property owned by the Company or any
Restricted Subsidiary; (j) Liens securing Indebtedness or other obligations of a
Restricted Subsidiary owing to the Company or a Wholly Owned Subsidiary; (k)
Liens securing Hedging Obligations so long as the related Indebtedness is, and
is permitted to be under this Indenture, secured by a Lien on the same property
securing such Hedging Obligations; (l) Liens in an aggregate amount not in
excess of U.S.$10.0 million or its foreign currency equivalent at any time
outstanding securing one or more judgments or decrees against the Company or one
of its Subsidiaries, so long as all such judgments or decrees are being
contested in good faith and any appropriate legal proceedings which may have
been duly initiated for the review of any such judgment or decree shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired; (m) leases and subleases (other than
Sale/Leaseback Transactions) of real property entered into in the ordinary
course of the business of the Company or the applicable Restricted Subsidiary
which do not interfere with the ordinary conduct of the business of the Company
or any Restricted Subsidiary, and which are made on customary and usual terms
applicable to similar properties; (n) any interest or title by a lessor or
sublessor, or any Lien in favor of a landlord, arising under any real or
personal property lease under which the Company or any of the Restricted
14
<PAGE>
Subsidiaries is a lessee, sublessee or subtenant and which the Company or such
Restricted Subsidiary entered into in the ordinary course of its business (other
than any Lien securing any Capitalized Lease Obligation, Purchase Money
Indebtedness or Sale/Leaseback Transaction); and (o) Liens to secure any
refinancing, refunding, extension, renewal or replacement (or successive
refinancings, refundings, extensions, renewals or replacements) as a whole, or
in part, of any Indebtedness secured by any Lien referred to in the foregoing
clauses (f), (g), (h) and (i); provided, however, that (x) such new Lien shall
be limited to all or part of the same property that secured the original Lien
(plus improvements on such property) and (y) the Indebtedness secured by such
Lien at such time is not increased to any amount greater than the sum of (A) the
outstanding principal amount or, if greater, committed amount of the
Indebtedness described under clause (f), (g), (h) or (i) at the time the
original Lien became a Permitted Lien under this Indenture and (B) an amount
necessary to pay any fees and expenses, including premiums, related to such
refinancing, refunding, extension, renewal or replacement.
"Permitted Securitization Transaction" means any sale, discount,
conveyance or other disposition of receivables generated through the Company's
Consolidated operations that (i) is made without representation or warranty
(except for representations and warranties normally and customarily given by
sellers and servicers in connection with asset securitization transactions),
(ii) is made pursuant to bona fide transactions with third parties for Fair
Market Value, (iii) in respect of which the Company and the Restricted
Subsidiaries neither incur nor accept any risk other than risk in respect of the
representations and warranties as described in clause (i) above, risk arising in
connection with the obligation to service such receivables and other risks
normally and customarily incurred or accepted by sellers and servicers and their
affiliates in connection with asset securitization transactions and (iv) the
Company in good faith accounts for as, and intends that such transactions shall
be characterized under U.S. GAAP as, a "true sale" and not a liability.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Security means the principal of the Security plus
the premium, if any, payable on the Security which is due or overdue or is to
become due at the relevant time.
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<PAGE>
"Private Exchange" shall have the meaning set forth in the Exchange
and Registration Rights Agreement.
"Private Exchange Securities" means notes of the Company to be
delivered in a Private Exchange pursuant to the Exchange and Registration Rights
Agreement.
"Private Placement Legend" means the legend set forth under such
caption in Exhibit A and Exhibit C hereto.
"Pro Forma EBITDA" means for any Person, for any period, the EBITDA
of such Person as determined on a Consolidated basis in accordance with GAAP
consistently applied after giving effect to the following: (i) if, during or
after such period, such Person or any of its Subsidiaries shall have made any
disposition of any Person or business, Pro Forma EBITDA of such Person and its
Subsidiaries shall be computed so as to give pro forma effect to such
disposition as if such disposition occurred at the beginning of such period,
(ii) if, during or after such period, such Person or any of its Subsidiaries
completes an acquisition of any Person or business which immediately after such
acquisition is a Subsidiary of such Person or whose assets are held directly by
such Person or a Subsidiary of such Person, Pro Forma EBITDA shall be computed
so as to give pro forma effect to the acquisition of such Person or business as
if such acquisition occurred at the beginning of such period and (iii) if during
or after such period, such Person or any of its Subsidiaries Incurs or repays
any Indebtedness, Pro Forma EBITDA shall be computed so as to give pro forma
effect to such Incurrence or repayment; provided, however, that, with respect to
the Company, all the foregoing references to "Subsidiary" or "Subsidiaries"
shall be deemed to refer only to "Restricted Subsidiaries".
"Public Equity Offering" means an underwritten primary public
offering of common stock of the Company pursuant to an effective registration
statement under the Securities Act.
"Purchase Agreement" means the Purchase Agreement dated July 15,
1997, among the Company, the Initial Guarantors and the Initial Purchasers.
"Purchase Money Indebtedness" means Indebtedness (i) consisting of
the deferred purchase price of property, conditional sale obligations,
obligations under any title retention agreement and other purchase money
obligations, in each case where the maturity of such Indebtedness does not
exceed the anticipated useful life of the asset being financed, and (ii)
Incurred in the ordinary course of business solely to finance the acquisition,
construction or lease by the Company or a Restricted Subsidiary of such asset,
including repairs, additions and improvements thereto.
"redemption date" means the date fixed for the redemption of a
Security established by or pursuant to Sections 3.07 and 3.08.
"Refinancing Indebtedness" means Indebtedness that is Incurred to
refund, refinance, replace, renew, repay or extend
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<PAGE>
(including pursuant to any defeasance or discharge mechanism) (collectively,
"refinances" and "refinanced" shall have a correlative meaning) any Indebtedness
existing on the date of this Indenture or Incurred in compliance with this
Indenture (including Indebtedness of the Company that refinances Indebtedness of
any Restricted Subsidiary (to the extent permitted in this Indenture) and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being refinanced, (iii) the
Refinancing Indebtedness shall not be senior in right of payment to the
Indebtedness being refinanced and (iv) such Refinancing Indebtedness is Incurred
in an aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to or less than the sum of (A) the
aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding of the Indebtedness being refinanced,
and (B) the amount of prepayment premiums, if any, owed, not in excess of the
amount provided for by the preexisting prepayment provisions of such
Indebtedness being refinanced; provided further, however, that Refinancing
Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary that
refinances Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary.
"Registered Exchange Offer" shall have the meaning set forth in the
Exchange and Registration Rights Agreement.
"Registered Exchange Securities" means notes of the Company to be
delivered in a Registered Exchange Offer pursuant to the Exchange and
Registration Rights Agreement.
"Registrable Securities" means (i) each Initial Security until the
date on which such Security has been exchanged for a freely transferable
Security in the Registered Exchange Offer, (ii) each Initial Security or Private
Exchange Security until the date on which it has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iii) each Initial Security or Private Exchange
Security until the date on which it is distributed to the public pursuant to
Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under
the Securities Act.
"Related Business" means any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means the trustee, agent or representative (if any)
for an issue of Designated Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other
than an Unrestricted Subsidiary.
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<PAGE>
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Restricted
Subsidiary leases it from such Person, other than leases between the Company and
a Restricted Subsidiary or between Restricted Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Secondment Agreement" means the Agreement for the Reimbursement of
Compensation Expense (Secondment Agreement) by and between Bell Atlantic
International, Inc. and Sistecel, S.A. de C.V., effective as of January 1, 1997,
without giving effect to any subsequent amendment, waiver or other modification
thereof.
"Secured Indebtedness" means any Indebtedness of the Company or a
Restricted Subsidiary secured by a Lien.
"Securities" means, collectively, the Initial Securities and, when
and if issued as provided in the Exchange and Registration Rights Agreement, the
Exchange Securities.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means all Indebtedness of the Company or a
Restricted Subsidiary including interest thereon, whether outstanding on the
Issue Date or thereafter Incurred, unless in the instrument creating or
evidencing such Indebtedness or pursuant to which the same is outstanding it is
provided, in the case of the Company or a Restricted Subsidiary which is not a
Subsidiary Guarantor, that such obligations are junior in right of payment to
the Securities or, in the case of a Subsidiary Guarantor, that such obligations
are not superior in right of payment to the applicable Subsidiary Guarantee;
provided, however, that Senior Indebtedness shall not include (i) any obligation
of the Company or any Subsidiary of the Company to any other Subsidiary of the
Company, (ii) any liability for federal, state, local, foreign or other taxes
owed or owing by the Company or any Subsidiary of the Company, (iii) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including Guarantees thereof or instruments evidencing such
liabilities), (iv) (a) any Indebtedness or obligation of the Company or a
Restricted Subsidiary (whether or not a Subsidiary Guarantor) which is
subordinate or junior in any respect to any other Indebtedness or obligation of
the Company or such Restricted Subsidiary, including Subordinated Obligations,
and (b) any Indebtedness or obligation of a Subsidiary Guarantor which ranks
pari passu in right of payment with the applicable Subsidiary Guarantee, (v) any
obligations with respect to any Capital Stock or (vi) any Indebtedness Incurred
in violation of this Indenture.
"Senior Subordinated Indebtedness" means, with respect to a
Subsidiary Guarantor, its Subsidiary Guarantee and any other Indebtedness of
such Subsidiary Guarantor that specifically provides that such Indebtedness is
to rank pari passu with such Subsidiary Guarantee and is not by its terms
subordinated to any
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<PAGE>
Indebtedness or other obligation of such Subsidiary Guarantor which is not
Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would
be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02
under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security or
Indebtedness, the date specified in such security or credit document as the
fixed date on which the final payment of principal of such security or
Indebtedness is due and payable, including pursuant to any mandatory redemption
or prepayment provision (but excluding any provision providing for the
repurchase of such security or prepayment of such Indebtedness at the option of
the holder thereof or creditor thereunder upon the happening of any contingency
beyond the control of the issuer or borrower unless such contingency has
occurred).
"Strategic Investor" means any Person beneficially owning at least
10% of the Company's outstanding Capital Stock (on a fully diluted basis) and
any Affiliate of such Person.
"Subordinated Obligation" means any Indebtedness (whether
outstanding on the Issue Date or thereafter Incurred) of the Company or any
Restricted Subsidiary that is subordinate or junior in right of payment to the
Securities or the Subsidiary Guarantees, as the case may be, pursuant to a
written agreement.
"Subordination Agreement" means the Subordination Agreement dated as
of July 25, 1997, among BAII, Chase, as administrative agent under the Credit
Facility, and the Trustee, on behalf of the Holders.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person or (ii) one or
more Subsidiaries of such Person; provided, however, that each Ownership
Regulated Subsidiary shall be deemed to be a Subsidiary of the Company for so
long as (a) the Company beneficially owns a majority of the outstanding Capital
Stock thereof and (b) applicable law or regulation prohibits the Company from
beneficially owning a majority of the Voting Stock of such Ownership Regulated
Subsidiary.
"Subsidiary Guarantee" means any Guarantee of the Securities that
may from time to time be executed and delivered by a Subsidiary of the Company
pursuant to the terms of this Indenture.
"Subsidiary Guarantor" means each Initial Guarantor and each
Subsidiary that becomes a Subsidiary Guarantor after the Issue Date in
accordance with the terms of this Indenture.
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<PAGE>
"Temporary Cash Investments" means any of the following:
(i) direct obligations of the United States of America or any agency
or instrumentality thereof with a maturity of 365 days or less from the
date of acquisition and other obligations issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof);
(ii) demand deposits, certificates of deposit or Eurodollar deposits
with a maturity of 365 days or less from the date of acquisition of any
financial institution which at the date of acquisition has combined
capital and surplus and undivided profits of not less than U.S.$500.0
million (or any foreign currency equivalent thereof) and has outstanding
indebtedness rated at least A by Standard & Poor's Ratings Group and at
least A2 by Moody's Investors Service, Inc.;
(iii) commercial paper, loan participation interests, medium term
notes, asset backed securities and other promissory notes, including
floating or variable rate obligations, issued by any Person other than the
Company or an Affiliate of the Company, with a remaining maturity of 365
days or less from the date of acquisition and rated at least A-1 or A-, as
applicable, by Standard & Poor's Rating Group and at least P-1 or A3, as
applicable, by Moody's Investors Service, Inc.;
(iv) repurchase agreements and reverse repurchase agreements
relating to marketable obligations directly or indirectly issued or
unconditionally guaranteed by the United States of America or issued by
any agency thereof and backed by the full faith and credit of the United
States, in each case maturing within one year from the date of
acquisition; provided, however, that the terms of such agreements comply
with the guidelines set forth in the Federal Financial Agreements of
Depositary Institutions with Securities Dealers and Others, as adopted by
the Comptroller of the Currency;
(v) securities with maturities of six months or less from the date
of acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States of America, or by
any political subdivision or taxing authority thereof, and rated at least
A by Standard & Poor's Ratings Group or A2 by Moody's Investors Service,
Inc.;
(vi) instruments backed by letters of credit of institutions
satisfying the requirements of clause (ii) above;
(vii) Certificados de la Tesoreria de la Federacion (Cetes), Bonos
de Desarrollo del Gobierno Federal (Bondes) or Bonos Ajustables del
Gobierno Federal (Ajustabonos), in
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<PAGE>
each case, issued by the Mexican government and having a maturity of 365
days or less from the date of acquisition;
(viii) any other instruments issued or guaranteed by the Mexican
government and denominated and payable in pesos and having a maturity of
365 days or less from the date of acquisition;
(ix) demand deposits, certificates of deposit and bankers'
acceptances denominated in pesos and issued by any of the five top-rated
banks (as evaluated by any internationally recognized rating agency)
organized under the laws of Mexico or any state thereof; and
(x) investment funds which invest solely in any of the instruments
described in clauses (i) through (ix) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date of this Indenture.
"Trade Payables" means, with respect to any Person, any accounts
payable or any indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person arising in the ordinary course of business
in connection with the acquisition of goods or services.
"Transfer Restricted Security" means any Initial Security (other
than Securities purchased pursuant to Regulation S) or any Private Exchange
Security.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means any Officer of the Trustee assigned by the
Trustee to administer this Indenture.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"Unrestricted Subsidiary" means (i) Iusatelecomunicaciones, S.A. de
C.V., (ii) any Subsidiary of the Company that at the time of determination shall
be designated an Unrestricted Subsidiary by the Board of Directors in the manner
provided below and (iii) any Subsidiary of an Unrestricted Subsidiary. The Board
of Directors may designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary of the Company) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or owns or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total consolidated assets of U.S.$1,000 or
less or (B) if such Subsidiary has consolidated assets greater than U.S.$1,000,
then such designation would be permitted under Section 4.05. The Board of
Directors may designate any Unrestricted Subsidiary, including
Iusatelecomunicaciones, S.A. de C.V., to be a Restricted Subsidiary; provided,
however, that
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immediately after giving effect to such designation (x) the Company could Incur
U.S.$1.00 of additional Indebtedness under Section 4.03(a) and (y) no Default
shall have occurred and be continuing. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the Trustee
a copy of the resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the Issue Date, including those set
forth (i) in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock
of such corporation then outstanding and normally entitled to vote in the
election of directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which (other than directors' qualifying shares) is owned by the
Company or another Wholly Owned Subsidiary.
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SECTION 1.02. Other Definitions.
Defined in
Term Section
---- ---------------
"Additional Amounts"................................... 4.17
"Affiliate Transaction"................................ 4.08
"Agent Members"........................................ 2.13
"Bankruptcy Law"....................................... 6.01
"Blockage Notice"...................................... 12.03
"covenant defeasance option"........................... 8.01(b)
"Custodian"............................................ 6.01
"Event of Default"..................................... 6.01
"Excess Proceeds"...................................... 4.07(a)
"Excessive Additional Amounts"......................... 3.08
"IAIs"................................................. 2.01(b)
"IAI Global Security".................................. 2.01(b)
"Initial Securities"................................... Preamble
"legal defeasance option".............................. 8.01(b)
"Legal Holiday"........................................ 13.08
"Obligations".......................................... 11.01
"Offer"................................................ 4.07(b)
"Offer Amount"......................................... 4.07(c)
"Offer Period"......................................... 4.07(c)
"Paying Agent"......................................... 2.03
"Payment Blockage Period".............................. 12.03
"Physical Securities".................................. 2.01(c)
"Purchase Date"........................................ 4.07(c)
"QIB Global Security".................................. 2.01(b)
"QIBs"................................................. 2.01(b)
"Registrar"............................................ 2.03
"Regulation S"......................................... 2.01(b)
"Regulation S Global Security"......................... 2.01(b)
"Restricted Payment"................................... 4.05
"Successor Company".................................... 5.01
"U.S. Global Securities"............................... 2.01(b)
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SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture Securityholder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof that
would be shown on a balance sheet of the issuer dated such date prepared
in accordance with GAAP and accretion of principal on such security shall
be deemed to be the Incurrence of Indebtedness; and
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to such
Preferred Stock, whichever is greater.
SECTION 1.05. GAAP; Dollar Equivalents. All ratios and computations
based on GAAP contained in this Indenture shall
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be computed in conformity with GAAP, and all such ratios and computations shall
be translated into Dollar Equivalents.
ARTICLE II
The Securities
SECTION 2.01. Form and Dating. (a) The Initial Securities and the
Trustee's certificate of authentication shall be substantially in the form of
Exhibit A, which is hereby incorporated in and expressly made a part of this
Indenture, and as otherwise provided in this Article II. Any Registered Exchange
Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit B, which is incorporated in and expressly
made a part of this Indenture, and as otherwise provided in this Article II. Any
Private Exchange Securities and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit C, which is incorporated in and
expressly made a part of this Indenture, and as otherwise provided in this
Article II. The Securities may have notations, legends or endorsements required
by law, stock exchange rule, agreements to which the Company or any Subsidiary
Guarantor is subject, if any, or usage (provided that any such notation, legend
or endorsement is in a form acceptable to the Company). Each Security shall be
dated the date of its authentication. The terms of the Securities set forth in
Exhibit A, Exhibit B and Exhibit C are part of the terms of this Indenture. The
Securities shall be issuable only in registered form without coupons and only in
denominations of $1,000 and integral multiples thereof.
(b) The Initial Securities are being offered and sold by the Company
to the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Securities will be offered and sold by the Initial Purchasers only (i) to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) ("QIBs") and (ii) in reliance on Regulation S under the Securities Act
("Regulation S"). After such initial offers and sales, the Initial Securities
may be transferred to, among others, QIBS, in reliance on Regulation S and to
institutional "Accredited Investors" (within the meaning of Rule 501(a)(1), (2),
(3) or (7) under the Securities Act) ("IAIs") in accordance with certain
transfer restrictions. The Initial Securities shall be issued initially in the
form of three permanent Global Securities (with separate CUSIP numbers)
substantially in the form set forth in Exhibit A deposited with the Trustee, as
custodian for the Depositary, duly executed by the Company and authenticated by
the Trustee as hereinafter provided. One such Global Security shall represent
the Initial Securities sold to QIBs (the "QIB Global Security"). A second such
Global Security shall represent the Initial Securities sold pursuant to
Regulation S (the "Regulation S Global Security"), and such Global Security
shall not contain the Private Placement Legend. A third such Global Security
shall represent any Initial Securities transferred to IAIs (the "IAI Global
Security" and, together with the QIB Global Security, the "U.S. Global
Securities"). The aggregate principal amount of each Global Security may from
time to time be increased or decreased by
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adjustments made on the records of the Trustee, as custodian for the Depositary
or its nominee, as hereinafter provided. Transfers of Initial Securities between
QIBs and IAIs and to purchasers pursuant to Regulation S shall be represented by
appropriate increases and decreases to the respective amounts of the appropriate
Global Securities, as more fully provided in Section 2.14.
(c) Initial Securities offered and sold other than as described in
the preceding two paragraphs, if any, shall be issued in the form of permanent
certificated securities in registered form in substantially the form set forth
in Exhibit A attached hereto without the Global Security Legend (the "Physical
Securities").
SECTION 2.02. Execution and Authentication. Two Officers of the
Company shall sign the Securities for the Company by manual or facsimile
signature.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate and deliver (i) Initial Securities
for original issue in an aggregate principal amount of $150,000,000, (ii)
Registered Exchange Securities for issue only in a Registered Exchange Offer,
pursuant to the Exchange and Registration Rights Agreement, for a like principal
amount of Initial Securities exchanged pursuant thereto and (iii) Private
Exchange Securities for issue only in a Private Exchange, pursuant to the
Exchange and Registration Rights Agreement, for a like principal amount of
Initial Securities exchanged pursuant thereto, in each case upon a written order
of the Company signed by two Officers of the Company or by an Officer and either
an Assistant Treasurer or an Assistant Secretary of the Company. Such order
shall specify the amount of the Securities to be authenticated, the date on
which the original issue of Securities is to be authenticated and whether the
Securities are to be Initial Securities, Registered Exchange Securities or
Private Exchange Securities. The aggregate principal amount of Securities
outstanding at any time may not exceed $150,000,000 except as provided in
Section 2.07.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate the Securities. Any such appointment
shall be evidenced by an instrument signed by an authorized officer of the
Trustee, a copy of which shall be furnished to the Company. Unless limited by
the terms of such appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent
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has the same rights as any Registrar, Paying Agent or agent for service of
notices and demands.
SECTION 2.03. Registrar and Paying Agent. The Company shall maintain
an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange. The
Company may have one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with
any Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of any such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be
entitled to appropriate compensation therefor pursuant to Section 7.07. The
Company or any Wholly Owned Subsidiary incorporated in either the United States
or Mexico may act as Paying Agent, Registrar, co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
The Company initially appoints The Depository Trust Company to act
as Depositary with respect to the Global Securities.
The Company may remove any Registrar or Paying Agent upon written
notice to such Registrar or Paying Agent and to the Trustee; provided, however,
that no such removal shall become effective until (i) acceptance of an
appointment by a successor as evidenced by an appropriate agreement entered into
by the Company and such successor Registrar or Paying Agent, as the case may be,
and delivered to the Trustee or (ii) notification to the Trustee that the
Trustee shall serve as Registrar or Paying Agent until the appointment of a
successor in accordance with clause (i) above. The Registrar or Paying Agent may
resign at any time upon written notice given to the Company and the Trustee at
least one Business Day prior to the effectiveness of such resignation; provided,
however, that the Trustee may resign as Paying Agent or Registrar only if the
Trustee also resigns as Trustee in accordance with Section 7.08.
SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to each due
date of the principal or interest on any Security, the Company shall deposit
with the Paying Agent a sum sufficient to pay such principal or interest when so
becoming due. The Company shall require each Paying Agent (other than the
Trustee in its capacity as Paying Agent) to agree in writing that the Paying
Agent shall hold in trust for the benefit of Securityholders or the Trustee all
money held by the Paying Agent for the payment of principal of or interest on
the Securities and shall notify the Trustee of any default by the Company in
making
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any such payment. If the Company or any Subsidiary of the Company acts as Paying
Agent, it shall segregate the money held by it as Paying Agent and hold it as a
separate trust fund. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee and to account for any funds disbursed by
the Paying Agent. Upon complying with this Section, the Paying Agent shall have
no further liability for the money delivered to the Trustee.
Any money deposited with any Paying Agent, or then held by the
Company or any Subsidiary of the Company in trust for the payment of principal
or interest on any Security and remaining unclaimed for two years after such
principal or interest has become due and payable shall be paid to the Company at
its request, or, if then held by the Company or any such Subsidiary, shall be
discharged from such trust; and the Securityholders shall thereafter, as
unsecured general creditors, look only to the Company for payment thereof, and
all liability of the Paying Agent with respect to such money, and all liability
of the Company or such Subsidiary as trustee thereof, shall thereupon cease.
SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish, or cause the Registrar to furnish, to the
Trustee, in writing at least five Business Days before each interest payment
date and at such other times as the Trustee may request in writing, a list in
such form and as of such date as the Trustee may reasonably require of the names
and addresses of Securityholders.
SECTION 2.06. Transfer and Exchange. The Securities shall be issued
in registered form and shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the Registrar
shall register the transfer as requested if the requirements of Section 8-401(l)
of the Uniform Commercial Code are met. When Securities are presented to the
Registrar or a co-registrar with a request to exchange them for an equal
principal amount of Securities of other denominations, the Registrar shall make
the exchange as requested if the same requirements are met. To permit
registration of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Securities at the Registrar's or co-registrar's
request. The Company may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges in connection with any transfer or
exchange pursuant to this Section. The Company shall not be required to make and
the Registrar need not register transfers or exchanges of Securities selected
for redemption (except, in the case of Securities to be redeemed in part, the
portion thereof not to be redeemed) or any Securities for a period of 15 days
before a selection of Securities to be redeemed.
Prior to the due presentation for registration of transfer of any
Security, the Company, the Subsidiary Guarantors, the Trustee, the Paying Agent,
the Registrar or any co-registrar
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may deem and treat the Person in whose name a Security is registered as the
absolute owner of such Security for the purpose of receiving payment of
principal of or interest on such Security and for all other purposes whatsoever,
whether or not such Security is overdue, and none of the Company, the Subsidiary
Guarantors, the Trustee, the Paying Agent, the Registrar or any co-registrar
shall be affected by notice to the contrary.
Any Holder of a Global Security shall, by acceptance of such Global
Security, agree that transfers of beneficial interest in such Global Security
may be effected only through a book-entry system maintained by the Holder of
such Global Security (or its agent), and that ownership of a beneficial interest
in such Global Security shall be required to be reflected in a book entry.
All Securities issued upon any transfer or exchange pursuant to this
Section shall evidence the same debt and shall be entitled to the same benefits
under this Indenture as the Securities surrendered upon such transfer or
exchange.
SECTION 2.07. Replacement Securities. If a mutilated Security is
surrendered to the Registrar or if the Holder of a Security claims that such
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met, such that the Holder (i)
satisfies the Company and the Trustee within a reasonable time after he has
notice of such loss, destruction or wrongful taking and the Registrar does not
register a transfer prior to receiving such notification, (ii) makes such
request to the Company or the Trustee prior to the Security being acquired by a
bona fide purchaser and (iii) satisfies any other reasonable requirements of the
Trustee. If required by the Trustee or the Company, such Holder shall furnish an
indemnity bond sufficient in the judgment of the Trustee and the Company to
protect the Company, the Subsidiary Guarantors, the Trustee, the Paying Agent,
the Registrar and any co-registrar from any loss that any of them may suffer if
a Security is replaced. The Company and the Trustee may charge the Holder for
their expenses in replacing a Security. In the event any such mutilated, lost,
destroyed or wrongfully taken Security has become or is about to become due and
payable, the Company in its discretion may pay such Security instead of issuing
a new Security in replacement thereof.
Every replacement Security is an additional obligation of the
Company.
The provisions of this Section 2.07 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, lost, destroyed or wrongfully taken
Securities.
SECTION 2.08. Outstanding Securities. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancelation and those described in this Section
as not outstanding. A Security does not cease to be outstanding because the
Company or an Affiliate of the Company holds the Security.
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If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance
with this Indenture, on a redemption date or maturity date money sufficient to
pay all principal and interest payable on that date with respect to the
Securities (or portions thereof) to be redeemed or maturing, as the case may be,
and the Paying Agent is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture, then on
and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.09. Temporary Securities. Until Securities are ready for
delivery in permanent form, the Company may prepare and the Trustee shall
authenticate temporary Securities. Temporary Securities shall be substantially
in the form of the corresponding permanent Securities but may have variations
that the Company considers appropriate for temporary Securities. Without
unreasonable delay, the Company shall prepare and the Trustee shall authenticate
permanent Securities and deliver them in exchange for temporary Securities upon
surrender of such temporary Securities at the office or agency of the Company,
without charge to the Holders.
SECTION 2.10. Cancelation. The Company at any time may deliver
Securities to the Trustee for cancelation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record retention requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancelation unless the Company directs the Trustee to deliver canceled
Securities to the Company. The Company may not issue new Securities to replace
Securities it has redeemed, paid or delivered to the Trustee for cancelation.
The Trustee shall not authenticate Securities in place of canceled Securities
other than pursuant to the terms of this Indenture.
SECTION 2.11. Defaulted Interest. If the Company defaults in a
payment of interest on the Securities, the Company shall pay the defaulted
interest (plus interest on such defaulted interest to the extent lawful) in any
lawful manner. The Company may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail or cause to be
mailed to each Securityholder a notice that states the special record date, the
payment date and the amount of defaulted interest to be paid.
SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities
may use CUSIP numbers (if then generally in use) and, if so, the Trustee shall
use CUSIP numbers in notices of redemption as a convenience to Holders;
provided, however, that
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any such notice may state that no representation is made as to the correctness
of such numbers either as printed on the Securities or as contained in any
notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers. The Company shall
promptly notify the Trustee of any change in the CUSIP numbers.
SECTION 2.13. Book-Entry Provisions for Global Securities. (a) Each
Global Security initially shall (i) be registered in the name of the Depositary
for such Global Security or the nominee of such Depositary and (ii) be delivered
to the Trustee as custodian for such Depositary. Beneficial interests in the
Global Securities may be held indirectly through members of or participants in
("Agent Members") the Depositary (including Cedel and Euroclear in the case of
the Regulation S Global Security).
Agent Members shall have no rights under this Indenture with respect
to any Global Security held on their behalf by the Depositary, or the Trustee as
its custodian, or under such Global Security, and the Depositary may be treated
by the Company, the Subsidiary Guarantors, the Trustee and any agent of the
Company or the Trustee as the absolute owner of such Global Security for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Subsidiary Guarantors, the Trustee or any agent of the Company,
the Subsidiary Guarantors or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Depositary or shall
impair, as between the Depositary and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Security.
(b) Transfers of a Global Security shall be limited to transfers of
such Global Security in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in a
Global Security may be transferred in accordance with the rules and procedures
of the Depositary (and Agent Member, if applicable) and the provisions of
Section 2.14. Physical Securities shall be transferred to all beneficial owners
in exchange for their beneficial interests in a Global Security if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for such Global Security or the Depositary ceases to be a clearing
agency registered under the Exchange Act, at a time when the Depositary is
required to be so registered in order to act as Depositary, and in each case a
successor depositary is not appointed by the Company within 90 days of such
notice, or (ii) the Company executes and delivers to the Trustee and Registrar
an Officers' Certificate stating that such Global Security shall be so
exchangeable or (iii) an Event of Default has occurred and is continuing and the
Registrar has received a request from the Depositary to permit such transfers.
(c) The registered holder of a Global Security may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent
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Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
SECTION 2.14. Special Transfer Provisions. Unless and until a
Transfer Restricted Security is transferred or exchanged under an effective
registration statement under the Securities Act, the following provisions shall
apply:
(a) Transfers to Non-QIB IAIs. The minimum principal amount of
Securities that may be purchased by an IAI that is not a QIB is $100,000. The
following provisions shall apply with respect to the registration of any
proposed transfer of a Transfer Restricted Security to any IAI which is not a
QIB (other than pursuant to Regulation S):
(i) The Registrar shall register the transfer of any Transfer
Restricted Security by a Holder if (x) the requested transfer is at least
two years after the Issue Date and at least three months after the last
date such Holder was an affiliate of the Company or (y) the proposed
transferee has delivered to the Registrar a letter substantially in the
form set forth in Exhibit D hereto.
(ii) If the proposed transferee is an Agent Member and the Transfer
Restricted Security to be transferred consists of a beneficial interest in
the QIB Global Security, upon receipt by the Registrar of (x) the letter,
if any, required by paragraph (i) above and (y) instructions given in
accordance with the Depositary's and the Registrar's procedures therefor,
the Registrar shall reflect on its books and records the date and an
increase in the principal amount of the IAI Global Security in an amount
equal to the principal amount of the beneficial interest in the QIB Global
Security to be so transferred and the Registrar shall reflect on its books
and records the date and an appropriate decrease in the principal amount
of such QIB Global Security.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Transfer Restricted
Security to a QIB (other than pursuant to Regulation S):
(i) The Registrar shall register the transfer of a Transfer
Restricted Security by a Holder if (x) the requested transfer is at least
two years after the Issue Date and at least three months after the last
date such Holder was an affiliate of the Company or (y) such transfer is
being made by a proposed transferor who has provided the Registrar with a
letter substantially in the form set forth in Exhibit F hereto.
(ii) If the proposed transferee is an Agent Member and the Transfer
Restricted Security to be transferred consists of an interest in the IAI
Global Security, upon receipt by the Registrar of (x) the letter, if any,
required by paragraph (i) above and (y) instructions given in accordance
with the Depositary's and the Registrar's procedures therefor, the
Registrar shall reflect on its books and
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records the date and an increase in the principal amount of the QIB Global
Security in an amount equal to the principal amount of the beneficial
interest in the IAI Global Security to be so transferred, and the
Registrar shall reflect on its books and records the date and an
appropriate decrease in the principal amount of such IAI Global Security.
(c) Transfers Pursuant to Regulation S. The following provisions
shall apply with respect to registration of any proposed transfer of a Transfer
Restricted Security pursuant to Regulation S:
(i) The Registrar shall register any proposed transfer of a Transfer
Restricted Security by a Holder if (x) the requested transfer is at least
two years after the Issue Date and at least three months after the last
date such Holder was an affiliate of the Company or (y) upon receipt of a
letter substantially in the form set forth in Exhibit G hereto from the
proposed transferor.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in a U.S. Global Security, upon receipt by the
Registrar of (x) the letter, if any, required by paragraph (i) above and
(y) instructions in accordance with the Depositary's and the Registrar's
procedures therefor, the Registrar shall reflect on its books and records
the date and an increase in the principal amount of the Regulation S
Global Security in an amount equal to the principal amount of the
beneficial interest in such U.S. Global Security to be transferred, and
the Registrar shall reflect on its books and records the date and an
appropriate decrease in the principal amount of the applicable U.S. Global
Security.
(d) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Registrar shall deliver only Securities that bear
the Private Placement Legend unless either (i) the circumstances contemplated by
paragraph (a)(i)(x), (b)(i)(x), (c)(i)(x) or (c)(i)(y) of this Section exist or
(ii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(e) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it shall transfer such Security only as
provided in this Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.14 or this Section. The
Company shall have the right
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to inspect and make copies of all such letters, notices or other written
communications at any reasonable time upon the giving of reasonable written
notice to the Registrar.
ARTICLE III
Redemption
SECTION 3.01. Notices to Trustee. If the Company elects to redeem
Securities pursuant to Section 3.07 or 3.08, it shall notify the Trustee in
writing of the redemption date and the principal amount of Securities to be
redeemed.
The Company shall give each notice to the Trustee provided for in
this Section at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption shall comply with the conditions herein. If fewer than all the
Securities are to be redeemed, the record date relating to such redemption shall
be selected by the Company and given to the Trustee, which record date shall be
not fewer than 15 days after the date of notice to the Trustee. Any such notice
may be canceled at any time prior to notice of such redemption being mailed to
any Holder and shall thereby be void and of no effect.
SECTION 3.02. Selection of Securities to be Redeemed. If fewer than
all the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed pro rata or by lot or by a method that complies with applicable
legal and securities exchange requirements, if any, and that the Trustee
considers fair and appropriate and in accordance with methods generally used at
the time of selection by fiduciaries in similar circumstances. The Trustee shall
make the selection from outstanding Securities not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000. Securities and portions
of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of
$1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not more
than 60 days before a date for redemption of Securities, the Company shall mail
a notice of redemption by first-class mail to each Holder of Securities to be
redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
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(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the certificate numbers and principal amounts of the particular Securities
to be redeemed;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment
pursuant to the terms of this Indenture, interest on Securities (or
portion thereof) called for redemption ceases to accrue on and after the
redemption date;
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed;
(8) the CUSIP number, if any, printed on the Securities being
redeemed; and
(9) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request (which may be revoked at any time in
writing prior to the time at which the Trustee shall have given such notice to
the Holders), the Trustee shall give the notice of redemption in the Company's
name and at the Company's expense. In such event, the Company shall provide the
Trustee with the information required by this Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest, if any, to the redemption
date; provided that if the redemption date is after a regular record date and on
or prior to the interest payment date, the accrued interest shall be payable to
the Securityholder of the redeemed Securities registered on the relevant record
date. Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. At least one Business Day
prior to the redemption date, the Company shall deposit with the Paying Agent
(or, if the Company or a Subsidiary of the Company is the Paying Agent, shall
segregate and hold in trust) money sufficient to pay the redemption price of and
accrued interest on all Securities to be redeemed on that date other than
Securities or portions of Securities called for redemption which have been
delivered by the Company to the Trustee for cancelation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder
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(at the Company's expense) a new Security equal in principal amount to the
unredeemed portion of the Security surrendered.
SECTION 3.07. Optional Redemption. (a) Except as set forth in the
next paragraph or in Section 3.08, the Securities may not be redeemed prior to
July 15, 2001. On and after that date, the Company may redeem the Securities in
whole or in part, at any time at the following redemption prices (expressed in
percentages of principal amount), plus accrued interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period beginning on July 15 of the years set forth
below:
Redemption
Period Price
------ ----------
2001.............................................. 105.000%
2002.............................................. 102.500%
2003.............................................. 100.000%
(b) Notwithstanding the foregoing, at any time and from time to time
prior to July 15, 2000, the Company may redeem in the aggregate up to 35% of the
original aggregate principal amount of the Securities with the proceeds of one
or more Public Equity Offerings by the Company at a redemption price (expressed
as a percentage of principal amount thereof) of 110% plus accrued interest, if
any, to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date); provided, however, that at least 65% of the original aggregate principal
amount of the Securities must remain outstanding after each such redemption.
SECTION 3.08. Redemption for Tax Reasons. The Securities may be
redeemed, at the option of the Company, in whole but not in part, at any time,
at a price equal to 100% of the outstanding principal amount thereof plus
accrued interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date) and including Additional Amounts payable in
respect of such payment, if the Company determines and certifies to the Trustee
immediately prior to the giving of such notice that as a result of any amendment
to, or change in, the laws (or any regulations or rulings promulgated
thereunder) of Mexico or any political subdivision thereof or taxing authority
therein, or any amendment to or change in an official interpretation or
application regarding such laws, regulations or rulings, which amendment,
change, application or interpretation becomes effective on or after July 15,
1997, the Company pays, or would be obligated for reasons outside its control,
and after taking reasonable measures available to it to avoid such obligation,
to pay, Additional Amounts in respect of any Security pursuant to the terms and
conditions thereof which exceed the Additional Amounts that would have been
payable if Mexican withholding tax at a rate of 15% would be imposed on payments
of interest or amounts deemed to be interest to Holders ("Excessive Additional
Amounts"); provided, however, that (i)
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notice of such redemption shall not be given earlier than 90 days prior to the
earliest date on which the Company would, but for such redemption, be obligated
to pay such Excessive Additional Amounts and (ii) at the time such notice is
given, the Company's obligation to pay such Additional Amounts (including any
Excessive Additional Amounts) remains in effect; provided further, however, that
such notice shall not be deemed effectively given if on the date on which the
notice is given, the Company no longer has an obligation to pay Excessive
Additional Amounts as a result of a subsequent change in law.
Prior to the publication of any notice of redemption pursuant to
this Section, the Company shall deliver to the Trustee (a) an Officers'
Certificate stating that the Company is entitled to effect such redemption and
setting forth a statement of facts showing that the conditions precedent to the
right of the Company so to redeem have occurred and (b) an opinion of Mexican
legal counsel acceptable to the Trustee to the effect that the Company has or
will become obligated to pay such Excessive Additional Amounts as a result of an
amendment or change referred to in this Section.
ARTICLE IV
Covenants
SECTION 4.01. Payment of Securities. The Company shall promptly pay
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture or otherwise.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. Provision of Financial Information. So long as any
Securities are outstanding, the Company shall file with the Trustee and provide
Holders of Securities: (i) within 180 days after the end of each fiscal year of
the Company, annual reports on Form 20-F (or any successor form) containing
information required to be contained therein (or required in such successor
form) under the Exchange Act; (ii) within 60 days after the end of each of the
first three fiscal quarters of each fiscal year of the Company, reports on Form
6-K (or any successor form) containing unaudited, consolidated financial
statements for such quarter; and (iii) promptly from time to time after the
occurrence of an event required to be therein reported, such other reports on
Form 6-K (or any successor form) under the Exchange Act. At any time when the
Company is not required to be subject to Section 13(a) or 15(d) of the Exchange
Act (or any
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successor provision thereto), the Company shall file with the Trustee and
provide Holders of Securities (A) within 180 days after the end of each fiscal
year of the Company, annual audited consolidated financial statements and (B)
within 60 days after the end of each of the first three fiscal quarters of each
fiscal year of the Company, unaudited, consolidated financial statements for
such quarter, and, unless it is exempt from reporting pursuant to Rule 12g3-2(b)
under the Exchange Act, shall make available the information contemplated by
Rule 144A(d)(4) under the Securities Act upon the request of a Holder of a
Security to such Holder or to a prospective purchaser of a Security from such
Holder. The financial statements referred to in this Section shall, unless
otherwise required by applicable law or by the SEC, be prepared in accordance
with GAAP; provided that all annual, audited consolidated financial statements
shall contain a reconciliation to U.S. GAAP of net income and stockholders'
equity. The Company also shall comply with the other provisions of TIA ss.
314(a).
SECTION 4.03. Limitation on Indebtedness. (a) The Company shall not,
and shall not permit any Restricted Subsidiary to, Incur, directly or
indirectly, any Indebtedness; provided, however, that the Company or any
Restricted Subsidiary may Incur Indebtedness if on the date thereof (after
giving effect to such Incurrence and the application of the proceeds thereof)
the Company's Leverage Ratio would be equal to or less than 7.5:1, if such
Indebtedness is Incurred on or prior to July 15, 1999 and 6.5:1 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding Section 4.03(a), the Company and the Restricted
Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness under the Credit Facility (as the same may be
amended from time to time without increasing the committed amount
outstanding, except as otherwise permitted by this Section) and any
Refinancing Indebtedness with respect thereto, including in connection
with Permitted Securitization Transactions, in an aggregate principal
amount on the date of Incurrence which, when added to all other
Indebtedness Incurred pursuant to this clause (i) and then outstanding,
shall not exceed U.S.$350.0 million less the sum of (A) the aggregate
amount of Indebtedness Incurred and then outstanding pursuant to clause
(ix) below and (B) the aggregate amount of all prepayments and required
payments of principal applied to reduce the aggregate amount available to
be borrowed under the Credit Facility or any Refinancing Indebtedness with
respect thereto, including pursuant to Section 4.07;
(ii) Subordinated Obligations under the Bell Atlantic Facility or
under other credit facilities granted to the Company by Strategic
Investors, provided that (A) any such other credit facility shall have a
final maturity that is no less than one year later than the final maturity
of the Securities and shall otherwise be on terms no less favorable to the
Holders than the terms of the Bell Atlantic Facility as in effect on the
Issue Date (including with respect to the subordination and other
provisions set forth in the Subordination Agreement) and (B) participation
by any member
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of the Peralta Group in such other credit facility shall be limited to a
pro-rata portion thereof corresponding to the portion of the outstanding
Capital Stock of the Company then beneficially owned by the Peralta Group;
(iii) Indebtedness of the Company owing to and held by any Wholly
Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing to and
held by the Company or any Wholly Owned Subsidiary; provided, however,
that any subsequent issuance or transfer of any Capital Stock or any other
event that results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any subsequent transfer of any such
Indebtedness (except to the Company or a Wholly Owned Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness by
the issuer thereof;
(iv) Indebtedness represented by the Securities, any Indebtedness
(other than the Indebtedness described in clauses (i) through (iii) above)
outstanding on the Issue Date and any Refinancing Indebtedness Incurred in
respect of any Indebtedness described in this clause (iv), clause (viii)
below or paragraph (a) above;
(v) Indebtedness (A) not in excess of an amount equal to the sum of
(1) U.S.$5.0 million in respect of performance bonds, bankers'
acceptances, letters of credit and surety bonds provided by the Company
and the Restricted Subsidiaries in the ordinary course of their business
and which do not secure other Indebtedness and (2) U.S.$10.0 million with
respect to any such performance bonds provided to secure
telecommunications concessions, permits and similar governmental
instruments of the Company and the Restricted Subsidiaries or (B) under
Currency Agreements and Interest Rate Agreements, in each case entered
into for bona fide hedging purposes of the Company in the ordinary course
of business; provided, however, that such Currency Agreements and Interest
Rate Agreements do not increase the Indebtedness of the Company
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable thereunder;
(vi) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to paragraph (a) above or any other clause of this paragraph (b))
in an aggregate principal amount on the date of Incurrence which, when
added to all other Indebtedness Incurred pursuant to this clause (vi) and
then outstanding, shall not exceed U.S.$15.0 million;
(vii) Indebtedness represented by the Subsidiary Guarantees and
Guarantees of Indebtedness Incurred pursuant to clause (i) above;
(viii) Indebtedness incurred in connection with the Company making
an offer to purchase the Securities pursuant to any Change of Control, as
described in Section 4.09, provided that 100% of the proceeds of such
Indebtedness shall be used to repurchase Securities or to pay expenses or
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fees of the Company reasonably incurred in connection therewith;
(ix) Indebtedness Incurred in respect of Capitalized Lease
Obligations, Purchase Money Indebtedness and any Refinancing Indebtedness
with respect thereto, provided that (A) the principal amount of such
Indebtedness does not exceed 100% of the Fair Market Value of the property
or assets subject to such Capitalized Lease Obligations, Purchase Money
Indebtedness or Refinancing Indebtedness and (B) the aggregate principal
amount of all Indebtedness Incurred and then outstanding under this clause
does not exceed U.S.$100.0 million less the amount, if any, by which all
Indebtedness Incurred and then outstanding pursuant to clause (i) above
exceeds U.S.$250.0 million; and
(x) Indebtedness Incurred by the Company, all the proceeds of which
are promptly used by the trust administering the Company's executive
employees' stock purchase plan to purchase from the Company shares of the
Company's Series L Common Stock, provided that such Indebtedness is repaid
in full within three Business Days following the date of Incurrence.
(c) Notwithstanding the foregoing in paragraph (b), neither the
Company nor any Restricted Subsidiary may Incur any Indebtedness pursuant to
paragraph (b) above if the proceeds thereof are used, directly or indirectly, to
repay, prepay, redeem, defease, retire, refund or refinance any Subordinated
Obligation unless such Indebtedness (i) shall be subordinated to the Securities
to at least the same extent as such Subordinated Obligation, (ii) has a Stated
Maturity no earlier than the Stated Maturity of such Subordinated Obligation and
(iii) has an Average Life at the time such Indebtedness is Incurred that is
equal to or greater than the Average Life of such Subordinated Obligation.
(d) Notwithstanding any other provision of this Section, neither the
Company nor any Restricted Subsidiary shall be deemed to have Incurred any
Indebtedness solely as a result of fluctuations in the exchange rates of
currencies; provided, however, that to determine the amount of Indebtedness
outstanding at any time, the currency exchange rates in effect at the time of
such determination shall be used. For purposes of determining the outstanding
principal amount of Indebtedness Incurred pursuant to this Section, (i)
Indebtedness Incurred pursuant to the Credit Facility prior to or on the date of
this Indenture shall be treated as Incurred pursuant to clause (i) of paragraph
(b) above, (ii) Indebtedness permitted by this Section need not be permitted
solely by reference to one provision permitting such Indebtedness but may be
permitted in part by one such provision and in part by one or more other
provisions of this Section permitting such Indebtedness and (iii) in the event
that Indebtedness or any portion thereof meets the criteria of more than one of
the types of Indebtedness described in this Section, the Company, in its sole
discretion, shall classify such Indebtedness and only be required to include the
amount of such Indebtedness in one of such clauses.
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(e) The Company shall not permit any Subsidiary Guarantor to,
directly or indirectly, Incur any Indebtedness that is subordinate or junior in
right of payment to any other Senior Indebtedness of such Subsidiary Guarantor
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. No
Subsidiary Guarantor shall, directly or indirectly, Guarantee any Indebtedness
of the Company that is subordinated in right of payment to any other
Indebtedness of the Company unless such Guarantee is subordinate in right of
payment to, or ranks pari passu with, the applicable Subsidiary Guarantee. In
addition, a Subsidiary Guarantor may not, directly or indirectly, Incur any
Secured Indebtedness which is not Senior Indebtedness of such Subsidiary
Guarantor unless contemporaneously therewith effective provision is made to
secure the applicable Subsidiary Guarantee equally and ratably with (or on a
senior basis to, in the case of Indebtedness subordinated in right of payment to
such Subsidiary Guarantee) such Secured Indebtedness for so long as such Secured
Indebtedness is secured by a Lien.
SECTION 4.04. Limitation on Indebtedness of Non-Guarantor
Subsidiaries. Notwithstanding Section 4.03, the Company shall not permit any
Restricted Subsidiary which is not a Subsidiary Guarantor to, directly or
indirectly, Incur any Indebtedness except: (i) Indebtedness outstanding on the
Issue Date and any Refinancing Indebtedness with respect thereto; and (ii)
Indebtedness Incurred pursuant to clause (iii), (v) or (ix) of Section 4.03(b).
SECTION 4.05. Limitation on Restricted Payments. (a) The Company
shall not, and shall not permit any Restricted Subsidiary, directly or
indirectly, to (i) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving the Company) except dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and except
dividends or distributions payable to the Company or another Restricted
Subsidiary (and, if such Restricted Subsidiary is not wholly owned, to its other
shareholders on a pro rata basis), (ii) purchase, redeem, retire or otherwise
acquire for value any Capital Stock of the Company or any Restricted Subsidiary
held by Persons other than the Company or a Wholly Owned Subsidiary, (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment any Subordinated Obligations (other than the purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a principal installment or final maturity, in each case due within
one year of the date of acquisition), (iv) pay any principal, cash interest or
other amounts with respect to the Bell Atlantic Facility (other than for Mexican
withholding taxes with respect to interest paid in kind in the form of
additional Debentures in an amount not to exceed 15% of the aggregate principal
amount of such additional Debentures) or (v) make any Investment (other than a
Permitted Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement, payment or
Investment being herein
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referred to as a "Restricted Payment") if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company could not Incur at least U.S.$1.00 of additional
Indebtedness under Section 4.03(a); or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination
shall be conclusive and evidenced by a resolution of the Board of
Directors) declared or made subsequent to the Issue Date would exceed the
sum of:
(A) the excess of (I) Cumulative EBITDA over (II) the product
of 1.5 and Cumulative Interest Expense;
(B) the aggregate Net Cash Proceeds received by the Company
from the issue or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale
to a Subsidiary of the Company or an employee stock ownership plan
or other trust established by the Company or any of its
Subsidiaries, provided that Net Cash Proceeds received by the
Company from payments in respect of purchases of its Capital Stock
by employees of the Company pursuant to its executive employees'
stock purchase plan shall be included in the calculation of the
amount of Net Cash Proceeds under this clause (B) to the extent that
such payments are not financed, directly or indirectly, by the
Company or any Subsidiary of the Company);
(C) the amount by which Senior Indebtedness of the Company or
the Restricted Subsidiaries is reduced on the Company's balance
sheet upon the conversion or exchange (other than by a Subsidiary of
the Company) subsequent to the Issue Date of any Senior Indebtedness
of the Company or the Restricted Subsidiaries convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of
the Company (less the amount of any cash or other property
distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange); and
(D) the amount equal to the net reduction in Investments
(excluding any Joint Venture Investment) in Unrestricted
Subsidiaries resulting from (i) payments of dividends, repayments of
the principal of loans or advances or other transfers of assets to
the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries or (ii) the redesignation of Unrestricted Subsidiaries
as Restricted Subsidiaries (valued in each case as provided in the
definition of "Investment") not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made
by the Company or any Restricted Subsidiary in such
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Unrestricted Subsidiary, which amount was included in the
calculation of the amount of Restricted Payments.
(b) The provisions of Section 4.05(a) shall not prohibit:
(i) any purchase or redemption of Capital Stock of the Company or
Subordinated Obligations made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Capital Stock of the Company (other
than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary or an employee stock ownership plan or other trust established
by the Company or any of its Subsidiaries); provided, however, that (A)
such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments under Section 4.05(a)(3) and (B) the Net
Cash Proceeds from such sale shall be excluded from Section 4.05(a)(3)(B)
but only to the extent of the Net Cash Proceeds applied to such purchase
or redemption;
(ii) any purchase or redemption of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of Refinancing Indebtedness which is expressly subordinated in right of
payment to the Securities or the Subsidiary Guarantees, as the case may
be, to the same extent as the Subordinated Obligations to be purchased or
redeemed and is permitted to be Incurred pursuant to Section 4.03(b);
provided, however, that such purchase or redemption shall be excluded in
the calculation of the amount of Restricted Payments under Section
4.05(a)(3);
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments under
Section 4.05(a)(3); or
(iv) Investments, not to exceed in the aggregate U.S.$10.0 million,
by the Company or any Restricted Subsidiary in Persons engaged in Related
Businesses; provided, however, that the amount of such Investments shall
be included in the calculation of the amount of Restricted Payments under
Section 4.05(a)(3).
SECTION 4.06. Limitation on Restrictions on Distributions from
Restricted Subsidiaries. The Company shall not, and shall not permit any
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (ii) make any loans or advances to the Company or any
other Restricted
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Subsidiary or (iii) transfer any of its property or assets to the Company or any
other Restricted Subsidiary, except:
(1) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred
as consideration in, in contemplation of, or to provide all or any portion
of the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was otherwise acquired by the
Company) and outstanding on such date;
(3) any encumbrance or restriction pursuant to an agreement
constituting Refinancing Indebtedness of Indebtedness Incurred pursuant to
an agreement referred to in clause (1) or (2) of this Section or this
clause (3) or contained in any amendment to an agreement referred to in
clause (1) or (2) of this Section or this clause (3); provided, however,
that the encumbrances and restrictions contained in any such refinancing
agreement or amendment are no less favorable to the Securityholders than
encumbrances and restrictions contained in such agreements;
(4) in the case of clause (iii) of this Section, any encumbrance or
restriction (A) that restricts in a customary manner the subletting,
assignment or transfer of any property or asset that is subject to a
lease, license or similar contract, or (B) contained in security
agreements or mortgages permitted under this Indenture and securing
Indebtedness of a Restricted Subsidiary to the extent such encumbrance or
restrictions restrict the transfer of the property subject to such
security agreements or mortgages; and
(5) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition.
SECTION 4.07. Limitation on Sales of Assets and Subsidiary Stock.
(a) The Company shall not, and shall not permit any Restricted Subsidiary to,
make any Asset Disposition unless (i) the Company or such Restricted Subsidiary
receives consideration (including by way of relief from Senior Indebtedness at
the time of such Asset Disposition) at least equal to the fair market value of
the shares, property and other assets subject to such Asset Disposition, (ii)
85% of the consideration thereof received by the Company or such Restricted
Subsidiary is in the form of cash, Temporary Cash Investments or other assets of
a type ordinarily used in a Related Business that are to be used by the Company
or a Restricted Subsidiary in the conduct of its business, except that (A) up to
80% of the
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consideration received by the Company in connection with any disposition of the
Company's equity interests in Consorcio Ecuatoriano de Telecommunicaciones, S.A.
may be in the form of promissory notes that must be paid in cash within three
years following the consummation of such disposition and (B) this clause (ii)
shall not apply to any disposition of the Company's equity interests in Iusatel
Chile, S.A. de C.V. and (iii) the proceeds of such Asset Disposition are applied
as set forth in the remainder of this paragraph. An amount equal to 100% of the
Net Available Cash from such Asset Disposition may be applied by the Company (or
such Restricted Subsidiary, as the case may be) within 365 days after the later
of the date of such Asset Disposition or the receipt of such Net Available Cash,
to the extent the Company elects (or is required by the terms of any Senior
Indebtedness), (x) to prepay, repay or purchase Senior Indebtedness (other than
Senior Indebtedness owed to the Company or an Affiliate of the Company);
provided, however, that in connection with any such prepayment, repayment or
purchase, the Company or such Restricted Subsidiary shall permanently retire
such Senior Indebtedness and shall cause the related loan commitment (if any) to
be permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased or (y) to reinvest in Additional Assets (including by means
of an Investment in Additional Assets by a Restricted Subsidiary with Net
Available Cash received by the Company or another Restricted Subsidiary). Any
Net Available Cash from an Asset Disposition that is not used in accordance with
the preceding sentence within 365 days from the later of the date of such Asset
Disposition or the receipt of Net Available Cash relating thereto shall
constitute "Excess Proceeds". When the aggregate amount of Excess Proceeds
exceeds U.S.$5.0 million (taking into account income earned on such Excess
Proceeds), the Company shall make an Offer (as defined below) to purchase
Securities pursuant to and subject to the conditions set forth in paragraph (b)
of this Section. To the extent that any portion of the Excess Proceeds remains
after compliance with the preceding sentence and provided that all Holders have
been given the opportunity to tender the Securities for repurchase in accordance
with this Indenture, the Company or such Restricted Subsidiary may use such
remaining amount for any purpose not prohibited by this Indenture. Pending
application of Net Available Cash pursuant to this provision, such Net Available
Cash shall be invested in Temporary Cash Investments.
For the purposes of this Section 4.07(a), (x) the assumption of
Senior Indebtedness of the Company (other than Disqualified Stock of the
Company) or any Restricted Subsidiary and the release of the Company or such
Restricted Subsidiary from all liability on such Senior Indebtedness in
connection with such Asset Disposition and (y) securities received by the
Company or any Restricted Subsidiary from the transferee that are promptly
converted by the Company or such Restricted Subsidiary into cash shall be deemed
to be "cash".
(b) In the event of an Asset Disposition that requires the purchase
of Securities pursuant to the fourth sentence of paragraph (a) above, the
Company shall be required to use the Excess Proceeds to purchase Securities
tendered pursuant to an offer by the Company for the Securities (the "Offer") at
a
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purchase price of 100% of their principal amount plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of Holders of
record on the relevant record date to receive interest on the relevant interest
payment date) in accordance with the procedures (including prorationing in the
event of oversubscription) set forth in Section 4.07(c).
(c)(1) Promptly, and in any event within 10 days after the Company
becomes obligated to make an Offer, the Company shall deliver to the Trustee and
send, by first-class mail to each Holder, a written notice stating that the
Holder may elect to have his or her Securities purchased by the Company either
in whole or in part (subject to prorationing as hereinafter described in the
event the Offer is oversubscribed) in integral multiples of $1,000 of principal
amount, at the applicable purchase price. The notice shall specify a purchase
date not less than 30 days nor more than 60 days after the date of such notice
(the "Purchase Date") and shall contain such information concerning the business
of the Company which the Company in good faith believes shall enable such
Holders to make an informed decision (which at a minimum shall include (i) the
most recently filed annual report on Form 20-F under the Exchange Act (including
audited consolidated financial statements) of the Company, the most recent
subsequently filed report on Form 6-K under the Exchange Act of the Company
containing quarterly financial information and any subsequently filed reports on
such Form 6-K of the Company, other than reports on such Form 6-K describing
Asset Dispositions otherwise described in the offering materials (or
corresponding successor reports), (ii) a description of material developments in
the Company's business subsequent to the date of the latest of such reports, and
(iii) if material, appropriate pro forma financial information) and all
instructions and materials necessary to tender Securities pursuant to the Offer,
together with the information contained in clause (3) below.
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided below, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer
Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made and (iii) the compliance
of such allocation with the provisions of Section 4.07(a). On such date, the
Company shall also irrevocably deposit with the Trustee or with the Paying Agent
(or, if the Company or a Subsidiary of the Company is acting as its own Paying
Agent, segregate and hold in trust) in Temporary Cash Investments an amount
equal to the Offer Amount to be held for payment in accordance with the
provisions of this Section. Upon the expiration of the period for which the
Offer remains open (the "Offer Period"), the Company shall deliver to the
Trustee for cancelation the Securities or portions thereof which have been
properly tendered to and are to be accepted by the Company. The Trustee (or
Paying Agent) shall, on the Purchase Date, mail or deliver payment to each
tendering Holder in the amount of the purchase price. In the event that the
aggregate purchase price of the Securities delivered by the Company to the
Trustee is less than the Offer Amount, the Trustee (or Paying Agent) shall
deliver the excess to the Company (or if the Company is acting as
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Paying Agent, the Company may release such amount from trust) promptly after the
expiration of the Offer Period for application in accordance with this Section.
(3) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appropriate form duly completed, to the
Company at the address specified in the notice at least three Business Days
prior to the Purchase Date. Holders shall be entitled to withdraw their election
if the Trustee or the Company receives not later than one Business Day prior to
the Purchase Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Security which was
delivered for purchase by the Holder and a statement that such Holder is
withdrawing his or her election to have such Security purchased. If at the
expiration of the Offer Period the aggregate principal amount of Securities
surrendered by Holders exceeds the Offer Amount, the Company shall select the
Securities to be purchased on a pro rata basis (with such adjustments as may be
deemed appropriate by the Company so that only Securities in denominations of
$1,000, or integral multiples thereof, shall be purchased). Holders whose
Securities are purchased only in part shall be issued new Securities equal in
principal amount to the unpurchased portion of the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate and an Opinion of Counsel stating that such Securities are to be
accepted by the Company pursuant to and in accordance with the terms of this
Section. A Security shall be deemed to have been accepted for purchase at the
time the Trustee, directly or through an agent, mails or delivers payment
therefor to the surrendering Holder.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
SECTION 4.08. Limitation on Transactions with Affiliates. (a) The
Company shall not, and shall not permit any Restricted Subsidiary to, directly
or indirectly, enter into or conduct any transaction or series of related
transactions (including the purchase, sale, lease or exchange of any property or
the rendering of any service) with any Affiliate of the Company (an "Affiliate
Transaction") on terms (i) that are less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could be obtained at
the time of such transaction in arm's-length dealings with a Person who is not
such an Affiliate, (ii) that, in the event such Affiliate Transaction involves
an aggregate amount in excess of U.S.$1.0 million, have not been approved by a
majority of the members of the Board of Directors having no personal stake in
such Affiliate Transaction and (iii) that, in the event such Affiliate
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Transaction involves an amount in excess of U.S.$5.0 million, have not been
determined to be fair to the Company or such Restricted Subsidiary from a
financial point of view pursuant to the written opinion of an investment banking
firm of national standing or other recognized independent expert with experience
appraising the terms of the type of transaction or series of related
transactions.
(b) The provisions of paragraph (a) above shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to Section 4.05, (ii) the
payment of reasonable fees to directors of the Company and its Subsidiaries who
are not employees of the Company or its Subsidiaries, (iii) transactions
pursuant to the Secondment Agreement, provided that, in the event such
transactions involve an aggregate amount exceeding U.S.$10.0 million in any
calendar year, such transactions to the extent they exceed U.S.$10.0 million
must be approved by a majority of the members of the Board of Directors having
no personal stake therein and must be determined to be fair to the Company and
the applicable Restricted Subsidiaries from a financial point of view pursuant
to a written opinion of an investment banking firm or other expert as provided
in paragraph (a) above, (iv) transactions pursuant to the Master Technical
Services Agreement, provided that, in the event such transactions involve an
aggregate amount exceeding U.S.$3.0 million in any calendar year, such
transactions to the extent they exceed U.S.$3.0 million must be approved by a
majority of the members of the Board of Directors having no personal stake
therein and, in the event such transactions involve an aggregate amount
exceeding U.S.$5.0 million in any calendar year, such transactions to the extent
they exceed U.S.$5.0 million must be determined to be fair to the Company and
the applicable Restricted Subsidiaries from a financial point of view pursuant
to a written opinion of an investment banking firm or other expert as provided
in paragraph (a) above, (v) transactions pursuant to the Bell Atlantic Facility
or (vi) any transaction between the Company and a Wholly Owned Subsidiary or
between Wholly Owned Subsidiaries.
SECTION 4.09. Change of Control. (a) Upon a Change of Control, each
Holder shall have the right to require the Company to repurchase all or any part
of such Holder's Securities at a purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date), in
accordance with the terms contemplated in paragraph (b) below.
(b) Within 30 days following any Change of Control, the Company
shall mail a notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such Holder has
the right to require the Company to purchase such Holder's Securities at a
purchase price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of repurchase (subject to
the right of Holders of record on a record date to receive interest on the
relevant interest payment date);
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(2) the circumstances and relevant facts and financial information
regarding such Change of Control;
(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
Section, that a Holder must follow in order to have its Securities
purchased.
(c) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appropriate form duly completed, to the
Company at the address specified in the notice at least three Business Days
prior to the purchase date. Holders shall be entitled to withdraw their election
if the Trustee or the Company receives not later than one Business Day prior to
the purchase date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Security which was
delivered for purchase by the Holder and a statement that such Holder is
withdrawing his or her election to have such Security purchased.
(d) On the purchase date, all Securities purchased by the Company
under this Section shall be delivered to the Trustee for cancelation, and the
Company shall pay the purchase price plus accrued and unpaid interest, if any,
to the Holders entitled thereto.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
SECTION 4.10. Compliance Certificate. The Company shall deliver to
the Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate complying with Section 314(a)(4) of the TIA and stating
that in the course of the performance by the signers of their duties as Officers
of the Company they would normally have knowledge of any Default or Event of
Default and, if such signer does know of such a Default or Event of Default, the
certificate shall describe such Default or Event of Default with particularity
and describe what actions, if any, the Company proposes to take with respect to
such Default or Event of Default.
SECTION 4.11. Further Instruments and Acts. Upon request of the
Trustee, the Company shall execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.12. Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries. The Company shall not
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sell any shares of Capital Stock of a Restricted Subsidiary, and shall not
permit any Restricted Subsidiary, directly or indirectly, to issue or sell any
shares of its Capital Stock except: (i) to the Company or a Wholly Owned
Subsidiary, (ii) if, immediately after giving effect to such issuance or sale,
such Restricted Subsidiary would no longer constitute a Subsidiary of the
Company, (iii) in respect of capital contributions to Restricted Subsidiaries
which are not Wholly Owned Subsidiaries and (iv) in connection with the
recapitalization of any Ownership Regulated Subsidiary that results in Persons
other than the Company owning a majority of the Voting Stock thereof. Any such
sale or issuance permitted by clause (ii), (iii) or (iv) above shall be treated
as an Asset Disposition and must comply with the terms of Section 4.07.
SECTION 4.13. Limitation on Liens. The Company shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly, create or
permit to exist any Lien on any of its property or assets (including Capital
Stock of Subsidiaries of the Company), whether owned on the Issue Date or
thereafter acquired, securing any obligation unless contemporaneously therewith
(or prior thereto) effective provision is made to secure the Securities or the
Subsidiary Guarantees, as the case may be, on an equal and ratable basis with
(or on a senior basis to, in the case of Indebtedness subordinated in right of
payment to the Securities or the relevant Subsidiary Guarantee) such obligation.
The preceding sentence shall not require the Company or any Restricted
Subsidiary to secure the Securities or the relevant Subsidiary Guarantee in any
manner if the Lien consists of Permitted Liens.
SECTION 4.14. Limitation on Sale/Leaseback Transactions. The Company
shall not, and shall not permit any Restricted Subsidiary to, enter into any
Sale/Leaseback Transaction with respect to any property unless (a) the Company
or such Subsidiary would be entitled to (i) Incur Indebtedness in an amount
equal to the Attributable Debt with respect to such Sale/Leaseback Transaction
pursuant to Sections 4.03 and 4.04 and (ii) create a Lien on such property
securing such Attributable Debt without securing the Securities or the
Subsidiary Guarantees, as the case may be, pursuant to Section 4.13 and (b) the
transfer of such property is permitted by, and the Company applies the proceeds
of such transaction in compliance with, Section 4.07.
SECTION 4.15. Limitation on Lines of Business. The Company shall
not, and shall not permit any Restricted Subsidiary to, engage in any business
other than a Related Business.
SECTION 4.16. Future Subsidiary Guarantors. The Company shall cause:
(i) each Person (other than an Ownership Regulated Subsidiary) that becomes a
Restricted Subsidiary following the Issue Date to execute and deliver to the
Trustee a Subsidiary Guarantee at the time such Person becomes a Restricted
Subsidiary; (ii) each Subsidiary (other than an Ownership Regulated Subsidiary)
in existence on the Issue Date which is not a Subsidiary Guarantor on the Issue
Date to execute and deliver to the Trustee a Subsidiary Guarantee upon the
earlier of the time that such Subsidiary becomes a Wholly Owned Subsidiary and
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the time that such Subsidiary is not prohibited from making such Guarantee
without the approval of such Subsidiary's other shareholders, and, in either
case, such Subsidiary is a Restricted Subsidiary; and (iii) each Ownership
Regulated Subsidiary to execute and deliver to the Trustee a Subsidiary
Guarantee upon the later of the time that applicable laws and regulations shall
not prohibit the Guarantee of the Securities by such Ownership Regulated
Subsidiary and the time that such Subsidiary is not prohibited from making such
Guarantee without the approval of such Subsidiary's other shareholders, and, in
either case, such Ownership Regulated Subsidiary is a Restricted Subsidiary.
References in this Section to "other shareholders" shall not include the Company
or any of its Affiliates. However, in no event will the Company be required to
cause a Subsidiary of the Company to become a Subsidiary Guarantor if the
aggregate fair market value of such Subsidiary's assets is less than
U.S.$10,000; provided, however, that, subject to the foregoing three sentences,
at such time as the aggregate fair market value of such assets equals or exceeds
U.S.$10,000, the Company shall cause such Subsidiary to execute and deliver a
Subsidiary Guarantee. Notwithstanding anything to the contrary contained in this
Section, each Person that guarantees the Credit Facility shall execute and
deliver to the Trustee a Subsidiary Guarantee at the time such Person makes such
guarantee.
SECTION 4.17. Additional Amounts. All payments in respect of the
Securities shall be made after withholding or deduction for any taxes, duties,
assessments or governmental charges of whatever nature imposed, levied,
collected, withheld or assessed by Mexico or any political subdivision thereof
or taxing authority therein. The Company or any Subsidiary Guarantor, as
appropriate, shall pay such additional amounts ("Additional Amounts") as will
result in receipt by the Holders of such amounts as would have been received by
them had no such withholding or deduction been required, except that no such
Additional Amounts shall be payable with respect to any payment on any Security
to the extent: (a) that any such taxes, duties, assessments or other
governmental charges would not have been imposed but for a connection between
the Holder or beneficial owner of such Security and Mexico or any political
subdivision thereof or taxing authority therein, other than the holding of such
Security and the receipt of payments with respect to such Security; (b) of any
such taxes, duties, assessments or other governmental charges with respect to a
Security presented for payment more than 30 days after the date on which such
payment became due and payable or the date on which payment thereof is duly
provided for and notice thereof given to the Holders pursuant to the terms of
this Indenture, whichever occurs later, except to the extent that the Holder of
such Security would have been entitled to such Additional Amounts on presenting
such Security for payment on any date during such 30-day period; or (c) of any
such estate, inheritance, gift or other similar taxes imposed with respect to
such Security.
Any reference herein or in the Securities to principal, premium or
interest, or any other payment in respect of the Securities, shall be deemed
also to refer to any Additional Amounts which may be payable.
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The Company or other Person making such payment shall provide the
Trustee with documentation evidencing the payment of Mexican taxes in respect of
which the Company or such Person has paid any Additional Amounts, which
documentation shall be legally sufficient to obtain foreign tax credits for U.S.
Federal income tax purposes. Copies of such documentation shall be made
available to the Holders upon request therefor.
ARTICLE V
Successor Company
SECTION 5.01. When Company May Merge or Transfer Assets. Neither the
Company nor any Subsidiary Guarantor shall consolidate with or merge with or
into any Person (other than a consolidation or merger of a Subsidiary Guarantor
with or into the Company or another Subsidiary Guarantor and other than a
consolidation or merger of a Subsidiary Guarantor where the resulting or
surviving Person is not the Company or a Subsidiary of the Company), or in one
transaction or a series of transactions, sell, convey, transfer, lease or
dispose of all or substantially all its assets, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a corporation organized and existing under the laws of
Mexico, the United States of America, any State thereof or the District of
Columbia and the Successor Company (if not the Company) shall expressly
assume, by an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of the
Company or such Subsidiary Guarantor, as the case may be, under the
Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Restricted Subsidiary as a result of such transaction as
having been Incurred by the Successor Company or such Restricted
Subsidiary at the time of such transaction), no Default shall have
occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional U.S.$1.00 of
Indebtedness pursuant to Section 4.03(a);
(iv) in the case of a conveyance, transfer, lease or disposition of
all or substantially all of the Company's or any Subsidiary Guarantor's
assets, such assets shall have been transferred as an entirety or
virtually as an entirety to one Person; and
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
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In addition, the Company shall deliver to the Trustee (A) an Opinion
of Counsel to the effect that Holders of the Securities shall not recognize
income, gain or loss for U.S. Federal income tax purposes as a result of such
transaction and shall be subject to U.S. Federal income tax on the same amount
and in the same manner and at the same times as would have been the case if such
transaction had not occurred and (B) an Opinion of Counsel in Mexico to the
effect that Holders of the Securities shall not recognize income, gain or loss
for Mexican tax purposes as a result of such transaction and shall be subject to
Mexican taxes (including withholding taxes) on the same amounts, in the same
manner and at the same times as would have been the case if such transaction had
not occurred.
Notwithstanding the foregoing clauses (ii) and (iii), any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company.
The Successor Company shall succeed to, and be substituted for, and
may exercise every right and power of, the Company or such Subsidiary Guarantor,
as the case may be, under this Indenture, but the predecessor company in the
case of a lease of all or substantially all its assets shall not be released
from the obligation to pay the principal of and interest on the Securities or
obligations pursuant to the Subsidiary Guarantees, as the case may be.
ARTICLE VI
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
(1) a default occurs in any payment of interest on any Security when
the same becomes due and payable, and such default continues for a period
of 30 days;
(2) a default occurs in the payment of the principal of any Security
when the same becomes due and payable at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or
otherwise;
(3) the Company or any Subsidiary Guarantor fails to comply with
Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05,
4.06, 4.07, 4.08, 4.09, 4.12, 4.13, 4.14, 4.15 or 4.16 (other than a
failure to purchase Securities when required under Section 4.07 or 4.09)
and such failure continues for 30 days after the notice specified in the
penultimate paragraph of this Section;
(5) the Company or any Subsidiary Guarantor fails to comply with any
of its agreements in the Securities or this Indenture (other than those
referred to in (1), (2), (3) or (4) above or Section 4.17) and such
failure continues for 60
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days after the notice specified in the penultimate paragraph of this
Section;
(6) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders of such Indebtedness
because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds U.S.$5.0 million or its foreign currency equivalent at
the time;
(7) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in
an involuntary case;
(C) consents to the appointment of a Custodian of it or for
any substantial part of its property;
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency, bankruptcy or suspension of payments;
(8) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 60 days;
(9) the rendering of any judgment or decree for the payment of money
in excess of U.S.$10.0 million or its foreign currency equivalent against
the Company or any Significant Subsidiary if (A) an enforcement proceeding
is commenced with respect to such judgment or decree or (B) such judgment
or decree remains outstanding for a period of 60 days following such
judgment and is not discharged, waived or the execution thereof stayed;
(10) any Subsidiary Guarantee ceases to be in full force and effect
(except as contemplated by the terms thereof) or any Subsidiary Guarantor
shall deny or disaffirm its
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obligations under this Indenture or any Subsidiary Guarantee and such
Default continues for 10 days; or
(11) BAII, the Company or any of their respective successors,
assigns or other Transferees (as defined in the Subordination Agreement)
fail to comply with their respective obligations under the Subordination
Agreement.
The foregoing shall constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means any applicable bankruptcy,
insolvency, suspension of payments, reorganization or other similar law of
Mexico or the United States now or hereafter in effect, including the Ley de
Quiebras y Suspenseon de Pagos. The term "Custodian" means any receiver,
trustee, assignee, liquidator, sindico, custodian or similar official under any
Bankruptcy Law.
A Default under clause (4) or (5) is not an Event of Default until
the Trustee or the Holders of at least 25% in principal amount of the
outstanding Securities notify the Company of the Default and the Company does
not cure such Default within the time specified in clause (4) or (5) after
receipt of such notice. Such notice must specify the Default, demand that it be
remedied and state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (3), (6), (7) or (11) and any event which with
the giving of notice or the lapse of time would become an Event of Default under
clause (4), (5), (8), (9) or (10), its status and what action the Company is
taking or proposes to take with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default (other than an
Event of Default specified in Section 6.01(7) or 6.01(8) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in principal amount of the outstanding Securities by
notice to the Company and the Trustee, may declare the principal of and accrued
but unpaid interest on all the Securities to be due and payable. Upon such a
declaration, such principal and interest shall be due and payable immediately.
If an Event of Default specified in Section 6.01(7) or 6.01(8) with respect to
the Company occurs and is continuing, the principal of and interest on all the
Securities shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Securityholders.
The Holders of a majority in principal amount of the Securities by notice to the
Trustee may rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely
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because of acceleration. No such rescission shall affect any subsequent Default
or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Securityholder in exercising any right or
remedy accruing upon such Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may waive an
existing Default and its consequences except (i) a Default in the payment of the
principal of or interest on a Security or (ii) a Default in respect of a
provision that under Section 9.02 cannot be amended without the consent of each
Securityholder affected. When a Default is waived, it is deemed cured, but no
such waiver shall extend to any subsequent or other Default or impair any
consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in
principal amount of the outstanding Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
SECTION 6.06. Limitation on Suits. A Securityholder may not pursue
any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the
Securities make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security
or indemnity against any loss, liability or expense;
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(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the Securities
do not give the Trustee a direction inconsistent with the request during
such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights
of another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and interest on the Securities held by such Holder, on
or after the respective due dates expressed in the Securities, or to bring suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
specified in Section 6.01(1) or 6.01(2) occurs and is continuing, the Trustee
may recover judgment in its own name and as trustee of an express trust against
the Company for the whole amount then due and owing (together with interest on
any unpaid interest to the extent lawful) and the amounts provided for in
Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents and take such other actions,
including participating as a member, voting or otherwise, of any committee of
creditors appointed in the matter, as may be necessary or advisable in order to
have the claims of the Trustee and the Securityholders allowed in any judicial
proceedings relative to the Company, any Subsidiary of the Company, their
respective creditors or their property and, unless prohibited by law or
applicable regulations, may vote on behalf of the Holders in any election of a
trustee in bankruptcy or other Person performing similar functions, and any
Custodian in any such judicial proceeding is hereby authorized by each Holder to
make payments to the Trustee and, in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 7.07.
SECTION 6.10. Priorities. If the Trustee collects any
money or property from the Company or any Subsidiary Guarantor
pursuant to this Article VI, it shall pay out the money or
property in the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to holders of Designated Senior Indebtedness of any
Subsidiary Guarantor to the extent required by Article XII;
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THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment
to Securityholders pursuant to this Section. At least 15 days before such record
date, the Trustee shall mail to each Securityholder and the Company a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Company, a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a
suit by Holders of more than 10% in principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. Neither the Company
nor any Subsidiary Guarantor (to the extent it may lawfully do so) shall at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, which may affect the covenants or the performance
of this Indenture; and the Company and each Subsidiary Guarantor (to the extent
that it may lawfully do so) hereby expressly waive all benefit or advantage of
any such law, and shall not hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VII
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in its
exercise as a prudent Person would exercise or use under the circumstances in
the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of
Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this
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Indenture and no implied covenants or obligations shall be
read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates, instruments,
reports, notices, directions, consents or opinions furnished to the
Trustee and conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to determine whether
or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of
this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05; and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of
its rights or powers, if it shall have reasonable grounds to believe that
repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the
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proper person. The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care. The
Trustee shall give notice to the Company of the appointment of any agent, and
such appointment shall be subject to the reasonable approval of the Company.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
(f) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters as it
may see fit.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar or
co-registrar may do the same with like rights. However, the Trustee must comply
with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in this Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
continuing and if it is known to a Trust Officer of the Trustee, the Trustee
shall mail to each Securityholder notice of the Default within the earlier of 90
days after it occurs or 30 days after it is known to a Trust Officer or written
notice of it is received by the Trustee. Except in the case of a Default in
payment of principal of or interest on any Security (including
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payments pursuant to the mandatory redemption provisions of such Security, if
any), the Trustee may withhold the notice if and so long as a committee of its
Trust Officers in good faith determines that withholding the notice is in the
interests of Securityholders. The Trustee shall not be charged with knowledge of
any Event of Default described in Section 6.01(3), 6.01(4), 6.01(5), 6.01(6),
6.01(7), 6.01(8), 6.01(9), 6.01(10) or 6.01(11), unless a Trust Officer shall
have actual knowledge of such Event of Default.
SECTION 7.06. Reports by Trustee to Holders. As promptly as
practicable after each May 15 beginning with May 15, 1998, and in any event
prior to July 15 in each year, the Trustee shall mail to each Securityholder a
brief report dated as of May 15 that complies with TIA ss. 313(a). The Trustee
shall also comply with TIA ss. 313(b) and TIA ss. 313(c).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to
the Trustee, Paying Agent, Registrar and co-registrar from time to time
reasonable compensation for their services. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request and delivery of appropriate
documentation for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, in addition to the compensation for its services.
Such expenses shall include the reasonable documented compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
other professionals. Any costs and expenses associated with the Exchange
Securities shall be paid by the Company. The Company shall indemnify the
Trustee, Paying Agent, Registrar and co-registrar, and each of their officers,
directors and employees (each in their respective capacities), for and hold each
of them harmless against any and all loss, liability or expense (including
reasonable attorneys' fees) incurred by them without negligence or bad faith on
their part in connection with the administration of this trust and the
performance of their duties hereunder. The Trustee, Paying Agent, Registrar and
co-registrar shall notify the Company of any claim for which they may seek
indemnity promptly upon obtaining actual knowledge thereof; provided that any
failure so to notify the Company shall not relieve the Company or any Subsidiary
Guarantor of their respective indemnity obligations hereunder except to the
extent the Company shall have been adversely affected thereby. The Company shall
defend the claim and the indemnified party shall provide reasonable cooperation
at the Company's expense in the defense. Such indemnified parties may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel; provided that the Company shall not be required to pay such fees
and expenses if it assumes such indemnified parties' defense and, in such
indemnified parties' reasonable judgment, there is no conflict of interest
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between the Company and such parties in connection with such defense. The
Company need not pay for any settlement made without its written consent. The
Company need not reimburse any expense or indemnify against any loss, liability
or expense incurred by an indemnified party through such party's own wilful
misconduct or negligence.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee, Paying Agent,
Registrar or co-registrar incurs expenses after the occurrence of a Default
specified in Section 6.01(7) or 6.01(8) with respect to the Company, the
expenses are intended to constitute expenses of administration under the
Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any
time by so notifying the Company in writing at least one Business Day in
advance. The Holders of a majority in principal amount of the Securities may
remove the Trustee by so notifying the Company and the Trustee and may appoint a
successor Trustee with the prior written consent of the Company, which shall not
be unreasonably withheld. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders
of a majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the
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retiring Trustee, the Company or the Holders of 10% in principal amount of the
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor to the Trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at
all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a
combined capital and surplus of at least U.S.$50.0 million as set forth in its
most recent published annual report of condition. The Trustee shall comply with
TIA ss. 310(b); provided, however, that there shall be excluded from the
operation of TIA ss. 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Company are outstanding if the requirements for such exclusion set forth in
TIA ss. 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship
listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be
subject to TIA ss. 311(a) to the extent indicated.
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ARTICLE VIII
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a)
When (i) the Company delivers to the Trustee all outstanding Securities (other
than Securities replaced pursuant to Section 2.07) for cancelation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article III hereof
and the Company irrevocably deposits with the Trustee funds or U.S. Government
Obligations on which payment of principal and interest when due shall be
sufficient to pay at maturity or upon redemption all outstanding Securities,
including interest thereon to maturity or such redemption date (other than
Securities replaced pursuant to Section 2.07), and if in either case the Company
pays all other sums payable hereunder by the Company, then this Indenture shall,
subject to Section 8.01(c), cease to be of further effect. The Trustee shall
acknowledge satisfaction and discharge of this Indenture on demand of the
Company accompanied by an Officers' Certificate and an Opinion of Counsel and at
the cost and expense of the Company.
(b) Subject to Sections 8.01(c), 8.02 and 8.06, the Company at any
time may terminate (i) all of its obligations under the Securities and this
Indenture ("legal defeasance option") or (ii) its obligations under Sections
4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.12, 4.13, 4.14, 4.15, 4.16 and
5.01(iii) and the operation of Sections 6.01(3) (with respect to Section
5.01(iii) only), 6.01(4), 6.01(5) (with respect to Subsidiaries of the Company),
6.01(6), 6.01(7) (with respect to Subsidiaries of the Company), 6.01(8) (with
respect to Subsidiaries of the Company), 6.01(9), 6.01(10) and 6.01(11)
("covenant defeasance option"). The Company may exercise its legal defeasance
option notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the Company
exercises its covenant defeasance option, payment of the Securities may not be
accelerated because of an Event of Default specified in Sections 6.01(4),
6.01(5) (with respect to Subsidiaries of the Company), 6.01(6), 6.01(7) (with
respect to Subsidiaries of the Company), 6.01(8) (with respect to Subsidiaries
of the Company), 6.01(9), 6.01(10) and 6.01(11) or because of the failure of the
Company to comply with Section 5.01(iii).
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
(c) Notwithstanding paragraphs (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.04, 8.05,
8.06 and 4.17 shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall
survive.
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SECTION 8.02. Conditions to Defeasance. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal of and
interest on the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment shall provide cash at such times and in
such amounts as shall be sufficient to pay principal and interest when due
on all the Securities to maturity or redemption, as the case may be;
(3) 91 days pass after the deposit is made and during the 91-day
period no Default specified in Section 6.01(7) or 6.01(8) with respect to
the Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other
agreement binding on the Company;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or
is qualified as, a regulated investment company under the Investment
Company Act of 1940;
(6) in the case of the legal defeasance option, the Company shall
have delivered to the Trustee (A) an Opinion of Counsel stating that (i)
the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (ii) since the date of this
Indenture there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, the Securityholders shall not recognize
income, gain or loss for Federal income tax purposes as a result of such
defeasance and shall be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such defeasance had not occurred and (B) an Opinion of Counsel in Mexico
to the effect that Holders of the Securities shall not recognize income,
gain or loss for Mexican tax purposes as a result of such deposit and
defeasance and shall be subject to Mexican taxes (including withholding
taxes) on the same amounts, in the same manner and at the same times as
would have been the case if such deposit and defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee (A) an Opinion of Counsel to the effect that
the Securityholders shall not recognize income, gain or loss for Federal
income tax purposes as a result of such covenant defeasance and shall
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be subject to Federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such covenant
defeasance had not occurred and (B) an Opinion of Counsel in Mexico to the
effect that Holders of the Securities shall not recognize income, gain or
loss for Mexican tax purposes as a result of such deposit and defeasance
and shall be subject to Mexican taxes (including withholding taxes) on the
same amounts, in the same manner and at the same times as would have been
the case if such deposit and defeasance had not occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article
VIII have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article III.
SECTION 8.03. Application of Trust Money. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to this
Article VIII. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities.
SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and
the Paying Agent shall pay to the Company upon request any money held by them
for the payment of principal or interest that remains unclaimed for two years,
and, thereafter, Securityholders entitled to the money must look to the Company
for payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The Company
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations other than
any tax, fee or other charge which by law is for the account of the
Securityholders.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with this
Article VIII by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article VIII until such time as the
Trustee or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article VIII; provided, however, that if the
Company
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has made any payment of interest on or principal of any Securities because of
the reinstatement of its obligations, the Company shall be subrogated to the
rights of the Holders of such Securities to receive such payment from the money
or U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE IX
Amendments
SECTION 9.01. Without Consent of Holders. The Company, the
Subsidiary Guarantors and the Trustee may amend this Indenture or the Securities
without notice to or consent of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article V;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to make any change in Article XII that would limit or terminate
the benefits available to any holder of Designated Senior Indebtedness of
any Subsidiary Guarantor (or Representative therefor) under Article XII;
(5) to add further Guarantees with respect to the Securities or to
release Subsidiary Guarantors from the Subsidiary Guarantees as provided
by the terms of this Indenture, or to secure the Securities;
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(7) to comply with any requirements of the SEC in connection with
qualifying this Indenture under the TIA;
(8) to make any change that does not adversely affect the rights of
any Securityholder; or
(9) to provide for the issuance and authorization of the Exchange
Securities.
An amendment under clause (2) of the above sentence may only be made
provided that the Company delivers to the Trustee (i) an Opinion of Counsel to
the effect that Holders of the Securities shall not recognize income, gain or
loss for U.S. Federal income tax purposes as a result of such assumption by a
successor corporation and shall be subject to U.S. Federal income tax on the
same amount and in the same manner and at the same
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times as would have been the case if such assumption had not occurred and (ii)
an Opinion of Counsel in Mexico to the effect that Holders of the Securities
shall not recognize income, gain or loss for Mexican tax purposes as a result of
such assumption by a successor corporation and shall be subject to Mexican taxes
(including withholding taxes) on the same amounts, in the same manner and at the
same times as would have been the case if such assumption had not occurred.
An amendment under this Section may not make any change that
adversely affects the rights under Article XII of any holder of Designated
Senior Indebtedness of any Subsidiary Guarantor then outstanding unless the
holders of such Designated Senior Indebtedness (or any group or representative
thereof authorized to give a consent) consent to such change.
The Company, BAII and the Trustee may amend the Subordination
Agreement without notice to or consent of any Securityholder (i) to cure any
ambiguity, omission, defect or inconsistency, (ii) to add to the covenants of
the Company or BAII for the benefit of the Holders or to surrender any right or
power herein conferred upon the Company or BAII and (iii) to make any change
that does not adversely affect the rights of any Securityholder.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.02. With Consent of Holders. The Company, the Subsidiary
Guarantors and the Trustee may amend this Indenture or the Securities without
notice to any Securityholder but with the written consent of the Holders of at
least a majority in principal amount of the Securities. The Holders of at least
a majority in principal amount of the Securities may waive (without notice to
any Securityholder) compliance by the Company or any Subsidiary Guarantor with
any provision or consent of this Indenture or the Securities. However, without
the consent of each Securityholder affected, an amendment or waiver may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment or waiver;
(2) reduce the rate of or extend the time for payment of interest or
any liquidated damages on any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption of any Security
or change the time at which any Security may be redeemed in accordance
with Article III;
(5) make any Security payable in money other than that stated in the
Security;
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(6) make any change in Article XII that adversely affects the rights
of any Securityholder under Article XII;
(7) impair the right of any Holder to receive payment of principal
of and interest on such Holder's Securities on or after the due dates
therefor or to institute suit for the enforcement of any payment on or
with respect to such Holder's Securities;
(8) modify the Subsidiary Guarantees (except as contemplated by the
terms thereof or of this Indenture) in any manner adverse to the Holders;
or
(9) make any change in Section 6.04, Section 6.07 or the third
sentence of this Section.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment or waiver, but
it shall be sufficient if such consent approves the substance thereof.
An amendment or waiver under this Section may not make any change
that adversely affects the rights under Article XII of any holder of Designated
Senior Indebtedness of any Subsidiary Guarantor then outstanding unless the
holders of such Designated Senior Indebtedness (or any group or representative
thereof authorized to give a consent) consent to such change.
The Company, BAII and the Trustee may amend the Subordination
Agreement without notice to any Securityholder but with the written consent of
the Holders of at least a majority in principal amount of the Securities. The
Holders of at least a majority in principal amount of the Securities may waive
(without notice to any Securityholder) compliance by the Company or BAII with
any provision or consent of the Subordination Agreement.
After an amendment or waiver under this Section becomes effective,
the Company shall mail to Securityholders a notice briefly describing such
amendment or waiver. The failure to give such notice to all Securityholders, or
any defect therein, shall not impair or affect the validity of an amendment or
waiver under this Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment
to this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any such
Holder or subsequent Holder may revoke the consent or waiver as to such Holder's
Security or portion of the Security if the Trustee receives the notice of
revocation before the date the amendment or waiver becomes effective. After an
amendment or waiver becomes effective, it shall bind every Securityholder. An
amendment or waiver becomes effective once the consents from the
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Holders of the requisite percentage in principal amount of outstanding
Securities are received by the Company or the Trustee.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated proxies), and only
those Persons, shall be entitled to give such consent or to revoke any consent
previously given or to take any such action, whether or not such Persons
continue to be Holders after such record date. No such consent shall be valid or
effective for more than 120 days after such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. Trustee To Sign Amendments and Waivers. The Trustee
shall sign any amendment or waiver authorized pursuant to this Article IX if the
amendment or waiver does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. If it does, the Trustee may but need not sign it. In
signing such amendment or waiver the Trustee shall be entitled to receive
indemnity reasonably satisfactory to it and to receive, and (subject to Section
7.01) shall be fully protected in relying upon, an Officers' Certificate and an
Opinion of Counsel stating that such amendment or waiver is authorized or
permitted by this Indenture and complies with the provisions hereof (including
Section 9.03).
SECTION 9.07. Payment for Consent. Neither the Company nor any
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture, the Securities or the Subordination Agreement
unless such consideration is offered to be paid to all Holders that so consent,
waive or agree to amend in the time frame set forth in solicitation documents
relating to such consent, waiver or agreement.
ARTICLE X
[Intentionally Omitted]
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ARTICLE XI
Subsidiary Guarantees
SECTION 11.01. Subsidiary Guarantees. Each Subsidiary Guarantor
hereby jointly and severally unconditionally guarantees on an unsecured, senior
subordinated basis, as a primary obligor and not merely as a surety, to each
Holder and to the Trustee and its successors and assigns (a) the full and
punctual payment of principal of and interest on the Securities when due,
whether at Stated Maturity, by acceleration, by redemption or otherwise, and all
other monetary obligations of the Company under this Indenture (including
obligations to the Trustee) and the Securities and (b) the full and punctual
performance within applicable grace periods of all other obligations of the
Company whether for expenses, indemnification or otherwise under this Indenture
and the Securities (all the foregoing being hereinafter collectively called the
"Obligations"). Each Subsidiary Guarantor further agrees that the Obligations
may be extended or renewed, in whole or in part, without notice or further
assent from each such Subsidiary Guarantor, and that each such Subsidiary
Guarantor shall remain bound under this Article XI notwithstanding any extension
or renewal of any Obligation.
Each Subsidiary Guarantor waives presentation to, demand of, payment
from and protest to the Company of any of the Obligations and also waives notice
of protest for nonpayment. Each Subsidiary Guarantor waives notice of any
default under the Securities or the Obligations. The obligations of each
Subsidiary Guarantor hereunder shall not be affected by (a) the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any right or
remedy against the Company or any other Person under this Indenture, the
Securities or any other agreement or otherwise; (b) any extension or renewal of
any thereof; (c) any rescission, waiver, amendment or modification of any of the
terms or provisions of this Indenture, the Securities or any other agreement;
(d) the release of any security held by any Holder or the Trustee for the
Obligations or any of them; (e) the failure of any Holder or Trustee to exercise
any right or remedy against any other guarantor of the Obligations; or (f) any
change in the ownership of such Subsidiary Guarantor, except as provided in
Section 11.02(b).
Each Subsidiary Guarantor hereby waives any right to which it may be
entitled to have its obligations hereunder divided among the Subsidiary
Guarantors, such that such Subsidiary Guarantor's obligations would be less than
the full amount claimed. Each Subsidiary Guarantor hereby waives any right to
which it may be entitled to have the assets of the Company first be used and
depleted as payment of the Company's or such Subsidiary Guarantor's obligations
hereunder prior to any amounts being claimed from or paid by such Subsidiary
Guarantor hereunder. Each Subsidiary Guarantor hereby waives any right to which
it may be entitled to require that the Company be sued prior to an action being
initiated against such Subsidiary Guarantor.
Each Subsidiary Guarantor further agrees that its Subsidiary
Guarantee herein constitutes a guarantee of payment,
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performance and compliance when due (and not a guarantee of collection) and
waives any right to require that any resort be had by any Holder or the Trustee
to any security held for payment of the Obligations.
The Subsidiary Guarantee of each Subsidiary Guarantor is, to the
extent and in the manner set forth in Article XII, subordinated and subject in
right of payment to the prior payment in full in cash of the principal of and
premium, if any, and interest on all Designated Senior Indebtedness of the
relevant Subsidiary Guarantor and is made subject to such provisions of this
Indenture.
The obligations of each Subsidiary Guarantor hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including any claim of waiver, release, surrender, alteration or compromise, and
shall not be subject to any defense of setoff, counterclaim, recoupment or
termination whatsoever or by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of each Subsidiary Guarantor herein
shall not be discharged or impaired or otherwise affected by the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any remedy
under this Indenture, the Securities or any other agreement, by any waiver or
modification of any thereof, by any default, failure or delay, wilful or
otherwise, in the performance of the Obligations, or by any other act or thing
or omission or delay to do any other act or thing which may or might in any
manner or to any extent vary the risk of any Subsidiary Guarantor or would
otherwise operate as a discharge of any Subsidiary Guarantor as a matter of law
or equity.
Each Subsidiary Guarantor agrees that its Subsidiary Guarantee shall
remain in full force and effect until payment in full of all the Obligations.
Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee herein
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of principal of or interest on any Obligation
is rescinded or must otherwise be restored by any Holder or the Trustee upon the
bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against any
Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay
the principal of or interest on any Obligation when and as the same shall become
due, whether at maturity, by acceleration, by redemption or otherwise, or to
perform or comply with any other Obligation, each Subsidiary Guarantor hereby
promises to and shall, upon receipt of written demand by the Trustee, forthwith
pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal
to the sum of (i) the unpaid principal amount of such Obligations, (ii) accrued
and unpaid interest on such Obligations (but only to the extent not prohibited
by law) and (iii) all other monetary Obligations of the Company to the Holders
and the Trustee.
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Each Subsidiary Guarantor agrees that it shall not be entitled to
any right of subrogation in relation to the Holders in respect of any
Obligations guaranteed hereby until payment in full of all Obligations. Each
Subsidiary Guarantor further agrees that, as between it, on the one hand, and
the Holders and the Trustee, on the other hand, (x) the maturity of the
Obligations guaranteed hereby may be accelerated as provided in Article VI for
the purposes of any Subsidiary Guarantee herein, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
Obligations guaranteed hereby, and (y) in the event of any declaration of
acceleration of such Obligations as provided in Article VI, such Obligations
(whether or not due and payable) shall forthwith become due and payable by such
Subsidiary Guarantor for the purposes of this Section.
Each Subsidiary Guarantor also agrees to pay any and all reasonable
costs and expenses (including reasonable attorneys' fees and expenses) incurred
by the Trustee or any Holder in enforcing any rights under this Section.
Upon request of the Trustee, each Subsidiary Guarantor shall execute
and deliver such further instruments and do such further acts as may be
reasonably necessary or proper to carry out more effectively the purpose of this
Indenture.
SECTION 11.02. Limitation on Liability. (a) Any term or provision of
this Indenture to the contrary notwithstanding, the maximum, aggregate amount of
the obligations guaranteed hereunder by any Subsidiary Guarantor shall not
exceed the maximum amount that can be hereby guaranteed without rendering this
Indenture, as it relates to any Subsidiary Guarantor, voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
(b) This Subsidiary Guarantee as to any Subsidiary Guarantor shall
terminate and be of no further force or effect upon (i) the merger or
consolidation of such Subsidiary Guarantor with or into any Person other than
the Company or a Subsidiary of the Company where such Subsidiary Guarantor is
not the surviving entity of such consolidation or merger or (ii) the sale by the
Company or any Subsidiary of the Company (or any pledgee of the Company) of the
Capital Stock of such Subsidiary Guarantor, where, after such sale, such
Subsidiary Guarantor is no longer a Subsidiary of the Company; provided,
however, that each such merger, consolidation or sale (or, in the case of a sale
by such a pledgee, the disposition of the proceeds of such sale) shall comply
with Section 4.07.
SECTION 11.03. Successors and Assigns. This Article XI shall be
binding upon each Subsidiary Guarantor and its successors and assigns and shall
inure to the benefit of the successors and assigns of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges conferred upon that party in this
Indenture and in the Securities shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions of this
Indenture.
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SECTION 11.04. No Waiver. Neither a failure nor a delay on the part
of either the Trustee or the Holders in exercising any right, power or privilege
under this Article XI shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Trustee and the
Holders herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which either may have under this Article XI at law,
in equity, by statute or otherwise.
SECTION 11.05. Modification. No modification, amendment or waiver of
any provision of this Article XI, nor the consent to any departure by any
Subsidiary Guarantor therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Trustee, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on any Subsidiary Guarantor in any case shall
entitle such Subsidiary Guarantor to any other or further notice or demand in
the same, similar or other circumstances.
SECTION 11.06. Execution of Supplemental Indenture for Future
Subsidiary Guarantors. Each Subsidiary which is required to become a Subsidiary
Guarantor pursuant to Section 4.16 shall promptly execute and deliver to the
Trustee a supplemental indenture in the form of Exhibit E hereto pursuant to
which such Subsidiary shall become a Subsidiary Guarantor under this Article XI
and shall guarantee the Obligations. Concurrently with the execution and
delivery of such supplemental indenture, the Company shall deliver to the
Trustee an Opinion of Counsel and an Officers' Certificate to the effect that
such supplemental indenture has been duly authorized, executed and delivered by
such Subsidiary and that, subject to the application of bankruptcy, insolvency,
moratorium, fraudulent conveyance or transfer and other similar laws relating to
creditors' rights generally and to the principles of equity, whether considered
in a proceeding at law or in equity, the Subsidiary Guarantee of such Subsidiary
Guarantor is a legal, valid and binding obligation of such Subsidiary Guarantor,
enforceable against such Subsidiary Guarantor in accordance with its terms.
ARTICLE XII
Subordination of the Subsidiary Guarantees
SECTION 12.01. Agreement To Subordinate. Each Subsidiary Guarantor
agrees, and each Securityholder by accepting a Security agrees, that the
Obligations of a Subsidiary Guarantor are subordinated in right of payment, to
the extent and in the manner provided in this Article XII, to the prior payment
in full of all Designated Senior Indebtedness of such Subsidiary Guarantor and
that the subordination is for the benefit of and enforceable by the holders of
Designated Senior Indebtedness of such Subsidiary Guarantor. The Obligations
with respect to a Subsidiary Guarantor shall in all respects rank pari passu
with all other Senior Subordinated Indebtedness of such Subsidiary Guarantor and
shall rank senior to all existing and future
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Subordinated Obligations of such Subsidiary Guarantor; and only Indebtedness of
such Subsidiary Guarantor that is Designated Senior Indebtedness of such
Subsidiary Guarantor shall rank senior to the Obligations of such Subsidiary
Guarantor in accordance with the provisions set forth herein.
SECTION 12.02. Liquidation, Dissolution, Bankruptcy. Upon any
payment or distribution of the assets of a Subsidiary Guarantor to creditors
upon a total or partial liquidation or a total or partial dissolution of such
Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Subsidiary Guarantor and its
properties:
(1) holders of Designated Senior Indebtedness of such Subsidiary
Guarantor shall be entitled to receive payment in full of such Designated
Senior Indebtedness before Securityholders shall be entitled to receive
any payment of any Obligations from such Subsidiary Guarantor; and
(2) until the Designated Senior Indebtedness of such Subsidiary
Guarantor is paid in full, any payment or distribution to which
Securityholders would be entitled but for this Article XII shall be made
to holders of such Designated Senior Indebtedness as their respective
interests may appear.
SECTION 12.03. Default on Designated Senior Indebtedness of a
Subsidiary Guarantor. A Subsidiary Guarantor may not make any payment pursuant
to any of the Obligations or repurchase, redeem or otherwise retire any
Securities (collectively, "pay its Guaranty") if (i) any amount due in respect
of any Designated Senior Indebtedness of such Subsidiary Guarantor is not paid
when due or (ii) any other default on Designated Senior Indebtedness of such
Subsidiary Guarantor occurs and the maturity of such Designated Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
(x) the default has been cured or waived and any such acceleration has been
rescinded or (y) such Designated Senior Indebtedness has been paid in full;
provided, however, that such Subsidiary Guarantor may pay its Guaranty without
regard to the foregoing if such Subsidiary Guarantor and the Trustee receive
written notice approving such payment from the Representative of the holders of
such Designated Senior Indebtedness with respect to which either of the events
in clause (i) or (ii) of this sentence has occurred and is continuing. During
the continuance of any default (other than a default described in clause (i) or
(ii) of the preceding sentence) with respect to any Designated Senior
Indebtedness of a Subsidiary Guarantor pursuant to which the maturity thereof
may be accelerated immediately without further notice (except such notice as may
be required to effect such acceleration) or the expiration of any applicable
grace periods, such Subsidiary Guarantor may not pay its Guaranty for a period
(a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a
copy to such Subsidiary Guarantor and the Company) of written notice (a
"Blockage Notice") of such default from the Representative of the holders of the
Designated Senior Indebtedness of such Subsidiary Guarantor specifying an
election to effect a Payment Blockage Period and ending 179 days
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thereafter (or earlier if such Payment Blockage Period is terminated (i) by
written notice to the Trustee (with a copy to such Subsidiary Guarantor and the
Company) from the Person or Persons who gave such Blockage Notice, (ii) because
such Designated Senior Indebtedness has been repaid in full or (iii) because the
default giving rise to such Blockage Notice is no longer continuing).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the first sentence of this Section),
unless the holders of such Designated Senior Indebtedness or the Representative
of such holders shall have accelerated the maturity of such Designated Senior
Indebtedness, such Subsidiary Guarantor may resume to pay its Guaranty after
such Payment Blockage Period, including any missed payments. Not more than one
Blockage Notice may be given with respect to a Subsidiary Guarantor in any
consecutive 360-day period, irrespective of the number of defaults with respect
to Designated Senior Indebtedness of such Subsidiary Guarantor during such
period.
SECTION 12.04. Demand for Payment. If payment of the Securities is
accelerated because of an Event of Default and a demand for payment is made on a
Subsidiary Guarantor pursuant to Article XI, the Trustee shall promptly notify
the holders of the Designated Senior Indebtedness of such Subsidiary Guarantor
(or the Representative of such holders) of such demand. If any Designated Senior
Indebtedness of such Subsidiary Guarantor is outstanding, such Subsidiary
Guarantor may not pay its Guaranty until five Business Days after such holders
or the Representative of the holders of the Designated Senior Indebtedness of
such Subsidiary Guarantor receive notice of such demand and, thereafter, may pay
its Guaranty only if this Article XII otherwise permits payment at that time.
SECTION 12.05. When Distribution Must Be Paid Over. If a payment or
distribution is made to Securityholders that because of this Article XII should
not have been made to them, the Securityholders who receive the payment or
distribution shall hold such payment or distribution in trust for holders of the
Designated Senior Indebtedness of the relevant Subsidiary Guarantor and pay it
over to them as their respective interests may appear.
SECTION 12.06. Subrogation. After all Designated Senior Indebtedness
of a Subsidiary Guarantor is paid in full and until the Securities are paid in
full, Securityholders shall be subrogated to the rights of holders of Designated
Senior Indebtedness of such Subsidiary Guarantor to receive distributions
applicable to Designated Senior Indebtedness of such Subsidiary Guarantor. A
distribution made under this Article XII to holders of Designated Senior
Indebtedness of such Subsidiary Guarantor which otherwise would have been made
to Securityholders is not, as between such Subsidiary Guarantor and
Securityholders, a payment by such Subsidiary Guarantor on Designated Senior
Indebtedness of such Subsidiary Guarantor.
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SECTION 12.07. Relative Rights. This Article XII defines the
relative rights of Securityholders and holders of Designated Senior Indebtedness
of a Subsidiary Guarantor. Nothing in this Indenture shall:
(1) impair, as between a Subsidiary Guarantor and Securityholders,
the obligation of a Subsidiary Guarantor which is absolute and
unconditional, to pay its Obligations to the extent set forth in Article
XI; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a default by a Subsidiary Guarantor under its
Obligations, subject to the rights of holders of Designated Senior
Indebtedness of such Subsidiary Guarantor to receive distributions
otherwise payable to Securityholders.
SECTION 12.08. Subordination May Not Be Impaired by a Subsidiary
Guarantor. No right of any holder of Designated Senior Indebtedness of a
Subsidiary Guarantor to enforce the subordination of the Obligations of such
Subsidiary Guarantor shall be impaired by any act or failure to act by such
Subsidiary Guarantor or by its failure to comply with this Indenture.
SECTION 12.09. Rights of Trustee and Paying Agent. Notwithstanding
Section 12.03, the Trustee or the Paying Agent may continue to make payments on
the Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives notice satisfactory to it that payments may not be made under this
Article XII. A Subsidiary Guarantor, the Registrar or co-registrar, the Paying
Agent, a Representative or a holder of Designated Senior Indebtedness of a
Subsidiary Guarantor may give the notice; provided, however, that if an issue of
Designated Senior Indebtedness of a Subsidiary Guarantor has a Representative,
only the Representative may give the notice. The Trustee shall be entitled to
rely on the delivery to it of a written notice by a Person representing himself
or itself to be a holder of any Designated Senior Indebtedness of a Subsidiary
Guarantor (or a Representative of such holder) to establish that such notice has
been given by a holder of such Designated Senior Indebtedness or Representative
thereof.
The Trustee in its individual or any other capacity may hold
Designated Senior Indebtedness of a Subsidiary Guarantor with the same rights it
would have if it were not Trustee. The Registrar and co-registrar and the Paying
Agent may do the same with like rights. The Trustee shall be entitled to all the
rights set forth in this Article XII with respect to any Designated Senior
Indebtedness of a Subsidiary Guarantor which may at any time be held by it, to
the same extent as any other holder of Designated Senior Indebtedness of such
Subsidiary Guarantor; and nothing in Article VII shall deprive the Trustee of
any of its rights as such holder. Nothing in this Article XII shall apply to
claims of, or payments to, the Trustee under or pursuant to Section 7.07.
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SECTION 12.10. Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Designated Senior
Indebtedness of a Subsidiary Guarantor, the distribution may be made and the
notice given to their Representative (if any).
SECTION 12.11. Article XII Not To Prevent Events of Default or Limit
Right To Accelerate. The failure of a Subsidiary Guarantor to make a payment on
any of its Obligations by reason of any provision in this Article XII shall not
be construed as preventing the occurrence of a default by such Subsidiary
Guarantor under its Obligations. Nothing in this Article XII shall have any
effect on the right of the Securityholders or the Trustee to make a demand for
payment on a Subsidiary Guarantor pursuant to Article XI.
SECTION 12.12. Trustee Entitled To Rely. Upon any payment or
distribution pursuant to this Article XII, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 12.02
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Designated
Senior Indebtedness of a Subsidiary Guarantor for the purpose of ascertaining
the Persons entitled to participate in such payment or distribution, the holders
of the Designated Senior Indebtedness of a Subsidiary Guarantor and other
Indebtedness of a Subsidiary Guarantor, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article XII. In the event that the Trustee determines, in
good faith, that evidence is required with respect to the right of any Person as
a holder of Designated Senior Indebtedness of a Subsidiary Guarantor to
participate in any payment or distribution pursuant to this Article XII, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Designated Senior Indebtedness
of such Subsidiary Guarantor held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and other
facts pertinent to the rights of such Person under this Article XII, and, if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all
actions or omissions of actions by the Trustee pursuant to this Article XII.
SECTION 12.13. Trustee To Effectuate Subordination. Each
Securityholder by accepting a Security authorizes and directs the Trustee on his
or her behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination between the Securityholders and the
holders of Designated Senior Indebtedness of each of the Subsidiary Guarantors
as provided in this Article XII and appoints the Trustee as attorney-in-fact for
any and all such purposes.
SECTION 12.14. Trustee Not Fiduciary for Holders of Designated
Senior Indebtedness of a Subsidiary Guarantor. The
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Trustee shall not be deemed to owe any fiduciary duty to the holders of
Designated Senior Indebtedness of a Subsidiary Guarantor and shall not be liable
to any such holders if it shall mistakenly pay over or distribute to
Securityholders or the relevant Subsidiary Guarantor or any other Person, money
or assets to which any holders of Designated Senior Indebtedness of such
Subsidiary Guarantor shall be entitled by virtue of this Article XII or
otherwise.
SECTION 12.15. Reliance by Holders of Designated Senior Indebtedness
of a Subsidiary Guarantor on Subordination Provisions. Each Securityholder by
accepting a Security acknowledges and agrees that the foregoing subordination
provisions are, and are intended to be, an inducement and a consideration to
each holder of any Designated Senior Indebtedness of a Subsidiary Guarantor,
whether such Designated Senior Indebtedness was created or acquired before or
after the issuance of the Securities, to acquire and continue to hold, or to
continue to hold, such Designated Senior Indebtedness and such holder of
Designated Senior Indebtedness shall be deemed conclusively to have relied on
such subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Designated Senior Indebtedness.
SECTION 12.16. Defeasance. The terms of this Article XII shall not
apply to payments from money or the proceeds of U.S. Government Obligations held
in trust by the Trustee for the payment of principal of and interest on the
Securities pursuant to the provisions described in Section 8.03.
ARTICLE XIII
Miscellaneous
SECTION 13.01. Trust Indenture Act Controls. If any provision of
this Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 13.02. Notices. Any notice or communication shall be in
writing and delivered in person or mailed by first-class mail or by national
overnight courier service addressed as follows:
if to the Company or any Subsidiary Guarantor:
Montes Urales 460, 3rd Floor
Col. Lomas de Chapultepec
Deleg. Miguel Hidalgo
C.P. 11000, Mexico, D.F.
if to the Trustee:
First Union National Bank
230 South Tryon Street
Corporate Trust Department, 9th Floor
Charlotte, NC 28288-1179
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The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be
mailed to the Securityholder at the Securityholder's address as it appears on
the registration books of the Registrar and shall be sufficiently given if so
mailed by first class mail within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice.
SECTION 13.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA ss. 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee and complying with Section 13.05 stating that,
in the opinion of the signers, all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied
with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee and complying with Section 13.05 stating that,
in the opinion of such counsel, all such conditions precedent have been
complied with.
SECTION 13.05. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he or she
has made such examination or
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investigation as is necessary to enable him or her to express an informed
opinion as to whether or not such covenant or condition has been complied with;
and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 13.06. When Securities Disregarded. In determining whether
the Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee knows are so owned shall be so disregarded. Also,
subject to the foregoing, only Securities outstanding at the time shall be
considered in any such determination.
SECTION 13.07. Rules by Trustee, Paying Agent and Registrar. The
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar, co-registrar and the Paying Agent may make reasonable rules for
their functions.
SECTION 13.08. Legal Holidays. A "Legal Holiday" is a Saturday, a
Sunday or a day on which commercial banking institutions (including, the Federal
Reserve System) are authorized or required by law to close in New York City. If
a payment date is a Legal Holiday, payment shall be made on the next succeeding
day that is not a Legal Holiday, and no interest shall accrue for the
intervening period. If a regular record date is a Legal Holiday, the record date
shall not be affected.
SECTION 13.09. Governing Law. THIS INDENTURE AND THE SECURITIES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW
TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
SECTION 13.10. Waiver of Immunities. To the extent that the Company
or the Subsidiary Guarantors or any of their respective properties, assets or
revenues may have or may hereafter become entitled to, or have attributed to it,
any right of immunity, on the grounds of sovereignty or otherwise, from any
legal action, suit or proceeding, from the giving of any relief in any such
legal action, suit or proceeding, from setoff or counterclaim, from the
competent jurisdiction of any court, from service of process, from attachment
upon or prior to judgment, from attachment in aid of execution of judgment, or
from execution of judgment, or other legal process or proceeding for the giving
of any relief or for the enforcement of any judgment, in any competent
jurisdiction in which proceedings may at any time be commenced, with respect to
its obligations, liabilities or any other matter under or arising out of or in
connection with this Agreement and the transactions contemplated hereby, each of
the Company and the Subsidiary Guarantors hereby irrevocably and
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unconditionally waives, and agrees not to plead or claim, any such immunity and
consent to such relief and enforcement.
SECTION 13.11. Consent to Jurisdiction; Appointment of Agent for
Service of Process; Judgment Currency. (a) The Company and the Subsidiary
Guarantors, by the execution and delivery of this Agreement, irrevocably agree
that service of process may be made upon CT Corporation Services ("CT
Corporation"), with offices at 1633 Broadway, 23rd Floor, New York, New York
10019 (or its successors as agent for service of process), in the County, City
and State of New York, United States of America, in any suit or proceeding
against the Company or the Subsidiary Guarantors instituted by the Trustee,
based on or arising under this Agreement and the transactions contemplated
hereby in any federal or state court in the State of New York, County of New
York, and each of the Company, the Subsidiary Guarantors and the Trustee hereby
irrevocably consents and submits to the jurisdiction of any such court and to
the courts of its own corporate domicile in respect of actions brought against
it as a defendant generally and unconditionally in respect of any such suit or
proceeding.
(b) Each of the Company and the Subsidiary Guarantors further, by
the execution and delivery of this Agreement, irrevocably designates, appoints
and empowers CT Corporation, with offices at 1633 Broadway, 23rd Floor, New
York, New York 10019, as its designee, appointee and authorized agent to receive
for and on its behalf service (i) of any and all legal process, summons, notices
and documents that may be served in any action, suit or proceeding brought
against the Company or such Subsidiary Guarantor, as the case may be, with
respect to its obligations, liabilities or any other matter arising out of or in
connection with this Agreement and the transactions contemplated hereby and (ii)
that may be made on such designee, appointee and authorized agent in accordance
with legal procedures prescribed for such courts, and it being understood that
the designation and appointment of CT Corporation as such authorized agent shall
become effective immediately without any further action on the part of the
Company or such Subsidiary Guarantor, as the case may be. Each of the Company
and the Subsidiary Guarantors represents to the Trustee that it has notified CT
Corporation of such designation and appointment and that CT Corporation has
accepted the same, and that CT Corporation has been paid its full fee for such
designation, appointment and related services through the date that is eight
years from the date of this Agreement. Each of the Company and the Subsidiary
Guarantors further agrees that, to the extent permitted by law, service of
process upon CT Corporation (or its successors as agent for service of process)
and written notice of said service to the Company or such Subsidiary Guarantor,
as the case may be, pursuant to Section 13.02 of this Agreement, shall be deemed
in every respect effective service of process upon the Company or such
Subsidiary Guarantor in any such suit or proceeding. If for any reason such
designee, appointee and agent hereunder shall cease to be available to act as
such, each of the Company and the Subsidiary Guarantors agrees to designate a
new designee, appointee and agent in The City of New York, New York on the terms
and for the purposes of this Section reasonably satisfactory to the Trustee.
Each of the Company and the Subsidiary Guarantors further hereby
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irrevocably consents and agrees to the service of any and all legal process,
summons, notices and documents in any such action, suit or proceeding against
the Company or such Subsidiary Guarantor, as the case may be, by serving a copy
thereof upon the relevant agent for service of process referred to in this
Section (whether or not the appointment of such agent shall for any reason prove
to be ineffective or such agent shall accept or acknowledge such service) and by
mailing copies thereof by registered or certified air mail, postage prepaid, to
the Company or such Subsidiary Guarantor at its address specified in or
designated pursuant to this Agreement. Each of the Company and the Subsidiary
Guarantors agrees that the failure of any such designee, appointee and agent to
give any notice of such service to it shall not impair or affect in any way the
validity of such service or any judgment rendered in any action or proceeding
based thereon. Nothing herein shall in any way be deemed to limit the ability of
the Trustee to serve any such legal process, summons, notices and documents in
any other manner permitted by applicable law. Each of the Company and the
Subsidiary Guarantors hereby irrevocably and unconditionally waives, to the
fullest extent permitted by law, any objection that it may now or hereafter have
to the laying of venue of any of the aforesaid actions, suits or proceedings
arising out of or in connection with this Agreement brought in federal or state
court in the State of New York, County of New York, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
(c) If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder into any currency other than United
States dollars, the parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be the rate at which in
accordance with normal banking procedures the Trustee could purchase United
States dollars with the other currency in New York City on the business day
preceding that on which final judgment is given. The obligation of the Company
and the Subsidiary Guarantors in respect of any sum due from the Company or any
Subsidiary Guarantor to the Trustee shall, notwithstanding any judgment in a
currency other than United States dollars, not be discharged until the first
business day, following receipt by the Trustee of any sum adjudged to be so due
in the other currency, on which (and only to the extent that) the Trustee may in
accordance with normal banking procedures purchase United States dollars with
the other currency; if the United States dollars so purchased are less than the
sum originally due to the Trustee hereunder, each of the Company and the
Subsidiary Guarantors jointly and severally agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify the Trustee against the loss. If
the United States dollars so purchased are greater than the sum originally due
to the Trustee hereunder, the Trustee agrees to pay to the Company or the
applicable Subsidiary Guarantor an amount equal to the excess of the dollars so
purchased over the sum originally due to the Trustee hereunder.
(d) The provisions of this Section shall survive any termination of
this Agreement, in whole or in part.
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SECTION 13.12. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company or any Subsidiary Guarantor
shall not have any liability for any obligations of the Company or such
Subsidiary Guarantor, respectively, under the Securities or this Indenture or
for any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION 13.13. Successors. All agreements of the Company and each
Subsidiary Guarantor in this Indenture and the Securities shall bind its
successors. All agreements of the Trustee in this Indenture shall bind its
successors.
SECTION 13.14. Multiple Originals. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 13.15. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
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IN WITNESS WHEREOF, the parties have caused this Indenture to be
duly executed as of the date first written above.
GRUPO IUSACELL, S.A. de C.V.
by /s/ Howard F. Zuckerman
--------------------------------------------
Title: Vice President and Chief
Financial Officer
by /s/ Ruben G. Perlmutter
--------------------------------------------
Title: Vice President, Mergers &
Acquisitions and General
Counsel
S.O.S. TELECOMUNICACIONES, S.A. de C.V.
by /s/ Howard F. Zuckerman
--------------------------------------------
Title: Principal Financial Officer
by /s/ Ruben G. Perlmutter
--------------------------------------------
Title: Director
IUSACELL, S.A. de C.V.
by /s/ Howard F. Zuckerman
--------------------------------------------
Title: Principal Financial Officer
by /s/ Ruben G. Perlmutter
--------------------------------------------
Title: Director
SISTECEL, S.A. de C.V.
by /s/ Howard F. Zuckerman
--------------------------------------------
Title: Principal Financial Officer
by /s/ Ruben G. Perlmutter
--------------------------------------------
Title: Director
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COMMUNICACIONES CELULARES de
OCCIDENTE, S.A. de C.V.
by /s/ Howard F. Zuckerman
--------------------------------------------
Title: Principal Financial Officer
by /s/ Ruben G. Perlmutter
--------------------------------------------
Title: Director
SISTEMAS TELEFONICOS PORTATILES
CELULARES, S.A. de C.V.
by /s/ Howard F. Zuckerman
--------------------------------------------
Title: Principal Financial Officer
by /s/ Ruben G. Perlmutter
--------------------------------------------
Title: Director
TELECOMUNICACIONES del GOLFO,
S.A. de C.V.
by /s/ Howard F. Zuckerman
--------------------------------------------
Title: Principal Financial Officer
by /s/ Ruben G. Perlmutter
--------------------------------------------
Title: Director
INMOBILIARIA MONTES URALES
460, S.A. de C.V.
by /s/ Howard F. Zuckerman
--------------------------------------------
Title: Principal Financial Officer
by /s/ Ruben G. Perlmutter
--------------------------------------------
Title: Director
MEXICAN CELLULAR INVESTMENTS, INC.
by /s/ Howard F. Zuckerman
--------------------------------------------
Title: Vice President, Treasurer
and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer)
by /s/ Ruben G. Perlmutter
--------------------------------------------
Title: President, General Counsel,
Assistant Secretary and Sole
Director (Principal Executive
Officer)
IUSANET, S.A., de C.V.
by /s/ Howard F. Zuckerman
--------------------------------------------
Title: Principal Financial Officer
by /s/ Ruben G. Perlmutter
--------------------------------------------
Title: Director
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<PAGE>
GMD COMUNICACIONES, S.A. de C.V.
by /s/ Howard F. Zuckerman
--------------------------------------------
Authorized Signatory
by /s/ Ruben G. Perlmutter
--------------------------------------------
Authorized Signatory
HERMES TELECOMUNICACIONES S.A. de C.V.
by /s/ Howard F. Zuckerman
--------------------------------------------
Authorized Signatory
by /s/ Ruben G. Perlmutter
--------------------------------------------
Authorized Signatory
FIRST UNION NATIONAL BANK
by /s/ Shawn K. Bednasek
--------------------------------------------
Title: Assistant Vice President
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EXHIBIT A
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES
IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY
TO THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF
SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.(1)
[Private Placement Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT HIS SECURITY MAY NOT BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF
THE ISSUANCE HEREOF (OR A PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT
WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING
THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO
LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE RESALE PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THE SECURITY), (3) OUTSIDE THE UNITED
STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY
THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE
OF THIS SECURITY), (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AS
INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON
THE REVERSE OF THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT
PURPOSES AND NOT FOR DISTRIBUTION, (5) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER
THE SECURITIES ACT, OR (6) PURSUANT TO AN
- ----------
(1) This paragraph should only be added if the Security is issued in
global form.
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EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES IT
WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER
INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF
THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY
THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
OR (2) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A PURCHASER WHO
MEETS THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT.
GRUPO IUSACELL, S.A. de C.V.
10% SENIOR NOTE DUE 2004
CUSIP No.________
$[ ]
GRUPO IUSACELL, S.A. de C.V., a limited liability corporation
organized under the laws of Mexico, promises to pay to [ ], or registered
assigns, the principal sum of $[ ] on July 15, 2004.
Interest Payment Dates: January 15 and July 15.
Record Dates: January 1 and July 1.
Additional provisions of this Security are set forth on the other
side of this Security.
GRUPO IUSACELL, S.A. de C.V.,
by
--------------------------------------
Name:
Title:
by
--------------------------------------
Name:
Title:
Dated: July 25, 1997
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
FIRST UNION NATIONAL BANK,
as Trustee, certifies
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that this is one of
the Securities referred
to in the Indenture
by
-----------------------------
Authorized Signatory
90
<PAGE>
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
10% Senior Note due 2004
1. Interest; Liquidated Damages
GRUPO IUSACELL, S.A. de C.V., a limited liability corporation
organized under the laws of Mexico (such corporation, and its successors and
assigns under the Indenture hereinafter referred to, being herein called the
"Company"), promises to pay interest on the principal amount of this Security at
the rate per annum shown above. The Company will use its best efforts to have
the Exchange Offer Registration Statement and, if applicable, a Shelf
Registration Statement (each a "Registration Statement") declared effective by
the Commission as promptly as practicable after the filing thereof. If (i) the
applicable Registration Statement is not filed with the Commission on or prior
to 75 days after the Issue Date; (ii) the Exchange Offer Registration Statement
or the Shelf Registration Statement, as the case may be, is not declared
effective within 150 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law or
the applicable interpretations of the Commission or its staff, if later, within
75 days after publication of the change in law or interpretation); (iii) the
Registered Exchange Offer is not consummated on or prior to 180 days after the
Issue Date; or (iv) the Shelf Registration Statement is filed and declared
effective within 150 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law or
the applicable interpretations of the Commission or its staff, if later, within
75 days after publication of the change in law or interpretation) but shall
thereafter cease to be effective (at any time that the Company and the
Subsidiary Guarantors are obligated to maintain the effectiveness thereof)
without being succeeded within 30 days by an additional Registration Statement
filed and declared effective (each such event referred to in clauses (i) through
(iv), a "Registration Default"), the Company will pay liquidated damages to each
Holder of Registrable Securities, during the period of one or more such
Registration Defaults, in an amount equal to $0.192 per week per $1,000
principal amount of the Securities constituting Registrable Securities held by
such Holder until the applicable Registration Statement is filed or declared
effective, the Exchange Offer is consummated or the Shelf Registration Statement
again becomes effective, as the case may be. All accrued liquidated damages
shall be paid to Holders in the same manner as interest payments on the
Securities on semi-annual payment dates which correspond to interest payment
dates for the Securities. Following the cure of all Registration Defaults, the
accrual of liquidated damages will cease.
The Company will pay interest semiannually on January 15 and July 15
of each year. Interest on the Securities will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from July 25,
1997. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne by
the Securities plus 1% per annum,
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and it shall pay interest on overdue installments of interest at the same rate
to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the January 1 or July 1 next preceding the interest payment date
even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest in money
of the United States that at the time of payment is legal tender for payment of
public and private debts. However, the Company may pay principal and interest by
check payable in such money. It may mail an interest check to a Holder's
registered address.
3. Paying Agent and Registrar
Initially, First Union National Bank, a national banking association
("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice. The Company
or any of its Wholly Owned Subsidiaries incorporated in either the United States
or Mexico may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of
July 25, 1997 ("Indenture"), among the Company, the Subsidiary Guarantors and
the Trustee. The terms of the Securities include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture
(the "Act"). Terms defined in the Indenture and not defined herein have the
meanings ascribed thereto in the Indenture. The Securities are subject to all
such terms, and Securityholders are referred to the Indenture and the Act for a
statement of those terms.
The Securities are general unsecured obligations of the Company
limited to $150,000,000 aggregate principal amount at any one time outstanding
(subject to Section 2.07 of the Indenture). This Security is one of the Initial
Securities referred to in the Indenture. The Securities include the Initial
Securities and any Exchange Securities issued in exchange for the Initial
Securities pursuant to the Indenture. The Initial Securities and the Exchange
Securities are treated as a single class of securities under the Indenture. The
Indenture imposes certain limitations on the issuance of debt by the Company and
its Restricted Subsidiaries, the payment of dividends and other distributions
on, and acquisitions or retirements of, the Capital Stock and Subordinated
Obligations of the Company and its Restricted Subsidiaries, the incurrence by
the Company and its Restricted
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Subsidiaries of Liens on its property and assets which do not equally and
ratably secure the Securities, the sale or transfer of assets and stock of
Restricted Subsidiaries of the Company, investments by the Company and its
Restricted Subsidiaries, the lines of business in which the Company and its
Restricted Subsidiaries may operate, consolidations, mergers and transfers of
all or substantially all of the Company's property and assets and transactions
with Affiliates. In addition, the Indenture limits the ability of the Company
and its Restricted Subsidiaries to restrict distributions and dividends from
Restricted Subsidiaries and to sell or issue the Capital Stock of Restricted
Subsidiaries. The Indenture also imposes certain obligations with respect to the
payment of Additional Amounts.
5. Redemption
Except as set forth in the next two paragraphs, the Securities may
not be redeemed prior to July 15, 2001. On and after that date, the Company may
redeem the Securities in whole at any time or in part from time to time at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
related interest payment date), if redeemed during the 12-month period beginning
on July 15 of the years set forth below:
Redemption
Period Price
------ ----------
2001....................................... 105.000%
2002....................................... 102.500%
2003....................................... 100.000%
Notwithstanding the foregoing, at any time prior to July 15, 2000,
the Company may redeem in the aggregate up to 35% of the original aggregate
principal amount of Securities with the proceeds of one or more Public Equity
Offerings by the Company, at a redemption price (expressed as a percentage of
principal amount) of 110% plus accrued interest, if any, to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least 65% of the original aggregate principal amount of the Securities
must remain outstanding after each such redemption.
The Securities may be redeemed, at the option of the Company, in
whole but not in part, at any time, at a price equal to 100% of the outstanding
principal amount thereof plus accrued interest, if any, to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) and including
Additional Amounts payable in respect of such payment, if the Company determines
and certifies to the Trustee immediately prior to the giving of such notice that
as a result of any amendment to, or change in, the laws (or any regulations or
rulings promulgated thereunder) of Mexico or any political subdivision
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thereof or taxing authority therein, or any amendment to or change in an
official interpretation or application regarding such laws, regulations or
rulings, which amendment, change, application or interpretation becomes
effective on or after July 15, 1997, the Company pays, or would be obligated for
reasons outside its control, and after taking reasonable measures available to
it to avoid such obligation, to pay, Additional Amounts in respect of any
Security pursuant to the terms and conditions thereof which exceed the
Additional Amounts that would have been payable if Mexican withholding tax at a
rate of 15% would be imposed on payments of interest or amounts deemed to be
interest to Holders ("Excessive Additional Amounts"); provided, however, that
(i) notice of such redemption shall not be given earlier than 90 days prior to
the earliest date on which the Company would, but for such redemption, be
obligated to pay such Excessive Additional Amounts and (ii) at the time such
notice is given, the Company's obligation to pay such Additional Amounts
(including any Excessive Additional Amounts) remains in effect; provided
further, however, that such notice shall not be deemed effectively given if on
the date on which the notice is given, the Company no longer has an obligation
to pay Excessive Additional Amounts as a result of a subsequent change in law.
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued interest on all Securities
(or portions thereof) to be redeemed on the redemption date is deposited with
the Paying Agent on or before the redemption date and certain other conditions
are satisfied, on and after such date interest ceases to accrue on such
Securities (or such portions thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have the
right to require the Company to repurchase all or any part of the Securities of
such Holder at a purchase price in cash equal to 101% of the principal amount of
the Securities to be repurchased plus accrued and unpaid interest, if any, to
the date of repurchase (subject to the right of holders of record on the
relevant record date to receive interest due on the related interest payment
date) as provided in, and subject to the terms of, the Indenture.
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<PAGE>
8. Subsidiary Guarantees
Each Subsidiary Guarantor has jointly and severally unconditionally
guaranteed the Obligations on an unsecured, senior subordinated basis, as a
primary obligor and not merely as a surety, pursuant to the terms and conditions
of the Indenture. Each Subsidiary Guarantee is subordinated in right of payment,
to the extent and in the manner provided in the Indenture, to the prior payment
in full of all Designated Senior Indebtedness of the applicable Subsidiary
Guarantor.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Securities in accordance with the Indenture. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes required by law or permitted by the Indenture.
The Registrar need not register the transfer of or exchange any Securities
selected for redemption (except, in the case of a Security to be redeemed in
part, the portion of the Security not to be redeemed) or any Securities for a
period of 15 days before a selection of Securities to be redeemed or 15 days
before an interest payment date.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner
of it for all purposes, subject to provisions for record dates with respect to
payment of interest.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal of and interest on the Securities to redemption or
maturity, as the case may be.
13. Amendment; Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture, the Securities or the Subordination Agreement may be amended with the
written consent of the Holders
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<PAGE>
of at least a majority in principal amount outstanding of the Securities and
(ii) any default or noncompliance with any provision of the Indenture, the
Securities or the Subordination Agreement may be waived with the written consent
of the Holders of a majority in principal amount outstanding of the Securities.
Subject to certain exceptions set forth in the Indenture, without the consent of
any Securityholder, the Company, the Subsidiary Guarantors and the Trustee may
amend the Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, or to comply with Article V of the Indenture, or to provide for
uncertificated Securities in addition to or in place of certificated Securities,
or to change the subordination provisions to limit or terminate the benefits of
any holder of Designated Senior Indebtedness, or to add further guarantees with
respect to the Securities or to release guarantees as provided by the terms of
the Indenture, or to secure the Securities, or to add additional covenants or
surrender rights and powers conferred on the Company or the Subsidiary
Guarantors, or to comply with any requirement of the SEC in connection with
qualifying the Indenture under the Act, or to make any other change that does
not adversely affect the rights of any Securityholder, or to provide for the
issuance and authorization of the Exchange Securities. Subject to certain
exceptions set forth in the Indenture, without the consent of any
Securityholder, the Company, BAII and the Trustee may amend the Subordination
Agreement to cure any ambiguity, omission, defect or inconsistency, or to add
additional covenants or surrender rights and powers conferred on the Company or
BAII, or to make any other change that does not adversely affect the rights of
any Securityholder.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph 5
or 6 hereof, upon acceleration or otherwise, or failure by the Company to redeem
or purchase Securities when required; (iii) failure by the Company or any
Subsidiary Guarantor to comply with other agreements in the Indenture or the
Securities, in certain cases subject to notice and lapse of time; (iv) certain
accelerations (including failure to pay within any grace period after final
maturity) of other Indebtedness of the Company if the amount accelerated (or so
unpaid) exceeds $5,000,000 or its foreign currency equivalent; (v) certain
events of bankruptcy, insolvency, suspension of payments or reorganization with
respect to the Company and the Significant Subsidiaries; (vi) certain judgments
or decrees for the payment of money in excess of $10,000,000 or its foreign
currency equivalent against the Company or a Significant Subsidiary; (vii)
failure of any Subsidiary Guarantee by a Subsidiary Guarantor to be in full
force and effect (except as contemplated by the terms thereof) or the denial or
disaffirmation by such Subsidiary Guarantor of its obligations under the
Indenture or such Subsidiary Guarantee if such Default continues for 10 days;
and (viii) failure by BAII, the Company or any of their respective successors,
assigns or other Transferees (as defined in the Subordination Agreement) to
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<PAGE>
comply with the Subordination Agreement. If an Event of Default (other than a
Default relating to certain events of bankruptcy, insolvency, suspension of
payments or reorganization of the Company) occurs and is continuing, the Trustee
or the Holders of at least a majority in principal amount of the Securities may
declare the principal of and accrued but unpaid interest on all the Securities
to be due and payable immediately. Certain events of bankruptcy, insolvency,
suspension of payments or reorganization are Events of Default which will result
in the Securities being due and payable immediately upon the occurrence of such
Events of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default
(except a Default in payment of principal or interest) if and so long as a
committee of its Trust Officers in good faith determines that withholding notice
is in the interest of the Holders.
15. Trustee Dealings with the Company
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
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<PAGE>
18. Abbreviations
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written request
and without charge to the Securityholder a copy of the Indenture which has in it
the text of this Security in larger type. Requests may be made to:
GRUPO IUSACELL, S.A. de C.V.
Montes Urales 460, 3rd Floor
Col. Lomas de Chapultepec
Deleg. Miguel Hidalgo
C.P. 11000, Mexico, D.F.
Attention: Vice President of
Investor Relations
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<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
________________________________________________________________________________
Date: ________________________ Your Signature: _________________________________
Signature Guarantee:____________________________________________________________
(Signature must be guaranteed by a
participant in a recognized signature
guarantee medallion program)
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Security.
99
<PAGE>
CERTIFICATE TO BE DELIVERED UPON TRANSFER,
EXCHANGE OR REGISTRATION OF SECURITIES
This certificate relates to $_________ principal amount of Securities held in
(check applicable space) ____ book-entry or _____ definitive form by the
undersigned.
The undersigned (check one box below):
|_| subject to the terms of the Indenture, has requested the Trustee by
written order to deliver in exchange for its beneficial interest in the
Global Security held by the Depository a Security or Securities in
definitive, registered form of authorized denominations in an aggregate
principal amount equal to its beneficial interest in such Global Security
(or the portion thereof indicated above); or
|_| has requested the Trustee by written order to exchange or register the
transfer of a Security or Securities.
[In connection with any transfer or exchange of any of the Securities evidenced
by this certificate occurring prior to the later of (a) two years after the date
of original issuance of such Securities and (b) three months after the last date
the undersigned was an Affiliate of the Company, the undersigned confirms that
such Securities are being:(2)
CHECK ONE BOX BELOW:
(1) |_| transferred to the Company; or
(2) |_| transferred pursuant to an effective registration
statement under the Securities Act of 1933; or
(3) |_| transferred pursuant to and in compliance with Rule 144A
under the Securities Act of 1933, as amended, and the
transferor has furnished to the Trustee a signed letter
containing certain representations and agreements (the
form of which letter appears as Exhibit F to the
Indenture); or
(4) |_| transferred pursuant to and in compliance with
Regulation S under the Securities Act of 1933, as
amended, and the transferror has furnished to the
Trustee a signed letter containing certain
representations and agreements (the form of which letter
appears as Exhibit G to the Indenture); or
(5) |_| transferred to an institutional "accredited investor"
(as defined in Rule 501(a)(1), (2),
- ----------
(2) This paragraph, the last paragraph of this Certificate and the related
boxes do not apply in the case of transfers of interests in the Regulation S
Global Security.
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<PAGE>
(3) or (7) under the Securities Act of 1933, as
amended), that has furnished to the Trustee a signed
letter containing certain representations and agreements
(the form of which letter appears as Exhibit F to the
Indenture); or
(6) |_| transferred pursuant to an exemption from registration
under Rule 144 (if applicable) of the Securities Act of
1933, as amended.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (4), (5) or
(6) is checked, the Trustee or the Company may require, prior to registering any
such transfer of the Securities, in their sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company has
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended.]
---------------------------------------
Signature
Signature Guarantee:
- ------------------------- ---------------------------------------
Signature
(Signature must be guaranteed
by a participant in a signature
guarantee medallion program)
- --------------------------------------------------------------------------------
101
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.07 or 4.09 of the Indenture, check the box:
|_|
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.07 or 4.09 of the Indenture, state the amount:
$
Date: _________________________ Your Signature: ________________________________
(Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee:____________________________________________________________
(Signature must be guaranteed by a
participant in a recognized signature
guarantee medallion program)
102
<PAGE>
EXHIBIT B
[FORM OF FACE OF REGISTERED EXCHANGE SECURITY]
[Global Securities Legend]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES
IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY
TO THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF
SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.(1)
GRUPO IUSACELL, S.A. de C.V.
10% SENIOR NOTE DUE 2004
CUSIP No.________
$[ ]
GRUPO IUSACELL, S.A. de C.V., a limited liability corporation
organized under the laws of Mexico, promises to pay to [ ], or registered
assigns, the principal sum of $[ ] on July 15, 2004.
Interest Payment Dates: January 15 and July 15.
Record Dates: January 1 and July 1.
- ----------
(1) This paragraph should only be added if the Security is issued in
global form.
1
<PAGE>
Additional provisions of this Security are set forth on the other
side of this Security.
GRUPO IUSACELL, S.A. de C.V.,
by
--------------------------------------
Name:
Title:
by
--------------------------------------
Name:
Title:
Dated:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
FIRST UNION NATIONAL BANK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture
by
-----------------------------
Authorized Signatory
2
<PAGE>
[FORM OF REVERSE SIDE OF REGISTERED EXCHANGE SECURITY]
10% Senior Note due 2004
1. Interest
GRUPO IUSACELL, S.A. de C.V., a limited liability corporation
organized under the laws of Mexico (such corporation, and its successors and
assigns under the Indenture hereinafter referred to, being herein called the
"Company"), promises to pay interest on the principal amount of this Security at
the rate per annum shown above.
The Company will pay interest semiannually on January 15 and July 15
of each year. Interest on the Securities will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from July 25,
1997. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne by
the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities to the Persons who
are registered holders of Securities at the close of business on the January 1
or July 1 next preceding the interest payment date even if Securities are
canceled after the record date and on or before the interest payment date.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. However, the Company may pay principal and interest by check
payable in such money. It may mail an interest check to a Holder's registered
address.
3. Paying Agent and Registrar
Initially, First Union National Bank, a national banking association
("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice. The Company
or any of its Wholly Owned Subsidiaries incorporated in the United States or
Mexico may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of
July 25, 1997 ("Indenture"), among the Company, the Subsidiary Guarantors and
the Trustee. The terms of the Securities include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture
(the "Act"). Terms defined in the Indenture and not defined herein have the
meanings ascribed thereto in the Indenture. The Securities are subject to all
such terms, and
3
<PAGE>
Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured obligations of the Company
limited to $150,000,000 aggregate principal amount at any one time outstanding
(subject to Section 2.07 of the Indenture). This Security is one of the Exchange
Securities referred to in the Indenture. The Securities include the Initial
Securities and any Exchange Securities issued in exchange for the Initial
Securities pursuant to the Indenture. The Initial Securities and the Exchange
Securities are treated as a single class of securities under the Indenture. The
Indenture imposes certain limitations on the issuance of debt by the Company and
its Restricted Subsidiaries, the payment of dividends and other distributions
on, and acquisitions or retirements of, the Capital Stock and Subordinated
Obligations of the Company and its Restricted Subsidiaries, the incurrence by
the Company and its Restricted Subsidiaries of Liens on its property and assets
which do not equally and ratably secure the Securities, the sale or transfer of
assets and stock of Restricted Subsidiaries of the Company, investments by the
Company and its Restricted Subsidiaries, the lines of business in which the
Company and its Restricted Subsidiaries may operate, consolidations, mergers and
transfers of all or substantially all of the Company's property and assets and
transactions with Affiliates. In addition, the Indenture limits the ability of
the Company and its Restricted Subsidiaries to restrict distributions and
dividends from Restricted Subsidiaries and to sell or issue the Capital Stock of
Restricted Subsidiaries. The Indenture also imposes certain obligations with
respect to the payment of Additional Amounts.
5. Redemption
Except as set forth in the next two paragraphs, the Securities may
not be redeemed prior to July 15, 2001. On and after that date, the Company may
redeem the Securities in whole at any time or in part from time to time at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
related interest payment date), if redeemed during the 12-month period beginning
on July 15 of the years set forth below:
Redemption
Period Price
------ ----------
2001............................................ 105.000%
2002............................................ 102.500%
2003............................................ 100.000%
Notwithstanding the foregoing, at any time prior to July 15, 2000,
the Company may redeem in the aggregate up to 35% of the original aggregate
principal amount of Securities with the proceeds of one or more Public Equity
Offerings by the Company, at a redemption price (expressed as a percentage of
principal amount) of 110% plus accrued interest, if any, to the redemption
4
<PAGE>
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least 65% of the original aggregate principal amount of the Securities
must remain outstanding after each such redemption.
The Securities may be redeemed, at the option of the Company, in
whole but not in part, at any time, at a price equal to 100% of the outstanding
principal amount thereof plus accrued interest, if any, to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) and including
Additional Amounts payable in respect of such payment, if the Company determines
and certifies to the Trustee immediately prior to the giving of such notice that
as a result of any amendment to, or change in, the laws (or any regulations or
rulings promulgated thereunder) of Mexico or any political subdivision thereof
or taxing authority therein, or any amendment to or change in an official
interpretation or application regarding such laws, regulations or rulings, which
amendment, change, application or interpretation becomes effective on or after
July 15, 1997, the Company pays, or would be obligated for reasons outside its
control, and after taking reasonable measures available to it to avoid such
obligation, to pay, Additional Amounts in respect of any Security pursuant to
the terms and conditions thereof which exceed the Additional Amounts that would
have been payable if Mexican withholding tax at a rate of 15% would be imposed
on payments of interest or amounts deemed to be interest to Holders ("Excessive
Additional Amounts"); provided, however, that (i) notice of such redemption
shall not be given earlier than 90 days prior to the earliest date on which the
Company would, but for such redemption, be obligated to pay such Excessive
Additional Amounts and (ii) at the time such notice is given, the Company's
obligation to pay such Additional Amounts (including any Excessive Additional
Amounts) remains in effect; provided further, however, that such notice shall
not be deemed effectively given if on the date on which the notice is given, the
Company no longer has an obligation to pay Excessive Additional Amounts as a
result of a subsequent change in law.
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued interest on all Securities
(or portions thereof) to be redeemed on the redemption date is deposited with
the Paying Agent on or before the redemption date and certain other conditions
are satisfied, on and after such date interest ceases to accrue on such
Securities (or such portions thereof) called for redemption.
5
<PAGE>
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have the
right to require the Company to repurchase all or any part of the Securities of
such Holder at a purchase price in cash equal to 101% of the principal amount of
the Securities to be repurchased plus accrued and unpaid interest, if any, to
the date of repurchase (subject to the right of holders of record on the
relevant record date to receive interest due on the related interest payment
date) as provided in, and subject to the terms of, the Indenture.
8. Subsidiary Guarantees
Each Subsidiary Guarantor has jointly and severally unconditionally
guaranteed the Obligations on an unsecured, senior subordinated basis, as a
primary obligor and not merely as a surety, pursuant to the terms and conditions
of the Indenture. Each Subsidiary Guarantee is subordinated in right of payment,
to the extent and in the manner provided in the Indenture, to the prior payment
in full of all Designated Senior Indebtedness of the applicable Subsidiary
Guarantor.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Securities in accordance with the Indenture. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes required by law or permitted by the Indenture.
The Registrar need not register the transfer of or exchange any Securities
selected for redemption (except, in the case of a Security to be redeemed in
part, the portion of the Security not to be redeemed) or any Securities for a
period of 15 days before a selection of Securities to be redeemed or 15 days
before an interest payment date.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner
of it for all purposes, subject to provisions for record dates with respect to
payment of interest.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
6
<PAGE>
12. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal of and interest on the Securities to redemption or
maturity, as the case may be.
13. Amendment; Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture, the Securities or the Subordination Agreement may be amended with the
written consent of the Holders of at least a majority in principal amount
outstanding of the Securities and (ii) any default or noncompliance with any
provision of the Indenture, the Securities or the Subordination Agreement may be
waived with the written consent of the Holders of a majority in principal amount
outstanding of the Securities. Subject to certain exceptions set forth in the
Indenture, without the consent of any Securityholder, the Company, the
Subsidiary Guarantors and the Trustee may amend the Indenture or the Securities
to cure any ambiguity, omission, defect or inconsistency, or to comply with
Article V of the Indenture, or to provide for uncertificated Securities in
addition to or in place of certificated Securities, or to change the
subordination provisions to limit or terminate the benefits of any holder of
Designated Senior Indebtedness, or to add further guarantees with respect to the
Securities or to release guarantees as provided by the terms of the Indenture,
or to secure the Securities, or to add additional covenants or surrender rights
and powers conferred on the Company or the Subsidiary Guarantors, or to comply
with any requirement of the SEC in connection with qualifying the Indenture
under the Act, or to make any other change that does not adversely affect the
rights of any Securityholder. Subject to certain exceptions set forth in the
Indenture, without the consent of any Securityholder, the Company, BAII and the
Trustee may amend the Subordination Agreement to cure any ambiguity, omission,
defect or inconsistency, or to add additional covenants or surrender rights and
powers conferred on the Company or BAII, or to make any other change that does
not adversely affect the rights of any Securityholder.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph 5
or 6 hereof, upon acceleration or otherwise, or failure by the Company to redeem
or purchase Securities when required; (iii) failure by the Company or any
Subsidiary Guarantor to comply with other agreements in the Indenture or the
Securities, in certain cases subject to notice and lapse of time; (iv) certain
accelerations (including failure to pay within any grace period after final
maturity) of other Indebtedness of the Company if the amount accelerated (or so
unpaid) exceeds $5,000,000 or its foreign
7
<PAGE>
currency equivalent; (v) certain events of bankruptcy, insolvency, suspension of
payments or reorganization with respect to the Company and the Significant
Subsidiaries; (vi) certain judgments or decrees for the payment of money in
excess of $10,000,000 or its foreign currency equivalent against the Company or
a Significant Subsidiary; (vii) failure of any Subsidiary Guarantee by a
Subsidiary Guarantor to be in full force and effect (except as contemplated by
the terms thereof) or the denial or disaffirmation by such Subsidiary Guarantor
of its obligations under the Indenture or such Subsidiary Guarantee if such
Default continues for 10 days; and (viii) failure by BAII, the Company or any of
their respective successors, assigns or other Transferees (as defined in the
Subordination Agreement) to comply with the Subordination Agreement. If an Event
of Default (other than a Default relating to certain events of bankruptcy,
insolvency, suspension of payments or reorganization of the Company) occurs and
is continuing, the Trustee or the Holders of at least a majority in principal
amount of the Securities may declare the principal of and accrued but unpaid
interest on all the Securities to be due and payable immediately. Certain events
of bankruptcy, insolvency, suspension of payments or reorganization are Events
of Default which will result in the Securities being due and payable immediately
upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default
(except a Default in payment of principal or interest) if and so long as a
committee of its Trust Officers in good faith determines that withholding notice
is in the interest of the Holders.
15. Trustee Dealings with the Company
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
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<PAGE>
17. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written request
and without charge to the Securityholder a copy of the Indenture which has in it
the text of this Security in larger type. Requests may be made to:
GRUPO IUSACELL, S.A. de C.V.
Montes Urales 460, 3rd Floor
Col. Lomas de Chapultepec
Deleg. Miguel Hidalgo
C.P. 11000, Mexico, D.F.
Attention: Vice President of
Investor Relations
9
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security
on the books of the Company. The agent may substitute another to act for him.
________________________________________________________________________________
Date: _______________________ Your Signature: __________________________________
Signature Guarantee:____________________________________________________________
(Signature must be guaranteed by a
participant in a recognized signature
guarantee medallion program)
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Security.
10
<PAGE>
CERTIFICATE TO BE DELIVERED UPON TRANSFER,
EXCHANGE OR REGISTRATION OF SECURITIES
This certificate relates to $_________ principal amount of Securities held in
(check applicable space) ____ book-entry or _____ definitive form by the
undersigned.
The undersigned (check one box below):
|_| subject to the terms of the Indenture, has requested the Trustee by
written order to deliver in exchange for its beneficial interest in the
Global Security held by the Depository a Security or Securities in
definitive, registered form of authorized denominations in an aggregate
principal amount equal to its beneficial interest in such Global Security
(or the portion thereof indicated above); or
|_| has requested the Trustee by written order to exchange or register the
transfer of a Security or Securities.
______________________________________
Signature
Signature Guarantee:
________________________________ ______________________________________
Signature
(Signature must be guaranteed
by a participant in a signature
guarantee medallion program)
________________________________________________________________________________
11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.07 or 4.09 of the Indenture, check the box:
|_|
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.07 or 4.09 of the Indenture, state the amount:
$
Date: __________________________ Your Signature: _______________________________
(Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee:____________________________________________________________
(Signature must be guaranteed by a
participant in a recognized signature
guarantee medallion program)
12
<PAGE>
EXHIBIT C
[FORM OF FACE OF PRIVATE EXCHANGE SECURITY]
[Global Securities Legend]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES
IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY
TO THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF
SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.(1)
[Private Placement Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT HIS SECURITY MAY NOT BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF
THE ISSUANCE HEREOF (OR A PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT
WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING
THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO
LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE RESALE PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THE SECURITY), (3) OUTSIDE THE UNITED
STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY
THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE
OF THIS SECURITY), (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AS
INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON
THE REVERSE OF THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT
PURPOSES AND NOT FOR DISTRIBUTION, (5) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER
THE SECURITIES ACT, OR (6) PURSUANT TO AN
- ----------
(1) This paragraph should only be added if the Security is issued in
global form.
1
<PAGE>
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES IT
WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER
INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF
THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY
THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
OR (2) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A PURCHASER WHO
MEETS THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT.
GRUPO IUSACELL, S.A. de C.V.
10% SENIOR NOTE DUE 2004
CUSIP No.________
$[ ]
GRUPO IUSACELL, S.A. de C.V., a limited liability corporation
organized under the laws of Mexico, promises to pay to [ ], or registered
assigns, the principal sum of $[ ] on July 15, 2004.
Interest Payment Dates: January 15 and July 15.
Record Dates: January 1 and July 1.
2
<PAGE>
Additional provisions of this Security are set forth on the other
side of this Security.
GRUPO IUSACELL, S.A. de C.V.,
by
--------------------------------------
Name:
Title:
by
--------------------------------------
Name:
Title:
Dated:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
FIRST UNION NATIONAL BANK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture
by
-----------------------------
Authorized Signatory
3
<PAGE>
[FORM OF REVERSE SIDE OF PRIVATE EXCHANGE SECURITY]
10% Senior Note due 2004
1. Interest; Liquidated Damages
GRUPO IUSACELL, S.A. de C.V., a limited liability corporation
organized under the laws of Mexico (such corporation, and its successors and
assigns under the Indenture hereinafter referred to, being herein called the
"Company"), promises to pay interest on the principal amount of this Security at
the rate per annum shown above. The Company will use its best efforts to have
the Exchange Offer Registration Statement and, if applicable, a Shelf
Registration Statement (each a "Registration Statement") declared effective by
the Commission as promptly as practicable after the filing thereof. If (i) the
applicable Registration Statement is not filed with the Commission on or prior
to 75 days after the Issue Date; (ii) the Exchange Offer Registration Statement
or the Shelf Registration Statement, as the case may be, is not declared
effective within 150 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law or
the applicable interpretations of the Commission or its staff, if later, within
75 days after publication of the change in law or interpretation); (iii) the
Registered Exchange Offer is not consummated on or prior to 180 days after the
Issue Date; or (iv) the Shelf Registration Statement is filed and declared
effective within 150 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law or
the applicable interpretations of the Commission or its staff, if later, within
75 days after publication of the change in law or interpretation) but shall
thereafter cease to be effective (at any time that the Company and the
Subsidiary Guarantors are obligated to maintain the effectiveness thereof)
without being succeeded within 30 days by an additional Registration Statement
filed and declared effective (each such event referred to in clauses (i) through
(iv), a "Registration Default"), the Company will pay liquidated damages to each
Holder of Registrable Securities, during the period of one or more such
Registration Defaults, in an amount equal to $0.192 per week per $1,000
principal amount of the Securities constituting Registrable Securities held by
such Holder until the applicable Registration Statement is filed or declared
effective, the Exchange Offer is consummated or the Shelf Registration Statement
again becomes effective, as the case may be. All accrued liquidated damages
shall be paid to Holders in the same manner as interest payments on the
Securities on semi-annual payment dates which correspond to interest payment
dates for the Securities. Following the cure of all Registration Defaults, the
accrual of liquidated damages will cease.
The Company will pay interest semiannually on January 15 and July 15
of each year. Interest on the Securities will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from July 25,
1997. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne by
the Securities plus 1% per annum,
4
<PAGE>
and it shall pay interest on overdue installments of interest at the same rate
to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the January 1 or July 1 next preceding the interest payment date
even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest in money
of the United States that at the time of payment is legal tender for payment of
public and private debts. However, the Company may pay principal and interest by
check payable in such money. It may mail an interest check to a Holder's
registered address.
3. Paying Agent and Registrar
Initially, First Union National Bank, a national banking association
("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice. The Company
or any of its Wholly Owned Subsidiaries incorporated in the United States or
Mexico may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of
July 25, 1997 ("Indenture"), among the Company, the Subsidiary Guarantors and
the Trustee. The terms of the Securities include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture
(the "Act"). Terms defined in the Indenture and not defined herein have the
meanings ascribed thereto in the Indenture. The Securities are subject to all
such terms, and Securityholders are referred to the Indenture and the Act for a
statement of those terms.
The Securities are general unsecured obligations of the Company
limited to $150,000,000 aggregate principal amount at any one time outstanding
(subject to Section 2.07 of the Indenture). This Security is one of the Exchange
Securities referred to in the Indenture. The Securities include the Initial
Securities and any Exchange Securities issued in exchange for the Initial
Securities pursuant to the Indenture. The Initial Securities and the Exchange
Securities are treated as a single class of securities under the Indenture. The
Indenture imposes certain limitations on the issuance of debt by the Company and
its Restricted Subsidiaries, the payment of dividends and other distributions
on, and acquisitions or retirements of, the Capital Stock and Subordinated
Obligations of the Company and its Restricted Subsidiaries, the incurrence by
the Company and its Restricted Subsidiaries of Liens on its property and assets
which
5
<PAGE>
do not equally and ratably secure the Securities, the sale or transfer of assets
and stock of Restricted Subsidiaries of the Company, investments by the Company
and its Restricted Subsidiaries, the lines of business in which the Company and
its Restricted Subsidiaries may operate, consolidations, mergers and transfers
of all or substantially all of the Company's property and assets and
transactions with Affiliates. In addition, the Indenture limits the ability of
the Company and its Restricted Subsidiaries to restrict distributions and
dividends from Restricted Subsidiaries and to sell or issue the Capital Stock of
Restricted Subsidiaries. The Indenture also imposes certain obligations with
respect to the payment of Additional Amounts.
5. Redemption
Except as set forth in the next two paragraphs, the Securities may
not be redeemed prior to July 15, 2001. On and after that date, the Company may
redeem the Securities in whole at any time or in part from time to time at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
related interest payment date), if redeemed during the 12-month period beginning
on July 15 of the years set forth below:
Redemption
Period Price
------ ----------
2001............................................ 105.000%
2002............................................ 102.500%
2003............................................ 100.000%
Notwithstanding the foregoing, at any time prior to July 15, 2000,
the Company may redeem in the aggregate up to 35% of the original aggregate
principal amount of Securities with the proceeds of one or more Public Equity
Offerings by the Company, at a redemption price (expressed as a percentage of
principal amount) of 110% plus accrued interest, if any, to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least 65% of the original aggregate principal amount of the Securities
must remain outstanding after each such redemption.
The Securities may be redeemed, at the option of the Company, in
whole but not in part, at any time, at a price equal to 100% of the outstanding
principal amount thereof plus accrued interest, if any, to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) and including
Additional Amounts payable in respect of such payment, if the Company determines
and certifies to the Trustee immediately prior to the giving of such notice that
as a result of any amendment to, or change in, the laws (or any regulations or
rulings promulgated thereunder) of Mexico or any political subdivision thereof
or taxing authority therein, or any amendment to or
6
<PAGE>
change in an official interpretation or application regarding such laws,
regulations or rulings, which amendment, change, application or interpretation
becomes effective on or after July 15, 1997, the Company pays, or would be
obligated for reasons outside its control, and after taking reasonable measures
available to it to avoid such obligation, to pay, Additional Amounts in respect
of any Security pursuant to the terms and conditions thereof which exceed the
Additional Amounts that would have been payable if Mexican withholding tax at a
rate of 15% would be imposed on payments of interest or amounts deemed to be
interest to Holders ("Excessive Additional Amounts"); provided, however, that
(i) notice of such redemption shall not be given earlier than 90 days prior to
the earliest date on which the Company would, but for such redemption, be
obligated to pay such Excessive Additional Amounts and (ii) at the time such
notice is given, the Company's obligation to pay such Additional Amounts
(including any Excessive Additional Amounts) remains in effect; provided
further, however, that such notice shall not be deemed effectively given if on
the date on which the notice is given, the Company no longer has an obligation
to pay Excessive Additional Amounts as a result of a subsequent change in law.
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued interest on all Securities
(or portions thereof) to be redeemed on the redemption date is deposited with
the Paying Agent on or before the redemption date and certain other conditions
are satisfied, on and after such date interest ceases to accrue on such
Securities (or such portions thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have the
right to require the Company to repurchase all or any part of the Securities of
such Holder at a purchase price in cash equal to 101% of the principal amount of
the Securities to be repurchased plus accrued and unpaid interest, if any, to
the date of repurchase (subject to the right of holders of record on the
relevant record date to receive interest due on the related interest payment
date) as provided in, and subject to the terms of, the Indenture.
7
<PAGE>
8. Subsidiary Guarantees
Each Subsidiary Guarantor has jointly and severally unconditionally
guaranteed the Obligations on an unsecured, senior subordinated basis, as a
primary obligor and not merely as a surety, pursuant to the terms and conditions
of the Indenture. Each Subsidiary Guarantee is subordinated in right of payment,
to the extent and in the manner provided in the Indenture, to the prior payment
in full of all Designated Senior Indebtedness of the applicable Subsidiary
Guarantor.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Securities in accordance with the Indenture. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes required by law or permitted by the Indenture.
The Registrar need not register the transfer of or exchange any Securities
selected for redemption (except, in the case of a Security to be redeemed in
part, the portion of the Security not to be redeemed) or any Securities for a
period of 15 days before a selection of Securities to be redeemed or 15 days
before an interest payment date.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner
of it for all purposes, subject to provisions for record dates with respect to
payment of interest.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal of and interest on the Securities to redemption or
maturity, as the case may be.
13. Amendment; Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture, the Securities or the Subordination Agreement may be amended with the
written consent of the Holders
8
<PAGE>
of at least a majority in principal amount outstanding of the Securities and
(ii) any default or noncompliance with any provision of the Indenture, the
Securities or the Subordination Agreement may be waived with the written consent
of the Holders of a majority in principal amount outstanding of the Securities.
Subject to certain exceptions set forth in the Indenture, without the consent of
any Securityholder, the Company, the Subsidiary Guarantors and the Trustee may
amend the Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, or to comply with Article V of the Indenture, or to provide for
uncertificated Securities in addition to or in place of certificated Securities,
or to change the subordination provisions to limit or terminate the benefits of
any holder of Designated Senior Indebtedness, or to add further guarantees with
respect to the Securities or to release guarantees as provided by the terms of
the Indenture, or to secure the Securities, or to add additional covenants or
surrender rights and powers conferred on the Company or the Subsidiary
Guarantors, or to comply with any requirement of the SEC in connection with
qualifying the Indenture under the Act, or to make any other change that does
not adversely affect the rights of any Securityholder. Subject to certain
exceptions set forth in the Indenture, without the consent of any
Securityholder, the Company, BAII and the Trustee may amend the Subordination
Agreement to cure any ambiguity, omission, defect or inconsistency, or to add
additional covenants or surrender rights and powers conferred on the Company or
BAII, or to make any other change that does not adversely affect the rights of
any Securityholder.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph 5
or 6 hereof, upon acceleration or otherwise, or failure by the Company to redeem
or purchase Securities when required; (iii) failure by the Company or any
Subsidiary Guarantor to comply with other agreements in the Indenture or the
Securities, in certain cases subject to notice and lapse of time; (iv) certain
accelerations (including failure to pay within any grace period after final
maturity) of other Indebtedness of the Company if the amount accelerated (or so
unpaid) exceeds $5,000,000 or its foreign currency equivalent; (v) certain
events of bankruptcy, insolvency, suspension of payments or reorganization with
respect to the Company and the Significant Subsidiaries; (vi) certain judgments
or decrees for the payment of money in excess of $10,000,000 or its foreign
currency equivalent against the Company or a Significant Subsidiary; (vii)
failure of any Subsidiary Guarantee by a Subsidiary Guarantor to be in full
force and effect (except as contemplated by the terms thereof) or the denial or
disaffirmation by such Subsidiary Guarantor of its obligations under the
Indenture or such Subsidiary Guarantee if such Default continues for 10 days;
and (viii) failure by BAII, the Company or any of their respective successors,
assigns or other Transferees (as defined in the Subordination Agreement) to
comply with the Subordination Agreement. If an Event of Default (other than a
Default relating to certain events of bankruptcy,
9
<PAGE>
insolvency, suspension of payments or reorganization of the Company) occurs and
is continuing, the Trustee or the Holders of at least a majority in principal
amount of the Securities may declare the principal of and accrued but unpaid
interest on all the Securities to be due and payable immediately. Certain events
of bankruptcy, insolvency, suspension of payments or reorganization are Events
of Default which will result in the Securities being due and payable immediately
upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default
(except a Default in payment of principal or interest) if and so long as a
committee of its Trust Officers in good faith determines that withholding notice
is in the interest of the Holders.
15. Trustee Dealings with the Company
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint
10
<PAGE>
tenants with rights of survivorship and not as tenants in common), CUST
(=custodian), and U/G/M/A (=Uniform Gift to Minors Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written request
and without charge to the Securityholder a copy of the Indenture which has in it
the text of this Security in larger type. Requests may be made to:
GRUPO IUSACELL, S.A. de C.V.
Montes Urales 460, 3rd Floor
Col. Lomas de Chapultepec
Deleg. Miguel Hidalgo
C.P. 11000, Mexico, D.F.
Attention: Vice President of
Investor Relations
11
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security
on the books of the Company. The agent may substitute another to act for him.
________________________________________________________________________________
Date: _______________________ Your Signature: __________________________________
Signature Guarantee:____________________________________________________________
(Signature must be guaranteed by a
participant in a recognized signature
guarantee medallion program)
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Security.
12
<PAGE>
CERTIFICATE TO BE DELIVERED UPON TRANSFER,
EXCHANGE OR REGISTRATION OF SECURITIES
This certificate relates to $_________ principal amount of Securities held in
(check applicable space) ____ book-entry or _____ definitive form by the
undersigned.
The undersigned (check one box below):
|_| subject to the terms of the Indenture, has requested the Trustee by
written order to deliver in exchange for its beneficial interest in the
Global Security held by the Depository a Security or Securities in
definitive, registered form of authorized denominations in an aggregate
principal amount equal to its beneficial interest in such Global Security
(or the portion thereof indicated above); or
|_| has requested the Trustee by written order to exchange or register the
transfer of a Security or Securities.
[In connection with any transfer or exchange of any of the Securities evidenced
by this certificate occurring prior to the later of (a) two years after the date
of original issuance of such Securities and (b) three months after the last date
the undersigned was an Affiliate of the Company, the undersigned confirms that
such Securities are being:(2)
CHECK ONE BOX BELOW:
(1) |_| transferred to the Company; or
(2) |_| transferred pursuant to an effective registration
statement under the Securities Act of 1933; or
(3) |_| transferred pursuant to and in compliance with Rule 144A
under the Securities Act of 1933, as amended, and the
transferor has furnished to the Trustee a signed letter
containing certain representations and agreements (the
form of which letter appears as Exhibit F to the
Indenture); or
(4) |_| transferred pursuant to and in compliance with
Regulation S under the Securities Act of 1933, as
amended, and the transferror has furnished to the
Trustee a signed letter containing certain
representations and agreements (the form of which letter
appears as Exhibit G to the Indenture); or
(5) |_| transferred to an institutional "accredited
investor" (as defined in Rule 501(a)(1), (2),
- ----------
(2) This paragraph, the last paragraph of this Certificate and the related
boxes do not apply in the case of transfers of interests in the Regulation S
Global Security.
13
<PAGE>
(3) or (7) under the Securities Act of 1933, as
amended), that has furnished to the Trustee a signed
letter containing certain representations and agreements
(the form of which letter appears as Exhibit D to the
Indenture); or
(6) |_| transferred pursuant to an exemption from registration
under Rule 144 (if applicable) of the Securities Act of
1933, as amended.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (4), (5) or
(6) is checked, the Trustee or the Company may require, prior to registering any
such transfer of the Securities, in their sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company has
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended.]
______________________________________
Signature
Signature Guarantee:
_________________________ ______________________________________
Signature
(Signature must be guaranteed
by a participant in a signature
guarantee medallion program)
________________________________________________________________________________
14
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.07 or 4.09 of the Indenture, check the box:
|_|
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.07 or 4.09 of the Indenture, state the amount:
$
Date: ________________________ Your Signature: _________________________________
(Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee:____________________________________________________________
(Signature must be guaranteed by a
participant in a recognized signature
guarantee medallion program)
15
<PAGE>
EXHIBIT D
FORM OF TRANSFEREE LETTER OF REPRESENTATION
Grupo Iusacell, S.A. de C.V.
c/o First Union National Bank, as Trustee
Ladies and Gentlemen:
In connection with the proposed transfer of $ aggregate principal
amount of 10% Senior Notes due 2004 (the "Notes") of Grupo Iusacell, S.A. de
C.V., a limited liability stock corporation organized under the laws of Mexico
(the "Company"), we confirm that:
1. We understand that the Notes have not been registered under the
Securities Act of 1933 (the "Securities Act"), and may not be sold except as
permitted in the following sentence. We understand and agree, on our own behalf
and on behalf of any accounts for which we are acting as hereinafter stated, (x)
that such Notes are being offered only in a transaction not involving any public
offering within the meaning of the Securities Act, (y) that if we decide to
resell, pledge or otherwise transfer such Notes within two years after the date
of the original issuance of the Notes or if within three months after we cease
to be an affiliate (within the meaning of Rule 144 under the Securities Act) of
the Company, such Notes may be resold, pledged or transferred only (i) to the
Company, (ii) so long as the Notes are eligible for resale pursuant to Rule 144A
under the Securities Act ("Rule 144A"), to a person whom we reasonably believe
is a "qualified institutional buyer" (as defined in Rule 144A) ("QIB") that
purchases for its own account or for the account of a QIB to whom notice is
given that the resale, pledge or transfer is being made in reliance on Rule 144A
(as indicated by the box checked by the transferor on the Certificate of
Transfer on the reverse of the certificate for the Notes), (iii) outside the
United States in accordance with Regulation S under the Securities Act (as
indicated by the box checked by the transferor on the Certificate of Transfer on
the reverse of the certificate for the Notes), (iv) to an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act ("Institutional Accredited Investor") (as
indicated by the box checked by the transferor on the Certificate of Transfer on
the reverse of the certificate for the Notes) which has certified to the Company
and the Trustee that it is such an accredited investor and is acquiring the
Notes for investment purposes and not for distribution, (v) pursuant to an
exemption from registration under the Securities Act provided by Rule 144 (if
applicable) under the Securities Act, or (vi) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States, and we will
notify any purchaser
1
<PAGE>
of the Notes from us of the above resale restriction, if then applicable. We
further understand that in connection with any transfer of the Notes by us that
the Company and the Trustee may request, and if so requested we will furnish,
such certificates, legal opinions and other information as they may reasonably
require to confirm that any such transfer complies with the foregoing
restrictions.
2. We are able to fend for ourselves in the transactions
contemplated by the Offering Memorandum dated July 15, 1997, as amended from
time to time, relating to the Notes, we have knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Notes, and we and any accounts for which we are
acting are each able to bear the economic risk of our or its investment and can
afford the complete loss of such investment.
3. We understand that the minimum principal amount of Notes that may
be purchased by an Institutional Accredited Investor is $100,000.
4. We are acquiring the Notes transferred to us for investment
purposes, and not for distribution, for our own account or for one or more
accounts as to each of which we exercise sole investment discretion and we are
or such account is an Institutional Accredited Investor.
5. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
-----------------------------------------
(Name of Transferee)
By:
--------------------------------------
Date:
------------------------------------
2
<PAGE>
EXHIBIT E
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated
as of , among [NEW SUBSIDIARY GUARANTOR] (the "New Subsidiary
Guarantor"), a subsidiary of Grupo Iusacell, S.A. de C.V. (or its
successor), a limited liability stock corporation organized under
the laws of Mexico (the "Company"), GRUPO IUSACELL, S.A. de C.V., on
behalf of itself and the Subsidiary Guarantors (the "Existing
Subsidiary Guarantors") under the Indenture referred to below, and
FIRST UNION NATIONAL BANK, a national banking association, as
trustee under the indenture referred to below (the "Trustee").
W I T N E S S E T H :
WHEREAS the Company has heretofore executed and delivered to the
Trustee an Indenture (the "Indenture"), dated as of July 25, 1997, providing for
the issuance of an aggregate principal amount of $150,000,000 of 10% Senior
Notes due 2004 (the "Securities");
WHEREAS Section 4.16 of the Indenture provides that under certain
circumstances the Company is required to cause the New Subsidiary Guarantor to
execute and deliver to the Trustee a supplemental indenture pursuant to which
the New Subsidiary Guarantor shall unconditionally guarantee all of the
Company's obligations under the Securities pursuant to a Subsidiary Guaranty on
the terms and conditions set forth herein; and
WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee, the
Company and Existing Subsidiary Guarantors are authorized to execute and deliver
this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Subsidiary Guarantor, the Company, the Existing Subsidiary Guarantors and the
Trustee mutually covenant and agree for the equal
1
<PAGE>
and ratable benefit of the holders of the Securities as follows:
1. Definitions. (a) Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
(b) For all purposes of this Supplement, except as otherwise herein
expressly provided or unless the context otherwise requires: (i) the terms and
expressions used herein shall have the same meanings as corresponding terms and
expressions used in the Indenture; and (ii) the words "herein," "hereof" and
"hereby" and other words of similar import used in this Supplement refer to this
Supplement as a whole and not to any particular section hereof.
2. Agreement to Guarantee. The New Subsidiary Guarantor hereby
agrees, jointly and severally with all other Subsidiary Guarantors, to Guarantee
the Company's obligations under the Securities on the terms and subject to the
conditions set forth in Article XI of the Indenture and to be bound by all other
applicable provisions of the Indenture.
3. Ratification of Indenture; Supplemental Indentures Part of
Indenture. Except as expressly amended hereby, the Indenture is in all respects
ratified and confirmed and all the terms, conditions and provisions thereof
shall remain in full force and effect. This Supplemental Indenture shall form a
part of the Indenture for all purposes, and every holder of Securities
heretofore or hereafter authenticated and delivered shall be bound hereby.
4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
5. Trustee Makes No Representation. The Trustee makes no
representation as to the validity or sufficiency of this Supplemental Indenture.
6. Counterparts. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
2
<PAGE>
7. Effect of Headings. The Section headings herein are for
convenience only and shall not effect the construction thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
[NEW SUBSIDIARY GUARANTOR],
by
-------------------------------------
Name:
Title:
GRUPO IUSACELL, S.A. de C.V. on
behalf of itself and the Existing
Subsidiary Guarantors,
by
-------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
as Trustee,
by
-------------------------------------
Name:
Title:
3
<PAGE>
EXHIBIT F
[FORM OF LETTER TO BE DELIVERED
IN CONNECTION WITH TRANSFERS PURSUANT TO RULE 144A]
Grupo Iusacell, S.A. de C.V.
c/o First Union National Bank, as Trustee
[Date]
Re: Grupo Iusacell, S.A. de C.V. (the "Company")
10% Senior Notes due 2004 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $_______ aggregate principal
amount at maturity of the Securities, we hereby certify that such transfer is
being effected pursuant to and in accordance with Rule 144A ("Rule 144A") under
the Securities Act of 1933 (the "Securities Act"), and, accordingly, we hereby
further certify that the Securities are being transferred to a person that we
reasonably believe is purchasing the Securities for its own account, or for one
or more accounts with respect to which such person exercises sole investment
discretion, and such person and each such account is a "qualified institutional
buyer" within the meaning of Rule 144A in a transaction meeting the requirements
of Rule 144A and such Securities are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
------------------------------
[Name of Transferor]
By:
---------------------------
Authorized Signature
1
<PAGE>
EXHIBIT G
[Form of Letter to Be Delivered
in Connection with Transfers
Pursuant to Regulation S]
Grupo Iusacell, S.A. de C.V.
c/o First Union National Bank, as Trustee
[Date]
Re: Grupo Iusacell, S.A. de C.V. (the "Company")
10% Senior Notes due 2004 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S ("Regulation S") under the
Securities Act of 1933 (the "Securities Act"), and, accordingly, we represent
that:
(1) the offer of the Securities was not made to a person in the
United States;
(2) either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the United
States or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States
that would not comply with the requirements of Rule 903(b) or Rule 904(b)
of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
1
<PAGE>
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:_________________________________
Authorized Signature
2
EXHIBIT 4.2 - FORM OF NOTE
(CONTAINED IN EXHIBIT 4.1)
3
EXHIBIT 4.3 - EXCHANGE AND REGISTRATION
RIGHTS AGREEMENT
5
<PAGE>
EXECUTION COPY
GRUPO IUSACELL, S.A. de C.V.
$150,000,000
10% Senior Notes due 2004
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
July 15, 1997
CHASE SECURITIES INC.
SALOMON BROTHERS INC
c/o Chase Securities Inc.
270 Park Avenue, 4th Floor
New York, New York 10017
Ladies and Gentlemen:
Grupo Iusacell, S.A. de C.V., a limited liability stock corporation
(sociedad anonima de capital variable) organized under the laws of Mexico (the
"Company"), proposes to issue and sell to Chase Securities Inc. ("CSI") and
Salomon Brothers Inc (together with CSI, the "Initial Purchasers"), upon the
terms and subject to the conditions set forth in a purchase agreement dated July
15, 1997 (the "Purchase Agreement"), $150,000,000 aggregate principal amount of
its 10% Senior Notes due 2004 (the "Securities") to be unconditionally
guaranteed on a senior subordinated basis by the subsidiaries of the Company
named on the signature pages hereof (together, the "Subsidiary Guarantors").
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Purchase Agreement.
As an inducement to the Initial Purchasers to enter into the
Purchase Agreement and in satisfaction of a condition to the obligations of the
Initial Purchasers thereunder, each of the Company and the Subsidiary Guarantors
agrees with the Initial Purchasers, for the benefit of the holders (including
the Initial Purchasers) of the Securities, the Exchange Securities (as defined
herein) and the Private Exchange Securities (as defined herein) (collectively,
the "Holders"), as follows:
1. Registered Exchange Offer. The Company and the Subsidiary
Guarantors shall (i) prepare and, not later than 75 days following the date of
original issuance of the Securities (the "Issue Date"), file with the Commission
a registration statement (the "Exchange Offer Registration Statement") on an
appropriate form under the Securities Act
<PAGE>
with respect to a proposed offer to the Holders of the Securities (the
"Registered Exchange Offer") to issue and deliver to such Holders, in exchange
for the Securities, a like aggregate principal amount of debt securities of the
Company (the "Exchange Securities") that are identical in all material respects
to the Securities, except for the transfer restrictions relating to the
Securities, (ii) use their reasonable best efforts to cause the Exchange Offer
Registration Statement to become effective under the Securities Act no later
than 150 days after the Issue Date and the Registered Exchange Offer to be
consummated no later than 180 days after the Issue Date and (iii) keep the
Exchange Offer Registration Statement effective for not less than 30 days (or
longer, if required by applicable law) after the date that notice of the
Registered Exchange Offer is mailed to the Holders (such period being called the
"Exchange Offer Registration Period"). The Exchange Securities will be issued
under the Indenture or an indenture (the "Exchange Securities Indenture") among
the Company, the Subsidiary Guarantors and the Trustee or such other bank or
trust company that is reasonably satisfactory to the Initial Purchasers, as
trustee (the "Exchange Securities Trustee"), such indenture to be identical in
all material respects to the Indenture, except for the transfer restrictions
relating to the Securities (as described above).
Upon the effectiveness of the Exchange Offer Registration Statement,
the Company and each of the Subsidiary Guarantors shall promptly commence the
Registered Exchange Offer, it being the objective of such Registered Exchange
Offer to enable each Holder electing to exchange Securities for Exchange
Securities (assuming that such Holder (a) is not an affiliate of the Company, a
Subsidiary Guarantor or an Exchanging Dealer (as defined herein) not complying
with the requirements of the next sentence, (b) is not an Initial Purchaser
holding Securities that have, or that are reasonably likely to have, the status
of an unsold allotment in an initial distribution, (c) acquires the Exchange
Securities in the ordinary course of such Holder's business and (d) has no
arrangements or understandings with any person to participate in the
distribution of the Exchange Securities) to trade such Exchange Securities from
and after their receipt without any limitations or restrictions under the
Securities Act and without material restrictions under the securities laws of
the several states of the United States. The Company, each of the Subsidiary
Guarantors and each Initial Purchaser acknowledges that, pursuant to current
interpretations by the Commission's staff of Section 5 of the Securities Act,
each Holder that is a broker-dealer electing to exchange Securities acquired for
its own account as a result of market making activities or other trading
activities for Exchange Securities (an "Exchanging Dealer"), is required to
deliver a prospectus containing substantially the information set forth in Annex
A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures"
section and the "Purpose of the Exchange Offer" section and in Annex C hereto in
the "Plan of Distribution" section of such prospectus in connection with a sale
of any such Exchange Securities received by such Exchanging Dealer pursuant to
the Registered Exchange Offer.
7
<PAGE>
If, prior to the consummation of the Registered Exchange Offer, any
Holder holds any Securities acquired by it that have, or that are reasonably
likely to be determined to have, the status of an unsold allotment in an initial
distribution, or any Holder is not entitled to participate in the Registered
Exchange Offer, the Company shall, upon the request of any such Holder,
simultaneously with the delivery of the Exchange Securities in the Registered
Exchange Offer, issue and deliver to any such Holder, in exchange for the
Securities held by such Holder (the "Private Exchange"), a like aggregate
principal amount of debt securities of the Company (the "Private Exchange
Securities") that are identical in all material respects to the Exchange
Securities, except for the transfer restrictions relating to such Private
Exchange Securities. The Private Exchange Securities will be issued under the
same indenture as the Exchange Securities, and the Company shall use its
reasonable best efforts to cause the Private Exchange Securities to bear the
same CUSIP number as the Exchange Securities.
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 30
days (or longer if required by applicable law) after the date on which
notice of the Registered Exchange Offer is mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
(d) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York City time, on the last business day on
which the Registered Exchange Offer shall remain open; and
(e) otherwise comply in all respects with all laws that are
applicable to the Registered Exchange Offer.
As soon as practicable after the close of the Registered Exchange
Offer and any Private Exchange, as the case may be, the Company shall:
(a) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer and the Private
Exchange;
(b) deliver to the Trustee for cancelation all Securities so
accepted for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee, as the
case may be, promptly to authenticate and deliver to each Holder of
Exchange Securities or Private
8
<PAGE>
Exchange Securities, as the case may be, equal in principal amount to the
Securities of such Holder so accepted for exchange.
The Company shall use its reasonable best efforts to keep the
Exchange Offer Registration Statement effective and to amend and supplement the
prospectus contained therein in order to permit such prospectus to be used by
all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Securities; provided that (i) in the case where
such prospectus and any amendment or supplement thereto must be delivered by an
Exchanging Dealer, such period shall be the earlier of 180 days and the date on
which all Exchanging Dealers have sold all Exchange Securities held by them and
(ii) the Company shall make such prospectus and any amendment or supplement
thereto available to any broker-dealer for use in connection with any resale of
any Exchange Securities for a period of not less than 90 days after the
consummation of the Registered Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the case may
be, shall provide that the Securities, the Exchange Securities and the Private
Exchange Securities shall vote and consent together on all matters as one class
and that none of the Securities, the Exchange Securities or the Private Exchange
Securities will have the right to vote or consent as a separate class on any
matter.
Interest on each Exchange Security and Private Exchange Security
issued pursuant to the Registered Exchange Offer and the Private Exchange,
respectively, will accrue from the last interest payment date on which interest
was paid on the Securities surrendered in exchange therefor or, if no interest
has been paid on the Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Securities received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will have
no arrangements or understanding with any person to participate in the
distribution of the Securities or the Exchange Securities within the meaning of
the Securities Act and (iii) such Holder is not an affiliate of the Company or
any of the Subsidiary Guarantors or, if it is such an affiliate, such Holder
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
Notwithstanding any other provisions hereof, the Company and the
Subsidiary Guarantors shall ensure that (i) any Exchange Offer Registration
Statement and any amendment thereto and any prospectus forming part thereof and
any supplement thereto complies in all material respects with the Securities Act
and the rules and regulations of the Commission thereunder, (ii) any Exchange
Offer Registration Statement and any amendment thereto does not, when it becomes
effective,
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contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (iii) any prospectus forming part of any Exchange Offer
Registration Statement and any supplement to such prospectus does not, as of the
consummation of the Registered Exchange Offer, include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
2. Shelf Registration. If (i) because of any change in law or
applicable interpretations thereof by the Commission or its staff the Company
and the Subsidiary Guarantors are not permitted to effect the Registered
Exchange Offer as contemplated by Section 1 hereof, or (ii) any Securities
validly tendered pursuant to the Registered Exchange Offer are not exchanged for
Exchange Securities within 180 days after the Issue Date, or (iii) either
Initial Purchaser so requests with respect to Securities or Private Exchange
Securities not eligible to be exchanged for Exchange Securities in the
Registered Exchange Offer and held by it following the consummation of the
Registered Exchange Offer, or (iv) any applicable law or interpretations do not
permit one or more Holders to participate in the Registered Exchange Offer, or
(v) any Holder that participates in the Registered Exchange Offer does not
receive freely transferable Exchange Securities in exchange for tendered
Securities, or (vi) the Company so elects, then the following provisions shall
apply:
(a) The Company and the Subsidiary Guarantors shall use their
reasonable best efforts to file as promptly as practicable (but in no event more
than 30 days after so required or requested pursuant to this Section 2) with the
Commission, and thereafter shall use their reasonable best efforts to cause to
be declared effective, a shelf registration statement on an appropriate form
under the Securities Act relating to the offer and sale of the Transfer
Restricted Securities (as defined below) by the Holders thereof from time to
time in accordance with the methods of distribution set forth in such
registration statement (hereafter, a "Shelf Registration Statement" and,
together with any Exchange Offer Registration Statement, a "Registration
Statement").
(b) The Company and the Subsidiary Guarantors shall use their
reasonable best efforts to keep the Shelf Registration Statement continuously
effective in order to permit the prospectus forming part thereof to be used by
Holders of Transfer Restricted Securities for a period ending on the earlier of
(i) two years from the Issue Date or such shorter period that will terminate
when all the Transfer Restricted Securities covered by the Shelf Registration
Statement have been sold pursuant thereto and (ii) the date on which the
Securities become eligible for resale without volume restrictions pursuant to
Rule 144 under the Securities Act (in any such case, such period being called
the "Shelf Registration Period"). The Company and each of the Subsidiary
Guarantors shall be deemed not to have used their reasonable
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best efforts to keep the Shelf Registration Statement effective during the
requisite period if any of them voluntarily take any action that would result in
Holders of Transfer Restricted Securities covered thereby not being able to
offer and sell such Transfer Restricted Securities during that period, unless
such action is required by applicable law.
(c) Notwithstanding any other provisions hereof, the Company and the
Subsidiary Guarantors shall ensure that (i) any Shelf Registration Statement and
any amendment thereto and any prospectus forming part thereof and any supplement
thereto complies in all material respects with the Securities Act and the rules
and regulations of the Commission thereunder, (ii) any Shelf Registration
Statement and any amendment thereto (in either case, other than with respect to
information included therein in reliance upon or in conformity with written
information furnished to the Company by or on behalf of any Holder specifically
for use therein (the "Holders' Information")) does not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Shelf Registration Statement and any
supplement to such prospectus (in either case, other than with respect to
Holders' Information) does not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
3. Liquidated Damages. (a) The parties hereto agree that the Holders
of Transfer Restricted Securities will suffer damages if the Company and the
Subsidiary Guarantors fail to fulfill their obligations under Section 1 or
Section 2, as applicable, and that it would not be feasible to ascertain the
extent of such damages. Accordingly, if (i) the applicable Registration
Statement is not filed with the Commission on or prior to 75 days after the
Issue Date, (ii) the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, is not declared effective within 150
days after the Issue Date (or in the case of a Shelf Registration Statement
required to be filed in response to a change in law or the applicable
interpretations of the Commission or its staff, if later, within 75 days after
publication of the change in law or interpretation), (iii) the Registered
Exchange Offer is not consummated on or prior to 180 days after the Issue Date
or (iv) the Shelf Registration Statement is filed and declared effective within
150 days after the Issue Date (or in the case of a Shelf Registration Statement
required to be filed in response to a change in law or the applicable
interpretations of Commission's staff, if later, within 75 days after
publication of the change in law or interpretation) but shall thereafter cease
to be effective (at any time that the Company and the Subsidiary Guarantors are
obligated to maintain the effectiveness thereof) without being succeeded within
30 days by an additional Registration Statement filed and declared effective
(each such event referred to in clauses (i) through (iv), a "Registration
Default"), the Company and the Subsidiary Guarantors shall be obligated, jointly
and severally, to pay liquidated damages to
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<PAGE>
each Holder of Transfer Restricted Securities, during the period of one or more
such Registration Defaults, in an amount equal to $0.192 per week per $1,000
principal amount of Transfer Restricted Securities held by such Holder until (i)
the applicable Registration Statement is filed, (ii) the Exchange Offer
Registration Statement is declared effective and the Registered Exchange Offer
is consummated, (iii) the Shelf Registration Statement is declared effective or
(iv) the Shelf Registration Statement again becomes effective, as the case may
be. Following the cure of all Registration Defaults, the accrual of liquidated
damages will cease. As used herein, the term "Transfer Restricted Securities"
means (i) each Security until the date on which such Security has been exchanged
for a freely transferable Exchange Security in the Registered Exchange Offer,
(ii) each Security or Private Exchange Security until the date on which it has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iii) each Security or
Private Exchange Security until the date on which it is distributed to the
public pursuant to Rule 144 under the Securities Act or is saleable pursuant to
Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary
in this Section 3(a), the Company and the Subsidiary Guarantors shall not be
required to pay liquidated damages to a Holder of Transfer Restricted Securities
if such Holder failed to comply with its obligations to make the representations
set forth in the second to last paragraph of Section 1 or failed to provide the
information required to be provided by it, if any, pursuant to Section 4(n).
(b) The Company shall notify the Trustee and the Paying Agent under
the Indenture immediately upon the happening of each and every Registration
Default. The Company and/or the Subsidiary Guarantors, as the case may be, shall
pay the liquidated damages due on the Transfer Restricted Securities by
depositing with the Paying Agent (which may not be the Company or any of its
Subsidiaries for these purposes), in trust, for the benefit of the Holders
thereof, prior to 10:00 a.m., New York City time, on the next interest payment
date specified by the Indenture and the Securities, sums sufficient to pay the
liquidated damages then due. The liquidated damages due shall be payable on each
interest payment date specified by the Indenture and the Securities to the
record holder entitled to receive the interest payment to be made on such date.
Each obligation to pay liquidated damages shall be deemed to accrue from and
including the date of the applicable Registration Default.
(c) The parties hereto agree that the liquidated damages provided
for in this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the failure of (i) the Shelf Registration
Statement or the Exchange Offer Registration Statement to be filed, (ii) the
Shelf Registration Statement to be declared effective or to remain effective or
(iii) the Exchange Offer Registration Statement to be declared effective and the
Registered Exchange Offer to
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<PAGE>
be consummated, in each case to the extent required by this Agreement.
4. Registration Procedures. In connection with any Registration
Statement, the following provisions shall apply:
(a) The Company shall (i) furnish to each Initial Purchaser, prior
to the filing thereof with the Commission, a copy of the Registration Statement
and each amendment thereof and each supplement, if any, to the prospectus
included therein and shall use its reasonable best efforts to reflect in each
such document, when so filed with the Commission, such comments as either
Initial Purchaser may reasonably propose; (ii) include the information set forth
in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section and in Annex
C hereto in the "Plan of Distribution" section of the prospectus forming a part
of the Exchange Offer Registration Statement, and include the information set
forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the
Registered Exchange Offer; and (iii) if requested by either Initial Purchaser,
include the information required by Item 507 or 508 of Regulation S-K, as
applicable, in the prospectus forming a part of the Exchange Offer Registration
Statement.
(b) The Company shall advise each Initial Purchaser, each Exchanging
Dealer and the Holders (if applicable) and, if requested by any such person,
confirm such advice in writing (which advice pursuant to clauses (ii) through
(v) hereof shall be accompanied by an instruction to suspend the use of the
prospectus until the requisite changes have been made):
(i) when any Registration Statement and any amendment thereto has
been filed with the Commission and when such Registration Statement or any
post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or supplements
to any Registration Statement or the prospectus included therein or for
additional information;
(iii) of the issuance by the Commission of any stop order suspending
the effectiveness of any Registration Statement or the initiation of any
proceedings for that purpose;
(iv) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Securities, the Exchange
Securities or the Private Exchange Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose; and
(v) of the happening of any event that requires the making of any
changes in any Registration Statement or the prospectus included therein
in order that the
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<PAGE>
statements therein are not misleading and do not omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading.
(c) The Company and the Subsidiary Guarantors shall make every
reasonable effort to obtain the withdrawal at the earliest possible time of any
order suspending the effectiveness of any Registration Statement.
(d) The Company shall furnish to each Holder of Transfer Restricted
Securities included within the coverage of any Shelf Registration Statement,
without charge, at least one conformed copy of such Shelf Registration Statement
and any post-effective amendment thereto, including financial statements and
schedules and, if any such Holder so requests in writing, all exhibits thereto
(including those, if any, incorporated by reference).
(e) The Company shall, during the Shelf Registration Period,
promptly deliver to each Holder of Transfer Restricted Securities included
within the coverage of any Shelf Registration Statement, without charge, as many
copies of the prospectus (including each preliminary prospectus) included in
such Shelf Registration Statement and any amendment or supplement thereto as
such Holder may reasonably request; and the Company consents to the use of such
prospectus or any amendment or supplement thereto by each of the selling Holders
of Transfer Restricted Securities in connection with the offer and sale of the
Transfer Restricted Securities covered by such prospectus or any amendment or
supplement thereto.
(f) The Company shall furnish to each Initial Purchaser, each
Exchanging Dealer and any other Holder who so requests, without charge, at least
one conformed copy of the Exchange Offer Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
and, if any Initial Purchaser, Exchanging Dealer or such Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated by
reference).
(g) The Company shall, during the Exchange Offer Registration Period
or the Shelf Registration Period, as applicable, promptly deliver to each
Initial Purchaser, each Exchanging Dealer and such other persons that are
required to deliver a prospectus following the Registered Exchange Offer,
without charge, as many copies of the final prospectus included in the Exchange
Offer Registration Statement or the Shelf Registration Statement and any
amendment or supplement thereto as such Initial Purchaser, Exchanging Dealer or
other persons may reasonably request; and the Company consents to the use of
such prospectus or any amendment or supplement thereto by any such Initial
Purchaser, Exchanging Dealer or other persons, as applicable, as aforesaid.
(h) Prior to the effective date of any Registration Statement, the
Company and the Subsidiary Guarantors shall use their reasonable best efforts to
register or qualify, or cooperate with the Holders of Securities, Exchange
Securities
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<PAGE>
or Private Exchange Securities included therein and their respective counsel in
connection with the registration or qualification of, such Securities, Exchange
Securities or Private Exchange Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions as any such Holder reasonably
requests in writing and do any and all other acts or things necessary or
advisable to enable the offer and sale in such jurisdictions of the Securities,
Exchange Securities or Private Exchange Securities covered by such Registration
Statement; provided, however, that the Company will not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or to take any action which would subject it to general service of process or to
taxation in any such jurisdiction where it is not then so subject.
(i) The Company and the Subsidiary Guarantors shall cooperate with
the Holders of Securities, Exchange Securities or Private Exchange Securities to
facilitate the timely preparation and delivery of certificates representing
Securities, Exchange Securities or Private Exchange Securities to be sold
pursuant to any Registration Statement free of any restrictive legends and in
such denominations and registered in such names as the Holders thereof may
request in writing prior to sales of Securities, Exchange Securities or Private
Exchange Securities pursuant to such Registration Statement.
(j) If any event contemplated by Section 4(b)(ii) through (v) occurs
during the period for which the Company and the Subsidiary Guarantors are
required to maintain an effective Registration Statement, the Company and the
Subsidiary Guarantors shall promptly prepare and file with the Commission a
post-effective amendment to the Registration Statement or a supplement to the
related prospectus or file any other required document so that, as thereafter
delivered to purchasers of the Securities, Exchange Securities or Private
Exchange Securities from a Holder, the prospectus will not include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(k) Not later than the effective date of the applicable Registration
Statement, the Company shall provide a CUSIP number for the Securities, Exchange
Securities or Private Exchange Securities, as the case may be, and provide the
applicable trustee with printed certificates for the Securities, Exchange
Securities or Private Exchange Securities, as the case may be, in a form
eligible for deposit with The Depository Trust Company.
(l) The Company and the Subsidiary Guarantors shall comply with all
applicable rules and regulations of the Commission and will make generally
available to its security holders as soon as practicable after the effective
date of the applicable Registration Statement an earnings statement satisfying
the provisions of Section 11(a) of the Securities Act, provided that in no event
shall such earnings statement be delivered later than 45 days after the end of a
12-month
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period (or 90 days, if such period is a fiscal year) beginning with the first
month of the Company's first fiscal quarter commencing after the effective date
of the applicable Registration Statement, which statement shall cover such 12-
month period.
(m) The Company and the Subsidiary Guarantors shall cause the
Indenture or the Exchange Securities Indenture, as the case may be, to be
qualified under the Trust Indenture Act as required by applicable law in a
timely manner.
(n) The Company may require each Holder of Transfer Restricted
Securities to be registered pursuant to any Shelf Registration Statement to
furnish to the Company such information concerning such holder and the
distribution of such Transfer Restricted Securities as the Company may from time
to time reasonably require for inclusion in such Shelf Registration Statement,
and the Company may exclude from such registration the Transfer Restricted
Securities of any holder thereof that fails to furnish such information within a
reasonable time after receiving such request.
(o) In the case of a Shelf Registration Statement, each Holder of
Transfer Restricted Securities to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of any
notice from the Company pursuant to Section 4(b)(ii) through (v) hereof, such
Holder will discontinue disposition of such Transfer Restricted Securities until
such Holder's receipt of copies of the supplemental or amended prospectus
contemplated by Section 4(j) or until advised in writing (the "Advice") by the
Company that the use of the applicable prospectus may be resumed. If the Company
shall give any notice under Section 4(b)(ii) through (v) during the period that
the Company is required to maintain an effective Registration Statement (the
"Effectiveness Period"), such Effectiveness Period shall be extended by the
number of days during such period from and including the date of the giving of
such notice to and including the date when each seller of Transfer Restricted
Securities covered by such Registration Statement shall have received (x) the
copies of the supplemental or amended prospectus contemplated by Section 4(j)
(if an amended or supplemental prospectus is required) or (y) the Advice (if no
amended or supplemental prospectus is required).
(p) In the case of a Shelf Registration Statement, the Company and
each of the Subsidiary Guarantors shall enter into such customary agreements
(including, if requested, an underwriting agreement in customary form) and take
all such other action, if any, as Holders of a majority in aggregate principal
amount of the Securities, Exchange Securities or Private Exchange Securities
being sold or the managing underwriters (if any) shall reasonably request in
order to facilitate any disposition of Securities, Exchange Securities or
Private Exchange Securities pursuant to such Shelf Registration Statement.
(q) In the case of a Shelf Registration Statement, the Company and
each of the Subsidiary Guarantors shall (i)
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<PAGE>
make reasonably available for inspection by a representative of, and Special
Counsel (as defined below) acting for, Holders of a majority in aggregate
principal amount of the Securities, Exchange Securities or Private Exchange
Securities being sold and any underwriter participating in any disposition of
Securities, Exchange Securities or Private Exchange Securities pursuant to such
Shelf Registration Statement, all relevant financial and other records,
pertinent corporate documents and properties of the Company and its subsidiaries
and (ii) use their reasonable best efforts to have their officers, directors,
employees, accountants and counsel supply all relevant information reasonably
requested by such representative, Special Counsel or any such underwriter (an
"Inspector") in connection with such Shelf Registration Statement.
(r) In the case of a Shelf Registration Statement, the Company and
each of the Subsidiary Guarantors shall, if requested by Holders of a majority
in aggregate principal amount of the Securities, Exchange Securities or Private
Exchange Securities being sold, their Special Counsel or the managing
underwriters (if any) in connection with such Shelf Registration Statement, use
their reasonable best efforts to cause (i) the Company's counsel to deliver an
opinion relating to the Shelf Registration Statement and the Securities,
Exchange Securities or Private Exchange Securities, as applicable, in customary
form, (ii) the Company's officers to execute and deliver all customary documents
and certificates requested by Holders of a majority in aggregate principal
amount of the Securities, Exchange Securities or Private Exchange Securities
being sold, their Special Counsel or the managing underwriters (if any) and
(iii) the Company's independent public accountants to provide a comfort letter
or letters in customary form, subject to receipt of appropriate documentation as
contemplated, and only if permitted, by Statement of Auditing Standards No. 72.
5. Registration Expenses. The Company and the Subsidiary Guarantors
shall jointly and severally bear all expenses incurred in connection with the
performance of their obligations under Sections 1, 2, 3 and 4 and the Company
and the Subsidiary Guarantors, as the case may be, shall reimburse the Initial
Purchasers for the reasonable, customary and documented fees and disbursements
of one firm of attorneys in each of the United States and Mexico (in addition to
any local counsel) acting for the Initial Purchasers in connection therewith
(the "Special Counsel").
6. Indemnification. (a) In the event of a Shelf Registration
Statement or in connection with any prospectus delivery pursuant to an Exchange
Offer Registration Statement by an Initial Purchaser or Exchanging Dealer, as
applicable, the Company and the Subsidiary Guarantors shall, jointly and
severally, indemnify and hold harmless each Holder (including, without
limitation, any such Initial Purchaser or Exchanging Dealer), its affiliates,
their respective officers, directors, employees, representatives and agents, and
each person, if any, who controls such Holder within the meaning of the
Securities Act or the Exchange Act (collectively referred to
17
<PAGE>
for purposes of this Section 6, Section 7 and Section 11 as a Holder) from and
against any loss, claim, damage or liability, joint or several, or any action in
respect thereof (including, without limitation, any loss, claim, damage,
liability or action relating to purchases and sales of Securities, Exchange
Securities or Private Exchange Securities), to which that Holder may become
subject, whether commenced or threatened, under the Securities Act, the Exchange
Act, any other federal or state statutory law or regulation, at common law or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in any such Registration Statement or any prospectus
forming part thereof or in any amendment or supplement thereto or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and shall
reimburse each Holder promptly upon demand for any reasonable, documented legal
or other expenses incurred by that Holder in connection with investigating or
defending or preparing to defend against or appearing as a third party witness
in connection with any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company and the Subsidiary
Guarantors shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of, or is based upon, an
untrue statement or alleged untrue statement in or omission or alleged omission
from any of such documents in reliance upon and in conformity with any Holders'
Information; provided, further, however, that, with respect to any such untrue
statement in or omission from any related preliminary prospectus, the indemnity
agreement contained in this Section 6(a) shall not inure to the benefit of any
Holder from whom the person asserting any such loss, claim, damage, liability or
action received Securities, Exchange Securities or Private Exchange Securities
to the extent that such loss, claim, damage, liability or action of or with
respect to such Holder results from the fact that both (A) a copy of the final
prospectus was not sent or given to such person at or prior to the written
confirmation of the sale of such Securities, Exchange Securities or Private
Exchange Securities to such person and (B) the untrue statement in or omission
from the related preliminary prospectus was corrected in the final prospectus
unless, in either case, such failure to deliver the final prospectus was a
result of non-compliance by the Company with Section 4(d), 4(e), 4(f) or 4(g).
(b) In the event of a Shelf Registration Statement, each Holder
shall indemnify and hold harmless the Company, the Subsidiary Guarantors, their
affiliates, their respective officers, directors, employees, representatives and
agents, and each person, if any, who controls the Company or any of the
Subsidiary Guarantors within the meaning of the Securities Act or the Exchange
Act (collectively referred to for purposes of this Section 6(b) and Section 7 as
the Company), from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the Company may become
subject, whether commenced or threatened,
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<PAGE>
under the Securities Act, the Exchange Act, any other federal or state statutory
law or regulation, at common law or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained in any such
Registration Statement or any prospectus forming part thereof or in any
amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with any Holders' Information
furnished to the Company by or on behalf of such Holder, and shall reimburse the
Company promptly upon demand for any reasonable, documented legal or other
expenses incurred by the Company in connection with investigating or defending
or preparing to defend against or appearing as a third party witness in
connection with any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that no such Holder shall be liable
for any indemnity claims hereunder in excess of the amount of net proceeds
received by such Holder from the sale of Securities, Exchange Securities or
Private Exchange Securities pursuant to such Shelf Registration Statement.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 6 except to the extent
that it has been materially prejudiced (through the forfeiture of substantive
rights or defenses) by such failure; provided, further, however, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 6.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than the reasonable costs of investigation; provided, however,
that an indemnified party shall have the right to employ its own counsel in any
such action, but the fees, expenses and other charges of such counsel for the
indemnified party will be at the expense of such indemnified party unless (1)
the employment of counsel by
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the indemnified party has been authorized in writing by the indemnifying party,
(2) the indemnified party has reasonably concluded (based upon advice of counsel
to the indemnified party) that there may be legal defenses available to it or
other indemnified parties that are different from or in addition to those
available to the indemnifying party, (3) a conflict or potential conflict exists
(based upon advice of counsel to the indemnified party) between the indemnified
party and the indemnifying party (in which case the indemnifying party will not
have the right to direct the defense of such action on behalf of the indemnified
party) or (4) the indemnifying party has not in fact employed counsel reasonably
satisfactory to the indemnified party to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and other
charges of counsel will be at the expense of the indemnifying party or parties.
It is understood that the indemnifying party or parties shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the reasonable fees, disbursements and other charges of more than one
separate firm of attorneys (in addition to any local counsel) at any one time
for all such indemnified party or parties. Each indemnified party, as a
condition of the indemnity agreements contained in Sections 6(a) and 6(b), shall
use all reasonable efforts to cooperate with the indemnifying party in the
defense of any such action or claim. No indemnifying party shall be liable for
any settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment for the plaintiff in any such action,
the indemnifying party agrees to indemnify and hold harmless any indemnified
party from and against any loss or liability by reason of such settlement or
judgment. No indemnifying party shall, without the prior written consent of the
indemnified party (which consent shall not be unreasonably withheld), effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
7. Contribution. If the indemnification provided for in Section 6 is
unavailable or insufficient to hold harmless an indemnified party under Section
6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company from the offering and sale of the Securities,
on the one hand, and a Holder with respect to the sale by such Holder of
Securities, Exchange Securities or Private Exchange Securities, on the other, or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to
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reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company, on the one hand, and such Holder, on the
other, with respect to the actions, statements or omissions that resulted in
such loss, claim, damage or liability, or action in respect thereof, as well as
any other relevant equitable considerations. The relative benefits received by
the Company, on the one hand, and a Holder, on the other, with respect to such
offering and such sale shall be deemed to be in the same proportion as the total
net proceeds from the offering of the Securities (before deducting expenses)
received by or on behalf of the Company as set forth in the table on the cover
of the Offering Memorandum, on the one hand, bear to the total proceeds received
by such Holder with respect to its sale of Securities, Exchange Securities or
Private Exchange Securities, on the other. The relative fault shall be
determined by reference to, among other things, whether any action in question,
including the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact, has been taken or made by
the Company or relates to information supplied by the Company, on the one hand,
or relates to Holders' Information supplied by such Holder, on the other, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The parties
hereto agree that it would not be just and equitable if contributions pursuant
to this Section 7 were to be determined by pro rata allocation or by any other
method of allocation that does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section 7 shall be deemed to include, for
purposes of this Section 7, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending or
preparing to defend any such action or claim. Notwithstanding the provisions of
this Section 7, an indemnifying party that is a Holder of Securities, Exchange
Securities or Private Exchange Securities shall not be required to contribute
any amount in excess of the amount by which the total price at which the
Securities, Exchange Securities or Private Exchange Securities sold by such
indemnifying party to any purchaser exceeds the amount of any damages which such
indemnifying party has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
8. Rules 144 and 144A. The Company and the Subsidiary Guarantors
shall use their reasonable best efforts to file the reports required to be filed
by them under the Securities Act and the Exchange Act in a timely manner and, if
at any time the Company or the Subsidiary Guarantors are not required to file
such reports, they will, upon the written request of any Holder of Transfer
Restricted Securities, make publicly available other information so long as
necessary to
21
<PAGE>
permit sales of such Holder's securities pursuant to Rules 144 and 144A. The
Company and each of the Subsidiary Guarantors covenant that they will take such
further action as any Holder of Transfer Restricted Securities may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Transfer Restricted Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rules 144 and 144A
(including, without limitation, the requirements of Rule 144A(d)(4)). Upon the
written request of any Holder of Transfer Restricted Securities, the Company
shall deliver to such Holder a written statement as to whether it has complied
with such requirements. Notwithstanding the foregoing, nothing in this Section 8
shall be deemed to require the Company to register any of its securities
pursuant to the Exchange Act.
9. Underwritten Registrations. If any of the Transfer Restricted
Securities covered by any Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority in aggregate principal amount of such Transfer Restricted Securities
included in such offering, subject to the prior written consent of the Company
(which shall not be unreasonably withheld or delayed), and such Holders shall be
responsible for all underwriting commissions and discounts in connection
therewith.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
10. Waiver of Immunities. To the extent that the Company or the
Subsidiary Guarantors or any of their respective properties, assets or revenues
may have or may hereafter become entitled to, or have attributed to it, any
right of immunity, on the grounds of sovereignty or otherwise, from any legal
action, suit or proceeding, from the giving of any relief in any such legal
action, suit or proceeding, from setoff or counterclaim, from the competent
jurisdiction of any court, from service of process, from attachment upon or
prior to judgment, from attachment in aid of execution of judgment, or from
execution of judgment, or other legal process or proceeding for the giving of
any relief or for the enforcement of any judgment, in any competent jurisdiction
in which proceedings may at any time be commenced, with respect to its
obligations, liabilities or any other matter under or arising out of or in
connection with this Agreement and the transactions contemplated hereby, each of
the Company and the Subsidiary Guarantors hereby irrevocably and unconditionally
waives, and agrees not to plead or claim, any such immunity and consent to such
relief and enforcement.
22
<PAGE>
11. Consent to Jurisdiction; Appointment of Agent for Service of
Process. (a) The Company and the Subsidiary Guarantors, by the execution and
delivery of this Agreement, irrevocably agree that service of process may be
made upon CT Corporation Services ("CT Corporation"), with offices at 1633
Broadway, 23rd Floor, New York, New York 10019 (or its successors as agent for
service of process), in the County, City and State of New York, United States of
America, in any suit or proceeding against the Company or the Subsidiary
Guarantors instituted by any Holder entitled to indemnification or contribution
under Sections 6 or 7 hereunder, based on or arising under this Agreement and
the transactions contemplated hereby in any federal or state court in the State
of New York, County of New York, and each of the Company, the Subsidiary
Guarantors and the Initial Purchasers hereby irrevocably consents and submits to
the jurisdiction of any such court and to the courts of its own corporate
domicile in respect of actions brought against it as a defendant generally and
unconditionally in respect of any such suit or proceeding.
(b) Each of the Company and the Subsidiary Guarantors further, by
the execution and delivery of this Agreement, irrevocably designates, appoints
and empowers CT Corporation, with offices at 1633 Broadway, 23rd Floor, New
York, New York 10019, as its designee, appointee and authorized agent to receive
for and on its behalf service (i) of any and all legal process, summons, notices
and documents that may be served in any action, suit or proceeding brought
against the Company or such Subsidiary Guarantor, as the case may be, with
respect to its obligations, liabilities or any other matter arising out of or in
connection with this Agreement and the transactions contemplated hereby and (ii)
that may be made on such designee, appointee and authorized agent in accordance
with legal procedures prescribed for such courts, and it being understood that
the designation and appointment of CT Corporation as such authorized agent shall
become effective immediately without any further action on the part of the
Company or such Subsidiary Guarantor, as the case may be. Each of the Company
and the Subsidiary Guarantors represents to each Initial Purchaser that it has
notified CT Corporation of such designation and appointment and that CT
Corporation has accepted the same, and that CT Corporation has been paid its
full fee for such designation, appointment and related services through the date
that is eight years from the date of this Agreement. Each of the Company and the
Subsidiary Guarantors further agrees that, to the extent permitted by law,
service of process upon CT Corporation (or its successors as agent for service
of process) and written notice of said service to the Company or such Subsidiary
Guarantor, as the case may be, pursuant to Section 12(b) of this Agreement,
shall be deemed in every respect effective service of process upon the Company
or such Subsidiary Guarantor in any such suit or proceeding. If for any reason
such designee, appointee and agent hereunder shall cease to be available to act
as such, each of the Company and the Subsidiary Guarantors agrees to designate a
new designee, appointee and agent in The City of New York, New York on the terms
and for the purposes of this
23
<PAGE>
Section 11 reasonably satisfactory to the Initial Purchasers. Each of the
Company and the Subsidiary Guarantors further hereby irrevocably consents and
agrees to the service of any and all legal process, summons, notices and
documents in any such action, suit or proceeding against the Company or such
Subsidiary Guarantor, as the case may be, by serving a copy thereof upon the
relevant agent for service of process referred to in this Section 11 (whether or
not the appointment of such agent shall for any reason prove to be ineffective
or such agent shall accept or acknowledge such service) and by mailing copies
thereof by registered or certified air mail, postage prepaid, to the Company or
such Subsidiary Guarantor at its address specified in or designated pursuant to
this Agreement. Each of the Company and the Subsidiary Guarantors agrees that
the failure of any such designee, appointee and agent to give any notice of such
service to it shall not impair or affect in any way the validity of such service
or any judgment rendered in any action or proceeding based thereon. Nothing
herein shall in any way be deemed to limit the ability of any Holder to serve
any such legal process, summons, notices and documents in any other manner
permitted by applicable law. Each of the Company and the Subsidiary Guarantors
hereby irrevocably and unconditionally waives, to the fullest extent permitted
by law, any objection that it may now or hereafter have to the laying of venue
of any of the aforesaid actions, suits or proceedings arising out of or in
connection with this Agreement brought in federal or state court in the State of
New York, County of New York, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such action,
suit or proceeding brought in any such court has been brought in an inconvenient
forum.
(c) If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder into any currency other than United
States dollars, the parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be the rate at which in
accordance with normal banking procedures the applicable Holder could purchase
United States dollars with the other currency in New York City on the business
day preceding that on which final judgment is given. The obligation of the
Company and the Subsidiary Guarantors in respect of any sum due from the Company
or any Subsidiary Guarantor to the applicable Holder shall, notwithstanding any
judgment in a currency other than United States dollars, not be discharged until
the first business day, following receipt by such Holder of any sum adjudged to
be so due in the other currency, on which (and only to the extent that) such
Holder may in accordance with normal banking procedures purchase United States
dollars with the other currency; if the United States dollars so purchased are
less than the sum originally due to such Holder hereunder, each of the Company
and the Subsidiary Guarantors jointly and severally agree, as a separate
obligation and notwithstanding any such judgment, to indemnify such Holder
against the loss. If the United States dollars so purchased are greater than the
sum originally due to such Holder hereunder, such Holder shall pay to the
Company or the applicable Subsidiary Guarantor an amount equal to the
24
<PAGE>
excess of the dollars so purchased over the sum originally due to such Holder
hereunder.
(d) The provisions of this Section 11 shall survive any termination
of this Agreement, in whole or in part.
12. Miscellaneous. (a) Amendments and Waivers. The provisions of
this Agreement may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities, taken as a single class. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders whose Securities, Exchange
Securities or Private Exchange Securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities being sold by such Holders pursuant to such Registration
Statement.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telecopier or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by such Holder
to the Company in accordance with the provisions of this Section 12(b),
which address initially is, with respect to each Holder, the address of
such Holder maintained by the Registrar under the Indenture, with a copy
in like manner to CSI and Salomon Brothers Inc;
(2) if to an Initial Purchaser, initially at its address set forth
in the Purchase Agreement; and
(3) if to the Company or to any Subsidiary Guarantor, initially at
the address of the Company set forth in the Purchase Agreement.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; one business day
after being delivered to a next-day air courier; five business days after being
deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.
(c) Successors and Assigns. This Agreement shall be binding upon the
Company, the Subsidiary Guarantors, the Initial Purchasers and their respective
successors and assigns.
(d) Counterparts. This Agreement may be executed in any number of
counterparts (which may be delivered in original form or by telecopier) and by
the parties hereto
25
<PAGE>
in separate counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
(e) Definition of Terms. For purposes of this Agreement, (a) the
term "business day" means any day on which the New York Stock Exchange, Inc. is
open for trading, (b) the term "subsidiary" has the meaning set forth in Rule
405 under the Securities Act and (c) except where otherwise expressly provided,
the term "affiliate" has the meaning set forth in Rule 405 under the Securities
Act.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICTS OF LAW.
(h) Remedies. In the event of a breach by the Company, by any of the
Subsidiary Guarantors or by any Holder, of any of their obligations under this
Agreement, each Holder or the Company or the Subsidiary Guarantor, as the case
may be, in addition to being entitled to exercise all rights granted by law,
including recovery of damages (other than the recovery of damages for a breach
by the Company or a Subsidiary Guarantor of its obligations under Section 1 or 2
hereof for which liquidated damages have been paid pursuant to Section 3
hereof), will be entitled to specific performance of its rights under this
Agreement. Each of the Company, the Subsidiary Guarantors and each Holder agree
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of any of the provisions of this Agreement and
hereby further agree that, in the event of any action for specific performance
in respect of such breach, it shall waive the defense that a remedy at law would
be adequate.
(i) No Inconsistent Agreements. The Company and the Subsidiary
Guarantors, jointly and severally, represent, warrant and agree that (i) they
have not entered into and shall not, on or after the date of this Agreement,
enter into any agreement that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof,
(ii) they have not previously entered into any agreement which remains in effect
granting any registration rights with respect to any of the Company's debt
securities to any person and (iii) without limiting the generality of the
foregoing, without the written consent of the Holders of a majority in aggregate
principal amount of the then outstanding Transfer Restricted Securities, they
shall not grant to any person the right to request the Company to register any
debt securities of the Company under the Securities Act unless the rights so
granted are not in conflict or inconsistent with the provisions of this
Agreement.
26
<PAGE>
(j) No Piggyback on Registrations. Neither the Company nor any of
its security holders (other than the Holders of Transfer Restricted Securities
in such capacity) shall have the right to include any securities of the Company
in any Shelf Registration or Registered Exchange Offer other than Transfer
Restricted Securities.
(k) Severability. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
27
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Subsidiary Guarantors and the Initial Purchasers.
Very truly yours,
GRUPO IUSACELL, S.A. de C.V.
By /s/ Howard F. Zuckerman
--------------------------------------
Title: Vice President and
Chief Financial Officer
S.O.S. TELECOMUNICACIONES, S.A.
de C.V.
By /s/ Howard F. Zuckerman
--------------------------------------
Title: Principal Financial
Officer
IUSACELL, S.A. de C.V.
By /s/ Howard F. Zuckerman
--------------------------------------
Title: Principal Financial
Officer
SISTECEL, S.A. de C.V.
By /s/ Howard F. Zuckerman
--------------------------------------
Title: Principal Financial
Officer
COMUNICACIONES CELULARES de
OCCIDENTE, S.A. de C.V.
By /s/ Howard F. Zuckerman
--------------------------------------
Title: Principal Financial
Officer
28
<PAGE>
SISTEMAS TELEFONICOS PORTATILES
CELULARES, S.A. de C.V.
By /s/ Howard F. Zuckerman
--------------------------------------
Title: Principal Financial
Officer
TELECOMUNICACIONES del GOLFO,
S.A. de C.V.
By /s/ Howard F. Zuckerman
--------------------------------------
Title: Principal Financial
Officer
INMOBILIARIA MONTES URALES 460,
S.A. de C.V.
By /s/ Howard F. Zuckerman
--------------------------------------
Title: Principal Financial
Officer
MEXICAN CELLULAR INVESTMENTS,
INC.
By /s/ Howard F. Zuckerman
--------------------------------------
Title: Vice President,
Treasurer and Chief
Financial Officer
(Principal Financial
Officer and Principal
Accounting Officer)
IUSANET, S.A. de C.V.
By /s/ Howard F. Zuckerman
--------------------------------------
Title: Principal Financial
Officer
29
<PAGE>
GMD COMUNICACIONES, S.A. de
C.V.
By: /s/ Howard F. Zuckerman
-------------------------------------
Authorized Signatory
Accepted:
CHASE SECURITIES INC. HERMES TELECOMUNICACIONES,
S.A. de C.V.
By /s/ R. David McDonough By: /s/ Howard F. Zuckerman
----------------------------- -------------------------------------
Authorized Signatory Authorized Signatory
SALOMON BROTHERS INC
By /s/ David M. Diwik
-----------------------------
Authorized Signatory
30
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Securities received in exchange for
Securities where such Securities were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company and the
Subsidiary Guarantors have agreed that, for a period of 180 days after the
Expiration Date (as defined herein), they will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution".
31
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Securities for its own
account in exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution".
32
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Securities
received in exchange for Securities where such Securities were acquired as a
result of market-making activities or other trading activities. The Company and
the Subsidiary Guarantors have agreed that, for a period of 180 days after the
Expiration Date, they will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until _______________, 199_, all dealers effecting transactions in the
Exchange Securities may be required to deliver a prospectus.
Neither the Company nor any of the Subsidiary Guarantors will
receive any proceeds from any sale of Exchange Securities by broker-dealers.
Exchange Securities received by broker-dealers for their own account pursuant to
the Registered Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Securities or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such Exchange Securities. Any
broker-dealer that resells Exchange Securities that were received by it for its
own account pursuant to the Registered Exchange Offer and any broker or dealer
that participates in a distribution of such Exchange Securities may be deemed to
be an "underwriter" within the meaning of the Securities Act and any profit on
any such resale of Exchange Securities and any commission or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days after the Expiration Date the Company and
the Subsidiary Guarantors will promptly send additional copies of this
Prospectus and any amendment or supplement to this Prospectus to any
broker-dealer that requests such documents in the Letter of Transmittal. The
Company and the Subsidiary Guarantors have agreed to pay all expenses incident
to the Registered Exchange Offer (including the expenses of one counsel for the
Holders of the Securities) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
33
<PAGE>
ANNEX D
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS
OR SUPPLEMENTS THERETO.
Name:____________________________________________
Address:_________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
34
EXHIBIT 5.1 - OPINION OF DE OVANDO
Y MARTINEZ DEL CAMPO, S.C.
<PAGE>
October 7, 1997
Grupo Iusacell, S.A. de C.V.
Montes Urales 460
3rd Floored
Col. Lomas de Chapultepac
Deleg. Miguel Hidalgo, C.P.
1100 Mexico, D.F.
Re: Grupo Iusacell, S.A. de C.V.
Registration Statement No. 33-
Gentlemen:
We have acted as special Mexican counsel to Grupo Iusacell, S.A. de
C.V. ("Iusacell"), and in such capacity have reviewed the above-referred
Registration Statement (the "Registration Statement"), and the forms of
agreements filed as Exhibits thereto (the "Agreements"), pursuant to which
Iusacell proposes to exchange up to U.S.$150,000,000 aggregate principal amount
of its 10% Series B Senior Notes due 2004 (the "New Notes") for a like principal
amount of its 10% Senior Notes due 2004 (the "Old Notes").
In such examination, we have assumed (i) the genuineness of all
signatures and (ii) the authenticity of all documents submitted to us as
originals the conformity to original documents of documents submitted to us as
forms or certified or photostatic copies and the authenticity of the originals
of such latter documents.
It is our opinion that under and with respect to the present laws of
the United Mexican States, the New Notes have been duly authorized and, when
executed and delivered by Iusacell and countersigned by First Union National
Bank, as Trustee, pursuant to
2
<PAGE>
the Indenture dated as of July 25, 1997, and delivered to and exchanged for the
Old Notes by the holders as contemplated by the Registration Statement, will
constitute valid and legally binding direct, general and unconditional
obligations of Iusacell, enforceable in accordance with their terms, subject to
bankruptcy, suspension of payments, insolvency, reorganization, moratorium, or
similar laws now or hereafter in effect affecting the enforcement of creditor's
rights generally. This opinion is further subject to the qualifications set
forth in our opinion of July 25, 1997, addressed to Chase Securities, Inc. and
Solomon Brothers, Inc. which qualifications are incorporated herein by
reference.
We hereby consent to the filing of this opinion with the
Registration Statement and to the reference to ourselves under the caption
"Enforceability of Civil Liabilities Against Foreign Persons", "Mexican
Taxation" and "Legal Matters" in the
Registration Statement.
Very truly yours,
/s/ Javier Martinez del Campo
De Ovando y Martinez del Campo, S.C.
Mexican counsel to Grupo Iusacell,
3
EXHIBIT 5.2 - OPINION OF
ROGERS & WELLS
To be filed by amendment.
4
EXHIBIT 8.1 - OPINION OF
ROGERS & WELLS - TAX MATTERS
5
<PAGE>
October 7, 1997
Grupo Iusacell, S.A. de C.V.
Montes Urales 460
3rd Floor
Col. Lomas de Chapultepac
Deleg. Miguel Hidalgo, C.P.
1100 Mexico, D.F.
Re: Grupo Iusacell, S.A. de C.V.
Registration Statement No.
Dear Sirs:
We have acted as special United States counsel to Grupo Iusacell,
S.A. de C.V., a Mexican corporation (the "Company"), in connection with the
preparation of the above-captioned Registration Statement, as amended (the
"Registration Statement"), and the forms of agreements filed as Exhibits thereto
(the "Agreements"), pursuant to which the Company proposes to exchange (the
"Exchange Offer") up to U.S.$150,000,000 aggregate principal amount of its 10%
Series B Senior Notes due 2004 (the "New Notes") for a like principal amount of
its 10% Senior Notes due 2004 (the "Old Notes").
In rendering the opinions expressed herein, we have examined
originals or copies, certified or otherwise identified to our satisfaction, of
such documents, corporate records and other instruments as we have deemed
necessary or appropriate for the purpose of rendering this opinion.
In addition, we have examined the Company's Registration Statement
on Form F-4 relating to the Exchange Offer, filed with the Securities and
Exchange Commission (the "Commission") pursuant to the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder.
As to questions of fact material to this opinion, we have, with your
approval, where relevant facts were not independently established, relied upon,
among other things, the representations made in the Registration Statement.
Capitalized
6
<PAGE>
terms not otherwise defined herein shall have the meanings set forth in the
Registration Statement.
The opinions set forth below are based upon the Internal Revenue
Code of 1986, as amended (the "Code"), the regulations promulgated by the
Treasury Department, published administrative announcements and rulings of the
Internal Revenue Service and court decisions, all as of the date of this letter.
Based on and subject to the foregoing, and such examinations of law
as we have deemed necessary, it is our opinion that no gain or loss will be
realized for U.S. federal income tax purposes upon an exchange of the Old Notes
for the New Notes pursuant to the Exchange Offer, because the Old Notes will be
exchanged for property that does not differ materially either in kind or extent
from the Old Notes. A U.S. Holder will have the same basis and holding period in
the New Notes that it had in the Old Notes immediately prior to the exchange.
The opinions set forth in this letter represent our conclusions as
to the application of Federal income tax law existing as of the date of this
letter to the transactions described herein. We can give no assurance that
legislative enactments, administrative changes or court decisions may not be
forthcoming that would modify or supersede our opinions.
The opinions contained herein are limited to those matters expressly
covered; no opinion is to be implied in respect of any other matter. The
opinions set forth herein are as of the date hereof and we disclaim any
undertaking to update this letter or otherwise advise you as to any changes of
law or fact that may hereinafter be brought to our attention. The opinions set
forth herein may not be relied on by any person or entity other than you without
our prior written consent.
Very truly yours,
/s/ Rogers & Wells
7
EXHIBIT 10.1 - U.S.$225.0 MILLION LOAN
AGREEMENT
To be filed by amendment
8
EXHIBIT 10.2 - U.S.$150 MILLION
DEBENTURE AGREEMENT
9
<PAGE>
BELL ATLANTIC INTERNATIONAL, INC.
1310 North Court House Road
Arlington, Virginia 22201
July 25, 1997
Grupo Iusacell, S.A. de C.V.
Montes Urales 460
3rd Floor
Col. Lomas de Chapultepec
Deleg. Miguel Hidalgo, C.P.
11000 Mexico, D.F.
Re: Debenture Purchase Agreement
Ladies and Gentlemen:
This letter agreement (this "Agreement"), together with the exhibits
attached hereto, is intended to confirm the commitment of Bell Atlantic
International, Inc., a Delaware corporation ("BAII"), to lend to Grupo Iusacell,
S.A. de C.V., a limited liability stock corporation organized under the laws of
Mexico (the "Company"), up to U.S.$150,000,000 upon the terms and subject to the
conditions set forth in this Agreement and in the Debentures (as defined below).
Capitalized terms used but not otherwise defined herein shall have the
respective meanings ascribed thereto in the Debentures.
In consideration of the sum of U.S.$10 in hand paid by each of BAII and
the Company to the other, the mutual promises set forth herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, BAII and the Company hereby agree as follows:
1. Borrowings. (a) BAII agrees, subject to the terms and conditions set
forth in this Agreement and in the Debentures, to make one or more loans (each,
individually, a "Loan" and, collectively, the "Loans") to the Company during the
period commencing on (and including) the date hereof and ending on (and
including) September 30, 1999. The maximum aggregate principal amount of all
Loans made pursuant to this Agreement shall be U.S.$150,000,000. Each Loan shall
be in a minimum principal amount of the lesser of (x) U.S.$3,500,000 and (y) an
amount equal to U.S.$150,000,000 minus the aggregate principal amount of all
other
10
<PAGE>
Loans made on or prior to the applicable Funding Date (as defined below)
pursuant to this Agreement. Each Loan in a principal amount in excess of
U.S.$3,500,000 shall be in an integral multiple of U.S.$100,000.
(b) Each Loan to be made hereunder shall require advance written notice (a
"Borrowing Notice") to BAII from the Company delivered in accordance with the
provisions contained in Section
of the Debentures, which Borrowing Notice shall (i) be irrevocable, (ii)
specify the requested funding date of such Loan, which shall be a Business Day
(the "Funding Date"), (iii) be received not later than five (5) Business Days
prior to such Funding Date, (iv) specify the principal amount of the Loan
requested, (v) specify the location and number of the Company's account with a
bank in New York City to which funds are to be disbursed, (vi) specify the
use(s) of the proceeds and (vii) be accompanied by the Officer's Certificate
referred to in Section 5(b)(vii) hereof.
(c) Subject to the conditions set forth in this Paragraph 1 and Paragraph
hereof, BAII shall make available, on the Funding Date specified for such Loan
in the Borrowing Notice therefor, the amount of such Loan by wire transfer of
U.S. Dollars in immediately available funds to such account of the Company as
shall be designated in such Borrowing Notice.
2. Debentures. (a) Each Loan shall be evidenced by one or more debentures
of the Company substantially in the form of Exhibit A hereto (the "Original
Debentures").
(b) On each Interest Payment Date prior to the Maturity Date, the Company
shall, as provided in the Debentures, (unless and to the extent BAII elects
otherwise) pay interest on the Debentures through the issuance of additional
debentures substantially in the form of Exhibit B hereto (the "Additional
Debentures"; the Original Debentures and the Additional Debentures are
hereinafter sometimes referred to individually as a "Debenture" and,
collectively, as the "Debentures") in an aggregate principal amount equal to all
or a portion of (as designated by BAII) the amount of interest that would be
payable with respect to the Debentures if such interest were paid in cash or, at
BAII's option, pay such interest in whole or in part in cash. The Company, at
its expense, shall issue and deliver to the applicable Holders any such
Additional Debentures on the applicable Interest Payment Dates.
3. Repayment of Loans. The Company will pay the principal of and interest
on the Loans in accordance with the terms of the Debentures.
4. Representations and Warranties. (a) The Company hereby represents and
warrants to BAII as follows (subject to BAII taking the actions contemplated by
Section hereof), each of which representations and warranties shall, by the
Company's requesting a Loan and accepting the proceeds thereof, be deemed
automatically
11
<PAGE>
to have been re-made in all material respects as of each date on which the
Company requests such Loan and accepts the proceeds thereof, except to the
extent such representations and warranties expressly relate to an earlier date,
in which case such representations or warranties shall be true and correct in
all material respects as of such earlier date:
(i) Authorization. Except as set forth on Schedule 4(a)(i) hereto,
the Company has the full corporate power and authority to execute and
deliver this Agreement and to issue the Debentures and to perform all of
its obligations hereunder and under the Debentures. The execution,
delivery and performance of the terms of this Agreement and the Debentures
by the Company have been duly authorized by all necessary corporate and
stockholder action, except as set forth on Schedule 4(a)(i).
(ii) Consents. The execution and delivery by the Company of this
Agreement, the issuance of the Debentures and performance of the Company's
obligations under this Agreement and the Debentures do not require any
consent, approval, authorization or order of, notice to, or declaration,
filing or registration with, any Governmental Authority or stock exchange,
except those (if any) that have been obtained and are in full force and
effect and have been disclosed in writing to BAII, and except further for
such notices as may be required to be filed with the Mexican Comision
Federal de Competencia (the "Competition Commission") and the Mexican
Registro Nacional de Inversiones Extranjeras upon conversion of the
Debentures into Series A Shares.
(iii) Compliance with Other Instruments. Neither the execution and
delivery of this Agreement or the Debentures, nor the fulfillment of the
terms set forth in this Agreement or the Debentures and the consummation
of the transactions contemplated by this Agreement or the Debentures,
will: (A) conflict with or constitute a breach of, or constitute a default
under or an event which, with or without notice or lapse of time or both,
would be a breach of or default under or violation of the estatutos
sociales or other organizational documents of the Company or any
agreement, document, indenture, permit, mortgage or other instrument or
undertaking by which the Company or any of its subsidiaries is bound or to
which any of their properties are subject, or give rise to a right
thereunder to require any payment to be made by the Company or its
subsidiaries, or would be a violation of any law, administrative
regulation, judgment, order or decree applicable to the Company or any of
its subsidiaries; (B) result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries; (C) result in the loss of any license, certificate,
legal privilege or legal right enjoyed or possessed by the Company or any
of its subsidiaries; (D) give any party to any agreement to which the
Company or any of its
12
<PAGE>
subsidiaries is a party a right of termination; or (E) except those that
have been obtained and disclosed to BAII in writing, require the consent
of any other Person under any agreement, indenture, mortgage, document or
other instrument or undertaking by which the Company or any of its
subsidiaries is bound or to which any of their properties are subject.
(iv) Enforceable Obligation. This Agreement constitutes, and the
Debentures, when executed and delivered by the Company will constitute, a
legal, valid and binding obligation of the Company enforceable in
accordance with their respective terms, subject, as to enforcement, only
to bankruptcy, insolvency, reorganization, moratorium, or similar laws at
the time in effect affecting the enforceability of the rights of creditors
generally.
(v) Organization; Powers. The Company and each of its subsidiaries
is duly organized and validly existing under the laws of its jurisdiction
of incorporation, has all requisite power and authority, and has all
material governmental licenses, authorizations, consents and approvals
necessary to own its assets and to carry on its business as now conducted
and, except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect,
is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required.
(vi) Litigation. There are no actions, suits or proceedings by or
before any arbitrator or Governmental Authority pending against or, to the
knowledge of the Company, threatened against or affecting the Company or
any of its subsidiaries (i) as to which there is a reasonable possibility
of an adverse determination and that, if adversely determined, could
reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect (other than matters disclosed in writing to BAII
on or prior to the date of this Agreement) or (ii) that involve this
Agreement or any Debenture.
(vii) Use of Proceeds. The proceeds of the Debentures will be used
only to refinance existing indebtedness of the Company and its
subsidiaries, to fund Capital Expenditures and/or for other general
corporate purposes.
(viii) Conversion Shares. The Company has reserved out of its
authorized but unissued stock, free from preemptive rights and solely for
issuance and delivery upon the conversion of the Debentures, such number
of its duly authorized Series A Shares or other securities as from time to
time shall be issuable upon the conversion of the Debentures. No further
corporate action shall be required for the valid issuance of such
securities upon the conversion of the
13
<PAGE>
Debentures, except that following any conversion of the Debentures, the
Board of Directors of the Company has been authorized and instructed to
amend the Company's estatutos sociales to reflect the corresponding
increase in capital and number of Series A Shares resulting from any such
conversion, and to take customary action to formalize and register any
such amendment. The Series A Shares or other securities as from time to
time shall be issuable upon the conversion of the Debentures are not, and
shall continue not to be, subject to preemptive or similar rights of any
Person, and when issued upon conversion of the Debentures in accordance
with the terms of this Agreement and the Debentures, shall be duly and
validly issued, fully paid and nonassessable.
(b) BAII hereby represents and warrants to the Company as follows (each of
which representations and warranties shall, by BAII's making a Loan and
accepting a Debenture, be deemed automatically to have been re-made in all
material respects as of each date on which BAII makes such Loan and accepts such
Debenture, except to the extent such representations and warranties expressly
relate to an earlier date, in which case such representations or warranties
shall be true and correct in all material respects as of such earlier date):
(i) Authorization. BAII has the full corporate power and authority
to execute and deliver this Agreement and to perform all of its
obligations hereunder. The execution, delivery and performance of the
terms of this Agreement by BAII have been duly authorized by all necessary
corporate and stockholder action.
(ii) Consents. The execution and delivery by BAII of this Agreement
and performance of BAII's obligation under this Agreement do not require
any consent, approval, authorization or order of, notice to, or
declaration, filing or registration with, any Governmental Authority,
except those (if any) that have been obtained and are in full force and
effect, and have been disclosed in writing to the Company and except for
such notices as may be required to be filed with the Competition
Commission.
(iii) Compliance with Other Instruments. Neither the execution and
delivery of this Agreement, nor the fulfillment of the terms set forth in
this Agreement and the consummation of the transactions contemplated by
this Agreement, will: (A) conflict with or constitute a breach of, or
constitute a default under or an event which, with or without notice or
lapse of time or both, would be a breach of or default under or violation
of the certificate of incorporation or other organizational documents of
BAII or any agreement, document, indenture, permit, mortgage or other
instrument or undertaking by which BAII or any of its subsidiaries is
bound or to which any of their properties are subject, or give rise to a
right thereunder to require any payment to be made by BAII or its
14
<PAGE>
subsidiaries, or would be a violation of any law, administrative
regulation, judgment, order or decree applicable to BAII or any of its
subsidiaries; (B) result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of BAII or any of its
subsidiaries; (C) result in the loss of any license, certificate, legal
privilege or legal right enjoyed or possessed by BAII or any of its
subsidiaries; (D) give any party to any agreement to which BAII or any of
its subsidiaries is a party a right of termination; or (E) except those
that have been obtained and disclosed to the Company in writing, require
the consent of any other Person under any agreement, indenture, mortgage,
document or other instrument or undertaking by which BAII or any of its
subsidiaries is bound or to which any of their properties are subject.
(iv) Enforceable Obligation. This Agreement constitutes a legal,
valid and binding obligation of BAII enforceable in accordance with its
terms, subject, as to enforcement, only to bankruptcy, insolvency,
reorganization, moratorium, or similar laws at the time in effect
affecting the enforceability of the rights of creditors generally.
(v) Organization; Powers. BAII is duly organized and validly
existing under the laws of the jurisdiction of its organization, has all
requisite power and authority, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and to
carry on its business as now conducted.
(vi) Accredited Investor. BAII is an accredited investor as such
term is defined in Rule 501(a)(3) promulgated under the Act.
(vii) Acquiring for Own Account. BAII is acquiring the Debentures
for its own account for investment purposes and not with a view to, or for
offer or sale in connection with, any distribution thereof.
(viii) Restrictions on Transfer. BAII expressly understands and
acknowledges that the Debentures have not been registered under the Act
and, accordingly, agrees to offer, sell or otherwise transfer the
Debentures only pursuant to a registration under the Act and any other
applicable securities law, or an exemption therefrom.
5. Conditions to Borrowing. (a) The obligation of BAII to make the initial
Loan on the initial Funding Date is subject to the following conditions:
(i) BAII shall have received a counterpart of this Agreement
executed by the Company in the space indicated below evidencing the
Company's agreement with the terms herein contained;
15
<PAGE>
(ii) BAII shall have received the following documents, all in form
and substance reasonably satisfactory to BAII:
(A) A certified copy of the estatutos sociales of the Company;
(B) A certificate of the Secretary or General Counsel of the
Company as to enabling resolutions and incumbency of officers of the
Company; and
(C) A favorable written opinion addressed to BAII of De Ovando
y Martinez del Campo, S.C., special Mexican counsel to the Company,
substantially in the form of Exhibit C hereto; and
(iii) Prior to or simultaneously with the funding of the initial
Loan on the initial Funding Date, (A) the Company shall have received (x)
the net proceeds of the offering of the Senior Notes and (y) the proceeds
of the initial loans under the Senior Credit Agreement, and (B) the
Company shall have repaid all outstanding principal and interest owed by
the Company to Bell Atlantic New Zealand Holdings, Inc.
(b) The obligation of BAII to make each Loan on the Funding Date therefor
is subject to the following conditions:
(i) BAII shall have received the Borrowing Notice with respect to
such Loan required by Paragraph hereof in accordance with the provisions
of said paragraph;
(ii) The representations and warranties of the Company set forth in
Section hereof shall be true and correct in all material respects on and
as of the Funding Date of such Loan with the same effect as though such
representations and warranties had been made on and as of such Funding
Date, except to the extent such representations and warranties expressly
relate to an earlier date, in which case such representations or
warranties shall be true and correct in all material respects as of such
earlier date;
(iii) On and as of the Funding Date of such Loan and immediately
after giving effect to such Loan, no event which would constitute a
Default or an Event of Default shall have occurred and be continuing;
(iv) The Company shall be in compliance with the covenants set forth
in Section 4 of the Debentures, which Section is incorporated herein by
reference whether or not a Debenture is outstanding;
(v) The Debenture or Debentures evidencing such Loan shall have been
duly executed and completed by the Company;
16
<PAGE>
(vi) On or before the Funding Date of such Loan, the Company shall
have taken all action necessary to enable the Company to comply with
Section of the Debentures; and
(vii) The Company shall have delivered to BAII a certificate of its
chief financial officer dated as of the Funding Date of such Loan,
certifying as to satisfaction of the conditions precedent set forth in
clauses (ii) and (vi) of this Section 5(b) and, if applicable, clauses
(iii) and (iv) of this Section 5(b).
Notwithstanding the forgoing, clauses (iii) and (iv) of this Section shall not
be effective at any time that Senior Obligations (as defined in the
Subordination Agreement) are outstanding; provided, however, that clause (iii)
of this Section shall be effective irrespective of whether Senior Obligations
are outstanding if the Default or Event of Default is the failure of the Company
to pay all or any portion of principal or interest under a Debenture and such
failure to pay is not a result of the Company's compliance with the
Subordination Agreement.
6. Expiration or Termination of Commitment. The commitment of BAII to make
Loans hereunder shall terminate automatically and all obligations of BAII to
make Loans hereunder shall forthwith be void and of no effect on and after
October 1, 1999.
7. Certain Agreements of BAII. BAII shall take such actions in its
capacity as an owner of equity securities of the Company, and shall cause its
designees as directors of the Company to take such actions, as are necessary to
permit the Company to comply with Section 6.6 of the Debentures, including,
without limitation, the notice that may be required to be filed with the
Competition Commission and the Mexican Registro Nacional de Inversiones
Extranjeras (the "National Registry") upon conversion of the Debentures into
Series A Shares (or other securities).
8. Consents. The Company covenants and agrees to use its reasonable best
efforts to obtain all authorizations, consents, orders, permits or approvals of,
or notices to, or filings, registrations or qualifications with, any
Governmental Authority or any other Person that are required to be obtained in
connection with the issuance of the Series A Shares (or other securities) to
BAII upon conversion of the Debentures, including, without limitation, the
notice that may be required to be filed with the Competition Commission and the
National Registry upon conversion of the Debentures into Series A Shares (or
other securities).
9. Amendments and Waivers. Except as otherwise provided herein or in the
Subordination Agreement, no amendment, modification, termination or waiver of
any provision of this Agreement, or consent to any departure here from, shall in
any event be effective unless the same shall be in writing and signed by BAII
and the Company. Each amendment, modification, termination or waiver shall be
effective only in the specific instance and for
17
<PAGE>
the specific purpose for which it was given and shall not be construed as a bar
to any right or remedy which the applicable party would otherwise have on any
other occasion.
10. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of any party hereto in the exercise of any power, right or
privilege hereunder shall impair such power, right or privilege or be construed
to be a waiver of any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive of,
any rights or remedies provided by law or otherwise available.
11. Severability. The invalidity, illegality or unenforceability in any
jurisdiction of any provision in or obligation under this Agreement shall not
affect or impair the validity, legality or enforceability of the remaining
provisions or obligations under this Agreement or such provision or obligation
in any other jurisdiction. The parties agree to negotiate in good faith to
replace any such invalid, illegal or unenforceable provision with a new valid,
legal and enforceable provision the economic effect of which comes as close as
possible to that of such invalid, illegal or unenforceable provision.
12. Headings. Sections, paragraphs, and headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
13. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK.
14. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
except that the Company may not assign its rights or obligations hereunder (or
any portion hereof or thereof) without the prior written consent of BAII. Any
attempted assignment or transfer by the Company without such consent shall be
null and void. Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby) any legal or equitable
right, remedy or claim under or by reason of this Agreement.
15. Counterparts. This Agreement may be executed in two or more separate
counterparts, each of which, when so executed, shall be deemed an original, and
all of said counterparts taken together shall be deemed to constitute but one
and the same instrument.
16. Notices, etc. All notices and other communications required or
permitted to be given hereunder shall be in writing and
18
<PAGE>
shall be delivered personally, telegraphed, sent by telecopier (provided that
any telecopied transmission is promptly followed by a mailed or courier copy) or
sent by certified, registered mail, or recognized express courier (postage
prepaid), to the parties at the addresses set forth below (or to such other
persons and/or addresses as the parties may specify by due notice to the
others). Notices or other communications given by certified or registered mail
shall be deemed given ten (10) Business Days after the date of mailing. Notices
or other communications sent in any other manner shall be deemed given only when
actually received.
(i) If to the Company, to:
Grupo Iusacell, S.A. de C.V.
Montes Urales 460
3rd Floor
Colonia Lomas de Chapultepec
Deleg. Miguel Hidalgo, C.P.
11000, Mexico, D.F.
Facsimile No.: 011 525 104 41 57
Attention: Howard F. Zuckerman, Vice President - Finance and
Audit and Chief Financial Officer
with copies to:
Grupo Iusacell, S.A. de C.V.
Montes Urales 460
2nd Floor
Colonia Lomas de Chapultepec
Deleg. Miguel Hidalgo, C.P.
11000, Mexico, D.F.
Facsimile: 011 525 104 4172
Attention: Ruben Perlmutter, Vice President - Mergers and
Acquisitions and General Counsel
and
De Ovando y Martinez del Campo, S.C.
Bosque de Alisos 47B
Suite 101
Col. Bosque de las Lomas
C.P. 05120 Mexico, D.F.
Facsimile No.: 011-525-259-5259
Attention: Lic. Javier Martinez del Campo
(ii) If to BAII, to:
Bell Atlantic International, Inc.
1310 North Court House Road
5th Floor
Arlington, Virginia 22201
Facsimile No.: (703) 312-7784
Attention: President and Chief Executive Officer
19
<PAGE>
with copies to:
Bell Atlantic Corporation
1717 Arch Street - 47E
Philadelphia, Pennsylvania 19103
Facsimile No.: (215) 563-4174
Attention: Treasurer
and
Bell Atlantic International, Inc.
1717 Arch Street - 48E
Philadelphia, Pennsylvania 19103
Facsimile No.: (215) 963-9195
Attention: Thomas R. McKeough, Vice President
17. Expenses. The Company shall pay (i) all reasonable and documented
out-of-pocket expenses incurred by BAII in connection with the negotiation
execution and delivery of this Agreement and any Debenture not to exceed
U.S.$2,500, (ii) all reasonable and documented out-of-pocket expenses incurred
by BAII, including the reasonable fees, charges and disbursements of counsel for
BAII, in connection with any amendments, modifications or waivers of the
provisions of this Agreement or any Debenture not to exceed U.S.$2,500 in each
instance, and (iii) all reasonable and documented out-of-pocket expenses
incurred by BAII or any Holder, including the fees, charges and disbursements of
counsel for BAII or any Holder, in connection with the enforcement or protection
of its rights in connection with this Agreement, any Debenture or the Loans.
18. Integration. This Agreement and the Schedule and Exhibits hereto which
constitute part hereof and any Debentures issued pursuant hereto constitute the
entire contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof.
19. Jurisdiction. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY SUBMITS TO THE JURISDICTION OF THE SUPREME COURT OF THE STATE OF
NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF
THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, AND
TO THE COURTS OF ITS OWN CORPORATE DOMICILE IN RESPECT OF ACTIONS BROUGHT
AGAINST IT AS A DEFENDANT IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY DEBENTURE, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN SUCH COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW.
20
<PAGE>
20. Venue. THE COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DEBENTURE IN ANY COURT
REFERRED TO IN PARAGRAPH 19 ABOVE. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT.
21. Service of Process. The Company hereby irrevocably designates,
appoints and empowers CT Corporation having its address at the date hereof at
1633 Broadway, New York, New York 10019, U.S.A. as its process agent to receive
for and on its behalf service of process in New York in any legal action or
proceeding with respect to this Agreement or any Debenture. It is understood
that a copy of any such process served on such process agent shall be promptly
forwarded by air mail by the Person commencing such proceeding to the Company at
its address specified in Paragraph 16 above, but the failure of the Company to
receive such copy shall not affect in any way the service of such process as
aforesaid. Nothing in this Agreement or in the Debentures will affect the right
of any party hereto to service of process in any other manner permitted by law.
22. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR ANY DEBENTURE (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.
23. Waiver of Sovereign Immunity. The Company acknowledges and agrees that
the activities contemplated by the provisions of this Agreement and any
Debenture 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 Debenture 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 or execution, or otherwise) or claim thereto which may now or hereafter
exist, and agrees not to assert any such right or claim in any such action or
proceeding, whether in the United States of America or otherwise.
21
<PAGE>
24. Use of English Language. This Agreement has been negotiated and
executed in the English language. All certificates, reports, notices and other
documents and communications given or delivered pursuant to this Agreement
(including any modifications or supplements hereto) shall be in the English
language, or accompanied by a certificated 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.
25. Survival of Representations. The representations and warranties of the
parties made or deemed made under this Agreement and any Debenture shall survive
the execution and delivery of this Agreement and the Debentures.
26. Miscellaneous. In addition to the terms and provisions contained
herein, the agreements contained herein are subject to the provisions, terms and
conditions set forth in the Debentures.
Very truly yours,
BELL ATLANTIC INTERNATIONAL,
INC.
By: /s/ Thomas R. McKeough
---------------------------------
Title: Vice President
ACCEPTED AND AGREED as of July 25, 1997:
GRUPO IUSACELL, S.A. DE C.V.
By: /s/ Howard F. Zuckerman
-------------------------------------
Title: Vice President and
Chief Financial Officer
By: /s/ Carlos Guiterrez Cardona
-------------------------------------
Title: General Counsel
22
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Schedule 4(a)(i)
As of the date of this Agreement, the Company's stockholders have not approved
the following terms of this Agreement and the Debentures: (1) the minimum
principal amount of U.S.$3,500,000 referred to in Section 1(a) of this
Agreement; (2) the Interest Payment Dates of the first day of January and July
of each year; (3) the Conversion Price for the Additional Debentures; and (4)
the ending date of the period during which BAII is obligated to make Loans. The
Company agrees to use its best reasonable efforts to cause such terms to be
ratified by the stockholders of the Company at the next meeting of such
stockholders. If such terms are not ratified by May 31, 1998, the following
terms shall apply to this Agreement and the Debentures without any action by the
Company, BAII or any other Holder:
1. If the minimum principal amount of U.S.$3,500,000 referred to twice in
Section 1(a) of this Agreement is not so ratified, such amount shall be deleted
from Section 1(a) and replaced in both places with U.S.$25,000,000.
2. If the Interest Payment Dates of the first day of January and July of each
year referenced in the first paragraph of Exhibit A and Exhibit B are not so
ratified, the words "the first day of January and July" shall be deleted from
the first paragraph of Exhibit A, Exhibit B, and any then-outstanding
Debentures, and replaced with the words "the last day of June and December".
3. If the Conversion Price for the Additional Debentures is not so ratified, the
words "day period ending with five trading days remaining before" shall be
deleted from Section 6.1 of Exhibit B and of any then-outstanding Additional
Debentures, and replaced with the words "days immediately preceding".
4. If the September 30, 1999 date in Section 1(a) of the Agreement and the
October 1, 1999 date in Section 6 of the Agreement are not so ratified, such
dates shall be deleted and replaced with the dates "June 30, 1999" and "July 1,
1999", respectively.
<PAGE>
EXHIBIT A
[FORM OF ORIGINAL DEBENTURE]
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH
QUALIFIES AS A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE ACT AND THE RULES
AND REGULATIONS PROMULGATED THEREUNDER.
NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, NEITHER THE PRINCIPAL
OF NOR THE CASH INTEREST ON THE INDEBTEDNESS CREATED OR EVIDENCED BY THIS
INSTRUMENT OR RECORD SHALL BECOME DUE OR BE PAID OR PAYABLE EXCEPT TO THE EXTENT
PERMITTED UNDER THE SUBORDINATION AGREEMENT DATED AS OF JULY 25, 1997, AMONG
BELL ATLANTIC INTERNATIONAL, INC., GRUPO IUSACELL, S.A. DE C.V., THE CHASE
MANHATTAN BANK AND FIRST UNION NATIONAL BANK (THE "SUBORDINATION AGREEMENT"),
WHICH SUBORDINATION AGREEMENT IS INCORPORATED HEREIN WITH THE SAME EFFECT AS IF
FULLY SET FORTH HEREIN.
Convertible Subordinated Debenture
R-__ U.S.$_________
______________, 19__
GRUPO IUSACELL, S.A. DE C.V., a corporation duly organized and existing
under the laws of Mexico (the "Company"), for value received, hereby
unconditionally promises to pay to the order of BELL ATLANTIC INTERNATIONAL,
INC. ("BAII"), or its permitted transferees (BAII or any Eligible Transferee (as
hereinafter defined) to which this Debenture is transferred being the "Holder"),
the principal sum of _______ U.S. DOLLARS ($________) on December 31, 1999 (the
"Maturity Date") (subject to Sections and 1 and 5.1 hereof) in immediately
available funds to BAII c/o Bell Atlantic Financial Services, Inc. at Mellon
Bank West - Pittsburgh, PA, or at such other place as may be designated in
writing by the Holder, or its assigns, and to pay interest at said office in
like money in respect of each Interest Period at a rate per annum equal to LIBOR
for such Interest Period plus five percent (5%) per annum, from the date hereof
on the unpaid principal amount hereof until payment in full thereof. Interest
shall accrue daily and, subject to the terms of the Subordination Agreement
shall be payable prior to the Maturity Date by issuance of Additional Debentures
(as defined in the Agreement referred to below) or, at the option of the Holder,
in part or in whole, in cash, semi-annually in arrears on the first day of
January and July in each year (each, an "Interest Payment Date") commencing with
the first such Interest Payment Date next succeeding the date hereof and upon
each payment of principal (whether upon maturity, acceleration, prepayment or
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otherwise). All computations of interest under this Debenture shall be made on
the basis of a year of 360 days and actual days elapsed. If the Holder elects to
have accrued interest on the unpaid principal amount hereof that is payable at
any time prior to the Maturity Date be paid, in whole or in part, in cash, it
shall so notify the Company in writing not less than ten (10) Business Days
prior to the date on which such interest payment is scheduled to be made. The
Company hereby expressly waives (to the maximum extent permitted by law) any
requirements of demand, presentment, notice of protest and dishonor and all
other demands or notices of any kind or nature with respect to this Debenture.
This Debenture is one of the Debentures issued pursuant to (and as defined
in) the Debenture Purchase Agreement (the "Agreement"), dated July 25, 1997, by
and between the Company and BAII, and is subject to the provisions, terms and
conditions thereof as well as the following additional provisions, terms and
conditions:
1. NO REDEMPTION. The Company shall not have the right to redeem this
Debenture prior to maturity without the written consent of the Holder.
2. ADDITIONAL AMOUNTS.
2.1 Tax Gross-Up. All payments by the Company in respect of this
Debenture will be made after withholding or deduction for any taxes, duties,
assessments or governmental charges of whatever nature imposed, levied,
collected, withheld or assessed by Mexico or any political subdivision thereof
or taxing authority therein. The Company will pay any such amounts to the
relevant taxing or other authority prior to the date on which penalties attach
thereto, such payment to be made (if liability to pay is imposed on the Company)
for its own account, or (if liability is imposed on the Holder) on behalf of and
in the name of such Holder. The sum payable by the Company in respect of which
the relevant deduction, withholding or payment is required shall be increased to
the extent necessary to ensure that, after the making of such deduction,
withholding or payment, the Holder receives on the due date and retains (free
from any liability in respect of any such deduction, withholding or payment) a
net sum equal to what it would have received and so retained had no such
deduction, withholding or payment been required or made (the amount of any such
increase being referred to herein as an "Additional Amount"). Any reference
herein to principal, premium or interest, or any other payment in respect of
this Debenture, will be deemed also to refer to any Additional Amounts which may
be payable.
2.2 Documentation. The Company will provide the Holder with
documentation evidencing the payment of Mexican taxes in respect of which the
Company has paid any Additional Amounts, which documentation shall be legally
sufficient to obtain foreign tax credits for U.S. Federal income tax purposes,
within 60 days after payment thereof.
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3. MAXIMUM INTEREST RATE. Anything herein to the contrary notwithstanding,
the obligation of the Company to make payments of interest shall be subject to
the limitation that payments of interest shall not be required to be made to the
Holder hereof to the extent that the receipt thereof by the Holder hereof would
not be permissible under the law or laws applicable to the such Holder limiting
rates of interest which may be charged or collected by such Holder. Any such
payments of interest which are not made as a result of the limitation referred
to in the preceding sentence shall be made by the Company to such Holder on the
earliest Interest Payment Date or dates on which the receipt thereof would be
permissible under such laws applicable to such Holder limiting rates of interest
which may be charged or collected by such Holder.
4. CERTAIN COVENANTS OF THE COMPANY. The Company hereby covenants to the
Holder that, so long as this Debenture shall be outstanding:
4.1 Compliance with Senior Credit Agreement and Senior Note
Indenture. It will comply in all material respects with all of its agreements,
covenants and other undertakings set forth in the Senior Credit Agreement and
the Senior Note Indenture, which agreements, covenants and other undertakings
are, by this reference, hereby incorporated herein as if they were fully set
forth herein. Notwithstanding the forgoing, in the event that any inconsistency
arises between any of the covenants under the Senior Credit Agreement and under
the Senior Note Indenture, then the covenant or covenants that are less
restrictive on the Company shall apply for purposes of this Section.
4.2 Compliance with Shareholders Agreement. It will comply in all
material respects with all of its agreements, covenants and other undertakings
set forth in the Amended and Restated Shareholders Agreement, dated as of
February 18, 1997, among Bell Atlantic Latin America Holdings, Inc., Alejo
Peralta y Diaz Ceballos, Carlos Peralta Quintero, Iusa Grupo Comunicaciones,
S.A. de C.V., Fiusa Pasteje, S.A. de C.V., Langness Investments Limited,
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. and the Company (as such agreement may be
amended, supplemented, restated or otherwise modified from time to time) which
agreements, covenants and other undertakings are, by this reference, hereby
incorporated herein as if they were fully set forth herein.
4.3 Governmental Approvals; Concessions. (a) It will promptly obtain
from time to time at its own expense all such governmental licenses,
authorizations, consents, permits and approvals as may be required for the
Company to comply with its obligations under the Agreement and this Debenture.
(b) It will, and will cause each of its subsidiaries to,
preserve and keep in full force and effect all
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Concessions and shall comply with the Material Terms and Conditions of all
Concessions.
4.4 Existence; Conduct of Business. It will, and will cause each of
its subsidiaries to, do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its legal existence and the rights,
licenses, permits, privileges, franchises, concessions, permits, patents,
copyrights, trademarks and trade names material to the conduct of its business,
including all material permits relating to the Concessions; provided that the
foregoing shall not prohibit any merger, consolidation, liquidation or
dissolution of the type permitted under Section 6.04. of the Senior Credit
Agreement as in effect on the date of the Agreement.
4.5 Payment of Obligations. It will, and will cause each of its
subsidiaries to, pay its Indebtedness and other obligations, including
liabilities in respect of Taxes, before the same shall become delinquent or in
default, except where (a) the validity or amount thereof is being contested in
good faith by appropriate proceedings, (b) the Company or such subsidiary has
set aside on its books adequate reserves with respect thereto in accordance with
GAAP and Mexican GAAP, (c) such contest effectively suspends collection of the
contested obligation and the enforcement of any Lien securing such obligation
and (d) the failure to make payment pending such contest could not reasonably be
expected to result in a Material Adverse Effect.
4.6 Maintenance of Properties. It will, and will cause each of its
subsidiaries to, keep and maintain all property material to the conduct of its
business in good working order and condition, ordinary wear and tear excepted,
and to maintain, develop and operate such property in accordance with prudent
industry standards.
4.7 Insurance. It will, and will cause each of its subsidiaries to,
maintain with financially sound and reputable insurance companies, insurance in
such amounts and against such risks as are customarily maintained by companies
engaged in the same or similar businesses operating in the same or similar
locations.
4.8 Compliance with Laws and Material Contractual Obligations. It
will, and will cause each of its subsidiaries to, comply with all laws, rules,
regulations and orders of any Governmental Authority applicable to it or its
property and with all material contractual obligations and obligations arising
from the concessions and permits under which the Company and its subsidiaries
provide their services), except where the failure to do so, individually or in
the aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
4.9 Use of Proceeds. The proceeds of the Debentures will be used
only to repay existing Indebtedness of the Company and
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its subsidiaries, to fund Capital Expenditures and for other general corporate
purposes. No part of the proceeds of any Loan will be used, whether directly or
indirectly, for any purpose that entails a violation of any of the Regulations
of the Board of Governors of the Federal Reserve System of the United States of
America, including Regulations G, U and X.
5. EVENTS OF DEFAULT.
5.1 Events of Default. "Event of Default," wherever used herein,
means any of the following events:
(a) (i) Failure of the Company or any of its subsidiaries to pay
within three (3) Business Days after the date when due any principal of or
interest on any indebtedness owing under this Debenture, or (ii) failure of the
Company or any of its subsidiaries to pay when due or within any applicable
grace period, any principal, interest, fee, or other amounts payable on any one
or more items of Indebtedness (other than this Debenture) owing to any bank or
other creditor with an individual or aggregate principal amount outstanding of
the equivalent of U.S.$5,000,000 (or its foreign-currency equivalent) or more,
or (iii) any event or condition occurs that results in any such Indebtedness of
the Company or any of its subsidiaries becoming due prior to its scheduled
maturity or that enables or permits (with or without the giving of notice, the
lapse of time or both) the holder or holders of any such indebtedness or any
trustee or agent on its or their behalf to cause any such indebtedness to become
due, or to require the prepayment, repurchase, redemption or defeasance thereof,
prior to its scheduled maturity;
(b) The Company or any of its Significant Subsidiaries admits in
writing its present or prospective inability to pay its debts as they become due
or is otherwise generally not paying its debts as such debts become due unless
such debts are the subject of a bona fide dispute;
(c) Failure by the Company to comply with or to perform any
provision of this Debenture or the Agreement (and not constituting an Event of
Default under any of the other provisions of this Section ) and continuance of
such failure for thirty (30) days after knowledge thereof by an officer of the
Company;
(d) (i) A court enters a decree or order for relief with respect to
the Company or any of its Significant Subsidiaries in an involuntary case under
any provision of Title 11 of the United States Code entitled "Bankruptcy", as
amended and in effect from time to time, or any successor statute (the
"Bankruptcy Code") (including provisions for reorganization) or any applicable
bankruptcy, insolvency, reorganization, receivership or other similar law now or
hereafter in effect, which decree or order is not vacated or stayed or any other
similar relief is granted under any applicable federal or state law; or (ii) an
involuntary proceeding shall be commenced or an involuntary petition shall be
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filed seeking (A) liquidation, reorganization, suspension of payments or other
relief in respect of the Company or any Significant Subsidiary or its debts, or
a substantial part of its assets, under any bankruptcy, insolvency, receivership
or similar law now or hereafter in effect (including without limitation the Ley
de Quiebra y Suspension de Pagos), or (B) the appointment of a receiver,
trustee, sindico, custodian, sequestrator, conservator or similar official for
the Company or any Significant Subsidiary or for a substantial part of its
assets, and, in any such case, such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any of the
foregoing shall be entered; or
(e) The Company or any of its Significant Subsidiaries shall (i)
voluntarily commence any proceeding or file any petition seeking liquidation,
reorganization, suspension of payments or other relief under any Federal, state
or foreign bankruptcy, insolvency, receivership or similar law now or hereafter
in effect including without limitation the Ley de Quiebra y Suspension de Pagos,
(ii) consent to the institution of, or fails to contest in a timely and
appropriate manner, any proceeding or petition described in clause (d) of this
Section 5.1, (iii) apply for or consents to the appointment of a receiver,
trustee, sindico, custodian, sequestrator, conservator or similar official for
the Company or any Significant Subsidiary or for a substantial part of its
assets, (iv) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (v) make a general assignment for the
benefit of creditors or (vi) take any action for the purpose of effecting any of
the foregoing;
(f) Any representation or warranty made or deemed by or on behalf of
the Company in connection with the Agreement, this Debenture, or any amendment
or modification thereto or waiver thereunder, or in any certificate or other
document furnished pursuant thereto or in connection therewith, shall have been
incorrect in any material respect when made or deemed made and shall continue to
be incorrect in any material respect for thirty (30) days after knowledge
thereof by an officer of the Company;
(g) Any order, judgment or decree shall be entered against the
Company or any of its Significant Subsidiaries decreeing the dissolution or
split up of the Company or such Significant Subsidiary and such order shall
remain undischarged or unstayed for a period in excess of 30 days;
(h) Any Governmental Authority shall take any action to condemn,
seize, nationalize or appropriate any substantial portion of the assets of the
Company or any of its Significant Subsidiaries (either with or without payment
of compensation) or shall take any action that, in the good faith opinion of
BAII, adversely affects the ability of the Company to perform its obligations
under the Agreement or this Debenture; or the Company or any of the Significant
Subsidiaries shall be prevented from exercising normal
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control over all or a substantial part of its assets (and the same shall have
continued for 30 or more days);
(i) After the execution and delivery of this Debenture by the
Company, (i) Mexico or any competent authority thereof shall declare a
moratorium on the payment of Indebtedness by Mexico or any Governmental
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) the Company has not delivered to BAII
evidence in form and substance satisfactory to BAII that the Company is
permitted under all applicable laws, rules and regulations to pay its
obligations under this Debenture in accordance with its terms from the assets or
revenues of the Company and/or its affiliates that are located in the United
States of America and denominated in U.S. Dollars;
(j) Either (i) the government of Mexico shall take any action,
including a moratorium, having an effect on the schedule of payments of the
Company under this Debenture or otherwise, the currency in which the Company may
pay its obligation under this Debenture or the availability of foreign
currencies in exchange for Mexican Pesos or otherwise or (ii) the Company shall,
voluntarily or involuntarily, participate or take any action to participate in
any facility or exercise involving the rescheduling of the Company's debts or
the restructuring of the currency in which the Company may pay its obligations
under the Debenture;
(k) The Company or any of its Significant Subsidiaries shall fail to
pay when due any and all applicable taxes, amounts payable as Sistema de Ahorro
para el Retiro, Instituto Mexicano del Seguro Social or Instituto del Fondo
Nacional de la Vivienda para los Trabajadores quotes, except those contested in
good faith by appropriate proceedings;
(l) The failure by the Company to comply with Section 4.2 of this
Debenture or to convert this Debenture into Series A Shares or other securities
in accordance with the terms hereof and of the Agreement;
(m) The rendering of one or more judgments or decrees for the
payment of money in an aggregate amount in excess of U.S.$10,000,000 or its
foreign currency equivalent against the Company, any of its Significant
Subsidiaries or any combination thereof if (A) an enforcement proceeding thereon
is commenced or (B) such judgment or decree remains outstanding for a period of
60 days following such judgment or decree and is not effectively discharged,
waived or stayed; or
(n) The initiation of proceedings for any revocation, appropriation,
termination or cancellation of any Concession or
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material permit of the Company or any of its subsidiaries or any adverse
modification of the terms thereof.
Notwithstanding the foregoing, so long as Senior Notes are outstanding, in the
event that any of the cure periods in this Section are shorter than those in the
Senior Note Indenture, then in interpreting the Events of Default, the longer
cure periods contained in the Senior Note Indenture shall apply.
5.2 Acceleration; Rescission and Annulment. (a) If there shall occur
an Event of Default under Section , (b), (c), (f), (g), (h), (i), (j), (k), (l),
(m) or (n) above which shall not have been waived by the Holder in writing, the
Holder may, by notice to the Company, declare the unpaid principal amount of and
accrued interest on this Debenture and interest accrued thereon and all
liabilities of the Company hereunder to be forthwith due and payable; and if
there shall be an Event of Default under Section or Section above, then the
unpaid principal amount of and accrued interest on this Debenture and all
liabilities of the Company hereunder to the Holder shall become automatically
forthwith due and payable; and, in each case, the same shall thereupon become
due and payable without presentment, demand, protest or notice of any kind, all
of which are hereby expressly waived.
(b) At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained (or before this Debenture shall be converted pursuant to Section hereof
by the Holder), the Holder, by written notice to the Company, may rescind and
annul such declaration and its consequences. No such rescission shall affect any
subsequent default or impair any right consequent thereon.
(c) The Holder shall not be deemed to have actual knowledge of an
Event of Default until such Holder has been notified in writing thereof by the
Company (the Company hereby agreeing to notify the Holder in writing promptly
upon becoming aware of any Default (as defined in Section of this Debenture) or
Event of Default).
5.3 Holder May File Proofs of Claim. In case of the pendency of any
receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceeding relative to the Company or
the property or assets of the Company, the Holder (irrespective of whether the
principal of this Debenture shall then be due and payable as herein expressed or
by declaration or otherwise and irrespective of whether the Holder shall have
made any demand on the Company for the payment of overdue principal or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise, to file and prove a claim for the whole amount of principal and
interest owing and unpaid in respect of this Debenture and to file such other
papers or documents as may be necessary or advisable in order
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to have the claims of the Holder allowed in such judicial proceeding.
5.4 Restoration of Rights and Remedies. If the Holder has instituted
any proceeding to enforce any right or remedy under this Debenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company and such Holder shall be restored
severally and respectively to their former positions hereunder and, thereafter,
all rights and remedies of such Holder shall continue as though no such
proceeding had been instituted.
5.5 Rights and Remedies Cumulative. Except as otherwise provided in
Section of this Debenture with respect to the replacement or payment of this
Debenture in the event it is mutilated, destroyed, lost or stolen, no right or
remedy herein conferred upon or reserved to the Holder is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
5.6 Delay or Omission Not Waiver. No delay or omission of the Holder
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Section or by law
to the Holder may be exercised from time to time, and as often as may be deemed
expedient, by such Holder.
5.7 Waiver of Defaults. The Holder may waive, in writing, any Event
of Default or an event which, with the giving of notice or lapse of time or
both, as specified in Section hereof, would become an Event of Default (a
"Default") and its consequences; provided that no such waiver shall extend to
any other Event of Default or Default or impair any right consequent thereon.
6. CONVERSION OF SECURITIES.
6.1 Conversion Privilege and Conversion Price. Subject to the
provisions of this Section , at the option of the Holder hereof, the principal
amount of this Debenture may, at any time and from time to time prior to the
Maturity Date, be converted in whole or in part into shares of fully paid and
nonassessable Series A Shares at a conversion price (the "Conversion Price") of
U.S.$0.70 per Series A Share, which conversion price and type and number of
securities shall be subject to adjustment as provided in Section hereof.
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6.2 Exercise of Conversion Privilege. In order to exercise the
conversion privilege, the Holder shall surrender this Debenture to the Company
at its office specified in Section hereof, accompanied by a fully executed
written notice to the Company that the Holder hereof elects to convert this
Debenture or, if less than the entire principal amount of this Debenture is to
be converted, the portion thereof to be converted. Such notice shall also state
the name or names in which the certificate or certificates for shares of Series
A Shares shall be issued. As promptly as practicable after the receipt of such
notice and the surrender of this Debenture as aforesaid, the Company shall issue
and deliver at such office to such Holder a certificate or certificates for the
number of full shares of Series A Shares issuable on such conversion of this
Debenture in accordance with the provisions of this Section and cash, as
provided in Section , in respect of any fraction of a share of Series A Shares
otherwise issuable upon such conversion. Such conversion shall be deemed to have
been effected immediately prior to the close of business on the date (the "Date
of Conversion") on which such notice shall have been received by the Company and
this Debenture shall have been surrendered as aforesaid, and the person or
entity or persons or entities in whose name or names any certificate or
certificates for shares of Series A Shares shall be issuable upon such
conversion shall be deemed to have become on the Date of Conversion the holder
or holders of record of the shares represented thereby, and shall be treated for
all purposes as the record holder or holders of such shares of Series A Shares
on such date. Unless required by applicable law, the Company shall not close its
stock transfer book or stock register at any time in a manner which would
interfere with the conversion of the Debenture as provided herein. In the case
of conversion of a portion, but less than all, of this Debenture, the Company
shall execute and deliver to the Holder, at the expense of the Company, a new
Debenture registered in the Holder's name in the aggregate principal amount of
the unconverted portion of this Debenture surrendered.
6.3 Fractional Interests. The Company shall not issue fractions of
shares of Series A Shares upon conversion of this Debenture or scrip in lieu
thereof. If any fraction of a share of Series A Shares would, except for the
provisions of this Section , be issuable upon conversion of this Debenture, the
Company shall in lieu thereof pay to the person or entity entitled thereto an
amount in cash equal to the value of such fractional interest, calculated to the
nearest one-hundredth (1/100) of a share, to be computed on the basis of the
Conversion Price then in effect.
6.4 Conversion Adjustments. (a) Dividends, Etc. The number of
securities issuable upon conversion of this Debenture and the Conversion Price
of the Debentures shall be subject to adjustment from time to time upon certain
events, as follows:
(i) If the Company pays a dividend in shares of Series A Shares,
makes a distribution to all Holders of shares of any
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class of its capital stock in Series A Shares, subdivides or splits its
outstanding Series A Shares into a greater number of shares or combines
its outstanding Series A Shares into a smaller number of shares of Series
A Shares, otherwise reclassifies or recapitalizes the Series A Shares, or
in the case of a merger or consolidation of the Company with or into any
other Person, then the number of shares of Series A Shares into which this
Debenture is convertible ("Conversion Shares") shall be adjusted so that
the Holder hereof shall be entitled to receive the kind and number of
shares or other securities of the Company that it would have owned and/or
been entitled to receive as a result of any of the events described above,
had this Debenture been converted immediately before such event, effective
immediately after the effective date of such event.
(ii) Whenever the number of Conversion Shares is adjusted pursuant
to this paragraph (a), the Conversion Price per share shall also be
adjusted (to the nearest cent) by multiplying the Conversion Price per
share immediately before such adjustment by a fraction, the numerator of
which is the number of Conversion Shares immediately before such
adjustment, and the denominator of which is the number of Conversion
Shares immediately thereafter.
(iii) In the event that at any time, as a result of an adjustment
made pursuant to this paragraph (a), this Debenture shall become
convertible for any securities of the Company other than Series A Shares,
thereafter the number of such other securities so issuable upon conversion
of this Debenture and the Conversion Price with respect to such securities
shall be subject to adjustment from time to time in a manner and on terms
as equivalent as practicable to the provisions of this paragraph (a) with
respect to the Series A Shares.
(b) Preservation of Conversion Rights Upon Reclassification,
Recapitalization, Consolidation, etc. In case of any reclassification,
recapitalization or change of the outstanding Series A Shares or other
securities issuable upon conversion of this Debenture (other than a change in
par value or as a result of a subdivision or combination of Series A Shares),
any dividend or distribution not described in paragraph (a) of this Section or
any consolidation or merger of the Company with another corporation (other than
a consolidation or merger in which the Company is the surviving corporation that
does not result in any reclassification of, recapitalization of, or change in
the outstanding Series A Shares), or any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety (other than by mortgage or pledge), then the Company or such successor
or purchasing corporation, as the case may be, shall undertake that: (i) this
Debenture shall be convertible, upon payment of the Conversion Price in effect
immediately before such action multiplied by the number of shares of Series A
Shares into which this Debenture was convertible, for the kind and amount of
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shares and other securities and property that the Holder hereof would have been
entitled to receive after such action had this Debenture been converted
immediately before such action; and (ii) this Debenture, and the Conversion
Price, shall be subject to adjustments, which shall, to the greatest extent
practicable, be equivalent to, and subject to the same terms and provisions as,
the adjustments provided for in paragraph (a) of this Section . The provisions
of this paragraph shall similarly apply to successive reclassifications,
recapitalizations, consolidations, mergers, sales and conveyances.
(c) Post-Adjustment References. Following an adjustment under this
Section 6, all references in this Section 6 to the number of Series A Shares or
Conversion Shares, the kind of securities subject thereto and the Conversion
Price thereof shall be deemed to refer to such number, kind and price as
adjusted.
(d) Subordination. Notwithstanding anything to the contrary
contained herein, if, by operation of this Section 6.4 or any other provision
hereof, the Holder hereof shall receive any securities other than capital stock
of the Company, the payment and performance by the Company of all its
obligations under, and the rights and benefits of the Holder with respect to,
such securities shall be expressly subordinated to the prior indefeasible
payment in full in cash or cash equivalents of all amounts owing to the Senior
Creditors pursuant to the Senior Obligations (as defined in the Subordination
Agreement), to the same extent and in the same manner as set forth in the
Subordination Agreement with respect to the Debentures.
6.5 No Dilution or Impairment. The Company will not, by amendment of
its charter or through reorganization, consolidation, merger, dissolution, sale
of assets or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Debenture, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder hereof against dilution or other impairment. Without limiting the
generality of the foregoing, the Company will not increase the par value of any
shares of stock receivable upon the conversion of this Debenture above the
amount payable therefor upon such conversion, and at all times will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and non-assessable stock upon the exercise
of this Debenture and all other Debentures at the time outstanding.
6.6 Reservation of Stock Issuable on Conversion of Debenture, Etc.
(a) The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued stock, solely for the
issuance and delivery upon the conversion of this Debenture, such number of its
duly authorized shares of Series A Shares or other securities as from time to
time
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shall be issuable upon the exercise of this Debenture and all other Debentures
at the time outstanding.
(b) If any shares of Series A Shares or other securities to be
reserved for the purpose of conversion of this Debenture hereunder require
registration with or approval of any governmental authority under any United
States or Mexican Federal or State law before such shares may be validly issued
or delivered upon conversion, then the Company covenants that it will in good
faith and as expeditiously as possible endeavor to secure such registration or
approval, as the case may be; provided, however, that nothing in this Section
shall be deemed to affect in any way the obligations of the Company to convert
this Debenture into Series A Shares or other securities as provided in this
Section .
(c) Before taking any action which would cause an adjustment
increasing the Conversion Price to such a level that the then effective
conversion rate would be below the then par value, if any, of the Series A
Shares, (or other securities into which this Debenture is convertible) the
Company will take all corporate and other action which may, as stated in an
opinion of counsel, be necessary in order that the Company may validly and
legally issue fully paid and non-assessable shares of Series A Shares (or such
other securities) at such adjusted Conversion Price.
(d) The Company covenants that all shares of Series A Shares (or
other securities) which may be issued upon conversion of this Debenture will
upon issue be duly authorized, validly issued, fully paid and nonassessable by
the Company and free of preemptive rights.
6.7 Taxes on Conversion. The issuance and delivery of certificates
for shares of Series A Shares (or other securities into which this Debenture is
convertible) on conversion of this Debenture shall be made without charge to the
converting Holder for such certificates or for any tax or duty in respect of the
issuance or delivery of such certificates or this Debenture represented thereby
(which shall be paid by the Company).
7. SUBORDINATION. The Company, for itself, its successors and assigns, and
each Holder by its acceptance hereof, covenants and agrees that the payment and
performance by the Company of all of its obligations under this Debenture,
including, without limitation, the payment of principal of, interest on, and all
other amounts owing in respect of, or pursuant to the terms of, this Debenture,
are expressly subordinated to the prior indefeasible payment in full in cash or
cash equivalents of all amounts owing to the Senior Creditors pursuant to the
Senior Obligations (as defined in the Subordination Agreement), to the extent
and in the manner set forth in the Subordination Agreement, and the Company, for
itself, its successors and assigns, and each Holder agrees to and accept such
other terms and conditions as are set forth in the Subordination Agreement.
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8. JUDGMENT CURRENCY. (a) If, for the purpose of obtaining judgment in any
court, it is necessary to convert a sum owing hereunder in one currency into
another currency, the Company and, by its acceptance hereof, the Holder each
agrees, to the fullest extent that it may effectively do so, that the rate of
exchange used shall be that at which in accordance with normal banking
procedures in the relevant jurisdiction the first currency could be purchased
with such other currency on the Business Day immediately preceding the day on
which final judgment is given.
(b) The obligations of the Company in respect of any sum due to the Holder
shall, notwithstanding any judgment in a currency (the "Judgment Currency")
other than U.S. Dollars, be discharged only to the extent that, on the Business
Day following receipt by the Holder any sum adjudged to be so due in the
Judgment Currency, the Holder may in accordance with normal banking procedures
in the official currency market in the relevant jurisdiction purchase U.S.
Dollars with the Judgment Currency; if the amount of U.S. Dollars so purchased
is less than the sum originally due to the Holder in U.S. Dollars, the Company
agrees, as a separate obligation and notwithstanding any such judgment, to
indemnify the Holder against such loss. The obligations of the Company contained
in this Section 8 shall survive the cancellation of this Debenture and the
payment of all amounts owing hereunder.
9. MISCELLANEOUS.
9.1 Notices, etc. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be delivered
personally, telegraphed, sent by telecopier (provided that any telecopied
transmission is promptly followed by a mailed or courier copy) or sent by
certified, registered mail, or recognized express courier (postage prepaid), to
the parties at the addresses set forth below (or to such other addresses as the
parties may specify by due notice to the others). Notices or other
communications shall be deemed given only when actually received.
(a) If to the Company, to:
Grupo Iusacell, S.A. de C.V.
Montes Urales 460
3rd Floor
Colonia Lomas de Chapultepec
Deleg. Miguel Hidalgo, C.P.
11000, Mexico, D.F.
Facsimile No.: 011 525 104 41 57
Attention: Howard F. Zuckerman, Vice President - Finance and
Audit and Chief Financial Officer
with copies to:
Grupo Iusacell, S.A. de C.V.
Montes Urales 460
2nd Floor
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<PAGE>
Colonia Lomas de Chapultepec
Deleg. Miguel Hidalgo, C.P.
11000, Mexico, D.F.
Facsimile: 011 525 104 4172
Attention: Ruben Perlmutter, Vice President - Mergers and
Acquisitions and General Counsel
and
De Ovando y Martinez del Campo, S.C.
Bosque de Alisos 47B
Suite 101
Col. Bosque de las Lomas
C.P. 05120 Mexico, D.F.
Facsimile No.: 011-525-259-5259
Attention: Lic. Javier Martinez del Campo
(b) If to BAII, to:
Bell Atlantic International, Inc.
1310 North Court House Road
5th Floor
Arlington, Virginia 22201
Facsimile No.: (703) 312-7784
Attention: President and Chief Executive Officer
with copies to:
Bell Atlantic Corporation
1717 Arch Street - 47E
Philadelphia, Pennsylvania 19103
Facsimile No.: (215) 563-4174
Attention: Treasurer
and
Bell Atlantic International, Inc.
1717 Arch Street - 48E
Philadelphia, Pennsylvania 19103
Facsimile No.: (215) 963-9195
Attention: Thomas R. McKeough, Vice President
(c) If to another Holder, to its address set forth in the
Company's Register (as defined below).
or to such other address or addresses as the party to whom such notice is
directed may have designated in writing to the other parties hereto.
9.2 Amendments and Waivers. Except as otherwise provided herein or
in the Subordination Agreement, no amendment, modification, termination or
waiver of any provision of this Debenture, or consent to any departure by the
Company therefrom,
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shall in any event be effective unless the same shall be in writing and signed
by the Holder and the Company. Each amendment, modification, termination or
waiver shall be effective only in the specific instance and for the specific
purpose for which it was given and shall not be construed as a bar to any right
or remedy which the Holder hereof would otherwise have on any other occasion. No
notice to or demand on the Company in any case shall entitle the Company to any
other or further notice or demand in similar or other circumstances.
9.3 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of the Holder in the exercise of any power, right
or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or, partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under this Debenture are cumulative to, and not
exclusive of, any rights or remedies provided by law or otherwise available.
9.4 Severability. The invalidity, illegality or unenforceability in
any jurisdiction of any provision in or obligation under this Debenture shall
not affect or impair the validity, legality or enforceability of the remaining
provisions or obligations under this Debenture or such provision or obligation
in any other jurisdiction. The parties agree to negotiate in good faith to
replace any such invalid, illegal or unenforceable provision with a new valid,
legal and enforceable provision the economic effect of which comes as close as
possible to that of such invalid, illegal or unenforceable provision.
9.5 Headings. Sections and headings in this Debenture are included
herein for convenience of reference only and shall not constitute a part of this
Debenture for any other purpose or be given any substantive effect.
9.6 APPLICABLE LAW. THIS DEBENTURE SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK.
9.7 Successors and Assigns; Subsequent Holders. This Debenture shall
be binding upon and inure to the benefit of the Company and BAII and their
respective successors and permitted assigns except that the Company may not
assign its rights or obligations hereunder (or any portion hereof or thereof)
without the prior written consent of Holder. Any attempted assignment or
transfer by the Company without such consent shall be null and void. Nothing in
this Debenture, expressed or implied, shall be construed to confer upon any
Person (other than the parties hereto, their respective successors and assigns
permitted hereby), any legal or equitable right, remedy or claim under or by
reason of this Debenture.
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9.8 Replacement Debentures. If this Debenture shall become
mutilated, destroyed, lost or stolen, the Company shall, upon the written
request of the Holder of this Debenture, execute and deliver in replacement
hereof a new Debenture in the same form, in the same original principal amount
and dated the same date as the Debenture so mutilated, destroyed, lost or
stolen.
9.9 Transfer and Exchange of Debenture; Persons Deemed Owners. (a)
This Debenture will be transferable only to Affiliates of BAII and to any Person
to whom BAII or an Affiliate thereof transfers ownership of 20% or more of the
economic interest in the Company, provided that such Person expressly agrees in
writing to assume the obligations of BAII and Holder under the Agreement, this
Debenture and the Subordination Agreement (such Affiliate and other Persons
being referred to herein as "Eligible Transferees").
(b) The Company shall keep at its principal office a register (the
"Register") in which it shall provide for the registration of this Debenture and
for the registration of transfer of this Debenture to an Eligible Transferee.
Upon due presentation at such office for registration of transfer of this
Debenture to an Eligible Transferee, the Company will execute, register and
deliver in exchange therefor a Debenture at such office for the same aggregate
unpaid principal amount as the Debenture or Debentures so presented for
registration of transfer, dated the date from which unpaid interest has then
accrued thereon and registered in the name or names of the transferee or
transferees. Each Debenture presented or surrendered for registration or notice
of transfer or exchange shall (if so requested by the Company) be duly endorsed
by, or accompanied by a written instrument or instrument of transfer in form
reasonably satisfactory to the Company duly executed by, the Holder thereof or
such Holder's attorney duly authorized in writing. All transfers of Debentures
shall be made in compliance with the applicable provisions of the Act. All
exchanges, transfers and registrations of transfer of Debentures shall be at the
expense of the Company (other than stamp and transfer taxes, and attorneys' fees
and expenses of the transferor, if any).
(c) Prior to due presentment for registration of transfer of any
Debenture, the Company may treat the Holder thereof as the absolute owner
thereof for the purpose of receiving payment of principal of and interest on
such Debenture and for all other purposes whatsoever, whether or not such
Debenture shall be overdue, and the Company shall not be affected by notice to
the contrary.
9.10 Expenses. Each party hereby agrees to pay all expenses,
including fees and disbursements of counsel, incurred by the other party in
connection with the settlement of any dispute arising out of or relating to this
Debenture to the extent that the dispute is judicially determined in favor of
the other party. The Company also agrees to pay, and save Holder harmless
against
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liability for the payment of, (a) reasonable fees and expenses (including,
without limitation, reasonable attorneys' fees and disbursements) incurred with
respect to any amendments or waivers requested by the Company (whether or not
the same become effective) under or in respect of this Debenture and the
Agreement and the transactions contemplated hereby and thereby, (b) stamp and
other transfer taxes which may be payable in respect of the execution and
delivery of this Debenture and the Agreement or the issuance of securities to
the Holder upon conversion of this Debenture and (c) any costs of collection and
enforcement (including reasonable attorneys' fees and disbursements) under this
Debenture after the occurrence and during the continuance of an Event of
Default.
9.11 Right of Setoff. If an Event of Default shall have occurred and
be continuing, the Holder and each of its Affiliates is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all obligations at any time owing by the Holder and such
Affiliates to or for the credit or the account of the Company or any of its
subsidiaries against any of and all the obligations of the Company now or
hereafter existing under this Agreement held by the Holder, irrespective of
whether or not the Holder shall have made any demand under this Debenture and
although such obligations may be unmatured. The rights of each Holder under this
Section are in addition to other rights and remedies (including other rights of
setoff) which the Holder may have.
9.12 Jurisdiction. Each of the Company and, by its acceptance
hereof, the Holder hereby irrevocably and unconditionally submits to the
jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New
York, and any appellate court from any thereof, and to the courts of its own
corporate domicile in respect of actions brought against it as a defendant in
any action or proceeding arising out of or relating to this Debenture, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such court. Each of the
Company and, by its acceptance hereof, the Holder agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law.
9.13 Venue. The Company hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Debenture in any court
referred to in Section 9.12 above. Each of the Company and, by its acceptance
hereof, the Holder hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
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9.14 Service of Process. The Company hereby irrevocably designates,
appoints and empowers CT Corporation having its address at the date hereof at
1633 Broadway, New York, New York 10019, U.S.A. as its process agent to receive
for and on its behalf service of process in New York in any legal action or
proceeding with respect to this Debenture. It is understood that a copy of any
such process served on such process agent shall be promptly forwarded by air
mail by the Person commencing such proceeding to the Company at its address
specified in Section 9.01 above, but the failure of the Company to receive such
copy shall not affect in any way the service of such process as aforesaid. This
means of service of process shall be in addition to service of process in any
other manner permitted by law.
9.15 Waiver of Jury Trial. EACH OF THE COMPANY AND, BY ITS
ACCEPTANCE HEREOF, THE HOLDER HEREOF HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
DEBENTURE (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH OF THE
COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE HOLDER HEREOF (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
9.16 Waiver of Sovereign Immunity. The Company acknowledges and
agrees that the activities contemplated by the provisions of this Debenture 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 Debenture 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 or execution, or otherwise)
or claim thereto which may now or hereafter exist, and agrees not to assert any
such right or claim in any such action or proceeding, whether in the United
States of America or otherwise.
9.17 Use of English Language. This Debenture has been negotiated and
executed in the English language. All certificates, reports, notices and other
documents and communications given or delivered pursuant to this Debenture
(including any modifications or supplements hereto) shall be in the English
language, or accompanied by a certificated 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
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for purposes of this Debenture, and absent manifest error, control the meaning
of the matters set forth therein.
9.18 Defined Terms. As used herein the following terms shall have
the following meanings:
(a) "Act" shall have the meaning given in the first legend paragraph
on the first page of this Debenture.
(b) "Affiliate" means as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person except that the Company and its subsidiaries shall be
deemed not to be Affiliates of Holder for purposes of this definition. As used
in this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise).
(c) "Business Day" means any day (i) other than a Saturday, Sunday
or other day on which commercial banks in New York City or Mexico are authorized
or required to close under the laws of the State of New York or Mexico, and (ii)
on which dealings in U.S. Dollar deposits are carried out in the London
interbank market.
(d) "Capital Expenditures" means, for any period, the additions to
property, plant and equipment and other capital expenditures of the Company and
its consolidated subsidiaries that are (or would be) set forth in a consolidated
statement of cash flows of the Company for such period prepared in accordance
with Mexican GAAP.
(e) "Concession" means the Company's right to provide cellular
service pursuant to concessions and authorizations granted by the Mexican
Ministry of Communications and Transportation (Secretaria de Comunicaciones y
Transportes) (a) in any of the following Mexican cellular regions: (i) in Region
5 through Comunicaciones Celulares de Occidente, S.A. de C.V., (ii) in Region 6
through Sistemas Telefonicos Portatiles Celulares, S.A. de C.V., (iii) in Region
7 through Telecomunicaciones del Golfo, S.A. de C.V. and (iv) in Region 9
through S.O.S. Telecomunicaciones, S.A. de C.V., or (b) in any other cellular
region in which the Company or of its subsidiaries shall obtain the right to
provide cellular service.
(f) "GAAP" means generally accepted accounting principles in the
United States of America.
(g) "Governmental Authority" means any sovereign government or any
political subdivision thereof, whether state, local or foreign, any legislative
or judicial body, and any agency, authority, instrumentality, regulatory body,
court, central bank,
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including, without limitation, the Central Bank of Mexico or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government.
(h) "Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidences by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all guarantees by such Person of
Indebtedness of others, (h) all capital lease obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor;
provided, however, "Indebtedness" shall not include any of the foregoing owed
(i) by the Company to any of its subsidiaries, (ii) by any of the Company's
subsidiaries to the Company or (iii) by any of the Company's subsidiaries to
another of its subsidiaries.
(i) "Interest Period" means initially, the period commencing on the
date of this Debenture and ending on the first Interest Payment Date thereafter,
and subsequently, each successive six-month period beginning on an Interest
Payment Date and ending on the next Interest Payment Date thereafter.
(j) "Lien" means, with respect to any asset, (a) any mortgage, deed
of trust, lien, pledge, hypothecation, encumbrance, charge or security interest
in, on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
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(k) "LIBOR" means, with respect to any Interest Period, the rate of
interest determined on the basis of the rate for deposits in U.S. Dollars for a
period equal to such Interest Period, commencing on the first day of such
Interest Period, appearing on Page 3750 of the Telerate Service as of 11:00
a.m., London time, five Business Days prior to the beginning of such Interest
Period ("Page 3750"); provided, however, that if the initial Interest Period is
not a period for which a rate appears on Page 3750, then "LIBOR" with respect to
such initial Interest Period shall mean the weighted average of the rates of the
immediately shorter and immediately longer interest periods that appear on Page
3750. In the event that a rate for an Interest Period (or with respect to the
initial Interest Period, rates for the immediately shorter and longer periods)
does not appear on Page 3750 of the Telerate Service (or otherwise on such
Service), "LIBOR" shall mean the rate per annum (rounded upwards, if necessary,
to the nearest 1/16 of 1%) (the "Alternate Rate") quoted by the Senior Agent or
its successor at or about 11:00 a.m., London time (or as soon thereafter as is
practicable), four Business Days prior to the beginning of such Interest Period
for the offering by the Senior Agent to leading banks in the London interbank
market of deposits in U.S. Dollars for delivery on the first day of such
Interest Period, for a period equal to such Interest Period, and in an amount
comparable to the outstanding principal amount of this Debenture; provided,
however, that if the initial Interest Period is not a period for which an
Alternate Rate is quoted, then the LIBOR Rate shall be the weighted average of
the rates of the immediately shorter and immediately longer interest periods for
which an Alternate Rate is quoted.
(l) "Material Adverse Effect" means a material adverse effect on (a)
the business, assets, operations or condition, financial or otherwise, of the
Company and its subsidiaries, taken as a whole, (b) the ability of the Company
to perform any of its obligations under the Agreement or any Debenture to
perform any of its obligations under the Agreement or any Debenture or (c) the
rights of or benefits available to BAII or any other Holder under the Agreement
or any Debenture.
(m) "Material Terms and Conditions" means, with respect to any
Concession, the terms and conditions of such Concession the violation of which,
or non-compliance with which, could cause the Company or any of its subsidiaries
to (a) lose such Concession, (b) lose any material rights relating to such
Concession, (c) incur materially increased costs to provide the service under
such Concession or (d) suffer a material restriction of any right to provide
service under such Concession.
(n) "Mexican GAAP" means generally accepted accounting principles in
Mexico.
(o) "Mexico" means the United Mexican States.
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<PAGE>
(p) "Person" means any natural person, corporation, limited
liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
(q) "Senior Agent" means The Chase Manhattan Bank, as administrative
agent for the Senior Banks.
(r) "Senior Banks" means the lenders from time to time parties to
the Senior Credit Agreement.
(s) "Senior Credit Agreement" means the Credit Agreement, dated as
of July 25, 1997, among the Company, the Senior Banks and the Senior Agent, as
amended, supplemented, restated or otherwise modified from time to time.
(t) "Senior Note Indenture" means the Indenture, dated of July 25,
1997 between the Company and the Senior Note Trustee, as amended, supplemented,
restated or otherwise modified from time to time.
(u) "Senior Note Trustee" means First Union National Bank, as
Trustee for the holders of the Senior Notes.
(v) "Senior Notes" means the 10% Senior Notes due 2004 of the
Company in the aggregate original principal amount of U.S.$150,000,000 issued
pursuant to the Senior Note Indenture.
(w) "Series A Shares" means ordinary, nominative Series A Shares of
the Company, without par value, that are authorized by the estatutos sociales of
the Company.
(x) "Significant Subsidiary" shall have the meaning set forth in
Rule 405 under the Act.
(y) "Subordination Agreement" means the Subordination Agreement,
dated as of July 25, 1997, among BAII, the Senior Agent and the Senior Note
Trustee, as amended, supplemented, restated or otherwise modified from time to
time.
(z) "Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed as of the date set forth below.
Dated: [_________ __, 19__]
GRUPO IUSACELL, S.A. DE C.V.
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
Attest:
By:
------------------------------
Name:
Title:
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<PAGE>
EXHIBIT B
[FORM OF ADDITIONAL DEBENTURE]
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH
QUALIFIES AS A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE ACT AND THE RULES
AND REGULATIONS PROMULGATED THEREUNDER.
NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, NEITHER THE PRINCIPAL
OF NOR THE CASH INTEREST ON THE INDEBTEDNESS CREATED OR EVIDENCED BY THIS
INSTRUMENT OR RECORD SHALL BECOME DUE OR BE PAID OR PAYABLE EXCEPT TO THE EXTENT
PERMITTED UNDER THE SUBORDINATION AGREEMENT DATED AS OF JULY 25, 1997, AMONG
BELL ATLANTIC INTERNATIONAL, INC., GRUPO IUSACELL, S.A. DE C.V., THE CHASE
MANHATTAN BANK AND FIRST UNION NATIONAL BANK (THE "SUBORDINATION AGREEMENT"),
WHICH SUBORDINATION AGREEMENT IS INCORPORATED HEREIN WITH THE SAME EFFECT AS IF
FULLY SET FORTH HEREIN.
Convertible Subordinated Debenture
R-__ U.S.$_________
______________, 19__
GRUPO IUSACELL, S.A. DE C.V., a corporation duly organized and existing
under the laws of Mexico (the "Company"), for value received, hereby
unconditionally promises to pay to the order of BELL ATLANTIC INTERNATIONAL,
INC. ("BAII"), or its permitted transferees (BAII or any Eligible Transferee (as
hereinafter defined) to which this Debenture is transferred being the "Holder"),
the principal sum of _______ U.S. DOLLARS ($________) on December 31, 1999 (the
"Maturity Date") (subject to Sections and
hereof) in immediately available funds to BAII c/o Bell Atlantic Financial
Services, Inc. at Mellon Bank West - Pittsburgh, PA, or at such other place as
may be designated in writing by the Holder, or its assigns, and to pay interest
at said office in like money in respect of each Interest Period at a rate per
annum equal to LIBOR for such Interest Period plus five percent (5%) per annum,
from the date hereof on the unpaid principal amount hereof until payment in full
thereof. Interest shall accrue daily and, subject to the terms of the
Subordination Agreement shall be payable prior to the Maturity Date by issuance
of Additional Debentures (as defined in the Agreement referred to below) or, at
the option of the Holder, in part or in whole, in cash, semi-annually in arrears
on the first day of January and July in each year (each, an "Interest Payment
Date") commencing with the first such Interest Payment Date next succeeding the
date hereof and upon each payment of principal (whether upon maturity,
acceleration, prepayment or
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<PAGE>
otherwise). All computations of interest under this Debenture shall be made on
the basis of a year of 360 days and actual days elapsed. If the Holder elects to
have accrued interest on the unpaid principal amount hereof that is payable at
any time prior to the Maturity Date be paid, in whole or in part, in cash, it
shall so notify the Company in writing not less than ten (10) Business Days
prior to the date on which such interest payment is scheduled to be made. The
Company hereby expressly waives (to the maximum extent permitted by law) any
requirements of demand, presentment, notice of protest and dishonor and all
other demands or notices of any kind or nature with respect to this Debenture.
This Debenture is one of the Debentures issued pursuant to (and as defined
in) the Debenture Purchase Agreement (the "Agreement"), dated July 25, 1997, by
and between the Company and BAII, and is subject to the provisions, terms and
conditions thereof as well as the following additional provisions, terms and
conditions:
1. NO REDEMPTION. The Company shall not have the right to redeem this
Debenture prior to maturity without the written consent of the Holder.
2. ADDITIONAL AMOUNTS.
2.1 Tax Gross-Up. All payments by the Company in respect of this
Debenture will be made after withholding or deduction for any taxes, duties,
assessments or governmental charges of whatever nature imposed, levied,
collected, withheld or assessed by Mexico or any political subdivision thereof
or taxing authority therein. The Company will pay any such amounts to the
relevant taxing or other authority prior to the date on which penalties attach
thereto, such payment to be made (if liability to pay is imposed on the Company)
for its own account, or (if liability is imposed on the Holder) on behalf of and
in the name of such Holder. The sum payable by the Company in respect of which
the relevant deduction, withholding or payment is required shall be increased to
the extent necessary to ensure that, after the making of such deduction,
withholding or payment, the Holder receives on the due date and retains (free
from any liability in respect of any such deduction, withholding or payment) a
net sum equal to what it would have received and so retained had no such
deduction, withholding or payment been required or made (the amount of any such
increase being referred to herein as an "Additional Amount"). Any reference
herein to principal, premium or interest, or any other payment in respect of
this Debenture, will be deemed also to refer to any Additional Amounts which may
be payable.
2.2 Documentation. The Company will provide the Holder with
documentation evidencing the payment of Mexican taxes in respect of which the
Company has paid any Additional Amounts, which documentation shall be legally
sufficient to obtain foreign tax credits for U.S. Federal income tax purposes,
within 60 days after payment thereof.
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<PAGE>
3. MAXIMUM INTEREST RATE. Anything herein to the contrary notwithstanding,
the obligation of the Company to make payments of interest shall be subject to
the limitation that payments of interest shall not be required to be made to the
Holder hereof to the extent that the receipt thereof by the Holder hereof would
not be permissible under the law or laws applicable to the such Holder limiting
rates of interest which may be charged or collected by such Holder. Any such
payments of interest which are not made as a result of the limitation referred
to in the preceding sentence shall be made by the Company to such Holder on the
earliest Interest Payment Date or dates on which the receipt thereof would be
permissible under such laws applicable to such Holder limiting rates of interest
which may be charged or collected by such Holder.
4. CERTAIN COVENANTS OF THE COMPANY. The Company hereby covenants to the
Holder that, so long as this Debenture shall be outstanding:
4.1 Compliance with Senior Credit Agreement and Senior Note
Indenture. It will comply in all material respects with all of its agreements,
covenants and other undertakings set forth in the Senior Credit Agreement and
the Senior Note Indenture, which agreements, covenants and other undertakings
are, by this reference, hereby incorporated herein as if they were fully set
forth herein. Notwithstanding the forgoing, in the event that any inconsistency
arises between any of the covenants under the Senior Credit Agreement and under
the Senior Note Indenture, then the covenant or covenants that are less
restrictive on the Company shall apply for purposes of this Section.
4.2 Compliance with Shareholders Agreement. It will comply in all
material respects with all of its agreements, covenants and other undertakings
set forth in the Amended and Restated Shareholders Agreement, dated as of
February 18, 1997, among Bell Atlantic Latin America Holdings, Inc., Alejo
Peralta y Diaz Ceballos, Carlos Peralta Quintero, Iusa Grupo Comunicaciones,
S.A. de C.V., Fiusa Pasteje, S.A. de C.V., Langness Investments Limited,
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. and the Company (as such agreement may be
amended, supplemented, restated or otherwise modified from time to time) which
agreements, covenants and other undertakings are, by this reference, hereby
incorporated herein as if they were fully set forth herein.
4.3 Governmental Approvals; Concessions. (a) It will promptly obtain
from time to time at its own expense all such governmental licenses,
authorizations, consents, permits and approvals as may be required for the
Company to comply with its obligations under the Agreement and this Debenture.
(b) It will, and will cause each of its subsidiaries to,
preserve and keep in full force and effect all
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<PAGE>
Concessions and shall comply with the Material Terms and Conditions of all
Concessions.
4.4 Existence; Conduct of Business. It will, and will cause each of
its subsidiaries to, do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its legal existence and the rights,
licenses, permits, privileges, franchises, concessions, permits, patents,
copyrights, trademarks and trade names material to the conduct of its business,
including all material permits relating to the Concessions; provided that the
foregoing shall not prohibit any merger, consolidation, liquidation or
dissolution of the type permitted under Section 6.04. of the Senior Credit
Agreement as in effect on the date of the Agreement.
4.5 Payment of Obligations. It will, and will cause each of its
subsidiaries to, pay its Indebtedness and other obligations, including
liabilities in respect of Taxes, before the same shall become delinquent or in
default, except where (a) the validity or amount thereof is being contested in
good faith by appropriate proceedings, (b) the Company or such subsidiary has
set aside on its books adequate reserves with respect thereto in accordance with
GAAP and Mexican GAAP, (c) such contest effectively suspends collection of the
contested obligation and the enforcement of any Lien securing such obligation
and (d) the failure to make payment pending such contest could not reasonably be
expected to result in a Material Adverse Effect.
4.6 Maintenance of Properties. It will, and will cause each of its
subsidiaries to, keep and maintain all property material to the conduct of its
business in good working order and condition, ordinary wear and tear excepted,
and to maintain, develop and operate such property in accordance with prudent
industry standards.
4.7 Insurance. It will, and will cause each of its subsidiaries to,
maintain with financially sound and reputable insurance companies, insurance in
such amounts and against such risks as are customarily maintained by companies
engaged in the same or similar businesses operating in the same or similar
locations.
4.8 Compliance with Laws and Material Contractual Obligations. It
will, and will cause each of its subsidiaries to, comply with all laws, rules,
regulations and orders of any Governmental Authority applicable to it or its
property and with all material contractual obligations and obligations arising
from the concessions and permits under which the Company and its subsidiaries
provide their services), except where the failure to do so, individually or in
the aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
4.9 Use of Proceeds. The proceeds of the Debentures will be used
only to repay existing Indebtedness of the Company and
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<PAGE>
its subsidiaries, to fund Capital Expenditures and for other general corporate
purposes. No part of the proceeds of any Loan will be used, whether directly or
indirectly, for any purpose that entails a violation of any of the Regulations
of the Board of Governors of the Federal Reserve System of the United States of
America, including Regulations G, U and X.
5. EVENTS OF DEFAULT.
5.1 Events of Default. "Event of Default," wherever used herein,
means any of the following events:
(a) (i) Failure of the Company or any of its subsidiaries to pay
within three (3) Business Days after the date when due any principal of or
interest on any indebtedness owing under this Debenture, or (ii) failure of the
Company or any of its subsidiaries to pay when due or within any applicable
grace period, any principal, interest, fee, or other amounts payable on any one
or more items of Indebtedness (other than this Debenture) owing to any bank or
other creditor with an individual or aggregate principal amount outstanding of
the equivalent of U.S.$5,000,000 (or its foreign-currency equivalent) or more,
or (iii) any event or condition occurs that results in any such Indebtedness of
the Company or any of its subsidiaries becoming due prior to its scheduled
maturity or that enables or permits (with or without the giving of notice, the
lapse of time or both) the holder or holders of any such indebtedness or any
trustee or agent on its or their behalf to cause any such indebtedness to become
due, or to require the prepayment, repurchase, redemption or defeasance thereof,
prior to its scheduled maturity;
(b) The Company or any of its Significant Subsidiaries admits in
writing its present or prospective inability to pay its debts as they become due
or is otherwise generally not paying its debts as such debts become due unless
such debts are the subject of a bona fide dispute;
(c) Failure by the Company to comply with or to perform any
provision of this Debenture or the Agreement (and not constituting an Event of
Default under any of the other provisions of this Section ) and continuance of
such failure for thirty (30) days after knowledge thereof by an officer of the
Company;
(d) (i) A court enters a decree or order for relief with respect to
the Company or any of its Significant Subsidiaries in an involuntary case under
any provision of Title 11 of the United States Code entitled "Bankruptcy", as
amended and in effect from time to time, or any successor statute (the
"Bankruptcy Code") (including provisions for reorganization) or any applicable
bankruptcy, insolvency, reorganization, receivership or other similar law now or
hereafter in effect, which decree or order is not vacated or stayed or any other
similar relief is granted under any applicable federal or state law; or (ii) an
involuntary proceeding shall be commenced or an involuntary petition shall be
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<PAGE>
filed seeking (A) liquidation, reorganization, suspension of payments or other
relief in respect of the Company or any Significant Subsidiary or its debts, or
a substantial part of its assets, under any bankruptcy, insolvency, receivership
or similar law now or hereafter in effect (including without limitation the Ley
de Quiebra y Suspension de Pagos), or (B) the appointment of a receiver,
trustee, sindico, custodian, sequestrator, conservator or similar official for
the Company or any Significant Subsidiary or for a substantial part of its
assets, and, in any such case, such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any of the
foregoing shall be entered; or
(e) The Company or any of its Significant Subsidiaries shall (i)
voluntarily commence any proceeding or file any petition seeking liquidation,
reorganization, suspension of payments or other relief under any Federal, state
or foreign bankruptcy, insolvency, receivership or similar law now or hereafter
in effect including without limitation the Ley de Quiebra y Suspension de Pagos,
(ii) consent to the institution of, or fails to contest in a timely and
appropriate manner, any proceeding or petition described in clause (d) of this
Section 5.1, (iii) apply for or consents to the appointment of a receiver,
trustee, sindico, custodian, sequestrator, conservator or similar official for
the Company or any Significant Subsidiary or for a substantial part of its
assets, (iv) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (v) make a general assignment for the
benefit of creditors or (vi) take any action for the purpose of effecting any of
the foregoing;
(f) Any representation or warranty made or deemed by or on behalf of
the Company in connection with the Agreement, this Debenture, or any amendment
or modification thereto or waiver thereunder, or in any certificate or other
document furnished pursuant thereto or in connection therewith, shall have been
incorrect in any material respect when made or deemed made and shall continue to
be incorrect in any material respect for thirty (30) days after knowledge
thereof by an officer of the Company;
(g) Any order, judgment or decree shall be entered against the
Company or any of its Significant Subsidiaries decreeing the dissolution or
split up of the Company or such Significant Subsidiary and such order shall
remain undischarged or unstayed for a period in excess of 30 days;
(h) Any Governmental Authority shall take any action to condemn,
seize, nationalize or appropriate any substantial portion of the assets of the
Company or any of its Significant Subsidiaries (either with or without payment
of compensation) or shall take any action that, in the good faith opinion of
BAII, adversely affects the ability of the Company to perform its obligations
under the Agreement or this Debenture; or the Company or any of the Significant
Subsidiaries shall be prevented from exercising normal
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<PAGE>
control over all or a substantial part of its assets (and the same shall have
continued for 30 or more days);
(i) After the execution and delivery of this Debenture by the
Company, (i) Mexico or any competent authority thereof shall declare a
moratorium on the payment of Indebtedness by Mexico or any Governmental
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) the Company has not delivered to BAII
evidence in form and substance satisfactory to BAII that the Company is
permitted under all applicable laws, rules and regulations to pay its
obligations under this Debenture in accordance with its terms from the assets or
revenues of the Company and/or its affiliates that are located in the United
States of America and denominated in U.S. Dollars;
(j) Either (i) the government of Mexico shall take any action,
including a moratorium, having an effect on the schedule of payments of the
Company under this Debenture or otherwise, the currency in which the Company may
pay its obligation under this Debenture or the availability of foreign
currencies in exchange for Mexican Pesos or otherwise or (ii) the Company shall,
voluntarily or involuntarily, participate or take any action to participate in
any facility or exercise involving the rescheduling of the Company's debts or
the restructuring of the currency in which the Company may pay its obligations
under the Debenture;
(k) The Company or any of its Significant Subsidiaries shall fail to
pay when due any and all applicable taxes, amounts payable as Sistema de Ahorro
para el Retiro, Instituto Mexicano del Seguro Social or Instituto del Fondo
Nacional de la Vivienda para los Trabajadores quotes, except those contested in
good faith by appropriate proceedings;
(l) The failure by the Company to comply with Section 4.2 of this
Debenture or to convert this Debenture into Series A Shares or other securities
in accordance with the terms hereof and of the Agreement;
(m) The rendering of one or more judgments or decrees for the
payment of money in an aggregate amount in excess of U.S.$10,000,000 or its
foreign currency equivalent against the Company, any of its Significant
Subsidiaries or any combination thereof if (A) an enforcement proceeding thereon
is commenced or (B) such judgment or decree remains outstanding for a period of
60 days following such judgment or decree and is not effectively discharged,
waived or stayed; or
(n) The initiation of proceedings for any revocation, appropriation,
termination or cancellation of any Concession or
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<PAGE>
material permit of the Company or any of its subsidiaries or any adverse
modification of the terms thereof.
Notwithstanding the foregoing, so long as Senior Notes are outstanding, in the
event that any of the cure periods in this Section are shorter than those in the
Senior Note Indenture, then in interpreting the Events of Default, the longer
cure periods contained in the Senior Note Indenture shall apply.
5.2 Acceleration; Rescission and Annulment. (a) If there shall occur
an Event of Default under Section , (b), (c), (f), (g), (h), (i), (j), (k), (l),
(m) or (n) above which shall not have been waived by the Holder in writing, the
Holder may, by notice to the Company, declare the unpaid principal amount of and
accrued interest on this Debenture and interest accrued thereon and all
liabilities of the Company hereunder to be forthwith due and payable; and if
there shall be an Event of Default under Section
or Section above, then the unpaid principal amount of and accrued interest on
this Debenture and all liabilities of the Company hereunder to the Holder shall
become automatically forthwith due and payable; and, in each case, the same
shall thereupon become due and payable without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived.
(b) At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained (or before this Debenture shall be converted pursuant to Section hereof
by the Holder), the Holder, by written notice to the Company, may rescind and
annul such declaration and its consequences. No such rescission shall affect any
subsequent default or impair any right consequent thereon.
(c) The Holder shall not be deemed to have actual knowledge of an
Event of Default until such Holder has been notified in writing thereof by the
Company (the Company hereby agreeing to notify the Holder in writing promptly
upon becoming aware of any Default (as defined in Section of this Debenture) or
Event of Default).
5.3 Holder May File Proofs of Claim. In case of the pendency of any
receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceeding relative to the Company or
the property or assets of the Company, the Holder (irrespective of whether the
principal of this Debenture shall then be due and payable as herein expressed or
by declaration or otherwise and irrespective of whether the Holder shall have
made any demand on the Company for the payment of overdue principal or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise, to file and prove a claim for the whole amount of principal and
interest owing and unpaid in respect of this Debenture and to file such other
papers or documents as may be necessary or advisable in order
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to have the claims of the Holder allowed in such judicial proceeding.
5.4 Restoration of Rights and Remedies. If the Holder has instituted
any proceeding to enforce any right or remedy under this Debenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company and such Holder shall be restored
severally and respectively to their former positions hereunder and, thereafter,
all rights and remedies of such Holder shall continue as though no such
proceeding had been instituted.
5.5 Rights and Remedies Cumulative. Except as otherwise provided in
Section of this Debenture with respect to the replacement or payment of this
Debenture in the event it is mutilated, destroyed, lost or stolen, no right or
remedy herein conferred upon or reserved to the Holder is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
5.6 Delay or Omission Not Waiver. No delay or omission of the Holder
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Section or by law
to the Holder may be exercised from time to time, and as often as may be deemed
expedient, by such Holder.
5.7 Waiver of Defaults. The Holder may waive, in writing, any Event
of Default or an event which, with the giving of notice or lapse of time or
both, as specified in Section hereof, would become an Event of Default (a
"Default") and its consequences; provided that no such waiver shall extend to
any other Event of Default or Default or impair any right consequent thereon.
6. CONVERSION OF SECURITIES.
6.1 Conversion Privilege and Conversion Price. Subject to the
provisions of this Section , at the option of the Holder hereof, the principal
amount of this Debenture may, at any time and from time to time prior to the
Maturity Date, be converted in whole or in part into shares of fully paid and
nonassessable Series A Shares at a conversion price (the "Conversion Price") of
U.S.$___ per Series A Share, which Conversion Price is equal to one-tenth of the
average closing market price on the New York Stock Exchange of the American
Depository Receipts evidencing the Series D American Depository Shares and the
Series L American Depository Shares of
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the Company over the ten trading day period ending with five trading days
remaining before the Interest Payment Date in respect of which this Debenture
was issued, which conversion price and type and number of securities shall be
subject to adjustment as provided in Section 6.4 hereof.
6.2 Exercise of Conversion Privilege. In order to exercise the
conversion privilege, the Holder shall surrender this Debenture to the Company
at its office specified in Section hereof, accompanied by a fully executed
written notice to the Company that the Holder hereof elects to convert this
Debenture or, if less than the entire principal amount of this Debenture is to
be converted, the portion thereof to be converted. Such notice shall also state
the name or names in which the certificate or certificates for shares of Series
A Shares shall be issued. As promptly as practicable after the receipt of such
notice and the surrender of this Debenture as aforesaid, the Company shall issue
and deliver at such office to such Holder a certificate or certificates for the
number of full shares of Series A Shares issuable on such conversion of this
Debenture in accordance with the provisions of this Section and cash, as
provided in Section , in respect of any fraction of a share of Series A Shares
otherwise issuable upon such conversion. Such conversion shall be deemed to have
been effected immediately prior to the close of business on the date (the "Date
of Conversion") on which such notice shall have been received by the Company and
this Debenture shall have been surrendered as aforesaid, and the person or
entity or persons or entities in whose name or names any certificate or
certificates for shares of Series A Shares shall be issuable upon such
conversion shall be deemed to have become on the Date of Conversion the holder
or holders of record of the shares represented thereby, and shall be treated for
all purposes as the record holder or holders of such shares of Series A Shares
on such date. Unless required by applicable law, the Company shall not close its
stock transfer book or stock register at any time in a manner which would
interfere with the conversion of the Debenture as provided herein. In the case
of conversion of a portion, but less than all, of this Debenture, the Company
shall execute and deliver to the Holder, at the expense of the Company, a new
Debenture registered in the Holder's name in the aggregate principal amount of
the unconverted portion of this Debenture surrendered.
6.3 Fractional Interests. The Company shall not issue fractions of
shares of Series A Shares upon conversion of this Debenture or scrip in lieu
thereof. If any fraction of a share of Series A Shares would, except for the
provisions of this Section , be issuable upon conversion of this Debenture, the
Company shall in lieu thereof pay to the person or entity entitled thereto an
amount in cash equal to the value of such fractional interest, calculated to the
nearest one-hundredth (1/100) of a share, to be computed on the basis of the
Conversion Price then in effect.
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6.4 Conversion Adjustments. (a) Dividends, Etc. The number of
securities issuable upon conversion of this Debenture and the Conversion Price
of the Debentures shall be subject to adjustment from time to time upon certain
events, as follows:
(i) If the Company pays a dividend in shares of Series A Shares,
Series D Shares or Series L Shares, makes a distribution to all Holders of
shares of any class of its capital stock in Series A Shares, Series D
Shares or Series L Shares, subdivides or splits its outstanding Series A
Shares, Series D Shares or Series L Shares into a greater number of shares
or combines its outstanding Series A Shares, Series D Shares or Series L
Shares into a smaller number of shares of Series A Shares, Series D Shares
or Series L Shares, respectively, otherwise reclassifies or recapitalizes
the Series A Shares, Series D Shares or Series L Shares or in the case of
a merger or consolidation of the Company with or into any other Person,
then the number of shares of Series A Shares into which this Debenture is
convertible ("Conversion Shares") shall be adjusted so that the Holder
hereof shall be entitled to receive the kind and number of shares or other
securities of the Company that it would have owned and/or been entitled to
receive as a result of any of the events described above, had this
Debenture been converted immediately before such event, effective
immediately after the effective date of such event.
(ii) Whenever the number of Conversion Shares is adjusted pursuant
to this paragraph (a), the Conversion Price per share shall also be
adjusted (to the nearest cent) by multiplying the Conversion Price per
share immediately before such adjustment by a fraction, the numerator of
which is the number of Conversion Shares immediately before such
adjustment, and the denominator of which is the number of Conversion
Shares immediately thereafter.
(iii) In the event that at any time, as a result of an adjustment
made pursuant to this paragraph (a), this Debenture shall become
convertible for any securities of the Company other than Series A Shares,
thereafter the number of such other securities so issuable upon conversion
of this Debenture and the Conversion Price with respect to such securities
shall be subject to adjustment from time to time in a manner and on terms
as equivalent as practicable to the provisions of this paragraph (a) with
respect to the Series A Shares.
(b) Preservation of Conversion Rights Upon Reclassification,
Recapitalization, Consolidation, etc. In case of any reclassification,
recapitalization or change of the outstanding Series A Shares or other
securities issuable upon conversion of this Debenture (other than a change in
par value or as a result of a subdivision or combination of Series A Shares),
any dividend or distribution not described in paragraph (a) of this Section or
any consolidation or merger of the Company with another corporation
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<PAGE>
(other than a consolidation or merger in which the Company is the surviving
corporation that does not result in any reclassification of, recapitalization
of, or change in the outstanding Series A Shares), or any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety (other than by mortgage or pledge), then the
Company or such successor or purchasing corporation, as the case may be, shall
undertake that: (i) this Debenture shall be convertible, upon payment of the
Conversion Price in effect immediately before such action multiplied by the
number of shares of Series A Shares into which this Debenture was convertible,
for the kind and amount of shares and other securities and property that the
Holder hereof would have been entitled to receive after such action had this
Debenture been converted immediately before such action; and (ii) this
Debenture, and the Conversion Price, shall be subject to adjustments, which
shall, to the greatest extent practicable, be equivalent to, and subject to the
same terms and provisions as, the adjustments provided for in paragraph (a) of
this Section . The provisions of this paragraph shall similarly apply to
successive reclassifications, recapitalizations, consolidations, mergers, sales
and conveyances.
(c) Post-Adjustment References. Following an adjustment under this
Section 6, all references in this Section 6 to the number of Series A Shares or
Conversion Shares, the kind of securities subject thereto and the Conversion
Price thereof shall be deemed to refer to such number, kind and price as
adjusted.
(d) Subordination. Notwithstanding anything to the contrary
contained herein, if, by operation of this Section 6.4 or any other provision
hereof, the Holder hereof shall receive any securities other than capital stock
of the Company, the payment and performance by the Company of all its
obligations under, and the rights and benefits of the Holder with respect to,
such securities shall be expressly subordinated to the prior indefeasible
payment in full in cash or cash equivalents of all amounts owing to the Senior
Creditors pursuant to the Senior Obligations (as defined in the Subordination
Agreement), to the same extent and in the same manner as set forth in the
Subordination Agreement with respect to the Debentures.
6.5 No Dilution or Impairment. The Company will not, by amendment of
its charter or through reorganization, consolidation, merger, dissolution, sale
of assets or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Debenture, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder hereof against dilution or other impairment. Without limiting the
generality of the foregoing, the Company will not increase the par value of any
shares of stock receivable upon the conversion of this Debenture above the
amount payable therefor upon such conversion, and at all times will take all
such action as may be necessary or
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appropriate in order that the Company may validly and legally issue fully paid
and non-assessable stock upon the exercise of this Debenture and all other
Debentures at the time outstanding.
6.6 Reservation of Stock Issuable on Conversion of Debenture, Etc.
(a) The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued stock, solely for the
issuance and delivery upon the conversion of this Debenture, such number of its
duly authorized shares of Series A Shares or other securities as from time to
time shall be issuable upon the exercise of this Debenture and all other
Debentures at the time outstanding.
(b) If any shares of Series A Shares or other securities to be
reserved for the purpose of conversion of this Debenture hereunder require
registration with or approval of any governmental authority under any United
States or Mexican Federal or State law before such shares may be validly issued
or delivered upon conversion, then the Company covenants that it will in good
faith and as expeditiously as possible endeavor to secure such registration or
approval, as the case may be; provided, however, that nothing in this Section
shall be deemed to affect in any way the obligations of the Company to convert
this Debenture into Series A Shares or other securities as provided in this
Section .
(c) Before taking any action which would cause an adjustment
increasing the Conversion Price to such a level that the then effective
conversion rate would be below the then par value, if any, of the Series A
Shares, (or other securities into which this Debenture is convertible) the
Company will take all corporate and other action which may, as stated in an
opinion of counsel, be necessary in order that the Company may validly and
legally issue fully paid and non-assessable shares of Series A Shares (or such
other securities) at such adjusted Conversion Price.
(d) The Company covenants that all shares of Series A Shares (or
other securities) which may be issued upon conversion of this Debenture will
upon issue be duly authorized, validly issued, fully paid and nonassessable by
the Company and free of preemptive rights.
6.7 Taxes on Conversion. The issuance and delivery of certificates
for shares of Series A Shares (or other securities into which this Debenture is
convertible) on conversion of this Debenture shall be made without charge to the
converting Holder for such certificates or for any tax or duty in respect of the
issuance or delivery of such certificates or this Debenture represented thereby
(which shall be paid by the Company).
7. SUBORDINATION. The Company, for itself, its successors and assigns, and
each Holder by its acceptance hereof, covenants and agrees that the payment and
performance by the Company of all of its obligations under this Debenture,
including, without
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<PAGE>
limitation, the payment of principal of, interest on, and all other amounts
owing in respect of, or pursuant to the terms of, this Debenture, are expressly
subordinated to the prior indefeasible payment in full in cash or cash
equivalents of all amounts owing to the Senior Creditors pursuant to the Senior
Obligations (as defined in the Subordination Agreement), to the extent and in
the manner set forth in the Subordination Agreement, and the Company, for
itself, its successors and assigns, and each Holder agrees to and accept such
other terms and conditions as are set forth in the Subordination Agreement.
8. JUDGMENT CURRENCY. (a) If, for the purpose of obtaining judgment in any
court, it is necessary to convert a sum owing hereunder in one currency into
another currency, the Company and, by its acceptance hereof, the Holder each
agrees, to the fullest extent that it may effectively do so, that the rate of
exchange used shall be that at which in accordance with normal banking
procedures in the relevant jurisdiction the first currency could be purchased
with such other currency on the Business Day immediately preceding the day on
which final judgment is given.
(b) The obligations of the Company in respect of any sum due to the Holder
shall, notwithstanding any judgment in a currency (the "Judgment Currency")
other than U.S. Dollars, be discharged only to the extent that, on the Business
Day following receipt by the Holder any sum adjudged to be so due in the
Judgment Currency, the Holder may in accordance with normal banking procedures
in the official currency market in the relevant jurisdiction purchase U.S.
Dollars with the Judgment Currency; if the amount of U.S. Dollars so purchased
is less than the sum originally due to the Holder in U.S. Dollars, the Company
agrees, as a separate obligation and notwithstanding any such judgment, to
indemnify the Holder against such loss. The obligations of the Company contained
in this Section 8 shall survive the cancellation of this Debenture and the
payment of all amounts owing hereunder.
9. MISCELLANEOUS.
9.1 Notices, etc. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be delivered
personally, telegraphed, sent by telecopier (provided that any telecopied
transmission is promptly followed by a mailed or courier copy) or sent by
certified, registered mail, or recognized express courier (postage prepaid), to
the parties at the addresses set forth below (or to such other addresses as the
parties may specify by due notice to the others). Notices or other
communications shall be deemed given only when actually received.
(a) If to the Company, to:
Grupo Iusacell, S.A. de C.V.
Montes Urales 460
3rd Floor
Colonia Lomas de Chapultepec
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<PAGE>
Deleg. Miguel Hidalgo, C.P.
11000, Mexico, D.F.
Facsimile No.: 011 525 104 41 57
Attention: Howard F. Zuckerman, Vice President - Finance and
Audit and Chief Financial Officer
with copies to:
Grupo Iusacell, S.A. de C.V.
Montes Urales 460
2nd Floor
Colonia Lomas de Chapultepec
Deleg. Miguel Hidalgo, C.P.
11000, Mexico, D.F.
Facsimile: 011 525 104 4172
Attention: Ruben Perlmutter, Vice President - Mergers and
Acquisitions and General Counsel
and
De Ovando y Martinez del Campo, S.C.
Bosque de Alisos 47B
Suite 101
Col. Bosque de las Lomas
C.P. 05120 Mexico, D.F.
Facsimile No.: 011-525-259-5259
Attention: Lic. Javier Martinez del Campo
(b) If to BAII, to:
Bell Atlantic International, Inc.
1310 North Court House Road
5th Floor
Arlington, Virginia 22201
Facsimile No.: (703) 312-7784
Attention: President and Chief Executive Officer
with copies to:
Bell Atlantic Corporation
1717 Arch Street - 47E
Philadelphia, Pennsylvania 19103
Facsimile No.: (215) 563-4174
Attention: Treasurer
and
Bell Atlantic International, Inc.
1717 Arch Street - 48E
Philadelphia, Pennsylvania 19103
Facsimile No.: (215) 963-9195
Attention: Thomas R. McKeough, Vice President
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<PAGE>
(c) If to another Holder, to its address set forth in the
Company's Register (as defined below).
or to such other address or addresses as the party to whom such notice is
directed may have designated in writing to the other parties hereto.
9.2 Amendments and Waivers. Except as otherwise provided herein or
in the Subordination Agreement, no amendment, modification, termination or
waiver of any provision of this Debenture, or consent to any departure by the
Company therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Holder and the Company. Each amendment, modification,
termination or waiver shall be effective only in the specific instance and for
the specific purpose for which it was given and shall not be construed as a bar
to any right or remedy which the Holder hereof would otherwise have on any other
occasion. No notice to or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
9.3 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of the Holder in the exercise of any power, right
or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or, partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under this Debenture are cumulative to, and not
exclusive of, any rights or remedies provided by law or otherwise available.
9.4 Severability. The invalidity, illegality or unenforceability in
any jurisdiction of any provision in or obligation under this Debenture shall
not affect or impair the validity, legality or enforceability of the remaining
provisions or obligations under this Debenture or such provision or obligation
in any other jurisdiction. The parties agree to negotiate in good faith to
replace any such invalid, illegal or unenforceable provision with a new valid,
legal and enforceable provision the economic effect of which comes as close as
possible to that of such invalid, illegal or unenforceable provision.
9.5 Headings. Sections and headings in this Debenture are included
herein for convenience of reference only and shall not constitute a part of this
Debenture for any other purpose or be given any substantive effect.
9.6 APPLICABLE LAW. THIS DEBENTURE SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK.
9.7 Successors and Assigns; Subsequent Holders. This Debenture shall
be binding upon and inure to the benefit of the
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<PAGE>
Company and BAII and their respective successors and permitted assigns except
that the Company may not assign its rights or obligations hereunder (or any
portion hereof or thereof) without the prior written consent of Holder. Any
attempted assignment or transfer by the Company without such consent shall be
null and void. Nothing in this Debenture, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby), any legal or equitable
right, remedy or claim under or by reason of this Debenture.
9.8 Replacement Debentures. If this Debenture shall become
mutilated, destroyed, lost or stolen, the Company shall, upon the written
request of the Holder of this Debenture, execute and deliver in replacement
hereof a new Debenture in the same form, in the same original principal amount
and dated the same date as the Debenture so mutilated, destroyed, lost or
stolen.
9.9 Transfer and Exchange of Debenture; Persons Deemed Owners. (a)
This Debenture will be transferable only to Affiliates of BAII and to any Person
to whom BAII or an Affiliate thereof transfers ownership of 20% or more of the
economic interest in the Company, provided that such Person expressly agrees in
writing to assume the obligations of BAII and Holder under the Agreement, this
Debenture and the Subordination Agreement (such Affiliate and other Persons
being referred to herein as "Eligible Transferees").
(b) The Company shall keep at its principal office a register (the
"Register") in which it shall provide for the registration of this Debenture and
for the registration of transfer of this Debenture to an Eligible Transferee.
Upon due presentation at such office for registration of transfer of this
Debenture to an Eligible Transferee, the Company will execute, register and
deliver in exchange therefor a Debenture at such office for the same aggregate
unpaid principal amount as the Debenture or Debentures so presented for
registration of transfer, dated the date from which unpaid interest has then
accrued thereon and registered in the name or names of the transferee or
transferees. Each Debenture presented or surrendered for registration or notice
of transfer or exchange shall (if so requested by the Company) be duly endorsed
by, or accompanied by a written instrument or instrument of transfer in form
reasonably satisfactory to the Company duly executed by, the Holder thereof or
such Holder's attorney duly authorized in writing. All transfers of Debentures
shall be made in compliance with the applicable provisions of the Act. All
exchanges, transfers and registrations of transfer of Debentures shall be at the
expense of the Company (other than stamp and transfer taxes, and attorneys' fees
and expenses of the transferor, if any).
(c) Prior to due presentment for registration of transfer of any
Debenture, the Company may treat the Holder thereof as the absolute owner
thereof for the purpose of receiving payment
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<PAGE>
of principal of and interest on such Debenture and for all other purposes
whatsoever, whether or not such Debenture shall be overdue, and the Company
shall not be affected by notice to the contrary.
9.10 Expenses. Each party hereby agrees to pay all expenses,
including fees and disbursements of counsel, incurred by the other party in
connection with the settlement of any dispute arising out of or relating to this
Debenture to the extent that the dispute is judicially determined in favor of
the other party. The Company also agrees to pay, and save Holder harmless
against liability for the payment of, (a) reasonable fees and expenses
(including, without limitation, reasonable attorneys' fees and disbursements)
incurred with respect to any amendments or waivers requested by the Company
(whether or not the same become effective) under or in respect of this Debenture
and the Agreement and the transactions contemplated hereby and thereby, (b)
stamp and other transfer taxes which may be payable in respect of the execution
and delivery of this Debenture and the Agreement or the issuance of securities
to the Holder upon conversion of this Debenture and (c) any costs of collection
and enforcement (including reasonable attorneys' fees and disbursements) under
this Debenture after the occurrence and during the continuance of an Event of
Default.
9.11 Right of Setoff. If an Event of Default shall have occurred and
be continuing, the Holder and each of its Affiliates is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all obligations at any time owing by the Holder and such
Affiliates to or for the credit or the account of the Company or any of its
subsidiaries against any of and all the obligations of the Company now or
hereafter existing under this Agreement held by the Holder, irrespective of
whether or not the Holder shall have made any demand under this Debenture and
although such obligations may be unmatured. The rights of each Holder under this
Section are in addition to other rights and remedies (including other rights of
setoff) which the Holder may have.
9.12 Jurisdiction. Each of the Company and, by its acceptance
hereof, the Holder hereby irrevocably and unconditionally submits to the
jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New
York, and any appellate court from any thereof, and to the courts of its own
corporate domicile in respect of actions brought against it as a defendant in
any action or proceeding arising out of or relating to this Debenture, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such court. Each of the
Company and, by its acceptance hereof, the Holder agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law.
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<PAGE>
9.13 Venue. The Company hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Debenture in any court
referred to in Section 9.12 above. Each of the Company and, by its acceptance
hereof, the Holder hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
9.14 Service of Process. The Company hereby irrevocably designates,
appoints and empowers CT Corporation having its address at the date hereof at
1633 Broadway, New York, New York 10019, U.S.A. as its process agent to receive
for and on its behalf service of process in New York in any legal action or
proceeding with respect to this Debenture. It is understood that a copy of any
such process served on such process agent shall be promptly forwarded by air
mail by the Person commencing such proceeding to the Company at its address
specified in Section 9.01 above, but the failure of the Company to receive such
copy shall not affect in any way the service of such process as aforesaid. This
means of service of process shall be in addition to service of process in any
other manner permitted by law.
9.15 Waiver of Jury Trial. EACH OF THE COMPANY AND, BY ITS
ACCEPTANCE HEREOF, THE HOLDER HEREOF HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
DEBENTURE (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH OF THE
COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE HOLDER HEREOF (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
9.16 Waiver of Sovereign Immunity. The Company acknowledges and
agrees that the activities contemplated by the provisions of this Debenture 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 Debenture 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 or execution, or otherwise)
or claim thereto which may now or hereafter exist, and agrees not to assert any
such right or claim in any such action or proceeding, whether in the United
States of America or otherwise.
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<PAGE>
9.17 Use of English Language. This Debenture has been negotiated and
executed in the English language. All certificates, reports, notices and other
documents and communications given or delivered pursuant to this Debenture
(including any modifications or supplements hereto) shall be in the English
language, or accompanied by a certificated 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 Debenture, and
absent manifest error, control the meaning of the matters set forth therein.
9.18 Defined Terms. As used herein the following terms shall have
the following meanings:
(a) "Act" shall have the meaning given in the first legend paragraph
on the first page of this Debenture.
(b) "Affiliate" means as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person except that the Company and its subsidiaries shall be
deemed not to be Affiliates of Holder for purposes of this definition. As used
in this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise).
(c) "Business Day" means any day (i) other than a Saturday, Sunday
or other day on which commercial banks in New York City or Mexico are authorized
or required to close under the laws of the State of New York or Mexico, and (ii)
on which dealings in U.S. Dollar deposits are carried out in the London
interbank market.
(d) "Capital Expenditures" means, for any period, the additions to
property, plant and equipment and other capital expenditures of the Company and
its consolidated subsidiaries that are (or would be) set forth in a consolidated
statement of cash flows of the Company for such period prepared in accordance
with Mexican GAAP.
(e) "Concession" means the Company's right to provide cellular
service pursuant to concessions and authorizations granted by the Mexican
Ministry of Communications and Transportation (Secretaria de Comunicaciones y
Transportes) (a) in any of the following Mexican cellular regions: (i) in Region
5 through Comunicaciones Celulares de Occidente, S.A. de C.V., (ii) in Region 6
through Sistemas Telefonicos Portatiles Celulares, S.A. de C.V., (iii) in Region
7 through Telecomunicaciones del Golfo, S.A. de C.V. and (iv) in Region 9
through S.O.S. Telecomunicaciones, S.A. de C.V., or (b) in any other cellular
region in which the
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Company or of its subsidiaries shall obtain the right to provide cellular
service.
(f) "GAAP" means generally accepted accounting principles in the
United States of America.
(g) "Governmental Authority" means any sovereign government or any
political subdivision thereof, whether state, local or foreign, any legislative
or judicial body, and any agency, authority, instrumentality, regulatory body,
court, central bank, including, without limitation, the Central Bank of Mexico
or other entity exercising executive, legislative, judicial, taxing, regulatory
or administrative powers or functions of or pertaining to government.
(h) "Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidences by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all guarantees by such Person of
Indebtedness of others, (h) all capital lease obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor;
provided, however, "Indebtedness" shall not include any of the foregoing owed
(i) by the Company to any of its subsidiaries, (ii) by any of the Company's
subsidiaries to the Company or (iii) by any of the Company's subsidiaries to
another of its subsidiaries.
(i) "Interest Period" means initially, the period commencing on the
date of this Debenture and ending on the first Interest Payment Date thereafter,
and subsequently, each successive six-month period beginning on an Interest
Payment Date and ending on the next Interest Payment Date thereafter.
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(j) "Lien" means, with respect to any asset, (a) any mortgage, deed
of trust, lien, pledge, hypothecation, encumbrance, charge or security interest
in, on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
(k) "LIBOR" means, with respect to any Interest Period, the rate of
interest determined on the basis of the rate for deposits in U.S. Dollars for a
period equal to such Interest Period, commencing on the first day of such
Interest Period, appearing on Page 3750 of the Telerate Service as of 11:00
a.m., London time, five Business Days prior to the beginning of such Interest
Period ("Page 3750"); provided, however, that if the initial Interest Period is
not a period for which a rate appears on Page 3750, then "LIBOR" with respect to
such initial Interest Period shall mean the weighted average of the rates of the
immediately shorter and immediately longer interest periods that appear on Page
3750. In the event that a rate for an Interest Period (or with respect to the
initial Interest Period, rates for the immediately shorter and longer periods)
does not appear on Page 3750 of the Telerate Service (or otherwise on such
Service), "LIBOR" shall mean the rate per annum (rounded upwards, if necessary,
to the nearest 1/16 of 1%) (the "Alternate Rate") quoted by the Senior Agent or
its successor at or about 11:00 a.m., London time (or as soon thereafter as is
practicable), four Business Days prior to the beginning of such Interest Period
for the offering by the Senior Agent to leading banks in the London interbank
market of deposits in U.S. Dollars for delivery on the first day of such
Interest Period, for a period equal to such Interest Period, and in an amount
comparable to the outstanding principal amount of this Debenture; provided,
however, that if the initial Interest Period is not a period for which an
Alternate Rate is quoted, then the LIBOR Rate shall be the weighted average of
the rates of the immediately shorter and immediately longer interest periods for
which an Alternate Rate is quoted.
(l) "Material Adverse Effect" means a material adverse effect on (a)
the business, assets, operations or condition, financial or otherwise, of the
Company and its subsidiaries, taken as a whole, (b) the ability of the Company
to perform any of its obligations under the Agreement or any Debenture to
perform any of its obligations under the Agreement or any Debenture or (c) the
rights of or benefits available to BAII or any other Holder under the Agreement
or any Debenture.
(m) "Material Terms and Conditions" means, with respect to any
Concession, the terms and conditions of such Concession the violation of which,
or non-compliance with which, could cause the Company or any of its subsidiaries
to (a) lose such Concession, (b) lose any material rights relating to such
Concession, (c) incur
B - 22
<PAGE>
materially increased costs to provide the service under such Concession or (d)
suffer a material restriction of any right to provide service under such
Concession.
(n) "Mexican GAAP" means generally accepted accounting principles in
Mexico.
(o) "Mexico" means the United Mexican States.
(p) "Person" means any natural person, corporation, limited
liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
(q) "Senior Agent" means The Chase Manhattan Bank, as administrative
agent for the Senior Banks.
(r) "Senior Banks" means the lenders from time to time parties to
the Senior Credit Agreement.
(s) "Senior Credit Agreement" means the Credit Agreement, dated as
of July 25, 1997, among the Company, the Senior Banks and the Senior Agent, as
amended, supplemented, restated or otherwise modified from time to time.
(t) "Senior Note Indenture" means the Indenture, dated of July 25,
1997 between the Company and the Senior Note Trustee, as amended, supplemented,
restated or otherwise modified from time to time.
(u) "Senior Note Trustee" means First Union National Bank, as
Trustee for the holders of the Senior Notes.
(v) "Senior Notes" means the 10% Senior Notes due 2004 of the
Company in the aggregate original principal amount of U.S.$150,000,000 issued
pursuant to the Senior Note Indenture.
(w) "Series A Shares" means ordinary, nominative Series A Shares of
the Company, without par value, that are authorized by the estatutos sociales of
the Company.
(x) "Series D Shares" means ordinary, nominative Series D Shares of
the Company, without par value, that are authorized by the estatutos sociales of
the Company.
(y) "Series L Shares" means ordinary, nominative Series L Shares of
the Company, without par value, that are authorized by the estatutos sociales of
the Company.
(z) "Significant Subsidiary" shall have the meaning set forth in
Rule 405 under the Act.
(aa) "Subordination Agreement" means the Subordination Agreement,
dated as of July 25, 1997, among BAII, the Senior Agent
B - 23
<PAGE>
and the Senior Note Trustee, as amended, supplemented, restated or otherwise
modified from time to time.
(bb) "Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.
[balance of page intentionally left blank]
B - 24
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed as of the date set forth below.
Dated: [_________ __, 19__]
GRUPO IUSACELL, S.A. DE C.V.
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
Attest:
By: ___________________
Name:
Title:
B - 25
<PAGE>
EXHIBIT C TO DEBENTURE PURCHASE AGREEMENT
July 25, 1997
Bell Atlantic International, Inc.
1310 North Court House Road
Arlington, Virginia 22201
United States of America
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 5(a)(ii)(C) of the
Debenture Purchase Agreement dated July 25, 1997 (the "Agreement") by and
between Bell Atlantic International, Inc. ("BAII") and Grupo Iusacell, S.A. de
C.V. (the "Company").
Terms used herein and not otherwise defined herein shall have the meanings set
forth in the Agreement.
We have acted as special Mexican counsel to the Company in connection with the
preparation, authorization, execution and delivery of the Agreement and the
Debentures.
In such capacity, we have examined originals or copies of the Agreement, the
Debentures and such corporate records, agreements, documents and other
instruments, and such certificates or comparable documents of public officials
and of officers and representatives of the Company, and have made such inquiries
of such officers and representatives as we have deemed relevant and necessary as
a basis for the opinions hereinafter set forth.
In connection with facts material to this opinion that we did not independently
establish or verify we have relied upon certificates of public officials, and
upon statements and certifications of officers and other representatives of the
Company.
Based on the above, subject to the qualifications set forth herein, we are of
the opinion that:
(1) The Company has the full corporate power and authority to execute and
deliver the Agreement and to issue the Debentures and to perform all of
its obligations under the Agreement and under the Debentures. The
execution, delivery and performance of the terms of the Agreement and the
Debentures by the Company have been duly authorized by all necessary
corporate and stockholder action.
C - 1
<PAGE>
(2) The execution and delivery by the Company of the Agreement, the issuance
of the Debentures and performance of the Company's obligations under the
Agreement and the Debentures do not require any consent, approval,
authorization or order of, notice to, or declaration, filing or
registration with, any Governmental Authority or stock exchange, except
those that have been obtained and are in full force and effect, and except
further for such notices as may be required to be filed with the Mexican
Comision Federal de Competencia and the Mexican Registro Nacional de
Inversiones Extranjeras upon conversion of the Debentures into Series A
Shares.
(3) Neither the execution and delivery of the Agreement or the Debentures, nor
the fulfillment of the terms set forth in the Agreement or the Debentures
and the consummation of the transactions contemplated by the Agreement or
the Debentures, will- (A)(i) conflict with or constitute a breach of, or
constitute a default under or an event which, with or without notice or
lapse of time or both, would be a breach of or default under or violation
of the Estatutos Sociales or other organizational documents of the Company
or (ii) would be a breach of or default under or violation of any
agreement, document, indenture, permit, mortgage or other instrument or
undertaking by which the Company is bound or to which any of its
properties are subject of which we are aware, or (iii) would be a
violation of any law or of any administrative regulation, or (iv) would be
a violation of any judgment, order or decree applicable to the Company of
which we are aware; or (B) result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or
any of its subsidiaries.
(4) The Agreement constitutes, and the Debentures, when executed and delivered
for value by the Company will constitute, a legal, valid and binding
obligation of the Company enforceable in accordance with their respective
terms, subject, as to enforcement, only to bankruptcy, insolvency,
reorganization, moratorium, or similar laws at the time in effect
affecting the enforceability of the rights of creditors generally.
(5) The Company and each of its subsidiaries is duly organized and validly
existing under the laws of the jurisdiction of its organization, and to
our knowledge has all requisite power and authority, and has all material
governmental licenses, authorizations, consents and approvals necessary to
own its assets and to carry on its business as now conducted.
(6) All of the issued shares of capital stock of the Company have been duly
and validly authorized and issued, are fully paid and nonassessable.
(7) The Company's agreement to the choice of law provisions set forth in
Section 13 of the Agreement and Section 9.6 of the Debentures will be
recognized by Mexican courts; the Company
C - 2
<PAGE>
can sue and be sued in its own name; the Company has validly appointed CT
Corporation System as its authorized agent for the purpose described in
Section 21 of the Agreement and Section 9.14 of the Debentures; the
irrevocable submission by the Company to the jurisdiction of the Supreme
Court of the! State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, the waiver by the Company of any
objection to the venue of a proceeding in any such courts and the
agreement of the Company that the Agreement and the Debentures shall be
governed by and construed in accordance with the laws of the State of New
York are legal, valid and binding; service of process effected in the
manner set forth in the Agreement and the Debentures, assuming its
validity under New York law, will be effective, insofar as Mexican law is
concerned, to confer valid personal jurisdiction over the Company; and
judgment obtained in any such New York Court arising out of or in relation
to the obligations of the Company under the Agreement or the Debentures
will be recognized in Mexico.
(8) The Company has reserved out of its authorized but unissued stock, free
from preemptive rights and solely for issuance and delivery upon the
conversion of the Debentures, such number of its duly authorized Series A
Shares or other securities as from time to time shall be issuable upon the
conversion of the Debentures. No further corporate action shall be
required for the valid issuance of such securities upon the conversion of
the Debentures. The Series A Shares or other securities as from time to
time shall be issuable upon the conversion of the Debentures are not, and
shall continue not to be, subject to preemptive or similar rights of any
Person, and when issued upon conversion of the Debentures in accordance
with the terms of the Agreement and the Debentures, shall be duly and
validly issued, full) paid and nonassessable.
(9) There are no actions, suits or proceedings by or before any arbitrator or
Governmental Authority of which we are aware pending against or affecting
the Company that involve the Agreement or any Debenture.
The above opinions are subject to the following qualifications:
1. In our examination of the documents referred to above, we have assumed the
authenticity of all such documents, the genuineness of all signatures and the
due execution and delivery thereof by all parties involved, and the conformity
to their respective originals of copies submitted to us.
2. In the event of proceedings against the Company in a Mexican court, in
connection with any document that is not executed in Spanish which is sought to
be enforced, a Spanish translation thereof prepared by a court-appointed
translator would have to be approved by such court after the defendant had been
given an
C - 3
<PAGE>
opportunity for a hearing as to the accuracy of such translation, and
proceedings would thereafter be based on such translation.
3. Enforcement of foreign judgments by a Mexican court will be subject to the
determination by such Mexican court that (i) such judgment is strictly for the
payment of a certain sum of money and has not resulted from an action in rem;
(ii) the court rendering such judgment was a competent court therefor in
accordance with recognized rules of international law and which are compatible
with Mexican procedural laws; (iii) service of process was made personally on
the Company or on the process agent appointed by the Company; (iv) such judgment
is final and may not be appealed through ordinary proceedings in its country of
origin; (v) the action that gave rise to such judgment is not the matter of
proceedings in Mexico between the same parties; (vi) such judgment does not
contravene Mexican public policy or law or international treaties binding upon
Mexico (and we have no reason to believe that such enforcement of the Agreement
would violate Mexican law or public policy); (vii) the applicable procedures
under Mexican law with respect to the enforcement of foreign judgments,
including, the issuance of a letter rogatory, are complied with; (viii) the
courts of such jurisdiction recognize the principles of reciprocity in
connection with the enforcement of Mexican judgments in such jurisdiction; and
(ix) such judgment satisfies the conditions required to be considered as
authentic.
4. It should be noted that service of process on the Company or its process
agent by mail does not constitute personal service for purposes of enforcing a
foreign judgment in Mexico.
5. Covenants of the Company which purport to bind the Company on matters
reserved by law to shareholders, or which purport to bind shareholders to vote
or refrain from voting their shares in the Company, are not specifically
enforceable under Mexican Law.
6. Certain terms of the Agreement and the Debentures, inasmuch as they vary from
the original terms approved by the shareholders of the Company, will require
shareholder approval.
7. Pursuant to Article 8 of the Monetary Law (Ley Monetaria) of Mexico, if
collection of amounts payable by the Company in foreign currency outside Mexico
under the Agreement is sought in Mexico, Mexican courts might render a judgment
in Mexican currency or, if such judgment is rendered in foreign currency but is
payable in Mexico, such judgment may be discharged in Pesos, at the rate of
exchange in effect at the date and place where payment is made, as determined by
the Central Bank of Mexico (Banco de Mexico). Therefore, we express no opinion
with respect to Section 8 of the Debentures.
8. In any bankruptcy or liquidation proceeding initiated in Mexico pursuant to
the laws of Mexico, labor claims, claims of tax authorities for unpaid taxes and
claims of secured creditors or
C - 4
<PAGE>
creditors with a special privilege under law will have priority over claims of
unsecured creditors.
9. Following any conversion of the Debentures, the Board of Directors of the
Company has been authorized and instructed to amend the Company's Estatutos
Sociales to reflect the corresponding increase in capital and number of Series A
Shares resulting from any such conversion, and to take customary action to
formalize and register any such amendment. Such amendment would normally be
accomplished through a resolution adopted at a meeting of the Company's Board.
Under the Estatutos Sociales of the Company, a Board meeting may be validly held
when a majority of the Board members are present, but including at least one of
the members appointed by the holders of Series A Shares and one member appointed
by the holders of series B shares of the Company. The resolutions adopted by
such a meeting would be valid when adopted by the favorable vote of a majority
of the directors present thereat, but including at least one of the members
appointed by the holders of the Series A Shares and one member appointed by the
holders of the series B shares of the Company.
10. We do not purport to be experts on and do not purport to be generally
familiar with or qualified to express legal opinions based on any law other than
the laws of Mexico and accordingly express no legal opinion herein based upon or
related to any law other than the laws of Mexico.
This opinion is furnished solely for your benefit in connection with the
transactions described above. This opinion is not to be used, circulated, quoted
or otherwise referred to for any other purpose without our prior written consent
in each instance.
Very truly yours,
De Ovando y Martinez del Campo, S.C.
By: Javier Martinez del Campo L.
C - 5
EXHIBIT 12.1 - RATIO OF EARNINGS TO
FIXED CHARGES - MEXICAN GAAP
<PAGE>
Grupo Iusacell, S.A. de C.V.
Ratio of Earnings to fixed charges calculation
Computation under Mexican GAAP
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Figures for the year ended December 31, Figures for the three
month period ended
March 31,
--------------------------------------------------------------------------------
Adjusted for price-level changes and expressed in thousands of constant
Description Mexican pesos as of March 31, 1997
--------------------------------------------------------------------------------
Actual
--------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing operations 200,960 (205,095) (701,077) (769,246) (363,263) 105,915 (32,249)
Add:
Income Tax, Assets tax and defered income tax 51,962 22,909 32,462 29,093 35,199 8,109 10,822
------- -------- ---------- ---------- -------- ------- -------
Pretax income (loss) from continuing operations 252,922 (182,186) (668,615) (740,153) (328,064) 114,024 (21,427)
Add:
Integral result of financing (expense only) 194,005 555,049 242,424 235,814 433,061 77,261 58,623
Amortization of debt expense and discount
or premium
Interest portion of rent expense 18,363 3,699 1,723 1,298 552 201 141
Losses from <50% owned affiliates 39,141 5,993 72
Amortized portion of capitalized integral
result of financing 617 630 1,375 1,102 1,585
------- -------- ---------- ---------- -------- ------- -------
Adjustment earnings (A) 465,290 376,562 (423,851) (463,270) 112,917 192,660 38,922
------- -------- ---------- ---------- -------- ------- -------
Fixed charges:
Integral result of financing (whether
expenses or capitalized) 232,140 577,606 768,771 942,227 433,613 77,462 75,654
Amortization of debt expense and discount
or premium
Interest portion of rent expense
Prefered stock dividend requirement
------- -------- ---------- ---------- -------- ------- -------
Total fixed charges (B) 232,140 577,606 768,771 942,227 433,613 77,462 75,654
------- -------- ---------- ---------- -------- ------- -------
Earnings to fixed charges (A/B) 2.0 -- -- -- -- 2.5 --
======= ======== ========== ========== ======== ======= =======
Adjusted pre-tax earnings less fixed charges (201,044) (1,192,622) (1,405,497) (320,696) -- (36,732)
======= ======== ========== ========== ======== ======= =======
</TABLE>
2
EXHIBIT 12.2 - RATIO OF EARNINGS TO
FIXED CHARGES - U.S. GAAP
3
<PAGE>
Grupo Iusacell, S.A. de C.V.
Ratio of Earnings to fixed charges calculation
Computation under U.S. GAAP
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Figures for the year ended December 31,
---------------------------------------
Adjusted for price-level changes and
Description expressed in thousands of constant
Mexican pesos as of March 31, 1997
--------------------------------------
--------------------------------------
1994 1995 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) from continuing operations (685,083) (363,242) (141,737)
Add:
Income Tax, Assets tax and defered income tax 12,681 (213,055) (144,476)
---------- ---------- --------
Pretax income (loss) from continuing operations (672,402) (576,297) (286,213)
Add:
Integral result of financing (expense only) 247,871 235,814 469,673
Amortization of debt expense and discount
or premium
Interest portion of rent expense 1,723 1,298 552
Losses from <50% owned affiliates 39,141 5,993
Amortized portion of capitalized integral
result of financing 617 630 1,375
---------- ---------- --------
Adjustment earnings (A) (422,191) (299,414) 191,380
---------- ---------- --------
Fixed charges:
Integral result of financing (whether
expenses or capitalized) 774,218 942,227 470,225
Amortization of debt expense and discount
or premium
Interest portion of rent expense
Prefered stock dividend requirement
---------- ---------- --------
Total fixed charges (B) 774,218 942,227 470,225
---------- ---------- --------
Earnings to fixed charges (A/B) -- -- --
========== ========== ========
Adjusted pre-tax earnings less fixed charges (1,196,409) (1,241,641) (278,845)
========== ========== ========
</TABLE>
4
EXHIBIT 15.1 - ACKNOWLEDGEMENT BY
COOPERS & LYBRAND
5
<PAGE>
October 6, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that our report dated April 18, 1997 on our review of
the interim financial information of Grupo Iusacell, S.A. de C.V. and
subsidiaries as of March 31, 1997 and 1996 and for the three month periods then
ended, is included in this Registration Statement. Pursuant to Rule 436(c) under
the Securities Act of 1933, this report should not be considered a part of the
registration statement prepared or certified by us within the meanings of
Section 7 and 11 of that Act.
Very truly yours,
/s/ Coopers & Lybrand
---------------------
6
EXHIBIT 21.1 - LIST OF SUBSIDIARIES
7
<PAGE>
The following is a list of subsidiaries of Grupo Iusacell, S.A. de C.V.:
1. S.O.S. Telecomunicaciones, S.A. de C.V.
2. Iusacell, S.A. de C.V.
3. Sistecel, S.A. de C.V.
4. Comunicaciones Celulares de Occidente, S.A. de C.V.
5. Sistemas Telefonicas Portatiles Celulares, S.A. de C.V.
6. Telecomunicaciones del Golfo, S.A. de C.V.
7. Inmobiliaria Montes Urales 460, S.A. de C.V.
8. Mexican Cellular Investments, Inc.
9. Iusanet, S.A. de C.V.
10. GMD Comunicaciones, S.A. de C.V.
11. Hermes Telecomunicaciones, S.A. de C.V.
8
EXHIBIT 23.1 - CONSENT OF
COOPERS & LYBRAND
9
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
October 7, 1997
We consent to the inclusion in this Registration Statement on Form F-4 of:
(a) our report dated February 21, 1997, June 26, 1997 for Note 20 and
September 30 for Note 18.b, 18.c and 18.d, on our audit of the
consolidated financial statements of Grupo Iusacell, S.A. de C.V.
and subsidiaries as of December 31, 1996 and 1995, and for the years
then ended.
(b) our report dated February 10, 1995, on our audit of the financial
statements of Communicaciones Celulares de Occidente, S.A. de C.V.
as of and for the year ended December 31, 1994.
(a) our report dated July 15, 1997, on our review of the pro forma
financial information of Grupo Iusacell, S.A. de C.V. and
subsidiaries.
We also consent to the reference to our firm under the captions "Experts,"
"Summary Historical and Pro Forma Consolidated Financial and Operating Data,"
"Selected Historical and Pro Forma Consolidated Financial and Operating Data"
and "Unaudited Pro Forma Consolidated Financial Information."
Very truly yours,
/s/ Coopers & Lybrand
---------------------
10
EXHIBIT 23.2 - CONSENT OF
MANCERA, S.C., ERNST & YOUNG
To be filed by amendment
11
EXHIBIT 23.3 - CONSENT OF
PRIETO, RUIZ DE VELASCO Y CIA., S.C.
To be filed by amendment
12
EXHIBIT 23.4 - CONSENT OF DE OVANDO
Y MARTINEZ DEL CAMPO, S.C.
(CONTAINED IN EXHIBIT 5.1)
13
EXHIBIT 23.5 - CONSENT OF
ROGERS & WELLS
(CONTAINED IN EXHIBIT 5.2)
14
EXHIBIT 24.1 - POWERS OF ATTORNEY
(INCLUDED ON SIGNATURE PAGES TO REGISTRATION STATEMENT)
15
EXHIBIT 25.1 - STATEMENT OF
ELIGIBILITY OF TRUSTEE
16
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM T-1
-------------------------
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT FOR 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------
FIRST UNION NATIONAL BANK
(Exact name of Trustee as specified in its charter)
230 SOUTH TRYON STREET, 9TH FLOOR
CHARLOTTE, NORTH CAROLINA 28288-1179 56-0900030
(Address of principal executive office) (Zip Code) (I.R.S. Employer
Identification No.)
-------------------------
Grupo Iusacell, S.A. DE C.V.
(Exact name of obligor as specified in its charter)
Mexico N/A
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
Montes Urales 460
Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 110000
(Address of principal executive offices) (Zip Code)
-------------------------
17
<PAGE>
10% SERIES B SENIOR NOTES DUE 2004
(Title of the indenture securities)
18
<PAGE>
1. General information.
(a) The following are the names and addresses of each examining or
supervising authority to which the Trustee is subject:
The Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Richmond, Virginia.
Federal Deposit Insurance Corporation, Washington, D.C.
Securities and Exchange Commission, Division of Market Regulation,
Washington, D.C.
(b) The Trustee is authorized to exercise corporate trust powers.
2. Affiliations with obligor.
The obligor is not an affiliate of the Trustee.
(See Note 1 on Page 3)
Because the obligor is not in default on any securities issued under indentures
under which the applicant is trustee, items 3 through 15 are not required
herein.
16. List of Exhibits.
(1) Articles of Association of the Trustee as now in effect. Incorporated
by reference to Exhibit 25.1 to the current report on form 8K of
Summit Proprties Partnership L.P. Filed 7/23/97.
(2) Certificate of Authority of the Trustee to commence business.
Incorporated by reference to Exhibit 25.1 to the current report on
form 8K of Summit Proprties Partnership L.P. Filed 7/23/97.
(3) Authorization of the Trustee to exercise corporate trust powers.
Incorporated by reference to Exhibit 25.1 to the current report on
form 8K of Summit Proprties Partnership L.P. Filed 7/23/97.
(4) By-Laws of the Trustee.
Incorporated by reference to Exhibit 25.1 to the current report on
form 8K of Summit Proprties Partnership L.P. Filed 7/23/97.
(5) Inapplicable.
(6) Consent by the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939. Included at Page 4 of this Form T-1 Statement.
(7) Report of condition of Trustee.
(8) Inapplicable.
(9) Inapplicable.
19
<PAGE>
-------------------------
NOTES
-------------------------
1. In asmuch as this Form T-1 is filed prior to the ascertainment by
the Trustee of all facts on which to base responsive answer to Item 2, the
answer to said Item is based on incomplete information. Items 2 may,
however, be considered as correct unless amended by an amendment to this
Form T-1.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, FIRST UNION NATIONAL BANK, a national association
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Charlotte, and State of North Carolina on the 22nd day of September, 1997.
FIRST UNION NATIONAL BANK
(Trustee)
BY: /s/ Shawn Bednasek
----------------------
EXHIBIT T-1 (6)
CONSENTS OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939 and in
connection with the proposed issuance by Grupo Iusacell, S.A. DE C.V. of its 10
% Series B Senior Notes Due 2004, First Union National Bank, as the Trustee
herein named, hereby consents that reports of examinations of said Trustee by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
FIRST UNION NATIONAL BANK
BY: /s/ Terry Baker
-------------------
Title: Vice President
Dated: September 22, 1997
21
EXHIBIT 99.1 - FORM OF LETTER
OF TRANSMITTAL FOR THE NOTES
22
<PAGE>
LETTER OF TRANSMITTAL
GRUPO IUSACELL, S.A. DE C.V.
Offer to Exchange All Outstanding
10% Senior Notes Due 2004 (The "Old Notes")
for
10% Senior Notes Due 2004,
Which Have Been Registered Under the Securities Act of 1933 (The "New
Notes") Pursuant to the Prospectus Dated [ ], 1997.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ], 1997 OR
SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED BY THE
COMPANY (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M.,
NEW YORK CITY TIME ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
To: [ ], Exchange Agent
By Hand or Overnight By Registered or Certified Mail:
[ ] [ ]
By Facsimile:
[ ]
Confirm by Telephone:
[ ]
Delivery of this Letter of Transmittal to an address other than as set
forth above or transmission of instructions via facsimile other than as set
forth above does not constitute a valid delivery.
Please read this entire Letter of Transmittal carefully before completing
any box below.
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, the certificate numbers and principal
amount of Old Notes should be listed on a separate schedule affixed hereto.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2 3
- ----------------------------------------------------------------------------------------------
Principal
Amount of
Principal Old Notes
Name(s) and Address(es) of Registered Holder(s) Certificate Amount of Tendered
(Please fill in, if blank) Number(s)* Old Note(s) (if less than all)**
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------------
------------------------------------------------
------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in
column 2. See instruction 2. Old Notes tendered hereby must be in
denominations of $1,000 and any integral multiple thereof. See Instruction
1.
- --------------------------------------------------------------------------------
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated [ ], 1997 (the "Prospectus"), of Grupo Iusacell, S.A. de C.V.,
a Mexican company (the "Company"), and this Letter of
23
<PAGE>
Transmittal (the "Letter"), which together constitute the Company's offer (the
"Exchange Offer") to exchange up to U.S.$150,000,000 aggregate principal amount
of its 10% Senior Notes due 2004 (the "New Notes"), for a like principal amount
of the Company's issued and outstanding 10% Senior Notes due 2004 (the "Old
Notes").
The undersigned has completed the appropriate boxes above and below and
signed this Letter to indicate the action the undersigned desires to take with
respect to the Exchange Offer.
This Letter is to be used either if certificates of Old Notes are to be
forwarded herewith or, if delivery of Old Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent at The Depository Trust
Company (the "Book-Entry Transfer Facility"), pursuant to the procedures set
forth in "The Exchange Offer--Procedures for Tendering Old Notes" and "The
Exchange Offer--Book-Entry Transfer" in the Prospectus. Delivery of this Letter
and any other required documents should be made to the Exchange Agent. Delivery
of documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
Holders whose Old Notes are not immediately available or who cannot
deliver their Old Notes and all other documents required hereby to the Exchange
Agent on or prior to the Expiration Date must tender their Old Notes according
to the guaranteed delivery procedure set forth in the Prospectus under the
caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 1.
|_| CHECK HERE IF OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE
TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution__________ |_| The Depository Trust Company
Account Number _______________________________ Transaction Code Number
_______________________
|_| CHECK HERE IF OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)
Name of Eligible Institution that Guaranteed Delivery
If Delivered by Book-Entry Transfer:
Account Number ___________________ Transaction Code Number _______________
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
Address:
24
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Company or the Exchange Agent to be necessary or desirable to
complete the sale, assignment and transfer of the Old Notes tendered hereby.
The undersigned also acknowledges that this Exchange Offer is being made
in reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties that the New Notes issued in exchange for the Old Notes pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
holders thereof (other than (i) any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act of 1933, as
amended (the "Securities Act") or (ii) any broker-dealer that purchased Notes
from the Company to resell pursuant to Rule 144A under the Securities Act ("Rule
144A") or any other available exemption) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement with any person to participate in
the distribution of such New Notes. The undersigned acknowledges that any holder
of Old Notes using the Exchange Offer to participate in a distribution of the
New Notes (i) cannot rely on the position of the staff of the SEC enunciated in
its interpretive letter with respect to Exxon Capital Holdings Corporation
(available May 13, 1988) or similar letters and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
The undersigned represents that (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of such holder's
business, (ii) such holder has no arrangements with any person to participate in
the distribution of such New Notes, and (iii) such holder is not an "affiliate,"
as defined in Rule 405 under the Securities Act, of the Company or, if such
holder is an affiliate, that such holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
If the undersigned is a broker-dealer, the undersigned additionally represents
that the Old Notes to be exchanged were acquired for its own account as a result
of market-making activities or other trading activities.
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading, it acknowledges that it will deliver
a prospectus in connection with any resale of such New Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
All authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in the instructions
contained in this Letter.
25
<PAGE>
The undersigned understands that tenders of the Old Notes pursuant to any
one of the procedures described under "The Exchange Offer -- Procedures for
Tendering Old Notes" in the Prospectus and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company in
accordance with the terms and subject to the conditions of the Exchange Offer.
The undersigned recognizes that, under certain circumstances set forth in
the Prospectus under "The Exchange Offer -- Certain Conditions to the Exchange
Offers," the Company may not be required to accept for exchange any of the Old
Notes tendered. Old Notes not accepted for exchange or withdrawn will be
returned to the undersigned at the address set forth below unless otherwise
indicated under "Special Delivery Instructions" below.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please issue the New Notes (and, if applicable, substitute
certificates representing Old Notes for any Old Notes not exchanged) in the name
of the undersigned. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please deliver the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE BOOK-ENTRY TRANSFER FACILITY, AS THE HOLDER OF RECORD OF CERTAIN OLD
NOTES, HAS GRANTED AUTHORITY TO BOOK-ENTRY TRANSFER FACILITY PARTICIPANTS WHOSE
NAMES APPEAR ON A SECURITY POSITION LISTING WITH RESPECT TO SUCH OLD NOTES AS OF
THE DATE OF TENDER OF SUCH OLD NOTES TO EXECUTE AND DELIVER THE LETTER OF
TRANSMITTAL AS IF THEY WERE THE HOLDERS OF RECORD. ACCORDINGLY, FOR PURPOSES OF
THIS LETTER OF TRANSMITTAL, THE TERM "HOLDER" SHALL BE DEEMED TO INCLUDE SUCH
BOOK-ENTRY TRANSFER FACILITY PARTICIPANTS.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER AND DELIVERING SUCH NOTES AND THIS LETTER TO THE
EXCHANGE AGENT, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS SET FORTH IN
SUCH BOX ABOVE.
26
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for New Notes are to be issued in the
name of and sent to someone other than the person or persons whose signature(s)
appear(s) on this Letter above or if Old Notes delivered by book-entry transfer
which are not accepted for exchange are to be returned by credit to an account
maintained at the Book-Entry Transfer Facility other than the account indicated
above.
Issue: New Notes and/or Old Notes to:
Name(s)...................................
(Please Type or Print)
..........................................
(Please Type or Print)
Address:..................................
..........................................
(Zip Code)
(Complete Substitute Form W-9)
|_| Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set below.
------------------------------------------
(Book-Entry Transfer Facility)
Account Number, if applicable)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for New Notes are to be sent to
someone other than the person or person(s) whose signature(s) appear(s) on this
Letter above or to such person or persons at an address other than shown in the
box entitled "Description of Old Notes" on this Letter above.
Mail: New Notes and/or Old Notes to:
Name(s)..................................
(Please Type or Print)
.........................................
(Please Type or Print)
Address:.................................
.........................................
(Zip Code)
- --------------------------------------------------------------------------------
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPILED WITH, THIS LETTER
OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATE(S) FOR OLD NOTES AND ALL
OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE
EXPIRATION DATE.
27
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9)
Dated:........................................................................
x ................................................... ................
x ................................................... ................
Signature(s) of Owner(s)/ or Authorized Signatory Date
Area Code and Telephone Number..........................................
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Name(s):...............................................
.......................................................
(Please Type or Print)
Capacity:..............................................
Address:...............................................
.......................................................
(Include Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:...............................
(Authorized Signature)
.......................................................
(Title)
.......................................................
(Name and Firm)
Dated:.................................................
- --------------------------------------------------------------------------------
28
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Delivery of this Letter and Old Notes; Guaranteed Delivery Procedures.
Except as set forth below, a holder of Old Notes who wishes to tender Old
Notes for exchange pursuant to the Exchange Offer must submit a properly
completed and duly executed copy of this Letter, including all other documents
required by this Letter to the Exchange Agent at one of the addresses set forth
above under "Exchange Agent" on or prior to the Expiration Date. In addition,
either (i) certificates for such Old Notes must be received by the Exchange
Agent along with this Letter, or (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder of Old Notes must comply with the
guaranteed delivery procedures described below.
The method of delivery of this Letter, the Old Notes and all other
required documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If such delivery is by mail, it is recommended that registered
mail properly insured, with return receipt requested, be used. In all cases,
sufficient time should be allowed to permit timely delivery.
If a holder desires to tender Old Notes and such holder's Old Notes are
not immediately available or time will not permit such holder's Letter of
Transmittal, Old Notes (or a confirmation of book-entry transfer of Old Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility) or other
required documents to reach the Exchange Agent on or before the Expiration Date,
such holder's tender may be effected if:
(a) such tender is made by or through an Eligible Institution (as defined
below);
(b) on or prior to the Expiration Date, the Exchange Agent has received a
telegram, facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) or letter from such
Eligible Institution setting forth the name and address of the holder of
such Old Notes and the principal amount of Old Notes tendered and stating
that the tender is being made thereby and guaranteeing that, within three
business days after the Expiration Date, a duly executed Letter of
Transmittal or facsimile thereof, together with the Old Notes (or a
confirmation of book-entry transfer of such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility), and any other
documents required by this Letter and the instructions hereto, will be
deposited by such Eligible Institution with the Exchange Agent; and
(c) this Letter, or a facsimile hereof, and Old Notes in proper form for
transfer (or a confirmation of book-entry transfer of such Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility) and all
other required documents are received by the Exchange Agent within three
business days after the Expiration Date.
See "The Exchange Offer--Procedures for Tendering Old Notes," "The Exchange
Offer--Book-Entry Transfer," and "The Exchange Offer--Guaranteed Delivery
Procedures" in the Prospectus.
2. Withdrawals.
Any holder who has tendered Old Notes may withdraw the tender by
delivering written notice of withdrawal (which may be sent by telegram,
facsimile (receipt confirmed by telephone and an original delivered by
guaranteed overnight courier)) to the Exchange Agent prior to the Expiration
Date. For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent prior to the Expiration Date at its address
set forth above. Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn,
29
<PAGE>
identify the Old Notes to be withdrawn (including the amount of such Old Notes),
and (where certificates for Old Notes have been transmitted) specify the name in
which such Old Notes are registered, if different from that of the withdrawing
holder thereof. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing holder thereof must also submit the serial numbers
of the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the procedure
for book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. See "The Exchange Offer--Withdrawal Rights" in the Prospectus.
3. Signatures on this Letter, Bond Powers and Endorsements; Guarantee of
Signatures.
If this letter is signed by the registered holder of the Old Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
The signatures on this Letter or a notice of withdrawal, as the case may
be, must be guaranteed unless the Old Notes surrendered for exchange pursuant
thereto are tendered (i) by a registered holder of the Old Notes who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" in this Letter or (ii) for the account of an Eligible Institution.
In the event that the signatures in this Letter or a notice of withdrawal, as
the case may be, are required to be guaranteed, such guarantees must be by a
firm which is a member of a registered national securities exchange or a member
of the National Association of Securities Dealers, Inc., a clearing agency, an
insured credit union, a savings association or by a commercial bank or trust
company having an office or correspondent in the United States (collectively,
"Eligible Institutions"). If Old Notes are registered in the name of a person
other than the signer of this Letter, the Old Notes surrendered for exchange
must be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
4. Special Issuance and Delivery Instructions.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer are to
be issued or sent, if different from the name or address of the person signing
this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. If no such instructions are given, any New Notes will be issued in
the name of, and delivered to, the name or address of the person signing this
Letter and any Old Notes not accepted for exchange will be returned to the name
or address of the person signing this Letter.
5. Backup Federal Income Tax Withholding and Substitute Form W-9.
Under the federal income tax laws, payments that may be made by the
Company on account of New Notes issued pursuant to the Exchange Offer may be
subject to backup withholding at the rate of 31%. In order to avoid such backup
withholding, each tendering holder should complete and sign the Substitute Form
W-9 included in this Letter and either (a) provide the correct taxpayer
identification number ("TIN") and certify, under penalties of perjury, that the
TIN provided is correct and that (i) the holder has not been notified by the
Internal Revenue Service (the "IRS") that the holder is subject to backup
withholding as a result of failure to report all interest or dividends or (ii)
the IRS has notified the holder that the holder is no longer subject to backup
withholding; or (b) provide an adequate basis for exemption. If the tendering
holder has not been issued a TIN and has applied for
30
<PAGE>
one, or intends to apply for one in the near future, such holder should write
"Applied For" in the space provided for the TIN in Part 1 of the Substitute Form
W-9, sign and date the Substitute Form W-9 and sign the Certificate of Payee
Awaiting Taxpayer Identification Number. If "Applied For" is written in Part 1,
the Company (or the Paying Agent under the Indenture governing the New Notes)
shall retain 31% of payments made to the tendering holder during the sixty (60)
day period following the date of the Substitute Form W-9. If the holder
furnishes the Exchange Agent or the Company with his or her TIN within sixty
(60) days after the date of the Substitute Form W-9, the Company (or the Paying
Agent) shall remit such amounts retained during the sixty (60) day period to the
holder and no further amounts shall be retained or withheld from payments made
to the holder thereafter. If, however, the holder has not provided the Exchange
Agent or the Company with his or her TIN within such sixty (60) day period, the
Company (or the Paying Agent) shall remit such previously retained amounts to
the IRS as backup withholding. In general, if a holder is an individual, the
taxpayer identification number is the Social Security number of such individual.
If the Exchange Agent or the Company is not provided with the correct taxpayer
identification number, the holder may be subject to a $50 penalty imposed by the
IRS. Certain holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such holder must submit a statement (generally, IRS Form W-8), signed
under penalties of perjury, attesting to that individual's exempt status. Such
statements can be obtained from the Exchange Agent. For further information
concerning backup withholding and instructions for completing the Substitute
Form W-9 (including how to obtain a taxpayer identification number if you do not
have one and how to complete the Substitute Form W-9 if Old Notes are registered
in more than one name), consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause Old
Notes to be deemed invalidly tendered, but may require the Company (or the
Paying Agent) to withhold 31% of the amount of any payments made on account of
the New Notes. Backup withholding is not an additional federal income tax.
Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
6. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the
transfer of Old Notes to it or its order pursuant to the Exchange Offer. If,
however, New Notes and/or substitute Old Notes not exchanged are to be delivered
to, or are to be registered or issued in the name of, any person other than the
registered holder of the Old Notes tendered hereby, or if tendered Old Notes are
registered in the name of any person other than the person signing this Letter,
or if a transfer tax is imposed for any reason other than the transfer of Old
Notes to the Company or its order pursuant to the Exchange Offer, the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
7. Waiver of Conditions.
The Company reserves the absolute right to waive satisfaction of any or
all conditions enumerated in the Prospectus.
8. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
31
<PAGE>
Neither the Company nor any other person is obligated to give notice of
defects or irregularities in any tender, nor shall any of them incur any
liability for failure to give any such notice.
9. Inadequate Space.
If the space provided herein is inadequate, the aggregate principal amount
of Old Notes being tendered and the certificate number or numbers (if
applicable) should be listed on a separate schedule attached hereto and
separately signed by all parties required to sign this Letter.
10. Mutilated, Lost, Stolen or Destroyed Old Notes.
If any certificate has been lost, mutilated, destroyed or stolen, the
holder should promptly notify The Bank of New York, as Exchange Agent, at the
address indicated above. The holder will then be instructed as to the steps that
must be taken to replace the certificate(s). This Letter of Transmittal and
related documents cannot be processed until the Old Notes have been replaced.
11. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter may be directed to the
Exchange Agent at the address and telephone number indicated above.
32
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: COPAMEX INDUSTRIAS, S.A. DE C.V.
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Part I--TAXPAYER IDENTIFICATION
SUBSTITUTE NUMBER
Form W-9
Department of the Treasury ENTER YOUR TAXPAYER IDENTIFICATION
Internal Revenue Service NUMBER IN THE APPROPRIATE BOX. FOR
MOST INDIVIDUALS, THE THIS IS YOUR Social Security Number
SOCIAL SECURITY NUMBER. IF YOU DO
NOT HAVE A NUMBER, SEE HOW TO
Payor's Request for OBTAIN A "TIN" IN THE ENCLOSED
Taxpayer GUIDELINES. or
Identification Number
("TIN") and NOTE: IF THE ACCOUNT IS IN MORE
Certification THAN ONE NAME, SEE THE CHART ON
PAGE 2 OF THE ENCLOSED GUIDELINES
TO DETERMINE WHAT NUMBER TO GIVE. Employer Identification Number
--------------------------------------------------------------------------------------------------
Part II -- For Payees Exempt From Backup Withholding (See Enclosed Guidelines)
--------------------------------------------------------------------------------------------------
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
(1) the number shown on this form is my correct Taxpayer Identification Number (or I am
waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have
not been notified by the Internal Revenue Service (the "IRS") that I
am subject to backup withholding as a result of a failure to report all
interest or dividends or the IRS has notified me that I am no longer
subject to backup withholding.
SIGNATURE............................................ DATE...................................
- -----------------------------------------------------------------------------------------------------------------------------------
Certification Guidelines -- You must cross out item (2) of the above certification if you have been notified by the IRS that you are
subject to backup withholding because of underreporting of interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding, you received another notification from the IRS that you are no
longer subject to backup withholding, do not cross out item (2).
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification Number has
not been issued to me, and that I mailed or delivered an application to receive
a Taxpayer Identification Number to the appropriate Internal Revenue Service
Center or Social Security Administration Office (or I intend to mail or deliver
an application in the near future). I understand that if I do not provide a
Taxpayer Identification Number to the payor, 31 percent of all payments made to
me on account of the New Notes shall be retained until I provide a Taxpayer
Identification Number to the payor and that, if I do not provide my Taxpayer
Identification Number within sixty (60) days, such retained amounts shall be
remitted to the Internal Revenue Service as backup withholding and 31 percent of
all reportable payments made to me thereafter will be withheld and remitted to
the Internal Revenue Service until I provide a Taxpayer Identification Number.
Signature Date
Note: Failure to complete and return this form may result in backup withholding
of 31% of any payments made to you on account of the New Notes. Please review
the enclosed guidelines for certification of Taxpayer Identification Number on
Substitute Form W-9 for additional details.
- --------------------------------------------------------------------------------
33
EXHIBIT 99.2 - FORM OF NOTICE OF
GUARANTEED DELIVERY
34
<PAGE>
NOTICE OF GUARANTEED DELIVERY
for
Tender of 10% Senior Notes due 2004
in Exchange for
10% Series B Senior Notes due 2004
of
GRUPO IUSACELL, S.A. de C.V.
Pursuant to the Prospectus dated [ ], 1997
This form or one substantially equivalent hereto must be used by a holder
to accept the Exchange Offer of Grupo Iusacell, S.A. de C.V., a Mexican
corporation (the "Company"), who wishes to tender 10% Senior Notes due 2004 (the
"Old Notes") to the Exchange Agent pursuant to the guaranteed delivery
procedures described in "The Exchange Offer--Guaranteed Delivery Procedures" of
the Company's Prospectus, dated [ ], 1997 (the "Prospectus") and in Instruction
1 to the related Letter of Transmittal. Any holder who wishes to tender Old
Notes pursuant to such guaranteed delivery procedures must ensure that the
Exchange Agent receives this Notice of Guaranteed Delivery prior to the
Expiration Date (as defined below) of the Exchange Offer. Capitalized terms used
but not defined herein have the meanings ascribed to them in the Prospectus or
the Letter of Transmittal.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ], 1997,
UNLESS EXTENDED (THE "EXPIRATION DATE"). OLD NOTES TENDERED IN THE EXCHANGE
OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
The Exchange Agent for the Exchange Offer is:
First Union National Bank
By Mail: Telephone Number: By Hand or Overnight Delivery:
[ ] [ ] [ ]
Facsimile Number:
[ ]
[ ]
-----------------
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED BOX ON THE
LETTER OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
35
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tender(s) to the Company, upon the terms and
subject to the conditions set forth in the Prospectus, receipt of which is
hereby acknowledged, the principal amount of Old Notes set forth below, pursuant
to the guaranteed delivery procedures set forth in the Prospectus under the
caption "The Exchange Offer --Guaranteed Delivery Procedures."
Subject to and effective upon acceptance for exchange of the Old Notes
tendered herewith, the undersigned hereby sells, assigns and transfers to or
upon the order of the Company all right, title and interest in and to, and any
and all claims in respect of or arising or having arisen as a result of the
undersigned's status as a holder of, all Old Notes tendered hereby. In the event
of a termination of the Exchange Offer, the Old Notes tendered pursuant thereto
will be returned to the tendering Old Note holder promptly.
The undersigned hereby represents and warrants that the undersigned
accepts the terms and conditions of the Prospectus and the Letter of
Transmittal, has full power and authority to tender, sell, assign and transfer
the Old Notes tendered hereby and that the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim. The undersigned will,
upon request, execute and deliver any additional documents deemed by the
Exchange Agent or the Company to be necessary or desirable to complete the sale,
assignment and transfer of the Old Notes tendered.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN AND COMPLETE
Signature(s) of Registered Holder(s) Address(es):
or Authorized Signatory: ------------------------------
-------------------------------------------
- ------------------------------------
-------------------------------------------
- ------------------------------------
-------------------------------------------
Name(s) of Registered Holder(s):
Area Code and Telephone No.:
-------------------------------------------
- ------------------------------------
- ------------------------------------
Principal Amount of Notes Tendered: If Old Notes will be delivered by a
book-entry transfer, check trust company:
- ------------------------------------
|_| The Depository Trust Company
- ------------------------------------
Certificate No(s). of Notes (if available):
Transaction Code No.:
- ------------------------------------ ----------------
Depository Account No.:
- ------------------------------------ --------------
- --------------------------------------------------------------------------------
36
<PAGE>
- --------------------------------------------------------------------------------
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Old Notes exactly as their name(s) appear(s) on the Old Notes or by
person(s) authorized to become registered holder(s) by endorsements and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, guardian, attorney-in-fact, officer of a corporation, executor,
administrator, agent or other representative, such person must provide the
following information:
Please print name(s) and address(es)
Name(s): __________________________________________________________________
__________________________________________________________________
Capacity: __________________________________________________________________
__________________________________________________________________
Address(es): __________________________________________________________________
__________________________________________________________________
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a member of a registered national securities exchange or
a member of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office or correspondent in the United States
(each, an "Eligible Institution") hereby guarantees that, within three business
days from the date of this Notice of Guaranteed Delivery, a properly completed
and validly executed Letter of Transmittal (or a facsimile thereof), together
with Old Notes tendered hereby in proper form for transfer (or confirmation of
the book-entry transfer of such Old Notes into the Exchange Agent's account at a
Book-Entry Transfer Facility) and all other required documents will be deposited
by the undersigned with the Exchange Agent at one of its addresses set forth
above.
Name of Firm: __________________________________________________________________
_____________________________________________________________________________
Authorized Signature
Address: _______________________________________________________________________
Name: _______________________________________________________________________
_______________________________________________________________________________
Title: _______________________________________________________________________
Area Code and Telephone No.: ___________________________________________________
Date: _______________________________________________________________________
DO NOT SEND OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF OLD NOTES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND VALIDLY EXECUTED
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
- --------------------------------------------------------------------------------
37
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date. The
method of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 1 of the
Letter of Transmittal.
2. Signatures of this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Old Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Old Notes, the signature must correspond with the
name shown on the security position listing as the owner of the Old Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Old Notes listed or a participant of the
Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the
registered holder(s) appears on the Old Notes or signed as the name of the
participant shown on the Book-Entry Transfer Facility's security position
listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian attorney-in-fact officer of a corporation, or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing and submit with the Letter of Transmittal
evidence satisfactory to the Company of such person's authority to so act.
3. Requests for assistance or additional copies, questions and requests
for assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
38
EXHIBIT 99.3 - FORM OF LETTER TO
DTC PARTICIPANTS
39
<PAGE>
GRUPO IUSACELL, S.A. DE C.V.
OFFER TO EXCHANGE ALL OUTSTANDING
10% SENIOR NOTES DUE 2004
FOR
10% SERIES B SENIOR NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933,
AS AMENDED
To: Brokers, Dealer, Commercial Banks
Trust Companies and Other Nominees:
Grupo Iusacell, S.A. de C.V., a Mexican company (the "Company"), is
offering, upon the terms and subject to the conditions set forth in the
Prospectus, dated [ ], 1997 (the "Prospectus") and in the enclosed Letter of
Transmittal (the "Letter of Transmittal") (which together will constitute the
"Exchange Offer"), to exchange an aggregate principal amount of U.S.$150,000,000
of its 10% Series B Senior Notes due 2004 (the "New Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which the Prospectus constitutes a part,
for a like principal amount of its 10% Senior Notes due 2004 (the "Old Notes")
outstanding on the date hereof. The New Notes and Old Notes are collectively
hereinafter referred to as the "Notes." The Exchange Offer is being made in
order to satisfy certain obligations of the Company contained in the Exchange
and Registration Rights Agreement dated July 15, 1997 by and among the Company
and Chase Securities Inc. and Salomon Brothers Inc., as representatives of the
initial purchasers referred to herein.
We are requesting that you contact your clients for whom you hold Old
Notes regarding the Exchange Offer. For your information and for forwarding to
your clients for whom you hold Old Notes registered in your name or in the name
of your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated [ ], 1997;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer
if certificates for Old Notes are not immediately available or time will not
permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below) or if the procedure for book-entry transfer
cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account
you hold Old Notes registered in your name or the name of your nominee, with
space provided for obtaining such clients' instructions with regard to the
Exchange Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to First Union National Bank, the Exchange
Agent for the Old Notes.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
PM, NEW YORK CITY TIME, ON [ ], 1997, UNLESS EXTENDED BY THE COMPANY (THE
"EXPIRATION DATE"). OLD NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY
BE WITHDRAWN AT ANY TIME BEFORE THE EXPIRATION DATE.
40
<PAGE>
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Old Notes should be delivered
to the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them
to forward their certificates for Old Notes prior to the expiration of the
Exchange Offer or to comply with the book-entry transfer procedures on a timely
basis, a tender may be effected by following the guaranteed delivery procedures
described in the Prospectus under "The Exchange Offer--Procedures for Tendering
Old Notes" and "The Exchange Offer-Guaranteed Delivery Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to the
beneficial owners of Old Notes held by them as nominee or in a fiduciary
capacity. The Company will pay or cause to be paid all stock transfer taxes
applicable to the exchange of Old Notes pursuant to the Exchange Offer, except
as set forth in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to First
Union National Bank, the Exchange Agent for the Old Notes, at its address and
telephone number set forth on the front of the Letter of Transmittal.
Very truly yours,
GRUPO IUSACELL, S.A. DE C.V.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN
THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
41
EXHIBIT 99.4 - FORM OF LETTER
TO CLIENTS
42
<PAGE>
GRUPO IUSACELL, S.A. DE C.V.
Offer to Exchange All Outstanding
10% Senior Notes Due 2004
for
10% Series B Senior Notes Due 2004
Which Have Been Registered Under
The Securities Act of 1933, As Amended
To Our Clients:
Enclosed for your consideration is a Prospectus dated [ ], 1997
(the "Prospectus"), and the related letter of Transmittal (the "Letter of
Transmittal") relating to the offer (the "Exchange Offer") of Grupo Iusacell,
S.A. de C.V. (the "Company") to exchange its 10% Series B Senior Notes Due 2004,
which have been registered under the Securities Act of 1933, as amended (the
"New Notes"), for its outstanding 10% Senior Notes Due 2004 (the "Old Notes"),
upon the terms and subject to the conditions described in the Prospectus and the
Letter of Transmittal. The Exchange Offer is being made in order to satisfy
certain obligations of the Company contained in the Exchange and Registration
Rights Agreement dated July 15, 1997 by and among the Company and Chase
Securities Inc. and Salomon Brothers Inc., as representatives of the initial
purchasers referred to therein.
This material is being forwarded to you as the beneficial owner of the Old
Notes carried by us for your account but not registered in your name. A tender
of such Old Notes may only be made by us as the holder of record and pursuant to
your instructions.
Accordingly, we request instructions as to whether you wish us to tender
on your behalf the Old Notes held by us for your account, pursuant to the terms
and conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 pm, New
York City time, on [ ], 1997, unless extended by the Company. Any Old Notes
tendered pursuant to the Exchange Offer may be withdrawn at any time before the
expiration date.
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Certain Conditions to
the Exchange "Offer."
3. Any transfer taxes incident to the transfer of Old Notes from the
holder to the Company will be paid by the Company, except as otherwise provided
in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on [ ],
1997, unless extended by the Company.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. The Letter of Transmittal is furnished to you for your information
only and may not be used directly by you to tender Old Notes.
43
<PAGE>
INSTRUCTION WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
materials referred to therein relating to the Exchange Offer made by Grupo
Iusacell, S.A. de C.V. with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
Aggregate Principal Amount of Old Notes
10% Senior Notes Due 2004.......... ----------------------------------------
|_| Please do not tender any Old Notes
held by you for my account
Dated: _______________, 1997 ----------------------------------------
----------------------------------------
Signature(s)
----------------------------------------
----------------------------------------
----------------------------------------
Please print name(s) here
----------------------------------------
----------------------------------------
Address(es)
----------------------------------------
Area Code and Telephone Number
----------------------------------------
Tax Identification or Social Security No(s.)
None of the Old Notes held by us for your account will be tendered unless
we receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, you signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
44
