-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M785gTsPFOzbS07W2Vp1xvkrmt4EbFPLYAbQa+oR5l+1G/6kA+jlNoGR6Ogmw5zP eSiX2C6pWxx85qRnmY6Vbg== 0000903423-00-000520.txt : 20041008 0000903423-00-000520.hdr.sgml : 20041008 20001208183536 ACCESSION NUMBER: 0000903423-00-000520 CONFORMED SUBMISSION TYPE: 20FR12B PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20001211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICA MOVIL SA DE CV CENTRAL INDEX KEY: 0001129137 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 STATE OF INCORPORATION: O5 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20FR12B SEC ACT: 1934 Act SEC FILE NUMBER: 001-16269 FILM NUMBER: 786287 BUSINESS ADDRESS: STREET 1: LAGO ALBERTO 366 STREET 2: COLONIA ANAHUAC MEXICO DF CITY: MEXICO STATE: O5 ZIP: 11320 BUSINESS PHONE: 525 703 3990 MAIL ADDRESS: STREET 1: LAGO ALBERTO 366 STREET 2: COLONIA ANAHUAC MEXICO DF CITY: MEXICO STATE: O5 ZIP: 11320 20FR12B 1 0001.txt As filed with the Securities and Exchange Commission on December 8, 2000 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ------------------------- FORM 20-F ------------------------- REGISTRATION STATEMENT PURSUANT TO SECTIONS 12(b) AND 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: America Movil, S.A. de C.V. (exact name of registrant as specified in its charter) America Mobile (translation of registrant's name into English) United Mexican States (jurisdiction of incorporation) Lago Alberto 366, Colonia Anahuac, 11320 Mexico, D.F., Mexico (address of principal executive offices) Securities to be registered pursuant to Section 12(b) of the Act: American Depositary Shares, each representing New York Stock Exchange 20 Series L Shares, without par value ("L Share ADSs") Series L Shares, without par value ("L Shares") New York Stock Exchange (for listing purposes only) Securities to be registered pursuant to Section 12(g) of the Act: American Depositary Shares, each representing 20 Series A Shares, without par value ("A Share ADSs") Series A Shares, without par value ("A Shares") Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None. The number of outstanding shares of each of the issuer's classes of capital or common stock as of the establishment of the Company on September 25, 2000 was: 3,266.2 million AA Shares 345.6 million A Shares 10,872.7 million L Shares Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No X ---- ---- Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 Item 18 X ---- ---- TABLE OF CONTENTS Page Presentation of Information.....................................ii Forward-Looking Statements.....................................iii Item 1. Identity of Directors, Senior Management and Advisers............1 Item 2. Not applicable...................................................2 Item 3. Key Information..................................................3 Selected Financial Data.......................................3 Dividends.....................................................6 Exchange Rate Information.....................................7 Capitalization................................................8 Risk Factors..................................................9 Item 4. Information on the Company......................................19 The Company..................................................19 Business of Telcel...........................................21 Subsidiaries.................................................32 Joint Ventures and Investments...............................37 Capital Expenditures.........................................46 The Spin-off.................................................47 Item 5. Operating and Financial Review and Prospects....................50 Item 6. Directors, Senior Management and Employees......................61 Item 7. Major Shareholders and Related Party Transactions...............66 Major Shareholders...........................................66 Related Party Transactions...................................67 Item 8. Financial Information...........................................70 Item 9. The Offer and Listing...........................................70 Description of Securities....................................70 Trading Markets..............................................70 Trading on the Mexican Stock Exchange........................71 Item 10. Additional Information..........................................72 Share Capital................................................72 Bylaws.......................................................72 Certain Contracts............................................77 Legal Proceedings............................................77 Exchange Controls............................................78 Dividends and Paying Agents..................................78 Taxation.....................................................78 Documents on Display.........................................82 Item 11. Quantitative and Qualitative Disclosures about Market Risk......83 Exchange Rate and Interest Rate Risks........................83 Sensitivity Analysis Disclosures.............................83 Item 12. Description of Securities other than Equity Securities..........84 Description of American Depositary Shares....................84 Items 13-17. Not applicable..................................................89 Item 18. Financial Statements............................................90 Item 19. Exhibits........................................................90 PRESENTATION OF INFORMATION In this registration statement, America Movil, S.A. de C.V., a sociedad anonima de capital variable organized under the laws of Mexico, is referred to as the "Registrant," and, unless the context otherwise requires, the Registrant and its consolidated subsidiaries are referred to collectively as "America Movil" or the "Company." America Movil was established on September 25, 2000 in a spin-off (the "Spin-off") of the wireless business and certain international businesses of Telefonos de Mexico, S.A. de C.V. ("Telmex"), the largest provider of local and long-distance telephone services in Mexico. The Spin-off was implemented using a procedure under Mexican corporate law called escision or "split-up." See "The Spin-off" under Item 4. America Movil conducts its wireless business in Mexico through its subsidiary Radiomovil Dipsa, S.A. de C.V., which operates under the trademark "Telcel" and is referred to herein as "Telcel." This registration statement includes under Item 18 the Company's audited combined financial statements as of December 31, 1998 and 1999 and for the years ended December 31, 1997, 1998 and 1999 (the "Audited Financial Statements") and unaudited interim consolidated financial statements as of September 30, 2000 and for the nine months ended September 30, 2000 and unaudited interim combined financial statements for the nine months ended September 30, 1999 (the "Unaudited Interim Financial Statements"). The Audited Financial Statements and the unaudited interim financial statements for the nine months ended September 30, 1999 have been prepared on a combined basis from Telmex's historical accounting records and represent the combined historical operations of the entities that were transferred to America Movil by Telmex in the Spin-off. The Audited Financial Statements and the Unaudited Interim Financial Statements have been prepared in accordance with generally accepted accounting principles in Mexico ("Mexican GAAP"), which differ in certain important respects from generally accepted accounting principles in the United States ("U.S. GAAP"). Note 19 to the Audited Financial Statements and Note 13 to the Unaudited Interim Financial Statements provide a description of the principal differences between Mexican GAAP and U.S. GAAP, as they relate to America Movil, and a reconciliation to U.S. GAAP of operating income, net income and total stockholders' equity and a condensed statement of cash flows under U.S. GAAP. Mexican GAAP requires restatement of all financial statements in constant Mexican pesos as of the date of the most recent balance sheet presented. Accordingly, the financial statements and other financial information contained in this registration statement are stated in constant pesos with purchasing power as of September 30, 2000. References herein to "pesos" or "Ps." are to Mexican pesos and references to "U.S. dollars" or "U.S.$" are to United States dollars. On December 7, 2000, the noon buying rate in New York City for cable transfers in pesos published by the Federal Reserve Bank of New York was Ps.9.4290 to U.S.$1.00. FORWARD-LOOKING STATEMENTS This registration statement contains forward-looking statements. We may from time to time make forward-looking statements in our periodic reports to the Securities and Exchange Commission on Forms 20-F and 6-K, in our annual report to shareholders, in offering circulars and prospectuses, in press releases and other written materials, and in oral statements made by our officers, directors or employees to analysts, institutional investors, representatives of the media and others. Examples of such forward-looking statements include: o projections of operating revenues, net income (loss), net income (loss) per share, capital expenditures, dividends, capital structure or other financial items or ratios, o statements of our plans, objectives or goals, including those relating to competition, regulation and rates, o statements about our future economic performance or that of Mexico or other countries in which we operate, and o statements of assumptions underlying such statements. Words such as "believe," "anticipate," "plan," "expect," "intend," "target," "estimate," "project," "predict," "forecast," "guideline," "should" and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors, some of which are discussed under "Risk Factors" beginning on page 9, include our short history of operations as an independent company, economic and political conditions and government policies in Mexico or elsewhere, inflation rates, exchange rates, regulatory developments, technological improvements, customer demand and competition. We caution you that the foregoing list of factors is not exclusive and that other risks and uncertainties may cause actual results to differ materially from those in forward-looking statements. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments. PART I Item 1. Identity of Directors, Senior Management and Advisers Directors As of the date of this registration statement, the members of our Board of Directors are as follows:
Name Position Business Address - ---- -------- ---------------- Elected by the holders of AA Shares and A Shares: Carlos Slim Helu................................ Chairman Paseo de las Palmas No. 736 Colonia Lomas de Chapultepec 11000 Mexico, D.F., Mexico Daniel Hajj Aboumrad............................ Director Lago Alberto 366 Colonia Anahuac 11320 Mexico, D.F., Mexico Jaime Chico Pardo............................... Director Parque Via 190, Piso 10 Colonia Cuauhtemoc 06599 Mexico, D.F., Mexico Humberto Gutierrez-Olvera Zubizarreta........... Director Miguel de Cervantes Saavedra No. 255 Colonia Ampliacion Granada 11520 Mexico, D.F., Mexico Alejandro Soberon Kuri.......................... Director Paseo de las Palmas No. 1005, P.H. Colonia Lomas de Chapultepec 11000 Mexico, D.F., Mexico Maria Asuncion Aramburuzabala L................. Director Campos Eliseos No. 400, Piso 4 Colonia Lomas de Chapultepec 11000 Mexico, D.F., Mexico Rafael Robles Miaja............................. Director and Secretary Paseo de las Palmas No. 405, Piso 3 Colonia Lomas de Chapultepec 11000 Mexico, D.F., Mexico Drew Roy........................................ Director 175 East Houston San Antonio, Texas 78205 Royce S. Caldwell............................... Director 175 East Houston San Antonio, Texas 78205 Elected by the holders of L Shares: Claudio X. Gonzalez Laporte..................... Director Jose Luis Lagrange No. 103, Piso 3 Colonia Chapultepec Morales 11590 Mexico, D.F., Mexico David Ibarra Munoz.............................. Director Canada No. 184 Colonia Los Alpes 01710 Mexico, D.F., Mexico
Executive Committee Our bylaws provide that the Executive Committee may generally exercise the powers of the Board of Directors. In addition, the Board of Directors is required to consult the Executive Committee before deciding on certain matters set forth in the bylaws, and the Executive Committee must provide its views within 60 days following a request from the Board of Directors. The current members of the Executive Committee are Carlos Slim Helu, Humberto Gutierrez-Olvera Zubizarreta, Daniel Hajj Aboumrad and Drew Roy. Senior Management The chief executive officer of America Movil is Daniel Hajj Aboumrad. Mr. Hajj is also the chief executive officer of Telcel. We expect that the other members of senior management of America Movil will be named in the coming months. The offices of America Movil and Telcel are located at Lago Alberto 366, Colonia Anahuac, 11320 Mexico, D.F., Mexico. Statutory Auditors As of the date of this registration statement, our statutory auditors, with offices at Corporativo Polanco, Jaime Balmes No. 8, Piso 5, Colonia Los Morales Polanco, 11510 Mexico, D.F., Mexico, are as follows: Name Responsibilities Francisco Alvarez del Campo................... Statutory Auditor Agustin Aguilar Laurents...................... Alternate Statutory Auditor Independent Auditors Our independent auditors are Mancera S.C., a member of Ernst & Young International, with offices at Corporativo Polanco, Jaime Balmes No. 8, Piso 5, Colonia Los Morales Polanco, 11510 Mexico, D.F., Mexico. Item 3. Key Information SELECTED FINANCIAL DATA Our financial statements have been prepared in accordance with Mexican GAAP, which differ in certain important respects from U.S. GAAP. Note 19 to the Audited Financial Statements and Note 13 to the Unaudited Interim Financial Statements provide a description of the principal differences between Mexican GAAP and U.S. GAAP, as they relate to America Movil, and a reconciliation to U.S. GAAP of operating income, net income and total stockholders' equity and a condensed statement of cash flows under U.S. GAAP. Pursuant to Mexican GAAP, in the financial statements and the selected consolidated financial information set forth below (a) nonmonetary assets, including property, plant and equipment, and stockholders' equity are restated for inflation and, in the case of imported telephone plant, devaluation, (b) gains and losses in purchasing power from holding monetary liabilities or assets are recognized in income and (c) all financial statements are restated in constant pesos as of September 30, 2000. Since January 1, 1997, we have elected to restate imported telephone plant based on the rate of inflation in the country of origin and the prevailing exchange rate at the balance sheet date; other fixed assets are restated based on the Mexican National Consumer Price Index ("NCPI"). The effect of inflation accounting under Mexican GAAP has not been reversed in the reconciliation to U.S. GAAP of net income and stockholders' equity, except with respect to the methodology for restatement of imported telephone plant. See Note 19 to the Audited Financial Statements and Note 13 to the Unaudited Interim Financial Statements. Annual Financial Information The selected combined financial information set forth below has been derived in part from our Audited Financial Statements, which have been reported on by Mancera S.C., a member of Ernst & Young International, independent auditors. The selected financial information has been prepared on a combined basis from Telmex's historical accounting records and represents the combined historical operations of the entities that were transferred to America Movil by Telmex in the Spin-off. The selected financial information should be read in conjunction with, and is qualified in its entirety by reference to, the Audited Financial Statements. See "Presentation of Information."
As of and for the year ended December 31, -------------------------------------------------------------------------- 1995 1996 1997 1998 1999 ------------ -------------- ---------------- ---------------- ------------ (millions of constant pesos as of September 30, 2000)(1) Income Statement Data: Mexican GAAP Operating revenues.................... Ps. 4,899 Ps. 5,032 Ps. 5,834 Ps. 9,372 Ps. 15,355 Operating costs and expenses.......... 5,404 7,242 5,574 7,402 13,121 Operating income (loss)............... (505) (2,210) 260 1,970 2,234 Net income (loss)..................... (1,545) 271 1,830 3,998 4,317 Net income (loss) per share(2)........ (0.107) 0.019 0.126 0.276 0.298 U.S. GAAP Operating revenues.................... 4,899 5,032 5,834 9,372 15,355 Operating income (loss)............... (633) (2,399) 58 1,592 1,617 Net income (loss)..................... (1,562) 126 1,966 2,969 2,668 Net income (loss) per share(2)........ (0.108) 0.009 0.136 0.205 0.184 Balance Sheet Data: Mexican GAAP Property, plant and equipment, net.... Ps. 4,912 Ps. 4,239 Ps. 4,772 Ps. 6,404 Ps. 12,404 Total assets.......................... 21,237 43,231 45,111 50,843 65,372 Long-term debt(3)..................... 1,329 720 182 84 2,404 Total stockholders' equity............ 18,689 41,004 43,552 49,084 56,179 U.S. GAAP Total assets.......................... 21,522 43,482 45,744 51,575 66,033 Long-term debt(3)..................... 1,329 720 182 84 2,404 Minority interest..................... -- -- -- -- 659 Total stockholders' equity............ 18,249 40,988 43,908 48,235 53,565
- --------------- (1) Except per share data. (2) Based on 14,485 million shares outstanding at September 25, 2000. Each L Share ADS represents 20 L Shares and each A Share ADS represents 20 A Shares. (3) Long-term debt includes long-term debt owed to related parties. See Notes 11 and 14 to the Audited Financial Statements. Interim Financial Information The selected interim financial information set forth below has been derived from our Unaudited Interim Financial Statements. See "Presentation of Information." In the opinion of management, the financial data set forth below include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company's financial condition and results of operations as of the dates and for the periods specified. Results for the first nine months are not, however, necessarily indicative of results to be expected for the full year.
As of and for the nine months ended September 30, ----------------------------- 1999 2000 -------------- ------------- (millions of constant pesos as of September 30, 2000)(1) (combined) (consolidated) Income Statement Data: Mexican GAAP Operating revenues............................................... Ps. 10,247 Ps. 19,150 Operating costs and expenses..................................... 8,633 16,459 Operating income................................................. 1,614 2,691 Net income....................................................... 2,959 1,580 Net income per share(2).......................................... 0.204 0.109 U.S. GAAP Operating revenues............................................... 10,247 19,150 Operating income................................................. 1,173 2,148 Net income....................................................... 2,261 1,348 Net income per share(2).......................................... 0.156 0.093 Balance Sheet Data: Mexican GAAP Property, plant and equipment, net............................... Ps. 27,066 Total assets..................................................... 83,414 Long-term debt(3)................................................ 5,194 Total stockholders' equity....................................... 66,096 U.S. GAAP Total assets..................................................... 85,404 Long-term debt(3)................................................ 5,194 Minority interest................................................ 2,194 Total stockholders' equity....................................... 64,277
- ------------ (1) Except per share data. (2) Based on 14,485 million shares outstanding at September 25, 2000. Each L Share ADS represents 20 L Shares and each A Share ADS represents 20 A Shares. (3) Long-term debt includes long-term debt owed to related parties. See Notes 8 and 9 to the Unaudited Interim Financial Statements. DIVIDENDS America Movil has not paid dividends since its establishment in September 2000 and has not yet adopted a dividend policy. The declaration, amount and payment of dividends will be determined by majority vote of the holders of AA Shares and A Shares, generally on the recommendation of the Board of Directors, and will depend on the Company's results of operations, financial condition, cash requirements, future prospects and other factors deemed relevant by the holders of AA Shares and A Shares. Accordingly, we cannot assure you that we will pay dividends in the future on a continuous and regular basis. Our bylaws provide that holders of AA Shares, A Shares and L Shares participate on a per-share basis in dividend payments and other distributions, subject to certain preferential dividend rights of holders of L Shares. See "Additional Information--Memorandum and Articles of Association--Dividends" and "Additional Information--Memorandum and Articles of Association--Preferential Rights of L Shares" under Item 10. EXCHANGE RATE INFORMATION Mexico has had a free market for foreign exchange since 1991. Prior to December 1994, the Mexican central bank, Banco de Mexico, kept the peso-U.S. dollar exchange rate within a range prescribed by the government through intervention in the foreign exchange market. In December 1994, the government suspended intervention by Banco de Mexico and allowed the peso to float freely against the U.S. dollar. The peso declined sharply in December 1994 and continued to fall under conditions of high volatility in 1995. In 1996 and most of 1997, the peso fell more slowly and was less volatile. In the last quarter of 1997 and for much of 1998, the foreign exchange markets were volatile as a result of financial crises in Asia and Russia and financial turmoil in countries including Brazil and Venezuela. The peso declined during this period, but has been relatively stable in 1999 and in 2000 to date. There can be no assurance that the government will maintain its current policies with regard to the peso or that the peso will not further depreciate or appreciate significantly in the future. The following table sets forth, for the periods indicated, the high, low, average and period-end noon buying rate in New York City for cable transfers in pesos published by the Federal Reserve Bank of New York, expressed in pesos per U.S. dollar. The rates have not been restated in constant currency units.
Period High Low Average(1) Period End - ------ ---- --- ---------- ---------- 1995............................... Ps.5.2700 Ps.8.0500 Ps.6.5263 Ps.7.7400 1996............................... 7.3250 8.0450 7.6347 7.8810 1997............................... 7.7172 8.4100 7.9674 8.0700 1998............................... 8.0400 10.6300 9.2425 9.9010 1999............................... 9.2430 10.6000 9.5630 9.4800 Nine months ended September 30, 2000................. 9.4520 2000: January......................... 9.4020 9.6400 February........................ 9.3540 9.5970 March........................... 9.1830 9.3630 April........................... 9.5010 9.2900 May............................. 9.3340 9.6270 June............................ 9.4900 10.0870 July............................ 9.3290 9.5570 August.......................... 9.1830 9.3880 September....................... 9.2080 9.4750 October......................... 9.3990 9.6960 November........................ 9.3710 9.6480 December (through December 7)... 9.3750 9.4290
- ------------ (1) Average of month-end rates. On December 7, 2000, the noon buying rate was Ps.9.4290 to U.S.$1.00. CAPITALIZATION The following table sets forth our consolidated capitalization under Mexican GAAP as of October 31, 2000. See "Presentation of Information."
As of October 31, 2000 ------------------------------ (millions of constant pesos as of October 31, 2000) Debt(1)(2): Secured: Banks......................................................... Ps. 508 Supplier credits.............................................. 239 Guatemalan government......................................... 3,378 Unsecured: Banks......................................................... 2,361 Supplier credits.............................................. 124 Financial leases.............................................. 17 Related parties(3) ........................................... 1,278 ----------- Total debt.................................................. 7,905 ----------- Less short-term debt and current portion of long-term debt................................................. 3,113 ----------- Long-term debt................................................... 4,792 ----------- Stockholders' equity(4): Capital stock.................................................... 27,031 Retained earnings................................................ 39,174 Deficit from restatement of stockholders' equity......................................................... (598) Cumulative effect of deferred income tax......................... (1,452) Minority interest................................................ 2,051 ----------- Total stockholders' equity.................................. 66,206 ----------- Total capitalization (total debt and stockholders' equity).......... Ps. 74,111 ===========
- ------------- (1) As of October 31, 2000, the Company's debt was denominated in U.S. dollars and Guatemalan quetzales. See Note 8 to the Unaudited Interim Financial Statements. (2) Prior to the Spin-off, Telmex provided limited commitments to creditors of certain of our subsidiaries. Telmex and America Movil are seeking consent of the creditors under the applicable agreements to assign these commitments to Telcel and release Telmex, but consent has not yet been obtained. See "The Spin-off--Approvals and Consents" under Item 4. (3) See Note 9 to the Unaudited Interim Financial Statements. (4) See Note 15 to the Audited Financial Statements. RISK FACTORS Risks Relating Specifically to Our Mexican Wireless Business We face substantial and increasing competition We face substantial competition in the Mexican wireless industry, and we expect competition to intensify in the future as a result of the entry of new competitors, the development of new technologies, products and services and the auction of additional spectrum. Our subsidiary Telcel holds concessions in all nine regions in Mexico to operate both a cellular network using the 800 megahertz (Band B) radio spectrum and a personal communications services ("PCS") network using the 1800-1900 megahertz (Band D) radio spectrum. We face competition from other cellular providers using the 800 megahertz (Band A) spectrum in each of the regions in which we operate, and the Mexican government has granted PCS licenses to other carriers that are in the process of developing wireless service on the 1900 megahertz (Bands A, D and F) spectrum. Our competitors in Mexico include Grupo Iusacell, S.A. de C.V., which is controlled by Verizon and the Peralta Group, and several companies that Telefonica S.A. has recently agreed to acquire. The wireless industry is characterized by a high rate of customer disconnection of services, referred to as customer "churn," which is increased by additional competition. Churn reduces our revenues and profits, slows customer growth and increases marketing and customer acquisition costs. Customer churn is the result of several factors, including network coverage, network reliability, pricing and affordability and customer care concerns. We anticipate that market prices for two-way wireless services generally will decline in the future due to increased competition. We also expect that competition will lead to increases in advertising and promotional spending, along with increased demands on access to distribution channels. All of this may lead to greater choices for customers, possible consumer confusion and increasing movement of customers between competitors. Our ability to compete successfully also will depend on marketing and on our ability to anticipate and respond to various competitive factors affecting the industry, including new services, changes in consumer preferences, demographic trends, economic conditions and discount pricing strategies by competitors. If we are unable to respond to competition and compensate for declining prices by adding new customers, increasing usage and offering new services, our revenues and profitability will decline. In addition, the cost of adding new customers may continue to increase, reducing profitability even if customer growth continues. We may not be able to build out and upgrade our network on a timely basis We are in the process of building out and upgrading our wireless network in Mexico. In order to build out our network, we must obtain cell and switch sites; obtain rights of way, government approvals and permits for network construction; complete radio frequency design for each developing area; design and install switching systems, radio systems, interconnection facilities and operating support systems; expand and maintain customer care, network management and management and administrative systems; and obtain additional radio spectrum frequencies. Over the next several years, we intend to upgrade our network to implement the next generation of digital technology. We cannot guarantee you that we will successfully execute these tasks--many of which are not under our control--on a timely basis or at all. Our ability to develop our network is affected by, among other factors, the availability of capital, relations with suppliers and vendors, political and regulatory factors and currency fluctuations. If we cannot satisfactorily complete the build-out and upgrade of our wireless network, or do so in a timely manner, we could lose current and potential customers to competitors, and our results and financial condition could suffer. We have substantial capital requirements We require substantial capital to operate and build out our wireless network. We also require significant amounts of capital to market and distribute our services and products, to develop new services and products, to develop and implement new wireless technologies and potentially to acquire and invest in other communications companies. We may not be able to raise capital in sufficient amounts on a timely basis, or at all. In addition, we may not be able to respond quickly, or at all, to new, unexpected capital requirements, which could impede our business and development. Some of the factors that could cause significant unanticipated capital needs are regulatory changes, engineering design changes, new technologies, currency fluctuations and significant departures from our business plan. Historically, Telcel relied on assistance from its former parent company, Telmex, to help satisfy its capital requirements. Following the Spin-off, Telmex will not provide us with resources or provide financial or other support to Telcel if we cannot meet our own capital needs. Failure to obtain adequate capital in a timely fashion could result in the delay or abandonment of our development or expansion plans or the failure to meet regulatory build-out requirements. Regulatory developments in Mexico could hurt our business Telcel's business is subject to extensive government regulation, and may be adversely affected by changes in law, regulation or regulatory policy. See "Business of Telcel--Regulation" under Item 4. Actions of Mexican regulatory authorities could have a material adverse impact on our businesses and their prospects, financial condition and result of operation. The Mexican General Communications Law and Telcel's concessions include various provisions under which the concessions may be terminated before their scheduled expiration dates. See "Business of Telcel--Regulation--Termination of the Concessions" under Item 4. Among other things, our concessions may be terminated if we fail to meet specified network build-out requirements and schedules or to maintain minimum quality, service and coverage standards. Because all of Telcel's concessions may be terminated in the event that any one of them is terminated, whether through revocation or otherwise, the loss of any one concession could have a material adverse impact on our business and results of operations. We are unable to predict the impact that the new presidential administration of Vicente Fox may have on the Mexican telecommunications regulatory environment. Risks Relating to our International Subsidiaries and Joint Ventures We are dependent on relationships with our partners We cannot assure you that all of our relationships with our partners will be harmonious and successful, and disagreements with partners could impede the execution of our international strategy and work in favor of our competitors. Certain of our international businesses, including our operations in Guatemala, Ecuador and Argentina, are conducted through subsidiaries in which we own a majority, but less than 100%, ownership interest. As a result, we are required to obtain the consent and cooperation of our partners with respect to certain matters in order to implement and expand upon our business strategies. See "Subsidiaries" under Item 4. Certain of our other international businesses, including the investments we hold through our joint venture with Bell Canada International Inc. and SBC International, Inc., as well as our investment in Puerto Rico, are or will be conducted through joint ventures in which we do not own a majority ownership interest or a controlling voting interest. As a result, we have limited control over the business strategies of these companies. For instance, approval of operating and capital expenditure budgets and distributions to and capital contributions from shareholders typically require the consent of our partners. Moreover, the refusal of any of these partners to approve funding or to fund their pro rata share of capital contributions could force us to contribute on a disproportionate basis in situations where we are unable to receive a corresponding increase in our ownership percentage. Disagreements with our partners could adversely affect the business prospects of these companies or result in the termination of the joint venture arrangements under which we hold our ownership interests. See "Joint Ventures and Investments" under Item 4. Our international businesses may not be able to build out and upgrade their networks on a timely basis Our international wireless businesses need to complete the build-out of their wireless networks and, in the next several years, to implement upgrades to their networks to access the next generation of digital technology. Our fixed-line business in Guatemala, Telecomunicaciones de Guatemala, S.A., is also in the process of building out its network. We cannot guarantee you that we successfully execute these tasks on a timely basis or at all. Our ability to develop networks is affected by, among other factors, the availability of capital, relations with suppliers and vendors, political or regulatory factors and foreign currency fluctuations. If we cannot satisfactorily complete the build-out and upgrade of our networks, or do so in a timely manner, we could lose current and potential customers to competitors, and our revenues could suffer. Our international businesses have substantial capital requirements Our international businesses require a substantial amount of resources to continue growth and development, and if we decline to assist them with our resources at some time in the future, particularly during an economic crisis in Latin America, any problems our subsidiaries and joint ventures encounter in addressing capital shortfalls will be aggravated. Historically, we relied on assistance from Telmex to help satisfy our capital requirements. Following the Spin-off, Telmex will not provide us with resources or to provide financial or other support to our subsidiaries and joint ventures if they cannot meet their own capital needs. If we or our partners decide not to contribute capital to our international businesses, they may be obliged to raise capital through external borrowings or other external financing activities. These companies may not be able to arrange any needed additional financing to fund their capital requirements on acceptable terms, or at all. Increased indebtedness may have a number of negative effects on the operations of our international businesses, including increased difficulty in obtaining future financing, allocation of increasing amounts of income to debt repayments and restrictions imposed by lenders on these businesses' capital resources or operations. Our international businesses face substantial and increasing competition Our international wireless businesses face substantial competition, typically from at least one other wireless provider, and increasingly from multiple providers. We expect that competition will intensify in the future, both from new entrants and existing competitors, and that market prices for wireless services will continue to decline and customer churn will increase due to increased competition. Among other things, our competitors could: provide increased handset subsidies; provide free services, such as Internet access, to acquire market share; expand their networks faster; and develop and deploy improved wireless technologies faster. If we are unable to respond to competition and compensate for declining prices by adding new customers, increasing usage and offering new services, the revenues and profitability of our international businesses will decline. In addition, the cost of adding new customers may continue to increase, reducing profitability even if customer growth continues. We may not be able to obtain or maintain favorable roaming arrangements In countries where our businesses do not have nationwide coverage, roaming is an important feature to some of their customers. To the extent competitors have, or are perceived to have, better roaming features than our businesses, those businesses may lose customers to their competitors. Our customers can access another provider's wireless system only if our customers' handsets are compatible with the other provider's system and the other provider allows them to roam on its network. We rely on agreements to provide roaming capability to customers in Latin America, the United States and elsewhere in areas that our networks do not serve. Some competitors may have more extensive coverage through their own networks and be less dependent on roaming arrangements. Also, competitors may be able to obtain roaming rates that are lower than rates obtained by our Latin American companies, giving these competitors a pricing advantage. In addition, the quality of service that another wireless provider delivers during a roaming call may be inferior to the quality of service our companies provide. Our companies are also dependent upon roaming agreements with other providers as a source of revenues when the other providers' customers roam in the companies' territories. If these roaming agreements were to terminate, or if the other providers deploy incompatible technologies, revenues would decrease. Government regulation could hurt our international businesses Our international businesses are subject to extensive government regulation, and can be adversely affected by changes in law, regulation or regulatory policy. The licensing, construction, operation, sale, resale and interconnection arrangements of wireless telecommunications systems in Latin America and elsewhere are regulated to varying degrees by government authorities. Any of these authorities having jurisdiction over our businesses could adopt regulations or take other actions that could adversely affect us. In particular, the regulation of prices operators may charge for their services could have a material adverse effect on us by reducing our profit margins. Many of the laws, regulations and instruments that regulate our business were only recently adopted or became effective, and there is only a limited history that would allow us to predict the impact of these legal requirements on our future operations. The terms of the licenses or concessions under which our international wireless businesses operate typically require the operator to meet specified network build-out requirements and schedules, as well as to maintain minimum quality, service and coverage standards. Failure to comply with these criteria could result in the revocation of licenses, the imposition of fines or other government actions. We cannot assure you that our international business will be able to comply fully with the terms of their licenses. Many Latin American countries are executing programs to deregulate and privatize the provision of communications services, including wireless services. However, these programs are still developing, and we cannot guarantee you that changes in political administrations will not lead to the adoption of policies concerning competition, privatization and taxation of communications services that may be detrimental to our Latin American operations. Such restrictions, which may take the form of a preference for local over foreign ownership of communications licenses and assets, or government over private ownership, may make it impossible for us to continue to develop our businesses. These restrictions could cause losses of revenues and capital investments. Some restrictions currently exist, generally in the form of percentage limits on our equity ownership in joint ventures in foreign markets. We have invested in businesses and countries in which we have no previous experience We have invested in a growing number of businesses outside our core activity of providing wireless telecommunications services in Mexico, and we plan to continue doing so, especially in the rest of Latin America and in businesses related to the Internet, information technology and wireless industry. These investments involve risks to which we have not previously been exposed and countries in which we have no previous experience. Some of the investments are in countries that, like Guatemala, Ecuador, Brazil, Argentina and Venezuela, may present different or greater country risk than Mexico. Some are in sectors in which we have limited prior experience. Many of them are start-up or development-stage companies that will require substantial investments. There can be no assurance that these investments will ultimately be successful. The Guatemalan government is seeking the reversal of the privatization of our subsidiary Telgua The Guatemalan government has commenced certain proceedings against our subsidiary Telecomunicaciones de Guatemala, S.A. ("Telgua"). In June 2000, the executive branch of the Guatemalan government issued declarations concerning Empresa Guatemalteca de Telecomunicaciones ("Guatel"), a Guatemalan state agency that conducted the privatization of Telgua. The declarations state that certain actions of Guatel relating to the privatization of Telgua were contrary to the interests of the Guatemalan state. In September 2000, the Guatemalan government commenced judicial proceedings against Guatel, Telgua and certain other parties involved in the privatization alleging improprieties in connection with the privatization and seeking reversal of the privatization. Telgua was formally notified of these proceedings on October 6, 2000. We are contesting the proceedings and expect that we will have an opportunity to be heard. Although we do not currently expect that the judicial proceeding will ultimately have consequences that are materially adverse to the Company's interests, we are unable to predict the outcome of the proceedings. If the government ultimately prevails and pursues the most aggressive remedies, we may be required to transfer our interest in Telgua to Guatel or another agency of the Guatemalan government. Our joint venture with BCI and SBCI presents a variety of new risks We have entered into a joint venture agreement with Bell Canada International, Inc. ("BCI") and SBC International, Inc. ("SBCI") under which each party has contributed assets and funding commitments to a new joint venture company called Telecom Americas Ltd. We have contributed our investments in ATL-Algar Telecom Leste S.A. and Techtel-LMDS Comunicaciones Interactivas, S.A. and U.S.$165 million to the joint venture. We are required to contribute an additional U.S.$1,007 million over a period of up to three years. We may also decide to contribute other investment we have made, such as our investments in Telgua or Consorcio Ecuatoriano de Telecomunicaciones, S.A. CONECEL, and we may refer future investment opportunities to the joint venture. Through the joint venture, we have invested in wireless, broadband and cable businesses in Brazil, Colombia and Venezuela, which BCI has contributed to the joint venture. Each of the companies in which the joint venture has interests is independently managed. Each of these companies presents a variety of risks, including operational, commercial, financial and management risks, that could adversely affect the value of our investment in the joint venture. We have a 44.277% interest in the joint venture, and the joint venture is subject to complex provisions governing the rights of each venturer with respect to management. In general, these provisions effectively require a consensus among the three shareholders in order to make significant decisions about the joint venture. As a result, our success in achieving our objectives through the joint venture will depend on our ability to reach agreement with BCI and SBCI. Risks Relating to the Wireless Industry Generally Our future prospects remain uncertain due to significant change in the wireless industry The wireless communications industry is experiencing significant change. This includes the increasing pace of digital upgrades in existing analog wireless systems, evolving industry standards, ongoing improvements in the capacity and quality of digital technology, shorter development cycles for new products, and changes in end-user needs and preferences. There is uncertainty as to the pace and extent of growth in customer demand, and as to the extent to which prices for airtime and line rental may continue to decline. As a result, our future prospects and those of the industry remain uncertain. Our technology may not be compatible with the next generation of wireless technology There are three existing digital technologies for wireless communications, none of which is compatible with the others. Telcel and certain of our international businesses currently use time division multiple access ("TDMA") technology for their digital networks. However, a number of other wireless service providers, including certain of our other international businesses, use code division multiple access ("CDMA") as their digital wireless technology, and still other wireless providers use global system for mobile communications ("GSM") technology. We cannot guarantee that the next generation technology will be compatible with TDMA or CDMA. Telcel is currently considering enhanced data rates from global evolution ("EDGE"), which represents a convergence of TDMA and GSM, for possible use as its next or third generation wireless technology, but has not yet decided on its third generation strategy and may choose an alternative technology. Other wireless providers may choose a third generation wireless technology that combines CDMA and GSM. If the next generation technology that gains widespread acceptance is not compatible with TDMA and CDMA, it could materially adversely affect our business, financial condition and prospects. We may have difficulty collecting amounts due from other communications carriers In most of the markets in which we operate, including Mexico, the calling party pays for the airtime on a call to a wireless number. For instance, if a subscriber of another cellular service provider places a call to one of our Telcel customers in Mexico, Telcel charges the service provider from whose network the call originates an interconnection charge for every minute Telcel's network is in use in connection with the call. Telcel and our other businesses may encounter difficulties collecting such amounts from some communications companies. Some of these companies may also be our competitors. If our businesses cannot collect amounts due from other communications providers on a timely basis, or at all, they could incur material losses. Difficulties in collecting amounts due could also increase administrative costs, interest expenses and risks from foreign exchange fluctuations. We are dependent upon a small number of suppliers and vendors Our wireless businesses depend on a small number of suppliers and vendors for the build-out and upgrade of network infrastructure and the supply of handsets and other customer equipment. Each of our wireless businesses relies primarily on a particular vendor for its switch and cell site equipment and on a particular supplier or small group of suppliers for its handsets and other customer equipment. If any of these suppliers or vendors fails to provide us with services or equipment in a timely and cost-effective basis, our business and results of operations could be adversely affected. We may incur significant costs from wireless fraud Our wireless businesses incur costs associated with the unauthorized use of their wireless networks, particularly their analog cellular networks. These costs include administrative and capital costs associated with detecting, monitoring and reducing the incidence of fraud. Fraud also impacts interconnection costs, capacity costs, administrative costs and payments to other carriers for unbillable fraudulent roaming. Although we try to combat this problem through the deployment of anti-fraud technologies and other measures, we cannot guarantee that these efforts will be effective or that fraud will not result in material costs for us in the future. Cloning, which is one form of wireless fraud, involves the use of scanners and other electronic devices to illegally obtain telephone numbers and electronic serial numbers during cellular transmission. These stolen telephone and serial number combinations can be programmed into a cellular phone and used to obtain improper access to cellular networks. Roaming fraud occurs when a phone programmed with a number stolen from one of our customers is used to place fraudulent calls from another carrier's market, resulting in a roaming fee charged to us that cannot be collected from the customer. Use of wireless handsets may pose health risks Media and other reports have linked radio frequency emissions from wireless handsets to various health concerns, including cancer, and to interference with various electronic medical devices, including hearing aids and pacemakers. Although we do not know of any definitive studies showing that radio frequency emissions raise health concerns, concerns over radio frequency emissions may discourage the use of wireless handsets or expose us to potential litigation, which could have a material adverse effect on our results of operations. Additionally, research and studies are ongoing, and there can be no assurance that further research and studies will not demonstrate a link between radio frequency emissions and health concerns. Risks Relating to the Spin-off The Spin-off is subject to legal challenge America Movil was established on September 25, 2000 in a spin-off (the "Spin-off") from Telefonos de Mexico, S.A. de C.V. ("Telmex"). Under Mexican corporate law, for a period of 45 days following the registration and publication of the shareholders' resolution approving the Spin-off, which occurred on October 13, 2000, any shareholder or group of shareholders representing at least 20% of the entire capital stock of Telmex, or any creditor of Telmex, may commence judicial proceedings in Mexican courts to challenge the Spin-off. The legal grounds on which an escision may be challenged, and the remedies a court may impose if it sustains the challenge, are not specified in Mexican corporate law and have not been the subject of extensive practical experience or commentary. We are unable to anticipate whether any party will challenge the Spin-off or, if so, what standards the Mexican courts will apply to rule on the challenge, what procedures they will follow in conducting proceedings or what remedies they will impose. See "The Spin-off--Judicial Proceedings to Challenge the Spin-off" under Item 4. Our historical performance may not be representative of our performance as a separate company Our combined financial statements have been carved out from the consolidated financial statements of Telmex using the historical results of operations and historical bases of the assets and liabilities of the former Telmex businesses that we comprise. Our historical performance might have been different if we had been a separate, consolidated entity during the periods presented. The historical financial information included in this registration statement is not necessarily indicative of what our results of operations, financial position and cash flows will be in the future. There may be changes that will occur in our cost structure, funding and operations as a result of our separation from Telmex, including increased costs associated with reduced economies of scale, and increased costs associated with being a publicly traded, stand-alone company. We are a new company and have never operated independently of Telmex America Movil is a new company and has never operated independently of Telmex. Our ability to function as a new company will suffer if we do not develop our own administrative infrastructure quickly and cost-effectively. Telmex is providing us with certain legal, financial, accounting, investor relations and other administrative services on an interim basis while we develop the personnel and systems necessary to provide these services ourselves. We expect to be dependent on Telmex for these services for at least six months and possibly longer. See "Related Party Transactions--Transactions between America Movil and Telmex" under Item 7. After the expiration of these various arrangements, we may not be able to replace the transitional services in a timely manner or on terms and conditions as favorable as those we received from Telmex. In addition, in order to establish ourselves successfully as an independent company, we need to attract and retain a significant number of highly skilled employees. If we fail to do so, our business could suffer. We may become an investment company, and if so we will be subject to severe restrictions on our access to financing We are currently relying on a temporary exemption under the Investment Company Act of 1940 that will expire in September 2001. The Investment Company Act applies to any "investment company," and we fall within one of the statutory definitions of an investment company, primarily because of the large amount of financial assets we received in the Spin-off to provide us with resources to meet our capital expenditure requirements. We are not, however, engaged in the business of investing in investment securities (as defined in the Act), and accordingly we may rely on the temporary exemption provided by Rule 3a-1 under the Act. The temporary exemption is available for no longer than one year, so in order to remain exempt from the provisions of the Act, by September 2001 we must either cease to be within the statutory definition or fall within the exemption provided by Rule 3a-2 under the Act. We expect that we will be able to do so, primarily because we expect to reduce our financial assets through capital expenditures. If we are an investment company after September 2001, we will be subject to the provisions of the Investment Company Act that prohibit an unregistered foreign investment company from offering or selling securities in the United States. This prohibition would be likely to very severely restrict our access to capital, which would impair our ability to invest to meet competitive challenges and to expand our business. Risks Relating to Our Controlling Shareholders and Capital Structure We are controlled by one shareholder A majority of the voting shares of America Movil is controlled by Carso Global Telecom, S.A. de C. V. ("Carso Global Telecom"), which is controlled by a trust for the benefit of Carlos Slim Helu and members of his immediate family. Carso Global Telecom has the effective power to designate a majority of the members of our Board of Directors and to determine the outcome of other actions requiring a vote of the shareholders, except in very limited cases that require a vote of the holders of L Shares. Under Mexican law, the protections afforded to minority shareholders are, in some respects, different from and less comprehensive than those in the United States. We have significant transactions with affiliates, particularly Telmex, that create potential conflicts of interest We engage in transactions with Telmex, which is also controlled by Carso Global Telecom, and with certain other subsidiaries of Grupo Carso, S.A. de C.V. and Grupo Financiero Inbursa, S.A. de C.V., which are under common control with Carso Global Telecom. Our transactions with Telmex include certain agreements implementing the Spin-off and providing for transitional services, as well ongoing commercial relationships. See "Related Party Transactions" under Item 7. Transactions with affiliates may create the potential for conflicts of interest. The arrangements among our controlling shareholders may change A trust for the benefit of certain of our shareholders owns a majority of the voting stock of America Movil. These controlling shareholders include Carso Global Telecom, and SBC International, Inc., a subsidiary of SBC Communications, Inc. The trust and the controlling shareholders are described under "Major Shareholders and Related Party Transactions--Major Shareholders" under Item 7. Any of the parties to the trust may terminate it beginning December 20, 2000. In addition, beginning January 2, 2001 and concluding January 31, 2001, holders of L Shares, which cannot vote except in limited circumstances, may exchange them for full voting AA Shares subject to certain limitations. As a result, it is possible that the arrangements for control of America Movil could change. Holders of L Shares and L Share ADSs have limited voting rights Our bylaws provide that holders of L Shares are not permitted to vote except on such limited matters as the transformation or merger of America Movil or the cancellation of registration of the L Shares with the Mexican National Banking and Securities Commission or any stock exchange on which they are listed. Our bylaws restrict transfers of shares in some circumstances Our bylaws provide that any transfer of more than 10% of the capital stock of the Company by any person or group of persons acting together requires the approval of our Board of Directors. Risks Relating to Developments in Mexico and Other Emerging Market Countries Mexican economic and political conditions have a direct impact on our business Our principal business operations are located in Mexico. As a result, our business may be significantly affected by the general condition of the Mexican economy, by devaluation of the peso, by inflation and high interest rates in Mexico, or by political developments in Mexico. Economic situation Mexico experienced a severe economic crisis following the devaluation of the peso in December 1994. In recent years, economic crises in Asia, Russia, Brazil and other emerging markets have adversely affected the Mexican economy and could do so again. In 1999, Mexico's gross domestic product, or GDP, increased 3.7% and inflation was 12.3%. For 2000, according to Mexican government estimates, GDP growth is expected to be 4.5%, while inflation is expected to decline to no more than 10%. These estimates may not prove to be accurate. If the Mexican economy falls into a recession or if inflation and interest rates increase significantly, our business, financial condition and results of operations could suffer material adverse consequences because, among other things, demand for wireless communications services may decrease and consumers may find it difficult to pay for the services we offer. Currency fluctuations We are affected by fluctuations in the value of the peso because a significant portion of our financial assets (25% at September 30, 2000) and all of our indebtedness (100% at September 30, 2000) is denominated in foreign currencies, principally U.S. dollars. In the past, we have had more foreign currency-denominated assets than liabilities, so we have had exchange gains when the peso depreciated and exchange losses when the peso appreciated. As of September 30, 2000, we have more foreign currency-denominated liabilities than assets, and we expect that this will continue to be the case. Accordingly, we expect to recognize exchange losses when the peso depreciates against foreign currencies. Severe devaluation or depreciation of the peso may also result in disruption of the international foreign exchange markets and may limit our ability to transfer or to convert pesos into U.S. dollars and other currencies for the purpose of making timely payments of interest and principal on our indebtedness. While the Mexican government does not currently restrict, and for many years has not restricted, the right or ability of Mexican or foreign persons or entities to convert pesos into U.S. dollars or to transfer other currencies out of Mexico, the government could institute restrictive exchange rate policies in the future. Currency fluctuations are likely to continue to have an effect on our financial condition, results of operations and cash flows in future periods. Inflation and interest rates Mexico has experienced high levels of inflation in recent years. The annual rate of inflation, as measured by changes in the National Consumer Price Index, was 18.61% for 1998 and 12.32% for 1999. Inflation for the first nine months of 2000 was 6.15%. Interest rates on 28-day Mexican treasury bills, or Cetes, averaged 24.5% in 1998 and 21.4% in 1999. On September 30, 2000, the 28-day Cetes rate was 15.10%. High interest rates in Mexico may have a material adverse effect on our costs and thus on our financial condition and results of operations. Political events Mexican political events may also affect significantly our operations and the performance of Mexican securities, including our securities. In the Mexican national elections held on July 2, 2000, Vicente Fox of the opposition National Action Party (Partido Accion Nacional or the "PAN") won the presidency. His victory ended more than 70 years of presidential rule by the Institutional Revolutionary Party (the Partido Revolucionario Institucional or the "PRI"). Neither the PRI nor the PAN succeeded in securing a majority in the Congress or Senate. President Fox assumed office on December 1, 2000 and although he has announced his intention to ensure a smooth transition from the previous administration, there is a possibility that this change within the Mexican government may result in changes in Mexico's economic policies that may adversely affect our business. Although members of the PAN have governed several states and municipalities, the PAN has not previously governed on a national level. In the recent past, the transfer of power after presidential elections has been accompanied by a significant deterioration of the economy. A transfer of power could also trigger, among other events, currency instability. A change in economic policy, as well as currency instability, could have a material adverse effect on our business, financial condition, prospects and results of operation. In addition, we are unable to predict the impact that the new presidential administration of Vicente Fox may have on the Mexican telecommunications regulatory environment. Developments in other emerging market countries may adversely affect our business or the market price of our securities Many of our investments and joint ventures and a substantial portion of our total assets are located in other emerging market countries, including Guatemala, Ecuador, Argentina and Brazil. As a result, economic and political developments in these countries, including future economic crises and political instability, could have a material adverse effect on our business and results of operations. In addition, the market value of securities of Mexican companies is, to varying degrees, affected by economic and market conditions in other emerging market countries. Although economic conditions in such countries may differ significantly from economic conditions in Mexico, investors' reactions to developments in any of these other countries may have an adverse effect on the market value of securities of Mexican issuers. In late October 1997, prices of both Mexican debt securities and Mexican equity securities dropped substantially, precipitated by a sharp drop in value of Asian markets. Similarly, in the second half of 1998, prices of Mexican securities were adversely affected by the economic crises in Russia and in Brazil. There can be no assurance that the market value of our securities would not be adversely affected by events elsewhere, especially in emerging market countries. Item 4. Information on the Company THE COMPANY America Movil is the leading provider of wireless communications services in Mexico. Through our subsidiary Radiomovil Dipsa, S.A. de C.V., which operates under the trademark "Telcel," we provide Mexico's only single nationwide cellular telecommunications service, with a network covering approximately 16.2% of the geographical area of Mexico, including all major cities, and approximately 85.5% of Mexico's population. As of September 30, 2000, Telcel had 8.9 million cellular subscribers and a 73.4% share of the Mexican wireless market. We have subsidiaries and joint ventures in the telecommunications sector in Guatemala, Ecuador, Argentina, Brazil, Colombia, Venezuela, the United States, Puerto Rico, Mexico and Spain. In addition, we have formed a new joint venture company with Bell Canada International Inc. and SBC International, Inc. that will serve as our principal vehicle for expansion in Latin America. See "Subsidiaries" and "Joint Ventures and Investments." We expect to have opportunities to further expand our presence outside Mexico, especially in the United States and in Latin America, because we believe that the telecommunications sector will continue to be characterized by growth, technological change and consolidation. We may take advantage of these opportunities through the BCI-SBCI joint venture or through direct investments or other strategic alliances. We can make no assurance as to the extent, timing or cost of future international investments, and such investments may involve risks to which we have not previously been exposed. America Movil, S.A. de C.V. is a sociedad anonima de capital variable organized under the laws of Mexico with its principal executive offices at Lago Alberto 366, Colonia Anahuac, 11320, Mexico D.F., Mexico. The telephone number of America Movil at this location is (525) 703-3990. History America Movil was established in September 2000 in a spin-off (the "Spin-off") from Telefonos de Mexico, S.A. de C.V. ("Telmex"), the largest provider of local and long-distance telephone services in Mexico. The Spin-off was implemented using a procedure under Mexican corporate law called escision or "split-up." See "The Spin-off." Our wireless business in Mexico is conducted through our subsidiary Telcel, which traces its history to the establishment in 1956 of Publicidad Turistica, S.A., an affiliate of Telmex that published telephone directories. In 1981, the Mexican Ministry of Communications and Transportation granted Publicidad Turistica a concession for the installation and operation of a wireless telephone system in Mexico City. In 1984, Publicidad Turistica changed its name to Radiomovil Dipsa, S.A. de C.V., and in 1989, the company began operating under the trademark "Telcel." Between 1988 and 1990, Telcel expanded its cellular network on the 800 megahertz (Band B) radio spectrum to cover Tijuana, Cuernavaca, Toluca, Guadalajara, Monterrey and the metropolitan area of the Federal District, and in 1990 Telcel began offering cellular services nationwide. In 1998, Telcel was awarded the 1800-1900 megahertz (Band D) radio spectrum for personal communications services ("PCS") in all nine regions in Mexico. In September 1999, Telcel launched PCS service in Mexico City with two operating cellular base stations, and by the end of November 2000, it plans to offer PCS services in all nine regions. Our international subsidiaries and joint ventures were acquired during 1999 and 2000. See "Subsidiaries" and "Joint Ventures and Investments." Significant Subsidiaries and Affiliates The following table sets forth our significant subsidiaries and affiliates as of the date of this registration statement. For a complete list of our subsidiaries and affiliates, see Exhibit 8.1 under Item 19.
Jurisdiction of Percentage Name of Company Establishment Owned (1) - --------------- ------------- --------- Sercotel, S.A. de C.V. ...................................................... Mexico 100.0% Radiomovil Dipsa, S.A. de C.V........................................... Mexico 100.0 Cellular Communications of Puerto Rico, Inc.(2)..................... Puerto Rico 50.0 SubDipsa Treasury LLC............................................... Delaware 100.0 Inmobiliaria Los Cantaros, S.A. de C.V. ............................ Mexico 100.0 TracFone Wireless, Inc. ................................................ Florida 97.4 Comm South Companies, Inc. ......................................... Texas 97.4 Global Central America, S.A. de C.V. ................................... Mexico 90.8 Telecomunicaciones de Guatemala, S.A.................................... Guatemala 81.3 Techtel--LMDS Comunicaciones Interactivas, S.A.(3)...................... Argentina 60.0 Telstar S.A. ........................................................... Uruguay 60.0 Consorcio Ecuatoriano de Telecomunicaciones, S.A. CONECEL............... Ecuador 60.0 Empresas Cablevision, S.A. de C.V. ..................................... Mexico 49.0 CompUSA, Inc. .......................................................... Delaware 49.0 Telecom Americas Ltd. .................................................. Bermuda 44.3 ATL--Algar Telecom Leste S.A.(4).................................... Brazil 15.4 Americel S.A.(5).................................................... Brazil 7.2 Telet S.A.(5)....................................................... Brazil 7.2 Canbras Communications Corp. ....................................... Canada 29.5 Comunicacion Celular S.A. .......................................... Colombia 26.2 Occidente y Caribe Celular S.A. .................................... Colombia 19.4 Genesis Telecom, C.A. .............................................. Venezuela 22.6
- ------------- (1) Percentage of equity capital owned by America Movil directly or indirectly through subsidiaries or affiliates. (2) We hold our interest in Cellular Communications of Puerto Rico, Inc. through SBC International Puerto Rico, Inc., a joint venture with SBC International, Inc. (3) We have agreed to contribute our interests in Techtel--LMDS Comunicaciones Interactivas ("Techtel") and Telstar S.A. ("Telstar") to Telecom Americas Ltd. ("Telecom Americas") within 90 days after November 16, 2000, the date of the closing of our joint venture with Bell Canada International Inc. and SBC International, Inc. If we are unable to obtain certain regulatory consents or otherwise fail to contribute Techtel and Telstar to the joint venture during this 90-day period, we have agreed to negotiate in good faith with the other parties to agree on a way to contribute Techtel and Telstar. If no agreement is reached, we will be required to contribute cash in order to maintain our 44.277% ownership interest in Telecom Americas Ltd. See "Joint Ventures and Investments--Telecom Americas." (4) We hold our interest in ATL--Algar Telecom Leste S.A. ("ATL") through Telecom Americas, a joint venture with Bell Canada International Inc. and SBC International, Inc. See "Joint Ventures and Investments--Telecom Americas." We hold 44.277% of the voting power of Telecom Americas Ltd. and indirectly hold 11.3% of the voting power of ATL. (5) We hold our interests in Americel S.A. ("Americel") and Telet S.A. ("Telet") through Telecom Americas. See "Joint Ventures and Investments--Telecom Americas." We hold 44.277% of the voting power of Telecom Americas and indirectly hold 4.1% of the voting power of each of Americel and Telet. BUSINESS OF TELCEL Telcel provides Mexico's only nationwide cellular service. As of September 30, 2000, Telcel's cellular network covered 16.2% of the geographical area of Mexico, including all major cities, and 85.5% of Mexico's population. Telcel holds concessions to operate a wireless network in all nine regions in Mexico using both the 800 megahertz (Band B) and 1800-1900 megahertz (Band D) radio spectrums. As of September 30, 2000, Telcel had 8.9 million cellular subscribers and a 73.4% share of the Mexican wireless market. Approximately 29.3% of Telcel's cellular subscribers are located in Mexico City. Where roaming agreements are in place, Telcel is able to offer service to customers of other wireless providers when they travel through its service area, and Telcel subscribers can roam through other wireless providers' service areas. Telcel continues to expand its cellular communications network to cover as broad a geographical area as is economically feasible in order to meet consumer demand. The following table sets forth information on Telcel's subscriber base, coverage and related matters at the dates and for the periods indicated:
December 31, -------------------------------------------------------------- Sept. 30, 1995 1996 1997 1998 1999 2000 -------- --------- ---------- ---------- ------------ -------- Cellular lines in service (thousands) Prepaid subscribers........................ -- 261 661 1,465 4,450 7,976 Postpaid subscribers....................... 399 396 452 648 822 924 --------- -------- -------- -------- -------- --------- Total.................................. 399 657 1,113 2,113 5,272 8,900 Subscriber growth during preceding 12 months. 30.4% 64.7% 69.3% 89.8% 149.4% 114.6% Cellular penetration(1)...................... 0.4% 0.7% 1.2% 2.2% 5.4% 9.2% Percentage of population covered(2).......... 79.3% 79.8% 80.2% 80.6% 82.3% 85.5% Average monthly minutes of use per subscriber during preceding 12 months..... 156 115 100 96 90 88 Average monthly revenues per subscriber during preceding 12 months(3)............. Ps.1,090 Ps. 794 Ps. 550 Ps. 504 Ps. 339 Ps. 240 Cellular call minutes for the preceding 12 months (millions)(4)...................... 660 750 1,026 1,784 3,513 6,785
--------------- (1) Number of Telcel cellular lines in service divided by the population of Mexico. (2) Percentage of population that can access Telcel's cellular telephone signal. (3) In constant pesos as of September 30, 2000. The figure for September 30, 2000 is the average monthly revenue per subscriber during the preceding nine months. (4) The figure for September 30, 2000 is the cellular call minutes for the preceding nine months. The business of Telcel is subject to comprehensive regulation and oversight by the Mexican Ministry of Communications and Transportation (Secretaria de Comunicaciones y Transportes or the "Communications Ministry") and the Federal Telecommunications Commission (Comision Federal de Telecomunicaciones or "Cofetel"). The Communications Ministry is part of the executive branch of the Mexican federal government, and Cofetel is an agency of the Communications Ministry. Regulation and oversight are governed by the Law of General Means of Communication (the "General Communications Law"), the Telecommunications Regulations adopted under such law (the "Telecommunications Regulations"), the Federal Law of Telecommunications (the "Telecommunications Law") and the concessions and license agreements granted by the Communications Ministry. See "--Regulation." Services and Products Voice Services Telcel offers voice services under a variety of rate plans to meet the needs of different user segments. The rate plans are either "postpaid"--where the customer is billed monthly for the previous month--or "prepaid"--where the customer pays in advance for a specified volume of use over a specified period. Telcel's postpaid plans include the following charges: (i) monthly charges, which usually include a number of free minutes of use, (ii) usage charges, for usage in excess of the specified number of minutes included in the monthly charge, (iii) additional charges, including charges for call forwarding, call waiting and call blocking and (iv) in some instances, activation charges. Certain plans include the cost of roaming and long distance in the price per minute so that all calls within Mexico cost the same amount per minute. Some postpaid plans are designed for high and moderate usage subscribers, who are typically willing to pay higher monthly fees in exchange for larger blocks of free minutes, value-added services and lower per minute airtime charges under a single contract. To satisfy the more limited needs of low-usage postpaid subscribers, Telcel also offers plans which provide a moderately priced, fixed monthly charge coupled with a high per minute airtime charge and relatively few free minutes. Postpaid customers, which include many corporate accounts and professionals, often subscribe for additional value-added digital services such as voicemail, call forwarding, call waiting, caller ID and three-way calling, which are all included in the monthly fee. In the first nine months of 2000, approximately 46% of Telcel's operating revenues were derived from postpaid customers of Telcel. Telcel adjusts its rates based on inflation rates and international standards. In July 1998, Telcel increased its nominal rates for monthly charges by 7% and usage charges by 5%, and in April 1999, it increased its nominal rates for monthly charges by 12%. Rates for postpaid plans have not increased in 2000, and are expected to remain stable as long as the Mexican economic environment remains stable. Telcel offers discounts that reduce the effective rates paid by its customers based on the time of use, so that calls made during off-peak hours (10 p.m. to 8 a.m. during the week, and anytime on weekends) are less expensive than calls made during the remaining, or peak, hours. Telcel also offers several prepaid plans, none of which includes activation or monthly charges. Prepaid customers purchase a prepaid card for a specific amount of airtime and also receive value-added services such as voicemail and caller ID, although less comprehensive than those available under postpaid plans. Prepaid customers typically generate low levels of cellular usage and are often unwilling to make a fixed financial commitment or do not have the credit profile to purchase postpaid plan cellular services. Prepaid plans serve the needs of distinct consumer segments such as the youth market, families, customers with variable income who otherwise would not be able to obtain service due to their credit profile, and customers who prefer to pay in cash. Prepaid customers also include parents who wish to control costs for their children. In the first six months of 2000, approximately 54% of Telcel's operating revenues were generated by prepaid customers of Telcel. The number of Telcel's prepaid customers grew by 136% in the 12-month period ended September 30, 2000, compared with a growth rate of 19% in postpaid subscribers. Telcel believes the prepaid market represents a large and growing under-penetrated market and an opportunity to improve margins because compared to the average postpaid plan, prepaid plans involve higher average per minute airtime charges, lower cost to acquire subscribers and no billing costs, credit or payment risk. However, prepaid customers on average have substantially lower minutes of use than postpaid customers and do not pay monthly fees and, as a result, generate substantially lower average monthly revenues per customer. In May 1999, pursuant to a decision of Cofetel, Mexico changed to the "calling party pays" system for cellular service, under which subscribers only pay for outgoing calls. This replaced "mobile party pays," under which subscribers also paid for incoming calls. Subscribers have the option of retaining the "mobile party pays" system but must change their cellular telephone number to do so. Data Services Message services Telcel began to offer data services in the form of short message services ("SMS") to its postpaid customers in April 1998. SMS offers a one-way paging service as well as a variety of information services pre-selected by customers, including weather reports, financial quotes and entertainment news. Internet Wireless application protocol ("WAP") is a global standard designed to make Internet services available to mobile telephone users. At present, services available through WAP include e-mail, data and information services and electronic commerce transactions. The standard allows a micro "browser" in a mobile phone to link into a gateway service in Telcel's network enabling users to scroll through different pages of information on the Internet. Telcel launched its WAP gateway for the major cities in all nine regions in Mexico in September 2000, enabling mobile telephone users in those regions to access e-mail, banking, a variety of reservation and other types of electronic commerce services. Data transmission In September 2000, Telcel rolled out a data service network based on the cellular digital packet data ("CDPD") platform in the major cities in all nine regions. The CDPD network is a packet-switched network that takes advantage of the fact that, in many data applications, information is sent in bursts of activity, with intermittent quiet periods. Unlike data services carried over circuit-switched analog or digital wireless networks, the CDPD platform provides a significantly more cost-effective means of sending data for the majority of applications, as it allows many users to share the network channel. Instead of dialing in, subscribers to the CDPD system always remain connected to a network service that provides access to packet data networks. Telcel continues to test and enhance its CDPD platform. Once fully functional, Telcel expects its CDPD services to be able to accommodate such industry-specific applications as: o Telemetry--Wireless networks will allow companies such as gas and electric suppliers to track customer usage via wireless connection between the field meter and a central control. Telemetry can also be applied in medicine to monitor patients within and away from the hospital. o Wireless credit card validation--Terminal equipment allows merchants to verify credit/debit cards. With CDPD, the validation terminals can remain online wirelessly, substantially reducing the time required to process a validation and eliminating the need for a separate telephone line at the verification terminal. This can open up a variety of new applications in remote service industries, such as fast food and delivery. o Dispatch applications--Courier companies, delivery companies, and companies with large field installation and repair groups use the CDPD technology to support their employees. Workers can be dispatched with detailed work orders, can access customer databases from the field and can close out work orders online. o Public safety applications--States and municipalities can use CDPD as the primary means of data communication with public safety vehicles. o Automated vehicle location--Utilizing a small device containing a CDPD modem and a global positioning system, or GPS, device, users can track vehicle fleets on the Internet, allowing rapid, cost-effective access to the information necessary to route and dispatch vehicles and packages. In the medium term, Telcel will also provide data services through a circuit switch data ("CSD") transmission system, which is an alternative system based on circuit-switch platforms that transmit data by using the existing voice infrastructure. Because transmission connection is based on the dial-up system, CSD can be implemented with minimal upgrades to the existing network. Telcel has developed and expects to launch a pilot CSD system for data transmission services by the end of 2000. Products Telcel offers a variety of products as complements to its wireless service, including handsets and accessories such as chargers, headsets, belt clips and batteries. As part of its basic prepaid service offering, Telcel provides new customers with an Amigo Kit, which includes a handset, a charger and other accessories at a subsidized price. New postpaid customers also receive a handset at a subsidized price. In the past, Telcel has offered a variety of handset types, including analog, digital and dual-mode dual-band devices. Most of the handsets that Telcel currently offers are dual-mode dual-band. Interconnection Telcel earns interconnection revenues from any call to one of its subscribers, or to a roaming subscriber of another cellular service provider located within the region covered by Telcel, that originates with another service provider (cellular or fixed). Telcel charges the service provider from whose network the call originates an interconnection charge for every minute Telcel's network is used in connection with the call. The current interconnection charge in Mexico for calls made from a fixed line to a cellular line or from a cellular line to another cellular line is Ps.1.90 per minute. The current interconnection charge for calls made from a cellular line to a fixed line, which Telcel pays to Telmex, is Ps.0.31 per minute. Telcel has entered into interconnection agreements with Telmex, as well as other service providers. The interconnection agreements specify a number of connection points, locations of interconnection points, the method by which signals must be transmitted and received and the costs and fees of interconnection. See "--Regulation--Interconnection." Roaming Telcel offers national as well as international roaming services to participating subscribers. Subscribers who pay the national roaming rates gain access to the nationwide Telcel network, while subscribers paying the international roaming fees are able to roam outside of Mexico, using the networks of cellular service providers with which Telcel has entered into roaming agreements. Telcel has entered into 75 such agreements, 54 of them with U.S. cellular service providers, 9 with Canadian providers, 10 with Central and South American providers and 2 with operators of worldwide satellites. Under the roaming agreements, when a call is made from within one of Telcel's concession regions by a subscriber of another cellular service provider, that service provider pays Telcel for the call at the applicable rate. Conversely, when a Telcel subscriber makes a cellular call outside a covered region, Telcel must pay the applicable charges to the cellular service provider in whose region the call originates. These payments are channeled through GTE Telecommunication Services International, which functions as a central international clearing house that collects and redistributes roaming fees from and to the participating providers. Marketing Telcel develops customer awareness through its marketing and promotion efforts and high-quality customer care. It builds upon the strength of its well-recognized brand name to increase consumer awareness and customer loyalty, employing continuous advertising efforts through print, radio, television, sponsorship of sports events and other outdoor advertising campaigns. In addition, Telcel employs concentrated advertising efforts to promote specific products and services such as the Amigo Kit and its Internet services. Telcel targets groups of customers who share common characteristics or have common needs. Telcel then assembles a packet of services that meets the particular needs of that targeted group through one of its various pricing plans. As part of its promotional efforts, Telcel offers its new prepaid and postpaid subscribers a free or subsidized handset when they subscribe, which the postpaid customers may keep after 12 months' service. Telcel has designed promotional packages, including free handsets and low monthly fees, to encourage new customers and current prepaid customers to subscribe for postpaid plans that include value-added services such as voicemail, call waiting and caller ID. Sales and Distribution Telcel markets its wireless services primarily through exclusive distributors located throughout Mexico. In the nine months ended September 30, 2000, approximately 85% of Telcel's sales of handsets were generated by the cellular distributors, with approximately 13% from sales in company-owned stores, and approximately 2% from direct sales to corporate accounts. Telcel has relationships with a broad network of approximately 750 exclusive distributors, who sell Telcel's services and products. A distributor receives a first commission each time a new customer is signed up, another commission if the customer stays for a specific period, and an additional amount based on the total number of cellular customers Telcel has at a particular time. Telcel operates permanent training and evaluation programs for distributors to help maintain the level of service quality. Telcel's company-owned retail stores offer one-stop-shopping for a variety of cellular services and products. Walk-in customers can subscribe for postpaid plans, purchase prepaid cards and purchase handsets and accessories. Company-owned stores also serve as points of customer service and payment centers. Telcel owns and operates 93 customer sales and service centers throughout the nine regions and will continue to open new service centers in order to offer its products directly to subscribers in more effective ways. In addition, Telmex distributes Telcel's prepaid cards and handsets, the latter as part of "Amigo kits" consisting of handsets and either 100 or 300 minutes of free airtime, through its network of retail outlets. Telmex purchases the Telcel prepaid cards and handsets on the commercial terms given to other cellular distributors. To service the needs of its large corporate and other high-usage customers, Telcel has a dedicated corporate sales group. Telcel is currently developing a project to sell and distribute its products and services over the Internet. This initiative is expected to be operational during 2001. Billing and Collection Telcel bills its postpaid customers through monthly invoices, which detail itemized charges such as usage, value-added services and long-distance and roaming charges. Customers may pay their bills with a credit card, through a bank, or in person at Telcel retail stores. Telcel expects to provide its customers with the option of paying bills through its Internet website during 2001. If a postpaid customer's payment is more than 17 days past due, service may be suspended until full payment for all outstanding charges is received. If the subscriber's payment is more than 60 days past due, service may be discontinued. Accounts that are more than 90 days past-due are considered doubtful accounts. Prepaid customers may continue to receive calls for up to 180 days after they exhaust the prepaid credits, but must purchase additional credits within 60 days of the previous prepayment to make outgoing calls. Customer Service Telcel places a high priority on providing its customers with quality customer care and support. Approximately 56% of Telcel's employees are dedicated to customer service. Customers may call a toll-free telephone number or go to one of the 93 company-owned retail stores located throughout the nine regions for inquiries regarding their service or plan options. In addition, using Telcel's website, subscribers may access information about their account balance, learn about the various offered rate plans, products and promotions, as well as subscribe for additional services. Wireless Network Analog and digital technologies Telcel offers both analog and digital cellular service. Digital service is provided using the time division multiple access ("TDMA") service standard. Telcel's network operates using both 800 megahertz and 1800-1900 megahertz frequency spectrums. Telcel believes that digital technology offers many advantages over analog technology, including substantially increased network capacity, greater call privacy, enhanced services and features, lower operating costs, reduced susceptibility to fraud and the opportunity to provide improved data transmissions. Digital service also enables Telcel to provide added benefits and services to its customers, including SMS, extended battery life and caller ID. As Telcel grows, it will need to increase its capacity in order to support higher network traffic. Digital voice paths require less radio frequency spectrum capacity than do analog voice paths. In addition to enhancing capacity, digital technology also gives Telcel a cost advantage by allowing Telcel to produce network minutes with less capital and operating expense than analog technology. Not only is the cost of digital network equipment lower per voice path than analog network equipment, but also fixed costs, such as towers, shelters and other common equipment, are reduced by spreading them over a larger number of minutes. Telcel is in the process of upgrading the network's radio base stations to the TDMA digital standard, and at September 30, 2000, 33% of Telcel's total network traffic used the TDMA digital cellular service. Telcel uses digital switches and transmission equipment, and is in the process of digitalizing its traffic channels. Converting from analog to digital service requires the subscriber to purchase a dual mode handset that costs approximately U.S.$150 to U.S.$250. Telcel is using subsidies to induce subscribers to convert from analog to digital service. TDMA technology Telcel has chosen TDMA technology for its digital network because it believes TDMA provides significant operating benefits compared to other digital technologies, although it may choose another technology, such as GSM, in the future. TDMA permits the use of advanced dual-mode dual-band handsets that allow for roaming across analog and digital systems and across 800 megahertz and 1800-1900 megahertz spectrums. TDMA digital technology also allows for enhanced services and features, such as short alphanumeric message service, extended battery life, added call security and improved voice quality. TDMA served an estimated 47.1 million subscribers worldwide, 24.6 million subscribers in North America and 20.1 million subscribers in Latin America as of June 30, 2000, according to the Universal Wireless Communications Consortium, an association of TDMA service providers and manufacturers. TDMA equipment is available from leading telecommunications vendors such as Lucent, Ericsson and Nortel Networks Corporation. A number of other wireless service providers have chosen CDMA or GSM as their digital wireless technology. CDPD network CDPD is an industry standard which allows most applications written for the Internet as well as many corporate applications to run efficiently over the network without modification. Using CDPD, data files and transactions are divided into small packets and sent on a dedicated wireless channel. In many data applications, data is sent in bursts with intermittent quiet periods. Packet transmission technologies take advantage of this fact and allow user data to be efficiently carried on the same network channel. As a result, relative to data services carried over circuit-switched analog or digital wireless networks, the packet-switched CDPD service is a significantly more cost-effective means of sending data for the majority of applications because it allows many users to share the same channel. The use of packet switching capabilities on existing digital networks through CDPD is considered to be the first level of the transitional stage in the wireless industry between second and third generation technologies, referred to as 2.5G. Telcel rolled out its CDPD network in all nine regions in September 2000. CSD network CSD is an alternative system based on circuit switch platforms that provides data services by integrating the existing voice infrastructure. Like CDPD, CSD is considered to be the first level of 2.5G technology. Because transmission connection is based on the dial-up system, CSD can be implemented with minimal upgrades to the existing network. CSD accommodates both analog and digital handsets, while CDPD can only be accessed by digital handsets. At September 30, 2000, approximately 66% of Telcel's customers used analog handsets. In addition, most of the WAP handsets currently under development are for circuit switch platforms. Telcel expects to launch a pilot CSD system for data transmission services in the fourth quarter of 2000. Third generation development strategy Third generation technologies will allow high-speed wireless packet data services and ultimately voice services using Internet Protocol. Any successful third generation strategy must allow the wireless provider to achieve a pervasive footprint quickly and cost effectively and on a global scale through international roaming capacities. While third generation networks are currently under development and evaluation, transitional technologies including CDPD and CSD have begun to bridge the gap between second and third generation technologies by offering enhanced high-speed data services. Telcel is considering choosing enhanced data rates for global evolution ("EDGE") as the intergeneration wireless architecture that will facilitate its ultimate deployment of third generation technology using the 800 megahertz radio spectrum. EDGE represents a convergence of Telcel's existing TDMA technology with GSM technology that is expected to yield global economies of scale in developing network equipment and handsets, as well as seamless global roaming capabilities. EDGE can be deployed in existing spectrum and coexist with Telcel's current TDMA voice services. As customers upgrade their equipment to EDGE, Telcel expects that all the applications developed and deployed today will be able to operate at higher speeds and in more places. EDGE is currently being developed by Ericsson, Nokia, Lucent and Motorola, and Telcel expects to be able to offer initial services of EDGE during the third quarter of 2001. The evolution from 2.5G to third generation technology is expected to make wireless networks broadband Internet and multimedia capable. The wireless industry has recently agreed to converge towards a common standard called wideband CDMA ("W-CDMA") for the development of third generation technology. W-CDMA offers configurations that allow multifaceted processing and enable the transmission of large volumes of data, such as video data, at high speeds. As part of its strategic evaluation concerning the deployment of EDGE technology, Telcel is engaged in discussions with suppliers and plans to test the technology with heavy-use or corporate users. Telcel expects to launch EDGE with the existing cellular or PCS technologies, and migrate to the W-CDMA third generation technology once a new set of broadband frequencies is made available by regulators. To this end, Telcel is encouraging regulators to establish the new set of frequencies necessary for the deployment of W-CDMA. Spectrum Telcel currently holds concessions in each of the nine regions of Mexico in both the 800 megahertz and 1800-1900 megahertz radio spectrums and, although two other companies also hold concessions for nationwide service using the 1800-1900 megahertz spectrum, Telcel is the only provider with a functioning nationwide network. While Cofetel has not indicated which frequency spectrum it will auction to deploy the third generation technology system or when such auction will occur, Telcel expects to actively participate in such auction if and when it occurs to ensure that its network meets the consumer demand and that the Company retains its leading competitive position. Fixed Wireless Fixed wireless technology provides wireline quality voice telephony available over cellular networks. Voice channels are delivered over the existing telephone wiring within the residence or small business premises, allowing customers to utilize their existing telephones. Telcel provides fixed wireless voice services to Telmex's Ladafon shared telephone network, under which a line is available for public use by the residents of multi-unit dwellings. Telephone service is provided at a discount through existing wire lines within the residential premises, which are then connected to Telcel's cellular network. Telcel also provides fixed wireless service to Telmex's Ladatel public telephone network. Property Telcel's wireless network includes transport and computer equipment, as well as exchange and transmission equipment consisting of switches, cellular base stations, microcells, local microwave links and repeaters. At September 30, 2000, Telcel owned and operated 94 customer sales and service centers, a total of 1,828 radio base stations, 129 repeaters and 42 switching centers. Telcel owns certain properties for commercial and administrative offices and the installation of some of its equipment, while it leases other locations. Telcel operates certain equipment on Telmex property under a co-location agreement. See "Related Party Transactions" under Item 7. Telcel depends principally on one supplier for its network infrastructure and on two suppliers for its handsets and other customer equipment. If any of these suppliers fails to provide Telcel with services or equipment on a timely and cost-effective basis, our business and results of operations could be adversely affected. Competition Telcel faces competition from other cellular providers using the 800 megahertz (Band A) spectrum in each of the regions in which we operate, and the Mexican government has granted PCS licenses to other carriers that are in the process of developing wireless service on the 1900 megahertz (Bands A, D and F) spectrum. Telcel's competitors in Mexico include Grupo Iusacell, S.A. de C.V., which is controlled by Verizon and the Peralta Group, and several companies that Telefonica S.A. has recently agreed to acquire. Telcel estimates that its share of the Mexican cellular market was 73.4% at September 30, 2000. Concessions in the same nine regions have also been granted to permit the provision of PCS services using the A, B, D and E bands. Telcel uses Band D to provide PCS services and competes with other PCS services providers using the A, B and E bands in each of the nine regions. The effects of competition on Telcel depend, in part, on the business strategies of its competitors and the general economic and business climate in Mexico, including demand growth, interest rates, inflation and exchange rates. The effects could include loss of market share and pressure to reduce rates. Telcel believes that its strategies to meet competition will continue to help limit its loss of market share and that any loss of market share will be partly offset by increasing demand. Regulation Set forth below is a summary of certain provisions of the General Communications Law, the Telecommunications Law, the Telecommunications Regulations and the various concessions held by Telcel. General The General Communications Law, the Telecommunications Law and the Telecommunications Regulations provide the general legal framework for the regulation of telecommunications services in Mexico. The Telecommunications Law replaced certain provisions of the General Communications Law, but those provisions of the General Communications Law not specifically addressed in the Telecommunications Law remain in effect. Other regulations implementing particular provisions of the Telecommunications Law have been adopted or are pending. The objectives of the Telecommunications Law are to promote the efficient development of the telecommunications industry, to encourage fair competition in the provision of quality, low-priced services and to assure satisfactory breadth of coverage of the Mexican population. Under the Telecommunications Law and the Telecommunications Regulations, a provider of public telecommunications services, such as Telcel, must operate under a concession granted by the Communications Ministry. Such a concession may only be granted to a Mexican citizen or corporation and may not be transferred or assigned without the approval of the Communications Ministry. A concession to provide services which utilize electro-magnetic frequencies, such as cellular telecommunications services, may have a term of up to twenty years and may be extended for additional terms of equal duration. The Telecommunications Law requires public telecommunications concessionaires to establish open network architecture which permits interconnection and interoperability. Operators of private networks that do not use electro-magnetic frequencies are not required to obtain a concession to provide private telecommunications services but are required to obtain approval from the Communications Ministry. Regulatory Oversight The Communications Ministry is the government agency principally responsible for regulating telecommunications services. The Ministry's approval is required for any change in Telcel's bylaws. It also has broad powers to monitor Telcel's compliance with the concessions, and it can require Telcel to supply it with such technical, administrative and financial information as it may request. Telcel is required to publish its annual network expansion program, and Telcel must advise the Ministry of the progress of its expansion and modernization program on a quarterly basis. The Telecommunications Law provided for the establishment of an administrative agency, Cofetel, to regulate the telecommunications industry. Cofetel commenced operations in August 1996. It is an independent agency within the Communications Ministry, with four commissioners appointed by the Communications Ministry on behalf of the President of Mexico, one of whom is appointed as chairman. Many of the powers and obligations of the Communications Ministry under the Telecommunications Law and the Telecommunications Regulations have been delegated to Cofetel. The General Communications Law gives certain rights to the Government in its relations with concessionaires, including the right to take over the management of America Movil in cases of imminent danger to national security or the national economy. The General Communications Law also provides that Telcel may not sell or transfer any of its assets unless it gives the Government a right of first refusal. If the Government declines to exercise its right, Telcel's unions also have a right of first refusal. The Telecommunications Law provides that if a company is determined to be dominant in a relevant market, the Communications Ministry has the power to adopt specific regulations on rates, quality of service and information provided by a dominant provider. Rates The General Communications Law, the Telecommunications Law and the Telecommunications Regulations provide that the basis for setting rates of a telecommunications concessionaire is set forth in its concession. Cellular rates are not subject to a price cap or any other form of price regulation. However, Telcel and other cellular carriers operating in Mexico are required to disclose their rates for cellular service to the Communications Ministry and are prohibited from setting rates below cost. The Communications Ministry is authorized to impose specific rate requirements on any operator that is determined by the Federal Competition Commission to have substantial market power. No such determination has been made with respect to the market for cellular telecommunications services. Concessions Telcel operates under several different concessions covering particular frequencies and regions. It holds nine separate regional concessions, which together cover all of Mexico, to provide cellular telecommunications services using the 800 megahertz (Band B) radio spectrum. It also holds nationwide concessions to use the 1800-1900 megahertz (Band D) radio spectrum and a related concession to provide cellular telecommunications services on that frequency. The Band B concessions require Telcel to pay fees determined as a percentage of gross revenues derived from the concessioned services. The percentage is 5% for the Mexico City area and up to 10% elsewhere. The 1800-1900 megahertz concessions were purchased for a fixed amount in 1998 and do not require Telcel to pay continuing fees. The eight Band B concessions covering regions other than the Mexico City area were granted for initial terms of twenty years that will expire in 2010 and 2011. The Band B concession covering the Mexico City area (Region 9) was renewed effective October 2000 for a term of fifteen years that will expire in October 2015. The 1800-1900 megahertz concessions were granted in 1998 for an initial term of 20 years that will expire in 2018. Expansion and Modernization Requirements America Movil's concessions impose a number of requirements for expansion and modernization of its network. For both cellular service provided within the 800 megahertz frequency and PCS services provided within the 1800-1900 megahertz frequency, the concessions establish certain minimum network capacities that Telcel must achieve, to extend service coverage to a targeted percentage of population. Service Quality Requirements The concessions also set forth extensive requirements for the quality and continuity of Telcel's service, including maximum rates of incomplete and dropped calls and connection time. Due to the fast growth in cellular services, Telcel, like all Mexican cellular carriers, has faced some service problems. Cofetel adopted a resolution giving cellular users certain bonus time during April and May of 2000. Competition The Telecommunications Regulations and the concessions contain various provisions designed to introduce competition in the provision of communications services. In general, the Communications Ministry is authorized to grant concessions to other parties for the provision of any of the services provided by Telcel under the concessions. Interconnection Terms of interconnection (including fees) are negotiated between Telcel and other service providers. In the event they are unable to agree, the Communications Ministry may impose terms on Telcel and the other providers. The current interconnection charge in Mexico for calls made from a fixed line to a cellular line or from a cellular line to another cellular line is Ps.1.90 per minute. Termination of the Concessions The General Communications Law and the concessions include various provisions under which the concessions may be terminated before their scheduled expiration dates. Under the General Communications Law, the Communications Ministry may cause early termination of any of the concessions in certain cases, including (i) failure to expand telephone services at the rate specified in the concession; (ii) interruption of all or a material part of the services provided by Telcel; (iii) transfer or assignment without Ministry approval of the concession or any asset used to provide service; (iv) violation of the prohibition against ownership of shares of Telcel by foreign states; (v) any material modification of the nature of Telcel's services without prior Ministry approval; and (vi) breach of certain other obligations under the General Communications Law. In addition, the concessions provide for early termination by the Communications Ministry following administrative proceedings in the event of (i) a material and continuing violation of any of the conditions set forth in the concessions; (ii) material failure to meet any of the service expansion requirements under the concessions; (iii) material failure to meet any of the requirements under the concession for improvement in the quality of service; (iv) engagement in any telecommunications business not authorized under the concession and requiring prior approval of the Communications Ministry; (v) following notice and a cure period, failure without just cause to allow other concessionaires to interconnect their networks to Telcel's network; or (vi) bankruptcy of Telcel. The General Communications Law provides that in the event of early termination of one of Telcel's cellular concessions, all assets that are the subject of such concession would revert to the Government without compensation to Telcel. In the event of early termination of one of Telcel's PCS concessions, the Government would have the option to purchase the equipment, installations and other assets used directly for the exploitation of the frequencies which are the subject of such concession. There is substantial doubt as to whether the provisions of the concessions and the Telecommunications Regulations regarding the consequences of expiration of the concessions would apply to mitigate the provisions of the General Communications Law in the event of early termination. SUBSIDIARIES We have subsidiaries in the telecommunications sector in Guatemala, Ecuador, the United States and Argentina. Our principal subsidiaries are described below. Telgua Telecomunicaciones de Guatemala, S.A. ("Telgua") is a fixed-line telecommunications operator in Guatemala that was privatized in November 1998. Through certain affiliates, Telgua also provides wireless, Internet, cable television, paging, trunking, data transmission and value-added services in Guatemala. We indirectly own 81.3% of the stock of Telgua and 90.8% of the stock of the affiliates. A portion of our interest in the affiliates was acquired in May 1999 through our subsidiary Global Central America, S.A. de C.V. ("GCA"). Our interest in Telgua and the balance of our interest in the affiliates was acquired in March 2000. We use the term "Telgua" below to refer to Telgua and the affiliates together. In 1999, Telgua had combined revenues of Ps.2,957 million and combined net income of Ps.238 million. In the first nine months of 2000, Telgua had combined revenues of Ps.2,707 million and combined net income of Ps.420 million. At September 30, 2000, Telgua had total assets of Ps.10,443 million. Business and strategy. At September 30, 2000, Telgua had approximately 630,000 fixed-line subscribers, representing approximately 5.7 lines per 100 inhabitants and a market share of 97.0%. Telgua's wireless business is operated by its affiliate Servicios de Comunicaciones Personales Inalambricas, S.A. ("Sercom"). Sercom's cellular network uses CDMA digital technology and covers approximately 25% of the geographical area of Guatemala and approximately 85% of its population. At September 30, 2000, Sercom had approximately 209,000 wireless subscribers, representing a market share of approximately 35%. Sercom has invested U.S.$51.3 million to expand its wireless network in the first nine months of 2000 and plans to invest an additional U.S.$40.7 million by the end of 2001. Telgua offers a variety of services through its fixed-line and wireless networks, including Internet access, trunking, data transmission, cable television and other value-added services, and also sells handsets and related products. Telgua markets and distributes its services and products directly to customers and also employs a network of independent distributors for services and products other than basic telephony, such as prepaid calling cards and handsets. Telgua's marketing strategy emphasizes the quality and reliability of services and products. Competition. Telgua continues to be the principal provider of fixed-line services in Guatemala. Telgua's principal competitors in the wireless sector are Millicom (Comcel) and Telefonica. Bell South recently commenced wireless operations in Guatemala, but has not yet gained a significant market share. Regulatory environment. Telgua's business is subject to comprehensive regulation and oversight by the Guatemalan Telecommunications Agency (Superintendencia de Telecomunicaciones de Guatemala) under the General Telecommunications Law (Ley General de Telecomunicaciones). Telgua holds a license from the Guatemalan government to operate its nationwide fixed-line network and numerous licenses to operate its cellular network on different frequencies and in different regions. See "Legal Proceedings" under Item 10 for a discussion of certain proceedings that the Guatemalan government has commenced against Telgua. Conecel Consorcio Ecuatoriano de Telecomunicaciones, S.A. CONECEL ("Conecel") is a wireless telecommunications operator in Ecuador. We own a 60% interest in Conecel through a company in which 37% of the remaining interest is owned by an Ecuadorian investor. Our interest in Conecel was acquired in March 2000. In 1999, Conecel had revenues of Ps.660 million and a net loss of Ps.420 million. In the first nine months of 2000, Conecel had revenues of Ps.322 million and a net loss of Ps.238 million. At September 30, 2000, Conecel had total assets of Ps.1,527 million. Business and strategy. Conecel's cellular network uses TDMA digital technology and covers approximately 65% of the geographical area of Ecuador and approximately 80% of the population. At September 30, 2000, Conecel had 230,000 subscribers and a 51% share of the Ecuadorian wireless market. Conecel offers both prepaid and postpaid wireless services. In addition to wireless telephone service, Conecel provides Internet, paging and data transmission services. Conecel's marketing strategy is to target its service plans to selected segments of the market. Conecel is currently engaged in a promotional effort to gain new subscribers through the sale of prepaid plans. In addition, Conecel aims to expand the number of its postpaid subscribers by promoting its postpaid plans in both the individual and the corporate segments. Conecel conducts general advertising campaigns to promote its products and services and to establish its brand. Conecel aims to expand its coverage to 85% of the geographical area of Ecuador by the second half of 2001 by building outs its network first in areas already covered by its competitors and then in areas not currently covered by any provider. Conecel has budgeted capital expenditures of approximately U.S.$50 million in 2001 to finance the installation of 100 new cell sites and two new switching centers. Competition. Conecel's principal competitor is BellSouth Ecuador, which offers wireless local, national and international long-distance and public telephone services in Ecuador. BellSouth Ecuador's cellular network currently exceeds that of Conecel. Conecel does not expect that additional competitors will be permitted to enter the wireless market before 2007 but there can be no assurances that the government of Ecuador will not grant additional wireless concessions before such time. Andinatel S.A. and Pacifitel S.A. hold exclusive concessions for the provision of fixed-line telephone services in Ecuador. The Ecuadorian government is expected to privatize these companies by the end of 2001. Regulatory environment. Beginning in 1995, the government of Ecuador undertook a comprehensive reform of Ecuador's telecommunications sector adopting new laws that provided for the establishment of a new regulatory framework, the introduction of competition and the privatization of Emetel, the former state telecommunications monopoly. The new laws established: o the National Telecommunications Counsel (Consejo Nacional de Telecomunicaciones, or "Conatel"), which is responsible for policy-making in the telecommunications area; o the National Telecommunications Secretariat (Secretaria Nacional de Telecomunicaciones), which is responsible for executing Conatel's resolutions; and o the Telecommunications Agency (Superintendencia de Telecomunicaciones), which monitors the use of authorized frequencies and compliance with concession provisions. The reforms also introduced specified interconnection rates as well as a system of concessions for the operation of private networks, the use of frequencies and the resale of telecommunications services and value-added services. Concessions. Conecel holds nationwide concessions to operate its wireless network on the 800 megahertz (Band A) radio spectrum. These include a concession for cellular telephone service that expires in 2012, and concessions for data transmission and Internet services that expire in 2009. TracFone TracFone Wireless, Inc. ("TracFone"), formerly Topp Telecom, Inc., is a company engaged in the resale of cellular service in the United States through prepaid telephone cards. We own 97.45% of the capital stock of TracFone. Our interest was acquired in January 1999. In 1999, TracFone had revenues of Ps.823 million and a net loss of Ps.334 million. In the first nine months of 2000, TracFone had revenues of Ps.1,054 million and a net loss of Ps.816 million. At September 30, 2000, TracFone had total assets of Ps.2,350 million. Business and Strategy. TracFone currently offers its prepaid telephone cards and wireless handsets throughout the United States using an extensive distribution network. TracFone's wireless local service area is the largest of any U.S. wireless carrier today, covering approximately 271 million "points of presence." At October 31, 2000 TracFone had 731,783 subscribers, representing an 8% share of the U.S. prepaid cellular market. TracFone's subscriber base has increased more than 200% since January 1, 2000. TracFone does not own any wireless telecommunications facilities or hold any licenses. The company purchases cellular air time for resale in the form of prepaid cards under the terms of more than 40 agreements with the principal U.S. national cellular service providers, including Verizon Wireless, Cingular Wireless and ALLTEL. Through these agreements, TracFone is able to offer nationwide wireless coverage. TracFone's prepaid cards may be used only in conjunction with handsets installed with TracFone's patented, proprietary software. TracFone has its own handset brand and has entered into agreements with manufacturers, including Nokia and Motorola, for the installation of this software into manufactured handsets. TracFone expects to enter into agreements with additional handset manufacturers for the installation of its prepaid software. TracFone sells handsets through a variety of major U.S. retail stores and sells its prepaid cards through approximately 34,000 large and medium-sized independent retailers throughout the United States. TracFone expects that the U.S. prepaid wireless market will grow significantly in the future, and it aims to grow its subscriber base and increase its market share by taking advantage of its nationwide coverage and broad distribution network. TracFone's strategy is to keep its handsets and air time affordable, offering competitive value to its target markets, which include low-income and teenage customers. Competition. TracFone's principal competitors are major U.S. wireless operators, including Verizon Wireless, AT&T Wireless, Sprint PCS, VoiceStream Wireless and Cingular Wireless. TracFone expects that many of these carriers will increase their focus on prepaid wireless services in the future. Regulatory Environment. As a U.S. reseller of cellular service, TracFone is subject to the jurisdiction of the U.S. Federal Communications Commission and to U.S. telecommunications laws and regulations. TracFone does not require licenses to carry out its business. Comm South Comm South Companies, Inc. ("Comm South"), a subsidiary of TracFone, offers prepaid and prebilled local and long distance telephone services to residential customers in 42 U.S. states. We own a 97.45% interest in Comm South. Our interest was acquired in November 1999. In 1999, Comm South had revenues of Ps.1,089 million and net income of Ps.50 million. In the first nine months of 2000, Comm South had revenues of Ps.713 million and a net loss of Ps.135 million. At September 30, 2000, Comm South had total assets of Ps.324 million. Business and strategy. Comm South purchases dial-tone time from BellSouth, SBC and other carriers, and resells it to approximately 200,000 customers around the United States. Comm South's customers, who tend to be low-income consumers without credit cards, bank accounts or telephone service at home, purchase the company's prepaid cards in one of the approximately 1,800 Comm South agent stores around the nation. Comm South currently earns most of its revenues in 20 states and plans to focus on expanding its activity in the other 22 states in which it is authorized to operate. Competition. Comm South's principal competitors are Smoke Signals and BPI. Regulatory Environment. Comm South is subject to the jurisdiction of the U.S. Federal Communications Commission and to U.S. telecommunications laws and regulations. Techtel Techtel-LMDS Comunicaciones Interactivas, S.A. ("Techtel") operates a local multipoint distribution services ("LMDS") network in Argentina, providing data and video transfer services and other value-added services. Techtel began providing local and long-distance fixed-line voice services in November 2000. We currently own a 60% interest in Techtel through a company in which the remaining interest is owned by an affiliate of Techint Compania Tecnica Internacional S.A.C.I., one of Argentina's largest industrial groups. Our interest in Techtel was acquired in July 2000. Subject to obtaining the requisite regulatory consents, we expect to contribute our interest in Techtel to Telecom Americas. See "Joint Ventures and Investments--Telecom Americas." In 1999, Techtel had revenues of Ps.6.1 million and a net loss of Ps.45.5 million. In the first nine months of 2000, Techtel had revenues of Ps.16.0 million and a net loss of Ps.33.0 million. At September 30, 2000, Techtel had total assets of Ps.829.8 million. Business and strategy. Techtel's LMDS and fiber optic network cover Argentina's eight major metropolitan areas and approximately 50% of the nation's population. Techtel's strategic objective is to establish itself in Argentina's long distance voice services market. The company will launch long-distance voice services in December 2000 and expects to make capital expenditures of approximately U.S.$150 million by the end of 2002 to complete the build-out of its network (which will include 1780 kilometers of fiber optics and LMDS connection). America Movil expects to make capital contributions to Techtel of U.S.$39 million over the next two years, which, together with funds contributed by a subsidiary of Techint, will fund Techtel's capital expenditure plan. Upon completion of its build-out plan, Techtel believes that it will have a significant competitive advantage over its current competitors because of the speed and quality of its fiber optic network. Competition. Techtel's principal competitors are Telefonica de Argentina S.A. and Telecom S.A., both of which provide data, video and value-added services, as well as local and long-distance fixed-line voice services. A number of new competitors are entering or are expected in the near future to enter the Argentine market for local and long-distance voice services. Among these are Movicom and CTI, the first cellular companies to obtain general licenses for voice services. Other competitors in data services, such as Impsat, Comsat and Metrored, have announced plans to expand into voice services and have already obtained the requisite licenses. Regulatory environment. In 1990, the government of Argentina granted Telefonica de Argentina S.A. and Telecom S.A. the exclusive right to provide local and long-distance fixed-line services, following the privatization of Entel, the former state-owned telecommunications company in Argentina. In 1998, the government announced a timetable for the entry of additional telecommunications services providers, giving the Communications Secretariat (Secretaria de Comunicaciones) the power to grant and regulate telecommunications licenses. In November 1999, Movicom and CTI were granted entry into the market, and in November 2000 the Argentine telecommunications market was opened to any interested participant, subject to the licensing terms and conditions set out by the Communications Secretariat. The National Communications Commission (Comision Nacional de Comunicaciones), a government agency created in 1990, is responsible for general regulatory oversight of the communications sector. Both the Communications Secretariat and the National Communications Commission may issue technical and administrative regulations and grant licenses to service providers. Concessions and licenses. Techtel holds licenses to offer data transmission, video-conferencing, value-added, local and long-distance fixed-line telecommunications services as well as to provide radio signal transmission service throughout Argentina. Techtel is authorized to operate on the 10.5 Ghz (Band G) radio spectrum in the Buenos Aires region, on the 38 Ghz (Band A) radio spectrum in certain other metropolitan areas of Argentina and on the 28 ghz (Bands A and B) radio spectrum throughout Argentina. These licenses and authorizations were granted by the Secretary of Communications and do not have termination dates. Telstar Telstar S.A. ("Telstar") is building an LMDS network to provide data transmission services in Montevideo, Uruguay. We own a 60% interest in Telstar through the same company that holds Techtel. Our interest in Telstar was acquired on November 28, 2000. Subject to obtaining the requisite regulatory consents, we expect to contribute our interest in Telstar to Telecom Americas. See "Joint Ventures and Investments--Telecom Americas." Telstar holds a non-exclusive license to install and operate a wireless broadband network in Montevideo to provide data transmission services. Telstar is authorized to operate on the 100 megahertz radio spectrum. Telstar is seeking to expand the scope of its license to the entire territory of Uruguay. JOINT VENTURES AND INVESTMENTS We have joint ventures and investments in the telecommunications sector in Brazil, Colombia, Venezuela, the United States, Puerto Rico, Mexico and Spain. Together with Bell Canada International Inc. and SBC International, Inc., we have recently formed Telecom Americas, a joint venture company that holds a number of our investments and that will serve as our principal vehicle for expansion in Latin America. Our principal joint ventures and investments are described below. With respect to certain of these companies, we expect to make additional investments in the future to develop operations and infrastructure, to repay indebtedness, to increase our ownership or for other purposes. In addition, we expect to have opportunities to invest in other telecommunications companies outside Mexico, especially in the United States and in Latin America, because we believe that the telecommunications sector will continue to be characterized by growth, technological change and consolidation. We may take advantage of these opportunities through Telecom Americas or through direct investments or other strategic alliances. We can give no assurance as to the extent, timing or cost of future international investments, and such investments may involve risks to which we have not previously been exposed. Telecom Americas We have entered into an agreement with Bell Canada International Inc. ("BCI") and SBC International, Inc. ("SBCI") providing for the establishment of Telecom Americas Ltd. ("Telecom Americas"), a new joint venture company that will serve as the three parties' principal vehicle for expansion in Latin America. The joint venture agreement was signed by Telmex on September 25, 2000 and assigned to America Movil by Telmex on November 15, 2000. The transaction closed on November 16, 2000. Under the agreement: o America Movil contributed to Telecom Americas at closing approximately U.S.$1.17 billion in promissory notes. In addition, we contributed our interest in ATL-Algar Telecom Leste S.A. ("ATL") and have agreed to contribute our interest in Techtel-LMDS Comunicaciones Interactivas S.A. ("Techtel") and Telstar S.A. ("Telstar") to Telecom Americas by February 14, 2001. If we are unable to obtain certain regulatory consents or otherwise fail to contribute Techtel and Telstar to the joint venture prior to such date, we have agreed to negotiate in good faith with the other parties to agree on a way to contribute Techtel and Telstar. If no agreement is reached, we will be required to contribute additional cash in order to maintain our 44.277% ownership interest in Telecom Americas. o BCI contributed to Telecom Americas at closing approximately U.S.$1.00 billion in promissory notes. In addition, BCI contributed its interests in Americel S.A. ("Americel") and Telet S.A. ("Telet"), Brazilian wireless operators; Canbras Communications Corp. ("Canbras"), a Brazilian cable television and Internet access service provider; Comunicacion Celular S.A. ("Comcel") and Occidente y Caribe Celular S.A. ("Occel"), Colombian wireless operators; Genesis Telecom, C.A. ("Genesis"), a broadband wireless operator in Venezuela. o SBCI contributed to Telecom Americas at closing a portion of its interest in ATL and has agreed to contribute the balance of its interest upon the expiration or removal of certain regulatory restrictions in Brazil. America Movil and BCI each has a 44.277% equity interest in Telecom Americas and SBCI has an 11.446% equity interest. Telecom Americas is subject to complex provisions governing the rights of each shareholder with respect to management. In general, these provisions effectively require a consensus among the three shareholders in order to make significant decisions about Telecom Americas. ATL ATL-Algar Telecom Leste S.A. ("ATL") is the Band B cellular concessionaire in the states of Rio de Janeiro and Espirito Santo in Brazil. We hold a 15.4% interest in ATL through Telecom Americas. We indirectly hold 11.3% of the voting power of ATL. Our interest in ATL was acquired in January 2000. In 1999, ATL had revenues of Ps.2,460 million and a net loss of Ps.2,499 million. In the first nine months of 2000, ATL had revenues of Ps.1,646 million and a net loss of Ps.976 million. At September 30, 2000, ATL had total assets of Ps.12,231 million. Business and strategy. ATL began operations in 1999. ATL's cellular network uses TDMA digital technology and covers approximately 60% of the geographical area of Rio de Janeiro and 29% of the geographical area of Espirito Santo. ATL's network covers approximately 92% of the combined population of these states. At September 30, 2000, ATL had 1.2 million subscribers and a 37% share of the wireless market in the states in which it operates. ATL offers wireless voice services through a variety of rate plans. ATL also offers value-added services such as voicemail, call waiting, caller ID, conferencing services and short message services. ATL expects to roll out data transmission services by the end of 2000. ATL distributes its services and handsets through four large independent retailers (accounting for approximately 70% of handset sales), 410 independent dealers, 15 company stores and telemarketing. ATL also uses agents who work on commission to support its corporate customers. ATL's business strategy is to compete with other cellular providers based on both price and quality of service. ATL has used low prices as its principal competitive advantage for building and broadening its customer base. Competition. ATL's principal competitor is Telefonica do Brasil S.A., the A-band concessionaire that operates in several regions in Brazil and is owned by Telefonica de Espana. Nextel, a joint venture between Motorola and Nextel Communications, Inc., competes with ATL for trunk service to the corporate segment in the Rio de Janeiro metropolitan area. Before the end of 2000, the Brazilian authorities are expected to auction three PCS licenses for the 1800 megahertz radio spectrum, allowing new competitors to enter the market in mid-2001, early 2002 and mid-2002, respectively. The new concessionaires will use GSM technology. Regulatory environment. In conjunction with the breakup and privatization of the Telecomunicacoes Brasileiras S.A.--Telebras ("Telebras") telecommunications monopoly, Brazil officially opened its cellular mobile telephone service industry to private enterprises. Starting in 1997, 10 cellular licenses covering all of Brazil were auctioned to wireless operators to compete against the eight incumbent providers that emerged from the Telebras breakup and were subsequently auctioned to private enterprises. In July 1997, Brazil revised its telecommunications code to affirm Brazil's commitment to privatize Telebras and its operating subsidiaries promote competition among service providers and establish an independent regulatory agency, Agencia Nacional de Telecomunicacoes--ANATEL ("Anatel"), to regulate its telecommunications industry. Anatel issues licenses for both wireless and wireline operators. It also mandates specific targets for delivering telephone services to the Brazilian population, including current mandates intended to increase penetration to 20% by 2005. Anatel has the authority to grant concessions and licenses for public telecommunications services. As of December 31, 1999, the entire Brazilian telecommunications sector has been opened to competition. Concessions. ATL holds a 15-year wireless service concession, with an option to extend it for an additional 15 years, covering the states of Rio de Janeiro (91 cities) and Espirito Santo (77 cities). This concession was granted by Anatel and is regulated under the General Telecommunications Law (Lei Geral de Telecomunicacoes). Americel Americel S.A. ("Americel") is a Band B cellular concessionaire operating in seven states in central-western Brazil. We hold a 7.2% ownership interest in Americel through Telecom Americas. We indirectly hold 4.1% of the voting power of Telet. Our interest in Americel was acquired in November 2000 in connection with the BCI-SBCI joint venture. In 1999, Americel had revenues of Ps.1,013 million and a net loss of Ps.1,275 million. In the first nine months of 2000, Americel had revenues of Ps.671 million and a net loss of Ps.577 million. At September 30, 2000, Americel had total assets of Ps.3,516 million. Business and strategy. Americel's cellular network uses TDMA digital technology and covers approximately 60% of the population of the states in which it operates. At September 30, 2000, Americel had 330,242 subscribers and a 22% share of the wireless market in the states in which it operates. Americel offers a variety of rate plans to its postpaid customers and offers prepaid services in all of its markets. Americel's prepaid card, marketed under the brand name "Legal," is used by more than 70% of its customer base. Americel offers bundled prepaid products, which include handsets as well as air time, and, for customers who already have their own handsets, a prepaid unbundled product marketed under the brand name "Virou Legal." Americel's strategy is to continue to expand its customer base through the build-out of its network. Competition. Americel competes with Tele Centro Oeste, which provides wireless service in certain of the states in central-western Brazil, and Companhia de Telecomunicacoes do Brasil Central--CTBC Telecom, which offers wireless service in some cities located in the state of Goias. Tele Centro Oeste was formed in the 1998 reorganization of subsidiaries of Telebras, the formerly state-owned wireless and fixed-line telecommunications operator. Regulatory environment. See "Joint Ventures and Investments--ATL--Regulatory environment." Concessions. Americel holds a 15-year wireless service concession, with an option to extend it for an additional 15 years, covering seven states in central-western Brazil. Granted by Anatel in 1997, this concession is regulated under the General Telecommunications Law (Lei Geral de Telecomunicacoes). Telet Telet S.A. ("Telet") is the Band B cellular concessionaire operating in the state of Rio Grande do Sul in Brazil. We hold a 7.2% ownership interest in Telet through Telecom Americas. We indirectly hold 4.1% of the voting power of Telet. Our interest in Telet was acquired in November 2000 in connection with the BCI-SBCI joint venture. In 1999, Telet had revenues of Ps.374 million and a net loss of Ps.1,001 million. In the first nine months of 2000, Telet had revenues of Ps.646 million and a net loss of Ps.860 million. At September 30, 2000, Telet had total assets of Ps.4,869 million. Business and strategy. Telet began operations in February 1999. Telet's cellular network uses TDMA digital technology and covers approximately 17% of the geographical area of Rio Grande do Sul and approximately 79% of its population. At September 30, 2000, Telet had 422,142 subscribers and a 24% share of the wireless market in the state of Rio Grande do Sul. Telet offers postpaid wireless services under the "Claro Digital" brand name, prepaid services under the "Claro Expresso" brand name, Internet service under the "Claro Net" brand name and international roaming service under the "Claro Mundi" brand name. Telet also offers value-added services such as voicemail, call waiting, three-way calling, call forwarding and call blocking. Telet's principal business strategy is to continue to expand its customer base through the build-out of its network. Competition. Telet's only significant competitor is CRT Celular, which is owned by Telefonica do Brasil S.A., the fixed-line telecommunications operator in Rio Grande do Sul. Regulatory environment. See "Joint Ventures and Investments--ATL--Regulatory environment." Concessions. Telet holds a 15-year wireless service concession, with an option to extend it for additional periods of 15 years, covering the state of Rio Grande do Sul. Granted by Anatel in 1998, this concession is regulated under the General Telecommunications Law (Lei Geral de Telecomunicacoes). Canbras Canbras Communications Corp. ("Canbras") is a provider of cable television and Internet access services in Brazil. We hold a 28.6% interest in Canbras through Telecom Americas. Our interest in Canbras was acquired in November 2000 in connection with the BCI-SBCI joint venture. In 1999, Canbras had revenues of Ps.465 million and a net loss of Ps.178 million. In the first nine months of 2000, Canbras had revenues of Ps.342 million and net income of Ps.221 million. At September 30, 2000, Canbras had total assets of Ps.1,394 million. Business and strategy. Canbras has developed and managed cable television and telecommunications investments in Brazil since 1995. Canbras provides cable television and Internet access service in metropolitan Sao Paulo, several nearby cities in the coastal area of Sao Paulo state, and four cities in the southern state of Parana. At September 30, 2000, Canbras had 173,904 subscribers. Canbras' cable network has been upgraded to offer two-way, high-speed local Internet access service and at September 30, 2000 it covered 37% of homes passed. Canbras expects to have more than 900 kilometers of its two-way Internet plant activated by the end of 2000, and to increase its number of Internet subscribers to more than 2,000. Canbras also operates in the private fixed-line telephone resale sector. Canbras buys telecommunications services from regional Brazilian public telephone service providers and then sells secondary switching services, offering access to the public telephone system and computerized management among the residents of private condominiums, commercial complexes and adjacent neighborhoods. Canbras' technology connects subscribers in residential condominiums to a switch installed on the premises of their building, which expands the service capability of the existing public phone network by creating up to 10 private phone lines for every public phone line in use. At December 31, 1999, Canbras serviced 56,242 subscribers in some 900 condominium buildings located primarily in the states of Sao Paulo, Rio de Janeiro, Espirito Santo and Minas Gerais. In addition, through its wholly-owned subsidiary CanbrasNet, Canbras launched Internet service provider or "ISP" services in July 2000. At September 30, 2000, CanbrasNet had 879 residential subscribers and 29 commercial subscribers, the latter representing over 600 traffic points. Competition. Canbras is currently the fourth largest cable operator in Brazil in terms of total number of subscribers, holding exclusive licenses in all regions in which it operates except for Santos in Sao Paolo. In the Internet market, Canbras' principal competitors are AOL Brazil, a joint-venture between America Online Inc. and the Cisneros Group of Argentina; Universo Online S.A. (UOL), which is controlled by two Brazilian publishing groups; Abril S.A. and Folha de Sao Paulo S.A.; and ZAZ, which is indirectly controlled by Telefonica Internacional--TISA. Regulatory environment. The telecommunications industry in Brazil is regulated by Anatel. See "Joint Ventures and Investments--ATL--Regulatory environment." In late 1999, Anatel adopted regulations permitting cable television operators to provide high-speed local Internet access using cable modems and bi-directional cable television networks. Cable television operators are limited to providing connection to Internet service providers and are not permitted to directly provide content on or final connection to the Internet. Cable television operators are required to grant equal access to all Internet service providers who request use of the operators' networks. Concessions. Canbras owns 10 licenses for the operation of cable television services in the state of Sao Paulo. Each of these licenses was acquired in 1996, has a 15-year term and is renewable for an additional 15 years, subject to certain conditions. Through a subsidiary, Canbras also holds 15-year cable television licenses for the cities of Sao Caetano do Sul, Guarulhos, Sao Jose dos Campos, Diadema and Maua, with expiration years ranging from 2009 to 2015. No registration or license is necessary for the installation, operation and maintenance of private telephone resale systems in Brazil. Comcel and Occel Comunicacion Celular S.A. ("Comcel") and its subsidiary Occidente y Caribe Celular S.A. ("Occel") provide wireless telecommunications services in Colombia, Comcel in the eastern region of the country and Occel in the western region. Occel operates under the "Comcel" brand, and we use the term "Comcel" below to refer to Comcel and Occel together. We hold a 26.2% interest in Comcel through Telecom Americas. Our interests in Comcel was acquired in November 2000 in connection with the BCI-SBCI joint venture. In 1999, Comcel had revenues of Ps.2,475 million and net loss of Ps.1,915 million. In the first nine months of 2000, Comcel had revenues of Ps.2,748 million and a net loss of Ps.1,267 million. At September 30, 2000, Comcel had total assets of Ps.8,457 million. Business and strategy. Comcel's network uses analog and TDMA digital technology and covers approximately 72% of Colombia's population. At September 30, 2000, Comcel had 870,784 subscribers and a 56% share of the Colombian wireless market. Comcel offers basic cellular service through a variety of rate plans and also offers prepaid service. Purchasers of Comcel's "Amigo" kit for prepaid service receive a cellular phone together with a prepaid calling card, enabling the customer to activate wireless service without contracts, monthly fees or credit checks. Comcel markets its services through independent local distributors and a direct sales force. In addition, Comcel has recently begun to market some of its products and services through non-traditional distribution channels, such as Blockbuster Video stores. Comcel's strategy is to continue to expand its customer base through the build-out of its network. Competition. Comcel is one of only two cellular service providers in each of the eastern and western regions of Colombia. Comcel competes with Celular Movil de Colombia S.A. in the eastern region and Compania Celular de Colombia S.A. in the western region, both of which companies are owned by BellSouth. Comcel also competes with traditional fixed-line telephone service operators, including Empresa de Telecomunicaciones de Santafe de Bogota and Empresa Nacional de Telecommunicaciones in the eastern region, and Empresas Publicas de Medellin and Empresas Municipales de Cali in the western region. In addition, Comcel faces competition from alternative wireless services, including mobile radio and paging services, rural wireless operators and trunking service. These competing wireless services are widely used in Colombia as a substitute for fixed-line services. Regulatory environment. The Ministry of Communications of Colombia and the Telecommunications Regulation Commission are responsible for regulating and overseeing the telecommunications sector, including cellular operations. The Ministry of Communications, which granted the cellular concessions in 1994, supervises and audits the performances of the concessionaires' legal and contractual obligations. Concessions. Comcel holds 10-year concessions, acquired in 1994, to provide wireless telecommunications services in the eastern and western regions of Colombia. Under the terms of the concessions, Comcel is required to make quarterly royalty payments to the Ministry of Communications based on its revenues. Under the terms of an agreement entered into in January 1997, the Ministry of Communications has agreed to renew the Comcel concessions through 2014. Genesis Genesis Telecom, C.A. ("Genesis") is a new broadband wireless operator in Venezuela. We hold a 22.6% interest in Genesis through Telecom Americas. Our interest in Genesis was acquired in November 2000, in connection with the BCI-SBCI joint venture. In the first nine months of 2000, Genesis had revenues of Ps.1.2 million and a net loss of Ps.59 million. At September 30, 2000, Genesis had total assets of Ps.244 million. Business and strategy. Genesis began operations in Caracas in March 2000, providing high-speed, broadband wireless services, which will include data, voice, video and Internet services. Genesis' network uses LMDS digital technology supplied by Nortel. At September 30, 2000, Genesis had 214 business subscribers. Competition. Compania Anonima Nacional Telefonos de Venezuela is the incumbent provider of local, domestic, and international fixed-line telephone services within Venezuela. In addition, Genesis competes with other wireless providers in Venezuela and expects competition to increase as additional wireless and LMDS licenses are auctioned. Regulatory environment. The Venezuelan telecommunications industry is regulated by the Ministry of Transportation and Communications through the National Commission of Telecommunications ("Conatel"). Maximum and minimum tariffs for the provision of certain telecommunications services are determined by the Venezuelan government. Concessions. In July 1997, Genesis was granted a concession to install, maintain and commercially exploit a private network. The term of the concession is 10 years, renewable at the option of Genesis for an additional 10-year period. Under the terms of the concession, Genesis is required to pay the Venezuelan government 0.5% of gross invoicing for services rendered annually and a tax of 5% of gross invoicing for services rendered. In March 1998, Conatel granted to Genesis a concession to provide value-added services. The term of the license is also for 10 years, renewable at the option of Genesis for an additional 10-year period. Under the terms of the concession, Genesis is required to pay the Venezuelan Government 0.5% of gross invoicing for services rendered annually and a tax of 5% of gross invoicing for services rendered. CompUSA CompUSA, Inc. ("CompUSA") is a retailer of personal computing equipment based in Dallas, Texas. We own a 49% interest in CompUSA. Our interest in CompUSA was acquired in March 2000, following the completion of a tender offer in which Telmex and Grupo Sanborns, S.A. de C.V. ("Sanborns") acquired 100% of the capital stock of CompUSA. Sanborns is a subsidiary of Grupo Carso, S.A. de C.V., which is an affiliate of America Movil. The remaining interest in CompUSA is owned by Sanborns. In 1999, CompUSA had revenues of Ps.59,134 million and a net loss of Ps.880.0 million. In the first nine months of 2000, CompUSA had revenues of Ps.34,949 million and a net loss of Ps.1,697 million. At September 30, 2000, CompUSA had total assets of Ps.18,758 million. Business and strategy. CompUSA operates 217 CompUSA Computer Superstores in 82 metropolitan areas throughout the United States, spanning a total of 42 states. In addition, CompUSA operates seven "small market" concept stores. CompUSA is one of the leading U.S. retailers and resellers of personal computers and related products and services, operating principally through its Computer Superstores. Its other activities include direct sales and providing comprehensive training and technical services to corporate, government, and education customers. CompUSA offers personal computer hardware and software and related products and accessories. In addition to its in-store selection, CompUSA also offers customers the ability to special order approximately 30,000 additional products. Prices and services are typically determined centrally, but managers have the authority to adjust in-store prices in response to local competitive conditions within guidelines established and controlled centrally. CompUSA's strategy includes development and growth of its Internet retail business. Competition. CompUSA competes with a variety of resellers of personal computers and related products and services. As to product sales, CompUSA competes with large format consumer electronics and office supply retailers, manufacturers and distributors that sell directly to the public, other large format computer retailers, Internet-based retailers, mail order houses, mass merchants, discounters, specialty electronics retailers, software specialty retailers, other personal computer retailers, outbound dealers, and value-added resellers. In addition, CompUSA has numerous competitors in its training and technical service businesses. The personal computer industry is undergoing significant change. Rapid technological advances, in combination with an increasingly computer-literate population, have increased the use and popularity of personal computers, resulting in the emergence and growth of a variety of distribution channels. CompUSA believes that customers have become increasingly price sensitive and this results in widespread and intense competition among personal computer product retailers and resellers. CCPR Cellular Communications of Puerto Rico, Inc. ("CCPR") offers wireless, paging and long distance services under the "Cellular One" brand in Puerto Rico and the U.S. Virgin Islands. We own a 50% interest in CCPR, and the remaining 50% interest is held by SBCI. Our interest in CCPR was acquired in August 1999. In 1999, CCPR had revenues of Ps.2,043 million and a net loss of Ps.105 million. In the first nine months of 2000, CCPR had revenues of Ps.1,594 million and a net loss of Ps.134 million. At September 30, 2000, CCPR had total assets of Ps.10,060 million. Business and strategy. CCPR's network uses TDMA digital technology and covers approximately 87% of the geographical area of Puerto Rico and the Virgin Islands, and approximately 90% of their population. As of September 30, 2000, CCPR had 495,108 subscribers and a 40% share of the combined Puerto Rican and Virgin Islands wireless market. CCPR offers cellular, paging and long distance services, and is expanding the resale of its backbone digital microwave network. CCPR also offers Competitive Access Provider, or "CAP," services, which allow subscribers to bypass local exchange carrier services and thus reduce costs. In 1997, CCPR introduced prepaid services, designed primarily for low-usage individual customers. Direct sales, including sales to corporate accounts, represented approximately 65% of CCPR's total revenues for the first nine months of 2000. In addition, CCPR uses a network of independent dealers and large retailers who work on commission to distribute the company's products and services. CCPR aims to differentiate itself from its competitors by offering premium services at attractive prices. The company directs significant efforts toward maintaining a high level of customer service and technical excellence, as well as offering advanced calling features. CCPR's sales and marketing strategy is to attract subscribers through direct and indirect distribution channels and aggressive advertising. The company targets the individual and corporate segments by developing tailored pricing plans designed to appeal to those segments. CCPR is currently considering new advertising campaigns to promote a modern and professional image. In an effort to increase its postpaid customer base, CCPR is planning an aggressive advertising campaign focusing on how favorably Cellular One rates and quality of products and services compare to those of its competitors. With respect to prepaid cards, CCPR plans to leverage its extensive distribution network by creating additional distribution venues, including existing ATM machines. CCPR's growth strategy is to continue to build out its digital network. At present, approximately 85% of CCPR's network traffic is digital. CCPR is also planning to install more than 20 new cell sites during 2001, in order to reach the mountainous inner part of Puerto Rico which, due to topographical conditions, requires additional cell sites for coverage. Competition. CCPR holds one of two authorized cellular service licenses for each of Puerto Rico and the Virgin Islands. The Puerto Rico Telephone Company, which is the sole fixed-line provider for Puerto Rico, holds the second cellular license for Puerto Rico. VitelCellular, Inc., an affiliate of the fixed-line Virgin Islands Telephone Company, holds the second cellular license for the Virgin Islands. A number of companies hold PCS licenses for the Puerto Rican and U.S. Virgin Islands markets. Centennial has offered PCS under its license since December 1996. Telecorp, an affiliate of AT&T, launched PCS in July of 1999, under the commercial name "Suncom." Clear Comm, Inc., which recently announced a partnership with an affiliate of Telefonica S.A., launched PCS in October 1999, under the commercial name "MovieStar." In addition, the Puerto Rico Telephone Company, VitelCom, Inc. (an affiliate of VitelCellular, Inc.), Sprint PCS, and Omnipoint Corp. hold PCS licenses but are not currently operating under them. Sprint PCS has announced its plans to launch service at the beginning of 2001. Regulatory environment. The telecommunications sector in Puerto Rico and the Virgin islands falls under the jurisdiction of the U.S. Federal Communications Commission (the "FCC"), and U.S. telecommunications laws and regulations apply. The Communications Act of 1934, as amended, requires cellular, paging and microwave station operators such as CCPR to obtain authorization from the FCC prior to conducting or operating their systems. Although the FCC has the ability to require wireless service providers to file tariffs for their services, it has never required CCPR to file such tariffs. The Puerto Rico Telecommunications Act of 1996 created a local board with primary regulatory jurisdiction in Puerto Rico over all telecommunications services, service providers, and persons with a direct or indirect interest in such services or providers. This Act requires all telecommunications service providers, except commercial mobile radio service providers, to obtain certification to do business in Puerto Rico, and it directs the board to adopt regulations specifying the form, content and procedures for such certification. Licenses. CCPR holds various licenses issued by the FCC for cellular, paging and international long distance resale services in Puerto Rico and the U.S. Virgin Islands, operating on the 800 megahertz (Band A) radio spectrum. Some of these licenses were acquired from the original licensees, and others were obtained directly by CCPR. In addition, certain subsidiaries of CCPR hold point-to-point common carrier microwave licenses to transport CCPR's network traffic. CCPR has renewed a number of these licenses, and is in the process of renewing others through the FCC's "Expected Renewal" process. Under "Expected Renewal," license holders may renew their licenses as long as they have been operating in good standing under FCC rules, with no significant complaints or failures in providing service. Network Access Network Access Solutions Corporation ("Network Access") is a provider of broadband network access services to business customers. We own common shares and convertible preferred shares representing a 5.9% equity interest in Network Access. We acquired our interest in the common shares in June 1999 and our interest in the preferred shares in March 2000. In 1999, Network Access had revenues of Ps.164 million and a net loss of Ps.380 million. In the first six months of 2000, Network Access had revenues of Ps.69.8 million and net income of Ps.276.3 million. At September 30, 2000, Network Access had total assets of Ps.2,103.6 million. At June 30, 2000, Network Access had approximately 8,000 subscribers. Cablevision Empresas Cablevision, S.A. de C.V. ("Cablevision") is the cable subsidiary of Grupo Televisa, S.A. de C.V. ("Televisa"), which is the largest supplier of television programming in Mexico. Cablevision offers cable television services in the Mexico City metropolitan area, and at September 30, 2000, had approximately 400,000 subscribers. We indirectly own a 49% interest in Cablevision and the remaining interest is owned by Televisa. Cablevision is in the process of exploring a variety of possible transactions through which America Movil could significantly reduce its equity interest in Cablevision. In 1999, Cablevision had revenues of Ps.733 million and net income of Ps.170 million. In the first nine months of 2000, Cablevision had revenues of Ps.649 million and net income of Ps.89 million. At September 30, 2000, Cablevision had total assets of Ps.1,718 million. FirstMark FirstMark Comunicaciones Espana, S.A. ("FirstMark") is a new broadband wireless company in Spain. We own a 17.5% interest in FirstMark. Our interest in FirstMark was acquired in November 1999. In the first nine months of 2000, FirstMark had revenues of Ps.0.3 million and a net loss of Ps.29 million. At September 30, 2000, FirstMark had total assets of Ps.427 million. FirstMark plans to launch commercial operations in the first half of 2001, offering Internet access, voice, value-added and Internet services such as web hosting, web housing, internet protocol virtual private network and frame relay. CAPITAL EXPENDITURES The following table sets forth our capital expenditures, before retirements, for each year in the three-year period ended December 31, 1999 and for the nine-month period ended September 30, 2000.
Nine months ended Year ended December 31, September 30, ------------------------------------------- ---------------- 1997 1998 1999 2000 ---------- ------------------ --------------- ----------------- (millions of constant pesos as of September 30, 2000) Transmission and switching equipment Ps. 1,318 Ps. 1,830 Ps. 6,195 Ps. 9,160 Computer equipment.................. 166 107 273 416 Licenses............................ 43 1,661 __ __ Investment in subsidiaries and affiliates........................ (271) -- 4,428 11,093 Other............................... 24 34 104 603 ----------- ----------- ----------- ----------- Total capital expenditures...... Ps. 1,280 Ps. 3,632 Ps. 11,000 Ps. 21,272 =========== =========== =========== ===========
Telcel has budgeted capital expenditures of approximately U.S.$2.1 billion for the five quarters through December 31, 2001, principally for the build-out of its cellular network. We currently expect the level of capital expenditures at Telcel to decline after 2001, but capital expenditures will continue to be substantial. Competitive, technical or market developments could require increased capital expenditure. In addition, we expect America Movil to provide funding for capital expenditures of its subsidiaries and joint ventures. We have budgeted approximately U.S.$194 million for this purpose through December 31, 2001. We have contractual commitments to make contributions of approximately U.S.$509 million to our international subsidiaries through the end of 2001. In addition, we are required to provide U.S.$1.17 billion to Telecom Americas as the requirements of the joint venture arise and in any case no later than November 16, 2003. See "Joint Ventures and Investments--Telecom Americas" under Item 4. THE SPIN-OFF Overview America Movil was established in a spin-off (the "Spin-off") of the wireless business and certain international businesses of Telmex, the largest provider of local and long-distance telephone services in Mexico. The Spin-off was approved by Telmex shareholders at an extraordinary shareholders' meeting on September 25, 2000 (the "Approval Date"), at which time each holder of Telmex shares became the owner of an equal number of America Movil shares of the corresponding class. The shares of America Movil will not be delivered to Telmex shareholders until a distribution date to be announced (the "Share Distribution Date"). Prior to the Share Distribution Date, Telmex shares and America Movil shares may only be owned and transferred together. On the Share Distribution Date, our shares will be delivered to Telmex shareholders as of a specified record date (the "Share Record Date"). On a date (the "ADS Distribution Date") as soon as practicable following the Share Distribution Date, America Movil American Depositary Shares ("ADSs") will be delivered to holders of Telmex ADSs as of a specified record date (the "ADS Record Date"). Telmex and America Movil currently have the same shareholders and will continue to be controlled by the same group of shareholders until the Share Distribution Date. See "Major Shareholders" under Item 7. Neither Telmex nor America Movil owns any capital stock of the other. Description of the Spin-off The Spin-off was implemented using a procedure under Mexican corporate law called escision, or "split-up." In an escision, an existing company is divided, creating a new company or new companies to which specified assets and liabilities are allocated. This procedure differs from the procedure by which a spin-off is typically conducted in the United States, where a parent company distributes to its shareholders shares of a subsidiary. The escision was approved on the Approval Date by a single action of the shareholders of Telmex at the extraordinary meeting creating America Movil and allocating certain assets and liabilities of Telmex to America Movil. Prior to the Spin-off, Telmex conducted an internal reorganization. Following the reorganization, a subsidiary of Telmex called Sercotel, S.A. de C.V. ("Sercotel") directly or indirectly owned the shares of Telcel and the subsidiaries that conduct our international businesses and hold our international investments. Also as a result of the reorganization, subsidiaries of Telcel held Ps.17.1 billion of Telmex commercial paper and Ps.10.9 billion of other liquid assets in order to help America Movil meet its capital requirements following the Spin-off. Effective on the Approval Date: o America Movil was established as a separate company and our initial Board of Directors was elected at the same extraordinary meeting that approved the Spin-off. o The shares of Sercotel were transferred to America Movil. o Each holder of Telmex shares became the owner of an equal number of America Movil shares of the corresponding class. The shareholders' resolution from the extraordinary meeting was notarized on October 5, 2000, and it was registered in the Mexican Public Registry of Commerce and published in the Diario Oficial (Official Gazette) on October 13, 2000. Mexican law provides for a period of 45 days following the registration and publication of the resolution during which the Spin-off may be challenged by certain parties, as described below under "--Judicial Proceedings to Challenge the Spin-off." Our shares will not be delivered or held separately from Telmex shares before the end of this statutory period. Prior to the Share Distribution Date, there will be no separate certificates for our shares, and the right to receive our shares will be transferred together with Telmex shares. Investors will not be able to buy or otherwise acquire, or sell or otherwise transfer or deliver, Telmex shares or America Movil shares separately. The Share Distribution Our shares will be separated from the Telmex shares and distributed to shareholders following the expiration of the period during which the Spin-off may be challenged under Mexican corporate law. See "--Judicial Proceedings to Challenge the Spin-off." We can give no assurance as to when the Share Distribution Date will occur. Distribution of shares will generally be made by book entry annotation in the shareholder list maintained by S.D. Indeval, S.A. de C.V., Institucion para Deposito de Valores (Indeval), which is the clearing system for securities traded on the Mexican Stock Exchange. Beginning on or about the Share Distribution Date, we expect that: o America Movil A Shares and L Shares will commence trading on the Mexican Stock Exchange. o Telmex A Shares and L Shares will trade on the Mexican Stock Exchange without the America Movil shares. o Shareholders will be able to hold Telmex shares and America Movil Shares separately. See "Trading Markets" under Item 9. The ADS Distribution As of the Approval Date, each Telmex L Share ADS represented, in addition to 20 Telmex L Shares, the right to receive 20 America Movil L Shares, and each Telmex A Share ADS represented, in addition to one Telmex A Share, the right to receive one America Movil A Share. As of the date of this registration statement, Telmex has established a "sponsored" ADS program in respect of its A Shares under which each Telmex A Share ADS represents 20 Telmex A Shares and 20 America Movil A Shares. We will arrange with Morgan Guaranty Trust Company of New York, as depositary (the "Depositary"), to issue L Share ADSs, each representing 20 America Movil L Shares, and A Share ADSs, each representing 20 America Movil A Shares. On the ADS Distribution Date, the Depositary will issue and distribute America Movil ADSs to each record holder of Telmex ADSs. Beginning on or about the ADS Distribution Date, we expect that the America Movil L Share ADSs will commence trading on the New York Stock Exchange and the America Movil A Share ADSs will be quoted on the NASDAQ National Market System. See "Trading Markets" under Item 9. We expect that the Depositary will announce the ADS Record Date and the ADS Distribution Date on or about the same date on which we announce the Share Record Date and the Share Distribution Date. Persons holding Telmex ADSs through the facilities of The Depository Trust Company ("DTC") will receive the distribution of America Movil ADSs by book entry only, through the facilities of DTC. Persons holding Telmex ADSs directly will receive the distribution of America Movil ADSs in the form of certificated American Depositary Receipts ("ADRs") representing America Movil ADSs. These ADRs will be mailed to direct holders of Telmex ADSs on or as soon as practicable after the ADS Distribution Date. Persons holding Telmex ADSs through a broker or other securities intermediary should consult such broker or other securities intermediary concerning distribution of the America Movil ADSs. Certain Relationships between America Movil and Telmex Following the Spin-off, there will be a variety of contractual relationships between America Movil and Telmex, both to accomplish the separation of the Spin-off and to provide for ongoing commercial relationships. Telmex also remains obligated to certain creditors of certain of our subsidiaries and joint ventures until those creditors agree to release Telmex. See "Related Party Transactions" under Item 7. Approvals and Consents Where obligations of Telmex have been transferred to America Movil, consent of the relevant creditors will be required in order for America Movil to succeed to the rights and obligations of Telmex. In these cases, failure to obtain consent from creditors may require that Telmex remain liable for certain obligations of America Movil, including indebtedness and credit support provided to certain of our subsidiaries and affiliates. See "Related Party Transactions" under Item 7. In addition, Telmex is required to obtain clearance from the Mexican competition authorities. We do not expect the competition authorities to object to the Spin-off, but there can be no assurance that they will not impose any requirements on America Movil that will have a material effect on us. Judicial Proceedings to Challenge the Spin-off Under Mexican corporate law, for a period of 45 days following the registration and publication of the shareholders' resolution approving the Spin-off, which occurred by October 13, 2000, any shareholder or group of shareholders representing at least 20% of the entire capital stock of Telmex, or any creditor of Telmex, may commence judicial proceedings in Mexican courts to challenge the Spin-off. In connection with such a challenge, a court may temporarily suspend the Spin-off, if the party bringing the proceedings posts bond as security for damages and losses which might be suffered by Telmex or America Movil as a result of the challenge. The suspension may continue until there is a final, non-appealable judicial declaration that the challenge is unfounded or an agreement between the challenging party and Telmex. Once the statutory period has expired, the Spin-off may no longer be challenged by creditors or shareholders. The legal grounds on which an escision may be challenged, and the remedies a court may impose if it sustains the challenge, are not specified in Mexican corporate law and have not been the subject of extensive practical experience or commentary. We are unable to anticipate whether any party will challenge the Spin-off or, if so, what standards the Mexican courts will apply to rule on the challenge, what procedures they will follow in conducting proceedings or what remedies they will impose. Item 5. Operating and Financial Review and Prospects The following discussion should be read in conjunction with the Audited Financial Statements and the Unaudited Interim Financial Statements and the notes thereto included in this registration statement under Item 18. The Audited Financial Statements and the unaudited interim financial statements for the nine months ended September 30, 1999 have been prepared on a combined basis from Telmex's historical accounting records and represent the combined historical operations of the entities that were transferred to America Movil by Telmex in the Spin-off. The unaudited interim financial statements as of September 30, 2000 and for the nine months ended September 30, 2000 have been prepared on a consolidated basis. The financial statements have been prepared in accordance with Mexican GAAP, which differ in certain important respects from U.S. GAAP. Note 19 to the Audited Financial Statements and Note 13 to the Unaudited Interim Financial Statements provide a description of the principal differences between Mexican GAAP and U.S. GAAP, as they relate to the Company, a reconciliation to U.S. GAAP of operating income, net income and total stockholders' equity and a condensed statement of cash flows under U.S. GAAP. Mexican GAAP requires that the financial statements recognize certain effects of inflation. In particular, (a) nonmonetary assets, including property, plant and equipment, and stockholders' equity are restated for inflation and, in the case of imported telephone plant, devaluation, (b) gains and losses in purchasing power from holding monetary liabilities or assets are recognized in income and (c) all financial statements are restated in constant pesos as of September 30, 2000. Since January 1, 1997, the Company has elected to restate imported telephone plant based on the rate of inflation in the country of origin and the prevailing exchange rate at the balance sheet date; other fixed assets are restated based on the NCPI. Results of Operations Overview Our operating revenues consist of (i) usage charges, which include airtime charges for outgoing calls and interconnection charges billed to other service providers for calls completed on the Company's network under the "calling party pays" system beginning May 1, 1999, (ii) monthly subscription charges, (iii) long-distance charges, (iv) revenues from sales of cellular handsets and accessories and (v) other revenues, which include roaming charges and charges for call forwarding, call waiting and call blocking. Revenues from sales of prepaid services are recognized at the time of sale and are included under usage charges, long-distance charges and other revenues. The principal factors affecting our operating revenues are rates and the volumes of usage of wireless services. The effect of rates on revenues is analyzed in terms of constant pesos of September 30, 2000 and therefore, unless nominal rates increase by at least the rate of inflation, real rates will decline over time. Our results of operations for 1997, 1998, 1999 and the first nine months of 2000 have been affected by continued rapid growth in the number of our cellular subscribers, particularly prepaid subscribers of Telcel. The increase in subscribers in 1999 and 2000 was attributable in part to the introduction of the "calling party pays" system in Mexico in May 1999, which also led to an increase in average minutes of incoming calls to new and existing subscribers. The growth in our subscriber base has been offset in part by a decline in average monthly revenues per subscriber, due to declining real rates and growth in the number of prepaid customers. Our 1999 and 2000 results of operations reflect the consolidation of TracFone beginning in February 1999 and GCA beginning in May 1999. Our 2000 results of operations also reflect the consolidation of Telgua and Conecel beginning in April 2000 and Techtel beginning in July 2000. See "Subsidiaries" under Item 4. The effects of competition have been extensive, and have included lower market share and competitive pressure on prices for cellular service. We believe that we are well-positioned to continue meeting competition successfully in Mexico and in the other countries in which we operate, but we can make no assurances as to the effects of competition on our results of operations and financial condition. Our results of operations will also continue to be affected by economic conditions in Mexico and in the other countries in which we operate. In periods of slow economic growth, demand for telecommunications services tends to be adversely affected. Poor economic conditions, particularly unemployment and high domestic interest rates, can also result in an increase in allowance for doubtful accounts. Devaluation of the peso, such as occurred most recently in 1998, also results in exchange losses on our foreign-currency denominated indebtedness. In 1999 and 2000, Telcel has continued to grow in terms of lines in service and minutes of usage, partly because of the strong performance of the Mexican economy. However, we can make no assurances that economic conditions in Mexico and in the other countries in which we operate will not have adverse effects on our financial condition and results of operations. Summary of Operating Income The following tables sets forth, for each of the years in the three-year period ended December 31, 1999, and for the nine-month periods ended September 30, 1999 and 2000, our operating revenues, operating costs and expenses and operating income.
Year ended December 31, % Change -------------------------------------------- ------------------------- 1997 1998 1999 1997-1998 1998-1999 ------------- ------------- -------------- --------------- ------------ (millions of constant pesos as of September 30, 2000) Operating revenues: Usage charges.................... Ps. 2,559 Ps. 3,680 Ps. 7,239 43.8% 96.7% Monthly subscription charges..... 1,827 2,884 3,692 57.9 28.0 Long-distance charges............ 625 800 1,334 28.0 66.7 Sales of handsets and accessories.................... 548 1,310 2,406 139.1 83.7 Other(1)......................... 275 698 684 153.8 (2.0) ------------ ------------ ------------ Total operating revenues....... 5,834 9,372 15,355 60.6 63.8 ------------ ------------ ------------ Operating costs and expenses: Cost of sales and services....... 2,350 3,608 7,156 53.5 98.3 Commercial, administrative and general........................ 2,689 3,026 4,490 12.5 48.4 Depreciation and amortization.... 535 768 1,475 43.5 92.1 ------------- ------------- ------------ Total operating costs and expenses 5,574 7,402 13,121 32.8 77.3 ------------- ------------- ------------ Operating income.................... Ps. 260 Ps. 1,970 Ps. 2,234 657.7 13.4 ============= ============ ============
- ------------- (1) Other revenues include roaming charges and charges for call forwarding, call waiting and call blocking. Nine months ended September 30, --------------------------- 1999 2000 % Change --------------------------- ---------- (millions of constant pesos as of September 30, 2000) Operating revenues: Usage charges..................... Ps. 4,654 Ps. 10,622 128.2% Monthly subscription charges...... 2,731 3,284 20.2 Long-distance charges............. 939 1,803 92.0 Sales of handsets and accessories..................... 1,541 2,219 44.0 Other(1).......................... 382 1,222 219.9 ------------ ------------ Total operating revenues........ 10,247 19,150 86.9 Operating costs and expenses: Cost of sales and services........ 4,782 9,583 100.4 Commercial, administrative and general......................... 3,006 4,809 60.0 Depreciation and amortization.................... 845 2,067 144.6 ------------- ------------ Total operating costs and expenses 8,633 16,459 90.6 ------------- ------------ Operating income.................. Ps. 1,614 Ps. 2,691 66.7 ============= ============ - ------------- (1) Other revenues include roaming charges and charges for call forwarding, call waiting and call blocking. Summary of Net Income The following tables set forth, for each of the years in the three-year period ended December 31, 1999, and for the nine-month periods ended September 30, 1999 and 2000, our operating income, comprehensive financing (income) cost, provisions and equity in results of equity-method affiliates.
Year ended December 31, % Change -------------------------------------------- ------------------------- 1997 1998 1999 1997-1998 1998-1999 ------------- ------------- -------------- --------------- ------------ (millions of constant pesos as of September 30, 2000) Operating income.................... Ps. 260 Ps. 1,970 Ps. 2,234 657.7% 13.4% Comprehensive financing (income) cost: Interest income................ (7,329) (9,581) (8,901) 30.7 (7.1) Interest expense............... 51 26 157 (49.0) 503.8 Exchange loss (gain), net...... (488) (133) 1,094 (72.7) (922.6) Monetary effect................ 5,460 6,590 4,664 20.7 (29.2) ------------ ----------- ----------- (2,306) (3,098) (2,986) 34.3 (3.6) ------------ ------------ ------------ Income before income tax and employee profit sharing................... 2,566 5,068 5,220 97.5 3.0 ----------- ----------- ----------- Provisions for: Income tax..................... 778 1,072 1,102 37.8 2.8 Employee profit sharing........ 64 75 112 17.2 49.3 ----------- ----------- ----------- 842 1,147 1,214 36.2 5.8 ----------- ----------- ----------- Income before equity in results of affiliates and minority interest. 1,724 3,921 4,006 127.4 2.2 Equity in results of affiliates..... 106 77 15 (27.4) (80.5) Minority interest in loss of subsidiaries..................... -- -- 296 -- -- ----------- ----------- ----------- Net income.......................... Ps. 1,830 Ps. 3,998 Ps. 4,317 118.5 8.0 =========== =========== ===========
Nine months ended September 30, --------------------------- 1999 2000 % Change --------------------------- ---------- (millions of constant pesos as of September 30, 2000) Operating income..................... Ps. 1,614 Ps. 2,691 66.7% Comprehensive financing (income) cost: Interest income................. (7,259) (3,629) (50.0) Interest expense................ 167 649 288.6 Exchange loss (gain), net....... 1,387 52 (96.3) Monetary effect................. 3,666 1,823 (50.3) ---------- ----------- (2,039) (1,105) (45.8) ---------- ----------- Income before income tax and employee profit sharing.................... 3,653 3,796 3.9 Provisions for: Income tax...................... 727 1,798 147.3 Employee profit sharing......... 130 112 (13.8) ---------- ----------- 857 1,910 122.9 ---------- ----------- Income before equity in results of affiliates and minority interest.. 2,796 1,886 (32.5) Equity in results of affiliates...... 49 (465) -- Minority interest in loss of subsidiaries...................... 114 159 39.5 ---------- ----------- Net income........................... Ps. 2,959 Ps. 1,580 (46.6) ========== =========== Operating Revenues Operating revenues increased by 60.6% in 1998, 63.8% in 1999 and 86.9% in the first nine months of 2000 compared to the same period in 1999. These increases in revenues were driven principally by growth in Telcel's subscriber base, offset in part by a decline in monthly revenues per subscriber. The average number of Telcel subscribers increased by 89.8% in 1998, 149.4% in 1999 and 114.6% in the first nine months of 2000 compared to first nine months of 1999, largely due to the growth in prepaid subscribers. The average number of prepaid subscribers increased by 121.6% in 1998, 203.8% in 1999 and 79.2% in the first nine months of 2000. As of September 30, 2000, Telcel had a total of 8.9 million subscribers, 7.9 million of which were prepaid subscribers. Average monthly revenues per Telcel subscriber decreased from Ps.504 in 1998 to Ps.339 in 1999 to Ps.240 in the nine months ended September 30, 2000. The decrease in average monthly revenues was due to the decline in real rates and to the growth in prepaid customers. Usage charges Usage charges increased by 43.8% in 1998, 96.7% in 1999 and 128.2% in the first nine months of 2000 compared to the same period in 1999. The increases in each period were due principally to growth in the number of Telcel's subscribers, offset in part by a decline in real rates. The increases in 1999 and in the first nine months of 2000 were partly attributable to the introduction of the "calling party pays" system in Mexico in May 1999, which led to an increase in subscribers. To a lesser extent, the increases were also due to the consolidation of the revenues of TracFone and GCA beginning in the first half of 1999 and of Conecel and Telgua beginning in April 2000. Monthly subscription charges Monthly subscription charges increased by 57.9% in 1998, 28.0% in 1999 and 20.2% in the first nine months of 2000 compared to the same period in 1999. The increase in each period was due to growth in the number of Telcel's postpaid subscribers. Monthly subscription charges did not increase as rapidly as the number of subscribers because an increasing number of new subscribers were prepaid customers, who do not pay monthly subscription charges. Long-distance charges Long-distance charges increased by 28.0% in 1998, 66.7% in 1999 and 92.0% in the first nine months of 2000 compared to the same period in 1999. These increases were primarily due to subscriber growth, offset in part by a decline in real rates. Sales of handsets and accessories Sales of handsets and accessories increased by 139.1% in 1998, 83.7% in 1999 and 44.0% in the first nine months of 2000 compared to the same period in 1999. These increases were attributable to growth in the number of subscribers, which was partly offset by declines in prices and increased subsidies. The comparatively lower rates of growth in 1999 and 2000 were due to increased handset subsidies in those years. Other Other revenues increased by 153.8% in 1998, decreased by 2.0% in 1999 and increased by 219.9% in the first nine months of 2000 compared to the same period in 1999. The increases in 1998 and 2000 were principally due to growth in the number of subscribers. The increase in 2000 was also attributable to the consolidation of other revenues of Telgua. The decrease in 1999 was primarily due to the elimination in that year of required handset deposits for new Telcel subscribers. Handset deposits result in revenues if they are not claimed by subscribers within a prescribed period of time. Operating Costs and Expenses Costs of sales and services Costs of sales and services increased by 53.5% in 1998, 98.3% in 1999 and 100.4% in the first nine months of 2000 compared to the same period in 1999. The increases during these periods were primarily due to growth in sales of cellular handsets and higher cost of interconnection with other cellular operators following the introduction of "calling party pays" in May 1999. The increased costs in 1999 and the first nine months of 2000 were attributable in part to the consolidation of TracFone, Conecel, GCA and Telgua. Commercial, administrative and general Commercial, administrative and general expenses increased by 12.5% in 1998, 48.4% in 1999 and 60.0% in the first nine months of 2000 compared to the same period in 1999. These increases were due primarily to commissions paid to cellular distributors, to advertising and other promotional expenses as a result of greater competition, and, to a lesser extent, to increases in wages and salaries. Depreciation and amortization Depreciation and amortization increased by 43.5% in 1998 and 92.1% in 1999 and by 144.6% in the first nine months of 2000 compared to the same period in 1999. Under Mexican GAAP, we have elected to restate imported fixed assets based in part on the exchange rate between the peso and the currency of the country of origin, and as a result changes in exchange rates affect the amount of depreciation. Depreciation increased in 1998 as a result of investment in telephone equipment and in part because the rate of devaluation exceeded the rate of inflation. Depreciation increased in 1999 primarily due to the inclusion of the assets of newly-acquired subsidiaries in the calculation of consolidated depreciation and to the amortization of goodwill ensuing from the purchases of TracFone and GCA. The increase in 1999 was also attributable to the amortization of Telcel's PCS licenses which were acquired in October 1998. The increase in depreciation in 1999 was offset in part because the rate of Mexican inflation exceeded the rate of devaluation of the peso. The increase in depreciation in the first nine months of 2000 was due primarily to increased investments in telephone equipment and to the amortization of goodwill associated with newly-acquired subsidiaries. Operating Margin Operating margin (operating income as a percentage of operating revenues) was 4.5% in 1997, 21.0% in 1998, 14.5% in 1999 and 14.0% in the first nine months of 2000. The lower operating margins in 1999 and 2000 were due to increases in sales commissions and sales of handsets at below cost and to the consolidation of TracFone, Conecel, GCA and Telgua. Comprehensive financing (income) cost Under Mexican GAAP, comprehensive financing (income) cost reflects interest income, interest expense, foreign exchange gain or loss and the gain or loss attributable to the effects of inflation on monetary assets and liabilities. We have substantial liquid assets in the form of cash and short-term investments (Ps.28.7 billion at September 30, 2000), so we have significant interest income, and because our monetary assets exceed our monetary liabilities, we generally report a net loss from monetary position. A significant portion of our financial assets (25% at September 30, 2000) is denominated in foreign currencies, principally U.S. dollars, so depreciation of the peso results in foreign exchange gain and higher interest income with respect to these assets. Substantially all of our indebtedness (100% at September 30, 2000) is denominated in foreign currencies, so depreciation of the peso results in foreign exchange loss and higher interest expense with respect to indebtedness. Comprehensive financing (income) cost was a net credit of Ps.3,098 million in 1998, a net credit of Ps.2,986 million in 1999 and a net credit of Ps.1,105 million in the first nine months of 2000, compared to a net credit of Ps.2,039 million for the same period in 1999. The credits were attributable principally to interest income on our financial assets, offset in part by the monetary effect on our net monetary asset position. The changes in each component were as follows: o Interest income increased by 30.7% in 1998 due to a higher level of interest-bearing assets offset in part by lower interest rates, and decreased by 7.1% in 1999 due to a lower average level of interest-bearing assets. Interest income decreased by 50.0% for the first nine months of 2000, compared to the same period in 1999, due to a lower average level of interest bearing assets. o Interest expense decreased by 49.0% in 1998 and increased by 503.8% in 1999 and 288.6% in the first nine months of 2000, compared to the same period in 1999. The increases in 1999 and 2000 were principally due to a higher average level of indebtedness, attributable in part to the acquisition of new subsidiaries. o In 1998, the 16.6% depreciation of the peso resulted in a net foreign exchange gain of Ps.133 million. In 1999, the impact of the appreciation of the peso in the second half of the year on the Company's U.S. dollar-denominated monetary assets resulted in a net exchange loss of Ps.1,094 million. The 1.3% appreciation of the peso in the first nine months of 2000 resulted in a net exchange loss of Ps.52 million, compared to a net exchange loss of Ps.1,387 million for the comparable period in 1999. o In 1998, 1999 and the first nine months of 2000, average monetary assets exceeded average monetary liabilities, resulting in a substantial net loss from monetary position. The increase in 1998 reflected a higher average level of net monetary assets and higher inflation. The decrease in 1999 reflected a lower rate of inflation and lower average net monetary assets. Income tax and employee profit-sharing The statutory rate of the Mexican corporate income tax was 34% in 1997 and 1998 and 35% in 1999 and 2000. The Company's effective rates of provisions for corporate income tax as a percentage of pretax income were 30.3%, 21.1%, 21.1% and 47.4% for 1997, 1998, 1999 and the first nine months of 2000, respectively. The increase in effective rates in 2000 was principally due to the change in Mexican accounting principles applicable to deferred income tax described below. Telcel, like other Mexican companies, is required by law to pay to its employees, in addition to their agreed compensation and benefits, profit sharing in an aggregate amount equal to 10% of its taxable income (calculated without reference to inflation adjustments). The amount payable increased by 15.7% in 1999 and by 53.5% in the first nine months of 2000 compared to the same period in 1999. Mexican Accounting Principles Bulletin D-4 "Accounting for Income Tax, Asset Tax and Employee Profit Sharing," went into effect on January 1, 2000. The new bulletin modifies the rules with respect to the computation of deferred income tax. It generally requires that deferred income tax be determined on virtually all temporary differences in balance sheet accounts for financial and tax reporting purposes, using the enacted income tax rate at the time the financial statements are issued. Through December 31, 1999, deferred income tax was recognized only on temporary differences that were considered to be nonrecurring and that would reverse within a definite period. The new bulletin does not significantly affect the accounting for employee profit sharing. The cumulative effect of the adoption of this bulletin at the beginning of 2000 was applied to stockholders' equity without restating the financial statements for prior years. The effect on stockholders' equity was a reduction of 1.9%. Under Bulletin D-4, the Company's deferred tax accounting under Mexican GAAP will be much closer to U.S. GAAP than in the past, resulting in a smaller U.S. GAAP difference. See Note 19 to the Audited Financial Statements and Note 9 to the Unaudited Interim Financial Statements. Equity in results of affiliates Equity in results of affiliates represented net profits of Ps.77 million and Ps.15 million in 1998 and 1999, respectively, attributable primarily to earnings at Cablevision, offset in part in 1999 by losses at CCPR. Equity in results of affiliates represented a net loss of Ps.465 million in the first nine months of 2000, attributable primarily to results at ATL, CCPR and CompUSA. The Company expects to have a growing level of net loss attributable to equity in results of affiliates in 2000 and 2001, primarily as a result of its investments in Telecom Americas, CCPR and CompUSA. See "Joint Ventures and Investments" under Item 4. Minority interests Minority interest represented a net credit of Ps.296 million in 1999 reflecting minority interest in losses at TracFone, Conecel and GCA. Minority interest represented a net credit of Ps.159 million in the first nine months of 2000 due to losses at TracFone and Conecel, offset in part by gains at Telgua and GCA. Net income In 1998, net income increased by 118.5% due to a more than six-fold increase in operating income, reflecting higher operating revenues and improved margins, as well as increased interest income. In 1999, net income increased by 8.0% due to a 13.4% increase in operating income, reflecting higher operating revenues and stable margins. Net income decreased by 46.6% in the first nine months of 2000 compared to the same period in 1999 due to (a) a decrease in comprehensive financing income mainly as a result of lower interest income, (b) an increase in income tax provisions due to a change in Mexican accounting principles and (c) a net loss of Ps.465 million attributable to equity in results of affiliates due principally to losses at ATL, CCPR and CompUSA. Our net income in the first nine months of 2000 was adversely affected by the results of certain subsidiaries and affiliates that were acquired during 2000. Giving pro forma effect to these acquisitions as if they had occurred on January 1, 2000, our net income for the first nine months of 2000 would have been significantly lower. See Note 6(b) to the Unaudited Interim Financial Statements. Liquidity and Capital Resources We will need substantial amounts of capital to finance investments at Telcel and each of our international businesses. In addition, we may need capital to take advantage of new investment opportunities. These requirements will be met in part using the liquid assets we received in the Spin-off, which are sufficient to meet our budgeted capital needs over the period through the end of 2001. We also expect to rely on operating cash flows, particularly at Telcel, and on borrowings, particularly supplier credits. In the past, the capital requirements of Telcel were met to a substantial extent by funding supplied by its former parent company Telmex, but following the Spin-off, with the exception of certain transitional arrangements discussed below, Telmex will not provide further funding to Telcel. This should be kept in mind in using our historical financial performance to evaluate how we will meet our capital expenditure requirements. Capital requirements We have budgeted approximately U.S.$2.1 billion for the five quarters through December 31, 2001 to build out the network at Telcel. In addition, we have budgeted approximately U.S.$155 million for the same period to build out the cellular networks at Telgua, Conecel and some of our other subsidiaries and affiliates. In addition to the budgeted amounts, under the BCI-SBCI joint venture agreement we are required to provide U.S.$1.7 billion to Telecom Americas as the requirements of the joint venture arise and in any event no later than three years after closing. See "Joint Ventures and Investments--Telecom Americas" under Item 4. In addition to this amount, we have contractual commitments to make contributions of approximately U.S.$509 million to our international subsidiaries through the end of 2001. See "Capital Expenditures" under Item 4. We expect to have opportunities to invest in other telecommunications companies outside Mexico, especially in the United States and in Latin America, because we believe that the telecommunications sector will continue to be characterized by growth, technological change and consolidation. We may take advantage of these opportunities through Telecom Americas or through direct investments or other strategic alliances. Future international investments may involve substantial capital requirements. We can give no assurance as to the extent, timing or cost of such investments, and they may involve risks to which we have not previously been exposed. We may also use funds to pay dividends or to repurchase our shares. We have not, however, established a dividend policy, and we do not currently expect to engage in extensive share repurchases. Capital resources The assets we received in the Spin-off include approximately Ps.28.7 billion in liquid assets held by two finance subsidiaries of Telcel. Of this amount, Ps.17.1 billion is peso-denominated commercial paper of Telmex issued with a tenor of 28 days. We expect Telmex to repay this commercial paper before the end of 2001, but we will continue to roll it over until it is repaid. The balance consists of investments in a variety of money market instruments, of which 18.8% is denominated in pesos and the balance is denominated in U.S. dollars. The capital requirements of Telcel will be met in part from Telcel's operating cash flow. America Movil's resources provided by operating activities (which are primarily attributable to Telcel) were Ps.6,861 million in 1999 and Ps.2,844 million in the first nine months of 2000. Of our other operating subsidiaries, Telgua generates operating cash flows that will meet a material portion of its capital requirements. Conecel, Techtel, TracFone and Comm South do not generate enough operating cash flows to meet their capital requirements and will rely primarily or entirely on borrowings or on funding provided by America Movil. We expect to have access to supplier credits to finance part of the capital expenditure requirements at Telcel and at each of our international businesses. As described below, some of our international businesses have used guarantees of Telmex or Telcel to support their borrowings in the past, and we expect that guarantees of America Movil or Telcel may be necessary in the future. Following the Spin-off, with the exception of certain transitional arrangements described below, we do not expect that Telmex will continue to provide guarantees to support borrowings by us or our subsidiaries or joint ventures. If we seek to raise funds by issuing stock, our bylaws require that we issue stock of each class in the same proportion. This would limit our ability to issue more L Shares, which are the most liquid class of our stock, unless we issue more AA shares, which are an unlisted class of voting shares currently held only by Carso Global Telecom and SBC International, Inc. However, we have approximately 1.6 billion L Shares in treasury and could offer these shares to investors through the capital markets. Existing Indebtedness and Contingent Liabilities Telcel has relied on a syndicated credit facility entered into by Telmex to finance the purchase of equipment from Ericsson for the build-out of Telcel's cellular network. Under arrangements between Telcel and Telmex, each time Telmex makes a drawing under the facility to finance the purchase of equipment by Telcel, a matching obligation arises from Telcel to Telmex in the same amount and for the same tenor. A substantial portion of the outstanding amount Telcel owed to Telmex in connection with this arrangement was contributed by Telmex to a subsidiary of America Movil prior to the Spin-off, and has been eliminated in our consolidated balance sheet at September 30, 2000, reducing the amount of our indebtedness to Telmex to Ps.905 million at September 30, 2000. We have begun to negotiate a new credit agreement directly with the lenders to replace these arrangements, but until we can do so Telmex has agreed to maintain the arrangements in place. During this transition period, we are effectively borrowing from Telmex and paying interest to Telmex at a spread over the rates Telmex pays to its lenders. We have borrowed approximately U.S.$138 million under these arrangements. Our subsidiary Telgua has two principal outstanding credit facilities, both contracted in June 1999. One is a U.S.$60 million facility secured by a pledge of Telgua's receivables arising under interconnection agreements with foreign carriers. The other is a U.S.$80 million facility secured by a pledge of Telgua's 49% interest in the shares of the subsidiaries that provide value-added services. The remaining 51% is owned indirectly by America Movil. Under agreements intended to provide additional security to creditors under this facility, if the creditors were to exercise their remedies against the shares, they would have an option to sell the shares to Telmex. We expect to agree with Telmex that if the option is exercised, we will purchase the shares from Telmex. We will seek the consent of the creditors to transfer the obligations of Telmex under these agreements to America Movil or Telcel, but unanimous consent is required and there can be no assurance that it will be forthcoming. Our subsidiary that owns 95% of the shares of Telgua, America Central Tel, S.A. ("ACT," formerly Luca S.A.), is obligated to pay U.S.$350 million in October 2001 to a trustee on behalf of the Guatemalan government. This amount is the balance of the purchase price ACT agreed to pay for the shares of Telgua when Telgua was privatized in November 1998. The debt bears interest at LIBOR plus 3%, payable at maturity. The shares of Telgua are pledged to the trustee to secure the obligations of ACT. ACT also has U.S.$70 million outstanding under a floating rate promissory note maturing in April 2001. The promissory note is guaranteed by Telcel and Telmex. We will seek consent from the creditors under this promissory note to transfer the obligations of Telmex to America Movil or Telcel. Our subsidiary Sercom has U.S.$44 million outstanding under a U.S.$90 million floating rate credit facility maturing in September 2001. Sercom's obligations under the facility are guaranteed by Telcel. Our subsidiary Conecel currently has U.S.$7.74 million outstanding under a fixed-rate credit facility maturing in 2002, and it has supplier credits totaling U.S.$2.38 million. In addition, Conecel has outstanding U.S.$1.99 million principal amount of its 14% Notes due 2002. The balance of the Notes was purchased by a company controlled by Telmex in connection with the acquisition of Conecel and contributed to Conecel. Conecel has instructed the trustee under the Notes to cancel the Notes that Conecel currently holds. At September 30, 2000, all of America Movil's indebtedness was denominated in foreign currencies. At September 30, 2000, 72.8% of America Movil's debt obligations bore interest at floating rates. America Movil's weighted average cost of all borrowed funds in 1999 (including interest and reimbursement of certain lenders for Mexican taxes withheld) was approximately 10.7%. Telmex and SBCI have severally undertaken, for the benefit of creditors under a U.S.$521 million secured loan facility of ATL, to guarantee the obligations of certain shareholders of ATL under a capital contribution agreement and certain other agreements related to the loan facility. Telmex and other shareholders of ATL have also undertaken to provide a guarantee of a loan facility to be granted to ATL by the Brazilian development bank Banco de Desenvolvimento Economico e Social--BNDES. The obligations of Telmex in this respect will be limited to U.S.$100 million. We will seek consent from the creditors under these facilities to transfer the obligations of Telmex to America Movil or Telcel. We are a holding company, so we depend entirely on dividends and advances from our subsidiaries to pay dividends and to meet our obligations. U.S. GAAP Reconciliation Net income under U.S. GAAP was Ps.1,966 million in 1997, Ps.2,969 million in 1998, Ps.2,668 million in 1999 and Ps.1,348 million for the first nine months of 2000, compared to Ps.2,261 million for the first nine months of 1999. Compared to Mexican GAAP, net income under U.S. GAAP was 25.7% lower in 1998, 38.2% lower in 1999 and 14.7% lower in the first nine months of 2000 compared to the same period in 1999. The principal differences between Mexican GAAP and U.S. GAAP as they relate to us are the treatment of deferred income taxes and deferred employee profit sharing, the restatement of plant, property and equipment, pension plan costs, capitalization and depreciation of interest relating to assets under construction and the treatment of accrued vacation costs. For a discussion of these differences, see Note 19 to the Audited Financial Statements. Under Mexican Accounting Principles Bulletin D-4, which went into effect on January 1, 2000, the Company's deferred tax accounting under Mexican GAAP will be much closer to U.S. GAAP than in the past, resulting in a smaller U.S. GAAP difference. See "--Results of Operations--Income tax and employee profit-sharing." Item 6. Directors, Senior Management and Employees Directors Management of our business is vested in our Board of Directors. Our bylaws provide for the Board of Directors to consist of at least five directors, and allow us to also appoint alternate directors. A majority of the directors and a majority of the alternate directors must be Mexican nationals and elected by Mexican shareholders. A majority of the holders of the AA Shares and A Shares voting together elect a majority of the directors and alternate directors, provided that any holder or group of holders of at least 10% of the total AA Shares and A Shares is entitled to name one such director. Two directors and two alternate directors, if any, are elected by a majority vote of the holders of L Shares. Each alternate director may attend meetings of the Board of Directors and vote in the absence of a corresponding director. Directors and alternate directors are elected at each annual ordinary general meeting of shareholders and each annual ordinary special meeting of holders of L Shares, and each serves until a successor is elected and takes office. In order to have a quorum for a meeting of the Board of Directors, a majority of those present must be Mexican nationals. The shareholders' meeting on September 25, 2000 established the Board of Directors with 11 directors elected by the AA Shares and A Shares voting together, two directors elected by the L Shares, and no alternate directors. Pursuant to the terms of the trust through which our controlling shareholders hold AA Shares, the Mexican controlling shareholders designated nine of the directors elected by the holders of AA Shares and A Shares, and SBC International, Inc. designated two of such directors. See "Major Shareholders" under Item 7. All of the current members of the Board of Directors were elected on September 25, 2000. Our bylaws provide that the members of the Board of Directors are appointed for terms of one year. Pursuant to Mexican law, members of the Board continue in their positions after the expiration of their terms if new members are not appointed. The names and positions of the current members of the Board, their dates of birth, and information on their principal business activities outside the Company are as follows: Carlos Slim Helu Born: 1940 Chairman and member of the First elected: 2000 Executive Committee Term expires: 2001 Principal occupation: Honorary chairman of the board of directors of Grupo Carso, S. A. de C.V. Other directorships: Chairman of board of directors of Telmex Daniel Hajj Aboumrad Born: 1966 Director and member of the Executive First elected: 2000 Committee Term expires: 2001 Principal occupation: Chief executive officer of Telcel Other directorships: Director of Carso Global Telecom and Grupo Carso, S. A. de C.V. Jaime Chico Pardo Born: 1950 Director First elected: 2000 Term expires: 2001 Principal occupation: Chief executive officer of Telmex Other directorships: Vice-chairman of the board of directors of Telmex Humberto Gutierrez-Olvera Zubizarreta Born: 1941 Director and member of the Executive First elected: 2000 Committee Term expires: 2001 Principal occupation: Chief executive officer of Grupo Carso, S.A. de C.V.; chief executive officer of Grupo Condumex, S.A. de C.V. Other directorships: Chairman of the board of directors of Empresas Frisco, S.A. de C.V. and Industrias Nacobre, S.A. de C.V.; director of Grupo Carso, S. A. de C.V., Grupo Financiero Inbursa, S.A. de C.V., Carso Global Telecom, S.A. de C.V. and Porcelanite, S.A. de C.V. Alejandro Soberon Kuri Born: 1960 Director First elected: 2000 Term expires: 2001 Principal occupation: Chairman and chief executive officer of Corporacion Interamericana de Entretenimiento, S.A. de C.V. Maria Asuncion Aramburuzabala L. Born: 1963 Director First elected: 2000 Term expires: 2001 Principal occupation: Vice-president of the board of directors and member of the executive committee of Grupo Modelo, S.A. de C.V. Rafael Robles Miaja Born: 1965 Director and Secretary First elected: 2000 Term expires: 2001 Principal occupation: Partner, Franck, Galicia, Duclaud y Robles, S.C. Drew Roy Born: 1946 Director and member of the Executive First elected: 2000 Committee Term expires: 2001 Principal occupation: President of international operations of SBC International, Inc. Other directorships: Director of the Oklahoma State Chamber of Commerce and Industry Royce S. Caldwell Born: 1938 Director First elected: 2000 Term expires: 2001 Principal occupation: Vice-chairman of the board of directors of SBC Communications Inc. Claudio X. Gonzalez Laporte Born: 1934 Director First elected: 2000 Term expires: 2001 Principal occupation: Chief executive officer of Kimberly Clark de Mexico, S.A. de C.V. Other directorships: Director of the Kimberly Clark Corporation, Kellog Company, IBM Latin America and Grupo Carso, S.A. de C.V. David Ibarra Munoz Born: 1930 Director First elected: 2000 Term expires: 2001 Principal occupation: Consultant to CEPAL and the United Nations Director of Grupo Dina, S.A. de C.V. and Other directorships: Grupo Financiero Inbursa, S.A. de C.V.
Daniel Hajj Aboumrad is the son-in-law of Carlos Slim Helu. Executive Committee Our bylaws provide that the Executive Committee may generally exercise the powers of the Board of Directors. In addition, the Board of Directors is required to consult the Executive Committee before deciding on certain matters set forth in the bylaws, and the Executive Committee must provide its views within 60 days following a request from the Board of Directors. The Executive Committee is elected from among the directors and alternate directors by a majority vote of the holders of A Shares. It comprises four members, as agreed to at the September 25, 2000 shareholders' meeting. The majority of its members must be of Mexican nationality and elected by Mexican shareholders. Our controlling shareholders have agreed that three members shall be named by the Mexican controlling shareholders, and one member by SBC International, Inc. See "Major Shareholders" under Item 7. The current members of the Executive Committee are Carlos Slim Helu, Humberto Gutierrez-Olvera Zubizarreta, and Daniel Hajj Aboumrad, all named by the Mexican controlling shareholders, and Mr. Drew Roy, named by SBC International, Inc. Senior Management Daniel Hajj Aboumrad is the Chief Executive Officer of the Company. Since 1997, he has also served as the General Manager of Telcel. His prior positions include director of Telmex's Mexican subsidiaries, and chief executive officer of Hulera Euzkadi, S.A. de C.V. We expect that the other members of senior management of America Movil will be named in the coming months. Statutory Auditors Under our bylaws, the holders of a majority of the outstanding AA Shares and A Shares voting together may elect one or more statutory auditors (comisarios) and corresponding alternate statutory auditors. Under the agreement governing the trust through which the AA Shares are held, the Mexican controlling shareholders and SBC International, Inc. are each entitled to name one statutory auditor. See "Major Shareholders" under Item 7. The primary role of the statutory auditors is to report to the holders of AA Shares and A Shares at the annual ordinary general meeting regarding the accuracy of the financial information presented to such holders by the Board of Directors. The statutory auditors are also authorized (i) to call ordinary or extraordinary general meetings, (ii) to place items on the agenda for meetings of shareholders or the Board of Directors, (iii) to attend meetings of shareholders or the Board of Directors and (iv) generally to monitor the affairs of the Company. The statutory auditors also receive monthly reports from the Board of Directors regarding material aspects of the Company's affairs, including the Company's financial condition. The current statutory auditor and alternate statutory auditor are: Name Position - ---- -------- Francisco Alvarez del Campo Statutory Auditor Agustin Aguilar Laurents Alternate Statutory Auditor Compensation of Directors and Senior Management We have not paid any compensation to our directors and senior management since the establishment of America Movil in September 2000. The aggregate compensation paid to the senior management of Telcel in 1999 was approximately Ps.17 million. As of the date of this registration statement, we have not made provisions to provide pension, retirement or similar benefits for our directors and senior management. Share Ownership Carlos Slim Helu and members of his immediate family may be deemed to have beneficial ownership of 1,944.2 million AA Shares, 46.0 million A Shares and 2,142.3 million L Shares (including shares owned by Carso Global Telecom, Grupo Carso, S. A. de C.V. and Grupo Financiero Inbursa, S.A. de C.V.). None of our other directors, alternate directors or executive officers is the beneficial owner of more than 1% of any class of our capital stock. Employees The following table sets forth the number of employees and a breakdown of employees by main category of activity and geographic location as of the end of each year in the three-year period ended December 31, 1999 and the nine-month period ended September 30, 2000:
December 31, September 30, ------------------------------------------------------------- 1997 1998 1999 2000 ----------- ----------------- ---------------- -------------- Number of employees ......................... 1,966 2,532 6,059 13,022 Category of activity Wireless............................... 1,966 2,532 5,218 8,397 Fixed.................................. -- -- 841 4,625 Geographic location Mexico................................. 1,966 2,532 4,510 6,081 United States.......................... -- -- 829 1,470 Other Latin America.................... -- -- 720 5,471
As of September 30, 2000, the Progressive Union of Communication and Transport Workers of the Mexican Republic (Sindicato Progresista de Trabajadores de Comunicacion y Transporte de la Republica Mexicana, or the "Telcel Union") represented approximately 84% of the employees of Telcel. All management positions at Telcel are held by non-union employees. Salaries and certain benefits are renegotiated every year. In May 2000, Telcel and the Telcel Union agreed to a 12% nominal increase in basic wages, retroactive to March 2000. Under our labor agreements and Mexican labor law, we are obligated to pay seniority premiums to retiring employees and pension and death benefits to retired employees. Retirees will be entitled to receive pension increases whenever salary increases are granted to current employees. Our subsidiary Telgua has two active employee unions--the Telecommunications Union (Sindicato de las Telecomunicaciones y Similares), which had 408 members, representing 12% of Telgua's employees, at October 31, 2000 and the Telgua Workers Union (Sindicato de los Trabajadores de la Empresa TELGUA, S.A.), which had 280 members, representing 8.5% of Telgua's employees at October 31, 2000. All management positions at Telgua are held by non-union employees. Under Guatemalan law, Guatemalan companies are required to negotiate only with the largest of its employees' unions. In October 1999, Telgua and the Telecommunications Union agreed to a wage increase for administrative and operative personnel, effective December 1, 1999. Telgua's labor agreement with the Telecommunications Union expires in the third quarter of 2001, at which time Telgua expects to renegotiate its terms. Management considers its current relations with our workforce to be good. Item 7. Major Shareholders and Related Party Transactions MAJOR SHAREHOLDERS The AA Shares represented 22.59% of the total capital stock and 90.43% of the full voting shares (AA shares and A Shares) at September 30, 2000. The AA Shares are held by a trust for the benefit of (a) a group of Mexican investors, who collectively own 67.55% of the AA Shares, and (b) SBC International, Inc. ("SBCI"), a subsidiary of the U.S. telecommunications company SBC Communications Inc., which owns 32.45% of the AA Shares. The Mexican investors include (a) Carso Global Telecom, S.A. de C.V. ("Carso Global Telecom"), which owned 59.53% of the AA Shares as of September 30, 2000, and (b) various other Mexican investors, who owned the remaining 8.02% of the AA Shares. Carso Global Telecom holds interests in the telecommunications sector and was spun off from Grupo Carso, S.A. de C.V. ("Grupo Carso") in 1996. Through its ownership of all the outstanding AA Shares, the trust owns a majority of America Movil's outstanding regular voting equity securities. Therefore, through the trust, Carso Global Telecom may be deemed to control America Movil. According to reports of beneficial ownership of Telmex shares filed with the Securities and Exchange Commission, Carso Global Telecom, Grupo Carso and Grupo Financiero Inbursa, S.A. ("Grupo Financiero Inbursa") are controlled by a trust for the benefit of Mr. Carlos Slim Helu and members of his immediate family. Under the trust through which the AA Shares are held, a beneficiary may transfer its AA Shares subject to certain rights of first refusal in favor of the other beneficiaries. The trust also provides that the trustee must vote the AA Shares as a block as instructed by a technical committee, except that the trustee must vote as instructed by the beneficiaries on the election of directors, alternate directors, members and alternate members of the executive committee and statutory auditors. The technical committee is controlled by the Mexican controlling shareholders, except that the votes of representatives of SBCI are required before the trustee may vote to approve dividends, to modify the Company's bylaws, to merge or liquidate the Company, to issue voting shares or to terminate the listing of the Company's shares on any stock exchange. The trust through which the AA Shares are held was originally established in 1990 to govern the ownership of shares representing voting control of Telmex. The trust continues to hold a majority of the voting shares of Telmex as well as the AA Shares of America Movil. The trust may be terminated by any party as of December 20, 2000, or jointly by the beneficiaries at any time. We currently expect that the strategic commitment of Carso Global Telecom and SBCI will continue, even if the trust is terminated. The following table identifies each owner of more than 5% of any class of the Company's shares at September 30, 2000. Except as described below, we are not aware of any holder of more than 5% of any class of the Company's shares.
Amount Owned Title of Class Identity of Person or Group (millions of shares) Percent of Class - -------------- --------------------------- -------------------- ---------------- AA Shares Carso Global Telecom 1,944.2 59.5% AA Shares SBCI 1,059.8 32.5 A Shares Carso Global Telecom 46.0 13.3 A Shares Capital Group International, Inc.(1) 22.8 6.6 L Shares Carso Global Telecom 2,003.0 18.5 L Shares Franklin Resources, Inc.(1) 617.0 5.7
- ------------- (1) Derived from reports of beneficial ownership of Telmex shares filed with the Securities and Exchange Commission, adjusted to reflect the two-for-one stock split of the Telmex A Shares and L Shares effective February 1, 2000. Carlos Slim Helu and members of his immediate family may be deemed to have beneficial ownership of 1,944.2 million AA Shares, 46.0 million A Shares and 2,142.3 million L Shares (including shares owned by Carso Global Telecom, Grupo Carso and Grupo Financiero Inbursa). None of our other directors, alternate directors or executive officers is the beneficial owner of more than 1% of any class of our capital stock. Prior to the Share Distribution Date in connection with the Spin-off, which is expected to occur in December 2000, the Company's shares may only be owned and transferred together with Telmex shares of the corresponding class, and each Telmex ADS will represent the right to receive America Movil shares in addition to Telmex L shares. See "The Spin-off" under Item 4. On September 30, 2000, 86.9% of the outstanding L Shares were represented by Telmex L Share ADSs, each representing the right to receive 20 Telmex L Shares and 20 America Movil L Shares, and 99.9% of the Telmex L Share ADSs were held by 19,487 holders (including The Depositary Trust Company) with registered addresses in the United States. 8.0% of the A Shares were held in the form of Telmex A Share ADSs, each representing the right to receive one Telmex A Share and one America Movil A Share. Each A Share may be exchanged at the option of the holder for one L Share. As of the date of this registration statement, Telmex has established a "sponsored" ADS program in respect of its A Shares under which each Telmex A Share ADS represents 20 Telmex A Shares and 20 America Movil A Shares. RELATED PARTY TRANSACTIONS Our transactions with affiliated parties are summarized in Note 14 to the Audited Financial Statements and Note 7 to the Unaudited Interim Financial Statements. As a result of the Spin-off, we will have additional transactions with affiliated parties that we did not have during the periods covered by the financial statements. The following discussion summarizes our transactions with Telmex and its subsidiaries and with other parties controlled by Grupo Carso, Carso Global Telecom or SBCI. Transactions between America Movil and Telmex We have or will have a variety of contractual relationships with Telmex and its subsidiaries. These include agreements arising out of the Spin-off, certain transitional arrangements, and continuing commercial relationships. Implementation of the Spin-off The creation of America Movil and the transfer of assets and liabilities to America Movil was effected by the action of the extraordinary shareholders' meeting of Telmex on September 25, 2000. Neither we nor Telmex has made any promises to the other regarding the value of any of the assets we received in the Spin-off. Under the resolutions, America Movil is obligated to indemnify Telmex against any liability, expense, cost or contribution asserted against Telmex that arises out of the assets owned directly or indirectly by Sercotel, S.A. de C.V., the subsidiary whose shares were transferred to us in the Spin-off. We expect to enter into an agreement with Telmex to ensure that the purposes of the Spin-off are fully achieved. Among other things, this agreement will provide in general terms as follows: o America Movil agrees to indemnify Telmex against any loss or expense resulting from the assertion against Telmex of any liabilities or claims that were transferred to America Movil in the Spin-off or that relate to the businesses transferred to America Movil in the Spin-off. o Telmex agrees to indemnify America Movil against any loss or expense resulting from the assertion against America Movil of any liabilities or claims that were retained by Telmex in the Spin-off or that relate to the businesses retained by Telmex in the Spin-off. o The parties agree to cooperate in obtaining consents or approvals, giving notices or making filings, as may be required as a result of the Spin-off or in order to achieve the purposes of the Spin-off. o Each party agrees to provide the other with information required to prepare financial statements, tax returns, regulatory filings or submissions and for other specified purposes. o Each party agrees to maintain the confidentiality of any information concerning the other that it obtained prior to the Spin-off or that it obtains in connection with the implementation of the Spin-off. o Each party agrees that it will not take any action that could reasonably be expected to prevent the Spin-off from qualifying as tax-free under Mexican or U.S. federal tax laws. o Each party releases the other from certain claims arising prior to the Spin-off. Telmex makes no representations concerning the assets transferred directly or indirectly in the Spin-off. o With respect to the U.S.$80 million loan facility under which creditors of Telgua are entitled, upon default by Telgua, to foreclose on shares of certain subsidiaries and to sell those shares to Telmex at a price equal to the unpaid principal amount under the facility: (a) America Movil agrees to indemnify Telmex against any claim of creditors of Telgua, (b) if the Telgua creditors exercise their option to put subsidiary shares to Telmex, America Movil will immediately purchase those shares from Telmex at the same price plus a small percentage and (c) America Movil and Telmex agree to transfer these obligations to America Movil as soon as reasonably practicable. See "Liquidity and Capital Resources" under Item 5. o With respect to ATL's secured loan facility and the loan facility to be granted to ATL by the Brazilian development bank Banco de Desenvolvimento Economico e Social--BNDES: (a) America Movil will reimburse and indemnify Telmex against any claim of creditors of ATL, and (b) America Movil and Telmex agree to transfer these obligations to America Movil as soon as reasonably practicable. See "Liquidity and Capital Resources" under Item 5. We own Ps.17.1 billion of 28-day commercial paper of Telmex, which we received in the Spin-off to provide us with revenues to meet our capital requirements. We expect Telmex to repay this commercial paper before the end of 2001, but we will continue to roll it over until it is repaid. Transitional services America Movil and Telmex will enter into an agreement under which Telmex will provide certain services to America Movil on an interim basis while America Movil develops the personnel and systems necessary to provide these services itself. The services will generally be provided at a fixed periodic price based on the estimated cost of providing the services plus a percentage. They include legal, financial, administrative, accounting and investor relations services. We expect to be dependent on Telmex for these services for at least six months. Telcel has relied on a syndicated credit facility entered into by Telmex to finance the purchase of equipment from Ericsson for the build-out of its cellular network. Under arrangements between Telcel and Telmex, Telcel has effectively borrowed funds from Telmex and is paying interest to Telmex at a spread over the rates Telmex pays to its lenders. Telcel has borrowed approximately U.S.$138 million under this arrangement. See "Liquidity and Capital Resources--Existing Indebtedness and Contingent Liabilities" under Item 5. Continuing commercial relationships Because Telmex and Telcel provide telecommunications services in the same geographical markets, they have extensive operational relationships. These include interconnection between their respective networks; use of facilities, particularly for the co-location of equipment on premises owned by Telmex; use by Telcel of Telmex's private circuits; and use by each of the services provided by the other. These operational relationships are subject to a variety of different agreements which, for the most part, were in place prior to the Spin-off and will continue in effect without being significantly modified as a result of the Spin-off. Many of them are also subject to specific regulations governing all telecommunications operators. The terms of these agreements are similar to those on which each company does business with other, unaffiliated parties. Telmex distributes Telcel handsets and prepaid cards on commercial terms similar to those given to other cellular distributors. See "Business of Telcel--Sales and Distribution" under Item 4. Contingent liabilities of Telmex Prior to the Spin-off, Telmex undertook contractual obligations under certain credit facilities to support certain of our subsidiaries and affiliates that were transferred to America Movil in the Spin-off. We and Telmex will seek consent from the creditors under these facilities to transfer the obligations of Telmex to America Movil or Telcel. We cannot assure you that the beneficiaries of these obligations will consent or know when they may do so. These commitments are described in "Liquidity and Capital Resources" under Item 5. Transactions between America Movil and Other Affiliates America Movil owns 49% of the shares of CompUSA, and the other 51% is owned by Grupo Sanborns, which is under common control with our controlling shareholder Carso Global Telecom. America Movil expects to enter into a shareholders' agreement with Grupo Sanborns providing for board representation, rights to information, limited veto rights and restrictions on transfers of shares by either party. Until the agreement is concluded, America Movil has no contractual right to influence the management of CompUSA, to receive information concerning its operations and financial condition, or to prevent Grupo Sanborns from transferring its majority interest to another party. Telcel purchases materials or services from a variety of companies that are under common control with our controlling shareholder Carso Global Telecom. These include insurance and banking services provided by Grupo Financiero Inbursa and its subsidiaries. Telcel purchases these materials and services on terms no less favorable than it could obtain from unaffiliated parties, and would have access to other sources if our affiliates ceased to provide them on competitive terms. Item 8. Financial Information See "Item 18--Financial Statements" and pages F-1 through F-62. Item 9. The Offer and Listing DESCRIPTION OF SECURITIES Our capital stock comprises Series AA Shares, without par value, Series A Shares, without par value and Series L Shares, without par value. Each AA Share or A Share entitles the holder thereof to one vote at meetings of the shareholders of the Company. The holder of an L Share may vote only in limited circumstances as described under "Additional Information--Memorandum and Articles of Association--Voting Rights." The rights of holders of all series of capital stock are otherwise identical except for limitations on non-Mexican ownership of AA Shares. See "Additional Information--Memorandum and Articles of Association--Limitations on Share Ownership." All of the outstanding shares are fully paid and non-assessable. Each AA Share or A Share may be exchanged at the option of the holder for one L Share, provided that the AA Shares may never represent less than 20% of the outstanding capital stock of the Company or less than 51% of the combined AA Shares and A Shares. Beginning on January 2, 2001 and concluding January 31, 2001, each L Share may be exchanged at the option of the holder for one AA Share, subject to limitations on non-Mexican ownership of AA Shares, provided that the AA Shares and A Shares together may never represent more than 51% of the outstanding capital stock of the Company. Morgan Guaranty Trust Company of New York, as Depositary, will issue L Share ADSs, each representing 20 L Shares, and A Share ADSs each representing 20 A Shares. See "Description of American Depositary Shares" under Item 12. TRADING MARKETS As of the date of this registration statement, there is no trading market for the America Movil shares or ADSs and there can be no assurances as to the establishment or continuity of any such market. We expect that our shares and ADSs will be listed or quoted on the following markets: L Shares.............................. Mexican Stock Exchange--Mexico City Mercado de Valores Latinoamericanos en Euros (LATIBEX)--Madrid, Spain L Share ADSs.......................... New York Stock Exchange--New York Frankfurt Stock Exchange--Frankfurt A Shares.............................. Mexican Stock Exchange--Mexico City A Share ADSs.......................... NASDAQ National Market System--New York
Listing or quotation on these markets requires approval from the relevant authorities, and as of the date of this registration statement we have not yet received approval from any of them. We expect trading of our shares and our L Share ADSs to begin in December 2000, but there can be no assurance that there will be no delay in the commencement of trading. We cannot predict the prices at which the shares and ADSs will trade. TRADING ON THE MEXICAN STOCK EXCHANGE The Bolsa Mexicana de Valores, S.A. de C. V. (the "Mexican Stock Exchange"), located in Mexico City, is the only stock exchange in Mexico. Founded in 1907, it is organized as a corporation whose shares are held by 30 brokerage firms, which are exclusively authorized to trade on the Exchange. Trading on the Mexican Stock Exchange takes place principally on the Exchange through automated systems, which is open between the hours of 8:30 a.m. and 3:00 p.m. Mexico City time, each business day. Trades in securities listed on the Mexican Stock Exchange can also be effected off the Exchange. The Mexican Stock Exchange operates a system of automatic suspension of trading in shares of a particular issuer as a means of controlling excessive price volatility, but under current regulations this system does not apply to securities such as the A Shares or the L Shares that are directly or indirectly (for example, through ADSs) quoted on a stock exchange (including for these purposes NASDAQ) outside Mexico. Settlement is effected two business days after a share transaction on the Mexican Stock Exchange. Deferred settlement, even by mutual agreement, is not permitted without the approval of the Mexican National Securities Commission. Most securities traded on the Mexican Stock Exchange, including those of America Movil, are on deposit with Institucion para el Deposito de Valores, S.A. de C.V. (Indeval), a privately owned securities depositary that acts as a clearinghouse for Mexican Stock Exchange transactions. Item 10. Additional Information SHARE CAPITAL The shares of America Movil were authorized and issued pursuant to the Telmex shareholders' meeting on September 25, 2000 approving the Spin-off. See "The Spin-off" under Item 4. As of the date of this registration statement, the capital structure of America Movil is as follows:
Number of Shares Percentage of Percentage of Class (millions) Capital Voting(1) - ----- ----------------- --------------- -------------- L Shares (no par value)(2)............... 10,872.7 75.1% -- AA Shares (no par value)................. 3,266.2 22.5 90.4% A Shares (no par value).................. 345.6 2.4 9.6 --------------- ----------- ----------- Total............................ 14,484.5 100.0% 100.0% =============== =========== ===========
- ------------ (1) Except on limited matters for which L Shares have voting rights. (2) Excluding approximately 1,631 million L Shares held by America Movil in treasury. BYLAWS Set forth below is a brief summary of certain significant provisions of our bylaws and Mexican law. This description does not purport to be complete and is qualified by reference to our bylaws, which have been filed as an exhibit to this registration statement. For a description of the provisions of our bylaws relating to our Board of Directors, Executive Committee and statutory auditors, see Item 6. Organization and Register America Movil is a sociedad anonima de capital variable organized in Mexico under the Mexican Companies Law (Ley General de Sociedades Mercantiles). The Company was registered in the Public Registry of Commerce of Mexico City on October 13, 2000 under the number 263770. Voting Rights Each AA Share and A Share entitles the holder thereof to one vote at any meeting of the shareholders of the Company. Each L Share entitles the holder to one vote at any meeting at which holders of L Shares are entitled to vote. Holders of L Shares are entitled to vote only to elect two members of the Board of Directors and the corresponding alternate directors and on the following matters: o the transformation of America Movil from one type of company to another, o any merger in which America Movil is not the surviving entity or any merger with an entity whose principal corporate purposes are different from those of America Movil, o the extension of America Movil's corporate life, o the voluntary dissolution of America Movil, o a change in the corporate purpose of America Movil, o a change in America Movil's state of incorporation, o removal of the America Movil Shares from the listing on the Mexican Stock Exchange or any foreign stock exchange, and o any action that would prejudice the rights of holders of L Shares and not prejudice the other classes of shares similarly. A resolution on any of the specified matters requires the vote of a majority of all the capital stock and a majority of the AA Shares and the A Shares voting together. Under Mexican law, holders of shares of any series are also entitled to vote as a class on any action that would prejudice the rights of holders of shares of such series but not rights of holders of shares or other series, and a holder of shares of such series would be entitled to judicial relief against any such action taken without such a vote. The determination whether an action requires a class vote on these grounds would initially be made by the Board of Directors or other party calling for shareholder action. A negative determination would be subject to judicial challenge by an affected shareholder, and the necessity for a class vote would ultimately be determined by a court. There are no other procedures for determining whether a proposed shareholder action requires a class vote, and Mexican law does not provide extensive guidance on the criteria to be applied in making such a determination. Shareholders' Meetings General shareholders' meetings may be ordinary meetings or extraordinary meetings. Extraordinary general meetings are those called to consider certain matters specified in Article 182 of the Mexican Companies Law, including, principally, amendments of the bylaws, liquidation, merger and transformation from one type of company to another, as well as to consider the removal of the Company's shares from listing on the Mexican Stock Exchange or any foreign stock exchange. General meetings called to consider all other matters are ordinary meetings. The two directors elected by the holders of L Shares are elected at a special meeting of holders of L Shares. All other matters on which holders of L Shares are entitled to vote would be considered at an extraordinary general meeting. Holders of L Shares are not entitled to attend or address meetings of shareholders at which they are not entitled to vote. A special meeting of the holders of L Shares must be held each year for the election of directors. An ordinary general meeting of the holders of AA Shares and A Shares must be held each year to consider the approval of the financial statements for the preceding fiscal year, to elect directors and statutory auditors and to determine the allocation of the profits of the preceding year. The quorum for an ordinary general meeting of the AA Shares and A Shares is 50% of such shares, and action may be taken by a majority of the shares present. If a quorum is not available, a second meeting may be called at which action may be taken by a majority of the AA Shares and A Shares present, regardless of the number of such shares. Special meetings of holders of L Shares are governed by the same rules applicable to ordinary general meetings of holders of AA Shares and A Shares. The quorum for an extraordinary general meeting at which holders of L Shares may not vote is 75% of the AA shares and A Shares, and the quorum for an extraordinary general meeting at which holders of L Shares are entitled to vote is 75% of the outstanding capital stock. If a quorum is not available in either case, a second meeting may be called and action may be taken, provided a majority of the shares entitled to vote is present. Whether on first or second call, actions at an extraordinary general meeting may be taken by a majority vote of the AA Shares and A Shares outstanding and, on matters which holders of L Shares are entitled to vote, a majority vote of all the capital stock. Holders of 33% of the Company's outstanding capital stock may have any shareholder action set aside by filing a complaint with a court of law within 15 days after the close of the meeting at which such action was taken and showing that the challenged action violates Mexican law or the Company's bylaws. In addition, any holder of the Company's capital stock may bring an action at any time within five years challenging any shareholder action. Relief under these provisions is only available to holders (i) who were entitled to vote on, or whose rights as shareholders were adversely affected by, the challenged Shareholder action and (ii) whose shares were not represented when the action was taken or, if represented, were voted against it. Shareholders' meetings may be called by the Board of Directors, the statutory auditors or a court. The Board of Directors or the statutory auditors may be required to call a meeting of shareholders by the holders or 33% of the AA Shares and A Shares or, in the case of a meeting at which holders of L Shares are entitled to vote, by the holders of 33% of the outstanding capital stock. Notice of meetings must be published in the Diario Oficial de la Federacion or a newspaper of general circulation in Mexico City at least fifteen days prior to the meeting. In order to attend a meeting, shareholders must deposit their shares with the Company at its office in Mexico City, with a Mexican or foreign banking institution or with a Mexican exchange broker. If so entitled to attend the meeting, a shareholder may be represented by proxy. Dividend Rights At the annual ordinary general meeting of holders of AA Shares and A Shares, the Board of Directors submits the financial statements of the Company for the previous fiscal year, together with a report thereon by the Board, to the holders of AA Shares and A Shares for approval. The holders of AA Shares and A Shares, once they have approved the financial statements, determine the allocation of the Company's net profits for the preceding year. They are required by law to allocate 5% of such net profits to a legal reserve, which is not thereafter available for distribution except as a stock dividend, until the amount of the legal reserve equals 20% of the Company's historical capital stock (before effect of restatement). The remainder of net profits is available for distribution. All Shares outstanding at the time a dividend or other distribution is declared are entitled to share in such dividend or other distribution, subject to certain preferential rights of the L Shares. See "--Preferential Rights of L Shares." Preferential Rights of L Shares Holders of L Shares are entitled to receive a cumulative preferred annual dividend of 0.00125 Mexican pesos per share before any dividends are payable in respect of any other class of America Movil capital stock. If we pay dividends with respect to any fiscal year in addition to the L Share preferred dividend, such dividends must be allocated (i) first, to the payment of dividends with respect to the A Share and AA Shares, in an equal amount per share, up to the amount of the L Share Preferred Dividend, and (ii) second, to the payment of dividends with respect to all classes of America Movil Shares such that the dividend per share is equal. Upon liquidation of America Movil, holders of L Shares will be entitled to a liquidation preference equal to (i) accrued but unpaid L Share preferred dividends plus (ii) 0.025 Mexican pesos per share (representing the capital attributable to such shares as set forth in America Movil's bylaws) before any distribution is made in respect of our other capital stock in accordance with Article 113 of the Mexican Companies Law. Following payment in full of any such amount, holders of AA and A Shares are entitled to receive, if available, an amount per share equal to the liquidation preference paid per L Share. Following payment in full of the foregoing amounts, all Shareholders share equally, on a per share basis, in any remaining amounts payable in respect of America Movil's capital stock. Limitation on Capital Increases Our bylaws require that any capital increase be represented by new shares of each series in proportion to the number of shares of each series outstanding. Pre-emptive Rights In the event of a capital increase, a holder of existing shares of a given series has a preferential right to subscribe for a sufficient number of shares of the same series to maintain the holder's existing proportionate holdings of shares of that series. Pre-emptive rights must be exercised within 15 days following the publication of notice of the capital increase in the Diario Oficial de la Federacion and a newspaper of general circulation in Mexico City. Under Mexican law, pre-emptive rights cannot be represented by an instrument that is negotiable separately from the corresponding share. Limitations on Share Ownership Ownership by non-Mexicans of shares of Mexican enterprises in certain economic sectors, including telephone services, is regulated by the 1993 Foreign Investment Law (the "Foreign Investment Law") and the 1998 Regulations (the "Regulations"). The National Commission on Foreign Investment (the "Foreign Investment Commission") is responsible for administration of the Foreign Investment Law and Regulations. In order to comply with restrictions on the percentage of their capital stock that may be owned by non-Mexican investors, Mexican companies typically limit particular classes of their stock to Mexican ownership. Under the Foreign Investment Law, a trust for the benefit of one or more non-Mexican investors may qualify as Mexican if the trust meets certain conditions that will generally ensure that the non-Mexican investors do not determine how the shares are voted. Non-Mexican investors are not permitted to own more than 49% of the capital stock of a Mexican corporation engaged in the telephone business. Pursuant to a decision of the Foreign Investment Commission dated August 10, 1990, the L Shares of Telmex, because of their limited voting rights, are not taken into account in determining compliance with this restriction and accordingly are not subject to Mexican ownership restrictions. This decision is expected to be renewed with respect to America Movil's L Shares. The A Shares, which represented 9.78% of the combined AA Shares and A Shares at September 30, 2000, are also unrestricted. The AA Shares, however, which must always represent at least 51% of the combined AA Shares and A Shares, may be owned only by holders that qualify as Mexican investors as defined in the Foreign Investment Law and our bylaws. A holder that acquires AA Shares in violation of the restrictions on non-Mexican ownership will have none of the rights of a shareholder with respect to those AA Shares. As a consequence of these limitations, non-Mexican investors cannot under Mexican law own AA Shares except through trusts that effectively neutralize the votes of non-Mexican investors. The Controlling Shareholders own the AA Shares through a trust that has been approved by the Foreign Investment Commission for this purpose. Pursuant to the Foreign Investment Law and Regulations, we have applied to register any foreign owner of our shares, and the depositary with respect to the ADSs representing our shares, with the National Registry of Foreign Investment. In addition, pursuant to the Foreign Investment Law and Regulations, our Mexican shareholders retain the power to determine our administrative control and management. Foreign states are prohibited under the General Communications Law from directly or indirectly owning shares of America Movil. The Telecommunications Regulations provide, however, that foreign state-owned enterprises organized as separate entities with their own assets may own minority interests in America Movil or any number of shares with limited voting rights. Ownership of A Shares or L Shares by such foreign state-owned companies, or by pension or retirement funds organized for the benefit of employees of state, municipal or other governmental agencies, will not be considered direct or indirect ownership by foreign states for the purposes of the General Communications Law. Restrictions on Certain Transactions Our bylaws provide that any transfer of more than 10% of the combined A Shares and AA Shares, effected in one or more transactions by any person or group of persons acting in concert, requires prior approval by our Board of Directors. Other Provisions Variable capital. The Company is permitted to issue shares constituting fixed capital and L Shares constituting variable capital. All of the outstanding shares of capital stock of the Company constitute fixed capital. The issuance of variable-capital L Shares, unlike the issuance of fixed-capital L Shares, does not require an amendment of the bylaws, although it does require a majority vote of the AA Shares and the A Shares. Under Mexican law and our bylaws, if the Company issued variable-capital L Shares, any holder of such shares would be entitled to redeem them at the holder's option at any time at a redemption price equal to the lower of (i) 95% of the average market value of such shares on the Mexican Stock Exchange for 30 trading days preceding the date on which the exercise of the option is effective and (ii) the book value of such shares at the end of the fiscal year in which the exercise of the option is effective. If the option is exercised during the first three quarters of a fiscal year, it is effective at the end of the next succeeding fiscal year. The redemption price would be payable following the annual ordinary general meeting of holders of AA Shares and A Shares at which the relevant annual financial statements were approved. Forfeiture of shares. As required by Mexican law, our bylaws provide that "any alien who at the time of incorporation or at any time thereafter acquires an interest or participation in the capital of the corporation shall be considered, by virtue thereof, as Mexican in respect thereof and shall be deemed to have agreed not to invoke the protection of his own government, under penalty, in case of breach of such agreement, of forfeiture to the nation of such interest or participation." Under this provision a non-Mexican shareholder is deemed to have agreed not to invoke the protection of his own government by asking such government to interpose a diplomatic claim against the Mexican government with respect to the shareholder's rights as a shareholder, but is not deemed to have waived any other rights it may have, including any rights under the U.S. securities laws, with respect to its investment in the Company. If the shareholder invokes such governmental protection in violation of this agreement, its shares could be forfeited to the Mexican government. Mexican law requires that such a provision be included in the bylaws of all Mexican corporations unless such bylaws prohibit ownership of shares by non-Mexican persons. Exclusive jurisdiction. Our bylaws provide that legal actions relating to the execution, interpretation or performance of the bylaws shall be brought only in Mexican courts. Duration. The Company's existence under the bylaws continues indefinitely. Purchase by the Company of its shares. According to the bylaws, the Company may repurchase its shares on the Mexican Stock Exchange at any time at the then prevailing market price. Any such repurchase must be approved by the Board of Directors, and the amount of shares to be repurchased must be approved by the general ordinary shareholders meeting. In the event of any such repurchase, the capital stock of the Company is reduced automatically in an amount equal to the assumed par value of each repurchased L Share (determined by dividing the outstanding capital stock of the Company by the number of shares outstanding immediately prior to such repurchase); if the purchase price of such shares exceeds the assumed par value, the difference is charged against amounts allocated from net earnings to a special reserve created for the repurchase of shares. Repurchased L Shares are held by the Company as treasury stock, pending future sales thereof on the Mexican Stock Exchange or cancellation. The capital stock of the Company is automatically increased upon the resale of such shares in an amount equal to their assumed par value; any excess amount is allocated to the special reserve referred to above. The economic and voting rights corresponding to repurchased L Shares may not be exercised during the period in which such shares are owned by the Company, and such shares are not deemed to be outstanding for purposes of calculating any quorum or vote at any shareholders' meeting during such period. Conflict of interest. A shareholder that votes on a business transaction in which its interest conflicts with that of the Company may be liable for damages, but only if the transaction would not have been approved without its vote. Appraisal rights. Whenever the shareholders approve a change of corporate purposes, change of nationality of the corporation or transformation from one type of company to another, any shareholder entitled to vote on such change that has voted against it may withdraw from the Company and receive the book value attributable to its shares, provided it exercises its right within 15 days following the adjournment of the meeting at which the change was approved. CERTAIN CONTRACTS Telcel has entered into concession agreements with the Mexican Communications Ministry, with respect to its Band B and Band D licenses in each of the nine regions in Mexico. See "Business of Telcel--Regulation" under Item 4. A number of our subsidiaries and affiliates have also entered into telecommunications concession agreements with regulatory authorities in the countries in which they operate. See "Subsidiaries" and "Joint Ventures and Investments" under Item 4. We have entered into an agreement with BCI and SBCI providing for the formation of a joint venture company that will serve as the parties' principal vehicle for expansion in Latin America. See "Joint Ventures and Investments--Telecom Americas" under Item 4. Our agreements with related parties are described in "Related Party Transactions" under Item 7. LEGAL PROCEEDINGS Telcel In November 1995, Telcel's cellular competitor Grupo Iusacell, S.A. de C.V. ("Iusacell") commenced proceedings against Telmex and Telcel before the Competition Commission, claiming that Telmex engaged in anti-competitive practices such as cross-subsidization, predatory pricing and discrimination in access for the benefit of Telcel. In the petition, Iusacell requested that the Competition Commission impose sanctions against Telmex, including fines, an order requiring Telmex to sell Telcel and an order nullifying certain provisions in the interconnection agreement between Iusacell and Telmex. Telmex and Telcel are contesting these claims on the basis that their behavior has not been anti-competitive. If the Competition Commission were to find against Telmex and Telcel in this proceeding, Iusacell could seek damages in a separate proceeding against Telcel. We consider the likelihood of damages being awarded against Telcel to be remote. Telgua The Guatemalan government has commenced certain proceedings against our subsidiary Telgua. See "Subsidiaries--Telgua" under Item 4. In June 2000, the executive branch of the Guatemalan government issued declarations concerning Empresa Guatemalteca de Telecomunicaciones ("Guatel"), a Guatemalan state agency that conducted the privatization of Telgua. The declarations state that certain actions of Guatel relating to the privatization of Telgua were contrary to the interests of the Guatemalan state. In September 2000, the Guatemalan government commenced judicial proceedings against Guatel, Telgua and certain other parties involved in the privatization alleging improprieties in connection with the privatization and seeking reversal of the privatization. Telgua was formally notified of these proceedings on October 6, 2000. We are contesting the proceedings and expect that we will have an opportunity to be heard. Although we do not currently expect that the judicial proceeding will ultimately have consequences that are materially adverse to the Company's interests, we are unable to predict the outcome of the proceedings. If the government ultimately prevails and pursues the most aggressive remedies, we may be required to transfer our interest in Telgua to Guatel or another agency of the Guatemalan government. CompUSA In January 2000, COC Services Ltd. ("CSL") filed a lawsuit against our affiliate CompUSA in the District Court of Dallas County, Texas asserting various contractual and tort claims against CompUSA arising out of a letter of intent concerning franchise retail stores in Mexico. See "Joint Ventures and Investments--CompUSA" under Item 4. The lawsuit also asserts claims against other defendants, including Grupo Carso, Sanborns and Carlos Slim Helu. CSL requests U.S.$150,000,000 from CompUSA in actual damages for the breach of contract, tortious interference and conspiracy claims and U.S.$2,000,000 in damages for the fraud claim, as well as U.S.$300,000,000 in exemplary damages. CSL also seeks to recover interest, attorneys' fees and court costs. CompUSA and the other defendants filed motions seeking summary judgment on all claims against them, but these motions were denied on December 1, 2000. Trial is expected to begin on January 16, 2001. Although it is not possible to assess the outcome of this litigation at present, CompUSA has advised us that it intends to defend vigorously against the claims in this lawsuit. EXCHANGE CONTROLS Mexico has had a free market for foreign exchange since 1991, and the government has allowed the peso to float freely against the U.S. dollar since December 1994. There can be no assurance that the government will maintain its current foreign exchange policies. See "Exchange Rate Information" under Item 3. DIVIDENDS AND PAYING AGENTS The Company has not yet established procedures for the payment of dividends, and has not appointed any financial institution to act as paying agent for the payment of dividends. No procedures have been put into place to allow non-resident holders to claim dividends. TAXATION The following summary contains a description of certain Mexican federal and U.S. federal income tax consequences of the acquisition, ownership and disposition of L Shares, A Shares (together with L Shares, "Shares"), L Share ADSs, or A Share ADSs (together with L Share ADSs, "ADSs"), but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase or hold Shares or ADSs. The Convention for the Avoidance of Double Taxation and a Protocol thereto (the "Tax Treaty") between the United States and Mexico entered into force on January 1, 1994. The United States and Mexico have also entered into an agreement concerning the exchange of information with respect to tax matters. The summary is based upon tax laws of Mexico and the United States as in effect on the date of this registration statement including the Tax Treaty, which are subject to change, including changes that may have retroactive effect. Holders of Shares or ADSs should consult their own tax advisers as to the Mexican, U.S. or other tax consequences of the purchase, ownership and disposition of Shares or ADSs, including, in particular, the effect of any foreign, state or local tax laws. Mexican Tax Considerations The following is a general summary of the principal consequences under the Mexican Ley del Impuesto sobre la Renta (the "Mexican Income Tax Law") and rules and regulations thereunder, as currently in effect, of an investment in Shares or ADSs by a holder that is not a resident of Mexico and that will not hold Shares or ADSs or a beneficial interest therein in connection with the conduct of a trade or business through a permanent establishment or fixed base in Mexico. For purposes of Mexican taxation, a natural person is a resident of Mexico for tax purposes if he has established his home in Mexico, unless he has resided in another country for more than 183 days, whether consecutive or not, in any one calendar year and can demonstrate that he has become a resident of that country for tax purposes, and a legal entity is a resident of Mexico if it was incorporated in Mexico or maintains the principal administration of its business or the effective location of its management in Mexico. A Mexican citizen is presumed to be a resident of Mexico unless such person can demonstrate the contrary. If a non-resident of Mexico is deemed to have a permanent establishment or fixed base in Mexico for tax purposes, all income attributable to such permanent establishment or fixed base will be subject to Mexican taxes, in accordance with applicable laws. Tax Treaties Provisions of the Tax Treaty that may affect the taxation of certain U.S. holders 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 tax treaties that may reduce the amount of Mexican withholding tax to which payment of dividends on Shares or ADSs may be subject. Holders of Shares or ADSs should consult their own tax advisors as to the tax consequences, if any, of such treaties. Under the Mexican Income Tax Law, in order for any benefits from the Tax Treaty or any other tax treaties to be applicable, residence for tax purposes must be demonstrated. Payment of Dividends Under the Mexican Income Tax Law, dividends, either in cash or in kind, paid with respect to Shares represented by ADSs will be subject to 5% Mexican withholding tax based on the amount of the distributed dividend, multiplied by a factor of 1.5385, which produces a net tax effect of approximately 7.7%. In accordance with rules issued by the Ministry of Finance and Public Credit, the applicable factor is 1.515 for profits resulting from the previous net tax profit account (cuenta de utilidad fiscal neta or CUFIN) at December 31, 1999. A Mexican corporation will not be subject to any tax if the amount maintained in its previous net reinvested tax profit account (cuenta de utilidad fiscal neta reinvertida or CUFINRE, required for corporations that have elected to defer a portion of their income taxes) and CUFIN exceeds the dividend payment to be made. However, corporations that have elected to defer their income taxes are required to pay such deferred taxes by applying the rate of 5% to the amount of the dividend multiplied by a factor of 1.5385. Mexican corporations must first exhaust the balance in their CUFINRE before they can utilize CUFIN balances. If we pay a dividend in an amount greater than our CUFINRE and CUFIN balance (which may occur in a year when net profits exceed the balance in such accounts), then we are required to pay a 35% income tax on an amount equal to the product of (i) the portion of the grossed-up amount which exceeds such balance times (ii) 1.5385. A portion of Telmex's CUFINRE and CUFIN balance was allocated to America Movil in the Spin-off. Taxation of Dispositions The sale or other disposition of ADSs by a non-resident holder will not be subject to Mexican tax. Deposits of Shares in exchange for ADSs and withdrawals of Shares in exchange for ADSs will not give rise to Mexican tax or transfer duties. The sale of Shares by a non-resident holder will not be subject to any Mexican tax if the transaction is carried out through the Mexican Stock Exchange or other securities markets approved by the Mexican Ministry of Finance. Sales or other dispositions of Shares made in other circumstances generally would be subject to Mexican tax, regardless of the nationality or residence of the transferor. Under the Mexican Income Tax Law, gains realized by a nonresident holder of Shares on the sale or disposition of Shares not conducted through a recognized stock exchange generally are subject to a Mexican tax at a rate of 20% of the gross sale price. However, if the holder is a resident of a country which is not considered to be a low tax rate country (by reference to a list of low rate countries published by the Mexican Ministry of Finance and Public Credit), the holder may elect to designate a resident of Mexico as its representative, in which case taxes would be payable at a 40% rate on the gain on such disposition of Shares. Pursuant to the Tax Treaty, gains realized by qualifying U.S. holders from the sale or other disposition of Shares, even if the sale is not conducted through a recognized stock exchange, will not be subject to Mexican income tax except that Mexican taxes may apply if: (i) 50% or more of the assets of America Movil consist of fixed assets situated in Mexico, (ii) such U.S. holder owned 25% or more of the shares representing our capital stock (including ADSs), directly or indirectly, during the 12-month period preceding such disposition, or (iii) the gain is attributable to a permanent establishment or fixed base of the U.S. holder in Mexico. Other Mexican Taxes A non-resident holder will not be liable for estate, inheritance or similar taxes with respect to its holdings of Shares or ADSs; provided, however, that gratuitous transfers of Shares may in certain circumstances result in imposition of a Mexican tax upon the recipient. There are no Mexican stamp, issue registration or similar taxes payable by a non-resident holder with respect to Shares or ADSs. U.S. Federal Income Tax Considerations The following is a summary of certain U.S. federal income tax consequences to U.S. holders (as defined below) of the acquisition, ownership and disposition of Shares or ADSs. The summary does not purport to be a comprehensive description of all of the tax consequences of the acquisition, ownership or disposition of Shares or ADSs. The summary applies only to U.S. holders that will hold their Shares or ADSs as capital assets and does not apply to special classes of U.S. holders such as dealers in securities or currencies, holders with a functional currency other than the U.S. dollar, holders of 10% or more of the voting shares of the Company (whether held directly or through ADSs or both), tax-exempt organizations, financial institutions, holders liable for the alternative minimum tax, securities traders electing to account for their investment in their Shares or ADSs on a mark-to-market basis, and persons holding their shares or ADSs in a hedging transaction or as part of a straddle or conversion transaction. For purposes of this discussion, a "U.S. holder" is a holder of Shares or ADSs that is (i) a citizen or resident of the United States of America, (ii) a corporation organized under the laws of the United States of America or any state thereof, or (iii) otherwise subject to U.S. federal income taxation on a net income basis with respect to the Shares or ADSs. Each U.S. holder should consult such holder's own tax advisor concerning the overall tax consequences to it of the ownership or disposition of Shares or ADSs that may arise under foreign, state and local laws. Treatment of ADSs In general, a U.S. holder of ADSs will be treated as the owner of the Shares represented by those ADSs for U.S. federal income tax purposes. Deposits or withdrawals of Shares by U.S. holders in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes. U.S. holders that withdraw any Shares should consult their own tax advisors regarding the treatment of any foreign currency gain or loss on any pesos received in respect of such Shares. Taxation of Distributions In general, the gross amount of any distributions (including any amounts withheld in respect of Mexican withholding tax) paid out of the Company's current or accumulated earnings and profits (including earnings and profits that accrued to Telmex and were attributed to the Company in connection with the Spin-off) with respect to Shares or ADSs ("dividends") will be includible in the gross income of a U.S. holder as ordinary income on the day on which the dividends are received by the U.S. holder in the case of Shares or by the depositary in the case of ADSs. Dividends will be paid in pesos and will be includible in the income of a U.S. holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day that they are received by the U.S. holder in the case of Shares or by the depositary in the case of ADSs. U.S. holders should consult their own tax advisors regarding the treatment of foreign currency gain or loss, if any, on any pesos received by a U.S. holder or depositary that are converted into U.S. dollars on a date subsequent to receipt. Dividends paid by the Company will not be eligible for the dividends-received deduction allowed to corporations under the U.S. Internal Revenue Code of 1986, as amended (the "Code"). Distributions of additional Shares or ADSs to U.S. holders with respect to their Shares or ADSs that are made as part of a pro rata distribution to all shareholders of the Company generally will not be subject to U.S. federal income tax. Dividends paid on Shares or ADSs generally will be treated for U.S. foreign tax credit purposes as foreign source passive income, or, in the case of certain U.S. holders, as foreign source financial services income. The Mexican withholding tax that is imposed on such dividends will be treated as a foreign income tax eligible, subject to generally applicable limitations and conditions under U.S. federal income tax law, for credit against a U.S. holder's U.S. federal income tax liability or, at the U.S. holder's election, for deduction from gross income in computing the U.S. holder's taxable income. The calculation and availability of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions, involves the application of rules that depend on a U.S. holder's particular circumstances. U.S. holders should consult their own tax advisors regarding the availability of foreign tax credits. Under certain U.S. Treasury Department guidance, foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities or in respect of arrangements in which a U.S. holder's expected economic profit, after non-U.S. taxes, is insubstantial. U.S. holders should consult their own advisors concerning the implications of these rules in light of their particular circumstances. Taxation of Dispositions A U.S. holder will recognize gain or loss on the sale or other disposition of the Shares or ADSs in an amount equal to the difference between the U.S. holder's basis in such Shares or ADSs (in U.S. dollars) and the amount realized on the disposition (in U.S. dollars, determined at the spot rate on the date of disposition if the amount realized is denominated in a foreign currency). Gain or loss realized by a U.S. holder on such sale or other disposition generally will be long-term capital gain or loss if, at the time of disposition, the Shares or ADSs have been held for more than one year. Long-term capital gain realized by a U.S. holder that is an individual generally is subject to a maximum federal income tax rate of 20%. Such gain or loss generally will be treated as U.S. source gain or loss for U.S. foreign tax credit purposes. Exchange of Shares A U.S. holder's exchange of AA Shares or A Shares for L Shares will not constitute a taxable event for U.S. federal income tax purposes. An exchanging U.S. holder will have a tax basis in the L Shares equal to the basis such holder had in the exchanged AA Shares or A Shares. An exchanging U.S. holder's holding period for the L Shares will include the holding period such U.S. holder had in the AA Shares or A Shares before such shares were exchanged. A U.S. holder's exchange of L Shares for AA Shares, pursuant to the option to exchange in respect of such L Shares, effective beginning January 1, 2001, will not constitute a taxable event for U.S. federal income tax purposes. An exchanging U.S. holder will have a tax basis in the AA Shares received equal to the basis such holder had in the exchanged L Shares. A U.S. holder's holding period for AA Shares received in such an exchange will include the holding period such U.S. holder had in the L Shares prior to such exchange. Information Reporting and Backup Withholding Dividends on, and proceeds from the sale or other disposition of, the Shares or ADSs paid to a U.S. holder generally may be subject to the information reporting requirements of the Code and may be subject to backup withholding at the rate of 31% unless the holder (i) establishes that it is a corporation or other exempt holder or (ii) provides an accurate taxpayer identification number on a properly completed Internal Revenue Service Form W-9 and certifies that no loss of exemption from backup withholding has occurred. The amount of any backup withholding from a payment to a holder will be allowed as a credit against the U.S. holder's U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is furnished to the Service. U.S. Tax Consequences for Non-U.S. holders Distributions. A holder of Shares or ADSs that is, with respect to the United States, a foreign corporation or a non-resident alien individual (a "non-U.S. holder") generally will not be subject to U.S. federal income or withholding tax on dividends received on Shares or ADSs, unless such income is effectively connected with the conduct by the holder of a U.S. trade or business. Dispositions. A non-U.S. holder of Shares or ADSs will not be subject to U.S. federal income or withholding tax on gain realized on the sale of Shares or ADSs, unless (i) such gain is effectively connected with the conduct by the holder of a U.S. trade or business or (ii) in the case of gain realized by an individual holder, the holder is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions are met. Information Reporting and Backup Withholding. Although non-U.S. holders generally are exempt from backup withholding, a non-U.S. holder may be required to comply with certification and identification procedures in order to establish its exemption from information reporting and backup withholding. DOCUMENTS ON DISPLAY Upon effectiveness of this registration statement, America Movil will become subject to the information requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, will be required to file reports, including annual reports on Form 20-F, and other information with the Securities and Exchange Commission (the "Commission"). These materials, including this registration statement and the exhibits thereto, may be inspected and copied at the Commission's Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20459. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. In addition, materials filed by America Movil can be inspected and copied at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York, 10048, and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Item 11. Quantitative and Qualitative Disclosures about Market Risk EXCHANGE RATE AND INTEREST RATE RISKS We are exposed to market risk from changes in currency exchange rates and interest rates. Interest rate risk exists principally with respect to the Company's indebtedness that bears interest at floating rates. At September 30, 2000, America Movil had Ps.4.8 billion of indebtedness bearing interest at floating rates. Exchange rate risk exists principally with respect to the Company's indebtedness denominated in currencies other than Mexican pesos. As of September 30, 2000, indebtedness denominated in foreign currencies was Ps.6.6 billion, of which Ps.6.56 billion was denominated in U.S. dollars and Ps.36 million was denominated in Guatemalan quetzales. We will regularly assess our exposure and monitor opportunities to manage these risks, for example through the use of financial instruments. We may from time to time enter into hedging transactions with respect to indebtedness denominated in foreign currencies other than the U.S. dollar. We expect to use such transactions, which may be foreign exchange forward contracts or options, to hedge against changes in the exchange rate between such foreign currencies and the U.S. dollar, but not against changes in exchange rates between any foreign currency and the Mexican peso. SENSITIVITY ANALYSIS DISCLOSURES The potential loss in fair value of financial instruments held at September 30, 2000 that would have resulted from a hypothetical, instantaneous and unfavorable 10% change in currency exchange rates would have been approximately Ps.397 million. Such a change in currency exchange rates would also have resulted in additional interest expense of approximately Ps.207 million per year, assuming no change in the principal amount of such indebtedness, reflecting the increased costs in local currencies of servicing foreign currency indebtedness. This sensitivity analysis assumes an instantaneous unfavorable 10% fluctuation in exchange rates affecting the foreign currencies in which the Company's indebtedness is denominated. The potential loss in fair market value of financial instruments held at September 30, 2000 that would have resulted from a hypothetical, instantaneous and unfavorable change of 100 basis points in the interest rate applicable to such financial instruments would have been approximately Ps.36 million. This effect would be fully attributable to the impact of the interest rate change on fixed-rate financial assets and liabilities. A hypothetical, instantaneous and unfavorable change of 100 basis points in the interest rate applicable to floating-rate financial assets and liabilities held at September 30, 2000 would have resulted in an additional interest expense of approximately Ps.348 million per year, assuming no change in the principal amount of such indebtedness. The above sensitivity analyses are based on the assumption of an unfavorable 100 basis point movement of the interest rates applicable to each homogeneous category of financial assets and liabilities. A homogeneous category is defined according to the currency in which financial assets and liabilities are denominated and assumes the same interest rate movement with each homogeneous category. As a result, interest rate risk sensitivity analysis may overstate the impact of interest rate fluctuations for such financial instruments, as consistently unfavorable movements of all interest rates are unlikely. Item 12. Description of Securities other than Equity Securities DESCRIPTION OF AMERICAN DEPOSITARY SHARES Morgan Guaranty Trust Company of New York is the depositary (the "Depositary") for the L Share ADSs, each representing 20 L Shares, and the A Share ADSs, each representing 20 A Shares (collectively, the "ADSs"). The Depositary's principal executive office is 60 Wall Street, New York, and its telephone number is (212) 648-3250. Each L Share ADS and each A Share ADS represents an ownership interest in 20 L Shares or 20 A Shares, as the case may be, deposited with the custodian, as agent of the Depositary, specified under the L Share ADS Deposit Agreement or the A Share ADS Deposit Agreement (collectively, the "Deposit Agreements") among the Company, the Depositary and all holders from time to time of the L Share ADSs or the A Share ADSs, as the case may be. In the future, each ADS will also represent any securities, cash or other property deposited with the Depositary but which it has not distributed directly to holders. The ADSs are evidenced by American Depositary Receipts, or "ADRs." ADSs may be held either directly or indirectly through a broker or other financial institution. The following description assumes holders hold ADSs directly, by having an ADS registered in their name on the books of the Depositary. Indirect ADS holders must rely on the procedures of the broker or financial institution through which they hold their securities to assert the rights of ADR holders described below, and should consult with their broker or financial institution to find out what those procedures are. Because the Depositary's nominee will actually be the registered owner of the shares, holders must rely on it to exercise the rights of a shareholder on their behalf. The obligations of the Depositary and its agents are set out in the Deposit Agreements. Each of the Deposit Agreements and the ADSs is governed by New York law. The following is a summary of the material terms of the Deposit Agreements. Because it is a summary, it does not contain all the information that may be important to holders. For more complete information, holders should read the entire Deposit Agreement and the form of ADR which contains the terms of their ADSs. Copies of the Deposit Agreements will be filed as exhibits to this registration statement. Holders may also obtain a copy of the Deposit Agreements at the SEC's Public Reference Room, located at 450 Fifth Street, N.W., Washington, D.C. 20549. Holders may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. Share Dividends and Other Distributions The Depositary has agreed to pay to holders the cash dividends or other distributions it or the custodian receives on the A Shares and L Shares or other deposited securities, after deducting its expenses. Holders will receive these distributions in proportion to the number of underlying shares their ADSs represent. o Cash. The Depositary will distribute to holders any U.S. dollars available to it resulting from any cash dividend or other cash distribution we pay on the shares unless that is not possible or practical. If we pay such cash dividend or cash distribution in foreign currency, the Depositary will convert any such cash into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. The Depositary will deduct its expenses in (1) converting and transferring cash, including obtaining the approval of a governmental authority therefor, and (2) making any other public or private sale. In addition, before making a distribution the Depositary will deduct any taxes withheld. If the exchange rates fluctuate during a time when the Depositary cannot convert the currency, holders may lose some or all of the value of the distribution. o Shares. The Depositary may distribute new ADSs representing any shares we distribute as a dividend or free distribution. The Depositary will only distribute whole ADSs. It will sell shares which would require it to issue fractional ADSs and distribute the net proceeds in the same way as it distributes cash. If new ADSs are not so distributed, outstanding ADSs will represent the proportionate interest in the shares for which no new ADSs were distributed. o Rights to receive additional shares. If we offer holders of our securities any rights to subscribe for additional shares or any other rights, the Depositary will make these rights available to holders to the extent that we first furnish the Depositary with satisfactory evidence that it is legal to do so. If we do not furnish this evidence and it is practical to sell the rights, the Depositary will sell the rights and distribute the U.S. dollar proceeds in the same way as it distributes cash. The Depositary may allow rights that are not distributed or not sold (because a sale is not practicable) to lapse. In that case, holders will receive no value for them. o Other distributions. The Depositary will send to holders anything else we distribute on deposited securities by any means it thinks is equitable and practical. If the Depositary believes it is not feasible to make the distribution, the Depositary will distribute any net proceeds from the sale of what we distributed if available in U.S. dollars, in the same way as it distributes cash. Any U.S. dollars will be distributed by checks for whole dollars and cents (fractional cents will be withheld without liability for interest and added to future cash distributions). To the extent the Depositary decides any distribution to holders is not practical, it may make any other distribution it believes is practical, including foreign currency, securities or property. The Depositary may retain any of the same as deposited securities without paying interest on or investing it. Holders have no assurance from the Depositary that it will be able to effect any currency conversion or to sell any distributed property, rights or other securities timely or at a specified rate or price. Deposit, Withdrawal and Cancellation Issuance of ADSs The Depositary will issue ADSs if holders or their brokers deposit shares or evidence of rights to receive shares issued by us with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the Depositary will register the appropriate number of ADSs in the names requested by holders and will deliver ADSs at its office to the persons requested by holders. Withdrawal of ADS and delivery of shares When holders turn in their ADS at the Depositary's office, it will, upon payment of certain applicable fees, charges and taxes, deliver at the custodian's office the underlying shares in registered form only. At holders' risk, expense and request, the Depositary may deliver at such other place as the holders may request. Voting Rights Holders may attend and vote at shareholder meetings or they may instruct the Depositary to vote the shares underlying their ADSs. The Depositary will notify holders of upcoming votes and arrange to deliver voting materials to them. Such materials will describe the matters to be voted on and explain how holders may, on a certain date, vote or instruct the Depositary to vote the shares or other deposited securities underlying their ADSs as they direct. For instructions to be valid, the Depositary must receive them on or before the date specified. The Depositary will try, as far as practical, subject to the provisions of and governing the underlying shares or other deposited securities, to vote or to have its agents vote the shares or other deposited securities as holders instruct. The Depositary will only vote or attempt to vote as instructed by holders. We cannot assure holders that they will receive the voting materials in time to ensure that they can instruct the Depositary to vote their shares. Holders who do not provide voting instructions to the Depositary will be deemed to have instructed it to give a discretionary proxy to a person that we designate, provided that no such instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which we inform the Depositary that we do not desire a discretionary proxy, substantial opposition exists or materially and adversely affects the rights of holders of L Shares or A Shares, as the case may be. Reports and Other Communications The Depositary will make available for inspection by holders any written communications from us which are both received by the custodian or its nominee as a holder of deposited securities and made generally available to the holders of deposited securities. We will furnish these communications in English. Additionally, if we make any written communications generally available to holders of L Shares or A Shares, as the case may be, including the Depositary or the custodian, and the Depositary or the custodian actually receives those written communications, the Depositary will mail copies of them, or, at its option, summaries of them, to ADS holders. Fees and Expenses
ADS holders must pay: For: --------------------- ---- U.S.$5.00 per 100 ADSs (or portion thereof) o Each issuance of an ADS, including as a result of a distribution of shares or rights or other property o Each withdrawal of an ADS Registration or transfer fees o Transfer and registration of L Shares or A Shares on any applicable register payable by holders when they deposit or withdraw shares. Depositary's expenses o Conversion of foreign currency to U.S. dollars Depositary's expenses o Cable, telex and facsimile transmission
In addition, ADS holders must pay as necessary or incurred any taxes and other governmental charges the Depositary or the custodian is required to pay on any ADS, or share underlying an ADS, such as stock transfer, stamp duty, stamp duty reserve or withholding taxes. We will pay all other charges and expenses of the Depositary and its agents (except the custodian) pursuant to agreements entered into from time to time between ourselves and the Depositary. Payment of Taxes Holders will have to pay any other taxes payable by or on behalf of the Depositary or the custodian with respect to the ADSs, other deposited securities or any distribution thereon to the Depositary. Until holders pay such taxes, the Depositary may withhold their dividends and other distributions and may refuse to effect a registration, registration of transfer, split-up, combination or withdrawal of the deposited securities. The Depositary may deduct the amount of any taxes owed from any payments to holders. It may also sell deposited securities or property, other than cash, by public or private sale, to pay any taxes owed. Holders will remain liable if the proceeds of the sale are not enough to pay the taxes. If the Depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and will pay to holders any proceeds, or send to holders any cash or other property, remaining after it has paid the taxes. The Depositary or the custodian will remit to the governmental authority any amounts required to be withheld in connection with a distribution which is owed by either of them to such governmental authority. We will similarly remit any amounts so owed by us. Reclassifications, Recapitalizations and Mergers If we o change the par value of the L Shares or A Shares, o reclassify, split up, cancel or consolidate any of the deposited securities, or o recapitalize, reorganize, merge, consolidate or sell our assets; then: o the securities received by the Depositary will become deposited securities, and each ADS will automatically represent its proportionate share of the new deposited securities, and o the Depositary may issue new ADSs or ask holders to surrender their outstanding ADSs in exchange for new ADSs identifying the new deposited securities. Amendment and Termination We may agree with the Depositary to amend the Deposit Agreements and the ADSs without the consent of holders for any reason. If an amendment adds or increases fees or charges (except for taxes and other governmental charges, transfer or registration fees or certain expenses of the Depositary and except for cable, telex, electronic and facsimile transmission and delivery charges), or prejudices an important right of ADS holders, it will only become effective 30 days after the Depositary notifies holders of the amendment. At the time an amendment becomes effective, holders are considered, by continuing to hold their ADSs, to agree to the amendment and to be bound by the relevant ADSs and Deposit Agreement as amended. No amendment will impair holders' rights to surrender their ADSs and receive the underlying securities. The Depositary will terminate the Deposit Agreements if we ask it to do so but must notify holders 30 days before termination. The Depositary may also terminate the Deposit Agreements at its own initiative but may only do so after giving us 30 days' prior notice at any time 90 days after it has resigned as Depositary, provided no successor Depositary has been appointed during such 90-day period. In the case of a termination by the Depositary, it will provide holders with 30 days' prior notice. After termination, the Depositary and its agent will be required to do only the following under the Deposit Agreements: (a) advise holders of such termination, (b) collect and hold distributions on the deposited securities, (c) sell property or rights or convert deposited securities into cash as provided in the Deposit Agreements, and (d) deliver shares and other deposited securities upon cancellation of ADSs. As soon as practicable after six months from the termination date, the Depositary will, if practical, sell any remaining deposited securities by public or private sale. After that, the Depositary will hold the money it received on the sale, as well as any other cash it is holding under the relevant Deposit Agreement for the pro rata benefit of the ADS holders that have not surrendered their ADSs. The Depositary has no liability for interest. Its only obligations will be to account for the money and other cash and with respect to certain indemnification obligations. After termination, our only obligations will be with respect to certain indemnification obligations and to pay certain charges to the Depositary. Limitations on Obligations and Liability to ADS Holders The Deposit Agreements expressly limit our obligations and the obligations of the Depositary. They also limit our liability and the liability of the Depositary. We and the Depositary: o are only obligated to take the actions specifically set forth in the Deposit Agreement without negligence or bad faith; o are not liable if either of us is prevented or delayed by law or circumstances beyond our control from performing our respective obligations under the Deposit Agreements; o are not liable if either of us exercises discretion permitted under the Deposit Agreements; o have no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the Deposit Agreements on holders' behalf or on behalf of any other party unless indemnity satisfactory to us in our sole discretion is, and continues to be, provided to us covering all expenses and liability; o may rely upon any documents we believe to be genuine and to have been signed or presented by the proper party; o will not be liable for any action or inaction while relying on advice or information from legal counsel or certain other advisors, holders or anyone else competent to give advice or information. The Depositary will not be responsible for failing to carry out instructions to vote the ADSs or for the manner in which the ADSs are voted or the effect of the vote. The Depositary may own and deal in our securities and in ADSs. In the Deposit Agreements, we and the Depositary agree to indemnify each other under certain circumstances. Requirements for Depositary Actions Before the Depositary will issue or register transfer of an ADS, make a distribution of an ADS, or permit withdrawal of underlying shares, it may require: o payment of (a) stock transfer or other taxes or other governmental charges, (b) transfer or registration fees charged by third parties for the transfer of any shares or other deposited securities and (c) the Depositary's charges in connection with such action; o production of satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and o compliance with regulations it may establish from time to time, consistent with the Deposit Agreements, including presentation of transfer documents. The Depositary may refuse to deliver, transfer or register transfers of ADSs generally when its or our transfer books or any register for deposited securities are closed or at any time the Depositary or we think it advisable to do so. Holders' Right to Receive Shares Underlying their ADSs Holders have the right to cancel their ADSs and withdraw the underlying shares at any time except: o when temporary delays arise because: (a) we or the Depositary have closed our transfer books; (b) the transfer of shares is blocked to permit voting at a shareholders' meeting; or (c) we are paying a dividend on the shares; o when any holder seeking to withdraw shares owes money to pay fees, taxes and similar charges; and o when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of shares or other deposited securities. This right of withdrawal may not be limited by any other provision of the Deposit Agreements. Books of Depositary The Depositary or its agent will maintain a register for the registration, registration of transfer, combination and split-up of ADRs. Holders may inspect such records at reasonable times, but solely for the purpose of communicating with other holders in the interest of business matters relating to the Deposit Agreements or the Company. The Depositary will maintain facilities to record and process the issuance, cancellation, combination, split-up and transfer of ADRs. These facilities may be closed from time to time, to the extent not prohibited by law. Pre-release of ADSs In certain circumstances, subject to the provisions of the Deposit Agreements, the Depositary may issue ADSs before deposit of the underlying shares. This is called a pre-release of the ADSs. A pre-release is closed out as soon as the underlying shares are delivered to the Depositary. The Depositary may pre-release ADSs if: o before or at the time of the pre-release, the person to whom the pre-release is being made represents in writing to the Depositary that it or its customer owns the shares to be deposited, assigns all rights thereto to the Depositary, holds the shares for the account of the Depositary and will deliver the shares to the custodian as soon as practicable, and o pre-released ADSs are fully collateralized with cash or U.S. government securities held by the Depositary for the benefit of holders. In addition, the Depositary will limit the number of pre-released ADSs to no more than 20% of all deposited shares. Item 18. Financial Statements See pages F-1 through F-62, incorporated herein by reference. Item 19. Exhibits Documents filed as exhibits to this registration statement: 1.1 Bylaws (estatutos sociales) of America Movil, S.A. de C.V. (together with an English translation). 2.1 L Share Deposit Agreement (incorporated by reference to the Registrant's registration statement on Form F-6 filed on the date hereof). 2.2 A Share Deposit Agreement (incorporated by reference to the Registrant's registration statement on Form F-6 filed on the date hereof). 3.1 Trust Agreement dated December 20, 1990 among certain shareholders of Telefonos de Mexico, S.A. de C.V., together with an English translation (incorporated by reference to the registration statement of Telefonos de Mexico, S.A. de C.V. on Form F-1 (File No. 333-39893)). 3.2 Conversion and Termination Agreement dated April 27, 2000 among Carso Global Telecom, S.A. de C.V., SBC International, Inc. and France Telecom Financiere Internationale. 4.1 Shareholders Agreement, dated November 16, 2000 and amended December 5, 2000, among Bell Canada International Investments Limited, AM Latin America, LLC, SBC International--Brazil Holding, Ltd. and Telecom Americas Ltd.* 8.1 Significant subsidiaries. - ------------ * Portions of this agreement have been omitted from this registration statement pursuant to a confidential treatment request filed on the date hereof. REPORT OF INDEPENDENT AUDITORS To the Stockholders of America Movil, S.A. de C.V. We have audited the accompanying combined balance sheets of America Movil, S.A. de C.V. and subsidiaries as of December 31, 1998 and 1999, and the related combined statements of income, changes in stockholders' equity and changes in financial position for each of the three years in the period ended December 31, 1999. 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 conducted our audits in accordance with auditing standards generally accepted in the United States of America and in Mexico. 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 the disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of America Movil, S.A. de C.V. and subsidiaries at December 31, 1998 and 1999, and the combined results of their operations and changes in their financial position for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in Mexico, which differ in certain respects from those followed in the United States (see Note 19). Mancera, S.C. Member of Ernst & Young International /s/ C.P.C. Francisco Alvarez Del Campo Mexico City, Mexico November 16, 2000 F-1
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES Combined Statements of Income (Thousands of Constant Pesos as of September 30, 2000, except for earnings per share) Year ended December 31, ------------------------------------------------------------------ Millions of U.S. dollars 1997 1998 1999 1999 ------------------------------------------------------------------ Operating revenues: Services: Usage charges Ps. 2,559,025 Ps. 3,679,924Ps. 7,238,536 $ 768 Monthly rent 1,827,433 2,884,150 3,691,978 392 Long-distance 624,992 799,951 1,334,333 142 Other services 77,250 60,010 472,111 50 Telephone equipment sales and other: Sales of handsets and accessories 547,271 1,309,770 2,405,844 255 Other revenues 198,051 637,785 211,921 22 ------------------------------------------------------------------ 5,834,022 9,371,590 15,354,723 1,629 ------------------------------------------------------------------ Operating costs and expenses: Cost of sales and services 1,449,319 2,722,337 5,917,176 628 Cost of sales and services with related parties (Note 14) 901,203 885,765 1,238,470 131 Commercial, administrative and general 2,533,994 2,903,385 4,277,447 454 Commercial, administrative and general with related parties (Note 14) 155,030 122,377 212,896 23 Depreciation and amortization (Notes 6, 7 and 8) 534,814 768,183 1,474,578 156 ------------------------------------------------------------------ 5,574,360 7,402,047 13,120,567 1,392 ------------------------------------------------------------------ Operating income 259,662 1,969,543 2,234,156 237 ------------------------------------------------------------------ Comprehensive financing (income) cost: Interest income ( 7,329,497) ( 9,580,768) ( 8,900,889) ( 944) Interest expense 25,712 15,984 70,189 7 Interest expense with related parties (Note 14) 25,662 10,763 87,292 9 Exchange (gain) loss, net ( 488,401) ( 133,500) 1,093,629 116 Monetary effect 5,459,629 6,589,799 4,663,931 495 ------------------------------------------------------------------ ( 2,306,895) ( 3,097,722) ( 2,985,848) ( 317) ------------------------------------------------------------------ Income before income tax and employee profit sharing 2,566,557 5,067,265 5,220,004 554 ------------------------------------------------------------------ Provisions for: Income tax (Note 16) 778,049 1,071,687 1,101,978 117 Employee profit sharing 64,227 74,942 111,619 12 ------------------------------------------------------------------ 842,276 1,146,629 1,213,597 129 ------------------------------------------------------------------ Income before equity in results of affiliates and minority interest 1,724,281 3,920,636 4,006,407 425 Equity in results of affiliates 105,747 77,910 14,784 2 ------------------------------------------------------------------ Income before minority interest 1,830,028 3,998,546 4,021,191 427 Minority interest in loss of subsidiaries 295,931 31 ------------------------------------------------------------------ Net income Ps. 1,830,028 Ps. 3,998,546 Ps. 4,317,122 $ 458 ================================================================== Common shares outstanding (in millions) (Note 15) 14,485 14,485 14,485 14,485 ================================================================== Net income per share Ps. 0.126 Ps. 0.276 Ps. 0.298 $ 0.032 ==================================================================
See accompanying notes. F-2 AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES Combined Balance Sheets (Thousands of Constant Pesos as of September 30, 2000)
December 31, ------------------------------------------------- Millions of U.S. dollars ------------------------------------------------- 1998 1999 1999 ------------------------------------------------- Assets Current assets: Cash and short-term investments Ps. 40,627,847 Ps. 36,861,340 $ 3,909 Marketable securities (Note 3) 4,327,628 459 Accounts receivable, net (Note 4) 1,022,939 1,736,282 184 Related parties (Note 14) 1,600 532,018 56 Inventories, net (Note 5) 350,753 2,143,301 227 Prepaid expenses and other assets 40,944 318,272 34 ------------------------------------------------- Total current assets 42,044,083 45,918,841 4,869 Plant, property and equipment, net (Note 6) 6,403,781 12,404,147 1,317 Licenses, net (Note 7) 1,874,816 2,018,957 214 Investments in affiliates and others (Note 8) 520,062 3,172,139 336 Goodwill, net (Note 8) 1,857,973 197 ------------------------------------------------- Total assets Ps. 50,842,742 Ps. 65,372,057 $ 6,933 ================================================= Liabilities and stockholders' equity Current liabilities: Current portion of long-term debt (Note 11) Ps. 100,434 Ps. 390,771 $ 41 Accounts payable and accrued liabilities (Note 10) 991,485 5,128,228 544 Taxes payable 493,555 650,137 70 Related parties (Note 14) 89,240 447,722 47 ------------------------------------------------- Total current liabilities 1,674,714 6,616,858 702 Long-term debt (Note 11) 77,219 86,012 9 Related parties (Note 14) 6,578 2,317,967 246 Deferred credits 171,800 18 ------------------------------------------------- Total liabilities 1,758,511 9,192,637 975 ------------------------------------------------- Stockholders' equity (Note 15): Parent investment 45,065,621 47,429,316 5,030 Retained earnings: Unappropriated results of prior years 419,312 4,417,858 468 Net income for the year 3,998,546 4,317,122 458 ------------------------------------------------- 4,417,858 8,734,980 926 Deficit from restatement of stockholders' equity ( 399,248) ( 576,493) ( 61) Effect of translation of foreign entities ( 67,628) ( 7) ------------------------------------------------- Total majority stockholders' equity 49,084,231 55,520,175 5,888 Minority interest 659,245 70 ------------------------------------------------- Total stockholders' equity 49,084,231 56,179,420 5,958 ------------------------------------------------- Total liabilities and stockholders' equity Ps. 50,842,742 Ps. 65,372,057 $ 6,933 =================================================
See accompanying notes. F-3
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES Combined Statements of Changes in Stockholders' Equity (Thousands of Constant Pesos as of September 30, 2000) Retained earnings ---------------------------------------------- Deficit from restatement of Parent Legal stockholders' investment reserve Unappropriated Total equity ---------------------------------------------------------------------------------- Balances at January 1, 1997 Ps. 42,631,780 Ps. 39,130 Ps.( 1,449,846)Ps.( 1,410,716) Ps. ( 217,080) Increase in parent investment, net 1,218,071 Deficit from holding nonmonetary assets ( 500,348) Net income for the year 1,830,028 1,830,028 ---------------------------------------------------------------------------------- Balances at December 31, 1997 43,849,851 39,130 380,182 419,312 ( 717,428) Increase in parent investment, net 1,215,770 Surplus from holding nonmonetary assets 318,180 Net income for the year 3,998,546 3,998,546 ---------------------------------------------------------------------------------- Balances at December 31, 1998 45,065,621 39,130 4,378,728 4,417,858 ( 399,248) Increase in parent investment, net 2,363,695 Minority interest Effect of translation of foreign Entities Increase in legal reserve 92,015 ( 92,015) Deficit from holding nonmonetary assets ( 177,245) Net income for the year 4,317,122 4,317,122 ---------------------------------------------------------------------------------- Balances at December 31, 1999 Ps. 47,429,316 Ps.131,145 Ps. 8,603,835 Ps. 8,734,980 Ps. ( 576,493) ================================================================================== Effect of translation Total majority Total of foreign stockholders' Minority stockholders' entities equity interest equity -------------------------------------------------------------- Balances at January 1, 1997 Ps. 41,003,984 Ps. 41,003,984 Increase in parent investment, net 1,218,071 1,218,071 Deficit from holding nonmonetary assets ( 500,348) ( 500,348) Net income for the year 1,830,028 1,830,028 -------------------------------------------------------------- Balances at December 31, 1997 43,551,735 43,551,735 Increase in parent investment, net 1,215,770 1,215,770 Surplus from holding nonmonetary assets 318,180 318,180 Net income for the year 3,998,546 3,998,546 -------------------------------------------------------------- Balances at December 31, 1998 49,084,231 49,084,231 Increase in parent investment, net 2,363,695 2,363,695 Minority interest Ps.659,245 659,245 Effect of translation of foreign Ps.( 67,628) ( 67,628) ( 67,628) Entities Increase in legal reserve Deficit from holding nonmonetary assets ( 177,245) ( 177,245) Net income for the year 4,317,122 4,317,122 -------------------------------------------------------------- Balances at December 31, 1999 Ps.( 67,628)Ps. 55,520,175 Ps.659,245 Ps. 56,179,420 ==============================================================
See accompanying notes. F-4
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES Combined Statements of Changes in Financial Position (Thousands of Constant Pesos as of September 30, 2000) Year ended December 31, ------------------------------------------------------------------ Millions of U.S. dollars 1997 1998 1999 1999 ------------------------------------------------------------------ Operating activities: Net income Ps. 1,830,028 Ps. 3,998,546 Ps. 4,317,122 $ 458 Add (deduct) items not requiring the use of resources: Depreciation 484,998 684,935 1,129,029 120 Amortization 49,816 83,248 345,549 36 Equity in results of affiliates ( 105,747) ( 77,910) ( 14,784) ( 2) Minority interest ( 295,931) ( 31) Changes in operating assets and liabilities: Accounts receivable 685,285 (352,835) (442,558) ( 47) Prepaid expenses (109,001) ( 12) Inventories for sale ( 72,123) (213,118) (1,743,769) ( 185) Accounts payable and accrued liabilities 198,132 35,384 3,776,637 401 Related parties ( 60,684) ( 21,192) (214,989) ( 23) Taxes payable ( 127,613) 409,636 114,150 13 ------------------------------------------------------------------ Resources provided by operating activities 2,882,092 4,546,694 6,861,455 728 ------------------------------------------------------------------ Financing activities: New loans 10,567 2,551,779 271 Repayment of loans (521,775) (185,536) ( 195,594) ( 21) Effect of inflation and of exchange rate differences on debt (151,230) 8,301 ( 20,520) ( 2) Increase in parent investment 1,218,071 1,215,770 2,363,695 250 ------------------------------------------------------------------ Resources provided by financing activities 545,066 1,049,102 4,699,360 498 ------------------------------------------------------------------ Investing activities: Investment in telephone plant (1,508,509) (1,971,443) (6,571,760) ( 697) Investment in subsidiaries and affiliated companies 271,780 (4,427,934) ( 470) Investment in licenses ( 42,956) (1,660,576) Investment in marketable securities (4,327,628) ( 459) ------------------------------------------------------------------ Resources used in investing activities (1,279,685) (3,632,019) (15,327,322) ( 1,626) ------------------------------------------------------------------ Net increase (decrease) in cash and short-term investments 2,147,473 1,963,777 (3,766,507) ( 400) Cash and short-term investments at beginning of the year 36,516,597 38,664,070 40,627,847 4,309 ------------------------------------------------------------------ Cash and short-term investments at end of the year Ps. 38,664,070 Ps. 40,627,847 Ps. 36,861,340 $ 3,909 ==================================================================
See accompanying notes. F-5 AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES Notes to Combined Financial Statements (Amounts in Thousands of Constant Pesos as of September 30, 2000) 1. Description of the Spin off and Business a) Telmex Spin-off The spin-off (the "spin-off") by Telefonos de Mexico, S.A. de C.V. ("Telmex") of the entities comprising America Movil, S.A. de C.V. and its subsidiaries (collectively, the "Company" or "America Movil") was approved by Telmex shareholders at an extraordinary shareholders' meeting held on September 25, 2000, at which time each of the holders of Telmex shares became the owner of an equal number of America Movil shares of the corresponding class. In connection with the spin-off, America Movil was incorporated and was allocated certain assets and liabilities of Telmex (including shares of specified subsidiaries and affiliates of Telmex). The spin-off was implemented using a procedure under Mexican corporate law called escision or "split-up." Prior to the spin-off, the entities that comprise America Movil operated on a stand-alone basis. Costs incurred or paid by Telmex on behalf of the spun-off entities were charged to the appropriate entity. Because Telmex and Radiomovil Dipsa, S.A. de C.V. ("Telcel") provide telecommunications services in the same geographical markets, they have extensive operational relationships. These include interconnection between their respective networks; use of facilities, particularly for the co-location of switching equipment on premises owned by Telmex; use by Telcel of transmission capacity on Telmex's network; and use by each of the services provided by the other. These operational relationships are subject to a variety of different agreements which, for the most part, were in place prior to the spin-off and will continue in effect without being significantly modified as a result of the spin-off. Many of them are also subject to specific regulations governing all telecommunications operators. The terms of these agreements are similar to those on which each company does business with other, unaffiliated parties. Relationships between Telmex and America Movil will be limited to: i) agreements relating to the implementation of the spin-off such as indemnification, releases, assistance in obtaining consents, exchange of information, covenants relating to the tax treatment of the spin-off and similar matters; ii) ordinary course commercial relationships of the kind that normally occur between a major fixed-line network operator and a major wireless network operator, such as interconnection and co-location of facilities; and iii) certain transitional arrangements for services to be provided by Telmex, such as certain data processing and corporate support and administrative services, that will continue while America Movil develops independent capabilities. Telmex will provide these services at a fixed periodic price based on estimated cost plus a percentage. As of the date of the issuance of these financial statements, the above-mentioned agreements are in the process of being drafted and are subject to final negotiations and approvals. Under Mexican corporate law the spin-off remains subject to possible challenges in judicial proceedings by third parties within a period of 45 days following the date of registration and publication of the shareholders resolutions approving the spin-off, which was October 13, 2000. F-6 Prior to the incorporation of America Movil, its operations were conducted through subsidiaries of Telmex. The accompanying financial statements for these periods are presented on a combined basis prepared from Telmex's historical accounting records, and include the historical operations of the entities transferred to America Movil by Telmex in the spin-off. In this context, no historical direct ownership relationship existed among the various entities comprising America Movil prior to the spin-off; accordingly, Telmex and its subsidiaries' net investment in America Movil and its subsidiaries have been included in these financial statements at Telmex's cost plus its equity in the undistributed earnings or losses of the contributed entities. b) Description of the Business America Movil was established on September 25, 2000 in conjunction with the spin-off (see subparagraph a above) of the wireless business and certain international operations Telmex. America Movil is a leading provider of wireless communications services in Mexico. Through its subsidiary Radiomovil Dipsa, S.A. de C.V., which operates under the trademark "Telcel," America Movil provides Mexico's only nationwide cellular telecommunications service. America Movil also has subsidiaries and joint ventures in the telecommunications sector in Guatemala, Ecuador, Argentina, Brazil, Colombia, Venezuela, Puerto Rico, Spain and the United States. The principal international operations of America Movil were acquired during 1999 and 2000. America Movil's participation in its principal subsidiaries at December 31, 1999 is as follows: Radiomovil Dipsa, S.A. de C.V. 100% Global Central America, S.A. de C.V. and subsidiaries ("GCA") 51% TracFone Wireless, Inc. and subsidiary 88.3% The equity participation in its affiliates at December 31, 1999 is as follows: SBC International Puerto Rico, Inc. and subsidiaries 50% Empresas Cablevision, S.A. de C.V. and subsidiaries 49% America Movil through its subsidiaries, Telcel and GCA, has licenses to install, operate and manage mobile telecommunication service in Mexico and Guatemala, respectively. The licenses in Mexico will expire on various dates between the years 2009 and 2015 and the licenses in Guatemala will expire in December 2011. As payment for the licenses awarded in Mexico (except as mentioned in the next two paragraphs below), the Mexican federal government receives a percentage of Telcel's revenues, ranging from 4% to 10% of annual gross revenues generated in Mexico. In 1997, the Mexican federal government awarded Telcel licenses to operate a nationwide wireless network using the 800-megahertz (Band B) radio spectrum. The licenses are for twenty years and required a single payment of Ps. 42,952. The term of these licenses may be extended at the discretion of the federal government. F-7 In 1998, the Mexican federal government granted Telcel licenses to use the 1800-1900 megahertz (Band D) radio spectrum for personal communications services ("PCS") in all nine regions in Mexico. The licenses are for twenty years and required a single payment of Ps. 1,680,145. The term of these licenses may be extended at the discretion of the federal government. Servicios de Comunicaciones Personales Inalambricas, S.A. ("Sercom"), GCA's subsidiary, owns licenses in Guatemala to operate its cellular network on different frequencies for fifteen years. GCA paid approximately U.S.$ 20 million for these licenses. Under the terms of licenses granted to Telcel, and under the Mexican Federal Telecommunications Law, the Company may freely set rates for licensed services. Rates do not require authorization from the Communications Ministry; however, the Company must publish rates and register them with the Ministry. Telcel's revenues include usage charges, monthly subscription charges, long-distance charges, proceeds from sales of handsets and accessories and charges for other services. The "Calling Party Pays" program (CPP) went into effect in Mexico in May 1999. Under this program the Company charges Telmex, Telefonos del Noroeste, S.A. de C.V. (Telmex's subsidiary) and other cellular operators an interconnection fee of Ps. 1.90 per minute for calls made to the Company's subscribers. Revenues obtained from the CPP program from the month it went into effect through December 31, 1999 totaled Ps.1,883,547. Before this program went into effect, subscribers were charged for incoming as well as in outgoing calls. TracFone Wireless, Inc. ("TracFone"), formerly Topp Telecom, Inc., resells cellular airtime on a prepaid basis through retailers to customers who use telephones equipped with TracFone's software. TracFone does not own any cellular facilities, but purchases airtime from carriers throughout the United States of America. Revenues derived from the sale of cellular telephones are incidental to TracFone's main business of reselling cellular airtime. TracFone services are provided within the continental United States of America. Comm South Companies, Inc. ("Comm South"), TracFone's subsidiary, resells local telephone service to customers on a prepaid basis. Revenue is derived from the resale of local dial tone and ancillary services such as call-waiting. Comm South does not own any telephone service facilities, but purchases local telephone service from carriers in its markets of operation. Comm South services are provided in the southeast section of the United States of America. 2. Significant Accounting Policies The most important accounting policies observed by the Company in the preparation of its combined financial statements are described below: a) Combination The combined financial statements include the accounts of the subsidiaries transferred to America Movil in the spin-off (see Note 1b). Each of the subsidiaries operates in the telecommunications sector or provides services to companies operating in this sector. F-8 The minority interest principally relates to the Company's foreign subsidiaries. Balances and significant transactions between the combined entities have been eliminated in the combined financial statements. b) Basis of translation of financial statements of foreign subsidiaries The accounting records of foreign subsidiaries, located in the U.S. and Guatemala, which in the aggregate account for approximately 10% of the Company's total operating revenues and approximately 5% of the Company's total assets in 1999 were adjusted to conform to accounting principles generally accepted in Mexico ("Mexican GAAP"). The accounting records of these subsidiaries were kept in the local currency and translated into Mexican pesos in conformity with Mexican Accounting Principles Bulletin B-15 ("Transactions in Foreign Currency and Translation of Financial Statements of Foreign Operations") as follows: The figures reported by the subsidiaries abroad were adjusted to conform to Mexican GAAP. All balance sheet amounts, except for capital stock and retained earnings, were translated at the prevailing exchange rate at year-end; capital stock and retained earnings were translated at the prevailing exchange rate at the time capital contributions were made and earnings were generated. The statement of income was translated at the exchange rate at the end of the year. At December 31, 1999, translation effects amounted Ps. 67,628 and are included in stockholders' equity. No translation effects were required for prior years because these subsidiaries were acquired during 1999. c) Revenue recognition Revenues are normally recognized at the time services are provided. All services provided by Telcel are billed monthly based on the rates registered with the Communications Ministry. Revenues obtained by Telcel from prepaid plans (calling cards) are recognized at the time they are billed (see Note 19). TracFone's sales of airtime are deferred and recognized as revenues when a customer uses the airtime. Sales of handsets and accessories are recorded as revenue upon shipment, provided that no Company obligations remain and that collection of the resulting receivable is deemed probable by management. Comm South bills for local service in the month prior to service and recognizes revenues in the month the service is provided. d) Earnings per share Earnings per share are determined based on the number of shares issued and outstanding (14,485 million) at September 25, 2000, the date America Movil was establish. F-9 e) Recognition of the effects of inflation The Company recognizes the effects of inflation on financial information as required by Mexican accounting Bulletin B-10 ("Accounting Recognition of the Effects of Inflation on Financial Information"), as amended, issued by the Mexican Institute of Public Accountants (MIPA). Consequently, the amounts shown in the accompanying financial statements and in these notes are expressed in thousands of constant pesos as of September 30, 2000. The September 30, 2000 restatement factors applied to the financial statements at December 31, 1997, 1998 and 1999 were 41.41%, 19.22% and 6.15% respectively (which represent the rate of inflation for 1997, 1998 and 1999 up to September 2000) based on the Mexican National Consumer Price Index (NCPI) published by Banco de Mexico (the Central Bank). Accordingly the financial statements have been restated as follows: The combined balance sheets and the combined statements of changes in stockholders' equity and changes in financial position have been restated in constant pesos as of September 30, 2000 using the NCPI. Combined income statements for the current and prior years have been restated in constant pesos as of September 30, 2000, using the NCPI for the month in which the transactions (income and expenses) occurred. The NCPI (with a base of 100 for the year 1994) at the respective balance sheet dates was as follows: December 31, 1996........................................200.388 December 31, 1997........................................231.886 December 31, 1998........................................275.038 December 31, 1999........................................308.919 September 30, 2000.......................................327.910 The important inflation accounting concepts are described below: - - Plant, property and equipment Plant, property and equipment and construction in progress were restated as described in Note 6. - - Inventories Inventories are presented at estimated replacement cost, not in excess of market value. Cost of sales represents estimated replacement cost at the time inventories were sold, restated in constant pesos at year-end. - - Monetary effect This represents the impact of inflation on monetary assets and liabilities. The net monetary effect of each year is included in the statements of income as a part of the comprehensive financing (income) cost. - - Restatement of stockholders' equity Capital stock, retained earnings and deficit from restatement of stockholders' equity were restated based on the NCPI. F-10 - - Deficit from the restatement of stockholders' equity The deficit from the restatement of stockholders' equity consists of (i) the accumulated monetary position gain determined at the time the provisions of Bulletin B10 were first applied (Ps. 14,162 at December 31, 1999); and (ii) the result from holding non-monetary assets, which represents the net difference between restatement by the specific-cost method through 1996 and the alternate method of specific-indexation (see Note 6) effective January 1997, compared to restatement based on the NCPI. - - Statement of changes in financial position Mexican accounting Bulletin B-12 specifies the appropriate presentation of the statement of changes in financial position when the financial statements have been restated in constant Mexican pesos in accordance with Bulletin B-10. Bulletin B-12 identifies the sources and applications of resources representing differences between beginning and ending financial statement balances in constant Mexican pesos. In accordance with this bulletin, monetary and foreign exchange gains and losses, are not treated as non-cash items in the determination of resources provided by operations. f) Cash, short-term investments and restricted investments Cash and short-term investments, represented basically by bank deposits and highly liquid investments with maturities of three months or less, are stated at cost plus accrued interest. The stated value is not in excess of market value. In order to comply with agreements entered with certain U.S. national airtime carriers, TracFone has placed funds on deposit with commercial banks in the form of certificates of deposits with maturities between six months and one year. Because the amounts involved are not material (Ps. 31,322 and Ps. 30,494 at December 31, 1998 and 1999, respectively), these restricted amounts have been included under cash and short-term investments on the combined balance sheet. g) Marketable securities Marketable securities are held for trading purposes and include foreign government bonds and equity securities. h) Allowance for doubtful accounts The Company provides an allowance for doubtful accounts for accounts receivable amounts that are more than 90 days past due. i) Plant, property and equipment Depreciation is computed on the restated value of plant and equipment using the straight-line method based on the estimated useful lives of the related assets, starting the month after the assets are put into use. F-11 Average annual depreciation rates are as follows: Telephone plant 10.00% to 25.00% System performance monitoring equipment included in telephone plant 33.33% Buildings 3.333% Other assets 10.00% to 25.00% The cost of installed telephone equipment used to provide cellular telephone service in rural areas and fixed cellular telephone service in urban areas is amortized over a three-year period, based on the estimated useful lives of the telephone equipment. j) Leasehold improvements These investments are restated based on the NCPI and comprise costs incurred in remodeling the building where the Company's offices are located. Amortization is computed over the term of the lease. k) Licenses The licenses to operate wireless telecommunications networks in Mexico are restated using the NCPI. Amortization is computed using the straight-line method over the term of the license. The wireless mobile (PCS) licenses to operate in Guatemala are being amortized at 6% annually. l) Equity investments in affiliates The investment in shares of affiliates in which the Company holds an equity interest of 10% or more is valued using the equity method. This accounting method consists basically of recognizing the investor's equity interest in the results of operations and in the result from holding nonmonetary assets of investees at the time such results are incurred (see Note 8). m) Goodwill Goodwill represents the excess of cost over the fair value of the net assets of acquired subsidiaries and affiliates and is amortized using the straight-line method over a five or fifteen year period. n) Exchange rate differences Transactions in foreign currencies are recorded at the prevailing exchange rate at the time of the related transactions. Foreign currency denominated assets and liabilities are translated at the prevailing exchange rate at the balance sheet date. Exchange rate differences are applied directly to income of the year. o) Labor obligations The cost of seniority premiums is recognized during the years of service of employees, based on actuarial computations made by independent actuaries, using the projected unit-credit method and financial hypotheses net of inflation, as required by Mexican Accounting Principles Bulletin D-3 ("Labor Obligations," see Note 9). Termination payments are charged to income in the year in which the decision to dismiss an employee is made. F-12 p) Advertising All advertising costs are expensed as incurred. Advertising expense amounted to approximately Ps. 251,732, Ps. 336,913 and Ps. 565,715 for the years ended December 31, 1997, 1998 and 1999, respectively. q) Income tax and employee profit sharing Income taxes and employee profit sharing are provided based on the amount paid, taking into consideration the effect of non-recurring temporary differences in income for financial and tax reporting purposes (deferred taxes, see Note 16). r) Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. s) Concentration of risk The Company invests its excess cash in commercial paper issued by a related party and cash deposits in financial institutions with strong credit ratings and has established guidelines relating to diversification and maturities to maintain safety and liquidity. The Company has not experienced any losses in its cash and short-term investments. The Company does not believe it has significant concentrations of credit risks in its accounts receivable, because the Company's customer base is geographically diverse. Approximately 92% of the Company's aggregate expenditures in its cellular network for the years ended December 31, 1997, 1998 and 1999 represented purchases from one supplier and approximately 79% of the Company's aggregate costs of telephone equipment for such periods represented purchases from two suppliers. If any of these suppliers fails to provide the Company with services or equipment on a timely and cost effective basis, the Company's business and results or operations could be adversely affected. t) Convenience translation United States dollar amounts as of December 31, 1999 shown in the financial statements have been included solely for the convenience of the reader and are translated from pesos with purchasing power as of September 30, 2000, as a matter of mathematical computation only, at an exchange rate of Ps. 9.4290 to U.S.$ 1.00, the September 30, 2000 exchange rate. Such translations should not be construed as a representation that the peso amounts have been or could be converted into U.S. dollars at this or any other rate. F-13 3. Marketable Securities The following is a summary of marketable securities, all of which were classified as trading securities, as of December 31, 1999. Cost [1] Fair Value ----------------------------------------------- Ecuador government bonds Ps. 2,191,521 Ps. 2,226,748 Equity securities 2,362,461 2,100,880 ----------------------------------------------- Ps. 4,553,982 Ps. 4,327,628 =============================================== The Company has recognized net unrealized gains in its income statement for the year ended December 31, 1999 in the amount of Ps. 47,858. Net realized gains on trading securities for 1999 totaled Ps. 235,756. [1] Cost is expressed in constant pesos as of September 30, 2000, and has been restated using the NCPI. 4. Accounts Receivable Accounts receivable consist of the following:
1998 1999 ------------------------------------------------ Subscribers and interconnection receivables from cellular operators Ps. 769,702 Ps. 1,131,232 Retailers 240,730 167,735 Creditable taxes 113,848 259,044 Other receivables 30,695 327,344 ------------------------------------------------ 1,154,975 1,885,355 Less: allowance for doubtful accounts (132,036) (149,073) ------------------------------------------------ Net Ps. 1,022,939 Ps. 1,736,282 ================================================
Activity in the allowance for doubtful accounts for the years ended December 31, 1997, 1998 and 1999 was as follows:
1997 1998 1999 ----------------------------------------------------------------- Opening balance December 31 Ps. (140,597) Ps. (211,171) Ps. (132,036) Additions: Charged to costs and expenses (316,063) (133,839) (205,380) Deductions: Adjustments to reserves 245,489 212,974 188,343 ----------------------------------------------------------------- Ending balance Ps. (211,171) Ps. (132,036) Ps. (149,073) =================================================================
F-14 5. Inventories Inventories consist of the following:
1998 1999 ------------------------------------------------ Cellular telephones and accessories Ps. 356,005 Ps. 2,159,254 Less: reserve for obsolete inventory ( 5,252) ( 15,953) ------------------------------------------------ Net Ps. 350,753 Ps. 2,143,301 ================================================
6. Plant, Property and Equipment a) Plant, property and equipment consist of the following:
1998 1999 --------------------------------------------------- Telephone plant and equipment Ps. 7,047,903 Ps. 10,936,024 Land and buildings 77,407 103,302 Other assets 1,078,817 1,508,258 --------------------------------------------------- 8,204,127 12,547,584 Less: accumulated depreciation ( 2,970,819) ( 3,742,253) --------------------------------------------------- Net 5,233,308 8,805,331 Construction in progress and advances to equipment suppliers 69,698 3,205,529 Inventories for use in construction of the telephone plant 1,100,775 393,287 --------------------------------------------------- --------------------------------------------------- Total Ps. 6,403,781 Ps. 12,404,147 ===================================================
Included in plant, property and equipment are the following assets held under capital leases : 1998 1999 --------------------------------------------- Assets under capital leases Ps. - Ps. 120,819 Less accumulated depreciation - ( 26,874) --------------------------------------------- Ps. - Ps. 93,945 ============================================= b) Depreciation expense for the years ended December 31, 1997, 1998 and 1999 was Ps. 484,998, Ps. 684,935 and Ps. 1,129,029, respectively. c) Through December 31, 1996, items comprising the telephone plant in Mexico were based on the acquisition date and cost, applying the factor derived from the specific indexes determined by the Company and validated by an independent appraiser registered with the National Banking and Securities Commission ("CNBV"). Since the fifth amendment (as revised) to Bulletin B-10 issued by the MIPA, effective January 1, 1997, eliminated the use of appraisals to restate plant, property and equipment in the financial statements, plant, property and equipment was restated as follows at December 31, 1998 and 1999: F-15 The December 31,1996 appraised value of the imported telephone plant, as well as the cost of subsequent additions to such plant, were restated based on the rate of inflation in the respective country of origin and the prevailing exchange rate at the balance sheet date (i.e., specific indexation factors). The appraised value of land, buildings and other fixed assets of domestic origin at December 31, 1996, and the cost of subsequent additions to such assets were restated based on the NCPI. At December 31, 1999, approximately 85% of the value of the plant, property and equipment (87% in 1998) has been restated using specific indexation factors. Plant, property and equipment at December 31, 1998 and 1999, restated on the basis of the NCPI (starting with the appraised values at December 31, 1996), in accordance with disclosure requirements of the CNBV with respect to the restatement of fixed assets based on specific indexation factors, is as follows:
1998 1999 ------------------------------------------------ Telephone plant and equipment Ps. 7,183,884 Ps. 11,404,276 Land and buildings 77,407 103,302 Other assets 1,117,866 1,614,208 ------------------------------------------------ 8,379,157 13,121,786 Less: accumulated depreciation ( 3,003,411) ( 3,989,141) ------------------------------------------------ Net 5,375,746 9,132,645 Construction in progress and advances to equipment suppliers 79,152 3,233,833 Inventories for use in construction of the telephone plant 1,100,775 393,287 ------------------------------------------------ Total Ps. 6,555,673 Ps. 12,759,765 ================================================
7. Licenses As of December 31, 1998 and 1999 licenses are as follows: 1998 1999 ------------------------------------------------ Investment Ps. 2,261,584 Ps. 2,558,537 Accumulated amortization ( 386,768) ( 539,580) ------------------------------------------------ Net Ps. 1,874,816 Ps 2,018,957 ================================================ Amortization expense for the periods ended December 31, 1997, 1998 and 1999 was Ps. 49,816, Ps. 83,248 and Ps. 152,812, respectively. F-16 8. Investments An analysis at December 31, 1998 and 1999 is as follows: 1998 1999 -------------------------------------------- Investments in: Affiliates Ps. 520,062 Ps. 3,073,211 Other 98,928 -------------------------------------------- Total Ps. 520,062 Ps. 3,172,139 ============================================ - - Investments in affiliates An analysis of the equity investments in affiliated companies at December 31, 1998 and 1999, and a brief description of major acquisitions is as follows: 1998 1999 --------------------------------------- SBC International Puerto Rico, Inc. Ps. 2,385,020 Empresas Cablevision, S.A. de C.V. Ps. 520,062 688,191 --------------------------------------- Total Ps. 520,062 Ps. 3,073,211 ======================================= a) In October 1999, the Company acquired a 50% equity interest in SBC International Puerto Rico, Inc. ("SBCI Puerto Rico"), for a total consideration of approximately U.S. $244.7 million. SBCI Puerto Rico is the parent company of Cellular Communications of Puerto Rico, Inc., a wireless telephone operator in Puerto Rico and the Virgin Islands. The remaining 50% equity interest in SBCI Puerto Rico is held by SBC Wireless Puerto Rico, LLC. The goodwill of Ps. 55,066 generated on this transaction will be amortized over a period of five years. The unamortized balance of goodwill at December 31, 1999 was Ps. 53,255. b) In 1995, the Company acquired 49% of the capital stock of Empresas Cablevision, S.A. de C.V. and subsidiaries ("Cablevision"). Cablevision provides cable TV in the Mexico City metropolitan area. The remaining 51% interest in Cablevision is held by Grupo Televisa, S.A. de C.V. c) Network Access In June 1999, the Company acquired a 0.08% equity interest in Network Access Solutions Corporation ("Network Access") a provider of broadband network access services, which is included at December 31, 1999, under the caption other investments. In March 2000, the Company made additional capital contributions to Network Access and as a result, increased its equity in interest to 5.9%. Total 1999 and 2000 equity investments in Network Access were approximately U.S.$79.0 million. F-17 - - Goodwill An analysis of goodwill at December 31, 1999 is as follows: 1999 ------------------------- Goodwill: Subsidiaries Ps. 1,995,644 Affiliates 55,066 ------------------------- 2,050,710 Accumulated amortization ( 192,737) ------------------------- Ps. 1,857,973 ========================= - - Investments in subsidiaries Following is a summary of the most important equity investments in subsidiaries: a) In February 1999, the Company acquired a 55.5% equity interest in TracFone which is engaged in the resale of prepaid cellular telephone service in the United States. In the period June through September 1999,the Company made additional capital contributions to TracFone and, as a result, increased its equity interest to 88.3%. The goodwill of Ps.1,067,794 generated on these acquisitions will be amortized over a period of five years. The unamortized balance of goodwill at December 31, 1999 was Ps.916,494. From June through October 2000, America Movil made additional capital contributions to TracFone. As a result of these transactions, America Movil owns 97.45% of outstanding common stock, as of the date of issuance of these financial statements. Total equity investments in TracFone made in 1999 and 2000 amounted to approximately U.S$352.6 million. b) In 1999, through TracFone, the Company acquired in a step acquisition an 88.3% equity interest in Comm South for a total consideration of approximately U.S.$79.0 million. Comm South is engaged in the resale of prepaid local telephone service in the United States. The goodwill of Ps. 753,770 generated on this acquisition will be amortized over a period of fifteen years. The unamortized balance of goodwill at December 31,1999 was Ps. 746,625. c) In May 1999, the Company acquired a 51% equity interest in Global Central America, S.A. de C.V., for a total consideration of approximately U.S.$65.8 million. In December 1999 and March 2000, the Company made additional capital contributions to GCA in the amount of U.S.$ 12.4 million and U.S.$ 15.7 million, respectively. Through the GCA acquisition, the Company acquired 99.9% of the capital stock of seven companies in Guatemala. The goodwill from these acquisitions amounted Ps.174,080 and is being amortized over a period of five years. The unamortized balance of goodwill at December 31, 1999 was Ps. 141,599. e) All of the acquisitions were recorded pursuant to the purchase method of accounting F-18 The results of operations of the acquisitions made in 1999 have been included in the Company's combined financial statements from the month following the date of acquisition through the end of the period presented. The Company is not obligated to make any further payments or provide any form of additional or contingent consideration related to these acquisitions. The following pro forma unaudited combined financial data for the years ended December 31, 1998 and 1999 is based upon the historical financial statements of the Company adjusted to give effect to (i) the acquisitions as described above during 1999; and (ii) certain purchase accounting adjustments related to the amortization of goodwill, a reduction in interest income for the loss of interest on the amounts expended for the above acquisitions and adjustments for depreciation of amounts allocated to adjust to fair value of the net assets of the acquired entities. The pro forma adjustments assume that the acquisitions were made at the beginning of each year and are based upon available information and certain assumptions that management believes are reasonable. The pro forma financial data does not purport to represent what the Company's operations would have actually been had such transactions in fact occurred or to predict the Company's results of operations.
Pro Forma combined America Movil For the years ended December 31, -------------------------------------------- 1998 1999 --------------------- ---------------------- Operating revenues: Ps. 10,631,062 Ps. 16,333,112 Net income 3,312,503 4,388,491 Earnings per share (in Mexican Pesos) 0.229 0.303
9. Employee Benefits Obligations a) Seniority premiums are paid upon termination of employment for any reason and may, at the discretion of the Company, be paid earlier if the employee so requests. In 1994, Telcel set up an irrevocable trust fund to cover the payment of the obligations for seniority premiums. It adopted the policy of making annual contributions to the fund. During 1997 and 1998 contributions to the fund totaled Ps. 272 and Ps. 279, respectively, and no contributions were made to the fund in 1999. These contributions are tax deductible for purposes of Mexican corporate income tax. The transition asset, past services and variances in assumptions are amortized over a thirteen-year period, which is the estimated average remaining working lifetime of Telcel's employees. In 1997, 1998 and 1999, seniority premium expense totaled Ps. 326, Ps. 333 and Ps. 608, respectively. F-19 An analysis of the net period cost for 1997, 1998 and 1999 is as follow:
1997 1998 1999 ----------------------------------------------------------- Service cost Ps. 362 Ps. 393 Ps. 640 Interest cost 76 85 123 Expected return on plan assets ( 106) ( 130) ( 149) Amortization of transition amount ( 6) ( 7) ( 6) Recognized net actuarial loss ( 8) ----------------------------------------------------------- Net period cost Ps. 326 Ps. 333 Ps. 608 ===========================================================
The change in the pension plan benefit obligation is as follows:
1998 1999 ----------------------------------------- Benefit obligation at the beginning of the year Ps. 1,248 Ps. 1,824 Service cost 393 640 Interest cost 85 123 Actuarial gain (loss) 134 ( 286) Benefits paid ( 36) ( 38) ----------------------------------------- Benefit obligation at the end of the year Ps. 1,824 Ps. 2,263 =========================================
An analysis of the seniority premium reserve at December 31, 1998 and 1999 is as follows:
1998 1999 ----------------------------------------- Projected benefit obligation Ps. 1,824 Ps. 2,263 Plan asset ( 1,844) ( 2,031) Transition asset 74 67 Actuarial gain 138 469 ----------------------------------------- Net current liability Ps. 192 Ps. 768 ========================================= Current benefit obligation Ps. 1,824 Ps. 2,263 =========================================
The change in employee benefit plan assets and plan funded status is as follows:
1998 1999 ----------------------------------------- Fair value of plan assets at beginning of year Ps. 1,741 Ps. 1,844 Real investment return 103 187 ----------------------------------------- Current benefit obligation Ps. 1,844 Ps. 2,031 ========================================= 1998 1999 ----------------------------------------- Funded status Ps. 20 Ps. ( 232) Unrecognized net actuarial loss ( 138) ( 469) Unrecognized net transition asset ( 74) ( 67) ----------------------------------------- Accrued benefit cost Ps. ( 192) Ps. ( 768) =========================================
F-20 The net of inflation rates used to determine the actuarial present values of the benefit obligations at December 31, 1997, 1998 and 1999 are presented below for each of the economic assumptions. 1997 1998 1999 --------------- --------------- -------------- Discount rate 7.6% 6.9% 6.9% Expected return on plan assets 7.6% 6.9% 6.9% Rate of compensation increase 0.9% 0.9% 0.9% 10. Accounts payable and accrued liabilities Accounts payable and accrued liabilities consist of the following: 1998 1999 ------------------------------------------------ Suppliers Ps. 747,871 Ps. 4,128,028 Accrued expenses 28,679 243,731 Guarantee deposit 211,441 309,393 Vendors 3,494 335,984 Others - 111,092 ------------------------------------------------ Total Ps. 991,485 Ps. 5,128,228 ================================================ 11. Analysis of Long-term Debt The Company's long-term debt consists of the following:
Average Average Maturities Balance at interest rate interest rates from 2000 December 31, 1998 1999* through 1998 1999 ------------------------------------------------------------------------------ Banks, guaranteed by an affiliated company Libor + 1.5 Libor + 1.5 2002 Ps. 177,653 Ps. 269,904 Other (1) 8.3 2003 25,259 Banco GIT 20.0 2000 38,455 Citibank 7.79 2000 13,140 Banco del Agro 20.0 2000 11,543 Other foreign banks 15.6 2004 22,426 Financial leases 16.5 2004 96,056 ------------------------------- Total 177,653 476,783 Less: current portion of long-term debt 100,434 390,771 ------------------------------- Long-term debt Ps. 77,219 Ps. 86,012 ===============================
*Subject to variances in international and local rates. (1) On February 12, 1999, a director and shareholder of TracFone, together with certain of his family members, acquired Ps. 25,259 of TracFone's debt directly from CellStar. This note payable bears interest at 8.33% with quarterly principal and interest payments beginning on April 30, 2000. F-21 The Company's weighted average cost of borrowed funds in 1999 (including interest, fees and reimbursement of such lenders for Mexican taxes withheld) was approximately 10.72% (7% in 1998). An analysis of the foreign currency-denominated debt at December 31, 1999 is as follows:
Foreign Exchange rate at Pesos with Pesos with currency December 31, 1999 purchasing power purchasing power (pesos per unit of as of December 31 as of September 30 (thousands) foreign currency) 1999 2000 ------------------------------------------------------------------------------------- U.S. dollar 36,384 Ps. 9.5222 Ps. 346,457 Ps. 367,764 Guatemalan quetzal 82,215 1.2492 102,703 109,019 --------------------------------------------- Total Ps. 449,160 Ps. 476,783 =============================================
Long-term debt maturities at December 31, 1999 are as follows: Year ended December 31, Amount --------------------------------- 2001 Ps. 67,783 2002 12,216 2003 4,630 2004 1,383 ----------- Total Ps. 86,012 =========== 12. Foreign Currency Position and Transactions a) At December 31, 1998 and 1999, America Movil had the following foreign currency denominated assets and liabilities: Thousands of foreign currency 1998 1999 ---------------------------------------------- Assets U.S. dollar 25,904 1,854,053 Guatemalan quetzal 377,514 Liabilities U.S. dollar ( 93,629) ( 381,975) Guatemalan quetzal ( 632,075) The exchange rates used to translate the above-mentioned amounts into Mexican pesos were Ps. 9.8650 and Ps. 9.5222 per U.S. dollar at December 31, 1998 and 1999, respectively, and Ps. 1.2492 per quetzal at December 31, 1999. At November 16, 2000 the exchange rates of the Mexican peso relative to the U.S. dollar and the Guatemalan quetzal were Ps. 9.4625 per U.S. dollar and Ps. 1.2198 per quetzal. b) In the years ended December 31, 1998 and 1999, the Mexican subsidiaries of the Company had the following transactions denominated in foreign currencies. Currencies other than the U.S. dollar were translated to U.S. dollars using the average exchange rate for the year. F-22
Thousands of U.S. dollars 1997 1998 1999 ------------------------------------------------------------- Net settlement revenues $ 17,568 $ 10,996 $ 5,991 Interest income 271,023 112,718 241,074 Interest expense 367 1,593 487 Operating costs and expenses 18,950 163,907 442,579
13. Commitments and Contingencies a) The Company leases certain equipment used in its operations under capital leases. At December 31, 1999, the Company had the following commitments under non-cancelable leases are as follows: Year ended December 31, Amount - ------------------------------------------------------------------------------- 2000 Ps. 53,475 2001 57,078 2002 1,645 2003 1,138 2004 21 Total 113,357 Less interest ( 17,301) ----------------- Present valued of net minimum lease payments 96,056 Less current installment ( 38,545) ----------------- Long-term obligations at December 31, 1999 Ps. 57,511 ================= b) As of December 31, 1999, the Company has entered into various leases (as a lessee) with related parties for the buildings in which its offices are located, as well as with owners of property where the Company has installed radio bases. The leases expire within one to five years. Rent charged to expenses was Ps. 40,958 in 1997, Ps. 57,072 in 1998 and Ps. 107,333 in 1999. Following is an analysis of minimum rental payments due in the next five years. In some cases, the amount will be increased either based on the NCPI or on increases in appraisal values of the property. Year ended December 31, - ----------------------- 2000 Ps. 40,591 2001 34,094 2002 33,030 2003 30,065 2004 25,580 ------------------------ Ps. 163,360 ------------------------ c) Where obligations of Telmex have been transferred to America Movil, consent of the relevant creditors will be required in order for America Movil to succeed to the rights and obligations of Telmex. Failure to obtain consent from creditors may require that Telmex remain liable for certain obligations of America Movil, including indebtedness and credit support provided to certain of its subsidiaries and affiliates. In such cases, America Movil will agree to indemnify Telmex. F-23 d) In November 1995, Telcel's cellular competitor Grupo Iusacell, S.A. de C.V. ("Iusacell") commenced proceedings against Telmex and Telcel before the Competition Commission, claiming that Telmex engaged in anti-competitive practices such as cross-subsidization, predatory pricing and discrimination in access for the benefit of Telcel. In the petition, Iusacell requested that the Competition Commission impose sanctions against Telmex, including fines, an order requiring Telmex to sell Telcel and an order nullifying certain provisions in the interconnection agreement between Iusacell and Telmex. Telmex and Telcel are contesting these claims on the basis that their behavior has not been anti-competitive. If the Competition Commission were to find against Telmex and Telcel in this proceeding, Iusacell could seek damages in a separate proceeding against Telcel. e) In January 2000, COC Services Ltd. ("CSL") filed a lawsuit against CompUSA, Inc. ("CompUSA") in the District Court of Dallas County, Texas asserting various contractual and tort claims against CompUSA arising out of a letter of intent concerning franchise retail stores in Mexico. The lawsuit also asserts claims against other defendants, including Grupo Carso, S.A. de C.V. ("Grupo Carso"), Grupo Sanborns, S.A. de C.V. ("Sanborns") and Carlos Slim Helu. CSL requests U.S.$150 million from CompUSA in actual damages for the breach of contract, tortious interference and conspiracy claims and U.S.$2 million in damages for the fraud claim, as well as U.S.$300 million in exemplary damages. CSL also seeks to recover interest, attorneys' fees and court costs. CompUSA and the other defendants filed motions seeking summary judgment on all claims against them and were heard on October 27, 2000. The judge has taken these motions under submission, but has not yet ruled on them. Although it is not possible to assess the outcome of this litigation at present, CompUSA has advised the Company that it intends to defend vigorously against the claims in this lawsuit. f) In June 2000, the executive branch of the Guatemalan government issued declarations concerning Empresa Guatemalteca de Telecomunicaciones, or Guatel, a Guatemalan state agency that conducted the privatization of Telecomunicaciones de Guatemala, S.A. ("Telgua"). The declarations state that certain actions of Guatel relating to the privatization of Telgua were contrary to the interests of the Guatemalan state. In September 2000, the Guatemalan government commenced judicial proceedings against Guatel, Telgua and certain other parties involved in the privatization alleging improprieties in connection with the privatization and seeking reversal of the privatization. Telgua was formally notified of such proceedings on October 6, 2000. The Company is contesting the proceedings and expects that it will have an opportunity to be heard. Although the Company does not currently expect that the judicial proceeding will ultimately have consequences that are materially adverse to the Company's interests it is unable to predict the outcome of the proceedings. If the government ultimately prevails and pursues the most aggressive remedies, the Company may be required to transfer its interest in Telgua to Guatel or another agency of the Guatemalan government. g) TracFone was a defendant in a lawsuit alleging among other items patent and trademark infringement. Pursuant to a settlement agreement dated July 14, 2000 between TracFone and the plaintiff, TracFone agreed to pay the plaintiff a total of U.S.$750 in exchange for the license rights without limitation, to use the patented software technology in the functions currently existing and being utilized by TracFone. The settlement also released the plaintiff from all and any other claims brought against it by the TracFone and released TracFone from all and any other claims brought against it by the plaintiff. F-24 14. Related Parties a) Following is an analysis of balances due from/to related parties as of December 31, 1998 and 1999. All of the companies are considered as America Movil's affiliates, as the Company's principal owners are also directly or indirectly, shareholders of these related parties.
1998 1999 ----------------------------------------------- Trade receivables: Sanborns' Hermanos, S.A. de C.V. Ps. 54,753 Telefonos del Noroeste, S.A. de C.V. Ps. 1,600 21,577 Telmex 238,090 ----------------------------------------------- 1,600 314,420 Other receivables: Telecomunicaciones de Guatemala, S.A. de C.V. 148,102 Telecosmos de Honduras, S.A. (2) 14,502 Telecosmos de El Salvador, S.A. (2) 10,981 Seguros Inbursa, S.A. de C.V. (insurance) 26,903 Others 17,110 ----------------------------------------------- 1,600 217,598 ----------------------------------------------- Ps. 1,600 Ps. 532,018 =============================================== Accounts payable: Telmex (1) Ps. 36,902 Others Ps. 2,490 16,713 ------------------------------------------------------- 2,490 53,615 Current portion of long-term debt: Telmex 86,750 394,107 ------------------------------------------------------- Ps. 89,240 Ps. 447,722 ======================================================= Long-term debt: Telmex Ps. 6,578 Ps. 2,317,967 =======================================================
(1) Borrowings through disposition of Telmex's lines of credit with the following financial institutions: Societe Generale, Bank of America, Export Development Credit and Ericsson Telecom. (2) Working capital borrowings. The debt due to Telmex consist of the following:
Average Maturities Interest From 1999 Balance at December 31 Rate 1999 Through 1998 1999 -------------------------------------------------------------- Debt denominated in foreign currency 7.84% 2005 Ps. 93,328 Ps. 2,712,074 Less current portion of long-term debt ( 86,750) ( 394,107) ------------------------------- Long-term debt Ps. 6,578 Ps. 2,317,967 ===============================
F-25 The maturities of long-term debt due to Telmex at December 31, 1999 are as follows: Year ended December 31, 2001 Ps. 391,834 2002 390,104 2003 390,104 2004 390,104 2005 390,104 2006 and beyond 365,717 ---------------------------- Ps. 2,317,967 ============================ b) The Company has included in cash and short-term investments in 1998 and 1999, Ps. 24,757,327 and Ps. 18,744,122, respectively, of commercial paper issued by an affiliated party. Interest earned for the years ended December 31, 1997, 1998 and 1999 was Ps. 1,932,169, Ps. 5,168,243 and Ps. 5,495,733, respectively. c) In the years ended December 31, 1997, 1998 and 1999 the Company had the following significant transactions with related parties, mainly with Telmex:
1997 1998 1999 ----------------------------------------------------- Revenues: ----------------------------------------------------- CPP interconnection fees (1) Ps. 1,750,559 ----------------------------------------------------- Expenses: Cost of sale and services: Payments of long distance, circuits and others (2) Ps. 901,203 Ps. 885,765 Ps. 1,238,470 ----------------------------------------------------- Commercial, administrative and general: Advertising 143,572 95,930 197,979 Others, net 11,458 26,447 14,917 ----------------------------------------------------- 155,030 122,377 212,896 ----------------------------------------------------- ----------------------------------------------------- Interest expense 25,662 10,763 87,292 -----------------------------------------------------
(1) Interconnection fee from the "Calling Party Pays" program (CPP): incoming calls from a fixed line telephone to a wireless telephone. Prior to the spin-off Telcel had entered into interconnection agreements with Telmex. The interconnection agreements specify a number of connection points, locations of interconnection points, the method by which signals must be transmitted and received and the costs and fees of interconnection. (2) Interconnection (cost): payments of interconnection for outgoing calls from the wireless network to the fixed line network. (2) Long distance: payments for the use of national and international long-distance. (2) Building and other cellular space leases. F-26 d) Telcel has entered into various leasing and co-location agreements with a subsidiary of Telmex. Under these agreements, Telcel pays monthly fees for the use of Telmex's antenna and repetitor space, and is able to install its interconnection equipment (see table above). e) Telcel purchases materials or services from a variety of companies that are under common control with Carso Global Telecom, S.A. de C.V. which is the controlling shareholder of America Movil. These include insurance and banking services provided by Grupo Financiero Inbursa, S.A. de C.V. and its subsidiaries. Telcel purchases these materials and services on terms no less favorable than it could obtain from unaffiliated parties, and would have access to other sources if its affiliates ceased to provide them on competitive terms (see table above). 15. Stockholders' Equity a) The shares of America Movil were authorized and issued pursuant to the Telmex shareholders' meeting on September 25, 2000 approving the Spin-off. (see note 1a). Capital stock is represented by 14,485 million common shares with no par value, representing the fixed capital. An analysis is as follows: 3,266 million series AA shares 346 million series A shares 10,873 million series L shares ----------- 14,485 total shares b) Series AA shares, which may be subscribed only by Mexican individuals and corporate entities, must represent at all times no less than 20% of capital stock and no less than 51% of the common shares. Common series A shares, which may be freely subscribed, must account for no more than 19.6% of capital stock and no more than 49% of the common shares. Series AA and A shares combined may not represent more than 51% of capital stock. The combined number of series L shares, which have limited voting rights and may be freely subscribed, and series A shares may not exceed 80% of capital stock. The Company's bylaws contemplate the possibility of the holders of series L shares exchanging such shares, in certain circumstances, for series AA shares, commencing January 1, 2001. Of the full voting stock of the Company, the series AA shares represented 90% and the series A shares represented 10% at December 31, 1999. c) America Movil has not paid dividends since its establishment in September 2000. Dividends, if any, will be declared and paid in Mexican pesos. 16. Income Tax, Asset Tax and Employee Profit Sharing a) Mexico 1) The amount shown under income tax in the combined statements of income corresponds to the combined income tax determined individually by the subsidiaries. For the years ended December 31, 1997, 1998 and 1999 income tax provision totaled Ps. 778,049, Ps. 1,071,687 and Ps. 1,101,978, respectively, mainly due to the interest income generated by the Company's cash and short-term investments. F-27 America Movil is in the process of obtaining an authorization from the Ministry of Finance and Public Credit to file consolidated tax returns of its Mexican subsidiaries, effective in fiscal year 2001. Management believes that such authorization will be granted. 2) At December 31, 1999, the Company's Mexican subsidiaries had tax losses that can be carried forward during the next 10 years. These losses could be restated as of the date of its application against the tax result of the year with adjustment factors obtained from the NCPI. Restated losses as of December 31, 1999 and their expiration dates are as follows: Amount Date --------------------------------------- Ps. 495,054 2006 542,301 2007 26,786 2008 ------------------------ Ps. 1,064,141 ======================== 3) The asset tax is a minimum tax levied on the average value of most assets net of certain liabilities. Income tax may be credited against the asset tax so that the asset tax is payable only to the extent that it exceeds income tax. The asset tax for the years ended December 31, 1997, 1998 and 1999 was Ps. 37,835, Ps. 59,020 and Ps. 45,977, respectively. In conformity with a decree published on December 24, 1996, companies that determined accelerated tax depreciation in 1997, based on purchases of property and equipment made during that year have the option of crediting the statutory 34% tax rate on the accelerated tax depreciation against the asset tax. Since Telcel computed accelerated tax depreciation in 1997 on the purchases of property and equipment made in that same year, it applied the credit in 1997, 1998 and 1999 for Ps. 37,835, Ps. 59,020 and Ps. 45,977, respectively, thereby eliminating the asset tax provision of those years. At December 31, 1999, the remaining creditable amount of depreciation was Ps. 110,923, which may be recovered, restated for inflation based on the NCPI, in any of the next four years. 4) Effective January 1, 1999, the corporate income tax rate was increased from 34% to 35%. However, corporate taxpayers have the option of deferring a portion, so that the tax payable will represent 30% of taxable income (32% in 1999). The earnings on which there is a deferral of taxes must be controlled in a so-called "net reinvested tax profit" account ("CUFINRE"), to clearly identify the earnings on which the taxpayer has opted to defer payment of corporate income tax. If the Company opts for this tax deferral, starting in the year 2000, earnings will be considered to be distributed first from the CUFINRE account and any excess will be paid from the "net tax profit" account ("CUFIN") so as to pay the 5% deferred tax (3% for 1999). Any distribution of earnings in excess of the above mentioned account balances will be subject to payment of 35% corporate income tax. F-28 In addition, effective January 1, 1999, cash dividends received by individuals or residents abroad from corporate entities in Mexico, are subject to a 5% withholding tax on the amount of the dividend multiplied by 1.5385 (1.515 for dividends paid from the determined balance of the CUFIN account at December 31, 1998). 5) The following items represent the principal reasons for the differences between Mexican income taxes computed at the statutory tax rate and the Company's combined provision for income tax: Year ended December 31, -------------------------------- 1997 1998 1999 -------------------------------- Statutory income tax rate 34.0% 34.0% 35.0% Depreciation (137.3) (8.3) (5.8) Financing costs 57.8 24.2 25.0 Purchases (12.9) (4.5) (19.6) Licenses (PCS) 0.0 (28.0) 0.0 Amortization of commissions 86.5 0.0 0.0 Others 2.2 3.8 (1.3) Tax loss carryforwards 0.0 0.0 (12.2) Provision for income tax 30.3 21.2 21.1 6) A new Mexican Accounting Principles Bulletin D-4 "Accounting for Income Tax, Asset Tax and Employee Profit Sharing," went into effect on January 1, 2000. The new bulletin modifies the rules with respect to the computation of deferred income tax. Basically, the new bulletin requires that deferred income tax be determined on virtually all temporary differences in balance sheet accounts for financial and tax reporting purposes, using the enacted income tax rate at the time the financial statements are issued. Through December 31, 1999, deferred income tax was recognized only on temporary differences that were considered to be nonrecurring and that had a known turnaround time. The initial effect of the adoption of new Bulletin D-4, at the beginning of the year 2000 was the recognition of deferred tax liabilities and a debit to shareholders' equity in the amount of Ps. 1,668,417. Also, it is expected that this bulletin will increase income tax provisions in future years. The new bulletin does not significantly affect the accounting for employee profit sharing. 7) The Company is required by the Mexican law to pay employee profit sharing to its Mexican employees in addition to their contractual compensation and benefits. The statutory rate for employee profit sharing in 1997, 1998 and 1999 was 10%, based on taxable income after eliminating certain effects of inflation and the restatement of depreciation expense. b) Foreign Subsidiaries The foreign subsidiaries determine their income tax based on the individual results of each subsidiary and in conformity with the specific tax regimes of each country. The combined pretax income and income tax provisions of these subsidiaries in 1999 were Ps. 22,980 and Ps. 7,150, respectively. F-29 17. Segments America Movil operates primarily in one segment (cellular services), however, as mentioned in note 1b above, the Company has international telecommunications operations as of December 31, 1999, in three different geographic regions: (i) Mexico, (ii) United States and Puerto Rico and (iii) Guatemala. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The following summary shows the most important segment information: Year ended December 31, 1997 1998 1999 ----------------- -------------------- ------------------- Operating revenues: Mexico Ps. 5,834,022 Ps.9,371,590 Ps. 13,836,354 United States 971,640 Guatemala 546,729 -------------------- ------------------ ------------------ Ps. 5,834,022 Ps.9,371,590 Ps. 15,354,723 ==================== ================== ================== December 31, 1998 1999 --------------------------------------- Plant, property and equipment, net Mexico Ps. 6,403,781 Ps. 11,299,145 United States 221,352 Guatemala 883,650 --------------------------------------- Ps. 6,403,781 Ps. 12,404,147 ======================================= Goodwill, net Mexico Ps. Ps. 969,749 United States 888,224 --------------------------------------- Ps. Ps. 1,857,973 ======================================= Licenses, net Mexico Ps. 1,874,816 Ps. 1,744,552 Guatemala 274,405 --------------------------------------- Ps. 1,874,816 Ps. 2,018,957 ======================================= 18. Subsequent Events The most important equity investments made by Telmex subsequent to December 31, 1999, and before the spin-off, and transferred to America Movil, are as follows: F-30 Telecom Americas The Company entered into an agreement with Bell Canada International Inc. ("BCI") and SBC International, Inc. ("SBCI") providing for the establishment of Telecom Americas Ltd. ("Telecom Americas"), a new joint venture company that will serve as the three parties' principal vehicle for expansion in Latin America. The joint venture agreement was signed by Telmex on September 25, 2000 and assigned to America Movil on November 7, 2000. The transaction closed on November 16, 2000. Under the agreement America Movil contributed to Telecom Americas at closing approximately U.S.$1.17 billion in cash and promissory notes. In addition, the Company contributed its interests in ATL-Algar Telecom Leste S.A. ("ATL"), and has agreed to contribute its interests in Techtel-LMDS Comunicaciones Interactivas S.A. ("Techtel") to Telecom Americas by February 14, 2001 (see "Techtel" and "ATL" paragraphs below). If the Company is unable to obtain certain regulatory consents or otherwise fails to contribute Techtel to the joint venture prior to such date, the Company has agreed to negotiate in good faith with the other parties to agree on a way to contribute Techtel. If no agreement is reached, the Company will be required to contribute cash in order to maintain its 44.277% ownership interest in Telecom Americas. BCI contributed to Telecom Americas at closing approximately U.S.$1.00 billion in promissory notes. In addition, BCI contributed its interests in the Brazilian wireless operators Americel S.A. ("Americel") and Telet S.A. ("Telet"); Canbras Communications Corp. ("Canbras"), a Brazilian cable television and Internet access service provider; the Colombian wireless operators Comunicacion Celular S.A. ("Comcel") and Occidente y Caribe Celular S.A. ("Occel"); Genesis Telecom, C.A. ("Genesis"), a broadband wireless operator in Venezuela. SBCI contributed to Telecom Americas a portion of its interest in ATL and has agreed to contribute the balance of its interest upon the expiration or removal of certain regulatory restrictions in Brazil. America Movil and BCI each have a 44.277% equity interest in Telecom Americas and SBCI has an 11.446% equity interest. Telecom Americas is subject to complex provisions governing the rights of each shareholder with respect to management. In general, these provisions effectively require a consensus among the three shareholders in order to make significant decisions about Telecom Americas. Techtel America Movil owns a 60% interest in Telcel Wireless Argentina, LLC (formerly Telecom Americas LLC ) ("Telcel Argentina"), a joint venture with Techint, one of Argentina's largest industrial groups. America Movil's interest in Telcel Argentina was acquired in July 2000, for approximately U.S. $148.5 million. Telcel Argentina controls Techtel, a company which provides data and video transfer solutions and value-added telecommunications services. F-31 ATL America Movil owns an interest in ATL-Algar Telecom Leste, S.A. ("ATL"), the B-band cellular concessionaire in the states of Rio de Janeiro and Espirito Santo in Brazil. America Movil's interest in ATL was acquired in January 2000, for approximately U.S. $248.2 million. America Movil holds a 16.5% interest in ATL through Telecom Americas. ATL's revenues were Ps. 2,460 million for the year ended December 31, 1999. Conecel America Movil owns a controlling interest in Consorcio Ecuatoriano de Telecomunicaciones, S.A. Conecel ("Conecel"), a cellular telecommunications provider in Ecuador. The company indirectly owns 60% of the capital stock of Conecel, and local investors own the remaining interest. The interest in Conecel was acquired in March 2000 for approximately U.S. $217.0 million. Conecel's revenues were Ps. 660 million for the year ended December 31, 1999. CompUSA America Movil owns 49% of the capital stock of CompUSA, a retailer of personal computing equipment based in Dallas, Texas. The investment in CompUSA was acquired in March 2000, for approximately U.S. $458.9 million, following the completion of a tender offer in which Telmex and Sanborns acquired 100% of the capital stock of CompUSA. Sanborns is a subsidiary of Grupo Carso, which is an affiliate of the Company. CompUSA's revenues were Ps. 59,134 million for the year ended December 31, 1999. Telgua America Movil owns 85.6% of the capital stock of America Central Tel, S.A. ("America Central", formerly Luca S.A.), which owns 95% of the capital stock of Telgua, a fixed-line and wireless telecommunications operator in Guatemala. America Movil's interest in America Central was acquired in March 2000, for approximately U.S. $171.5 million. Telgua's revenues were Ps. 2,571 million for the year ended December 31, 1999. In connection with the acquisition of the shares of Telgua, America Central is obligated to pay U.S.$350 million in October 2001 to a trustee on behalf of the Guatemalan Government, which bears interest at Libor plus 3%. The shares of Telgua are pledged to the trustee to secure the obligations of America Central. F-32 19. Differences between Mexican and U.S. GAAP The Company's combined financial statements are prepared in accordance with Mexican GAAP, which differ in certain significant respects from generally accepted accounting principles in the United States ("U.S. GAAP"). The accompanying reconciliation to U.S. GAAP does not include the reversal of the adjustments to the financial statements for the effects of inflation required under Mexican GAAP (Bulletin B-10), because the application of Bulletin B-10 represents a comprehensive measure of the effects of price level changes in the Mexican economy and, as such, is considered a more meaningful presentation than historical cost-based financial reporting for both Mexican and U.S. accounting purposes. The principal differences between Mexican GAAP and U.S. GAAP, as they relate to the Company, are described below together with an explanation, where appropriate, of the method used to determine the adjustments that affect operating income, net income, total stockholders' equity and resources provided by operating and financing activities. Cash Flow Information Under Mexican GAAP, the Company presents combined statements of changes in financial position, as described in Note 2. The changes in the combined financial statement balances included in this statement constitute resources provided by and used in operating, financing and investing activities stated in constant pesos (including monetary and foreign exchange gains and losses). Under Mexican GAAP changes in trading securities are presented as investing activities, while under U.S. GAAP the cash flows from these type of securities should be disclosed as cash provided by (used in) operating activities. Statement of Financial Accounting Standards No.95 ("SFAS No. 95"), "Statement of Cash Flows," does not provide guidance with respect to inflation adjusted financial statements. In accordance with Mexican GAAP, the increase (decrease) in current and long-term debt due to restatement in constant pesos, including the effect of exchange differences, is presented in the statement of changes in financial position in the financing activities section. The Company has adopted the guidance issued by the AICPA SEC Regulations Committee's International Practices Task Force in its meeting held on November 24, 1998, encouraging foreign registrants that file price level adjusted financial statements to provide cash flow statements that show separately the effects of inflation on cash flows. If the changes in trading securities and the exchange gain or loss related to the debt were treated as components of operating activities, summarized consolidated statements of cash flows derived from information prepared in accordance with U.S. GAAP would be as follows: F-33
Year ended December 31, 1997 1998 1999 --------------------------------------------------------- Operating activities: Net income Ps. 1,966,448 Ps. 2,969,330 Ps. 2,667,582 Depreciation and amortization 606,815 821,472 1,618,922 Deferred taxes ( 135,624) 1,169,549 1,792,112 Monetary effect 5,425,411 6,475,568 4,453,508 Equity in results of affiliates, minority interest and others ( 105,747) ( 77,910) ( 310,715) Effect of exchange rate differences on debt 100,342 ( 184,844) ( 19,487) Marketable securities ( 4,327,628) Change in operating assets and liabilities 368,865 153,843 1,465,825 ----------------- ----------------- ------------------- Resources provided by operating activities 8,226,510 11,327,008 7,340,119 ----------------- ----------------- ------------------- Financing activities: New loans and repayment of loans ( 521,775) ( 174,969) 2,356,185 Increase in parent investment 1,218,071 1,215,770 2,363,695 ----------------- ----------------- ------------------- Resources provided by financing activities 696,296 1,040,801 4,719,880 ----------------- ----------------- ------------------- Resources used in investing activities ( 1,327,052) ( 3,722,972) ( 11,107,077) ----------------- ----------------- ------------------- Effect of inflation accounting ( 5,448,281) ( 6,681,060) ( 4,719,429) Net increase (decrease) in cash and short term Investments 2,147,473 1,963,777 ( 3,766,507) Cash and short-term investments at beginning of year 36,516,597 38,664,070 40,627,847 ----------------- ----------------- ------------------- Cash and short-term investments at end of year Ps. 38,664,070 Ps. 40,627,847 Ps. 36,861,340 ================= ================= ===================
Cash Flows from purchases and sales of trading securities during 1999 were Ps. 9,005,487 and Ps. 5,149,715, respectively. Net resources provided by operating activities reflect cash payments for interest, income tax and employee profit sharing as follows:
Year ended December 31, 1997 1998 1999 --------------------------------------------------------- Interest expense Ps. 80,698 Ps. 150,148 Ps. 241,407 Income tax 1,035,250 1,942,024 582,561 Employee profit sharing - 55,305 63,971
Capitalized Interest Under Mexican GAAP, the Company does not capitalize net financing costs on assets under construction. Under U.S. GAAP, interest on borrowings in foreign currencies or comprehensive financing cost for borrowings in pesos, must be considered an additional cost of constructed assets to be capitalized in plant, property and equipment and depreciated over the lives of the related assets. The amount of interest or net financing costs capitalized for U.S. GAAP purposes was determined by reference to the Company's average interest cost of outstanding borrowings. F-34 Valuation of Plant, Property and Equipment As discussed in Note 6, through December 31, 1996, items comprising the telephone plant were restated based on the acquisition date and cost, applying the factors derived from the specific indexes determined by the Company and validated by an independent appraiser registered with the National Banking and Securities Commission. Since January 1, 1997, the valuation method of plant, property and equipment was modified, as the fifth amendment (as revised) to Bulletin B-10 eliminated the use of appraisals to restate plant, property and equipment. The alternate restatement method allowed by the fifth amendment (as revised) to Bulletin B-10, which was adopted in 1997 by the Company as described in Note 6, which allows for the use of the rate of inflation in the country of origin of imported telephone plant for the restatement, is not acceptable for U.S. GAAP reporting purposes. Accordingly, the difference between this method and the restatement of plant, property and equipment based on the NCPI was taken to the U.S. GAAP reconciliations. As a result of this comparison, plant, property and equipment and stockholders' equity increased by Ps. 151,892 in 1998 and Ps. 355,618 in 1999 and depreciation expense increased by Ps. 52,663 in 1997, Ps. 28,346 in 1998 and Ps. 108,638 in 1999, respectively. Plant, property and equipment at December 31, 1998 and 1999 under U.S. GAAP, is as follows:
1998 1999 ------------------------------------------------ Plant, property and equipment, net, as reported under Mexican GAAP Ps. 6,403,781 Ps. 12,404,147 Effects of inflation 151,892 355,618 Capitalized interest 301,737 409,119 Cumulative depreciation of capitalized interest ( 67,761) ( 103,466) ------------------------------------------------ Plant, property and equipment, net under U.S. GAAP Ps. 6,789,649 Ps. 13,065,418 ================================================
Depreciation expense for the years ended December 31, 1997, 1998 and 1999 under U.S. GAAP is as follows:
Year ended December 31, 1997 1998 1999 --------------------------------------------------------- Depreciation expense as reported under Mexican GAAP Ps. 484,998 Ps. 684,935 Ps. 1,129,029 Effects of inflation 52,663 28,346 108,638 Depreciation of capitalize interest 19,338 24,943 35,706 --------------------------------------------------------- Depreciation expense under U.S. GAAP Ps. 556,999 Ps. 738,224 Ps. 1,273,373 =========================================================
F-35 Accrued Vacation Pay For purposes of the accompanying combined financial statements, the expense for vacation pay is recognized when paid rather than during the period in which it is earned by employees. For U.S. GAAP purposes, the Company has determined the accrued liability for vacation pay at December 31, 1997, 1998 and 1999, and accordingly, has adjusted the expense for vacation pay during the periods then ended. Deferred Income Tax and Deferred Employee Profit Sharing Under Mexican GAAP, deferred income tax and deferred employee profit sharing are determined by the partial liability method of accounting, under which deferred income tax and deferred employee profit sharing (for purposes of this Note, collectively "deferred taxes") are provided for identifiable, non-recurring temporary differences (i.e., those that are expected to reverse over a definite period of time) at rates expected to be in effect at the time those temporary differences reverse. Statement of Financial Accounting Standards No. 109 ("SFAS No. 109") "Accounting for Income Taxes," requires deferred income tax be determined using the liability method for all temporary differences between financial reporting and tax bases of assets and liabilities and that such difference be measured at the enacted income tax rates for the years in which such taxes will be payable or refundable. The Company is required to pay employee profit sharing in accordance with Mexican labor law. Deferred employee profit sharing in the accompanying reconciliations has been determined following the guidelines of SFAS No.109. To determine operating income under U.S. GAAP deferred employee profit sharing and employee profit sharing expense have been included under the caption operating expenses. The effect of income tax and employee profit sharing on the difference between the indexed cost and the replacement cost valuation of fixed assets and inventories is applied as an adjustment to stockholders' equity. The related accumulated amount of income taxes at December 31, 1999 increased equity by Ps. 206,511, and decreased equity by Ps. 24,679 in 1998. The yearly changes in the accumulated amount for deferred taxes applied to equity from 1997 through 1999 are the following: 1997 Ps. (184,147) 1998 Ps. 10,752 1999 Ps. 231,189 In 1997, 1998 and 1999, monetary (losses) gains of Ps. (10,415), Ps. 5,122 and Ps. (7,460), respectively, on the deferred taxes balance related to the difference between the indexed cost and replacement cost valuation of fixed assets and inventories, were taken to U.S. GAAP equity, netted as part of the change of the year. The deferred tax adjustment included in the net income and stockholders' equity reconciliations also includes the effect of deferred taxes on the other U.S. GAAP adjustments reflected in the respective summaries. F-36 Significant components of deferred taxes under U.S. GAAP at December 31, 1999 and 1998 are as follows:
1998 1999 ------------------------------------------- ----------------------------------------------- Employee Employee Income Profit Deferred Income Profit Deferred Tax sharing Taxes Tax sharing Taxes --------------------------------------------------------------------------------------------- Deferred tax assets: Allowances for bad debts Ps. 46,212 Ps. 13,204 Ps. 59,416 Ps. 54,307 Ps. 10,521 Ps. 64,828 Tax loss carry forwards 752,790 - 752,790 389,075 389,075 Accrued liabilities 63,218 18,060 81,278 161,627 42,294 203,921 Debt exchange loss 10,973 10,973 NOL carryforward 287,412 287,412 Valuation allowance ( 314,677) (314,677) ------------ -------------- ------------- -------------- ------------- -------------- Total deferred tax assets 862,220 42,237 904,457 577,744 52,815 630,559 ------------ -------------- ------------- -------------- ------------- -------------- Deferred tax liabilities: Fixed assets (841,072) (239,901) (1,080,973) (1,163,867) ( 331,134) (1,495,001) Inventories (122,763) (35,075) ( 157,838) ( 644,062) ( 184,017) ( 828,079) Capitalized interest or net Financing cost ( 81,893) ( 23,398) ( 105,291) ( 106,979) ( 30,566) ( 137,545) Licenses (578,191) ( 179,787) ( 757,978) ( 562,700) ( 160,772) ( 723,472) ------------ -------------- ------------- -------------- ------------- -------------- Total deferred tax liabilities (1,623,919) ( 478,161) (2,102,080) (2,477,608) ( 706,489) (3,184,097) ------------ -------------- ------------- -------------- ------------- -------------- Net deferred tax liabilities Ps.(761,699) Ps.(435,924) Ps.(1,197,623) Ps.(1,899,864) Ps.(653,674) Ps.(2,553,538) ============ ============== ============== =============== ============== ===============
As mentioned in Note 16, the new Mexican Accounting Principle Bulletin D-4, went into effect on January 1, 2000. This new bulletin modifies the rules with respect to the accounting treatment for deferred income tax. Under the new accounting guidelines set-forth in this bulletin, the differences with US GAAP will comprise the accounting treatment for deferred employee profit sharing, which was not significantly affected by the new Mexican Accounting Principle, and the recognition of deferred taxes on all other US GAAP adjustments. Employee Benefits Obligations The Company accrues expenses for the seniority premium plan on the basis of actuarial computations. The Company's funding policy has been in accordance with the projected unit credit method based on the provisions of bulletin D-3 issued by the Mexican Institute of Public Accountants for recording labor obligations by employers. This bulletin substantially follows the same basis for the computation of labor costs and related liability as prescribed by SFAS No. 87. The differences between D-3 and SFAS 87, as they relate the Company are not presented because such information is considered to be immaterial in relation to the combined financial statements taken as a whole. Effects of Inflation Accounting on Approximate U.S. GAAP Adjustments To determine the net effect on the combined financial statements of recognizing the adjustments described above, it is necessary to recognize the effects of applying the Mexican GAAP inflation accounting provisions (described in Note 2) to such adjustments. These effects are taken into consideration in the preparation of U.S. GAAP reconciliations of net income, operating income and equity. F-37 Disclosure about Fair Value of Financial Instruments In accordance with Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"), "Disclosures about Fair Value of Financial Instruments," under U.S. GAAP it is necessary to provide information about the fair value of certain financial instruments for which it is practicable to estimate that value. The carrying amounts of cash and short-term investments, accounts receivable and accounts payable and accrued liabilities approximate fair values due to the short maturity of these instruments. The fair value of total debt, excluding capital leases, is estimated using discounted cash flow analyses based on current borrowing rates offered to the Company for debt of the same remaining maturities at December 31, 1999. As of December 31, 1998, the carrying value of total debt at December 31 is Ps.177,653 in 1998 and Ps 412,849 in 1999; the fair value is Ps. 177,653 at December 31, 1998 and Ps. 412,509 at December 31, 1999. Impairment of Assets Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. Based on current circumstances, it was not necessary to record any adjustment to the carrying value of the Company's long-lived assets. Impairment of Goodwill Excess cost over the fair value of net assets acquired (or goodwill) generally is amortized on a straight-line basis over a five-year period. The carrying value of goodwill will be reviewed if the facts and circumstances suggest that it may be impair. If this review indicates that goodwill will not be recoverable, as determined based on the undiscounted cash flow of the entity acquired over the remaining amortization period, the Company's carrying value of goodwill will be reduce by the estimated shortfall of cash flow. Minority Interest Under Mexican GAAP, minority interest is presented as a component of stockholders' equity, immediately after total majority stockholders' equity. Under US GAAP, minority interest is generally presented out of stockholders' equity. As a result of the above, for U.S. GAAP purposes the Company reclassified minority interest from stockholders' equity, decreasing its total stockholders' equity by Ps. 659,245 at December 31, 1999. F-38 Reporting Comprehensive Income The Company has adopted for purposes of the U.S. GAAP reconciliations Statement No. 130, "Reporting Comprehensive Income." Statement No. 130 establishes rules for the reporting and disclosure of comprehensive income and the related components. However, such adoption had no impact on the Company's net income or stockholders' equity. Statement No. 130 requires the deficit from restatement of stockholders' equity, deferred taxes on the difference between indexed cost and replacement cost, and effect of translation of foreign entities, which prior to the adoption were reported separately in stockholders' equity, to be included in other comprehensive income. The U.S. GAAP statements of changes in stockholders' equity include the disclosure requirements of Statement No. 130. Cumulative effects of the deficit from restatement of stockholder's equity, deferred taxes on the difference between indexed cost and replacement cost, and effect of translation of foreign entities included in comprehensive income at December 31, 1999, are Ps. (31,230), Ps. 206,512 and Ps. (67,628), which (decreased) increased stockholders' equity, respectively. Accounting for the Cost of Computer Software Developed or Obtained for Internal Use In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use." SOP 98-1, which was effective beginning on January 1, 1999, requires the capitalization of certain costs incurred after the date of adoption in connection with developing or obtaining software for internal-use. Because the Company was already capitalizing such costs, SOP 98-1 did not have any significant effect on earnings or financial position. Accounting for the Costs of Start-Up Activities In April 1998, the AICPA issued SOP 98-5, "Reporting the Cost of Start-Up Activities." The effective date of the SOP was January 1, 1999. It requires that start-up costs capitalized prior to January 1, 1999, be written-off and any future start-up costs be expensed as incurred. Because the Company is expensing such costs as incurred, the adoption of this guideline did not affect either earnings or financial position. Recent Accounting Pronouncement In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133. Pursuant to SFAS No. 137, the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, will be effective for all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities and requires, among other things, that all derivatives be recognized as either assets or liabilities in the balance sheet and that these instruments be measured at fair value. The Company has no derivative instruments and does not engage in hedging activities. F-39 SAB-101 Revenue Recognition Staff Accounting Bulletin No. 101 ("SAB 101") was released on December 3, 1999, and provides the staff's views in applying generally accepted accounting principles to certain revenue recognition transactions. The Company is currently evaluating the process for full implementation of the SEC's SAB-101 "Revenue Recognition" for U.S. GAAP purposes in the fourth quarter of 2000. Summary Net income, operating income and total stockholders' equity, adjusted to take into account the material differences between Mexican GAAP and U.S. GAAP, are as follows:
Year ended December 31, 1997 1998 1999 ----------------------------------------------------------- Net income as reported under Mexican GAAP Ps. 1,830,028 Ps. 3,998,546 Ps. 4,317,122 Approximate U.S. GAAP adjustments: Capitalized interest or net financing cost 47,367 90,953 107,383 Depreciation of capitalized interest ( 19,338) ( 24,943) ( 35,706) Accrued vacation pay ( 8,787) ( 11,562) ( 30,890) Deferred income tax on U.S. GAAP adjustments ( 14,283) ( 31,068) ( 24,041) Deferred income tax 206,533 ( 900,531) (1,437,655) Deferred employee profit sharing on U.S. GAAP adjustments ( 4,201) ( 8,534) ( 6,869) Deferred employee profit sharing ( 52,426) ( 229,416) ( 323,547) Difference between the restatement of depreciation expense based on specific indexation factors and on the basis of the NCPI ( 52,663) ( 28,346) ( 108,638) Effects of inflation accounting on U.S. GAAP adjustments. 34,218 114,231 210,423 ----------------- ------------------ ------------------- Total approximate U.S. GAAP adjustments, net 136,420 (1,029,216) (1,649,540) ----------------- ------------------ ------------------- Approximate net income under U.S. GAAP Ps. 1,966,448 Ps. 2,969,330 Ps. 2,667,582 ================= ================== =================== Common shares outstanding as of September 25,2000 (in millions): 14,485 14,485 14,485 Approximate net income per share under U.S. GAAP (in pesos): Ps. 0.136 Ps. 0.205 Ps. 0.184 ================= ================== ===================
After giving effect to the foregoing approximate adjustments for accrued vacation pay, depreciation of capitalized interest and the difference between the restatement of depreciation expense based on specific indexation factors and on the basis of the NCPI; as well of the reclassification of the employee profit sharing expense and the deferred employee profit sharing expense, operating income under U.S. GAAP totaled Ps 58,020, Ps. 1,591,799 and Ps. 1,616,887, in 1997, 1998 and 1999, respectively. F-40
December 31, 1998 1999 ----------------------------------------- Total stockholders' equity under Mexican GAAP Ps. 49,084,231 Ps. 56,179,420 Approximate U.S. GAAP adjustments, net of effects of inflation on monetary items: Capitalized interest or net financing cost 301,737 409,119 Accumulated depreciation of capitalized interest or net financing cost ( 67,761) ( 103,466) Accrued vacation pay ( 37,372) ( 62,846) Deferred income tax from US GAAP ( 68,811) ( 84,982) Deferred income tax from Mexican GAAP ( 673,694) ( 1,975,501) Deferred employee profit sharing from US GAAP ( 19,660) ( 24,281) Deferred employee profit sharing from Mexican GAAP ( 410,779) ( 675,285) Deferred taxes on the difference between the indexed cost and replacement cost valuation of fixed assets and inventories ( 24,679) 206,511 Minority interest ( 659,245) Difference between the restatement of fixed assets and inventories based on specific indexation factors and on the basis of the NCPI 151,892 355,618 ------------------- ------------------ Total approximate U.S. GAAP adjustments, net ( 849,127) ( 2,614,358) ------------------- ------------------ Approximate total stockholders' equity under U.S. GAAP Ps. 48,235,104 Ps. 53,565,062 =================== ==================
F-41
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES Combined Statements of Changes in Stockholders' Equity Under U.S. GAAP at December 31, 1997, 1998 and 1999 (Thousands of Constant Pesos with purchasing power as of September 30, 2000) Retained Earnings Parent investment Legal Reserve Unappropriated Total -------------------------------------------------------------------------- Balances at January 1, 1997 Ps. 42,631,780 Ps. 39,130 Ps.( 1,614,398) Ps. (1,575,268) Increase in parent investment, net 1,218,071 Comprehensive income: Net income for the year 1,966,448 1,966,448 Other comprehensive income: Deferred taxes allocated to equity, net of inflation Deficit from holding nonmonetary assets Total comprehensive income ------------------ --------------- -------------------- ---------------- Balances at December 31, 1997 43,849,851 39,130 352,050 391,180 Increase in parent investment, net 1,215,770 Comprehensive income: Net income for the year 2,969,330 2,969,330 Other comprehensive income: Deferred taxes allocated to equity, net of inflation Surplus from holding nonmonetary assets Total comprehensive income ------------------ --------------- -------------------- ---------------- Balances at December 31, 1998 45,065,621 39,130 3,321,380 3,360,510 Increase in parent investment, net 2,363,695 Increase in legal reserve 92,015 ( 92,015) Comprehensive income: Net income for the year 2,667,582 2,667,582 Other comprehensive income: Effect of conversion in foreign entities of the year Deferred taxes allocated to equity, net of inflation Surplus from holding nonmonetary assets Total comprehensive income Balances at December 31, 1999 Ps. 47,429,316 Ps. 131,145 Ps. 5,896,947 Ps. 6,028,092 ================== =============== ==================== ================ Accumulated other Comprehensive comprehensive income income Total ------------------------------------------------------------------ Balances at January 1, 1997 Ps. ( 68,364) Ps. 40,988,148 Increase in parent investment, net 1,218,071 Comprehensive income: Net income for the year Ps. 1,966,448 1,966,448 Other comprehensive income: Deferred taxes allocated to equity, net of inflation ( 184,147) ( 184,147) ( 184,147) Deficit from holding nonmonetary assets ( 80,308) ( 80,308) ( 80,308) -------------------- Total comprehensive income Ps. 1,701,993 ==================== ------------------------ ------------------- Balances at December 31, 1997 ( 332,819) 43,908,212 Increase in parent investment, net 1,215,770 Comprehensive income: Net income for the year Ps. 2,969,330 2,969,330 Other comprehensive income: Deferred taxes allocated to equity, net of inflation 10,752 10,752 10,752 Surplus from holding nonmonetary assets 131,040 131,040 131,040 -------------------- Total comprehensive income Ps. 3,111,122 ==================== ------------------------ ------------------- Balances at December 31, 1998 ( 191,027) 48,235,104 Increase in parent investment, net 2,363,695 Increase in legal reserve Comprehensive income: Net income for the year Ps. 2,667,582 2,667,582 Other comprehensive income: Effect of conversion in foreign entities of the year ( 67,628) ( 67,628) ( 67,628) Deferred taxes allocated to equity, net of inflation 231,189 231,189 231,189 Surplus from holding nonmonetary assets 135,120 135,120 135,120 -------------------- Total comprehensive income Ps. 2,966,263 ==================== Balances at December 31, 1999 Ps. 107,654 Ps. 53,565,062 ======================== =================== See accompanying notes.
F-42 UNAUDITED INTERIM FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2000
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES Statements of Income (Unaudited) (Thousands of Constant Pesos as of September 30, 2000, except for earnings per share) Nine Months ended September 30, ----------------------------------------------------------- Millions of U.S. dollars 1999 2000 2000 ----------------------------------------------------------- Combined Consolidated Operating revenues: Services: Usage charges Ps. 4,654,233 Ps. 10,621,508 $ 1,127 Monthly rent 2,731,089 3,284,255 348 Long-distance 938,809 1,803,316 191 Other services 166,269 395,838 42 Telephone equipment sales and other: Sales of handsets and accessories 1,541,124 2,219,205 235 Other revenues 215,922 825,680 88 ----------------------------------------------------------- 10,247,446 19,149,802 2,031 ----------------------------------------------------------- Operating costs and expenses: Cost of sales and services 3,880,733 7,806,185 828 Cost of sales and services with related parties (Note 9) 901,532 1,776,381 189 Commercial, administrative and general 2,994,112 4,789,640 508 Commercial, administrative and general with related parties (Note 9) 11,341 19,850 2 Depreciation and amortization 845,316 2,067,190 219 ----------------------------------------------------------- 8,633,034 16,459,246 1,746 ----------------------------------------------------------- Operating income 1,614,412 2,690,556 285 ----------------------------------------------------------- Comprehensive financing (income) cost: Interest income ( 7,258,760) ( 3,628,969) (385) Interest expense 120,582 361,395 38 Interest expense with related parties (Note 9) 46,721 287,393 30 Exchange loss, net 1,386,715 52,123 6 Monetary effect 3,666,145 1,822,900 193 ----------------------------------------------------------- ( 2,038,597) ( 1,105,158) (118) ----------------------------------------------------------- Income before income tax and employee profit sharing 3,653,009 3,795,714 403 ----------------------------------------------------------- Provisions for: Income tax 726,812 1,798,460 191 Employee profit sharing 130,107 112,001 12 ----------------------------------------------------------- 856,919 1,910,461 203 ----------------------------------------------------------- Income before equity in results of affiliates and minority interest 2,796,090 1,885,253 200 Equity in results of affiliates 48,613 ( 465,433) (49) ----------------------------------------------------------- Income before minority interest 2,844,703 1,419,820 151 Minority interest in loss of subsidiaries 114,028 159,640 17 ----------------------------------------------------------- Net income Ps. 2,958,731 Ps. 1,579,460 $ 168 =========================================================== Common shares outstanding (in millions) 14,485 14,485 14,485 Net income per share 0.204 0.109 0.012
See accompanying notes. F-43
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES Balance Sheets (Thousands of Constant Pesos as of September 30, 2000) ----------------------------------------------------------- Millions of U.S. Combined Consolidated dollars ----------------------------------------------------------- December 31, September 30, September, 30 1999 2000 2000 ----------------------------------------------------------- (Note 1) (Unaudited) Assets Current assets: Cash and short-term investments Ps. 36,861,340 Ps. 28,675,032 $ 3,041 Marketable securities (Note 3) 4,327,628 Accounts receivable, net (Note 4) 1,736,282 3,921,209 416 Related parties (Note 9) 532,018 1,383,466 147 Inventories, net 2,143,301 1,827,009 194 Prepaid expenses and other assets 318,272 577,173 61 ----------------------------------------------------------- Total current assets 45,918,841 36,383,889 3,859 Plant, property and equipment, net (Note 5) 12,404,147 27,065,561 2,871 Licenses, net (Note 6) 2,018,957 2,349,926 249 Investments in affiliates and others (Note 7) 3,172,139 9,938,053 1,054 Goodwill, net (Note 7) 1,857,973 7,676,627 814 ----------------------------------------------------------- Total assets Ps. 65,372,057 Ps. 83,414,056 $ 8,847 =========================================================== Liabilities and stockholders' equity Current liabilities: Current portion of long-term debt (Note 8) Ps. 390,771 Ps. 1,850,006 $ 196 Accounts payable and accrued liabilities 5,128,228 6,817,430 723 Taxes payable (Note 11) 650,137 2,759,718 293 Related parties (Note 9) 447,722 473,467 50 ----------------------------------------------------------- Total current liabilities 6,616,858 11,900,621 1,262 Long-term debt (Note 8) 86,012 4,750,788 504 Related parties (Note 9) 2,317,967 443,069 47 Deferred credits 171,800 223,321 24 ----------------------------------------------------------- Total liabilities 9,192,637 17,317,799 1,837 ----------------------------------------------------------- Stockholders' equity (Note 10): Parent investment 47,429,316 Capital stock 26,846,098 2,847 Capital contributions 28,689,105 3,043 Retained earnings: Unappropriated results of prior years 4,417,858 6,759,480 717 Net income for the period 4,317,122 1,579,460 168 ----------------------------------------------------------- 8,734,980 8,338,940 885 Deficit from restatement of stockholders' equity ( 576,493) ( 354,655) (38) Effect of translation of foreign entities ( 67,628) 382,826 41 Cumulative effect of deferred income taxes ( 1,452,141) (154) ----------------------------------------------------------- Total majority stockholders' equity 55,520,175 63,902,314 6,778 Minority interest 659,245 2,193,943 232 ----------------------------------------------------------- Total stockholders' equity 56,179,420 66,096,257 7,010 ----------------------------------------------------------- Total liabilities and stockholders' equity Ps. 65,372,057 Ps. 83,414,056 $ 8,847 ===========================================================
See accompanying notes. F-44 AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Thousands of Constant Pesos as of September 30, 2000) Nine-month period ended September 30, 2000
Retained Earnings ------------------------------------------------- Parent investment Capital Capital Legal Stock contributions reserve Unappropriated ----------------------------------------------------------------------------------- Balances at December 31, 1999 Ps. 47,429,316 Ps. 131,145 Ps. 8,603,835 Cumulative effect of deferred income taxes at at the beginning of the year (1,975,500) Contribution to the parent Company of an account receivable held by a former affiliated party 6,601,492 Increase in parent investment, net 1,504,395 Allocation of the effects of the spin-off ( 55,535,203) Ps.26,846,098 Ps. 28,689,105 Minority interest Effect of translation of foreign entities Deferred income taxes on the difference between the indexed cost and replacement cost valuation of fixed assets and inventories allocated to equity, net of inflation Deficit from holding nonmonetary assets Net income for the period 1,579,460 ----------------------------------------------------------------------------------- Balances at September 30, 2000 Ps. Ps.26,846,098 Ps. 28,689,105 Ps. 131,145 Ps. 8,207,795 =================================================================================== Retained Earnings ----------------- Deficit from restatement Effect of of translation Total majority stockholders' of foreign stockholders' Total equity entities equity -------------------------------------------------------------------------- Balances at December 31, 1999 Ps. 8,734,980 Ps. ( 576,493) Ps.( 67,628) Ps. 55,520,175 Cumulative effect of deferred income taxes at at the beginning of the year ( 1,975,500) 307,083 ( 1,668,417) Contribution to the parent Company of an account receivable held by a former affiliated party 6,601,492 Increase in parent investment, net 1,504,395 Allocation of the effects of the spin-off Minority interest Effect of translation of foreign entities 450,454 450,454 Deferred income taxes on the difference between the indexed cost and replacement cost valuation of fixed assets and inventories allocated to equity, net of inflation 216,276 216,276 Deficit from holding nonmonetary assets ( 301,521) ( 301,521) Net income for the period 1,579,460 1,579,460 -------------------------------------------------------------------------- Balances at September 30, 2000 Ps. 8,338,940 Ps. ( 354,655) Ps. 382,826 Ps. 63,902,314 ========================================================================== Total Minority stockholders' interest equity ------------------------------------ Balances at December 31, 1999 Ps. 659,245 Ps. 56,179,420 Cumulative effect of deferred income taxes at at the beginning of the year ( 1,668,417) Contribution to the parent Company of an account receivable held by a former affiliated party 6,601,492 Increase in parent investment, net 1,504,395 Allocation of the effects of the spin-off Minority interest 1,534,698 1,534,698 Effect of translation of foreign entities 450,454 Deferred income taxes on the difference between the indexed cost and replacement cost valuation of fixed assets and inventories allocated to equity, net of inflation 216,276 Deficit from holding nonmonetary assets ( 301,521) Net income for the period 1,579,460 ------------------------------------ Balances at September 30, 2000 Ps.2,193,943 Ps. 66,096,257 ====================================
See accompanying notes. F-45 AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES Statements of Changes in Financial Position (Unaudited) (Thousands of Constant Pesos as of September 30, 2000)
Nine Months ended September 30, ------------------------------------------------------ Millions of U.S. dollars 1999 2000 2000 ------------------------------------------------------ Combined Consolidated Operating activities: Net income Ps. 2,958,731 Ps. 1,579,460 $ 168 Add (deduct) items not requiring the use of resources: Depreciation 645,666 1,313,118 139 Amortization 199,650 754,072 80 Deferred taxes 787,545 84 Equity in results of affiliates ( 48,613) 465,433 49 Minority interest ( 114,028) (159,640) (17) Changes in operating assets and liabilities: Accounts receivable (371,944) (1,168,128) (124) Prepaid expenses ( 316,876) (222,877) (24) Inventories for sale (519,042) 563,505 60 Accounts payable and accrued liabilities 962,247 90,779 10 Related parties 402,336 (861,080) (91) Taxes payable 277,202 (298,322) (32) ------------------------------------------------------ Resources provided by operating activities 4,075,329 2,843,865 302 ------------------------------------------------------ Financing activities: Related parties 756,729 (1,874,898) (199) Debt (43,812) (317,172) (34) Increase in parent investment 2,139,230 8,105,887 860 ------------------------------------------------------ Resources provided by financing activities 2,852,147 5,913,817 627 ------------------------------------------------------ Investing activities: Investment in telephone plant (2,694,862) (10,178,276) (1,080) Investment in subsidiaries and affiliated companies ( 1,506,755) (11,093,342) (1,176) (Investment) disposal of marketable securities ( 1,359,225) 4,327,628 459 ------------------------------------------------------ Resources used in investing activities (5,660,842) (16,943,990) (1,797) ------------------------------------------------------ Net increase (decrease) in cash and short-term investment 1,366,634 (8,186,308) (868) Cash and short-term investments at beginning of the period 40,627,847 36,861,340 3,909 ------------------------------------------------------ Cash and short-term investments at end of the period Ps. 41,994,481 Ps. 28,675,032 $ 3,041 ======================================================
See accompanying notes. F-46 AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements (Amounts in thousands of constant pesos as of September 30, 2000) 1. Description of the Business and basis of presentation a) Description of the Business. America Movil was established in September 25, 2000 in a spin-off (the "Spin-off") from Telefonos de Mexico, S.A. de C.V. ("Telmex"). America Movil and its subsidiaries (collectively the "Company" or "America Movil") is the leading provider of wireless communications services in Mexico. America Movil has subsidiaries and joint ventures in the telecommunications sector in Guatemala, Ecuador, Argentina, Brazil, Puerto Rico, and the United States. As of September 30, 2000, America Movil holds equity interest in the following companies:
Name of Company Jurisdiction of Percentage --------------- Establishment Owned ------------- ----- Sercotel, S.A. de C.V. Mexico 100.0% Radiomovil Dipsa, S.A. de C.V. ("Telcel") Mexico 100.0 Cellular Communications of Puerto Rico, Inc. Puerto Rico 50.0 SubDipsa Treasury L.L.C. Delaware 100.0 Inmobiliaria Los Cantaros, S.A. de C.V. Mexico 100.0 TracFone Wireless, Inc. Florida 97.4 Comm South Companies, Inc. Texas 97.4 Global Central America, S.A. de C.V. Mexico 90.8 Telecomunicaciones de Guatemala, S.A. C.V. ("Telgua") Guatemala 81.3 Techtel-LMDS Comunicaciones Interactivas, S.A. ("Techtel") Argentina 60.0 Consorcio Ecuatoriano de Telecomunicaciones, S.A. ("Conecel") Conecel Ecuador 60.0 Empresas Cablevision, S.A. de C.V. Mexico 49.0 CompUSA, Inc. Delaware 49.0 ATL-Algar Telecom Leste, S.A. ("ATL") Brazil 16.5 Inmobiliaria El Recuerdo, S.A. de C.V. Mexico 100.0 Inmobiliaria Las Trufas, S.A. de C.V. Mexico 100.0 FirstMark Comunicaciones Espana, S.A. Spain 17.5 Network Access Solutions Delaware 5.9
F-47 b) Basis of Presentation The accompanying unaudited consolidated financial statements are presented on the same basis of accounting as described in the audited combined financial statements of the Company as of December 31, 1998, 1999 and for the three years in the period ended December 31, 1999, and have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. The combined balance sheet as of December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the combined financial statements at December 31, 1999 and footnotes thereto included elsewhere in this registration statement. 2. Significant accounting policies a) Consolidation The September 30, 2000, unaudited consolidated financial statements, include the accounts of America Movil and those of the subsidiaries mentioned in Note 1. Intercompany balances and transactions were eliminated in the consolidation. The minority interest principally relates to the Company's foreign subsidiaries. b) Recognition of the Effects of Inflation on the Financial Statements The unaudited consolidated financial statement were prepared in accordance with Bulletin B-10 ("Accounting Recognition of the Effects of Inflation on Financial Information"), as amended, as described in the audited annual combined financial statements; consequently, all financial statements presented herewith were restated to constant pesos as of September 30, 2000. The Mexican National Consumer Price Index (NCPI) as of September 30, 2000, was 327.910. c) Convenience Translation United States dollar amounts as of September 30, 2000 shown in the financial statements have been included solely for the convenience of the reader and are translated from pesos with purchasing power as of September 30, 2000, as a matter of mathematical computation only, at an exchange rate of Ps. 9.4290 to U.S.$ 1.00, the September 30, 2000 exchange rate. Such translations should not be construed as a representation that the peso amounts have been or could be converted into U.S. dollars at this or any other rate. F-48 3. Marketable securities Marketable securities were held for trading purposes and included foreign government bonds and equity securities. During 2000, the Company disposed of these marketable securities. Net realized gains on trading securities for the nine-month period ended September 30, 2000 totaled Ps. 180,077. 4. Accounts Receivable Accounts receivable consist of the following:
December 31, 1999 September 30, 2000 ------------------------- ----------------------- Suscribers and interconnection receivables from cellular operators Ps. 1,131,232 Ps. 1,988,644 Retailers 167,735 703,748 Williams International ATL, Ltd. 695,240 Creditable taxes 259,044 277,562 Other receivables 327,344 567,253 ------------------------- ----------------------- 1,885,355 4,232,447 Less: Allowance for doubtful accounts (149,073) (311,238) ------------------------- ----------------------- Net Ps. 1,736,282 Ps. 3,921,209 ========================= =======================
Activity in the allowance for doubtful accounts for the nine-month periods ended September 30, 1999 and 2000 was as follows: September 30, 1999 September 30, 2000 ------------------------------------------------ Opening balance December 31 Ps.( 132,036) Ps.( 149,073) Additions: Charge to costs and expenses ( 122,944) ( 244,519) Deductions: Adjustments to reserves 140,520 82,354 ------------------------------------------------ Ending balance Ps. ( 114,460) Ps. ( 311,238) ================================================ F-49 5. Plant, Property and Equipment Plant, property and equipment consist of the following:
December 31, September 30, 1999 2000 ----------------------------- ----------------------------- Telephone plant and equipment Ps. 10,936,024 Ps. 21,200,394 Land and buildings 103,302 503,856 Other assets 1,508,258 3,180,111 ----------------------------- ----------------------------- 12,547,584 24,884,361 Less: accumulated depreciation ( 3,742,253) ( 5,910,738) ----------------------------- ----------------------------- Net 8,805,331 18,973,623 Construction in progress and advances to equipment suppliers 3,205,529 6,551,552 Inventories for use in construction of the telephone plant 393,287 1,540,386 ----------------------------- ----------------------------- Total Ps. 12,404,147 Ps. 27,065,561 ============================= =============================
Included in plant, property and equipment are the following assets held under capital leases. December 31, September 30, 1999 2000 ------------------------------------------------- Assets under capital leases Ps. 120,819 Ps. 117,470 Less accumulated depreciation ( 26,874) ( 42,540) ------------------------------------------------- Ps. 93,945 Ps. 74,930 ================================================= a) Depreciation expense for the nine-month periods ended September 30, 1999 and 2000 was Ps. 645,666 and Ps. 1,313,118, respectively. b) During 2000, Telcel invested Ps. 6,960 million for the improvement of its microwave network. c) Plant, property and equipment increased significantly due to the series of acquisitions made in the first nine months of 2000, mainly with the acquisition of Telgua and Conecel that as of September 30, 2000, had fixed assets of Ps. 5,186 million and Ps. 933 million, respectively. F-50 6. Licenses As of December 31, 1999 and September 30, 2000 licenses are as follows: 1999 2000 --------------------------- ------------------------- Investment Ps. 2,558,537 Ps. 3,138,489 Accumulated amortization ( 539,580) ( 788,563) --------------------------- ------------------------- Net Ps. 2,018,957 Ps 2,349,926 =========================== ========================= Amortization expense for nine-month periods ended September 30, 1999 and 2000 was Ps. 100,912 and Ps. 138,463, respectively. Conecel owns licenses in Ecuador to operate its cellular network for fifteen years. Conecel paid approximately U.S.$57 million for these licenses. Telgua owns frequency licenses in Guatemala to operate its fixed network for fifteen years. Telgua paid approximately U.S.$8 million for these licenses. 7. Investments An analysis at December 31, 1999 and September 30, 2000 is as follows: December 31, September 30, 1999 2000 ------------------------- --------------------- Investments in: Affiliates Ps. 3,073,211 Ps. 8,927,040 Other 98,928 1,011,013 ------------------------- --------------------- Ps. 3,172,139 Ps. 9,938,053 ========================= ===================== - -Affiliates An analysis of the equity investments in affiliated companies at December 31, 1999 and September 30, 2000 is as follows: December 31, September, 30 1999 2000 ------------------------------------- CompUSA, Inc. Ps. 3,840,096 SBCI Brazil Ltda. 2,199,782 SBC International Puerto Rico, Inc. Ps. 2,385,020 2,112,576 Empresas Cablevision, S.A. de C.V. 688,191 709,247 FirstMark Comunicaciones de Espana, S.A. 65,339 ------------------------------------- Total Ps. 3,073,211 Ps. 8,927,040 ===================================== F-51 a) All the acquisitions, as described in Note 18 of the audited annual combined financial statements for 1999, were recorded pursuant to the purchase method of accounting. The results of operations of the acquisitions made in 2000 have been included in the Company's unaudited consolidated financial statements from the month following the date of acquisition through the end of the period presented. The Company is not obligated to make any further payments or provide any form of additional or contingent consideration related to these acquisitions, except as described in Note 18 of the audited annual combined financial statements for 1999. b) The following pro forma unaudited combined and consolidated financial data for the nine months ended September 30, 1999 and 2000 respectively, are based upon the historical financial statements of the Company adjusted to give effect to (i) the series of acquisitions during 2000 through September 30; (ii) certain purchase accounting adjustments related to the amortization of goodwill, a reduction in interest income for the loss of interest on the amounts expended for the above acquisitions and adjustments for depreciation of amounts allocated to adjust to fair value of the net assets of the acquired entities. The pro forma adjustments assume that the acquisitions were made at the beginning of each year and are based upon available information and certain assumptions that management believes are reasonable. The pro forma financial data does not purport to represent what the Company's operations would have actually been had such transaction in fact occurred or to predict the Company's results of operations.
Pro Forma America Movil For the nine month periods ended September 30, 1999 2000 ----------------------------------------------- Operating revenues: Ps. 19,303,189 Ps. 19,859,572 Net income 3,836,152 888,268 Earnings per share (in Mexican Pesos) 0.264 0.061
c) On November 16, 2000, the Company entered into an agreement for the establishment of Telecom Americas, Ltd. (see note 18 of the combined audited financial statements). Under this agreement, America Movil contributed cash, promissory notes and its interest in ATL and has agreed to contribute its interest in Techtel by February 14, 2001. At September 30, 2000 the Company's disposition of its interest in ATL is not material with respect to the Company's consolidated financial statements taken as a whole. F-52 - -Goodwill a) An analysis of goodwill for the year ended December 31, 1999 and for the nine-month period ended September 30, 2000 is as follows: December 31, September, 30 1999 2000 ------------------------------------------- Goodwill: Subsidiaries Ps. 1,995,644 Ps. 8,371,777 Affiliates 55,066 270,810 ------------------------------------------- 2,050,710 8,642,586 Accumulated amortization ( 192,737) ( 965,960) ------------------------------------------- Ps. 1,857,973 Ps. 7,676,627 =========================================== b) Amortization expense for the nine-month periods ended September 30, 1999 and 2000 was Ps. 97,783 and Ps. 615,609, respectively. 8. Analysis of Long Term Debt The Company's long-term-debt consists of the following:
Average Average Maturities Balance at Balance at interest rate Interest rates from 2000 December 31, September 30, 1999 2000* Through 1999 2000 ------------------------------------------------------------------------------------------- Banks, guaranteed by an affiliated company Libor + 1.5 Libor + 1.5 2002 Ps. 269,904 Ps. 283,792 Marconi Libor + 1.5 Libor + 1.5 2001 139,503 Banco Pichincha 16.6 2002 72,977 Citibank 7.79 9.7 2005 13,140 1,872,279 Other Banks 16.0 12.7 2004 97,683 124,658 Guatemalan Government (2) Libor + 3 Libor + 3 2001 3,301,630 Suppliers' credits 4.0 2003 788,155 Financial leases 16.5 11.9 2004 96,056 17,800 ------------------------------------ Total 476,783 6,600,794 Less: current portion of long-term det (1) 390,771 1,850,006 ------------------------------------ Long-term debt Ps. 86,012 Ps. 4,750,788 =====================================
*Subject to variances in international and local rates. The Company's weighted average cost of borrowed funds at September 30, 2000 (including interest, fees and reimbursement of such lenders for Mexican taxes withheld) was approximately 9.42%. (1) Includes Ps. 1,075 million of loans to subsidiaries guaranteed by Telcel and Telmex. (2) Guaranteed with Telgua's shares. F-53 An analysis of the foreign currency denominated debt at September 30, 2000 is as follows:
Foreign Exchange rate at currency September 30, 2000 Pesos with (pesos per unit of purchasing power (thousands) foreign currency) as of September 30, 2000 ----------------------------------------------------------------------------- U.S. dollar 696,220 Ps. 9.4290 Ps. 6,564,658 Guatemalan Quetzal 29,933 1.2065 36,114 ------------------------- Total Ps. 6,600,772 =========================
Long-term debt maturities at September 30, 2000 are as follows: September 30, 2000 Amount -------------------------------------------- 2001 Ps. 3,594,072 2002 861,504 2003 104,008 2004 97,365 2005 93,839 ------------------ Total Ps. 4,750,788 ================== 9. Related Parties a) Following is an analysis of balances due from/to related parties as of December 31,1999 and September 30, 2000. All of the companies are considered as America Movil's affiliates, as the Company's principal owners are also directly or indirectly, shareholders of these related parties.
1999 2000 -------------------------------- ------------------------------- Trade receivables: Sanborns Hermanos, S.A. de C.V. Ps. 54,753 Ps. 25,955 Telefonos del Noroeste, S.A. de C.V. 21,577 50,647 Telmex 238,090 603,428 -------------------------------- ------------------------------- 314,420 680,030 Others receivables: Telecomunicaciones de Guatemala, S.A. de C.V. 148,102 Telecosmos de Honduras, S.A. (2) 14,502 Telecosmos de El Salvador, S.A. (2) 10,981 Sears 10,338 Seguros Inbursa, S.A. de C.V. 26,903 18,262 Telmex 665,829 Others 17,110 9,007 -------------------------------- ------------------------------- 217,598 703,436 -------------------------------- ------------------------------- Ps. 532,018 Ps. 1,383,466 ================================ ===============================
F-54
Accounts payable: Telmex (1) Ps. 36,902 Ps. 1,018 Consorcio Red Uno, S.A. de C.V. 8,695 Others 16,713 1,840 ------------------- ---------------- 53,615 11,553 Current portion of long-term debt: Telmex 394,107 461,914 ------------------- ---------------- Ps. 447,722 Ps. 473,467 =================== ================ Long-term debt: Telmex Ps. 2,317,967 Ps. 443,069 =================== ================
(1) Borrowings through disposition of Telmex's lines of credit with the following financial institutions as: Societe Generale, Bank of America, Export Development Credit and Ericsson Telecom, during 1999. (2) Working capital borrowings. The debt due to Telmex consist of the following:
Average Maturities Interest From 2000 Rate 2000 Through December 31, 1999 September 30, 2000 ---------------------------------------------------------------------------- Debt denominated in foreign Currency 7.84% 2001 Ps. 2,712,074 Ps. 904,983 Less current portion of long term Debt ( 394,107) ( 461,914) ----------------------------------------- Long-term debt Ps. 2,317,967 Ps. 443,069 =========================================
b) The Company has included in cash and short-term investments at December 31, 1999 and September 30, 2000, Ps. 18,744,122 and Ps. 18,995,894 respectively, of commercial paper issued by an affiliated party. Interest earned for the nine-month periods ended September 30, 1999 and 2000 was Ps. 4,532,267 and Ps. 2,141,588 respectively. c) In the nine-month period ended September 30, 1999 and 2000 the Company had the following significant transactions mainly with Telmex:
1999 2000 -------------- ---------------- Revenue: -------------- ---------------- CPP interconnection fees Ps. 968,337 Ps. 3,515,553 -------------- ---------------- Expenses: Cost of sales and services: Payments of long distance, circuits and others Ps. 886,399 Ps. 1,756,429 Building and other cellular space leases 15,133 19,952 -------------- ---------------- Ps. 901,532 Ps. 1,776,381 -------------- ----------------
F-55 ------------------------- Commercial, administrative and general Ps. 11,341 Ps. 19,850 ------------------------- ------------------------- Interest expense Ps. 46,721 Ps. 287,393 ------------------------- See Note 14 of the audited combined financial statements for a description of major transactions with the Company's affiliates. 10. Stockholders' Equity a) The shares of America Movil were authorized and issued pursuant to the Telmex shareholders' meeting on September 25, 2000 approving the Spin-off. (see note 1a). Capital stock is represented by 14,485 million common shares with no par value, representing the fixed capital. An analysis is as follows: 3,266 million series AA shares 346 million series A shares 10,873 million series L shares --------- 14,485 total shares b) Series AA shares, which may be subscribed only by Mexican individuals and corporate entities, must represent at all times no less than 20% of capital stock and no less than 51% of the common shares. Common series A shares, which may be freely subscribed, must account for no more than 19.6% of capital stock and no more than 49% of the common shares. Series AA and A shares combined may not represent more than 51% combined may not represent more than 51% of capital stock. The combined number of series L shares, which have limited voting rights and may be freely subscribed, and series A shares may not exceed 80% of capital stock. The Company's bylaws contemplate the possibility of the holders of series L shares exchanging such shares, in certain circumstances, for series AA shares, commencing January 1, 2001. c) In conformity with the Mexican Corporations Act, at least 5% of the net income of the year must be appropriated to increase the legal reserve. This practice must be continued each year until the legal reserve reaches at least 20% of capital stock issued and outstanding. d) America Movil has not paid dividends since its establishment in September 2000. Dividends, if any, will be declared and paid in Mexican pesos. F-56 11. Deferred Income Taxes Requirements of the new Mexican accounting Bulletin D-4, "Accounting for Income Tax, Asset Tax and Employee Profit Sharing," issued by the Mexican Institute of Public Accountants, went into effect on January 1, 2000. The new bulletin modifies the rules with respect to the valuation of deferred income tax (deferred taxes). Basically, the new bulletin requires that deferred taxes be determined on virtually all temporary differences in balance sheet accounts for financial and tax reporting purposes, using the enacted income tax rate at the time the financial statements are issued. Through December 31, 1999, deferred taxes were recognized only on temporary differences that were considered to be non-recurring and that had a known turnaround time. The following table sets forth deferred taxes activity in the stockholders' equity for the nine-month period ended September 30, 2000 under D-4.
Deferred income taxes on the deficit Cumulative effect from restatement of accounting change of stockholders' equity Total ----------------------------------------------------------------------- Balance at January 1, 2000 Ps. (1,975,500) Ps. 307,083 Ps. (1,668,417) Deferred income taxes on the difference between the indexed cost and replacement cost valuation of fixed assets and 216,276 216,276 inventories allocated to equity, net of inflation ----------------------------------------------------------------------- Balance at September 30, 2000 Ps. (1,975,500) Ps. 523,359 Ps. (1,452,141) =======================================================================
Deferred income tax liability as of September 30, 2000 is as follows: Deferred income tax liability -------------------- Balance at January 1, 2000 Ps. 1,668,417 Deferred income tax for the period 787,545 Deferred income taxes on the difference between the indexed cost and replacement cost valuation of fixed assets and inventories allocated to equity, net of inflation (216,276) Effects of inflation recognized in income statement (131,784) ------------------------ Balance at September 30, 2000 Ps. 2,107,902 ========================
The new bulletin does not significantly affect how employee profit sharing is accounted for. Had bulletin D-4 been adopted in prior years, net income for the nine-months ended September 30, 1999 would have been reduced by Ps.571 million approximately. F-57 12. Segments America Movil operates primarily in one segment (cellular services), however, as mentioned in note 1 above, the Company has international telecommunications operations as of September 30, 2000, in three different geographic regions: (i) Mexico, (ii) United States and Puerto Rico and (iii) Central and South America. The following summary shows the most important segment information:
Nine month periods ended September 30, 1999 2000 ------------------------------------------------ Operating revenues: Mexico Ps. 8,729,077 Ps. 15,679,073 United States 971,640 1,421,263 Central and South America 546,729 2,049,466 ------------------------------------------------ Ps. 10,247,446 Ps. 19,149,802 ================================================ December 31, September 30, ------------------------------------------------ 1999 2000 Plant, property and equipment, net Mexico Ps. 11,299,145 Ps. 19,010,624 United States 221,352 307,877 Central and South America 883,650 7,747,060 ------------------------------------------------ Ps. 12,404,147 Ps. 27,065,561 ================================================ Goodwill, net Mexico Ps. 969,749 Ps. 959,439 United States 746,625 633,778 Central and South America 141,599 6,083,410 ------------------------------------------------ Ps. 1,857,973 Ps. 7,676,627 ================================================ Licenses, net Mexico Ps. 1,744,552 Ps. 1,655,449 Central and South America 274,405 694,477 ------------------------------------------------ Ps. 2,018,957 Ps. 2,349,926 ================================================
13. Differences Between Mexican and U.S. GAAP: The unaudited consolidated financial statements of the Company are prepared in accordance with generally accepted accounting principles in Mexico ("Mexican GAAP"), which in certain respects differ significantly from generally accepted accounting principles in the United States ("U.S. GAAP"). F-58 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, as amended. The application of Bulletin B-10 represents a comprehensive measure of the effect of price level changes in the inflationary Mexican economy and, as such, is considered a more meaningful presentation than financial reporting based on historical cost under both Mexican and US accounting principles. The principal differences between Mexican GAAP and U.S. GAAP, as they relate to the Company, are described in Note 19 to the audited financial statements and listed below, with an explanation, where appropriate, of the adjustments that affect consolidated operating income, net income, stockholders' equity and resources provided by operating and financing activities for the nine-month periods ended September 30, 1999 and 2000. SAB-101 Revenue Recognition Staff Accounting Bulletin No. 101 ("SAB 101") was released on December 3, 1999, and provides the staff's views in applying generally accepted accounting principles to selected revenue recognition issues. The Company is currently evaluating the process for full implementation of the SEC's SAB-101 "Revenue Recognition" for U.S. GAAP purposes in the fourth quarter of 2000. Cash Flow Information Under Mexican GAAP, the Company presents consolidated statements of changes in financial position. The changes in the financial statement balances included in this statement constitute resources provided by and used in operating, financing and investing activities stated in constant pesos (including monetary and foreign exchange gains and losses). Under Mexican GAAP changes in trading securities are presented as investing activities, while under U.S. GAAP the cash flows from these type of securities should be disclosed as cash provided by (used in) operating activities. Statement of Financial Accounting Standards No.95 ("SFAS No. 95"), "Statement of Cash Flows," does not provide guidance with respect to inflation adjusted financial statements. In accordance with Mexican GAAP, the increase (decrease) in current and long-term debt due to restatement in constant pesos, including the effect of exchange differences, is presented in the statement of changes in financial position in the financing activities section. The Company has adopted the guidance issued by the AICPA SEC Regulations Committee's International Practices Task Force in its meeting held on November 24, 1998, encouraging foreign registrants that file price level adjusted financial statements to provide cash flow statements that show separately the effects of inflation on cash flows. F-59 If the changes in trading securities and the exchange gain or loss related to the debt were treated as components of operating activities, summarized consolidated statements of cash flows derived from information prepared in accordance with U.S. GAAP would be as follows:
Nine months ended September 30, 1999 2000 -- ------------------- - --------------------- Operating activities: Net income Ps. 2,260,749 Ps. 1,348,057 Depreciation and amortization 954,246 2,256,203 Deferred taxes 764,049 1,009,578 Monetary effect 3,537,609 1,767,636 Equity in results of affiliates, minority interest and others ( 162,641) 305,793 Effect of exchange rate differences on debt 67,518 283,560 (Investment) disposal of marketable securities (1,359,225) 4,327,628 Change in operating assets and liabilities ( 131,020) ( 2,115,281) ------------------- --------------------- Resources provided by operating activities 5,931,285 9,183,174 ------------------- --------------------- Financing activities: New loans and repayment of loans 1,141,600 ( 1,915,335) Increase in parent investment 2,139,230 8,105,887 ------------------- --------------------- Resources provided by financing activities 3,280,830 6,190,552 ------------------- --------------------- Resources used in investing activities ( 4,271,514) ( 21,454,295) ------------------- --------------------- Effect of inflation accounting ( 3,573,967) ( 2,105,739) Net increase (decrease) in cash and short term Investments 1,366,634 ( 8,186,308) Cash and short-term investments at beginning of year 40,627,847 36,861,340 ------------------- --------------------- Cash and short-term investments at end of year Ps. 41,994,481 Ps. 28,675,032 =================== =====================
Cash from purchases and sales of trading securities for the first nine months of 1999 were Ps. 3,950,053 and Ps. 2,644,658, respectively and Ps. 307,130 and Ps. 4,682,357 for 2000, respectively. F-60 Summary Net income, operating income and total stockholders' equity, adjusted to take into account the material differences between Mexican GAAP and U.S. GAAP, are as follows:
Nine months ended September 30, 1999 2000 -------------------- -- -------------------- Net income as reported under Mexican GAAP Ps. 2,958,731 Ps. 1,579,460 Approximate U.S. GAAP adjustments: Capitalized interest or net financing cost 69,897 182,677 Depreciation of capitalized interest ( 26,779) ( 36,309) Accrued vacation pay ( 23,436) ( 58,298) Deferred income tax on U.S. GAAP adjustments ( 14,689) ( 38,314) Deferred income tax ( 570,679) Deferred employee profit sharing on U.S. GAAP adjustments ( 4,197) ( 10,947) Deferred employee profit sharing ( 174,484) ( 172,772) Difference between the restatement of depreciation expense based on specific indexation factors and on the basis of the NCPI ( 82,151) ( 152,704) Effects of inflation accounting on U.S. GAAP Adjustments. 128,536 55,264 -------------------- -------------------- Total approximate U.S. GAAP adjustments, net ( 697,982) ( 231,403) -------------------- -------------------- Approximate net income under U.S. GAAP Ps. 2,260,749 Ps. 1,348,057 ==================== ==================== Common shares outstanding as of September 25,2000 (in millions): 14,485 14,485 Approximate net income per share under U.S. GAAP (in pesos): Ps. 0.156 Ps. 0.093 ==================== ====================
After giving effect to the foregoing approximate adjustments for accrued vacation pay, depreciation of capitalized interest and the difference between the restatement of depreciation expense based on specific indexation factors and on the basis of the NCPI; as well of the reclassification of the employee profit sharing expense and the deferred employee profit sharing expense, operating income under U.S. GAAP totaled Ps 1,173,258, and Ps. 2,147,525, in the first nine months of 1999 and 2000, respectively. F-61
December 31, September 30, 1999 2000 --------------------- --- --------------------- Total stockholders' equity under Mexican GAAP Ps. 56,179,420 Ps. 66,096,257 Approximate U.S. GAAP adjustments, net of effects of inflation on monetary items: Capitalized interest or net financing cost 409,119 591,796 Accumulated depreciation of capitalized interest or net financing cost ( 103,466) ( 139,776) Accrued vacation pay ( 62,846) ( 116,220) Deferred income tax on U.S. GAAP adjustments ( 84,982) ( 117,531) Deferred income tax ( 1,975,501) Deferred employee profit sharing on U.S. GAAP ( 24,281) ( 33,580) adjustments Deferred employee profit sharing ( 675,285) ( 805,131) Deferred taxes on the difference between the indexed cost and replacement cost valuation of fixed assets and inventories 206,511 ( 542,411) Minority interest ( 659,245) ( 2,193,943) Difference between the restatement of fixed assets and inventories based on specific indexation factors and on the basis of the NCPI 355,618 1,537,665 --------------------- --------------------- Total approximate U.S. GAAP adjustments, net ( 2,614,358) ( 1,819,131) --------------------- --------------------- Approximate total stockholders' equity under U.S. GAAP Ps. 53,565,062 Ps. 64,277,126 ===================== =====================
Comprehensive income under US GAAP is comprised as follows:
Nine-month periods ended September 30, 1999 2000 -------------------- --------------------- Approximate net income under US GAAP Ps. 2,260,749 Ps. 1,348,057 Other comprehensive income: Surplus from holding non-monetary assets 188,609 1,033,231 Deferred taxes adjustments (10,864) (225,565) Effect of translation of foreign entities (116,233) 450,454 -------------------- --------------------- Other comprehensive income 61,512 1,258,120 -------------------- --------------------- Approximate comprehensive income under US GAAP Ps.2,322,261 Ps. 2,606,177 ==================== =====================
F-62 SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this registration statement on its behalf. AMERICA MOVIL, S.A. DE C.V. By: /s/ Daniel Hajj Aboumrad ------------------------------- Name: Daniel Hajj Aboumrad Title: Chief Executive Officer Date: December 8, 2000 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ EXHIBITS TO FORM 20-F REGISTRATION STATEMENT PURSUANT TO SECTIONS 12(b) AND 12(g) OF THE SECURITIES ACT OF 1933 ------------ America Movil, S.A. de C.V. (exact name of registrant as specified in its charter) ================================================================================ Exhibit Index Exhibit Page Number Description No. - ------ ----------- --- 1.1 Bylaws (estatutos sociales) of America Movil, S.A. de C.V. (together with an English translation). 2.1 L Share Deposit Agreement (incorporated by reference to the Registrant's registration statement on Form F-6 filed on the date hereof). 2.2 A Share Deposit Agreement (incorporated by reference to the Registrant's registration statement on Form F-6 filed on the date hereof). 3.1 Trust Agreement dated December 20, 1990 among certain shareholders of Telefonos de Mexico, S.A. de C.V., together with an English translation (incorporated by reference to the registration statement of Telefonos de Mexico, S.A. de C.V. on Form F-1 (File No. 333-39893)). 3.2 Conversion and Termination Agreement dated April 27, 2000 among Carso Global Telecom, S.A. de C.V., SBC International, Inc. and France Telecom Financiere Internationale. 4.1 Shareholders Agreement dated November 16, 2000 and amended December 5, 2000, among Bell Canada International Investments Limited, AM Latin America, LLC, SBC International--Brazil Holding, Ltd. and Telecom Americas Ltd.* 8.1 Significant subsidiaries. - -------------------- * Portions of this agreement have been omitted from this registration statement pursuant to a confidential treatment request filed on the date hereof. EX-1.1 2 0002.txt ANEXO "C" DEL ACTA DE LA ASAMBLEA GENERAL EXTRAORDINARIA DE ACCIONISTAS DE TELEFONOS DE MEXICO, S.A. DE C.V., DE FECHA 25 DE SEPTIEMBRE DE 2000 - -------------------------------------------------------------------------------- ESTATUTOS SOCIALES DE AMERICA MOVIL, S.A. DE C.V. CLAUSULAS PRIMERA.- La denominacion de la Sociedad es "AMERICA MOVIL", e ira seguida de las palabras "SOCIEDAD ANONIMA DE CAPITAL VARIABLE" o de sus abreviaturas "S.A. de C.V." SEGUNDA.- El domicilio de la Sociedad es la Ciudad de Mexico, Distrito Federal, sin embargo podra establecer oficinas, sucursales o agencias en cualquier parte de la Republica Mexicana y en el extranjero, o someterse convencionalmente por cualquier acto, contrato o convenio a la aplicacion de leyes extranjeras o de cualquier estado de la Republica Mexicana y a las respectivas jurisdicciones de los tribunales, o a domicilios convencionales en Mexico o en el extranjero con objeto de recibir toda clase de notificaciones o emplazamientos judiciales o extrajudiciales, designando apoderados especiales o generales en el extranjero para dichos efectos o para cualquier otro efecto, sin que se entienda por ello cambiado su domicilio social. TERCERA.- Los objetos de la sociedad son los siguientes: a) Promover, constituir, organizar, explotar, adquirir y tomar participacion en el capital social o patrimonio de todo genero de sociedades mercantiles o civiles, asociaciones o empresas, ya sean industriales, comerciales, de servicios o de cualquier otra indole, tanto nacionales como extranjeras, asi como participar en su administracion o liquidacion. b) Adquirir, bajo cualquier titulo legal, acciones, intereses, participaciones o partes sociales de cualquier tipo de sociedades mercantiles o civiles, ya sea formando parte de su constitucion o mediante adquisicion posterior, asi como enajenar, disponer y negociar tales acciones, participaciones y partes sociales, incluyendo cualquier otro titulo-valor, asimismo, conforme a las disposiciones de caracter general que expida la Comision Nacional Bancaria y de Valores, y, siempre que las acciones de la Sociedad esten inscritas en la Seccion de Valores del Registro Nacional de Valores e Intermediarios, podra adquirir acciones representativas del capital social de la Sociedad sujeto a lo previsto por estos Estatutos. c) Construir, instalar, mantener, operar y explotar redes publicas de telecomunicaciones para prestar el servicio de telecomunicaciones, siempre y cuando la Sociedad cuente con las concesiones y permisos que legalmente se requirieren para ello. d) Adquirir el dominio directo sobre bienes inmuebles, sujeto a lo previsto en el articulo 27 de la Constitucion Politica de los Estados Unidos Mexicanos y en el Ley de Inversion Extranjera y su Reglamento. e) Arrendar y tomar en arrendamiento toda clase de bienes inmuebles y celebrar toda clase de actos juridicos por los que se obtenga o se conceda el uso o el uso y goce de bienes inmuebles. f) Adquirir, enajenar y celebrar cualesquiera otros actos juridicos que tengan por objeto bienes muebles, maquinaria, equipo y herramientas que sean necesarios o convenientes para alcanzar los objetos sociales. g) Celebrar cualesquiera actos juridicos que tengan por objeto creditos o derechos. h) Celebrar cualesquiera actos juridicos relacionados con patentes, marcas y nombres comerciales. i) Prestar y recibir toda clase de servicios de asesoria y asistencia tecnica, cientifica y administrativa. j) Emitir bonos y obligaciones. k) Establecer sucursales, agencias y oficinas en la Republica Mexicana o en el extranjero. l) Obrar como agente, representante o comisionista de personas o empresas, ya sean mexicanas o extranjeras. m) Dar o tomar dinero a titulo de prestamo. n) Aceptar, suscribir, avalar y endosar toda clase de titulos de credito. o) Otorgar toda clase de garantias, incluyendo la constitucion de derechos reales y afectaciones fiduciarias que sean necesarias o convenientes para alcanzar los objetos sociales. p) Garantizar, por cualquier medio legal, en forma gratuita u onerosa, incluyendo la constitucion de derechos reales y afectaciones fiduciarias, el cumplimiento de obligaciones de terceras personas, fisicas o morales, nacionales o extranjeras y constituirse como deudor solidario de terceras personas, fisicas o morales, nacionales o extranjeras. q) Celebrar cualquier acto o contrato que se relacione con los objetos sociales y que sea licito para una sociedad anonima. CUARTA.- La duracion de la sociedad sera indefinida. QUINTA.- La Sociedad es de nacionalidad mexicana. Los socios extranjeros actuales o futuros de la Sociedad se obligan formalmente con la Secretaria de Relaciones Exteriores de los Estados Unidos Mexicanos a considerarse como nacionales con respecto a las acciones de la Sociedad que adquieran o de que sean titulares, asi como con respecto a los bienes, derechos, concesiones, participaciones o intereses de los que sea titular la Sociedad, o bien de los derechos y obligaciones que se deriven de los contratos en que sea parte la Sociedad con autoridades mexicanas. En consecuencia, los socios extranjeros, actuales o futuros, se obligan, por lo mismo, a no invocar la proteccion de sus Gobiernos, bajo la pena, en caso contrario, de perder en beneficio de la Nacion las participaciones sociales que hubieren adquirido. SEXTA.- El capital social es variable, con un minimo fijo de $402'900,048.30 (Cuatrocientos dos millones novecientos mil cuarenta y ocho pesos 30/100 moneda nacional), representado un total de 16,116'001,932 acciones, de las cuales 3,266'191,868 (Tres Mil Doscientas Sesenta y Seis Millones Ciento Noventa y Un Mil Ochocientos Sesenta y Ocho) acciones comunes, de la Serie "AA", nominativas, sin valor nominal; 345'648,701 (Trescientos Cuarenta y Cinco Millones Seiscientos Cuarenta y Ocho Mil Setecientas Una) acciones comunes de la Serie "A", nominativas, sin valor nominal y 12,504'161,363 (Doce Mil Quinientos Cuatro Millones Ciento Sesenta y Un Mil Trescientas Sesenta y Tres) acciones nominativas de la Serie "L", sin valor nominal, de voto limitado. El capital maximo autorizado no podra exceder diez veces el importe del capital minimo fijo. El capital social estara representado por acciones de la Serie "AA", en un porcentaje no menor de 20% (veinte por ciento) y no mayor al 51% (cincuenta y uno por ciento) del capital social y que representaran en todo tiempo no menos del 51% (cincuenta y uno por ciento) de las acciones comunes que representen dicho capital social, que seran acciones comunes, nominativas y sin valor nominal, que solo podran ser suscritas, y adquiridas por inversionistas mexicanos; por acciones de la Serie "A", en un porcentaje que no exceda del 19.6% (diecinueve punto seis por ciento) del capital social y en un porcentaje que no exceda del 49% (cuarenta y nueve por ciento) de las acciones comunes en que se divida el capital social, que seran acciones comunes, nominativas y de libre suscripcion y por acciones de la Serie "L", de voto limitado y de libre suscripcion, en un porcentaje que, junto con las acciones de la Serie "A", no excedan del 80% (ochenta por ciento) del capital social. Cada vez que se incremente el capital social, el aumento correspondiente estara representado proporcionalmente por una subserie de la Serie "AA", por una subserie de la Serie "A" y por una subserie de la Serie "L", que representaran en su integridad y exclusivamente el aumento pertinente. La sociedad podra emitir acciones no suscritas, de cualquiera de las series que integren su capital social, para entregarse a medida que se realice la suscripcion. Las acciones comunes en que se divida el capital social deberan estar suscritas por inversionistas mexicanos en un minimo del 51% (cincuenta y un por ciento), que estaran representadas por acciones de la Serie "AA" y hasta el 49% (cuarenta y nueve porciento) restante, que estaran representadas por acciones de la Serie "A", podra ser adquirido por inversionistas mexicanos y por personas fisicas o morales y unidades economicas extranjeras o por empresas mexicanas en las que participe mayoritariamente el capital extranjero o en las que los extranjeros tengan, por cualquier titulo, la facultad de determinar el manejo de la empresa. Las acciones comunes de las Series "AA" y "A", en su conjunto, no podran representar mas del 51% (cincuenta y uno por ciento) de las acciones en que se divida el capital social. Las acciones de la Serie "L" seran de libre suscripcion y, en consecuencia con ello, podran ser adquiridas por inversionistas mexicanos y por personas fisicas o morales y unidades economicas extranjeras o por empresas mexicanas en las que participe mayoritariamente el capital extranjero o en las que los extranjeros tengan, por cualquier titulo, la facultad de determinar el manejo de la empresa. Las acciones de la Serie "AA", que solo podran ser suscritas por inversionistas mexicanos, representaran en todo tiempo un porcentaje que no sea menor al 20% (veinte por ciento) del capital social. Las acciones de la Serie "A" y de la Serie "L", de libre suscripcion, en su conjunto, no podran representar un porcentaje mayor al 80% (ochenta por ciento) del capital social. Las acciones de la Serie "AA" solo podran ser suscritas o adquiridas por: a) Personas fisicas de nacionalidad mexicana. b) Sociedades mexicanas cuya escritura social contenga clausula de exclusion de extranjeros de la que solo puedan ser socios o accionistas personas fisicas mexicanas y/o sociedades mexicanas cuya escritura social contenga, a su vez, clausula de exclusion de extranjeros. c) Sociedades Mexicanas en cuya escritura social se establezca que cuando menos el 51% (cincuenta y uno por ciento) de su capital social solamente pueda ser suscrito o adquirido por (i) personas fisicas de nacionalidad mexicana y/o (ii) sociedades mexicanas cuya escritura social contenga clausula de exclusion de extranjeros de las que solo puedan ser socios o accionistas personas fisicas mexicanas y/o sociedades mexicanas cuya escritura social contenga, a su vez, clausula de exclusion de extranjeros, y/o (iii) sociedades mexicanas que admitan participacion extranjera minoritaria siempre que, en este ultimo caso, las acciones representativas del capital de dichas sociedades esten inscritas en la Bolsa Mexicana de Valores, S.A. de C.V. d) Instituciones mexicanas de credito, de seguros y fianzas, y sociedades mexicanas de inversion que operen al amparo de la Ley de Sociedades de Inversion, siempre que las acciones o certificados de aportacion patrimonial de la institucion o sociedad de que se trate esten inscritas en la Bolsa Mexicana de Valores, S.A. de C.V. e) Fideicomisos que fueren expresamente aprobados para adquirir acciones de la Serie "AA" por las autoridades competentes de conformidad con la Ley de Inversion Extranjera y su Reglamento, en los que (i) la mayoria de los derechos de fideicomisario la tengan personas fisicas o morales que reunan los requisitos establecidos en los incisos a), b), y d) que anteceden o, (ii) las acciones de la Serie "AA" materia del fideicomiso representen una minoria de las acciones representativas de dicha Serie y tengan que ser votadas por el fiduciario en el mismo sentido que la mayoria de las acciones Serie "AA". Las acciones que emita la sociedad no podran ser adquiridas por Gobiernos o Estados extranjeros y, en caso de que esto sucediere, quedaran sin efecto ni valor alguno para su tenedor desde el momento de la adquisicion. SEPTIMA.- Dentro de su respectiva serie, las acciones conferiran iguales derechos. Cada accion comun de las series "AA" y "A" da derecho a un voto en las Asambleas Generales de Accionistas. Las acciones de la serie "L" solo tendran derecho a voto en los asuntos que limitativamente para ellas se establecen en estos estatutos y se transcriben en los titulos de las mismas. Los titulos representativos de las acciones llevaran las firmas autografas de cualesquiera dos de los Consejeros Propietarios o bien su firma impresa en facsimil, si asi lo autorizara el Consejo de Administracion. En este ultimo caso, los originales de las firmas respectivas se depositaran en la Seccion de Comercio del Registro Publico de la Propiedad y del Comercio correspondiente. Los titulos de las acciones estaran numerados progresivamente y podran amparar una o varias acciones y llevaran adheridos cupones para el pago de dividendos. Los titulos de las acciones o los certificados provisionales deberan contener toda la informacion requerida por el Articulo ciento veinticinco de la Ley General de Sociedades Mercantiles y ademas de la clausula quinta de esta escritura. OCTAVA.- Las acciones de la Serie "L" seran de voto limitado y con derecho a un dividendo preferente, emitidas al amparo del Articulo 113 de la Ley General de Sociedades Mercantiles. Las acciones de la Serie "L" solo tendran derecho de voto en los siguientes asuntos: prorroga de la duracion de la Sociedad, disolucion anticipada de la Sociedad, cambio de objeto de la Sociedad, cambio de nacionalidad de la Sociedad, transformacion de la Sociedad, fusion con otra sociedad, asi como la cancelacion de la inscripcion de las acciones que emita la sociedad en las secciones de valores o especial del Registro Nacional de Valores e Intermediarios y en otras Bolsas de Valores extranjeras, en las que se encuentren registradas, excepto de sistemas de cotizacion u otros mercados no organizados como bolsas de valores; Las acciones de la Serie "L", por resolucion que sea adoptada en Asamblea Especial convocada para tal proposito, tendran derecho a designar dos Consejeros Propietarios y sus respectivos Suplentes para integrar el Consejo de Administracion de la sociedad. Quien para ello sea autorizado por la Asamblea Especial a que se alude en el parrafo que antecede, notificara por escrito al Presidente del Consejo de Administracion de la Sociedad los nombres de las personas que hubieren sido electas por la Serie "L" de acciones, para desempenar los cargos de miembros Propietarios y miembros Suplentes del Consejo de Administracion. Finalmente, las acciones de la Serie "L" podran asistir y votar, a razon de un voto por accion, en las Asambleas Extraordinarias de Accionistas que se reunan para resolver sobre la reforma al Articulo Decimosegundo de estos Estatutos relativo a la cancelacion de la inscripcion de las acciones de la Sociedad en la Seccion de Valores del Registro Nacional de Valores e Intermediarios. Respecto a los derechos patrimoniales o pecuniarios cada accion otorgara a su tenedor los mismos derechos, por lo que todas las acciones participaran por igual, sin distincion, en cualquier dividendo, reembolso, amortizacion o distribucion de cualquier naturaleza, estando sujeto, en todo caso, a lo siguiente: a). En los terminos del Articulo Ciento Trece de la Ley General de Sociedades Mercantiles no podran asignarse dividendos a las acciones de la series "AA" y "A", sin que se pague a los de la Serie "L", de voto limitado, un dividendo anual del cinco por ciento sobre el valor teorico de las acciones de la Serie "L" que asciende a la cantidad de $0.025 M.N. (dos centavos y medio) por accion, o sea, un dividendo anual de $0.00125 M.N. (ciento veinticinco diezmilesimos de un peso) por accion, el cual se efectuara con cargo a la cuenta de utilidades retenidas de la Sociedad, que derive de los estados financieros de ejercicios anteriores debidamente aprobados por la Asamblea de Accionistas en los terminos del Articulo Diecinueve de la Ley General de Sociedades Mercantiles. Cuando en algun ejercicio social no se decreten dividendos o sean inferiores a dicho cinco por ciento, este se cubrira en los anos siguientes con la prelacion indicada. b). Una vez que se hubiere cubierto el dividendo previsto en el subinciso a). anterior a las acciones de la Serie "L", si la Asamblea General de Accionistas decretare el pago de dividendos adicionales, los propietarios de acciones de la serie "AA" y "A" deberan de recibir el mismo monto de dividendo que hubieren recibido los tenedores de las acciones de la Serie "L", conforme al subinciso a). anterior en el ejercicio de que se trate o en ejercicios anteriores, con el proposito de que todos los accionistas reciban el mismo monto de dividendo. c). Una vez cubierto a los accionistas de las series "AA" y "A" el dividendo a que se refiere el subinciso b). anterior y que, en consecuencia, todos los accionistas hubiesen recibido o esten por recibir el mismo monto de dividendo, si la Sociedad realizare el pago de dividendos adicionales en el mismo ejercicio social, los tenedores de todas las acciones de las series "AA", "A" y "L" recibiran, por accion, el mismo monto de dividendo, con lo que cada accion de la Serie "L" recibira el pago de dividendos adicionales en forma, monto y plazos identicos al que recibiere cada una de las acciones de las series "AA" y "A". d). En caso de que se liquidare la Sociedad, se debera cubrir a las acciones de la Serie "L", el dividendo preferente, acumulativo, equivalente al cinco por ciento sobre el valor teorico de las acciones que les correspondiere y que no hubiere sido cubierto conforme a lo previsto en el subinciso a). anterior antes de distribuir a todas las acciones el remanente distribuible. En tal caso, una vez pagado el dividendo indicado en la oracion anterior, se debera pagar a las acciones de la series "AA" y "A", un dividendo por accion equivalente al que hubieren recibido las acciones de la Serie "L". e). En el caso de aumento de capital social mediante la emision de nuevas acciones de la Serie "L" que se emitan para pago en efectivo o en especie, los tenedores de las acciones de la Serie "L" en circulacion tendran derecho a suscribir dichas nuevas acciones en la proporcion que les corresponda en los terminos previstos por estos estatutos. f). Las acciones de la Serie "L" participaran en iguales terminos que las acciones de las demas Series de acciones en todos los dividendos en acciones que fueren decretados por la Sociedad. NOVENA.- Sujeto a lo previsto en estos estatutos sociales, a solicitud de los accionistas correspondientes, las acciones en que se divide la serie "A" de acciones de la sociedad podran ser canjeadas a la par en acciones de la Serie "L", mediante la entrega de aquellas a la Tesoreria de la sociedad y su cancelacion. DECIMA.- Sujeto a lo previsto en estos estatutos, a partir del 2 de enero de 2001 (dos de enero de dos mil uno) y hasta el 31 de enero de 2001 (treinta y uno de enero de dos mil uno), a solicitud de los accionistas que lo deseen, estos podran canjear sus acciones de la Serie "L", por acciones de la Serie "AA", si el accionista respectivo es de nacionalidad mexicana y mediante el cumplimiento de los requisitos que establece y, en su caso establezcan las disposiciones normativas correspondientes, si el accionista respectivo es extranjero, mediante la entrega de aquellas a la Tesoreria de la sociedad. Habiendo presentado la solicitud dentro del periodo indicado en el parrafo anterior, en caso de que varios accionistas solicitaran en la misma fecha el canje de sus acciones de la Serie "L", por acciones de la Serie "AA" y no hubiere en la Tesoreria de la sociedad suficientes acciones de estas ultimas para satisfacer las solicitudes presentadas, el canje se hara entre todos los accionistas que hubieren solicitado el canje el mismo dia, en proporcion al numero de acciones que cada uno de ellos hubiese solicitado canjear. Al concluir el periodo indicado en el parrafo anterior no procedera canje alguno en los terminos de esta Clausula. DECIMOPRIMERA.- Sujeto a lo previsto en estos estatutos, a solicitud de los accionistas titulares de las acciones que representen la Serie "AA", estas podran ser canjeadas a la par por acciones de la Serie "L", siempre que con ello las acciones de la Serie "AA" no representen un porcentaje menor al 20% (veinte por ciento) del capital social, mediante la entrega de aquellas a la Tesoreria de la sociedad. DECIMOSEGUNDA.- La sociedad llevara un libro de registro de accionistas y considerara como dueno de las acciones a quien aparezca como tal en dicho libro. A solicitud de cualquier interesado, previa la comprobacion a que hubiere lugar, la sociedad debera inscribir en el citado libro las transmisiones que se efectuen. En los terminos y para los efectos del articulo 130 de la Ley General de Sociedades Mercantiles se establece que la transmision de las acciones emitidas por la Sociedad, solamente podra hacerse previa autorizacion del Consejo de Administracion en el caso de que el numero de acciones que se pretende transmitir, por si solo o sumado a operaciones anteriores del mismo accionista, o de un grupo de accionistas vinculados entre si y que actuen en concertacion, signifique el diez por ciento (10%) o mas de las acciones emitidas por la sociedad con derecho a voto. Mientras la Sociedad mantenga las acciones que haya emitido, inscritas en el Registro Nacional de Valores e Intermediarios, la exigencia anterior, para el caso de las operaciones que se realicen a traves de la bolsa de valores, estara adicionalmente sujeta a las reglas que en su caso establezca la Ley del Mercado de Valores o las que conforme a la misma, emita la Comision Nacional Bancaria y de Valores. Si el Consejo de Administracion, en los terminos del presente articulo niega la autorizacion, designara uno o mas compradores de las acciones, quienes deberan pagar a la parte interesada el precio registrado en la bolsa valores. Para el caso de que las acciones no esten inscritas en el Registro Nacional de Valores e Intermediarios, el precio que se pague se determinara conforme al propio articulo 130 ya citado. Cuando las acciones de la Sociedad se encuentren inscritas en la Seccion de Valores del Registro Nacional de Valores e Intermediarios, en los terminos de la Ley del Mercado de Valores y de las disposiciones de caracter general que expida la Comision Nacional Bancaria y de Valores, en el caso de cancelacion de la inscripcion de las acciones de la Sociedad en la Seccion de Valores de dicho Registro, ya sea por solicitud de la propia Sociedad o por resolucion adoptada por la Comision Nacional Bancaria y de Valores en terminos de Ley, los accionistas que detenten el control de la Sociedad en ese momento, se obligan a realizar una oferta publica de compra previamente a la cancelacion, y por lo menos al precio que resulte mas alto: (i) del promedio del cierre de las operaciones que se hubieren efectuado durante los treinta dias en que hubieran cotizado las acciones, previos a la fecha de la oferta, o bien, (ii) al valor contable de la accion de acuerdo al ultimo reporte trimestral, presentado a la propia Comision y a la bolsa de valores antes de la oferta, salvo que la Comision Nacional Bancaria y de Valores al resolver la autorizacion de la oferta publica de compra de acciones tendiente a la cancelacion de la inscripcion referida, autorice un precio distinto. Los accionistas que detenten el control de la Sociedad no quedaran obligados a llevar a cabo la oferta publica mencionada si se acredita el consentimiento de la totalidad de los accionistas para la cancelacion correspondiente. La reforma de este parrafo de los Estatutos Sociales requiere: (i) de la aprobacion previa de la Comision Nacional Bancaria y de Valores y (ii) del acuerdo de la Asamblea Extraordinaria de accionistas adoptado con un quorum de votacion minimo del 95% (Noventa y Cinco) del capital social. Las sociedades de las cuales la Sociedad sea titular de la mayoria de sus acciones o partes sociales no deberan, directa o indirectamente, adquirir acciones representativas del capital social de la Sociedad, ni de ninguna otra sociedad que sea accionista mayoritaria de la Sociedad; o que, sin serlo, tengan aquellas conocimiento de que es accionista de la Sociedad, salvo en el caso de que tales sociedades en las que participe como accionista mayoritario la Sociedad adquieran acciones de la Sociedad para cumplir con opciones o planes de venta de acciones que se constituyan o que puedan otorgarse o disenarse en favor de empleados o funcionarios de dichas sociedades o de la propia Sociedad, siempre y cuando, el numero de acciones adquiridas con tal proposito no exceda del 25% (Veinticinco por ciento) del total de las acciones en circulacion de la Sociedad. DECIMOTERCERA.- El capital variable de la sociedad podra aumentarse o disminuirse sin necesidad de reformar los estatutos sociales, con la unica formalidad de que los aumentos o disminuciones sean acordados en Asamblea Extraordinaria de Accionistas y que se protocolice la misma por notario publico, sin que sea necesaria la inscripcion del testimonio de la escritura respectiva en la Seccion de Comercio del Registro Publico de la Propiedad y del Comercio correspondiente. El capital minimo fijo de la sociedad no podra aumentarse o disminuirse si ello no es acordado en Asamblea Extraordinaria de Accionistas y se reforman consecuentemente los estatutos sociales. Todo aumento o disminucion del capital social debera inscribirse en el libro que a tal efecto llevara la sociedad. No podra decretarse un aumento del capital social si no estan totalmente suscritas e integramente pagadas todas las acciones emitidas con anterioridad por la sociedad. Cuando se aumente el capital social todos los accionistas tendran derecho preferente en proporcion al numero de sus acciones de la Serie correspondiente para suscribir las que se emitan o las que se pongan en circulacion. El derecho que se confiere en este parrafo debera ser ejercitado dentro de los quince dias naturales siguientes a aquel en que se publiquen los acuerdos correspondientes en el Diario Oficial de la Federacion y en otro periodico de los de mayor circulacion en la Ciudad de Mexico, Distrito Federal . La reduccion del capital social en su parte variable se efectuara por amortizacion proporcional de las series de acciones en que se divida dicho capital social, por amortizacion de acciones integras, mediante reembolso de las mismas a los accionistas a su valor en Bolsa al dia en que se decrete la correspondiente reduccion del capital social. Los accionistas tendran derecho a solicitar en la Asamblea respectiva la amortizacion proporcional de las acciones a que haya lugar y, en caso de que no se obtenga acuerdo para dicho proposito, las acciones que hayan de amortizarse seran determinadas por sorteo ante notario o corredor publicos. Hecha la designacion de las acciones que habran de amortizarse, se publicara un aviso en el Diario Oficial de la Federacion y en otro periodico de los de mayor circulacion en la ciudad de Mexico, Distrito Federal, expresando el numero de las acciones que seran retiradas y el numero de los titulos de las mismas que como consecuencia deberan ser cancelados o, en su caso, canjeados y la institucion de credito en donde se deposite el importe del reembolso, el que quedara desde la fecha de la publicacion a disposicion de los accionistas respectivos sin devengar interes alguno. La Sociedad podra adquirir acciones representativas de su propio capital social, previo acuerdo del Consejo de Administracion y a traves de la Bolsa de Valores, en los terminos del Articulo 14 Bis de la Ley del Mercado de Valores. Correspondera en forma indelegable al Consejo de Administracion resolver respecto de la compra de acciones propias y, a la Asamblea General Ordinaria de Accionistas, senalar el monto del capital social que pueda afectarse a la compra de acciones propias, asi como determinarse el monto de la reserva proveniente de las utilidades netas, que se denominara reserva para adquisicion de acciones propias. Para los efectos anteriores y de conformidad con lo previsto en el Articulo 14 Bis de la Ley del Mercado de Valores, la Sociedad podra conservar en Tesoreria acciones representativas de la parte minima fija del capital social. DECIMOCUARTA.- Los accionistas tienen derecho a retirar parcial o totalmente sus aportaciones representadas por acciones en que se divida el capital social en su parte variable, siempre que, ademas de cenirse a lo ordenado en los articulos 220 y 221 de la Ley General de Sociedades Mercantiles, se sujeten a que el reembolso correspondiente se pague conforme al valor que resulte mas bajo de los dos siguientes: el 95% (noventa y cinco por ciento) del valor de cotizacion en Bolsa, obtenido del promedio de operaciones que se hayan efectuado durante los treinta dias en que se hayan cotizado las acciones de la sociedad, previos a la fecha en que el retiro deba surtir sus efectos, o bien el valor contable de las acciones de acuerdo al estado de posicion financiera correspondiente al cierre del ejercicio en que la separacion deba surtir sus efectos, previamente aprobado por la Asamblea General Ordinaria de Accionistas. El pago del reembolso sera exigible a la sociedad, a partir del dia siguiente a la celebracion de la Asamblea General Ordinaria de Accionistas que haya aprobado el estado de posicion financiera correspondiente al ejercicio en que el retiro deba surtir sus efectos. En caso de retiro parcial o total de aportaciones de un accionista, la disminucion consecuente del capital social, por el reembolso respectivo no requerira de Asamblea cualquiera de Accionistas. DE LAS ASAMBLEAS GENERALES DE ACCIONISTAS DECIMOQUINTA.- La Asamblea General de Accionistas es el organo supremo de la sociedad, estando subordinados a el todos los demas. DECIMOSEXTA.- Las Asambleas Generales seran Ordinarias o Extraordinarias y se celebraran en el domicilio de la sociedad. Seran Extraordinarias aquellas en que se trate cualquiera de los asuntos enumerados en el Articulo ciento ochenta y dos de la Ley General de Sociedades Mercantiles y la cancelacion de la inscripcion de las acciones que emite y emita la Sociedad en las secciones de valores o especial del Registro Nacional de Valores e Intermediarios o en bolsas de valores extranjeras en las que estuvieren registradas las acciones en que se divida el capital social y seran Ordinarias todas las demas. Las Asambleas solo se ocuparan de los asuntos incluidos en la orden del dia. Las Asambleas Especiales que celebren los titulares de acciones de la Serie "L", con el proposito de designar a los dos miembros del Consejo de Administracion a los que tienen derecho, deberan ser convocadas anualmente por el Consejo de Administracion para que sean celebradas con anterioridad a la celebracion de la Asamblea General Anual Ordinaria de Accionistas. Las Asambleas Especiales de acciones de la Serie "L" que se reunan exclusivamente con el proposito de designar a los miembros del Consejo a los que tienen derecho, se regiran por las normas establecidas en estos estatutos para las Asambleas Generales Ordinarias de Accionistas convocadas en virtud de segunda convocatoria, en los terminos de la Clausula Vigesima Tercera de estos estatutos. DECIMOSEPTIMA.- La Asamblea Ordinaria se reunira por lo menos una vez al ano, dentro de los cuatro meses siguientes a la clausura del ejercicio social correspondiente en la fecha que fije el Consejo y se ocupara, ademas de los asuntos incluidos en la orden del dia, de los enumerados en el Articulo ciento ochenta y uno de la Ley General de Sociedades Mercantiles. La Asamblea Extraordinaria se reunira siempre que hubiere que tratar alguno de los asuntos de su incumbencia, de los enumerados en el articulo ciento ochenta y dos de la Ley General de Sociedades Mercantiles o la cancelacion de la inscripcion de las acciones que emite y emita la Sociedad en las secciones de valores o especial del Registro Nacional de Valores e Intermediarios o en bolsas de valores extranjeras en las que estuvieren registradas las acciones en que se divida el capital social. DECIMOCTAVA.- La convocatoria para las Asambleas debera hacerse por el Consejo de Administracion, por los Comisarios, por el Presidente del Consejo o el Secretario, o por la autoridad judicial, en su caso. DECIMONOVENA.- La convocatoria para las Asambleas se hara por medio de la publicacion de un aviso en el Diario Oficial de la Federacion o en uno de los periodicos de mayor circulacion en la Ciudad de Mexico, Distrito Federal, siempre con una anticipacion no menor de quince dias naturales a la fecha senalada para la reunion. VIGESIMA.- La convocatoria para las Asambleas debera contener la designacion de lugar, fecha y hora en que haya de celebrarse la Asamblea, la orden del dia y la firma de quien o quienes la hagan. VIGESIMA PRIMERA.- Podra celebrarse Asamblea sin previa convocatoria siempre que este representada la totalidad de las acciones con derecho a voto en los asuntos para los que fue convocada, en que se divida el capital social. VIGESIMA SEGUNDA.- Las Asambleas Ordinarias de Accionistas reunidas en virtud de primera convocatoria se consideraran legalmente instaladas cuando este representada, por lo menos, la mitad de las acciones comunes que representen el capital social y sus resoluciones seran validas si se adoptan por mayoria de los votos presentes. VIGESIMA TERCERA.- Si la Asamblea Ordinaria no pudiere celebrarse el dia senalado para su reunion, se publicara una segunda convocatoria con expresion de esta circunstancia, en la que se citara para una fecha no anterior a siete dias naturales de aquel para el que fue senalada en primera convocatoria y en la junta se resolvera sobre los asuntos indicados en la orden del dia, por mayoria de votos, cualquiera que sea el numero de acciones comunes representadas. VIGESIMA CUARTA.-Las Asambleas Extraordinarias de Accionistas reunidas por virtud de primera convocatoria, para tratar asuntos en los que las acciones de la Serie "L" no tengan derecho de voto, se consideraran legalmente instaladas si estan presentes, por lo menos, las tres cuartas partes de las acciones comunes con derecho de voto en los asuntos para los que fue convocada, de aquellas en que se divida el capital social y sus resoluciones seran validas si se adoptan, cuando menos, por mayoria de las acciones comunes que tengan derecho de voto, de aquellas en que se divida el capital social. Las Asambleas Extraordinarias de Accionistas que sean convocadas para tratar alguno de los asuntos en los que tengan derecho de voto las acciones de la Serie "L" seran legalmente instaladas si esta representado, por lo menos, las tres cuartas partes del capital social y las resoluciones se tomaran por el voto de las acciones que representen la mayoria de dicho capital social. Las Asambleas Extraordinarias de Accionistas reunidas por virtud de ulteriores convocatorias, para tratar alguno de los asuntos en los que las acciones de la Serie "L" no tengan derecho de voto, se consideraran legalmente instaladas si esta representado, por lo menos, la mayoria de las acciones comunes con derecho de voto en los asuntos para los que fue convocada y sus resoluciones seran validas si se adoptan, cuando menos, por el numero de acciones comunes que representen la mayoria de dicho capital social con derecho de voto en los asuntos para los que fue convocada. En ulteriores convocatorias para Asambleas Extraordinarias de Accionistas, convocadas para resolver asuntos en los que las acciones de la Serie "L" tengan derecho de voto, estas se consideraran legalmente instaladas si esta representada, por lo menos, la mayoria del capital social y sus resoluciones seran validas si se adoptan, cuando menos, por el numero de acciones que representen la citada proporcion de acciones de aquellas en que se divida dicho capital social. Para que las resoluciones adoptadas en las Asambleas Extraordinarias de Accionistas reunidas por virtud de primera o ulteriores convocatorias para tratar alguno de los asuntos en los que tengan derecho de voto las acciones de la Serie "L" sean legalmente acordadas, se requerira, a mas de los requisitos que se establecen en los parrafos que anteceden, que las mismas sean aprobadas por la mayoria de las acciones comunes de las Series "AA" y "A", en que se divida el capital social. VIGESIMA QUINTA.-Para que los accionistas tengan derecho de asistir a las Asambleas y a votar en ellas, deberan depositar los titulos de sus acciones o, en su caso, los certificados provisionales, en la Secretaria de la Sociedad, cuando menos un dia antes de la celebracion de la Asamblea, recogiendo la tarjeta de entrada correspondiente. Tambien podran depositarlos en una institucion de credito de la Republica o del extranjero o en una casa de bolsa de la Republica Mexicana y en este caso, para obtener la tarjeta de entrada, deberan presentar en la Secretaria de la Sociedad un certificado de tal institucion que acredite el deposito de los titulos y la obligacion de la institucion de credito, de la casa de bolsa o de la institucion de deposito respectiva de conservar los titulos depositados hasta en tanto el Secretario del Consejo de Administracion le notifique que la Asamblea ha concluido. La Secretaria de la Sociedad entregara a los accionistas correspondientes una tarjeta de admision en donde constara el nombre del accionista, el numero de acciones depositadas y el numero de votos a que tiene derecho por virtud de dichas acciones. VIGESIMA SEXTA.- Los accionistas podran hacerse representar en las Asambleas por medio de mandatarios nombrados mediante simple carta poder, en la inteligencia de que no podran ejercer tal mandato los miembros del Consejo de Administracion ni los Comisarios. VIGESIMA SEPTIMA.- Las Asambleas seran presididas por el Presidente del Consejo y a falta de este por uno de los consejeros mexicanos presentes y, faltando todos estos, por la persona que designen los mismos concurrentes a la Asamblea. Fungira como Secretario el del Consejo o el Pro-Secretario y faltando estos dos, la persona que el Presidente en funciones designe. VIGESIMA OCTAVA.-Al iniciarse la Asamblea, quien la presida nombrara dos escrutadores para hacer el recuento de las acciones representadas en la misma, quienes deberan formular una lista de asistencia en la que anotaran los nombres de los accionistas en ella presentes o representados y el numero de acciones que cada uno de ellos hubiere depositado para comparecer a la correspondiente Asamblea. VIGESIMA NOVENA.-Si instalada una Asamblea legalmente no hubiere tiempo para resolver sobre todos los asuntos para los que fuere convocada, siempre que ello asi sea resuelto por el numero de votos que para adoptar validamente resoluciones en esa asamblea se requiera, podra suspenderse y continuarse los dias siguientes, sin necesidad de nueva convocatoria. Las resoluciones que sean adoptadas en la continuacion de la asamblea seran validas si se aprueban por el numero de votos que para ello se requiera en estos estatutos. TRIGESIMA.- De cada asamblea de Accionistas se levantara acta, en la cual se consignaran las resoluciones aprobadas, debera ser asentada en el libro de actas correspondiente y sera firmada por quien haya presidido la reunion, por la persona que haya actuado como Secretario y el o los Comisarios que asistan. ADMINISTRACION TRIGESIMA PRIMERA.- La Administracion de la sociedad estara encomendada a un Consejo de Administracion que se integrara el numero no menor de 5 (cinco) miembros que determine la Asamblea Ordinaria. La Asamblea podra designar suplentes hasta por un numero igual al de los miembros propietarios y, si asi lo hiciese, tendra la facultad de determinar la forma en que los suplentes supliran a los propietarios, en el concepto de que, si la Asamblea no determina lo anterior, cualquier suplente podra suplir a cualquiera de los propietarios, salvo los suplentes designados por los accionistas de la Serie "L", los cuales solo podran suplir a los consejeros propietarios designados por dicha Serie, en forma indistinta y los suplentes designados por accionistas en ejercicio de su derecho de minoria, los cuales solo podran suplir a los consejeros propietarios designados por dicha minoria.. La mayoria de los miembros propietarios y suplentes del Consejo de Administracion deberan ser en todo tiempo de nacionalidad mexicana y designados por accionistas mexicanos. Los miembros propietarios y suplentes seran designados, por el voto mayoritario de las acciones comunes de las Series "AA" y "A" en que se divide el capital social y los dos miembros propietarios y suplentes restantes, por el voto mayoritario de las acciones de la Serie "L" del capital social. Los miembros del Consejo de Administracion no necesitaran ser accionistas. Cualquier accionista o grupo de accionistas que represente, cuando menos, un diez por ciento de las acciones comunes en que se divida el capital social, tendra derecho a nombrar un Consejero Propietario y un Consejero Suplente y en este caso ya no podra ejercer sus derechos de voto para designar los Consejeros Propietarios y sus Suplentes que corresponda elegir a la mayoria. Si cualquier accionista o grupo de accionistas que represente, cuando menos, un 10% (diez por ciento) de las acciones comunes en que se divide el capital social ejercita el derecho de nombrar un consejero Propietario y su Suplente, la mayoria solo tendra derecho a designar el numero de Consejeros faltantes que corresponda nombrar a dicha mayoria. Los Consejeros seran elegidos por un ano y continuaran en el desempeno de sus funciones aun cuando hubiere concluido el plazo para el que hayan sido designados, en tanto las personas nombradas para substituirlos tomen posesion de sus cargos. Los Consejeros podran ser reelectos y percibiran la remuneracion que determine la Asamblea General de Accionistas. Los Consejeros suplentes designados substituiran a sus respectivos Consejeros Propietarios que estuvieren ausentes. TRIGESIMA SEGUNDA.- Ni los miembros del Consejo de Administracion y sus suplentes ni el Comisario y su suplente, ni, en su caso, los miembros del Comite Ejecutivo, ni los administradores y gerentes deberan de prestar garantia para asegurar el cumplimiento de las responsabilidades que pudieren contraer en el desempeno de sus encargos, salvo que la Asamblea de Accionistas que los hubiere designado establezca dicha obligacion. TRIGESIMA TERCERA.- El Consejo de Administracion se reunira bimestralmente en la Ciudad de Mexico o en cualquier otra parte de la Republica Mexicana que para tal efecto se senale y en las fechas que para tal proposito establezca el propio Consejo. A estas juntas bimestrales deberan ser convocados los miembros del Consejo por el Presidente del mismo, a traves del Secretario de dicho cuerpo colegiado. Ademas de las juntas bimestrales a que se alude anteriormente, el Consejo de Administracion se reunira siempre que por cualquier medio escrito fehaciente sean citados para tal efecto sus miembros con una anticipacion no menor de cinco dias naturales, por el Presidente, por dos de los Consejeros o por uno de los Comisarios. Los Comisarios deberan ser citados a todas las Sesiones del Consejo, a las que podran asistir con voz pero sin voto. Las convocatorias para las Sesiones de Consejo de Administracion deberan contener la orden del dia a la que la reunion respectiva debera sujetarse. El Consejo funcionara validamente siempre que concurran la mayoria de los miembros que lo integran y siempre que los asistentes sean mexicanos en su mayoria y sus resoluciones seran validas si se adoptan por mayoria de votos de los consejeros que asistan a la Sesion. En caso de empate, el Presidente del Consejo de Administracion tendra voto de calidad. Para resolver respecto de cualquiera de los asuntos que se relacionan en los puntos (1) a (11) de la Clausula Cuadragesima el Consejo de Administracion consultara previamente al Comite Ejecutivo. Para este efecto el Comite Ejecutivo estara obligado a hacer llegar su recomendacion en un plazo no mayor a sesenta dias naturales contados a partir del requerimiento del Consejo. TRIGESIMA CUARTA.- De cada Sesion del Consejo se levantara acta, en la que se consignaran la resoluciones aprobadas, debera ser asentada en el libro de actas correspondiente y sera firmada por quien haya presidido la Sesion y por la persona que haya actuado como Secretario. De conformidad con lo previsto en el ultimo parrafo del Articulo Ciento Cuarenta y Tres de la Ley General de Sociedades Mercantiles, el Consejo de Administracion podra validamente tomar resoluciones sin ser necesario que se reunan personalmente sus miembros en sesion formal; de igual forma lo podra hacer el Comite Ejecutivo. Los acuerdos que se tomen fuera de sesion deberan ser aprobados, en todos los casos, por el voto favorable de la totalidad de los miembros propietarios del organo de que se trate o, en caso de ausencia definitiva o incapacidad de alguno de ellos, con el voto favorable del miembro suplente que corresponda, de conformidad con las siguientes disposiciones: I. El Presidente, por su propia iniciativa o a peticion del Comisario o de cualesquiera dos miembros propietarios del Consejo de Administracion o del Comite Ejecutivo, debera comunicar a todos los miembros propietarios o, en su caso, suplentes del organo social de que se trate y al Comisario, en forma verbal o escrita y por el medio que estime conveniente, de los acuerdos que se pretendan tomar fuera de sesion y las razones que los justifiquen. Asimismo, el Presidente debera proporcionar a todos ellos, en caso de que lo solicitaren, toda la documentacion y aclaraciones que requieran al efecto. El Presidente podra auxiliarse de uno o mas miembros del Consejo o del Comite que el determine, o del Secretario o su suplente, para realizar las comunicaciones referidas. II. En el caso de que la totalidad de los miembros propietarios del Consejo o del Comite Ejecutivo o, en su caso, los suplentes cuyo voto se requiera, manifestaren verbalmente al Presidente o a los miembros que lo auxilien su consentimiento con los acuerdos o resoluciones que se les hubieren sometido a consideracion, deberan confirmar por escrito su consentimiento a mas tardar el segundo dia habil siguiente a la fecha en que lo hubieren manifestado en la forma que se establece en la Fraccion III siguiente. La confirmacion escrita se debera enviar al Presidente y al Secretario a traves del correo, telex, telefax, telegrama o mensajeria, o a traves de cualquier otro medio que garantice que la misma se reciba dentro de los dos dias habiles siguientes. III. Para los efectos de lo previsto en la Fraccion II anterior, el Presidente debera enviar por escrito a cada uno de los miembros del organo de que se trate, ya sea directamente o a traves de las personas que lo auxilien, un proyecto formal de acta que contenga los acuerdos o resoluciones que se pretendan adoptar fuera de sesion y cualquier otra documentacion que estime necesaria, con el proposito de que, en su caso, una vez hechas las modificaciones que se requieran, el proyecto de acta de que se trate sea reenviado al Presidente y al Secretario, debidamente firmado de conformidad al calce, por cada uno de los miembros del Consejo o del Comite Ejecutivo, segun sea el caso. IV. Una vez que el Presidente y el Secretario reciban las confirmaciones por escrito de la totalidad de los miembros del organo de que se trate, procederan de inmediato a asentar el acta aprobada en el libro de actas respectivo, la cual contendra la totalidad de las resoluciones tomadas, misma que se legalizara con la firma del Presidente y del Secretario. La fecha del acta senalada sera aquella en la cual se obtuvo el consentimiento verbal o escrito de todos los miembros de que se trate, aun cuando en tal momento no se hubieren recibido las confirmaciones por escrito, mismas que una vez recibidas deberan integrarse a un expediente que al efecto debera llevar la Sociedad. Asimismo, deberan integrarse a dicho expediente las observaciones por escrito que en su caso hubiere hecho el Comisario al proyecto de resoluciones respectivo. TRIGESIMA QUINTA.- El Consejo de Administracion, en la primera junta que celebre despues de verificarse la Asamblea de Accionistas que lo hubiere nombrado y si esta Asamblea no hubiere hecho las designaciones, nombrara de entre sus miembros un Presidente, que debera ser mexicano y podra designar, si lo estima pertinente, uno o varios Vicepresidentes, un Tesorero y un Secretario, asi como uno o varios Pro-Tesoreros y Pro-Secretarios, en el concepto de que el Tesorero, el Secretario, los Pro-Tesoreros y Pro-Secretarios podran ser o no miembros del Consejo de Administracion. Estos cargos, salvo los de Presidente y Vicepresidente, los de Tesorero y Pro-Tesorero, de Secretario y Pro-Secretario podran ser desempenados por una sola persona. Las faltas temporales o definitivas del Presidente seran suplidas por uno de los Vicepresidentes mexicanos en el orden de su nombramiento, si los hubiere y, faltando estos, por cualquier Consejero mexicano y las del Tesorero y del Secretario, respectivamente, por un Pro-Tesorero y un Pro-Secretario, si los hubiere, o faltando estos por la persona que el Consejo designe. DE LAS FACULTADES DEL CONSEJO TRIGESIMA SEXTA.-El Consejo de Administracion tendra las mas amplias facultades para la buena administracion de los negocios de la Sociedad, con poder general amplisimo para pleitos y cobranzas, para administrar bienes y para ejercer actos de dominio, sin limitacion alguna, o sea con todas las facultades generales y las especiales que requieran clausula especial conforme a la ley, en los terminos de los tres primeros parrafos del Articulo dos mil quinientos cincuenta y cuatro del Codigo Civil para el Distrito Federal, incluidas las facultades que enumera el Articulo dos mil quinientos ochenta y siete del mismo ordenamiento. De una manera enunciativa y no limitativa, se le fijan de una manera expresa las siguientes facultades: I.- Representar a la sociedad ante toda clase de autoridades, sean estas Federales, Estatales o Municipales; representar a la Sociedad ante toda clase de personas fisicas o morales, nacionales o extranjeras; representar a la sociedad ante Juntas de Conciliacion y ante Juntas de Conciliacion y Arbitraje, sean estas Federales o Locales, con facultades expresas para todos los efectos previstos en las fracciones II y III del Articulo 692 de la Ley Federal del Trabajo, en concordancia con los Articulos 786 y 876 del mismo ordenamiento normativo, por lo que queda expresamente facultado para absolver y articular posiciones a nombre y en representacion de la sociedad, conciliar, transigir, formular convenios, presentar denuncias y querellas, presentar y desistirse de toda clase de juicios y recursos, aun el de amparo, y representar a la sociedad ante toda clase de autoridades, ya sean judiciales, administrativas y cualesquiera otras que se aboquen al conocimiento de conflictos laborales; presentar demandas de amparo y, en su caso, desistirse de las mismas; presentar querellas y, en su caso, conceder el perdon; presentar denuncias y constituirse en coadyuvante del Ministerio Publico; desistirse; transigir; comprometer en arbitros; absolver y articular posiciones; recusar y recibir pagos. II.- Otorgar, suscribir, endosar y avalar toda clase de titulos de credito. III.- Designar a los funcionarios, empleados, gerentes y apoderados de la sociedad, a quienes debera senalar sus deberes, obligaciones y remuneracion. IV.- Establecer o clausurar oficinas, sucursales o agencias. V.- Adquirir acciones, participaciones sociales y valores emitidos por terceros y ejercitar el derecho de voto sobre tales acciones o participaciones sociales de otras empresas, en el concepto de que el Consejo de Administracion requerira de autorizacion previa de la Asamblea General Ordinaria de Accionistas para la adquisicion o enajenacion de acciones o el ejercicio del derecho de retiro, exclusivamente en los siguientes supuestos: 1.- Cuando el valor de adquisicion de acciones de otra sociedad, por virtud de una o varias adquisiciones simultaneas o sucesivas, exceda del veinte por ciento del valor del capital contable de la Sociedad, segun su ultimo estado de posicion financiera. No se requerira la aprobacion por la Asamblea General Ordinaria de Accionistas en el caso de que se adquieran acciones o partes sociales de otras sociedades, cuyas actividades sean coincidentes con las actividades industriales, comerciales o de servicios de esta Sociedad. 2.- Cuando el valor de enajenacion de acciones de otras sociedades, por virtud de una o varias enajenaciones simultaneas o sucesivas, exceda del veinte por ciento del valor del capital contable, segun el ultimo estado de posicion financiera de la Sociedad. Se requerira asimismo la aprobacion de la Asamblea General Ordinaria de Accionistas en el caso de que se enajenen acciones o partes sociales, si tal enajenacion implica, por virtud de una o varias operaciones, simultaneas o sucesivas, la perdida del control de la Sociedad de que se trate, cuyas actividades sean coincidentes con las actividades industriales, comerciales o de servicios de esta Sociedad; y 3.- Para ejercer, en los terminos del Articulo Doscientos Veinte de la Ley General de Sociedades Mercantiles, el derecho de retiro que corresponda a las acciones de capital variable de las cuales sea accionista la Sociedad, cuando ello represente, por virtud de uno o varios actos simultaneos o sucesivos, el reembolso de acciones cuyo valor exceda del veinte por ciento del valor del capital contable de la Sociedad, segun el ultimo estado de posicion financiera. Se requerira, asimismo, la aprobacion de la Asamblea General Ordinaria de Accionistas en el caso de que el retiro implique, por virtud de uno o varios actos simultaneos o sucesivos, la perdida del control de la Sociedad de que se trate cuyas actividades sean coincidentes con las actividades industriales, comerciales o de servicios de esta Sociedad. VI.- Celebrar, modificar, terminar y rescindir contratos. VII.- Aceptar a nombre de la sociedad mandatos de personas fisicas y morales, Mexicanas o Extranjeras. VIII.- Establecer cuentas bancarias y retirar depositos de la mismas y designar las personas autorizadas para uso de la firma social, para depositar en las referidas cuentas bancarias y retirar depositos de estas, con las limitaciones que el Consejo tuviere a bien establecer. IX.- Constituir garantias reales y personales y afectaciones fiduciarias para garantizar obligaciones de la sociedad y constituirse en deudor solidario, fiador y, en general, obligado al cumplimiento de obligaciones de terceras personas y establecer las garantias reales y afectaciones fiduciarias para asegurar el cumplimiento de estas obligaciones. X.- Conferir, substituir y delegar poderes generales y especiales para actos de dominio, que deberan ser otorgados para que sean ejercitados conjuntamente por cuando menos dos personas y conferir, substituir y delegar poderes generales y especiales para actos de administracion y para pleitos y cobranzas, siempre que con ello no se substituya totalmente al Consejo en sus funciones y revocar poderes. XI.- Conferir facultades para otorgar, suscribir, endosar y avalar toda clase de titulos de credito, en el entendido de que la facultad para avalar titulos de credito, debera ser siempre conferida para que sea ejercitada conjuntamente por cuando menos dos personas. XII.- Convocar a Asambleas de Accionistas y ejecutar las resoluciones que se adopten en las mismas. XIII. Sera facultad exclusiva e indelegable del Consejo de Administracion determinar el sentido en que deban ser emitidos los votos correspondientes a las acciones propiedad de la Sociedad, en las Asambleas de Accionistas de las sociedades en que la Sociedad sea titular de la mayoria de las acciones. XIV.- Celebrar cualesquiera actos juridicos y adoptar cualesquiera determinaciones que sean necesarias o convenientes para lograr los objetos sociales. DEL PRESIDENTE Y DEL VICEPRESIDENTE TRIGESIMA SEPTIMA.- El Presidente, que debera ser mexicano, presidira las Asambleas de Accionistas y las Sesiones del Consejo, sera el representante del Consejo, ejecutara las resoluciones de las Asambleas y del Consejo de Administracion, a menos que aquella o este designen un Delegado para la ejecucion de las mismas, vigilara en general las operaciones sociales, cuidando del exacto cumplimiento de esta escritura, de los reglamentos y de los acuerdos y disposiciones de las Asambleas, del Consejo y de la Ley y firmara en union del Secretario las actas de las Asambleas y del Consejo. En caso de ausencia temporal o definitiva del Presidente, sus funciones seran desempenadas con las mismas facultades por uno de los Vicepresidentes; faltando el o los Vicepresidentes, la mayoria de los Consejeros designara a quien deba substituir temporalmente al Presidente del Consejo, que debera ser mexicano y de entre los designados por la mayoria de los acciones comunes. DEL TESORERO TRIGESIMA OCTAVA.- El Tesorero tendra las atribuciones que el Consejo de Administracion le asigne, pudiendo substituirlo en caso de ausencia el Pro-Tesorero y faltando este, la persona que el Consejo designe. DEL SECRETARIO TRIGESIMA NOVENA.- El Secretario tendra las facultades que el Consejo le asigne y llevara los libros de actas, en uno de los cuales asentara y firmara con el Presidente todas las actas de las Asambleas de Accionistas y en otro todas las actas del Consejo de Administracion. En caso de ausencia hara sus veces el Pro-Secretario, si lo hubiere, y en ausencia de este la persona que el Presidente en funciones designe. DEL COMITE EJECUTIVO CUADRAGESIMA.- La Asamblea de Accionistas, por el voto favorable de la mayoria de las acciones comunes representativas del capital social, podran nombrar de entre los miembros del Consejo de Administracion a un Comite Ejecutivo que estara integrado por el numero de miembros propietarios y, en su caso, sus respectivos suplentes, que determine la propia Asamblea. La mayoria de los miembros del Comite Ejecutivo deberan ser de nacionalidad mexicana y designados por accionistas mexicanos por el voto favorable de la mayoria de las acciones comunes representativas del capital social. El Comite Ejecutivo es un organo delegado del Consejo de Administracion y tendra las facultades que se establecen en la Clausula Trigesimosexta de estos estatutos, excepto la referida en el parrafo XII de dicha Clausula, en el concepto de que las facultades conferidas al Comite Ejecutivo no comprenderan las reservadas privativamente por la Ley o los estatutos a otro organo de la sociedad. El Comite Ejecutivo no podra delegar la totalidad de sus facultades en uno o mas apoderados o delegados. Especificamente, el Comite Ejecutivo debera examinar inicialmente y, en su caso, proponer al Consejo de Administracion, para la aprobacion de este, recomendaciones acerca de los siguientes asuntos: 1. Cualquier venta o adquisicion de la sociedad de acciones o activos cuyo valor exceda del importe que con la aprobacion del Consejo de Administracion determine el Comite Ejecutivo, salvo en casos de operaciones de manejo de efectivo en cumplimiento a los parametros que el Consejo establezca. 2. Cualquier toma de prestamo o celebracion de arrendamientos financieros por la sociedad cuyo resultado traiga por consecuencia que la relacion entre deuda a largo y corto plazo, comparada con deuda a largo y corto plazo mas la participacion de los accionistas en el capital contable, determinados de acuerdo con los Principios de Contabilidad Generalmente Aceptados en Mexico con las modalidades que le sean aplicables en su caracter de emisora de valores inscritos en el Registro Nacional de Valores e Intermediarios y con base en los Estados Financieros mas recientes de la sociedad, exceda de 45%. 3. La aprobacion de cualquier acto de la sociedad que de como resultado que la relacion entre deuda a largo y corto plazo, y deuda a largo y corto plazo mas la participacion de los accionistas en el capital contable sea inferior a 35% por cualquier periodo superior a 3 meses. 4. El establecimiento de todas las politicas de importancia relativas a contabilidad y asuntos fiscales de la Sociedad, o cualquier cambio a cualquiera de las existentes, excepto en aquellas cuyo cumplimiento sea obligatorio de acuerdo con Principios de Contabilidad Generalmente Aceptados en Mexico con las modalidades que le sean aplicables en su caracter de emisora de valores inscritos en el Registro Nacional de Valores e Intermediarios. 5. La entrada de la Sociedad en cualquier nueva linea de negocios que requiera una nueva inversion inicial proyectada que exceda de un equivalente a 1'210,000 veces el importe del salario minimo diario general para el Distrito Federal y su area Metropolitana. 6. La aprobacion de presupuestos, planes de negocios o de inversion de capital anuales de la sociedad, y/o cualquier incremento en cualquier partida del presupuesto, en exceso del 20% de dicha partida o del 5% del importe global de dicho presupuesto o plan. 7. Cualquiera de los asuntos descritos en los incisos (1) a (6) inclusive que anteceden, en relacion con cualquier subsidiaria y el ejercicio por la Sociedad de cualesquiera derechos de votacion respecto a cualquier subsidiaria, pero excluyendo cualquier fusion, liquidacion o reorganizacion de cualquier subsidiaria cuyos ingresos anuales contribuyan menos del equivalente a 4'850,000 veces el importe del salario minimo diario general para el Distrito Federal y su area Metropolitana. 8. Cualquier contrato de licencia o de transferencia de tecnologia relevante o la prestacion de asistencia tecnica a la Sociedad por cualquier tercero o por la Sociedad a cualquier tercero. 9. La politica relativa a operaciones entre la sociedad o una subsidiaria de la sociedad y un accionista de la Serie "AA" o cualquier subsidiaria de dicho accionista o cualquier fideicomisario de un fideicomiso tenedor de acciones de la Serie "AA" o las subsidiarias de tal fideicomisario. 10. El establecimiento de acuerdos relativos a la compensacion a los funcionarios principales de la Sociedad, o cualquier cambio de cualquier politica de compensacion existente. 11. Cualquier acto de alguna subsidiaria, respecto de cualquiera de los asuntos o actos descritos en los incisos (8) a (10) inclusive anteriores, o cualquier fusion, liquidacion o reorganizacion que quede excluida del inciso (7) que antecede. El Comite Ejecutivo funcionara validamente siempre que concurran la mayoria de los miembros que lo integren y siempre que la mayoria de los miembros designados por accionistas mexicanos esten presentes, y sus resoluciones seran validas si se adoptan por mayoria de votos de los asistentes salvo lo dispuesto en los siguientes dos parrafos. Para hacer una recomendacion a que se refiere esta clausula sobre los asuntos arriba listados en los Incisos (1) a (7) inclusive, el Comite Ejecutivo funcionara validamente siempre y cuando concurran la totalidad de sus miembros que lo integren y sus resoluciones seran validas si se adoptan por unanimidad de votos de los miembros. Para hacer una recomendacion a que se refiere esta clausula sobre los asuntos arriba listados en los incisos (8) a (11) inclusive, el Comite Ejecutivo funcionara validamente siempre y cuando concurran 4 de los miembros que lo integren y sus resoluciones seran validas si se adoptan con el voto favorable de cuatro de los miembros de dicho Comite. En caso de empate, el Presidente del Comite no tendra voto de calidad. El Comite Ejecutivo, se reunira con la frecuencia que sea necesaria a fin de estar involucrado permanentemente en los asuntos de su competencia. Los asuntos sobre los temas antes mencionados en los inciso (1) a (11) inclusive, que se sometan a su consideracion seran decididos en cada junta del Comite Ejecutivo. En caso de que no se llegare a una decision sobre cualquiera de los asuntos antes senalados, por no haberse celebrado la junta de que se trate por falta de quorum o por no haberse obtenido la votacion requerida, la decision se pospondra por el termino necesario para lograr la unanimidad o la mayoria de votos senalada en los parrafos anteriores, en el entendido de que si en un periodo de 60 (sesenta) dias naturales no se obtiene por cualquier circunstancia la unanimidad o la mayoria de votos requerida, el Comite Ejecutivo podra resolver el asunto por mayoria de votos de los miembros que integran el Comite Ejecutivo. El Comite Ejecutivo formulara su propio reglamento de trabajo, en base a estos estatutos, el cual debera ser sometido para su aprobacion al Consejo de Administracion. En todo caso, se convocara a los Comisarios de la sociedad a las sesiones del Comite Ejecutivo quienes tendran voz pero no voto y el Comite Ejecutivo informara al Consejo de Administracion, en las Sesiones que este celebre, sobre el ejercicio que hubiere hecho de sus facultades. DE LA VIGILANCIA DE LA SOCIEDAD CUADRAGESIMA PRIMERA.- La vigilancia de la sociedad estara a cargo del o de los Comisarios y sus correspondientes suplentes que por mayoria de votos de las acciones comunes elija la Asamblea General de Accionistas. Los Comisarios no necesitan ser accionistas y tendran las facultades y obligaciones que la Ley determina y duraran en sus cargos un ano, en la inteligencia de que seguiran desempenandolos hasta que los designados para substituirlos tomen posesion de sus cargos. Los Comisarios podran ser reelectos. Los Comisarios Suplentes substituiran a sus Comisarios Propietarios cuando estos no pudieren desempenar, por cualquier razon, los menesteres propios de su encargo. CUADRAGESIMA SEGUNDA.- Para desempenar el cargo de Comisario los electos deberan caucionar su manejo en la misma forma que los Consejeros, como esta previsto en la Clausula Trigesimo Segunda. EJERCICIOS SOCIALES Y BALANCE CUADRAGESIMA TERCERA.- Los ejercicios sociales seran de doce meses y comprenderan del primero de enero al treinta y uno de diciembre de cada ano. CUADRAGESIMA CUARTA.- Al finalizar cada ejercicio social, el Consejo de Administracion elaborara un informe que por lo menos incluya la informacion a que se refiere el articulo 172 de la Ley General de Sociedades Mercantiles, que debera quedar concluido dentro de los tres meses siguientes a la clausura del correspondiente ejercicio social. El Consejo de Administracion entregara el informe al o a los Comisarios, por lo menos un mes antes de la fecha de la Asamblea que haya de discutirlo, junto con los documentos justificativos. Cuando menos con quince dias de anticipacion a la fecha en que se celebrara la Asamblea que discutira el informe de los Administradores, el o los Comisarios deberan concluir su informe respecto a la veracidad, suficiencia y razonabilidad de la informacion presentada por el Consejo de Administracion, en el que cuando menos incluyan toda la informacion a que se refiere la fraccion IV del articulo 166 de la Ley General de Sociedades Mercantiles. El informe del Consejo de Administracion a que se refiere esta clausula, incluido el informe del o de los Comisarios, debera quedar terminado y ponerse a disposicion de los accionistas por lo menos quince dias antes de la fecha de la asamblea que lo discutira. Los accionistas tendran derecho a que se les entregue una copia del informe correspondiente. FONDO DE RESERVA Y MANERA DE DISTRIBUIR LAS UTILIDADES Y PERDIDAS CUADRAGESIMA QUINTA.- Las utilidades liquidas que en su caso arroje el balance general, despues de ser aprobado por la Asamblea Anual Ordinaria de Accionistas, se distribuiran en la siguiente forma: a) Se separara en primer termino un cinco por ciento para la constitucion o reconstitucion del fondo legal de reserva, hasta que represente una cantidad igual a la quinta parte del capital social. b) Luego se separara la cantidad que, en su caso, acuerde la Asamblea General para constituir los fondos extraordinarios, especiales o adicionales que se estimen convenientes. c) Se separaran las cantidades que la Asamblea acuerde aplicar para crear o incrementar reservas generales o especiales, incluyendo, en su caso, la reserva para adquisicion de acciones propias a que se refiere la Fraccion I del Articulo Catorce Bis de la Ley del Mercado de Valores. d) Se aplicara la cantidad que fuere necesaria al pago del dividendo preferente por el ejercicio de que se trate a que tienen derecho los accionistas de la Serie "L" o, en su caso, al pago de dividendos preferentes de ejercicios anteriores acumulados. e) El remanente de las utilidades liquidas podra ser distribuido como dividendo entre los accionistas, en proporcion a sus respectivos pagos de las acciones de que sean titulares, de aquellas en que se divida el capital social. Los pagos de dividendos se haran contra los cupones respectivos, a no ser que la Asamblea acuerde otra forma de comprobacion. Los dividendos no cobrados en cinco anos contados a partir de la fecha que se fije para su pago prescribiran en favor de la sociedad. La Asamblea anual fijara la remuneracion de los Consejeros y Comisarios. Si hubiere perdidas, estas seran soportadas por los accionistas en proporcion al respectivo numero de sus acciones, pero limitada siempre la obligacion de los accionistas al pago del importe de sus suscripciones, sin que pueda exigirseles ningun pago adicional. DE LAS CAUSAS DE LA DISOLUCION CUADRAGESIMA SEXTA.- La Sociedad se disolvera: I. Por expiracion del termino fijado en esta escritura. II. Por imposibilidad de seguir realizando el objeto principal de la sociedad. III. Por acuerdo de los socios tomado de conformidad con el contrato social y con la ley. IV. Porque el numero de accionistas llegue a ser inferior a cinco, minimo que exige la ley. V. Por perdidas de las dos terceras partes del capital social. DE LAS BASES PARA LA LIQUIDACION CUADRAGESIMA SEPTIMA.- Acordada la disolucion, se pondra en liquidacion la sociedad y la Asamblea General Extraordinaria de Accionistas designara por mayoria de votos de las acciones comunes uno o varios liquidadores, que seran los representantes de la sociedad y tendran las facultades y obligaciones senaladas en el articulo doscientos cuarenta y dos de la Ley General de Sociedades Mercantiles, debiendo proceder en su oportunidad a la distribucion del remanente entre los accionistas, de acuerdo con lo previsto en los articulos doscientos cuarenta y siete y doscientos cuarenta y ocho de la propia ley, y como sigue: I. Concluiran los negocios de la manera que juzguen mas conveniente; II. Cobraran los creditos y pagaran las deudas enajenando los bienes de la Sociedad que fuere necesario para tal efecto; III. Formularan el balance final de liquidacion; y IV. Una vez aprobado el balance final de liquidacion, distribuiran el activo liquido repartible entre todos los accionistas como sigue: 1. Se pagara a los accionistas tenedores de las acciones de la Serie "L" el dividendo preferente equivalente al cinco por ciento sobre el valor teorico de las acciones que les correspondiere y que no hubiere sido cubierto; 2. Se pagara a los accionistas tenedores de las acciones comunes u ordinarias de las Series "AA" y "A" un dividendo equivalente al dividendo pagado a los accionistas de la Serie "L" a que se refiere el punto 1 anterior de esta Fraccion IV. 3. Una vez pagados los conceptos referidos en los puntos 1 y 2 anteriores, se debera pagar a los tenedores de las acciones de la Serie "L" el reembolso por accion equivalente a su valor teorico de $0.025 por accion; 4. Del remanente se pagara a los accionistas de las Series "AA" y "A" una cantidad igual a la que se refiere el punto 3 anterior; y 5. El remanente se distribuira por igual entre todos los accionistas y en proporcion al numero de las acciones y a su importe exhibido, de que cada uno de ellos fuere tenedor. En caso de discrepancia entre los liquidadores, el Comisario debera convocar a la Asamblea General Extraordinaria de Accionistas para que esta resuelva las cuestiones sobre las que existiesen divergencias. CUADRAGESIMA OCTAVA.- Los socios fundadores no se reservan derecho alguno. CUADRAGESIMA NOVENA.- Las disposiciones de la Ley General de Sociedades Mercantiles regiran en todo aquello sobre lo que no hay clausula expresa en esta escritura. QUINCUAGESIMA.- Cualquier controversia que se motive por la celebracion, interpretacion y cumplimiento de este contrato, en que sea parte la sociedad, se sometera a los tribunales federales de los Estados Unidos Mexicanos. DISPOSICIONES TRANSITORIAS Y COMPLEMENTARIAS DE LA ESCRITURA CONSTITUTIVA DE AMERICA MOVIL, S.A. DE C.V. QUE SE ESTABLECEN EN FORMA ENUNCIATIVA, Y NO LIMITATIVA: A) El capital social minimo fijo sin derecho a retiro de la sociedad, integramente pagado, importa la suma de $402,900,048.30 M.N. y esta representado por 3,266,191,868 comunes u ordinarias, de la Serie "AA", nominativas, sin expresion de valor nominal; 345,648,701 acciones comunes u ordinarias, de la Serie "A", nominativas, sin expresion de valor nominal, y 10,872,673,431 acciones nominativas de la Serie "L", sin expresion de valor nominal, de voto limitado; todas ellas integramente suscritas y pagadas. Se hace constar que a la presente fecha se encuentra en la Tesoreria de la Sociedad para su recolocacion en los terminos del art. 14 bis de la Ley del Mercado de Valores, un total de 1,631,487,932 acciones de la Serie "L". B) El Consejo de Administracion de la Sociedad inicialmente quedara integrado por once Consejeros Propietarios, en la forma siguiente: CONSEJEROS POR LAS ACCIONES COMUNES PROPIETARIOS ING. CARLOS SLIM HELU ING. JAIME CHICO PARDO C.P. HUMBERTO GUTIERREZ OLVERA Z. LIC. ALEJANDRO SOBERON KURI SRA. MA. ASUNCION ARAMBURUZABALA L. LIC. DANIEL HAJJ ABOUMRAD LIC. RAFAEL ROBLES MIAJA SR. DREW ROY SR.ROYCE S.CALDWELL CONSEJEROS POR LAS ACCIONES DE LA SERIE "L" ING. CLAUDIO X. GONZALEZ LAPORTE LIC. DAVID IBARRA MUNOZ C) Quedaran designados como Comisarios de la Sociedad las siguientes personas: COMISARIO PROPIETARIO COMISARIO SUPLENTE C.P. FRANCISCO ALVAREZ DEL CAMPO C.P. AGUSTIN AGUILAR LAURENT D) Quedaran designados como Presidente y Secretario del Consejo de Administracion los senores Ing. Carlos Slim Helu y Lic. Rafael Robles Miaja, respectivamente. E) Cada uno de los Consejeros y Comisarios, asi como el Secretario y en su caso, el Prosecretario, percibiran la cantidad de: $13,000.00 M.N., por cada junta de Consejo a la que asistan, por concepto de emolumentos en el ejercicio de las funciones a su cargo, con excepcion de la ultima junta que se celebre en el presente ano 2000, en cuyo caso los honorarios para cada uno de ellos seran de $130,000.00, por su asistencia a la misma, quedando sujetos los pagos a las retenciones fiscales a que haya lugar. F) Quedaran designados como miembros del Comite Ejecutivo de America Movil, S.A. de C.V., los siguientes Consejeros: ING. CARLOS SLIM HELU LIC. DANIEL HAJJ ABOUMRAD C.P. HUMBERTO GUTIERREZ OLVERA Z. SR.DREW ROY. G) Quedaran conferidos por America Movil, S.A. de C.V. en favor de los senores Lic. Daniel Hajj Aboumrad, Ing. Adolfo Cerezo Perez, C.P. Jose Manuel Camacho Berrueta y C.P. Felix Elizundia Villafana, los siguientes poderes: (1).- PODER GENERAL PARA PLEITOS Y COBRANZAS, en los terminos del parrafo primero del Articulo dos mil quinientos cincuenta y cuatro del Codigo Civil para el Distrito Federal y de sus Articulos correlativos de los respectivos Codigos Civiles de todos los Estados de la Republica Mexicana, con todas las facultades generales y aun con las especiales que de acuerdo con la Ley requieran clausula especial, particularmente las previstas por el Articulo dos mil quinientos ochenta y siete del Codigo Civil para el Distrito Federal y por sus Articulos correlativos de los demas Codigos Civiles mencionado, con excepcion unicamente de la facultad de hacer cesion de bienes. De manera enunciativa pero no limitativa se mencionan, entre otras facultades de los apoderados, las siguientes: I.- Para desistirse. II.- Para transigir. III.- Para comprometer en arbitros. IV.- Para absolver y articular posiciones. V.- Para recusar. VI.- Para recibir pagos. VII.- Para presentar denuncias y querellas en materia penal y para desistirse de ellas y otorgar perdon cuando lo permita la Ley. VIII.- Para promover el juicio de amparo y desistirse de el. IX.- Para autorizar a terceros para oir y recibir notificaciones y toda clase de documentos. X.- Para otorgar y revocar todo tipo de poderes. Los apoderados ejercitaran las facultades a que se refiere este poder ante particulares y ante toda clase de autoridades administrativas o judiciales, inclusive de caracter federal o local y ante las Juntas de conciliacion y Arbitraje, Locales o Federales y Autoridades de Trabajo. (2).-PODER GENERAL PARA ACTOS DE ADMINISTRACION, en los terminos del parrafo segundo del articulo dos mil quinientos cincuenta y cuatro del Codigo Civil para el Distrito Federal y de sus Articulos correlativos de los respectivos Codigos Civiles de todos los Estados de la Republica Mexicana, quedando comprendida la facultad de otorgar y revocar todo tipo de poderes. (3).- PODER PARA PLEITOS Y COBRANZAS Y PARA ACTOS DE ADMINISTRACION REFERIDO A CONFLICTOS Y ASUNTOS EN MATERIA LABORAL, de acuerdo con lo dispuesto por los Articulos once, seiscientos noventa y dos fraccion segunda, setecientos ochenta y seis, ochocientos setenta y seis y demas relativos de la Ley Federal del Trabajo, y en los terminos de los dos primeros parrafos del Articulo dos mil quinientos cincuenta y cuatro del Codigo Civil para el Distrito Federal y de sus Articulos correlativos de los respectivos Codigos Civiles de todos los Estados de la Republica Mexicana, con las facultades especiales que de acuerdo con la Ley requieran clausula especial contenidas en el Articulo dos mil quinientos ochenta y siete del mismo Codigo y de sus Articulos correlativos de los demas Codigos Civiles mencionados, con excepcion unicamente de la facultad de hacer cesion de bienes, incluyendose expresamente aquellas que de manera enunciativa y no limitativa se mencionan a continuacion, tales como desistirse, transigir, comprometer en arbitros, recusar, absolver y articular posiciones, recibir pagos, otorgar recibos y cancelaciones, promover juicio de amparo y desistirse de el, hacer denuncias, acusaciones y querellas, autorizar a terceros para oir y recibir notificaciones y toda clase de documentos, otorgar y revocar todo tipo de poderes y, en general, ejercitar sus facultades y todo tipo de acciones ante toda clase de personas fisicas y morales y ante toda clase de autoridades tanto judiciales como administrativas, ya sean del fuero comun o federal, y en especial ante las Juntas Locales y Federales de Conciliacion y Arbitraje. En especial, los apoderados podran comparecer ante todas las autoridades en materia de trabajo, con el fin de realizar todas las gestiones y tramites necesarios para la solucion de los conflictos y asuntos laborales de la poderdante, para lo cual los apoderados compareceran en el caracter de Representantes de la misma, en los terminos del Articulo once de la Ley Federal de Trabajo, que a continuacion se transcribe: "Los directores, administradores, gerentes y demas personas que ejerzan funciones de direccion o administracion en la empresa o establecimiento, seran considerados representantes del patron y en tal concepto lo obligan en sus relaciones con los trabajadores". En el ejercicio del poder los apoderados podran participar representando a la poderdante en la etapa conciliatoria a que sea citada por las Juntas de Conciliacion y las Juntas de Conciliacion y Arbitraje, con todas las facultades y decision y para la suscripcion de los convenios necesarios para la solucion de los conflictos laborales en etapa conciliatoria. Asimismo podran comparecer en todas las demas etapas del proceso laboral. (4).- Poder General para Actos de Dominio, en los terminos del parrafo tercero del articulo 2554 del Codigo Civil para el Distrito Federal y de sus articulos correlativos de los respectivos Codigos Civiles de todos los Estados de la Republica Mexicana. (5).- Poder General para aceptar, otorgar, girar, emitir, endosar y por cualquier otro concepto suscribir titulos de credito, en los terminos del articulo noveno y demas relativos de la Ley General de Titulos y Operaciones Credito. (6).- Sustituir o delegar en todo o en parte los poderes otorgados en los incisos (1), (2), (3), (4), y (5) y otorgar poderes generales y especiales bajo los terminos y con las facultades que consideren necesarias o convenientes, debiendose reservar los apoderados el ejercicio de los presentes poderes, siempre y en cualquier caso, quienes contaran tambien con la facultad de revocar las sustituciones o poderes que ellos otorguen o que hayan sido otorgados por cualesquiera otros organos o apoderados de la Sociedad. (7).- Los apoderados, al sustituir o delegar en todo o en parte estos poderes a terceros, y al otorgarles poderes generales o especiales bajos los terminos y con las facultades que los propios apoderados consideren necesarias o convenientes, podran, a su vez, transmitir a dichos terceros, total o parcialmente, las facultades contenidas en el inciso (6) que antecede, a fin que de esos terceros puedan, hasta donde se les faculte en cada caso particular, realizar lo siguiente: Sustituir o delegar en todo o en parte sus respectivos poderes, y otorgar poderes generales o especiales bajo los terminos y con las facultades que consideren necesarias o convenientes, debiendose reservar dichos terceros el ejercicio de sus poderes, siempre y en cualquier caso, quienes, de haberseles facultado, tambien podran revocar las sustituciones o poderes que ellos otorguen o que hayan sido otorgados por cualesquiera otros organos o apoderados de la Sociedad. (8).- Los poderes para pleitos y cobranzas, actos de administracion, y los referidos a conflictos y asuntos en materia laboral, otorgados en los incisos (1), (2) y (3), asi como las facultades conferidas en los incisos (6) y (7) precedentes, cuando se refieran a tales poderes, podran ejercitarse indistintamente por cualquiera de los apoderados, en forma individual; debiendose considerar lo que se establece en el inciso (9) siguiente. (9).- Los poderes para actos de dominio y para suscribir titulos de credito otorgados en los incisos (4) y (5), asi como las facultades conferidas en los incisos (6) y (7), cuando se refieran a dichos poderes, requerira ejercitarse conjuntamente por dos de cualesquiera de los apoderados aqui designados, o bien, por uno de cualesquiera de ellos actuando conjuntamente con otro apoderado que en lo futuro llegue a contar con facultades suficientes para ello, excepto en los casos siguientes: a) Para realizar actos de dominio sobre bienes inmuebles o para otorgar poderes con facultades para actos de dominio, se requerira que uno de los dos apoderados que actuen sea, cuando menos, cualquiera de los senores Lic. Daniel Hajj Aboumrad o el Ing. Adolfo Cerezo Perez. b) Para abrir cuentas de cheques, firmar en ellas y autorizar a terceros para que lo hagan, el Senor Ing. Adolfo Cerezo Perez podra actuar individualmente. H) Se establecera expresamente que: La Asamblea Ordinaria de Accionistas y el Consejo de Administracion podran aprobar, en cualquier tiempo y dentro de su respectiva competencia, cualesquiera cambios o sustituciones que estimen convenientes en relacion con los nombramientos, emolumentos y poderes que se comprendan en los articulos transitorios y disposiciones complementarias de la escritura constitutiva de America Movil, S.A. de C.V. I) Los ejercicios sociales coincidiran con el ano de calendario. Sin embargo, la sociedad iniciara un ejercicio social y fiscal irregular a partir de la fecha de la presente escritura, que concluira el dia 31 de diciembre de 2000. =============================================================================== EXHIBIT "C" MINUTES OF THE SPECIAL MEETING OF SHAREHOLDERS OF TELEFONOS DE MEXICO, S.A. DE C.V., HELD ON SEPTEMBER 25, 2000 - -------------------------------------------------------------------------------- BYLAWS OF AMERICA MOVIL, S.A. DE C.V. CLAUSES ONE.-The Company shall be known as "AMERICA MOVIL", followed by the words "SOCIEDAD ANONIMA DE CAPITAL VARIABLE", abbreviated as "S.A. de C.V." TWO.- The corporate headquarters of the Company shall be located in Mexico City, Federal District; however, it may set up offices, branches or agencies anywhere in Mexico or abroad, or agree to be subject under any contract or agreement to foreign legislation or to the laws of any state in Mexico and to the jurisdiction of the relevant courts, or be subject to jurisdictions arising from Mexican or foreign addresses provided in contracts or agreements, for purposes of receiving any manner of notices or service of process, whether judicial or otherwise, and it may for such or any other purposes appoint attorneys-in-fact outside of Mexico with or without special powers, without thereby giving rise to a change in its corporate domicile. THREE.- The Company shall serve the following purposes: a) Promoting, creating, organizing, developing, purchasing and acquiring an equity interest in any manner of industrial, commercial, service-related or other enterprises, partnerships or companies, whether domestic or foreign, and taking part in the management and liquidation thereof. b) Acquiring shares or interests in any type of business partnership or corporation by any legal means, whether upon the organization thereof or subsequent thereto, as well as selling, disposing of or trading such shares or equity interests, including any other securities, pursuant to the provisions of the Comision Nacional Bancaria y de Valores (National Banking and Securities Commission), and, provided that the shares of the Company are registered in the Seccion de Valores del Registro Nacional de Valores e Intermediarios (Securities Section of the National Registry of Securities and Broker-Dealers), acquiring shares of the Company subject to the provisions of these Bylaws. c) Building, installing, maintaining, operating and developing public telecommunication networks, provided that the Company has obtained any concessions and permits legally required for such purposes. d) Acquiring direct title to real estate properties, subject to the provisions of article 27 of the Political Constitution of the United Mexican States and the Foreign Investment Act and associated Regulations. e) Renting out and leasing any manner of real estate properties and entering into any manner of agreements providing for the use or possession of real estate properties by the Company or third parties. f) Acquiring, selling and otherwise entering into agreements relating to real estate, machinery, equipment and tools as required or appropriate in furtherance of the Company's purposes. g) Entering into any agreements providing for credit or rights. h) Entering into any agreements relating to patents, labels or trademarks. i) Providing or receiving any manner of technical, scientific or administrative advisory and assistance services. j) Issuing bonds and promissory notes. k) Creating branches, agencies and offices in Mexico or abroad. l) Acting as agent, representative or broker for Mexican or foreign individuals or corporate entities. m) Lending or borrowing money. n) Accepting, signing, co-signing or endorsing any manner of credit instruments. o) Providing any manner of guarantees, including collateral and security interests, as required or appropriate in furtherance of the Company's purposes. p) Guaranteeing the performance of obligations by Mexican or foreign third-party individuals or legal entities by any legal means, whether free of charge or for consideration, including the providing of collateral and security interests, and becoming a joint obligor with any Mexican or foreign third-party individuals or legal entities. q) Entering into any agreement related to the Company's purposes and which a corporation may lawfully execute. FOUR.- The Company shall be in existence for an indefinite term. FIVE.- The Company is of Mexican nationality. Any present or future shareholders of the Company formally agree with the Secretaria de Relaciones Exteriores (Mexican Ministry of Foreign Affairs) to be considered Mexican nationals with respect to any shares of the Company which they may acquire or hold, as well as with respect to any assets, rights, concessions or interests which the Company may hold or any rights and obligations arising from agreements executed by the Company and Mexican authorities. Consequently, such present or future shareholders undertake not to invoke the protection of their respective Governments under penalty of forfeiting in favor of the Mexican Government any equity interest they may have acquired. SIX.- The capital stock shall be variable, with a fixed minimum of $402,900,048.30 (four hundred two million nine hundred thousand forty-eight point thirty pesos), accounted for by a total of 16,116,001,932 shares, of which 3,266,191,868 (Three Billion Two Hundred Sixty-Six Million One Hundred Ninety-One Thousand Eight Hundred Sixty-Eight) are registered Series "AA" common shares with no par value; 345,648,701 (Three Hundred Forty-Five Million Six Hundred Forty-Eight Thousand Seven Hundred One) are registered Series "A" common shares with no par value, and 12,504,161,363 (Twelve Billion Five Hundred Four Million One Hundred Sixty-One Thousand Three Hundred Sixty-Three) are registered Series "L" shares with no par value and limited voting rights. The maximum authorized capital may not exceed an amount equal to ten times the minimum fixed capital amount. The capital stock shall be evidenced by a number of Series "AA" shares equal at least to 20% (twenty percent) but not greater than 51% (fifty-one percent) of the capital stock and at all times constituting no less than 51% (fifty-one percent) of the common shares comprised in such capital stock, which Series "AA" shares shall be registered, common shares with no par value and may be subscribed for and acquired only by Mexican investors; by a number of Series "A" shares not to exceed 19.6% (nineteen point six percent) of the capital stock and not to exceed 49% (forty-nine percent) of the common shares comprised in such capital stock, which Series "A" shares shall be registered, common shares and may be freely subscribed for; and by registered, common, limited-voting Series "L" shares that may be freely subscribed for, in a number that, together with the Series "A" shares, does not exceed 80% (eighty percent) of the capital stock. Upon any increase in capital stock, such increase shall be proportionally represented by a Series "AA" sub-series, a Series `A" sub-series, and a Series "L" sub-series, which shall be the entire and sole components of such increase. The Company may issue unsubscribed for shares of any of the series comprising its capital stock, to be delivered as the subscription is consummated. A minimum of 51% (fifty-one percent) of the common shares of the capital stock shall be subscribed for by Mexican investors and shall be Series "AA" shares, while the remaining shares, comprising up to 49% (forty-nine percent) of the capital stock, shall be Series "A" shares and may be acquired by Mexican investors, by foreign individuals or legal entities, or by Mexican companies wherein the majority equity interest is held by foreigners or wherein management is otherwise controlled by foreigners. Series "AA" and "A" common shares may not in the aggregate account for more than 51% (fifty-one percent) of the shares comprising the capital stock. Series "L" shares may be freely subscribed for and may consequently be acquired by Mexican investors, by foreign individuals or legal entities, or by Mexican companies wherein the majority equity interest is held by foreigners or wherein management is otherwise controlled by foreigners. Series "AA" shares, which may be subscribed for only by Mexican investors, shall at all times comprise no less than 20% (twenty percent) of the capital stock. Series "A" and Series "L" shares, which may be freely subscribed for, may not in the aggregate account for more than 80% (eighty percent) of the capital stock. Series "AA" shares may be subscribed for or acquired only by: a) Mexican individuals. b) Mexican companies with bylaws containing a foreigner-exclusion clause whereby a partnership or shareholding interest may only be held by Mexican individuals and/or by Mexican companies with bylaws likewise containing a foreigner-exclusion clause. c) Mexican companies with bylaws providing that at least 51% (fifty-one percent) of the capital stock may only be subscribed for or acquired by (i) Mexican individuals, and/or (ii) Mexican companies with bylaws containing a foreigner-exclusion clause whereby a partnership or shareholding interest may only be held by Mexican individuals and/or by Mexican companies with bylaws likewise containing a foreigner-exclusion clause, and/or (iii) Mexican companies allowing a minority foreign equity interest, provided that the shares of such companies are listed in the Bolsa Mexicana de Valores, S.A. de C.V (Mexican Securities Exchange). d) Mexican lending, insurance and bonding institutions, and Mexican investment companies operating under the Ley de Sociedades de Inversion (Law of Investment Companies), provided that the shares or capital contribution certificates of the relevant institution or company are listed in the Bolsa Mexicana de Valores, S.A. de C.V. e) Trusts specifically authorized to acquire Series "AA" shares by the relevant authorities pursuant to the Foreign Investment Act and associated Regulations, wherein (i) the majority of beneficial rights are held by individuals or legal entities meeting the requirements provided in subparagraphs a), b), and d) hereinabove, or (ii) the Series "AA" shares under the trust constitute a minority of the shares of such Series and must be voted by the trustee in line with the majority of the Series "AA" shares. The shares to be issued by the Company may not be acquired by foreign Governments or States and, should this occur, they shall be null and void for the holder thereof upon their acquisition. SEVEN.- The shares shall, within their respective series, provide equal rights. Each Series "AA" or "A" common share entitles the holder to a vote at Regular Shareholders' Meetings. Series "L" shares are only entitled to a vote on matters restrictively allotted to such shares hereunder and transcribed on the certificates thereof. Such share certificates shall bear the original signature of any two Directors or a printed facsimile thereof, if the Board of Directors so authorizes. In the latter case, the originals of the relevant signatures shall be filed at the Commercial Section of the relevant Registro Publico de la Propiedad y del Comercio (Public Registry of Real Estate and Commerce). Share certificates shall be sequentially numbered and may evidence either one or several shares, and shall have dividend payment coupons attached thereto. Final share certificates or temporary certificates shall contain all information required under Article twenty-five of the General Law of Commercial Enterprises and under clause five hereof. EIGHT.- Series "L" shares shall provide for limited voting rights and the right to a preferred dividend, and shall be issued pursuant to Article 113 of the General Law of Commercial Enterprises. Series "L" shares shall be entitled to vote only on the following matters: extending the term of the Company, early dissolution of the Company, change of corporate purpose, changing the nationality of the Company, changing the nature of the Company, merger with another company, and delisting the shares of the Company from the securities or special sections of the National Registry of Securities and Broker-Dealers or from foreign securities exchanges, except in the case of stock quoting systems or other markets not organized as securities exchanges. Series "L" shares shall, by resolution to be passed at a Special Shareholders' Meeting held for such purpose, be entitled to designate two Directors and their respective Alternates. The person authorized for such purpose at the Special Shareholders' Meeting described in the preceding paragraph, shall provide the Chairman of the Board of Directors of the Company with written notice of the names of the persons elected by the Series "L" shares to serve as Directors, and their respective Alternates. Lastly, Series "L" shareholders may be present and vote, at the rate of one vote per share, at Special Shareholders' Meetings held to decide whether to amend Article Twelve hereof regarding the delisting of the Company's shares at the Securities Section of the National Registry of Securities and Broker-Dealers. Every share shall provide the same ownership and pecuniary rights. Consequently, all shares shall without distinction take equal part in any type of dividend, reimbursement, redemption or distribution, in all cases subject to the following: a). Pursuant to Article One Hundred Thirteen of the General Law of Commercial Enterprises, dividends may not be allocated to Series "AA" and "A" shares without paying Series "L" shares, which have limited voting rights, an annual five percent dividend on the theoretical value of the Series "L" shares, which amounts to $0.025 (zero point zero two five Mexican Pesos) per share, that is to say, an annual dividend of $0.00125 (zero point zero zero one two five Mexican Pesos) per share, which shall be charged to the retained earnings of the Company according to previous financial statements duly approved at Shareholders' Meetings pursuant to Article Nineteen of the General Law of Commercial Enterprises. In the event that, in any fiscal year, dividends are not declared or are lower than such five percent, this amount shall be satisfied in subsequent years in the indicated order. b). Once the dividend for Series "L" shares described in subparagraph a) has been satisfied, if the payment of additional dividends is decided upon at the Regular Shareholders' Meeting, then Series "AA" and "A" shareholders shall receive the same dividend amount received by Series "L" shareholders pursuant to subparagraph a) above in the fiscal year in question or in previous fiscal years, in order that all shareholders receive an equal dividend amount. c). Once the dividend for Series "AA" and "A" shareholders described in subparagraph b) above has been satisfied and, consequently, all shareholders have received or are about to receive the same dividend amount, if the Company makes additional dividend payments in the same fiscal year, all Series "AA", "A" and "L" shareholders shall receive the same dividend amount per share, whereby every Series "L" share shall receive an additional dividend payment which shall be identical as to form of payment, amount and timing to the dividend payment received by every Series "AA" and "A" share. d). In the event that the Company is liquidated, Series "L" shareholders shall be paid any cumulative preferred divided equivalent to five percent on the theoretical value of their shares that has not been satisfied pursuant to subparagraph a) above prior to distributing the distributable remainder among all shares. In such event, once the dividend indicated in the preceding sentence has been paid, Series "AA" and "A" shareholders shall be paid a dividend per share equivalent to the one received by Series "L" shareholders. e). In the event of a capital stock increase involving the issuance of new Series "L" shares to be paid for in cash or in kind, outstanding Series "L" shareholders shall be entitled to subscribe for such new shares in the relevant proportion provided in these bylaws. f). Series "L" shares shall participate on the same terms as all other stock Series with respect to any and all dividends declared by the Company. NINE.- Subject to the provisions of these bylaws, upon the request of the relevant shareholders, the shares comprising Series "A" of the capital stock of the Company may be exchanged for Series "L" shares on a one-to-one basis by delivering the Series "A" shares to the Company's Treasury, where they shall be cancelled. TEN.- Subject to the provisions of these bylaws, commencing on January 2, 2001 (January second, two thousand one) until January 31, 2001 (January thirty-first, two thousand one), upon the request of any shareholder so desiring, Series "L" shares may be exchanged for Series "AA" shares if the relevant shareholder is of Mexican nationality, and by complying with current and, as the case may be, future relevant legal provisions if the relevant shareholder is of foreign nationality, by delivering the Series "L" shares to the Company's Treasury. Having submitted the request within the period indicated in the preceding paragraph, in the event that several shareholders request on the same date an exchange of their Series "L" shares for Series "AA" shares and the Series "AA" shares held in the Company's Treasury are not sufficient to satisfy such requests, the exchange shall be performed for all shareholders having requested such exchange on the same date in proportion to the number of shares that each has requested to exchange. Upon the conclusion of the period indicated in the preceding paragraph, no further exchange shall be performed under this Clause. ELEVEN.- Subject to the provisions of these bylaws, upon request from the Series "AA" shareholders, such shares may be delivered to the Company's Treasury to be exchanged for Series "L" shares on a one-to-one basis, provided that Series "AA" shares do not as a result thereof come to account for less than 20% (twenty percent) of the capital stock. TWELVE.- The Company shall keep a stock ledger and shall consider shares to be held by the owner of record set forth therein. Upon the request of any interested party, the Company shall, following due verification, record any and all share transfers on such stock ledger. Pursuant to and for purposes of Article 130 of the General Law of Commercial Enterprises, any transfer of shares issued by the Company may only be performed upon authorization from the Board of Directors if the number of shares to be transferred accounts, either by itself or added to prior transactions by the same shareholder or by a group of related shareholders acting in concert, for 10% (ten percent) or more of the voting shares issued by the Company. As long as the Company keeps issued shares listed on the National Registry of Securities and Broker-Dealers, the preceding requirement shall, in the case of transactions performed through the securities exchange, be additionally subject to the rules to be provided, as the case may be, by the Securities Market Law or the relevant provisions to be issued by the National Banking and Securities Commission. If, pursuant to such Article, the Board of Directors denies such authorization, it shall designate one or more purchasers for the shares, who shall pay the interested party the price quoted on the securities exchange. In the event that the shares are not listed on the National Registry of Securities and Broker-Dealers, the price to be paid shall be determined on the basis of the above-mentioned Article 130. Whenever the shares of the Company are listed in the Securities Section of the National Registry of Securities and Broker-Dealers pursuant to the Securities Market Law and the general provisions to be issued by the National Banking and Securities Commission, in the event of a delisting of the shares from the Securities Section of such Registry, whether at the Company's own request or by a National Banking and Securities Commission resolution pursuant to Law, shareholders controlling the Company at the time undertake to proceed to a public purchase offer prior to such delisting at a price equal at least to the higher of: (i) the average closing price on trades completed over the thirty days on which the shares were quoted prior to the offer date, or, (ii) the book value of the shares according to the latest quarterly report submitted to the Commission and to the securities exchange prior to the offer, unless the National Banking and Securities Commission, when deciding to authorize the public purchase offer in connection with the delisting of the shares as described above, authorizes a different price. Shareholders controlling the Company shall not be required to conduct the above-described public offer if evidence is provided of the consent of all shareholders to the delisting of the shares. To amend this paragraph of the Bylaws shall require: (i) prior approval from the National Banking and Securities Commission; and (ii) a resolution passed at a Special Shareholders' Meeting with a voting quorum of at least 95% (ninety-five percent) of the capital stock. Companies that are majority-held by the Company may neither directly nor indirectly acquire shares of the Company or of any other company that is a majority shareholder of the Company or that, without being so, is a Company shareholder to the knowledge of such companies that are majority-held by the Company, unless such companies acquire shares of the Company to exercise options or implement stock selling plans created or granted or designed for the benefit of employees or officers of such companies or of the Company, provided that the number of shares acquired for such purpose does not exceed 25% (twenty-five percent) of the total outstanding shares of the Company. THIRTEEN.- The variable capital of the Company may be increased or reduced without need of amending the bylaws, the only requirement being that such increases or reductions are to be agreed upon at a Special Shareholders' Meeting and the minutes thereof are to be formalized before a notary public, without need of filing a copy of the notarized instrument in the Commercial Section of the relevant Public Registry of Real Estate and Commerce. The minimum fixed capital of the Company may not be increased or reduced unless so resolved upon at a Special Shareholders' Meeting, with the relevant amendment of the bylaws. Any capital stock increase or reduction shall be recorded on a ledger to be kept by the Company for such purpose. No capital stock increase may be declared if all previously issued shares of the Company have failed to be fully subscribed for and paid in. Upon an increase in capital stock, all shareholders shall, in proportion to their number of shares of the relevant Series, have a preferred right to subscribe for any shares to be issued or made available. The right provided under this paragraph shall be exercised within fifteen calendar days of the date of publication of the relevant resolutions in the Federal Official Gazette and in a major Mexico City newspaper. Reductions in the variable portion of the capital stock shall be performed by proportionally redeeming full shares of the series comprising such capital stock and proceeding to the reimbursement thereof to shareholders at the price quoted on the Bolsa de Valores on the day when such capital reduction is declared. Shareholders shall, at the relevant Shareholders' Meeting, be entitled to request the proportional redemption of the relevant shares and, in the event that an agreement to proceed to such redemption is not obtained, the shares to be redeemed shall be determined by lottery before a notary public or broker. Upon designation of the shares to be redeemed, an announcement shall be published in the Federal Official Gazette and in a major Mexico City newspaper stating the number of shares to be withdrawn and the number of share certificates to be consequently cancelled or, as the case may be, exchanged, as well as identifying the lending institution where the reimbursement amount is to be deposited, which amount shall as of the date of publication be available to the relevant shareholders without accruing any interest. The Company may acquire shares of its own capital stock through the Bolsa de Valores with the prior approval of the Board of Directors, pursuant to Article 14 Bis of the Securities Market Law. The Board of Directors shall be solely responsible for deciding on the buyback of the Company's shares, while shareholders assembled at Regular Shareholders' Meetings shall be responsible for indicating the capital stock amount that is to be allocated to such share buyback and the portion of net earnings to be set aside as a share buyback reserve. For the above purposes, pursuant to Article 14 Bis of the Securities Market Law, the Company may hold in its Treasury shares forming part of the minimum fixed portion of capital stock. FOURTEEN.- Shareholders are entitled to partially or fully withdraw their capital contribution evidenced by shares forming part of the variable portion of the capital stock, provided that, in addition to abiding by articles 220 and 221 of the General Law of Commercial Enterprises, they agree to be reimbursed on the basis of the lower of the following two figures: 95% (ninety-five percent) of the price quoted on the Bolsa de Valores, computed as the average closing price on trades completed over the thirty days on which the shares were quoted prior to the date on which such withdrawal is to take effect, or the book value of the shares according to the financial statements, duly approved at the Regular Shareholders' Meeting, for the close of the fiscal year on which such withdrawal is to become effective. Payment of such reimbursement shall be required of the Company commencing on the day following the Regular Shareholders' Meeting approving the financial statements for the fiscal year on which such withdrawal is to become effective. In the event of partial or full withdrawal of a shareholder's capital contribution, the corresponding capital stock reduction shall not require calling a Shareholders' Meeting. SHAREHOLDERS' MEETINGS FIFTEEN.- Shareholders acting at Shareholders' Meetings are the highest governing body of the Company, all others being subordinate thereto. SIXTEEN.- Shareholder Meetings shall be either Regular or Special, and shall be held at the domicile of the Company. Special Shareholders' Meetings shall be those dealing with any of the matters listed in Article one hundred eighty-two of the General Law of Commercial Enterprises and with the delisting of the Company's shares from the securities or special sections of the National Registry of Securities and Broker-Dealers or from any foreign securities exchanges where shares of the capital stock are listed. All other Shareholders' Meetings shall be Regular meetings. Shareholders' Meetings shall deal only with matters listed on the agenda. Special Meetings held by Series "L" shareholders for purposes of designating the two Directors to whom they are entitled, shall be called annually by the Board of Directors to be held ahead of the Annual Regular Shareholders' Meeting. Special Series "L" Shareholders' Meetings held solely for the purpose of designating such Directors, shall be governed by the provisions set forth in Clause Twenty-Three hereof for Regular Shareholders' Meetings held upon second notice. SEVENTEEN.- Regular Shareholders' Meetings shall be held at least once yearly within four months following the close of the relevant fiscal year on a date to be set by the Board, and shall, in addition to the matters included on the agenda, deal with the matters listed in Article one hundred eighty-one of the General Law of Commercial Enterprises. Special Shareholders' Meetings shall be held whenever there is need to discuss any of the matters within their domain, which are listed in article one hundred eighty-two of the General Law of Commercial Enterprises, or to delist shares issued by the Company from the securities or special sections of the National Registry of Securities and Broker-Dealers or from foreign securities exchanges in which the Company's shares are listed. EIGHTEEN.- Shareholders' Meetings shall be called by the Board of Directors, the Statutory Examiners, the Chairman or the Secretary of the Board, or judicial authorities, as the case may be. NINETEEN.- Notices of Shareholders' Meetings shall be provided by means of an announcement in the Federal Official Gazette or a major Mexico City newspaper not less than fifteen calendar days in advance of the scheduled meeting date. TWENTY.- Notices of Shareholders' Meetings shall set forth the place, date and time of the Meeting, the agenda therefor, and the signature of those calling it. TWENTY-ONE.- Shareholders' Meetings may be held without advance notice, provided that all shares entitled to vote on the matters to be discussed are represented thereat. TWENTY-TWO.- Regular Shareholders' Meetings held upon first notice shall be deemed lawfully convened if at least one half of common shares is represented, and their resolutions shall be valid if passed by a majority of votes in attendance. TWENTY-THREE.- If a Regular Shareholders' Meeting cannot be held on the scheduled date, a second notice shall be published, providing for a date not earlier than seven calendar days following the originally scheduled date, and the matters indicated on the agenda shall be decided at such meeting by majority vote, regardless of the number of common shares represented. TWENTY-FOUR.- Special Shareholders' Meetings held upon first notice to deal with matters on which Series "L" shares are not entitled to vote, shall be deemed lawfully convened with the presence of at least three fourths of common shares entitled to vote on the matters to be dealt with, and their resolutions shall be valid if passed by at least a majority of common voting shares. Special Shareholders' Meetings called to deal with any of the matters on which Series "L" shares are entitled to vote shall be lawfully convened if at least three fourths of the capital stock are represented, and resolutions shall be passed by the vote of shares accounting for a majority of such capital stock. Special Shareholders' Meetings held upon subsequent notice to deal with any of the matters on which Series "L" shares are not entitled to vote, shall be deemed lawfully convened with the presence of at least a majority of common shares entitled to vote on the agenda, and their resolutions shall be valid if passed by at least the number of shares constituting a majority of such capital stock entitled to vote on the agenda. Special Shareholders' Meetings held upon subsequent notice to deal with matters on which Series "L" shares are entitled to vote, shall be deemed lawfully convened if at least a majority of the capital stock is represented, and resolutions shall be valid if adopted by at least the number of shares constituting such majority of capital stock. Resolutions adopted at Special Shareholders' Meetings held upon first or subsequent notice to deal with any of the matters on which Series "L" shares are entitled to vote, shall be legally agreed upon only if, in addition to the requirements provided in the preceding paragraphs, they are approved by a majority of Series "AA" and "A" common shares. TWENTY-FIVE.- In order to be entitled to attend and vote at Shareholders' Meetings, shareholders shall be required to deposit their final share certificates or, as the case may be, their temporary certificates, at the Office of the Secretary of the Company at least one day prior to the Meeting, and pick up their admission card. Share certificates may also be deposited at a Mexican or foreign lending institution or at a Mexican brokerage house; in this case, an admission card may be obtained by submitting at the Office of the Secretary of the Company a voucher from such institution confirming such deposit and evidencing the obligation of the relevant lending institution, brokerage house or depositary institution to hold the deposited share certificates until notified by the Secretary of the Board of Directors that the Shareholders' Meeting has concluded. The Office of the Secretary of the Company shall give shareholders as appropriate an admission card containing the name of the shareholder, the number of shares on deposit, and the number of votes to which such shares are entitled. TWENTY-SIX.- Shareholders may be represented at Shareholders' Meetings by proxies appointed through a simple power of attorney; provided, however, that neither members of the Board of Directors nor Statutory Examiners shall serve as proxies. TWENTY-SEVEN.- Shareholders' Meetings shall be chaired by the Chairman of the Board, and in his absence by one of the Mexican Directors in attendance, and in the absence of all the above by an individual to be designated by the attendees. The Secretary or Assistant Secretary of the Board shall, if present, act as Secretary of the Meeting; in the absence of both, the chairman thereof shall designate a Secretary. TWENTY-EIGHT.- At the commencement of Shareholders' Meetings, the chairman thereof shall appoint two vote counters to count the shares represented at the Meeting. The vote counters shall prepare an attendance list, setting down the names of shareholders present or represented, and the number of shares deposited by each prior to attending the Shareholders' Meeting. TWENTY-NINE.- If, a Shareholders' Meeting having been lawfully convened, there is insufficient time to decide on all matters on the agenda, the meeting may be adjourned until the following day without need of further notice, provided that this decision is approved by the number of votes required to validly adopt a resolution at such meeting. Resolutions adopted once such meeting is resumed shall be valid if approved by the number of votes required for such purpose hereunder. THIRTY.- Minutes shall be taken of every Shareholders' Meeting, indicating each approved resolution. Such minutes shall be entered in the relevant minute book and be signed by the Chairman and Secretary of the meeting and by any Statutory Examiner(s) in attendance. MANAGEMENT THIRTY-ONE.- Management of the Company shall be entrusted to a Board of Directors comprised of at least 5 (five) members, the exact number being determined at a Regular Shareholders' Meeting. Shareholders assembled at such meeting may appoint a number of alternates not exceeding the number of Directors, and may in such case determine the manner in which alternates are to substitute for the respective Directors; provided, however, that if this is not determined at such meeting, any alternate may substitute for any Director, with the exception of alternates appointed by Series "L" shareholders, who may only substitute for any of the Directors appointed by such Series, and of alternates appointed by shareholders exercising their minority rights, who may only substitute for Directors appointed by such minority. The majority of Directors and alternates shall at all times be Mexican and be appointed by Mexican shareholders. Directors and alternates shall be appointed by the majority vote of Series "AA" and "A" common shares, and the two remaining Directors and alternates shall be appointed by the majority vote of the Series "L" shares. Members of the Board of Directors need not be shareholders. Any shareholder or group of shareholders representing at least ten percent of common shares shall be entitled to appoint a Director and an Alternate Director and, in such event, may no longer exercise majority voting rights to appoint Directors and their alternates. If any shareholder or group of shareholders representing at least 10% (ten percent) of common shares exercises the right to appoint a Director and his Alternate, the majority shall only be entitled to appoint the remaining number of Directors to be elected by such majority. Directors shall be elected to serve for one year and shall, if necessary, continue to serve beyond their term until their replacement has taken office. Directors may be reelected and shall be compensated as determined at a Regular Shareholders' Meeting. Alternates thus appointed shall substitute for their respective Directors in their absence. THIRTY-TWO.- Neither Board members, their alternates, the Statutory Examiner, his alternate, Executive Committee members, as the case may be, administrators nor managers shall be required to provide a bond to secure the performance of their duties, unless such requirement is provided at a Shareholders' Meeting upon their appointment. THIRTY-THREE.- The Board of Directors shall meet on a bimonthly basis in Mexico City or at any other Mexican location indicated for such purpose and on the dates provided by the Board itself. The Chairman of the Board shall, through the Secretary of the Board, call Directors to such bimonthly meetings. In addition to such bimonthly meetings, the Board of Directors shall meet whenever its members are duly convened for such purpose in writing by the Chairman, two Directors or a Statutory Examiner. Statutory Examiners shall be asked to attend every Board of Director meeting, and may take part therein but not vote. Notices of Board of Director meetings shall contain the scheduled agenda. The Board shall be validly in session if a majority of its members is in attendance and the majority of attendees is Mexican, and Board resolutions shall be valid if adopted by the vote of a majority of Board members in attendance. In the event of a tie, the Chairman of the Board shall have the casting vote. Prior to resolving any of the matters listed in points (1) to (11) of Clause Forty, the Board of Directors shall consult with the Executive Committee. In connection therewith, the Executive Committee shall be required to submit its recommendation within a period not to exceed sixty calendar days from the Board's consultation. THIRTY-FOUR.- Minutes shall be taken of every Board Meeting, indicating each approved resolution. Such minutes shall be entered in the relevant minute book and be signed by the Chairman and Secretary of the meeting. Pursuant to the final paragraph of Article one hundred forty-three of the General Law of Commercial Enterprises, the Board of Directors may validly pass resolutions without need of assembling its members at a formal meeting; the Executive Committee may do likewise. Any resolutions adopted outside a meeting shall in all cases require a vote in favor by all members or, in the permanent absence or incapacity of any such member, a vote in favor by the relevant alternate member, pursuant to the following provisions: I. The Chairman shall, either at his own initiative or at the request of the Statutory Examiner or any two members of the Board or the Executive Committee, notify the Statutory Examiner and all Board or Executive Committee members or alternates, as the case may be, either in writing or otherwise as he sees fit, of any resolutions to be adopted outside a meeting and the reasons therefor. In addition, the Chairman shall, in the event that any such recipient so requests, provide any and all documentation and explanations in connection therewith. The Chairman may request assistance from one or more Board or Executive Committee members of his choosing, or from the Secretary or his alternate, for purposes of completing such notices. II. In the event that all regular Board or Executive Committee members or, as the case may be, the alternates whose vote is required, provide the Chairman or assisting members their verbal consent to the resolutions submitted for their review, they shall confirm such consent in writing no later than the second business day thereafter as set forth in Section III hereinbelow. Such written confirmation shall be sent to the Chairman and the Secretary by mail, telex, fax or courier, or otherwise by a means ensuring receipt within two business days. III. For purposes of Section II above, the Chairman shall, either directly or through his assistants, send each Board or Executive Committee member the written draft minutes containing the agreements or resolutions to be adopted outside the framework of a meeting and any other documentation he deems appropriate, so that, following any relevant amendments, such draft minutes may be resent to the Chairman and the Secretary duly signed in acceptance thereof by each Board or Executive Committee member, as the case may be. IV. Immediately following their receipt of written confirmation from all Board or Executive Committee members, the Chairman and the Secretary shall proceed to enter in the relevant minute book the approved minutes containing all adopted resolutions, which shall be notarized with the signatures of the Chairman and the Secretary. The date of such minutes shall be the date on which the verbal or written consent of all relevant members was obtained , even if written confirmation thereof had not yet been received at the time, which confirmation shall, once received, be added to a file to be kept by the Company for such purpose. Such file shall additionally include the comments of the Statutory Examiner, if any, on the relevant draft minutes. THIRTY-FIVE.- The Board of Directors shall, at its initial meeting after the Shareholders' Meeting at which the Board was appointed, if the following appointments were not made at such meeting, name a Chairman, who shall be Mexican, from among its members, and such Chairman may, if he sees fit, designate one or more Vice Chairmen, a Treasurer, and a Secretary, as well as one or more Assistant Treasurers and Assistant Secretaries; provided, however, that the Treasurer, the Secretary, the Assistant Treasurers and the Assistant Secretary may or may not be members of the Board of Directors. The above posts, including those of Treasurer and Assistant Treasurer, and of Secretary and Assistant Secretary, and except those of Chairman and Vice Chairman, may be held by a single individual. In the temporary or permanent absence of the Chairman, his post shall be filled by one of the Mexican Vice Presidents, if any, in the order of their appointment and, in the absence thereof, by any Mexican Board member, while the post of Treasurer and Secretary shall in similar circumstances be respectively filled by an Assistant Treasurer and an Assistant Secretary, if any, or in the absence thereof by a person to be designated by the Board. POWER AND AUTHORITY OF THE BOARD THIRTY-SIX.- The Board of Directors shall have the most comprehensive power and authority required for proper management of the Company's business affairs, including a comprehensive general power of attorney to engage in litigation and collection, to administer properties, and to perform ownership activities, without limitation whatsoever, that is to say, with all general powers and special powers requiring a special clause pursuant to law, as provided in the first three paragraphs of Article two thousand five hundred fifty-four of the Civil Code of the Federal District, including the powers listed in Article two thousand five hundred eighty-seven thereof. By way of illustration, the powers of the Board of Directors shall include the following: I.- To represent the Company before all manner of authorities, whether Federal, State or Municipal; to represent the Company before all manner of domestic or foreign individuals or legal entities; to represent the Company before Mediation Panels and Mediation and Arbitration Panels, whether federal or Local, with specific power and authority for all purposes contemplated in Sections II and II of Article 692 of the Federal Labor Law, concomitantly with Articles 786 and 876 thereof, thus being specifically authorized to present claims and defenses on behalf of the Company, to settle, submit to mediation, enter into agreements, file claims and suits, initiate and desist from all manner of legal proceedings and remedies, including injunctions, and act on behalf of the Company before all manner of judicial, administrative or other authorities responsible for resolving labor disputes; to seek or, as the case may be, desist from seeking injunctions; to file suit and, as the case may be, grant pardons; to bring charges and be listed as co-plaintiff with the Public Ministry; to desist from pursuing legal action; to settle; to enter into arbitration; to present claims and defenses; to disqualify judges; and to receive payments. II.- To provide, execute, endorse and secure all manner of credit instruments. III.- To designate the officers, employees, managers and agents of the Company, indicating their respective duties, obligations, and compensation. IV.- To open or close offices, branches or agencies. V.- To acquire shares, equity interests and securities issued by third parties and to exercise voting rights with respect to such shares of, or equity interests in, other companies; provided, however, that the Board of Directors shall require prior approval from shareholders acting at a Regular Shareholders' Meeting to acquire or dispose of shares or to exercise the right of withdrawal, solely in the following events: 1.- When the price of acquiring shares of another company arising from one or more simultaneous or successive acquisitions exceeds twenty percent of the Company's book value pursuant to its most recent financial statements. Approval at a Regular Shareholders' Meeting shall not be required in the event of acquisition of shares or equity interests in companies engaged in activities similar to the industrial, commercial or service-related activities of the Company. 2.- When the price for selling shares of other companies on one or more simultaneous or successive sales exceeds twenty percent of the Company's book value pursuant to the most recent financial statements. In addition, approval at a Regular Shareholders' Meeting shall be required if such sale involves, through one or more simultaneous or successive transactions, a loss of control of the company in question, when the activities of such company are similar to the industrial, commercial or service-related activities of the Company; and 3.- To exercise, pursuant to Article two hundred twenty of the General Law of Commercial Enterprises, the right of withdrawal appurtenant to the shares of variable capital stock held by the Company, when such withdrawal involves, through one or more simultaneous or successive actions, the reimbursement of shares at a price exceeding twenty percent of the Company's book value pursuant to the most recent financial statements. In addition, approval at a Regular Shareholders' Meeting shall be required in the event that such withdrawal involves, through one or more simultaneous or successive actions, a loss of control of the company in question, when the activities of such company are similar to the industrial, commercial or service-related activities of the Company. VI.- To execute, amend, terminate and rescind agreements. VII.- To accept mandates on behalf of the Company from Mexican or foreign individuals or legal entities. VIII.- To open bank accounts and draw funds therefrom, and to designate persons authorized to use the corporate seal to make deposits into and withdrawals from such bank accounts, with any restrictions deemed appropriate by the Board. IX.- To provide collateral and personal guaranties to secure obligations of the Company, and to become joint debtor, surety and generally obligor with respect to the performance of third-party obligations, providing for the collateral and security interest required to secure such performance. X.- To issue, replace and delegate general and special powers of attorney in connection with ownership activities, which shall require the joint exercise thereof by at least two persons, to issue, replace and delegate general and special powers of attorney in connection with management activities and litigation and collection, provided that the Board is not thereby entirely displaced in its responsibilities, and to revoke such powers. XI.- To grant power and authority to provide, execute, endorse and guarantee all manner of credit instruments; provided, however, that the authority to guarantee credit instruments shall always require the joint exercise thereof by at least two persons. XII.- To convene Shareholders' Meetings and implement resolutions adopted thereat. XIII. The Board of Directors shall have the sole authority, which it may not delegate, to determine how to vote the shares held by the Company at the Shareholders' Meetings of companies in which the Company owns a majority equity interest. XIV.- To enter into any agreements and make any decisions required or appropriate in furtherance of the Company's purposes. CHAIRMAN AND VICE CHAIRMAN THIRTY-SEVEN.- The Chairman, who shall necessarily be Mexican, shall chair Shareholder and Board Meetings, shall act as representative of the Board, shall implement resolutions adopted at Shareholder and Board of Director Meetings, unless a Chief Executive is designated at such meetings to implement such resolutions, shall generally oversee corporate operations, ensuring strict compliance with these bylaws, the regulations, and the decisions and provisions of Shareholders' Meetings, the Board of Directors and the Law, and shall jointly with the Secretary sign the minutes of Shareholder and Board Meetings. In the temporary or permanent absence of the Chairman, his duties shall be carried out with equal authority by one of the Vice Chairmen; in the absence of the Vice Chairmen, a majority of Directors shall designate a temporary replacement for the Chairman of the Board, who shall be Mexican and be among those designated by a majority of common shares. TREASURER THIRTY-EIGHT.- The Treasurer shall have the authority assigned to him by the Board of Directors, and may in his absence be substituted by the Assistant Treasurer or, in the latter's absence, by a person to be designated by the Board. SECRETARY THIRTY-NINE.- The Secretary shall have the authority assigned to him by the Board of Directors and shall keep the minute books, in one of which he shall enter and sign jointly with the Chairman all minutes of Shareholders' Meetings, and in the other all minutes of Board of Director Meetings. In his absence he shall be substituted by the Assistant Secretary, if any, and, in the absence of the latter, by a person designated by the Chairman. EXECUTIVE COMMITTEE FORTY.- Shareholders acting at a Shareholders' Meeting may, by the vote in favor of a majority of common shares, designate from among the members of the Board of Directors an Executive Committee to be composed of a number of members and, as the case may be, their respective alternates, to be determined at such Meeting. The majority of Executive Committee members shall be of Mexican nationality and be designated by Mexican shareholders with the vote in favor of a majority of common shares. The duties of the Executive Committee having been delegated by the Board of Directors, it shall have the power and authority provided in Clause Thirty-Six hereof, except that which is listed in paragraph XII of such Clause; provided, however, that the powers granted to the Executive Committee shall not include those specifically reserved by Law or the bylaws for any other committee within the Company. The Executive Committee may not delegate the entirety of its powers to one or more agents or delegates. Specifically, the Executive Committee shall initially examine and, as the case may be, submit recommendations to the Board of Directors for approval on the following matters: 1. Any sale or acquisition by the Company of shares or assets in an amount exceeding a sum to be determined by the Executive Committee with the approval of the Board of Directors, except in cases of cash management transactions in compliance with parameters to be determined by the Board. 2. Any borrowing or financial leasing agreement by the Company resulting in a ratio of long- and short-term debt to long- and short-term debt plus stockholders' equity exceeding 45%, determined according to Mexican Generally Accepted Accounting Principles under the methodology applicable to the Company in its capacity as issuer of securities listed on the National Registry of Securities and Broker-Dealers. 3. Approval of any corporate action resulting in a ratio of long- and short-term debt to long- and short-term debt plus stockholders' equity of less than 35% for any period exceeding 3 months. 4. The setting of all significant accounting and tax-related policies of the Company or any change in an existing policy, except those requiring compliance pursuant to Mexican Generally Accepted Accounting Principles under the methodology applicable to the Company in its capacity as issuer of securities listed on the National Registry of Securities and Broker-Dealers. 5. Entry by the Company into any new line of business requiring an initial investment projected to exceed the equivalent of 1,210,000 times the minimum daily general salary for the Federal District and its Metropolitan area. 6. Approval of the Company's annual budgets, business plans or capital investment plans, and/or an increase in any budget item exceeding 20% of such item or 5% of such budget or plan in the aggregate. 7. Any of the matters described in subparagraphs (1) through (6) above, in connection with any subsidiary and the exercise by the Company of voting rights with respect to any subsidiary, but not including any merger, liquidation or reorganization of any subsidiary having lower annual revenue than the equivalent of 4,850,000 times the minimum daily general salary for the Federal District and its Metropolitan area. 8. Any relevant license or technology transfer agreement, or any agreement providing for technical assistance to the Company by any third party or by the Company to any third party. 9. Policy on transactions between the Company or a subsidiary thereof and a Series "AA" shareholder or any subsidiary thereof or any beneficiary of a trust holding Series "AA" shares or subsidiaries of such beneficiary. 10. Agreements relating to compensation for the senior officers of the Company, or any change in any existing compensation policy. 11. Any action by any subsidiary in connection with any of the matters listed in subparagraphs (8) through (10) above, or any merger, liquidation or reorganization not included in subparagraph (7) above. The Executive Committee shall be validly in session when the majority of its members are in attendance, provided that a majority of members designated by Mexican shareholders is present, and the Committee's resolutions shall be valid if adopted by the majority vote of those in attendance, except as provided in the following two paragraphs. For purposes of submitting a recommendation pursuant to this clause in connection with the matters listed in subparagraphs (1) through (7) above, the Executive Committee shall be validly in session provided that all its members are in attendance, and its resolutions shall be valid if approved by the unanimous vote of its members. For purposes of submitting a recommendation pursuant to this clause in connection with the matters listed in subparagraphs (8) through (11) above, the Executive Committee shall be validly in session provided that 4 (four) of its members are in attendance, and its resolutions shall be valid if approved by the vote of 4 (four) of its members. In the event of a tie, the Committee Chairman shall have the casting vote. The Executive Committee shall meet as frequently as necessary in order to remain continuously involved in the issues that pertain to it. The Executive Committee shall at each of its meetings decide on matters submitted for review in connection with subparagraph (1) through (11). In the event that no decision is reached on any of the above-indicated matters either because a meeting failed to be held due to lack of quorum or because the required votes were not obtained, such decision shall be postponed for as long as necessary to achieve the unanimous or majority vote indicated in the preceding paragraphs; provided, however, that if such unanimous or majority vote for any reason fails to be obtained within a period of 60 (sixty) calendar days, the Executive Committee may decide on the matter in question by the majority vote of Executive Committee members. The Executive Committee shall draft its own bylaws on the basis hereof, which bylaws shall be submitted to the Board of Directors for approval. In any event, the Statutory Examiners shall be invited to attend Executive Committee meetings, where they may participate but not vote, and the Executive Committee shall, at Board Meetings, report to the Board on its activities. OVERSIGHT OF THE COMPANY FORTY-ONE.- Oversight of the Company shall be entrusted to one or more Statutory Examiners and their respective alternates, to be elected at a Regular Shareholders' Meeting by the majority vote of common shares. Statutory Examiners need not be shareholders; they shall have the authority and responsibilities determined by Law and shall serve one-year terms; provided, however, that they shall remain in office until the persons designated to replace them have taken office. Statutory Examiners may be reelected. Alternate Statutory Examiners shall be called to serve when a Statutory Examiner is for any reason unable to perform his duties. FORTY-TWO.- Those elected to serve as Statutory Examiners shall provide a bond securing their performance in like manner as Directors, as set forth in Clause Thirty-Two. FISCAL YEAR AND FINANCIAL STATEMENTS FORTY-THREE.- Fiscal years shall be twelve months in duration, spanning from January first to December thirty-first of each year. FORTY-FOUR.- At the end of each fiscal year, the Board of Directors shall draft a report including at least the information described in article 172 of the General Law of Commercial Enterprises, which report shall have been completed within three months following the close of such fiscal year. The Board of Directors shall deliver the report to the Statutory Examiners, together with all supporting documentation, at least one month prior to the Shareholders' Meeting where it is to be discussed. At least fifteen days prior to the scheduled date for the Shareholders' Meeting where the report from Management is to be discussed, the Statutory Examiners shall complete their report on the truthfulness, adequacy and reasonableness of the information submitted by the Board of Directors, which shall include at least all information listed in article 166, Section IV, of the General Law of Commercial Enterprises. The Board of Directors' report described in this clause, including the Statutory Examiners' report, shall have been completed and made available to shareholders at least fifteen days prior to the relevant Shareholders' Meeting date. Shareholders shall be entitled to receive a copy of such report. RESERVE AND METHOD OF DISTRIBUTING PROFITS AND LOSSES FORTY-FIVE.- Net earnings pursuant to financial statements approved at the Annual Shareholders' Meetings shall be distributed as follows: a) Firstly, five percent shall be set aside for creating or replenishing the legal reserve until it amounts to one fifth of capital stock. b) Then, an amount determined at the Shareholders' Meeting shall be set aside to create any extraordinary, special or additional funds as deemed appropriate. c) Amounts agreed upon at the Shareholders' Meetings shall be set aside to create or increase general or special reserves, including, as the case may be, a reserve for the repurchase of the Company's shares described in Article Fourteen Bis, Section I, of the Securities Market Law. d) The necessary amount shall be set aside to pay the preferred dividend for the relevant fiscal year to which the Series "L" shareholders are entitled or, as the case may be, to pay accrued preferred dividends with respect to previous fiscal years. e) Any remaining net earnings may be distributed by way of dividend among shareholders in proportion to their respective payment for the shares they hold. The payment of dividends shall be made against the relevant coupons, unless another verification method is agreed upon at the Shareholders' Meeting. Dividends uncollected for five years from the payment date thereof shall prescribe in favor of the Company. Compensation for Directors and Statutory Examiners shall be determined at the Annual Shareholders' Meetings. In the event of losses, these shall be borne by shareholders in proportion to their respective number of shares; provided, however, that the obligation of shareholders shall in all cases be limited to the payment of their subscription amount, and no additional payment shall be required of them. GROUNDS FOR DISSOLUTION FORTY-SIX.- The Company shall be dissolved: I. Upon expiration of the term provided herein. II. Upon inability to continue to pursue the main purpose of the Company. III. By agreement among the partners pursuant to the partnership agreement and the law. IV. When the number of shareholders falls below five, which is the minimum required by law. V. Upon losses amounting to two thirds of the capital stock. TERMS FOR LIQUIDATION FORTY-SEVEN.- Dissolution of the Company having been agreed upon, liquidation proceedings shall commence and one or more liquidators shall be appointed at a Special Shareholders' Meeting by the majority vote of common shares. Such liquidators, who shall act on behalf of the Company and shall have the powers and responsibilities indicated in article two hundred forty-two of the General Law of Commercial Enterprises, shall proceed to distribute the remainder among shareholders, pursuant to articles two hundred forty-seven and two hundred forty-eight of such law, as follows: I. They shall conclude the Company's business affairs as they see fit; II. They shall collect receivables and pay debts, selling the Company's assets as required for such purpose; III. They shall prepare a final liquidation balance sheet; and IV. Upon approval of the final liquidation balance sheet, they shall distribute the distributable net assets among all shareholders as follows: 1. Series "L" shareholders shall be paid a preferred dividend equal to five percent of the theoretical value of their shares to the unsatisfied extent; 2. Series "AA" and "A" common shareholders shall be paid a dividend equivalent to the dividend paid to Series "L" shareholders pursuant to point 1 above. 3. Once the items described in points 1 and 2 above have been paid, Series "L" shareholders shall be paid a reimbursement per share equivalent to the theoretical value of $0.025 per share; 4. Out of the remainder, Series "AA" and "A" shareholders shall be paid an amount equal to the amount provided in point 3 above; and 5. The remainder shall be distributed in equal part among all shareholders in proportion to the number of shares held by each and the amount paid therefor. In the event of a dispute among the liquidators, the Statutory Examiner shall call a Special Shareholders' Meeting to resolve the questions in dispute. FORTY-EIGHT.- The founding partners do not reserve any right whatsoever. FORTY-NINE.- The provisions of the General Law of Commercial Enterprises shall govern all matters not specifically provided for herein. FIFTY.- Any dispute to which the Company is a party arising in connection with the execution, interpretation, or performance under this agreement, shall be submitted to the federal courts of Mexico. TEMPORARY AND SUPPLEMENTARY PROVISIONS OF THE ARTICLES OF INCORPORATION OF AMERICA MOVIL, S.A. DE C.V. SET FORTH BY WAY OF ILLUSTRATION AND WITHOUT LIMITATION: A) The Company's minimum fixed capital not subject to withdrawal and fully paid in, amounts to $402,900,048.30 and is represented by 3,266,191,868 Series "AA" common registered shares with no stated par value; 345,648,701 Series "A" common registered shares with no stated par value, and 10,872,673,431 Series "L" registered shares with no stated par value and providing for limited voting rights; all the above being fully subscribed for and paid in. It is hereby noted that a total of 1,631,487,932 Series "L" shares are at the date hereof being held at the Treasury of the Company for buyback purposes pursuant to Art. 14 bis of the Securities Market Law. B) The Board of Directors of the Company shall be initially comprised of eleven Directors, as follows: DIRECTORS FOR COMMON SHARES ING. CARLOS SLIM HELU ING. JAIME CHICO PARDO C.P. HUMBERTO GUTIERREZ OLVERA Z. LIC. ALEJANDRO SOBERON KURI SRA. MA. ASUNCION ARAMBURUZABALA L. LIC. DANIEL HAJJ ABOUMRAD LIC. RAFAEL ROBLES MIAJA SR. DREW ROY SR. ROYCE S.CALDWELL DIRECTORS FOR SERIES "L" SHARES ING. CLAUDIO X. GONZALEZ LAPORTE LIC. DAVID IBARRA MUNOZ C) The following shall serve as Statutory Examiners of the Company: STATUTORY EXAMINER ALTERNATE STATUTORY EXAMINER C.P. FRANCISCO ALVAREZ DEL CAMPO C.P. AGUSTIN AGUILAR LAURENT D) Messrs. Ing. Carlos Slim Helu and Lic. Rafael Robles Miaja shall respectively serve as Chairman and Secretary of the Board of Directors. E) Each Director and Statutory Examiner, as well as the Secretary and, as the case may be, the Assistant Secretary, shall receive P$13,000.00 for each Board meeting they attend by way of fee in connection with their responsibilities, with the exception of the final Board meeting of the year 2000, for which the attendance fee to be received by each shall amount to P$130,000.00, all such payments being subject to any relevant tax withholdings. F) The following Directors shall serve as members of the Executive Committee of America Movil, S.A. de C.V.: ING. CARLOS SLIM HELU LIC. DANIEL HAJJ ABOUMRAD C.P. HUMBERTO GUTIERREZ OLVERA Z. SR.DREW ROY. G) America Movil, S.A. de C.V. shall issue the following powers to Messrs. Lic. Daniel Hajj Aboumrad, Ing. Adolfo Cerezo Perez, C.P. Jose Manuel Camacho Berrueta and C.P. Felix Elizundia Villafana: (1).- GENERAL POWER OF ATTORNEY FOR LITIGATION AND COLLECTION PURPOSES, pursuant to paragraph one of Article two thousand five hundred fifty-four of the Civil Code for the Federal District and concomitant articles of the respective Civil Codes of all States of Mexico, including all general powers and special powers requiring a special clause under the Law, particularly the powers provided in Article two thousand five hundred eighty-seven of the Civil Code for the Federal District and concomitant articles of all State Civil Codes of Mexico, with the sole exception of the power to assign assets. By way of illustration, the power and authority of the above-named agents shall include the following: I.- To desist from taking legal action. II.- To settle. III.- To enter into arbitration. IV.- To present claims and defenses. V.- To disqualify judges. VI.- To receive payments. VII.- To bring criminal charges and file claims, as well as to desist from pressing charges and grant pardons when permitted by Law. VIII.- To seek or desist from seeking injunctions. IX.- To authorize third parties to receive notices and any manner of documents. X.- To issue and revoke all manner of powers of attorney. The above-named agents shall exercise all power and authority hereunder before individuals and all types of administrative or judicial authorities, including federal and local authorities, and before local or federal mediation and arbitration panels and labor authorities. (2).-GENERAL POWER OF ATTORNEY FOR ADMINISTRATIVE ACTIONS, pursuant to paragraph one of Article two thousand five hundred fifty-four of the Civil Code for the Federal District and concomitant articles of the respective Civil Codes of all States of Mexico, including the power to issue and revoke all manner of powers of attorney. (3).- POWER OF ATTORNEY FOR LITIGATION AND COLLECTION PURPOSES AND FOR ADMINISTRATIVE ACTIONS RELATING TO LABOR DISPUTES AND ISSUES, pursuant to Articles eleven, six hundred ninety-two section two, seven hundred eighty-six, eight hundred seventy-six, and other relevant articles of the Federal Labor Law, and pursuant to the first two paragraphs of Article two thousand five hundred fifty-four of the Civil Code for the Federal District and concomitant articles of the respective Civil Codes of all States of Mexico, including the special powers requiring a special clause under the Law as provided in Article two thousand five hundred eighty-seven of the Civil Code for the Federal District and concomitant articles of all other above-mentioned Civil Codes, with the sole exception of the power to assign assets but specifically including without limitation the powers listed hereinbelow, such as to desist from pursuing legal action, to settle, to enter into arbitration, to disqualify judges, to present claims and defenses, to receive payments, to provide receipts and vouchers, to seek and desist from seeking injunctions, to bring charges and file claims, to authorize third parties to receive notices and all manner of documents, to issue and revoke all manner of powers of attorney, and generally to exercise their power and authority and undertake all types of actions with respect to all manner of individuals and legal entities and before all types of judicial or administrative authorities, whether local or federal, especially Local and Federal Mediation and Arbitration Panels. In particular, the above-named agents may appear before any and all labor authorities to complete all procedures required for resolving labor disputes and other labor matters involving the Company, for which purpose such agents shall act in their capacity as Representatives of the Company, pursuant to Article eleven of the Federal Labor Law, which is transcribed as follows: "Directors, administrators, managers, and other individuals performing governance or management activities at the company or enterprise shall be considered representatives of the employer and therefore bind the employer in their relations with workers". In the exercise of their powers, the agents may participate by representing the Company at the mediation stage when summoned by Mediation Panels and the Mediation and Arbitration Panels, having all power and authority to reach decisions and execute any agreements required for resolving labor disputes during such stage. They may in addition be present at all other stages of labor proceedings. (4).- General Power of Attorney for Ownership Activities, pursuant to paragraph three of Article two thousand five hundred fifty-four of the Civil Code for the Federal District and concomitant articles of the respective Civil Codes of all States of Mexico (5).- General Power of Attorney to accept, execute, draw, issue, endorse and otherwise sign credit instruments, pursuant to article nine and other relevant articles of the Ley General de Titulos y Operaciones de Credito (General Law of Credit Instruments and Transactions). (6).- Fully or partially entrust to third parties or delegate the powers provided under subparagraphs (1), (2), (3), (4), and (5), and issue general and special powers of attorney on such terms and providing for such power and authority as they may deem convenient or appropriate, at all times and in all cases reserving the exercise of the powers set forth herein, having likewise the authority to revoke the delegation of power or the powers of attorney issued by them or by any other committee or agent of the Company. (7).- The agents may, when fully or partially entrusting to third parties or delegating these powers, and when issuing general or special powers of attorney to such third parties on such terms and with such power and authority as the issuing agents may deem convenient or appropriate, transfer to such third parties in whole or in part the powers set forth in subparagraph (6) above in order to enable such third parties, to the extent of the power and authority granted in each particular case, to perform the following: fully or partially entrust or delegate their respective powers and issue general or special powers on such terms and providing for such power and authority as they deem necessary or appropriate, at all times and in all cases reserving the exercise of their powers, and, if so authorized, revoke the delegation of power or the powers of attorney issued either by them or by any other committee or agent of the Company. (8).- Powers of attorney for litigation and collection purposes, for administrative action, and for labor disputes and other labor-related matters provided under subparagraphs (1), (2) and (3), as well as the power and authority granted under subparagraphs (6) and (7) above, when referring to such powers, may be exercised by any one of the agents on an individual basis and in compliance with the provisions of subparagraph (9) hereinbelow. (9).- Powers of attorney to perform ownership activities and to sign credit instruments provided under subparagraphs (4) and (5), as well as the power and authority granted under subparagraphs (6) and (7), when referring to such powers, shall be exercised jointly by any two of the agents appointed herein or by any one such agent jointly with another agent being granted in the future sufficient power and authority for such purpose, except in the following cases: a) When performing ownership activities in connection with real estate properties or issuing powers of attorney providing for authority to perform ownership activities, at least one of the two agents involved shall necessarily be any of Messrs. Lic. Daniel Hajj Aboumrad or Ing. Adolfo Cerezo Perez. b) When opening checking accounts, signing checks or authorizing third parties to do so, Mr. Ing. Adolfo Cerezo Perez may act individually. H) It shall be specifically provided that: Shareholders at a Regular Shareholders' Meeting and the Board of Directors may at any time and within their respective jurisdictions approve any changes or substitutions as they see fit in connection with the appointments, fees and powers set forth in the temporary and supplementary provisions of the articles of incorporation of America Movil, S.A. de C.V. I) Fiscal years shall coincide with the calendar year. However, the Company shall commence a shortened fiscal year at the date hereof, which shall conclude on December 31, 2000. ==================================================================== EX-3.2 3 0003.txt EXECUTION VERSION Conversion and Termination Agreement This Conversion and Termination Agreement (this "Agreement") is executed this 27th day of April, 2000 by and between: (a) France Telecom Financiere Internationale ("FTFI"), a corporation duly organized and validly existing under the laws of the Republic of France, represented herein by Mr. Laurent Mialet, its Attorney in Fact; (b) Carso Global Telecom, S.A. de C.V. ("Carso"), a corporation duly organized and validly existing under the laws of the United Mexican States ("Mexico"), represented herein by Mr. Jaime Chico Pardo, its Vice-Chairman of the Board; (c) SBC International Inc. ("SBC" and, together with FTFI and Carso, the "Trust Parties"), a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, United States of America, represented herein by Mr. Rick L. Moore, its Vice President-Development; and (d) Telefonos de Mexico, S.A. de C.V. ("Telmex" and, together with the Trust Parties, the "Parties"), a corporation duly organized and validly existing under the laws of Mexico, represented herein by Mr. Adolfo Cerezo Perez, its Chief Financial Officer. This Agreement is subject to the following recitals and clauses. Recitals I. Whereas, the Trust Parties and Banco Internacional, S.A., Trust Division, member of Grupo Financiero Bital (the "Trustee"), a multiple banking institution (institucion de banca multiple) duly incorporated and validly existing under the laws of Mexico, executed on December 20th, 1990 a Trust Agreement (as amended from time to time, the "Trust Agreement"), regarding their investment in Telmex; II. Whereas, the Trust Parties executed on November 14th, 1990 a Shareholders Agreement (as amended from time to time, the "Shareholders Agreement"); III. Whereas, terms defined in the Trust Agreement and in the Shareholders Agreement are used herein as therein defined as the context require; IV. Whereas, pursuant to the Trust Agreement, the Trust Parties and the Trustee created the Trust to hold AA Shares of Telmex; V. Whereas, Section 3.7.4 of the Trust Agreement allows termination of the Trust during the Second Five Year Period with the consent of all the Trust Parties; VI. Whereas, FTFI has expressed an interest to the other Trust Parties to cause the Trustee to convert the AA Shares that correspond to FTFI's Beneficial Rights in the Trust into L Shares and to withdraw such L Shares from the Trust; VII. Whereas, Carso and SBC, according to the terms of this Agreement, consent to the conversion of the AA Shares that correspond to FTFI's Beneficial Rights in the Trust into L Shares and the withdrawal of such L Shares from the Trust; VIII. Whereas, the Trust Parties and Telmex consider it advisable that in connection with the foregoing, FTFI provides certain information and other rights to Telmex regarding disposition of the L Shares and Telmex provides FTFI certain registration rights to facilitate disposition of the L Shares; IX. Whereas, as a result of the conversion of the AA Shares that correspond to FTFI's Beneficial Rights in the Trust into L Shares and the withdrawal of such L Shares from the Trust, the Trust Parties consider it advisable to terminate the Trust Agreement and the Shareholders Agreement solely with respect to FTFI; X. Whereas, Telmex is authorized pursuant to its by-laws to convert the AA Shares that correspond to FTFI's Beneficial Rights under the Trust to (readily available) L Shares and the issuance of the Conversion L Shares are in compliance with its by laws and all applicable laws, rules and regulations; and XI. Whereas, the Technical Committee of the Trust, in a meeting held today, a copy of the minutes of which are attached hereto as Exhibit "A", has irrevocably agreed to instruct the Trustee to convert the AA Shares that correspond to FTFI's Beneficial Rights in the Trust into L Shares and the withdrawal of such L Shares from the Trust and the distribution of such L Shares to FTFI. XII. Whereas, Trust Parties have received opinion of counsel to the effect that no regulatory approval in Mexico is required to carry out the provisions contained herein. Now, therefore, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree to the terms and conditions contained in the following clauses: Clauses First. Conversion into L Shares. (a) The Trust Parties agree and hereby instruct the Trustee to convert 1,059,890,076 AA Shares (the "Converted AA Shares") that correspond to FTFI's Beneficiary Rights under the Trust into 1,059,890,076 L Shares (the "Conversion L Shares") and the Trust Parties shall cause the Trustee to acknowledge receipt of such instructions and carry them out simultaneously herewith. (b) The Parties recognize and acknowledge that the Technical Committee has authorized and instructed the Trustee to convert the Converted AA Shares into Conversion L Shares and to withdraw the Conversion L Shares from the Trust and deliver such Conversion L Shares to FTFI. (c) The Trustee shall deliver to Telmex a share certificate, representing the Converted AA Shares, and Telmex shall acknowledge receipt in writing of such share certificate for cancellation. (d) Telmex shall thereupon deliver a certificate for the Conversion L Shares to FTFI by transferring them to the account of FTFI in Inversora Bursatil, S.A. de C.V., Casa de Bolsa, Grupo Financiero Inbursa, through the facilities of S.D. Indeval, S.A. de C.V., Institucion para el Deposito de Valores, and FTFI shall acknowledge in writing receipt of the Converted L Shares through such mechanism and hereby releases Telmex and the Trustee of any requirement to deliver the Converted L Shares to it, provided that, in the event Telmex does not deliver such Conversion L Shares pursuant to the above within 10 (ten) business days from the date of execution hereof, this Agreement shall be terminated and the Parties shall retain its current rights and obligations as if this Agreement had never existed. FTFI hereby acknowledge that the Converted L Shares are not registered under applicable provisions of the 34 Act or any other United States securities laws and may, therefore subject to applicable restrictions on the sale or transfer of such securities under the United States laws. (e) Telmex hereby agrees to make as promptly as possible hereafter a notation in its shareholders registry regarding the conversion of the Converted AA Shares and their cancellation and the delivery of the Conversion L Shares and to provide to FTFI a certified copy of such notation. Second. Termination of Agreements. (a) The Trust Parties hereby jointly agree to terminate the Trust Agreement solely with respect to FTFI and FTFI shall withdraw from the Trust Agreement, provided that such Trust Agreement shall remain in full force and effect as to Carso and SBC. (b) The Trust Parties hereby agree to terminate the Shareholders Agreement only with respect to FTFI. Carso and SBC hereby reaffirm the continuation of the Shareholders Agreement as among them. (c) Telmex and FTFI hereby agree to terminate, effective as of the date the Converted L Shares are effectively delivered to FTFI, the technical assistance, management (Contrato de Prestacion de Servicios de Operacion y Administracion dated February 14, 2000) and any other agreement or ancillary arrangement that was entered between and among the Trust Parties or Telmex only with respect to FTFI, and therefore will hereafter be of no further force and effect, including any obligations and liabilities incurred thereunder by any party prior to the date hereof shall not survive such termination. (d) Each of the Parties hereby releases each of the other Parties to the fullest extent permitted by law with respect to all the agreements herein terminated. (e) SBC, Carso and Telmex agree that if for any reason SBC's rights under the Trust, Management Services or Shareholders Agreements are in any way diminished as a result of entering into this Agreement, SBC, Carso and Telmex shall negotiate in good faith to amend such Agreements so that the provisions therein are preserved to the greatest extent permitted or not specifically prohibited under the law. (f) FTFI agrees that during the term of its investment in Telmex that it has received and has had access to confidential and/or proprietary information of Telmex and its subsidiaries ("Information"). FTFI agrees that all Information shall remain the exclusive property of the disclosing Party or its Affiliates, and such Information shall not be used by FTFI for any purpose whatsoever, unless agreed to in writing by the disclosing party. (g) FTFI shall treat the Information as the confidential and proprietary information of the disclosing Party, shall not disclose it to any other person or entity except as may be authorized herein, and shall safeguard the Information at least to the extent that it would its own confidential and proprietary information, but to no extent less than reasonable care. (h) FTFI agrees that all Information, if written, and any copies thereof, as well as any written summaries of any Information disclosed orally, shall be returned to the disclosing party within 30 days of the execution of this Agreement (or 30 days after termination of any ongoing services provided by FTFI as appropriate). FTFI shall provide the Parties with a written certification by an officer of FTFI that this provision has been fully complied with and that all Information has been returned. (i) The obligations contained herein shall not apply to: (a) information which is now in or hereafter enters the public domain without a breach of this Agreement; (b) information known to the recipient prior to the time of disclosure by the disclosing party or independently developed by the recipient; or (c) information disclosed in good faith to the recipient by a third person legally entitled to disclose the same free of any non-disclosure restrictions. Third. Information, Registration and Other Rights. (a) FTFI hereby agrees to use commercially reasonable best efforts to keep Telmex informed, subject to applicable law, of any intended disposal by FTFI of the Conversion L Shares by means of a private sale or by means of open market transactions, by providing notice to Telmex prior to any such disposition, provided that Telmex shall, at all times, keep such notice strictly confidential, and provided further, however that, FTFI may not knowingly after reasonable inquiry sell, convey, assign or otherwise hypothecate, other than in a public offering, any Conversion L Shares directly or indirectly to any person or legal entity engaged in the Telecommunications Business in Mexico without the express written consent of each of Telmex, SBC and Carso (in this last two cases so long that SBC and Carso maintain any board representative in the Board of Directors of Telmex), which consent will not be unreasonably withheld. (b) Telmex hereby grants to FTFI the right to cause Telmex for a period of 2 (two) years after the date of execution of this Agreement (the "Registration Period"), to use commercially reasonable best efforts to register the Conversion L Shares for any public disposition thereof in any market where the Telmex shares are registered at that time and provide any further assistance which FTFI may reasonably require in connection with such disposition including the attendance to any road show (the "Registration"), subject to: (i) the payment by FTFI of all related costs and expenses incurred at the written request of FTFI to comply this Section (b), (ii) Telmex' right, in its sole discretion, to postpone any such registration for up to ninety (90) days from the date on which Telmex receives a written request from FTFI to undertake any such Registration, only if Telmex is in the process of making or preparing to make a registered offering to raise capital primarily (more than 50% of the offering) for itself in which case FTFI may participate in the offering with the prior written consent of Telmex, and (iii) Telmex shall have no obligation to undertake more than four (4) Registrations during the Registration Period. (c) Except as expressly permitted under a written agreement between FTFI and Telmex, during a period of three (3) years following the date of the execution of this Agreement, neither FTFI nor any of its Affiliates shall either directly or indirectly, for itself or through, on behalf of, or in conjunction with any natural person or legal entity, own, franchise, maintain, operate, engage in, be employed by, any Telecommunications Business in Mexico (a "Competing Business") or acquire and hold a five percent (5%) or greater passive interest in any company or enterprise engaged materially in the Telecommunications Business in Mexico, provided that, in no event shall FTFI participate in the management of such Competing Business. For the purpose of this Agreement, the right to nominate, select, or otherwise select any Officer or Director of a Competing Business or the right or obligation to provide consulting or management services of any kind to a Competing Business shall be deemed to be participation in the management of such Competing Business. (d) Notwithstanding anything to the contrary in this Section Three, neither FTFI nor any of its Affiliates shall be prohibited from engaging, participating or having an interest in, or being connected with, any business opportunity that would otherwise fall within the scope of this Agreement if FTFI shall have made such business opportunity available to Telmex by written notice describing the business opportunity in reasonable detail and Telmex shall have notified FTFI in writing within thirty (30) business days of receipt of such notice that it does not wish to pursue such business opportunity or Telmex, after providing such notice, shall fail diligently to pursue such opportunity, provided that, in the event Telmex does not provide such notice to FTFI within such thirty (30) business day period, FTFI shall be free to pursue such engagement, participation, interest or connection, on its own; and provided, however, that, if Telmex it is prohibited from pursuing such business opportunity due to any law, rule or regulation of any governmental agency of Mexico (a "Regulatory Limitation"), then the provisions of this Section 3(d) shall not apply to FTFI as to the business opportunity that is the subject of the Regulatory Limitation. (e) FTFI agrees that until 5 years after the execution date of this Agreement it shall not, and shall cause each of its directors, officers, employees, agents, Affiliates or representatives (any of the foregoing, a "Representative") not to, without the prior written consent of the Board of Directors of Telmex, specifically expressed in a resolution approved by a majority of the directors of Telmex, directly or indirectly, through one or more intermediaries or otherwise, (i) acquire, agree to acquire or make any proposal to acquire any equity securities of Telmex or any of its subsidiaries, any warrant or option to acquire any such equity securities, any security convertible into or exchangeable for any such equity securities or any other right to acquire any such equity securities; (ii) seek or propose any merger, consolidation, business combination, tender or exchange offer, sale or purchase of assets or equity securities, dissolution, liquidation, restructuring, recapitalization or similar transaction of or involving Telmex or any of its subsidiaries; (iii) make, or in any way participate in, any "solicitation" of proxies or consents (whether or not relating to the election or removal of directors) within the meaning of Rule 14a-1 under the 34 Act with respect to any equity securities of Telmex or any of its Subsidiaries, or seek to advise or influence any person with respect to the voting of any equity securities of Telmex or any of its subsidiaries or demand a copy of the stock ledger, list of stockholders, or any other books and records of Telmex or any of its subsidiaries; (iv) form, join or in any way participate in a "group" (within the meaning of Section 13(d)(3) of the 34 Act), with respect to any equity securities of Telmex or any of its Subsidiaries; (v) otherwise act, alone or in concert with others, to seek to control or influence, in any manner, the management, Board of Directors or policies of Telmex or any of its Subsidiaries; (vi) call or seek to have called any meeting of the stockholders of Telmex or execute any written consent with respect to Telmex or the common stock; (vii) seek, alone or in concert with others, representation on the Board of Directors or seek the removal of any member of such Board or a change in the composition or size of such Board; (viii) have any discussions or enter into any arrangements, understandings or agreements (whether written or oral) with, or advise, finance, assist or encourage, any other persons in connection with any of the foregoing, or make any investment in any other person that engages, or offers or proposes to engage, in any of the foregoing; or (ix) make any publicly disclosed proposal regarding any of the foregoing. (f) For purposes of this Agreement: "Telecommunications Business in Mexico" means any telecommunication business in the Mexican territory, excluding the activities that Global One currently performs (i.e.: international long distance, voice and data transmission services to multinational and large corporates) and any activity related to broadcasting and internet content services; "Affiliate" has the meaning ascribed to it in Rule 12b-2 under the 34 Act; and, "34 Act" means the Securities Exchange Act of 1934, as amended, or any similar federal law then in force in the United States of America. Fourth. Representations and Warranties. (a) Each of the Parties hereto represent and warrant to the other that: (i) it is a corporation duly organized and validly existing under the laws of its place of incorporation, and it has full corporate power and authority to enter into this Agreement and to perform its obligations hereunder; (ii) the execution of this Agreement has been duly authorized by all necessary corporate action; (iii) this Agreement constitutes a legal, valid and binding obligations of such Party, enforceable in accordance with their terms, except as may be limited by bankruptcy, insolvency, suspension of payments and the availability of equitable remedies; and (iv) the execution of this Agreement and performance of its obligations hereunder will not conflict with, or result in a breach of or default under, any agreement or instrument to which it is a party or by which it is bound, or any order, decree or judgment of any court of governmental agency or body. (b) Telmex hereby represents and warrants to the Trust Parties that the Conversion L Shares will be validly issued, non-assessable and free of any liens, encumbrances or any preemptive or other rights of third parties and have been issued as provided under Article Eleventh of its by-laws. Fifth. Miscellaneous. (a) Notices. All notices, demands, consents, and reports provided for in this Agreement shall be in writing and shall be given to the other party, by registered air mail, postage prepaid, return receipt requested, by hand delivery or by facsimile with a confirmation of transmission, at the address set forth below, or at such other address as a party, may hereafter specify in writing: FTFI: c/o France Telecom 6, place d'Alleray - 75505 Paris Cedex 15 Republic of France Telefax: 01 44 44 98 03 Attn.: Eric Bouvier With a copy to: Telefax: 01 44 44 21 54 Attn.: Philippe MacAllister. Carso: Insurgentes Sur 3500 Colonia Pena Pobre 14060 Mexico, D.F. Telefax: (525) 726-3659 Attn.: Alejandro Escoto Cano SBC: SBC International, Inc. 175 E. Houston St., 10th Floor San Antonio, Texas 78205 United States of America Telefax: (210) 351-3630 Attn.: Edward Mueller With a copy to: Carlos Bernal Noriega y Escobedo, S.C. Telefax: (52) 5327-1100 Telmex: Parque Via No. 190, Piso 10 Colonia Cuahutemoc 06599 Mexico, D.F. Telefax: (525) 255-1576 Attn.: Adolfo Cerezo Perez With a copy to: Rafael Robles Miaja Franck,Galicia, Duclaud y Robles, S.C Paseo de las Palmas No. 405-3er. Piso Colonia Lomas de Chapultepec 11000 Mexico, Distrito Federal Telefax: (52)55 40 92 02 Any notice so given shall be deemed to be effective upon receipt. (b) Language; Counterparts. This Agreement is executed in the English, and has been executed in five counterparts, each of which shall be deemed to be an original of this Agreement and constitute a single agreement. (c) Governing Law; Arbitration. (1) This Agreement shall be governed by, construed and interpreted in accordance with, the laws of New York, New York, (without regard to the conflict of law provisions contained therein); (2) All disputes arising out of, or in connection with, this Agreement shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with said rules. Any such arbitration shall be conducted in the English language, and held in New York, New York, United States of America, unless the parties mutually agree to a location in another country which is a party to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. The award rendered by the majority of the arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. The demand for arbitration shall be made within a reasonable time after the claim, dispute or other matter in question has arisen and in no event shall it be made after the date when institution of legal proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. All costs and expenses in connection with any such arbitration shall be borne in the manner which the majority of the arbitrators making the determination shall direct; and, (3) THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE FEDERAL COURT OF THE UNITED STATES OF AMERICA LOCATED IN THE STATE OF NEW YORK SOLELY IN RESPECT OF THE ENFORCEMENT OF ANY ARBITRATION AWARD ISSUED IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, AND HEREBY WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING FOR THE ENFORCEMENT HEREOF, THAT IT IS NOT SUBJECT THERETO OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN SAID COURTS OR THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE OR THAT THIS AGREEMENT OR ANY SUCH DOCUMENT MAY NOT BE ENFORCED IN OR BY SUCH COURTS. THE PARTIES HEREBY CONSENT TO AND GRANT ANY SUCH COURT JURISDICTION OVER THE PERSON OF SUCH PARTIES AND OVER THE SUBJECT MATTER OF SUCH DISPUTE. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN THIS SECTION 5(c). (d) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. (e) Entire Agreement. This Agreement constitutes the entire agreement between the Parties hereto relating to the subject matter hereof, and supersedes all prior agreements, representations, and understandings of the Parties. There are no other terms, obligations, covenants, representations, statements or conditions other than those contained herein and therein. (f) Further Instruments and Acts. The Parties hereto will execute and deliver such further instruments and do such further acts as may be necessary or proper to carry out more effectively the purposes of this Agreement. (g) Waivers; Amendments. No failure by either Party hereto to insist on the strict performance of any covenant, agreement, term or condition of this Agreement, or to exercise any right or remedy consequent upon the breach thereof, shall constitute a waiver of any such breach or any subsequent breach of such covenant, agreement, term or condition. No provision of this Agreement (and no breach thereof) shall be waived, altered, amended supplemented or modified except by written instrument signed by all Parties on which such waiver, alteration, amendment or modification is binding. No waiver of any breach shall affect or alter this Agreement, but each and every covenant, agreement, term and condition of this Agreement shall continue in full force and effect with respect to any other than existing or subsequent breach thereof. (h) Headings. Headings of Sections and Subsections are for convenience of reference only and are not intended to define, limit or describe the scope or intent of any provision of this Agreement. (i) Unenforceability. If any provision of this Agreement shall be found to be invalid or unenforceable, the remainder of this Agreement shall remain in full force and effect. (j) Public Notice. The Trust Parties and Telmex hereby agree to jointly release, as soon as practicable to each Party, upon execution of this Agreement, a public notice substantially in the form attached hereto as Exhibit "B". (k) Specific Performance. The obligations of the Parties hereto under this Agreement are unique. If any Party should default in its obligations under this Agreement, the defaulting Party acknowledges that it would be extremely impracticable to measure the resulting damages. Accordingly, in addition to any other available rights or remedies, the non-defaulting Party or Parties may seek, and the Arbitrators shall specifically be authorized to order specific performance and each defaulting Party expressly waives any defense that a remedy in damages will be adequate. (l) Third-Party Beneficiaries. Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the Parties and their respective successors and permitted assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any person (not a party hereto) to any Party to this Agreement, nor shall any provision give any person (not a party hereto) any right of subrogation or action over against any Party to this Agreement. (m) Expenses. Each Party shall pay all costs and expenses incurred or to be incurred by it in connection with the negotiation and preparation of this Agreement. (n) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall together constitute one and the same instrument. In witness whereof, the parties hereto have executed or caused this Agreement to be executed, all as of the day and year first above written. France Telecom Financiere Internationale By: Laurent Mialet Its: Attorney in Fact Carso Global Telecom, S.A. de C.V. By: Jaime Chico Pardo Its: ViceChairman of the Board SBC International, Inc. By: Rick L. Moore Its: VicePresident-Development Telefonos de Mexico, S.A. de C.V. By: Adolfo Cerezo Perez Its: Chief Financial Officer Exhibits: "A" Minutes of Technical Committee "B" Press Release Exhibit A ACTA No. 18 Acta de la Sesion del Comite Tecnico del Fideicomiso 2226-5 sobre las acciones Serie "AA" de Telefonos de Mexico, S.A. de C.V., del que es Fiduciario Banco Internacional, S.A., Grupo Financiero Bital, Departamento Fiduciario, celebrada con fecha 27 de abril de 2000, en la cual estuvieron presentes la totalidad de los miembros de dicho Comite que al final firman la presente acta. Fungio como Presidente el senor Ing. Jaime Chico Pardo y actuo como Secretario de actas el Lic. Sergio F. Medina Noriega. Habiendose cubierto los requisitos que se preven en el sub-inciso 5.3.4 del Contrato de Fideicomiso 2226-5 sobre las acciones Serie "AA" de Telefonos de Mexico, S.A. de C.V., del que es Fiduciario el Banco Internacional, S.A., Grupo Financiero Bital, Departamento Fiduciario y una vez que los presentes hicieron constar que la sesion se encontraba legalmente instalada, se procedio al desahogo de los siguientes asuntos: I. Acuerdo e instrucciones a Banco Internacional, S.A., Grupo Financiero Bital, Departamento Fiduciario para convertir 1,059,890,076 acciones Serie AA que corresponden a los derechos de fideicomisario de France Telecom Financiere Internationale, en 1,059,890,076 acciones Serie L; II. Nombramiento de delegados de la Sesion; III. Aprobacion del acta de la Sesion. Al respecto, el Comite Tecnico adopto, por unanimidad de votos de sus miembros presentes, las siguientes resoluciones: I. En relacion con el punto I del Orden del Dia, se resuelve aprobar y en este acto instruir a Banco Internacional, S.A., Grupo Financiero Bital, Departamento Fiduciario, en su caracter de fiduciario del Fideicomiso 2226-5, a que, de conformidad con lo dispuesto en el contrato del Fideicomiso, solicite a Telefonos de Mexico, S.A. de C.V. que convierta 1,059,890,076 acciones Serie AA que corresponden a los derechos de fideicomisario de France Telecom Financiere Internationale en terminos del contrato del Fideicomiso en 1,059,890,076 acciones Serie L, e inmediatamente Telefonos de Mexico, S.A. de C.V. las entregue a France Telecom Financiere Internationale mediante su deposito con S.D. Indeval, S.A. de C.V., Institucion para el Deposito de Valores, al amparo del contrato de intermediacion bursatil que France Telecom Financiere Internationale celebro con Inversora Bursatil, S.A. de C.V., Casa de Bolsa, Grupo Financiero Inbursa. Finalmente y en relacion con la asamblea anual ordinaria de accionistas de Telefonos de Mexico, S.A. de C.V. que habra de celebrarse el 28 de abril de 2000 a las 12:00 horas, se acuerda instruir al Fiduciario a que asista a dicha asamblea y vote la totalidad de las acciones "AA" afectas al Fideicomiso en los terminos que se establece en el Anexo "A" de la presente Sesion. II. En relacion con el punto II del Orden del Dia, se acuerda designar como delegados de la presente Sesion a los senores Ing. Jaime Chico Pardo, Lic. Sergio Medina Noregia, Ing. Adolfo Cerezo Perez, Lic. Rafael Robles Miaja y Lic. Alberto Sepulveda Cosio, para que cualquiera de ellos en lo individual formalice y de cumplimiento a las resoluciones adoptadas por la presente Sesion. III. En relacion con el III punto del Orden del Dia, se resuelve aprobar la presente acta de la Sesion del Comite Tecnico en sus terminos, cuyo original, que consta de una hoja utilizada por anverso y reverso, se debera entregar al Banco Internacional, S.A., Grupo Financiero Bital, Departamento Fiduciario para todos los efectos a que haya lugar, el cual debera expedir copia de la misma a cualquiera de los miembros del Comite Tecnico que lo soliciten, documento que proceden a firmar todos los miembros del Comite Tecnico. MIEMBROS DEL COMITE TECNICO Del Segundo Fideicomisario "A" /s/ Carlos Slim Helu /s/ Carlos Slim Domit -------------------- --------------------- Carlos Slim Helu Carlos Slim Domit /s/ Jaime Chico Pardo /s/ Sergio Medina Noriega --------------------- ------------------------- Jaime Chico Pardo Sergio Medina Noriega /s/ Juan Antonio Perez Simon ---------------------------- Juan Antonio Perez Simon Del Segundo Fideicomisario "B-I" /s/ Federico Laffan Fano /s/ Carlos Bernal Verea ------------------------ ----------------------- Federico Laffan Fano Carlos Bernal Verea Del Segundo Fideicomisario "B-II" /s/ Jean Marie Gauthier /s/ Eric Bouvier ----------------------- ---------------- Jean Marie Gauthier Eric Bouvier Exhibit A ACT No. 18 Minutes of the Meeting of the Technical Committee of the Trust 2226-5 regarding the Series "AA" shares of Telefonos de Mexico, S.A. de C.V., of which Banco Internacional, S.A., Grupo Financiero Bital, Trustee Department are Trustees, executed on the 27th day of April of 2000, at which time all members of the aforementioned Committee that signed these Minutes were present. Mr. Jaime Chico Pardo, Ing. acted as President and Mr. Sergio F. Medina Noriega, Lic. acted as Secretary of the Meeting. After having fulfilled the requirements provided for in sub-section 5.3.4 of the Trust Agreement 2226-5 regarding Series "AA" shares of Telefonos de Mexico, S.A. de C.V., of which Banco Internacional, S.A., Grupo Financiero Bital, Trustee Department are Trustees, and once all those present made record of the fact that the meeting was legally established, they proceeded to discuss the following matters: I. Agreement and instructions to Banco Internacional, S.A., Grupo Financiero Bital, Trustee Department to convert 1,059,890,076 Series "AA" shares that correspond to the trust rights of France Telecom Financiere Internationale, to 1,059,890,076 shares Series L; II. Selecting the Meetings delegates; III. Approving the Minutes of the Meeting. The Committee accepted, by a unanimous vote of its members present, the following resolutions: I. Regarding point I Order of Business, it is resolved, and these Minutes institute that, Banco Internacional, S.A., Grupo Financiero Bital, Trustee Department, in its role as trustee of the Trust 2226-5, request Telefonos de Mexico, S.A. de C.V. to convert 1,059,890,076 Series "AA" shares, that correspond to the trust rights of France Telecom Financiere Internationale in terms of the Trust contract, to 1,059,890,076 shares Series L, and that Telefonos de Mexico, S.A. de C.V. will immediately transfer them to France Telecom Financiere Internationale by means of its deposit with S.D. Indeval, S.A. de C.V., Institution for Security Deposit, to safeguard the contract of stock market intermediary that France Telecom Financiere Internationale executed with Iversora Bursatil, S.A. de C.V., Casa de Bolsa, Grupo Financiero Inbursa. Finally, and in relation to the annual stockholders meeting of Telefonos de Mexico, S.A. de C.V. shareholders that is to be held on the 28th day of April of 2000 at 1200 hours, its noted to instruct the Trustee to attend the aforementioned meeting and vote the total number of shares "AA" effective to the Trust under the terms that are established in Annex A of this Meeting. II. Regarding point II Order of Business, the following are noted as delegates of the present Meeting: Mr. Jaime Chico Pardo, Ing., Mr. Sergio Medina Noriega, Lic., Adolfo Cerezo Perez, Mr. Rafael Robles Miaja, Lic., and Mr. Alberto Sepulveda Cosio, Lic., so that any of them individually formalize and execute the resolutions adopted in this Meeting. III. Regarding point III Order of Business, it is resolved that the original of these Minutes of the Meeting of the Technical Committee under its terms, which consists of one page front and back sides, should be delivered to Banco Internacional, S.A., Grupo Financiero Bital, Trustee Department for all the acts which are in place, should be delivered to members of the Technical Committee that request a copy, and will now be signed by all members of the Technical Committee. MEMBERS OF THE TECHNICAL COMMITTEE From the Second Beneficiary "A" /s/ Carlos Slim Helu /s/ Carlos Slim Domit -------------------- --------------------- Carlos Slim Helu Carlos Slim Domit /s/ Jaime Chico Pardo /s/ Sergio Medina Noriega --------------------- ------------------------- Jaime Chico Pardo Sergio Medina Noriega /s/ Juan Antonio Perez Simon ---------------------------- Juan Antonio Perez Simon From the Second Beneficiary "B-I" /s/ Federico Laffan Fano /s/ Carlos Bernal Verea ------------------------ ----------------------- Federico Laffan Fano Carlos Bernal Verea From the Second Beneficiary "B-II" /s/ Jean Marie Gauthier /s/ Eric Bouvier ----------------------- ---------------- Jean Marie Gauthier Eric Bouvier EXHIBIT B COMUNICADO DE PRENSA FRANCE TELECOM CONVIERTE SUS ACCIONES DE LA SERIE AA EN ACCIONES DE LA SERIE L DE TELEFONOS DE MEXICO, S.A. DE C.V. Mexico, Distrito Federal, 28 de abril de 2000. France Telecom (NYSE: "FTE"), Telefonos de Mexico, S.A. de C.V. (BMV: "Telmex") (NYSE: "TMX") (en lo sucesivo "Telmex") y sus otros accionistas principales, Carso Global Telecom, S.A. de C.V. (BMV: "Telecom") y SBC Communications, Inc. (NYSE: "SBC"), informaron el dia de hoy que acordaron que France Telecom, tenedor de aproximadamente 1,060 millones de acciones (aproximadamente 7%) del capital social de Telmex, convierta a la par sus acciones comunes con pleno a derecho a voto de la Serie "AA" en acciones de la Serie "L" de voto limitado con efectos inmediatos. Como resultado de la conversion, el numero de acciones en circulacion no se modifica y el capital social de Telmex quedo representado aproximadamente en un 22% por acciones de la Serie "AA", en un 2% por acciones de la Serie "A" y en un 76% por acciones de la Serie "L". France Telecom solicito la conversion para establecer una posicion liquida en acciones de la Serie "L" de Telmex que le permita, eventualmente, disponer en forma ordenada de su posicion accionaria. Para lograr este objetivo, Telmex y sus socios principales colaboraran con France Telecom, la cual utilizara medios de desinversion que consideren los intereses de los inversionistas de Telmex. France Telecom ha participado en y apoyado el desarrollo de Telmex durante los ultimos diez anos. Ahora requiere enfocarse en nuevos retos de su propio desarrollo. France Telecom confia que el desarrollo y exito futuros de Telmex se mantienen sin cambio. France Telecom y Telmex continuaran su cooperacion respecto a la busqueda de oportunidades futuras en los mercados internacionales para desarrollar inversiones conjuntas. En este contexto, Telmex ha decidido invitar a un alto funcionario de France Telecom como miembro de su Consejo de Administracion. SBC Communications, Inc., ha manifestado su intencion de mantener su posicion accionaria en Telmex durante un periodo de tiempo indefinido, fortaleciendo la serie de relaciones estrategicas e inversiones conjuntas con Telmex. Al referirse a la conversion de acciones por France Telecom, el Ing. Carlos Slim Helu, Presidente del Consejo de Administracion de Telmex manifesto: "Desde hace casi 10 anos hemos contado con la activa y valiosa participacion de nuestros socios franceses en el desarrollo nacional de Telmex y buscaremos continuar compartiendo oportunidades en el mercado global con ellos, independientemente del nivel de su participacion en el capital social de nuestra empresa". Carso Global Telecom, S.A. de C.V. controla a Telmex y el propietaria de mas de una cuarta parte del capital social de Telmex en circulacion. Actualmente, tanto Carso Global Telecom, S.A. de C.V. como SBC Communications, Inc. son tenedoras de poco mas del 84% de las acciones comunes con pleno derecho de voto del capital social de Telmex. ****** EXHIBIT B PRESS RELEASE FRANCE TELECOM CONVERTS ITS TELMEX SERIES AA SHARES INTO SERIES L SHARES MEXICO CITY, April 28, 2000. France Telecom (NYSE. "FTE"), Telefonos de Mexico, S.A. de C.V. (NYSE: "TMX") ("Telmex") and its main shareholders, Carso Global Telecom, S.A. de C.V. and SBC Communications, Inc. (NYSE: "SBC") today announced an agreement whereby France Telecom, holder of approximately 1,060 million shares (approximately 7% of Telmex), immediately converts its Telmex full voting stock Series "AA" shares into limited voting Series "L" shares. As a result of the conversion, the number of Telmex shares outstanding will not change. The share capital of Telmex will consist of approximately 22% of Series "AA" stock, 2% of Series "A" stock and 76% of Series "L" Stock. France Telecom has requested this conversion in order to establish a liquid position in Series "L" stock of Telmex, in anticipation of a future possible orderly disposal of the stock. Telmex and its main shareholders will cooperate with France Telecom in any future disposal and France Telecom, in turn, will consider the interests of Telmex and its shareholders in disposing of its share position. France Telecom has participated in and supported the development of Telmex for the past ten years. It now needs to focus on new challenges in its own development. France Telecom's confidence in Telmex's future development and success remains unchanged. France Telecom and Telmex will continue their cooperation towards seeking future opportunities for joint investments in international telecommunications markets. In that context, Telmex will ask a member of France Telecom's senior management team to retain a seat on its Board of Directors. SBC Communications, Inc. has expressed its intention to maintain its position as a Telmex shareholder for an indefinite period of time and to strengthen relations and joint investments with Telmex. In discussing the share conversion by France Telecom, Carlos Slim, chairman of the Board of Directors of Telmex, said: "For almost 10 years, we have counted on the active and productive participation of our French partners in the national development of Telmex, and we will seek to continue sharing opportunities with them in the global markets, notwithstanding the level of their participation in the share capital of our company". Carso Global Telecom, S.A. de C.V. controls Telmex and owns more than a quarter of its outstanding share capital. As of today, Carso Global Telecom, S.A. de C.V. and SBC Communications, Inc. hold together more than 84% of the Telmex common stock with full voting rights. ****** EX-4.1 4 0004.txt EXHIBIT 4.1 Portions of this Exhibit have been omitted and the information omitted has been separately filed with the Commission with a request for confidential treatment. The locations of the omitted information have been indicated by [ ]. ----------------------------------- SHAREHOLDERS AGREEMENT ----------------------------------- among BELL CANADA INTERNATIONAL INVESTMENTS LIMITED, AM LATIN AMERICA, LLC, SBC INTERNATIONAL - BRAZIL HOLDING, LTD., and TELECOM AMERICAS LTD. Dated as of November 16, 2000 ================================================================================
ARTICLE I DEFINITIONS Section 1S.01. Certain Defined Terms.............................................................2 ARTICLE II ORGANIZATIONAL DOCUMENTS; REPRESENTATIONS AND WARRANTIES Section 2.01. Memorandum of Association and Bye-Laws...........................................13 Section 2.02. Representations and Warranties of the Shareholders and Sponsor Party.............13 Section 2.03. Representations and Warranties of BCI Investments and BCI........................14 Section 2.04. Representation and Warranty of SBCI Brazil Holding and SBCI......................15 ARTICLE III CORPORATE GOVERNANCE Section 3.01. Corporate Purpose; Powers of the Board...........................................15 Section 3.02. Number of Directors..............................................................15 Section 3.03. Composition of Board and Chairman of the Board...................................15 Section 3.04. Subsequent Nominations...........................................................16 Section 3.05. Removal of Directors.............................................................18 Section 3.06. Vacancies........................................................................19 Section 3.07. Covenant to Vote.................................................................20 Section 3.08. Action by the Board..............................................................20 Section 3.09. Action by Shareholders...........................................................23 Section 3.10. Business Plan....................................................................25 Section 3.11. Management.......................................................................25 Section 3.12. Removal of Senior Officers.......................................................25 Section 3.13. Transferability of Certain Governance Rights.....................................25 ARTICLE IV RESTRICTIONS ON TRANSFER Section 4.01. General Restriction..............................................................27 Section 4.02. Legends..........................................................................27 Section 4.03. Rights of First Offer............................................................28 Section 4.04. Right to Participate in Certain Dispositions.....................................30 Section 4.05. Permitted Transfers..............................................................33 Section 4.06. Prospective Transferees; Guarantee and Share Retention Agreement.................33 Section 4.07. Improper Sale or Encumbrance.....................................................34 ARTICLE V ADDITIONAL AGREEMENTS Section 5.01. Financial Statements.............................................................34 Section 5.02. Access to Information............................................................34 Section 5.03. Confidential Information.........................................................34 Section 5.04. Certain Issuances of New Securities..............................................35 Section 5.05. Referral of Opportunities........................................................35 Section 5.06. Affiliate Transactions...........................................................38 Section 5.07. Consolidation of the Company and BCI.............................................38 Section 5.08. Registration Rights..............................................................42 Section 5.09. Voting Structure.................................................................42 Section 5.10. Additional Capital Contributions.................................................42 Section 5.11. Unwind...........................................................................42 Section 5.12. Future Acquisitions..............................................................43 Section 5.13. Default..........................................................................43 Section 5.14. Additional Tax Matters...........................................................44 Section 5.15. BCE and SBCI Parent Guarantee and Share Retention Agreement......................45 Section 5.16. Subnewco4........................................................................46 Section 5.17. Compliance with ANATEL Written Confirmation......................................46 Section 5.18. Reserve of Promissory Notes......................................................46 ARTICLE VI MISCELLANEOUS Section 6.01. Conflict with Memorandum of Association or Bye-Laws..............................47 Section 6.02. Expenses.........................................................................47 Section 6.03. Notices..........................................................................47 Section 6.04. Headings.........................................................................51 Section 6.05. Severability.....................................................................51 Section 6.06. Entire Agreement.................................................................51 Section 6.07. Assignment.......................................................................51 Section 6.08. No Third Party Beneficiaries.....................................................51 Section 6.09. Amendment........................................................................51 Section 6.10. Governing Law....................................................................52 Section 6.11. Counterparts.....................................................................52 Section 6.12. Specific Performance.............................................................52 Section 6.13. Waiver of Jury Trial.............................................................53 Section 6.14. Dispute Resolution...............................................................53 Section 6.15. Arbitration......................................................................53 Section 6.16. Termination......................................................................55 Section 6.17. Minimum Interests................................................................55 Section 6.18. Aggregating Interests............................................................55
SCHEDULES Schedule A - Initial Capitalization Schedule 2.03(a) - Other Registration Rights Agreements Schedule 2.03(b) - Equity Interests of BCI Investments in Subnewco1, Subnewco2 and Subnewco3 Schedule 2.04 - Equity Interests of SBCI Brazil Holding in Subnewco4 Schedule 3.13 - Transferees Requiring Consent Schedule 5.11 - Unwind Procedures Schedule Schedule 5.13 - List of Investment Banks EXHIBITS Exhibit A - Memorandum of Association of the Company and each of the Subnewcos Exhibit B - Amended and Restated Bye-Laws of the Company and Amended and Restated Bye-Laws or Articles of Association, as the case may be, of each of the Subnewcos Exhibit C - Initial Business Plan of the Company Exhibit D - Form of Guarantee and Share Retention Agreement Exhibit E - Form of Accession Certificate Exhibit F - Form of Registration Rights Agreement Exhibit G - Form of BCE Indemnity Agreement Exhibit H - Form of Legal Opinion Exhibit I - Consents and Approvals Exhibit J - Initial Structure Exhibit K - Alternate Tax Structures
SHAREHOLDERS AGREEMENT, dated as of November 16, 2000, among BELL CANADA INTERNATIONAL INVESTMENTS LIMITED, a corporation incorporated under the laws of the British Virgin Islands ("BCI Investments"), AM LATIN AMERICA, LLC, a limited liability company organized under the laws of Delaware ("AM Latin America"), SBC INTERNATIONAL - BRAZIL HOLDING, LTD., a company incorporated under the laws of the Cayman Islands ("SBCI Brazil Holding" and, together with BCI Investments and AM Latin America, the "Initial Shareholders"), and TELECOM AMERICAS LTD., a company incorporated under the laws of Bermuda (the "Company"). WHEREAS, each of the Initial Shareholders through its investments in the Contributed Operating Companies (as defined in the Amended and Restated Joint Venture Agreement (as defined below)), is engaged in the operation of mobile wireless ("Mobile Wireless"), competitive local exchange carrier ("CLEC"), or other voice and data communications businesses in the Communications Sector (as such term is defined in Section 1.01(a) below) in South America and Central America, excluding the Caribbean and Mexico (such territory, the "Joint Venture Area"); WHEREAS, subject to the express terms and limitations contained in this Agreement, the Initial Shareholders intend that the Company will be their principal vehicle for the pursuit of business opportunities in the Joint Venture Area in the Communications Sector; WHEREAS, the Company has issued 22,309.858 shares of voting common stock, par value $1.00 per share (the "Common Stock") and 1,690.142 shares of preferred shares, Series C, par value US$1.00 per share (the "Series C Shares"); WHEREAS, on the date hereof, the Initial Shareholders are consummating the transactions contemplated by the Amended and Restated Joint Venture Agreement, dated as of September 25, 2000 (the "Amended and Restated Joint Venture Agreement"), among BCI, America Movil (as successor in interest to Telmex) and SBCI (each, as defined in Section 1.01(a) below), pursuant to which, among other things, the Company will issue such number of shares of its Common Stock and Series C Shares to the Initial Shareholders, as set forth in Schedule A attached hereto; WHEREAS, pursuant to the Amended and Restated Joint Venture Agreement, each of the Initial Shareholders will on the date hereof contribute its direct and indirect interests in its Contributed Operating Companies (as such term is defined in the Amended and Restated Joint Venture Agreement) as indicated in Schedules 1.01(a) and (b) to the Amended and Restated Joint Venture Agreement and, in the case of BCI Investments and AM Latin America, will contribute capital and promissory notes to the Company in the amounts indicated in Sections 2.02 and 2.03 of the Amended and Restated Joint Venture Agreement; and WHEREAS, as a condition to the consummation of the transactions contemplated by the Amended and Restated Joint Venture Agreement and in order to make certain agreements with respect to their respective rights and obligations as holders of the Common Stock and Series C Shares, the parties hereto have determined that it is in their best interests to enter into this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants hereinafter set forth, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01. Certain Defined Terms. (a) As used in this Agreement, the following terms shall have the following meanings: "Affiliate" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by, or is under Common Control with, such specified Person. "Agreement" or "this Agreement" means this Shareholders Agreement, dated as of November 16, 2000, and all amendments hereto made in accordance with the provisions of Section 6.09. "America Movil" means America Movil, S.A. de C.V., a sociedad anonima de capital variable organized under the laws of Mexico. "AM Latin America Director" means any member of the Board nominated by AM Latin America in accordance with Sections 3.03 or 3.04. "BCE" means BCE Inc., a corporation organized under the laws of Canada. "BCI" means Bell Canada International Inc., a corporation incorporated under laws of Canada. "BCI Director" means any member of the Board nominated by BCI Investments in accordance with Section 3.03 or 3.04. "BCI Proportion" means an amount equal to the number of Shares owned by BCI Investments, divided by the total number of Outstanding Shares. "Beneficial Owner" (including the terms "beneficially owns" or "beneficially owned") has the meaning given to such term in Rule 13d-3 under the Exchange Act. "Board" means the Board of Directors of the Company. "Business Day" means any day that is not a Saturday, a Sunday or other day on which banks or stock exchanges are required or authorized by Law to be closed in the City of New York, the City of Montreal, Canada, or the City of Sao Paulo, Brazil. "Capital Stock" means, with respect to any Person at any time, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of capital stock, partnership interests (whether general or limited), membership interests or equivalent ownership interests in or issued by such Person. P "Cash Equivalents" means (a) marketable direct obligations issued or unconditionally guaranteed by the United States government 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 thereof, (b) marketable direct obligations issued by any state of the United States or any political subdivision or public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from any of Standard & Poor's Ratings Services, Moody's Investors Service, Inc. or Duff & Phelps Credit Rating Co. or (c) commercial paper maturing not more than one year from the date of issuance thereof and, at the time of acquisition, having the highest rating obtainable from either Standard & Poor's Ratings Services or Moody's Investors Service, Inc. "Closing" has the meaning specified in Section 2.06 of the Amended and Restated Joint Venture Agreement. "Closing Date" has the meaning specified in Section 2.06 of the Amended and Restated Joint Venture Agreement. "Closing Price" means, with respect to any Marketable Security or Cash Equivalent, the average of the daily closing prices of such security for the thirty (30) Trading Day period ending on the relevant date of determination. The closing price for each day shall be the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case, on The New York Stock Exchange (the "NYSE"), or, if such security is not listed or admitted to trading on the NYSE, on the American Stock Exchange, or if such security is not listed or admitted to trading on the American Stock Exchange, the average of the closing bid and asked prices of such security in the over-the-counter market as reported on the NASDAQ system of the National Association of Securities Dealers, Inc., or if such security is not so quoted, the average of the closing bid and asked prices of such security in the over-the-counter market as furnished by any nationally recognized New York Stock Exchange member firm selected by the Company for such purposes. "Commission" means the U.S. Securities and Exchange Commission, and any successor commission or agency having similar powers. "Communications Sector" means (a) telecommunications service, (b) cable service, (c) wireless cable television service using local and multichannel multipoint distribution services (also referred to as LMDS and MMDS) or their equivalent, (d) internet access service, and (e) the following information services (excluding the provision of the content and excluding electronic publishing, transaction processing and application service providers (ASP) or any business opportunity that represents the provision of electronic commerce solutions, including value-added applications and electronic commerce exchanges and ancillary services and the provision or use of data resulting from such electronic commerce solutions): voicemail, electronic mail, facsimile store-and-forward, interactive voice response, protocol processing, videotext and audiotext communication services, internet navigation and gateway services, IP telephony (including voice over IP) alarm monitoring and other security alarm services and intranet management services; all as such terms set forth in clauses (a) through (d) inclusive may be defined by the U.S. Communications Act of 1934 and the regulations promulgated thereunder by the Federal Communications Commission, as amended and in effect at the date hereof. "Company Subsidiary" or "Company Subsidiaries" means any Subsidiary of the Company. "Control" (including the terms "Controlled by" and "under Common Control with"), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, or as trustee or executor, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise, including, without limitation, the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person; provided, however, that a Person shall not be deemed to Control any Person that is a publicly traded company if its ownership of voting securities does not constitute a majority of the voting securities of such Person. For the avoidance of doubt, for purposes of this definition no person shall be deemed to Control Carso Global Telecom, S.A. de C.V. or Grupo Carso, S.A. de C.V. by reason of the ownership of shares by one or more trusts or other entities for the benefit of a group of natural persons. "Danish Structure" means the alternate tax structure described in Part I of Exhibit K. "Defaulting Shareholder" means any Shareholder that, (i) has failed to pay its Outstanding Obligations within ten (10) Business Days of when due, (ii) is in material breach of its obligations under Section 3.07 or Article IV or (iii) has willfully failed to refer a material business opportunity to the Company in breach of its obligations under Section 5.05 and such material business opportunity is pursued by such Shareholder or any Affiliate independently of the Company; provided, however, that a Shareholder shall cease to be a Defaulting Shareholder upon payment of such Outstanding Obligations or upon the curing of any such material breach; and provided, further, that any such material breach of Section 5.05 will be considered cured if such business opportunity is referred to the Company in accordance with Section 5.05 on terms no less favorable than those originally obtained by such Shareholder or its Affiliate, as the case may be. Notwithstanding the foregoing, no Shareholder shall be deemed to be a Defaulting Shareholder based on any material breach of its obligations hereunder (other than a failure to pay or perform its Outstanding Obligations in accordance with the terms of this Agreement and, if applicable, the Promissory Notes and the Special Notes) unless such Shareholder has received express written notice of such material breach from Shareholders holding at least fifty percent (50%) of the Equity Interests of the Company, and such Shareholder fails to cure such material breach within thirty (30) days after receipt of such notice. "Encumbrance" means any security interest, pledge, mortgage, lien (including, without limitation, environmental and tax liens), charge, encumbrance or adverse claim. "Equity Interests" means, with respect to any Person, all of the shares of Capital Stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of Capital Stock of (or other ownership or profit interests in) such Person, all of the securities (including loans, notes, debentures or other debt instruments) convertible into or exchangeable for shares of Capital Stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or non-voting. "Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission thereunder. "Exchange Ratio" means an amount equal to the New Surviving Entity Shares Issued, divided by the total number of Shares held by Shareholders other than BCI Investments or its Permitted Transferees. "Financial Statements" means, with respect to any fiscal year of the Company, true and complete copies of the audited consolidated balance sheet of the Company as of the last day of such fiscal year and the related audited consolidated statements of income, retained earnings, shareholders' equity and cash flow of the Company, together with all related notes and schedules thereto, prepared in accordance with U.S. GAAP (except as noted therein), accompanied by the report thereon of the Company's independent accountants. "Fully Diluted Shares" means the aggregate of (a) the number of Shares issued and outstanding (other than Shares held by any wholly owned Subsidiary of the Company) and (b) the number of Shares issuable upon (c) the exercise of any outstanding options, warrants or similar instruments (other than such instruments held by any wholly owned Subsidiary of the Company) and (d) the exercise of any conversion or exchange rights with respect to any outstanding securities or instruments (other than such securities or instruments held by any wholly owned Subsidiary of the Company). "Governmental Authority" means, in any applicable jurisdiction, any federal, provincial, state or local government, any governmental, regulatory or administrative authority, agency or commission, or any court or tribunal, or judicial or arbitral body. "Governmental Order" means any order, writ, judgment, injunction, decree, agreement, stipulation, determination or award of any Governmental Authority. "Indebtedness" means, with respect to any Person, and in the case of clauses (a) through (h) below, whether secured or unsecured, (a) all indebtedness of such Person, whether or not contingent, for borrowed money, (b) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (c) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the sellers or lenders under such agreement in the event of default are limited to repossession or sale of such property), (d) all obligations of such Person as lessee under leases that have been or should be, in accordance with U.S. GAAP, recorded as capital leases, (e) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (f) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any Equity Interests of such Person, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference, plus accrued and unpaid dividends, (g) all obligations of such Person for the deferred purchase price of property or services (other than current trade payables incurred in the ordinary course of business), (h) all obligations of such Person in respect of interest rate swaps, caps or collar agreements or similar arrangements, and (i) all Indebtedness of others referred to in clauses (a) through (h) above guaranteed directly or indirectly in any manner by such Person or secured by any Encumbrance on property (including accounts and contract rights) owned by such Person. "Initial Joint Venture Agreement" means the Joint Venture Agreement between Telmex and BCI, dated as of June 7, 2000. "Interim Financial Statements" means true and complete copies of the unaudited consolidated balance sheet of the Company and the related unaudited consolidated statements of income, retained earnings, shareholders' equity and cash flows of the Company, together with all related notes and schedules thereto, if any, prepared in accordance with U.S. GAAP (except as noted therein). "Intermediate Company" means any Person (other than a Regulated Opco) that is a Subsidiary or Minority Investee of the Company. "Law" means, in any applicable jurisdiction, any federal, provincial, state, local or foreign statute, law, treaty, ordinance, regulation, rule, code, order, other requirement or rule of law. "Marketable Securities" means securities that are (a) (i) equity securities of or other interests in any Person that are traded on a U.S. national securities exchange or reported on by the National Association of Securities Dealers Automated Quotation System ("Nasdaq"); provided, however, that the average daily trading volume of such equity securities on any such national securities exchange or Nasdaq for the seven trading days immediately preceding the relevant payment date is at least equal to the number of Marketable Securities proposed to be delivered pursuant to any offer or sale, or (ii) debt securities on market terms of an issuer that has debt or equity securities that are so traded or so reported on and in which Marketable Securities an internationally recognized securities firm has agreed to make a market; provided, however, that such debt securities are rated at least "A-" by Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., or "A3" by Moody's Investors Service, Inc., and (b) not subject to restrictions on transfer as a result of any applicable contractual provisions or the provisions of the Securities Act at the time of such transfer. "Minority Investee" means any Person (other than a Subsidiary of the Company) in which the Company, directly or indirectly, holds an Equity Interest. "Netherlands-Danish Structure" means the alternate tax structure set forth in Part II of Exhibit K. "New Securities" means any Capital Stock of the Company, whether or not now authorized, and rights, options or warrants to purchase such Capital Stock, and securities of any type whatsoever that are, or may become, convertible into or exchangeable or exercisable for Capital Stock of the Company; provided, however, that the term "New Securities" does not include (a) securities of the Company or any of the Company Subsidiaries issued to employees, consultants, officers or directors of the Company in their capacity as such, or which have been reserved for issuance, pursuant to any employee share option, share purchase, share bonus plan, or other similar share agreement or arrangement approved by the Board, (b) securities of the Company issued in connection with any share subdivision, consolidation, bonus issue or recapitalization of the Company and (c) securities of the Company issued in connection with an initial public offering. "New Surviving Entity Shares Issued" means an amount equal to the total number of Surviving Entity Shares outstanding as of the date of the Qualified Offer, divided by the BCI Proportion, minus the total number of Surviving Entity Shares outstanding as of the date of the Qualified Offer. "Non-Passive Interest" means an Equity Interest held by any Person in another Person which has the purpose, or the effect of, changing or influencing Control of such other Person, or is held in connection with or as a participant in any transaction having that purpose or effect. "Opco" means any of (i) the Regulated Opcos, (ii) Genesis Telecom C.A., a company organized under the laws of Venezuela, or Comunicaciones 2163 C.A., a company organized under the laws of Venezuela, and (iii) any other operating company in which the Company now or hereafter, directly or indirectly, holds an Equity Interest. "Outstanding" means, with respect to the Shares or the Surviving Entity Shares, as the case may be, as of any date of determination, Shares or Surviving Entity Shares that have been issued on or prior to such date (other than Shares or Surviving Entity Shares redeemed, repurchased or otherwise reacquired by the Company (or held by any Subsidiary of the Company) or the Surviving Entity (or held by any Subsidiary of the Surviving Entity), as the case may be, on or prior to such date. "Outstanding Obligations" means, with respect to any Initial Shareholder, the obligations of such Shareholder under (i) such Shareholder's Promissory Note, (ii) additionally, in the case of BCI Investments, the obligations of BCI Investments under the Special Notes, including, [ ] upon such obligations becoming due and payable in accordance with the terms of such Promissory Note or Special Notes, as the case may be, and (iii) additionally, in the case of AM Latin America, the obligation to contribute the Techtel Amount (as defined in the Amended and Restated Joint Venture Agreement) to the Company pursuant to Section 2.03(c) of the Amended and Restated Joint Venture Agreement. "Permitted Transferee" means with respect to any Shareholder, any Person (a "transferee") with respect to which the Sponsor Party of such Shareholder maintains a majority economic and voting interest; provided, that no such Person shall be deemed to be a Permitted Transferee if any Person other than the Sponsor Party is permitted, by contract or otherwise, to direct or influence the exercise by such transferee of any rights under this Agreement, including, without limitation, rights pursuant to Section 3.08 hereunder; and, provided, further, that such Shareholder and its Sponsor Party comply with their respective obligations set forth in Section 4.05 hereof. "Person" means any individual, partnership, firm, limited liability company, corporation, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under section 13(d)(3) of the Exchange Act. "Pro Rata Number" means: (a) for purposes of the procedures set forth in Section 4.03 relating to the Sale of Offered Shares to First Offer Shareholders, with respect to each First Offer Shareholder, a number of Shares equal to the product of the total number of Offered Shares, multiplied by a fraction (1) the numerator of which shall be the total number of Fully Diluted Shares then owned by a First Offer Shareholder and (2) the denominator of which shall be the total number of Fully Diluted Shares then owned by all of the First Offer Shareholders who wish to purchase Offered Shares; and (b) for purposes of the procedures set forth in Section 4.04 relating to participation in a Sale by one or more Divesting Shareholders, with respect to each Divesting Shareholder or Tag-Along Shareholder, as the case may be, a number of Shares equal to the product of the total number of Shares the offeror under Section 4.04 is willing to buy (which will not be less than the number of Solicited Shares), multiplied by a fraction (1) the numerator of which shall be the number of Fully Diluted Shares then owned by such Shareholder and (2) the denominator of which shall be the total number of Fully Diluted Shares then owned by all Shareholders who wish to sell Shares pursuant to the Offer. "Promissory Note" means (a) with respect to BCI Investments, the promissory note dated November 16, 2000 between BCI Investments and the Company in the principal amount of $427,500,000, and (b) with respect to AM Latin America, the promissory note dated November 16, 2000 between AM Latin America and the Company in the principal amount of $1,007,500,000, in each case as the principal amount of such promissory note may be adjusted pursuant to Section 2.05 or Article VI of the Amended and Restated Joint Venture Agreement. "Qualified Offer" shall mean an offer to exchange Surviving Entity Shares for all but not less than all Outstanding Shares, which offer is made pursuant to Section 5.07 and pursuant to which the number of Surviving Entity Shares offered to each Shareholder (other than BCI Investments and its Permitted Transferees) for each Share then held by each such Shareholder is equal to the Exchange Ratio. "Regulated Opcos" means Americel S.A., a corporation (sociedade por acoes) organized under the laws of Brazil, ATL-Algar Telecom Leste, S.A., a corporation (sociedade por acoes) organized under the laws of Brazil, Canbras Participacoes Ltda., a corporation (sociedad por quotas de responsabilidade limitada) organized under the laws of Brazil, Comunicacion Celular S.A., Comcel S.A., a corporation (sociedad anonima) organized under the laws of Colombia, Telet S.A., a corporation (sociedade por acoes) organized under the laws of Brazil, TV Mogno Ltda., a corporation (sociedade por quotas de responsabilidade limitada) organized under the laws of Brazil, TV Eucalipto Ltda., a corporation (sociedade por quotas de responsabilidade limitada) organized under the laws of Brazil, TVA Jacaranda Ltda., a corporation (sociedade por quotas de responsabilidade limitada) organized under the laws of Brazil, and Walberg Comunicacoes Ltda., a corporation (sociedade por quotas de responsabilidade limitada) organized under the laws of Brazil,; provided, however, that each such Person shall cease to be deemed a Regulated Opco upon expiration or termination of applicable contractual or regulatory requirements restricting the transfer of control of such Person and, in the case of regulatory requirements, upon approval by the relevant Governmental Authorities of the transfer of control of such Person to the Company. "Restricted Period" means the period during which a Shareholder owns any Shares and a period of two years after the date such Shareholder no longer owns any Shares. "Restricted Shares" means all Shares other than (a) Shares that have been registered under a registration statement pursuant to the Securities Act; (b) Shares with respect to which a Sale has been made in reliance upon, and in accordance with, Rule 144; or (c) Shares with respect to which the holder thereof shall have delivered to the Company either (i) a written opinion, of counsel, reasonably satisfactory to the Company and in form and substance reasonably satisfactory to the Company, or (ii) a "no-action" letter from the Commission, to the effect that subsequent transfers of such Shares may be effected without registration under the Securities Act. "Rule 144" means Rule 144 (or any successor provision) under the Securities Act. "Sale" means any sale, assignment, transfer, distribution or other disposition of Shares or of a participation, including the grant of an irrevocable option or put in respect of Shares, or other right therein, whether voluntarily or by operation of law. "SBCI" means SBC International, Inc., a corporation incorporated under the laws of Delaware. "SBCI Director" means any member of the Board nominated by SBCI Brazil Holding in accordance with Section 3.04. "SBCI Parent" means SBC Communications Inc., a corporation organized under the laws of the State of Delaware. "Securities Act" means the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission thereunder. "Senior Officers" means the Chief Executive Officer and the Chief Financial Officer of the Company. "Share" means any share of Common Stock or Series C Shares. "Shareholder" means each Initial Shareholder and each other Person that becomes a party to this Agreement in accordance with Section 4.06 hereof. "Special Notes" means (a) the Exchangeable Promissory Note, Series A, dated November 16, 2000 between BCI Investments and the Company in the principal amount of $300,000,000, and (b) the Redeemable and Exchangeable Promissory Note, Series B, dated November 16, 2000 between BCI Investments and the Company in the principal amount of $275,000,000. "Specified Assignees" means, with respect to any Shareholder, (a) successors and assigns in connection with a merger, consolidation or sale of all or substantially all of the assets of such Shareholder or (b) Permitted Transferees. "Sponsor Party" means, in the case of SBCI Brazil Holding and its Permitted Transferees, SBCI Parent; in the case of AM Latin America and its Permitted Transferees, America Movil; and, in the case of BCI Investments and its Permitted Transferees, BCE and, with respect to each Shareholder other than an Initial Shareholder or Permitted Transferee of an Initial Shareholder, the ultimate parent company of such Shareholder. "Standstill Period" means with respect to any Initial Shareholder, the earlier to occur of (i) the date three years following the Closing Date and (ii) if applicable, the first date on which such Initial Shareholder's Promissory Note is paid in full, but in no event prior to two years following the Closing Date. "Strategic Plan" means the statement of strategic direction contained in, and forming a part of, the Initial Business Plan. "Subnewco" means any of Subnewco1, Subnewco2, Subnewco3 and Subnewco4. "Subnewco1" means Bell Canada International BVI V Limited, a company organized under the laws of the British Virgin Islands. "Subnewco2" means Ivey Wireless Ltd., a company organized under the laws of Bermuda. "Subnewco3" means Ivey CLEC Ltd., company organized under the laws of Bermuda. "Subnewco4" means SBCI Brasil Ltda., a limited liability company (sociedad por quotas de responsabilidade limitada) organized under the laws of Brazil. "Subsidiary" or "Subsidiaries" of any Person means any other Person of which (a) the first mentioned Person or any Subsidiary thereof is a general partner, (b) voting power to elect a majority of the board of directors or others performing similar functions with respect to such other Person is held by the first mentioned Person and/or by any one or more of its Subsidiaries, or (c) more than 50% of the voting Equity Interests of such other Person is, directly or indirectly, owned or Controlled by such first mentioned Person and/or by any one or more of its Subsidiaries. "Surviving Entity" means the entity, as among (i) BCI, (ii) the Company or (iii) a newly formed holding company or successor entity to BCI and/or the Company to be formed in connection with the Consolidation, which entity immediately after consummation of the Consolidation, holds directly or indirectly the equivalent of all of the Equity Interests in the Company held by the Shareholders immediately prior to the Consolidation, and in which entity the Shareholders (other than BCI or any of its Affiliates) directly hold the same percentage Equity Interests as were held by them in the Company immediately prior to consummation of the Consolidation. "Surviving Entity Shares" means a single class of common shares of the Surviving Entity, which shall represent all of the Capital Stock of the Surviving Entity. "Techtel" means Techtel LMDS Comunicaciones Interactivas S.A., a corporation (sociedad anonima) organized under the laws of Argentina. "Telmex" means Telefonos de Mexico, S.A. de C.V., a sociedad anonima de capital variable organized under the laws of Mexico. "Trading Day" means, with respect to any security, any day on which the NYSE is open for trading, or if the shares of such security are not listed or admitted to trading on the NYSE, any day on which the principal national securities exchange or national quotation system on which the shares of such security are listed, admitted to trading or quoted is open for trading. "Transaction Documents" has the meaning set forth in the Amended and Restated Joint Venture Agreement. "Unwind Date" shall mean the date on which the transactions contemplated in Section 5.11 hereof are consummated. "U.S. GAAP" means United States generally accepted accounting principles and practices, as in effect from time to time, and applied consistently throughout the periods involved. "Vespers" means (i) Vesper S.A., a corporation (sociedade por acoes) organized under the laws of Brazil, (ii) Vesper Sao Paulo S.A., a corporation (sociedade por acoes) organized under the laws of Brazil, and (iii) BR Home Shopping Internet S.A., a corporation (sociedade por acoes) organized under the laws of Brazil. "Vesper Net Sale Proceeds" [ ]. "Veto Shareholder" means any Shareholder that is entitled to nominate two (2) or more directors to the Board pursuant to Section 3.04(a) and entitled to exercise veto rights pursuant to Section 3.08(b). (b) Each of the terms set forth below shall have the meaning ascribed thereto in the following sections: Accession Certificate.............................................. ss. 4.06 Advancing Party.................................................... ss. 5.13(b) Alternate Structure................................................ ss. 5.14(a) Amended and Restated Joint Venture Agreement....................... Recitals AM Latin America................................................... Recitals ANATEL Letter...................................................... ss. 5.17 Approval Date...................................................... ss. 5.07(c) Assumption Agreement............................................... ss. 5.18 BCE Indemnity Agreement............................................ ss. 5.07(a) BCI Investments.................................................... Preamble Business Plan...................................................... ss. 3.08(b)(i) Bye-Laws........................................................... ss. 2.01 Chairman........................................................... ss. 3.03(b) CLEC............................................................... Recitals Common Stock....................................................... Recitals Company............................................................ Preamble Confidential Information........................................... ss. 5.03 Consolidation...................................................... ss. 5.07(a) Consolidation Conditions........................................... ss. 5.07(a) Consolidation Notice............................................... ss. 5.07(a) Default Amount..................................................... ss. 5.13(a) Defaulting Party................................................... ss. 5.13(a) Default Interest Amount............................................ ss. 5.13(c) Default Rate....................................................... ss. 5.13(a) Defeasance Amount.................................................. ss. 5.07(d)(ii) Deputy Chairman.................................................... ss. 3.03(b) Director Transferee................................................ ss. 3.13(b) Dispute............................................................ ss. 6.14 Dispute Notice..................................................... ss. 6.14 Divesting Shareholder.............................................. ss. 4.04(a) Due Date........................................................... ss. 5.13(a) First Offer Price.................................................. ss. 4.03(a)(i) First Offer Shareholder Option Period.............................. ss. 4.03(a)(ii) First Offer Shareholders........................................... ss. 4.03(a)(i) Guarantee and Share Retention Agreement............................ ss. 4.05 Home Market Customers.............................................. ss. 5.05(c) ICC................................................................ ss. 6.15(a) Initial Business Plan.............................................. ss. 3.10 Initial Shareholders............................................... Preamble Initial Structure.................................................. ss. 5.14(a) Joint Venture Area................................................. Recitals Material Tax Change................................................ ss. 5.14(b)(v) Memorandum of Association.......................................... ss. 2.01 Mobile Wireless.................................................... Recitals Neutral Provisions................................................. ss. 5.14(a) Notice of Exercise................................................. ss. 4.03(a)(ii) Notice of Intention................................................ ss. 4.03(a)(i) Notice of Interest................................................. ss. 4.04(a) Notice of Issuance................................................. ss. 5.04(b) Notice Period...................................................... ss. 4.04(a) Offer.............................................................. ss. 4.04(a) Offer Notice....................................................... ss. 4.04(a) Offered Shares..................................................... ss. 4.03(a)(i) One Director Date.................................................. ss. 3.04(b) Payment Period..................................................... ss. 5.16 Prospective Transferee............................................. ss. 4.06 Qualified Offer Conditions......................................... ss. 5.07(d) Qualified Vote..................................................... ss. 3.08(b) Reorganization ss. 5.07(j) Registration Rights Agreement...................................... ss. 5.07(d)(vii) Selling Shareholder................................................ ss. 4.03(a)(i) Series C Shares.................................................... Recitals Settlement Date.................................................... ss. 4.03(a)(iv) Sister Transferee.................................................. ss. 4.05 Solicited Shares................................................... ss. 4.04(a) SBCI Brazil Holding................................................ Preamble Structure Notice................................................... ss. 5.14(a) Tag-Along Shareholder.............................................. ss. 4.04(a) Two Director Date.................................................. ss. 3.04(a)(iii) Veto Transferee.................................................... ss. 3.13(a)
ARTICLE II ORGANIZATIONAL DOCUMENTS; REPRESENTATIONS AND WARRANTIES Section 2.01. Memorandum of Association and Bye-Laws. Attached hereto as Exhibit A and Exhibit B, respectively, are the Memorandum of Association of the Company (the "Memorandum of Association") and the Amended and Restated Bye-Laws of the Company and Amended and Restated Bye-laws or Amended Articles of Association, as the case may be, of each of Subnewco1, Subnewco2 and Subnewco3 (collectively, the "Bye-Laws") as in effect on the date hereof. The provisions of such Exhibits are hereby approved by the parties hereto. Section 2.02. Representations and Warranties of the Shareholders and Sponsor Party. Each Shareholder and Sponsor Party, as of the date it becomes a party hereto, represents and warrants as to itself as follows: (a) It is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all necessary power and authority to enter into this Agreement and each of the Transaction Documents to which it is a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by it of this Agreement and each of the Transaction Documents to which it is a party, the performance by it of its obligations hereunder and thereunder and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all requisite action on its part. This Agreement has been and upon their execution the Transaction Documents shall have been, duly executed and delivered by it, and (assuming due authorization, execution and delivery by the other parties thereto) this Agreement constitutes and upon their execution the Transaction Documents will constitute, legal, valid and binding obligations of it enforceable against it in accordance with their respective terms. (b) The execution, delivery and performance of this Agreement and the Transaction Documents by it do not and will not (i) violate, conflict with or result in the breach of any provision of its Memorandum of Association or Bye-Laws (or equivalent organizational documents), (ii) conflict with or violate any Law or Governmental Order applicable to it or any of its assets, properties or businesses, or (iii) conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to any other Person any rights of termination, amendment, acceleration, suspension, revocation or cancellation of rights of first refusal, rights of first offer, change of control put, obligation to tender or other similar rights, or result in the creation of any Encumbrance on any of its assets or properties pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which it is a party or by which any of such assets or properties are bound or affected which would have a material adverse effect on its ability to consummate the transactions contemplated by this Agreement or by the Transaction Documents. Section 2.03. Representations and Warranties of BCI Investments and BCI. Each of BCI Investments and BCI represents and warrants as follows: (a) Except as set forth in Schedule 2.03(a) hereto, as of the date hereof there is not any agreement with any Person providing for registration rights with respect to the Capital Stock of BCI. (b) Schedule 2.03(b) hereto sets forth a complete and accurate description of the Equity Interests of BCI Investments in each of Subnewco1, Subnewco2 and Subnewco3, including the number and type of each class of Equity Interests in each of such Subnewcos that are authorized, issued and outstanding and the percentage of each such class of Equity Interests outstanding that are owned directly by BCI Investments. Except for Equity Interests owned directly by the Company in such Subnewcos, BCI Investments owns directly of record and beneficially all of the issued and outstanding Equity Interests of each of such Subnewcos, free and clear of all Encumbrances. Except as set forth in Schedule 2.03(b) hereto, there are no outstanding or authorized options, warrants, calls, convertible securities, preemptive (statutory or contractual), subscription rights, commitments or other rights, agreements, arrangements or commitments of any character currently in effect, including, without limitation, rights of first refusal, rights of first offer, or other comparable rights relating to such Equity Interests or obligating BCI Investments to issue or sell any Equity Interests in such Subnewcos, and there are no securities outstanding which, upon conversion or exchange, would require the issuance, sale or transfer of any additional Equity Interests in such Subnewcos. Section 2.04. Representation and Warranty of SBCI Brazil Holding and SBCI. Each of SBCI Brazil Holding and SBCI represents and warrants as follows: Schedule 2.04 hereto sets forth a complete and accurate description of the Equity Interests of SBCI Brazil Holding in Subnewco4, including the number and type of each class of Equity Interests in Subnewco4 that are authorized, issued and outstanding and the percentage of each such class of Equity Interests outstanding that are owned directly by SBCI Brazil Holding. Except for Equity Interests owned directly by the Company in Subnewco4 and except as set forth in Schedule 2.04, SBCI Brazil Holding owns directly of record and beneficially all of the issued and outstanding Equity Interests of Subnewco4, free and clear of all Encumbrances. Except as set forth in Schedule 2.04 hereto, there are no outstanding or authorized options, warrants, calls, convertible securities, preemptive (statutory or contractual), subscription rights, commitments or other rights, agreements, arrangements or commitments of any character currently in effect, including, without limitation, rights of first refusal, rights of first offer, or other comparable rights relating to such Equity Interests or obligating SBCI Brazil Holding to issue or sell any Equity Interests in Subnewco4, and there are no securities outstanding which, upon conversion or exchange, would require the issuance, sale or transfer of any additional Equity Interests in Subnewco4. ARTICLE III CORPORATE GOVERNANCE Section 3.01. Corporate Purpose; Powers of the Board. The parties hereto confirm that it is their intention that the business and affairs of the Company shall be managed by the Board which may exercise all the powers of the Company. The Board shall have the power and authority to take all actions that are not by Law, the Memorandum of Association, the Bye-Laws, or this Agreement required to be exercised or done by the Shareholders. Section 3.02. Number of Directors. The Board shall initially consist of six (6) directors, with three (3) directors nominated by each of BCI Investments and AM Latin America. Section 3.03. Composition of Board and Chairman of the Board. (a) As of the date hereof, the members of the Board shall be as follows: Name of Director 1. Jean C. Monty (Director nominated by BCI Investments) 2. Michael J. Sabia (Director nominated by BCI Investments) 3. Louis A. Tanguay (Director nominated by BCI Investments) 4. Carlos Slim Helu (Director nominated by AM Latin America) 5. Daniel Hajj Aboumrad (Director nominated by AM Latin America) 6. Carlos Henrique Moreira (Director nominated by AM Latin America) Each director shall hold office until the next annual meeting of Shareholders next succeeding his or her election and until his or her successor is elected and qualified or until his or her resignation or removal in accordance with the terms of this Agreement. (b) The Board shall be initially chaired by Carlos Slim Helu (the "Chairman"). The initial deputy chairman ("Deputy Chairman") of the Board shall be Louis Tanguay. After the initial one-year term, each of the Chairman and the Deputy Chairman shall be designated by the Shareholders at the annual meeting of Shareholders on a rotating basis in the following order: BCI Investments, SBCI Brazil Holding (in the event that SBCI Brazil Holding has the right to nominate two (2) directors to the Board pursuant to Section 3.04(a)(iii) hereof) and AM Latin America. Section 3.04. Subsequent Nominations. (a) (i) Subject to Section 3.04(a)(ii) each of BCI Investments and AM Latin America shall be entitled to nominate for election three (3) directors to the Board for so long as BCI Investments or AM Latin America, as the case may be, holds at least 20% of the Outstanding Shares of the Company; provided, however, that neither BCI Investments nor AM Latin America may exercise such right at any time when it is a Defaulting Shareholder. If at any time either BCI Investments or AM Latin America shall hold less than 20% of the Outstanding Shares of the Company, BCI Investments or AM Latin America, as the case may be, shall forfeit its right to nominate for election three (3) directors to the Board pursuant to this Section 3.04(a)(i); provided, however, that, subject to Section 3.04(a)(ii), if: (A) at any time subsequent to forfeiting such right, either BCI Investments or AM Latin America, as the case may be, holds at least 20% of the Outstanding Shares of the Company, and (B) BCI Investments or AM Latin America, as the case may be, has not previously transferred its right to nominate for election three (3) directors to the Board to a Veto Transferee pursuant to Section 3.13(a), then the other Initial Shareholders shall vote their Shares in order to permit BCI Investments or AM Latin America, as the case may be, to regain its right to nominate for election three (3) directors to the Board pursuant to this Section 3.04(a)(i). (ii) At any time when SBCI Brazil Holding shall have the right to nominate for election one (1) director to the Board pursuant to Section 3.04(b) hereof or two (2) directors to the Board pursuant to Section 3.04(a)(iii) hereof, each of BCI Investments and AM Latin America shall be entitled to nominate for election two (2) directors to the Board for so long as it holds at least twenty percent (20%) of the Outstanding Shares of the Company; provided, however, that no such Shareholder may exercise such right at any time when it is a Defaulting Shareholder. If at any time either BCI Investments or AM Latin America shall hold less than twenty percent (20%) of the Outstanding Shares of the Company, BCI Investments or AM Latin America, as the case may be, shall forfeit its right to nominate for election two (2) directors to the Board pursuant to this Section 3.04(a)(ii); provided, however, that if: (A) at any time subsequent to forfeiting such right, either BCI Investments or AM Latin America, as the case may be, holds at least 20% of the Outstanding Shares of the Company, (B) at such time SBCI Brazil Holding has the right to nominate for election one (1) director to the Board pursuant to Section 3.04(b) hereof or two (2) directors to the Board pursuant to Section 3.04(a)(iii) hereof, and (C) BCI Investments or AM Latin America, as the case may be, has not previously transferred its right to nominate for election two (2) directors to the Board to a Veto Transferee pursuant to Section 3.13(a), then the other Initial Shareholders shall vote their Shares in order to permit BCI Investments or AM Latin America, as the case may be, to regain its right to nominate for election (2) directors to the Board pursuant to this Section 3.04(a)(ii). (iii) If at any time after the date hereof, SBCI Brazil Holding holds twenty percent (20%) or more of the Outstanding Shares of the Company (the date on which such interest is acquired, the "Two Director Date"), it shall be entitled to nominate for election two (2) directors to the Board for so long as it continues to hold at least twenty percent (20%) of the Outstanding Shares of the Company; provided that SBCI Brazil Holding may not exercise such right at any time when it is a Defaulting Shareholder. If at any time prior to the Two Director Date SBCI Brazil Holding shall hold less than ten percent (10%) of the Outstanding Shares of the Company, or if at any time after the Two Director Date SBCI Brazil Holding shall hold less than twenty percent (20%) of the Outstanding Shares of the Company, it shall forfeit its right to nominate for election two (2) directors to the Board pursuant to this Section 3.04(a)(iii); provided, however, that if: (A) at any time subsequent to forfeiting such right, SBCI Brazil Holding holds at least 20% of the Outstanding Shares of the Company, and (B) SBCI Brazil Holding has not previously transferred its right to nominate for election two (2) directors to the Board to a Veto Transferee pursuant to Section 3.13(a), then the other Initial Shareholders shall vote their Shares in order to permit SBCI Brazil Holding to regain its right to nominate for election two (2) directors to the Board pursuant to this Section 3.04(a)(iii). (b) Each of BCI Investments and AM Latin America shall be entitled hereunder to nominate for election one (1) director to the Board for so long as it holds at least ten percent (10%) of the Outstanding Shares of the Company; provided that neither BCI Investments nor AM Latin America may exercise such right at any time when it is a Defaulting Shareholder. If at any time such Initial Shareholder shall hold less than ten percent (10%) of the Outstanding Shares of the Company, it shall forfeit such right; provided, however, that if: (i) at any time subsequent to forfeiting such right, either BCI Investments or AM Latin America, as the case may be, holds at least 10% of the Outstanding Shares of the Company, and (ii) BCI Investments or AM Latin America, as the case may be, has not previously transferred its right to nominate for election one (1) director to the Board to a Director Transferee pursuant to Section 3.13(b) or its right to nominate for election two (2) or three (3) directors to the Board to a Veto Transferee pursuant to Section 3.13(a), then the other Initial Shareholders shall vote their Shares in order to permit BCI Investments or AM Latin America, as the case may be, to regain its right to nominate for election one (1) director to the Board pursuant to this Section 3.04(b). Subject to the immediately succeeding sentence, if at any time after the date hereof, SBCI Brazil Holding increases its ownership interest in the Company such that it holds fifteen percent (15%) or more of the Outstanding Shares of the Company (the date on which such interest is acquired, the "One Director Date"), SBCI Brazil Holding shall be entitled to nominate for election one (1) director to the Board for so long as it continues to hold at least ten percent (10%) of the Outstanding Shares of the Company; provided that SBCI Brazil Holding may not exercise such right at any time when it is a Defaulting Shareholder. If at any time SBCI Brazil Holding shall hold less than ten percent (10%) of the Outstanding Shares of the Company, it shall forfeit its right to nominate for election one (1) director to the Board pursuant to this Section 3.04(b); provided, however, that if: (i) at any time subsequent to forfeiting such right, SBCI Brazil Holding holds at least 10% of the Outstanding Shares of the Company, and (ii) SBCI Brazil Holding has not previously transferred its right to nominate for election one (1) director to the Board to a Director Transferee pursuant to Section 3.13(b) or its right to nominate for election two (2) directors to the Board to a Veto Transferee pursuant to Section 3.13(a), then the other Initial Shareholders shall vote their Shares in order to permit SBCI Brazil Holding to regain its right to nominate for election (1) director to the Board pursuant to this Section 3.04(b). The rights granted to each Initial Shareholder pursuant to this Section 3.04(b) shall not be effective with respect to any Initial Shareholder that has the right to nominate for election two (2) or more directors to the Board pursuant to Section 3.04(a), or that has transferred its rights under Section 3.04(a) pursuant to Section 3.13(a). (c) If at any time a Shareholder shall hold more than fifty percent (50%) of the Outstanding Shares of the Company, all of the Shareholders shall promptly take such actions as may be reasonably required to increase the number of directors on the Board to such number as to permit such Shareholder to nominate for election a majority of the directors of the Board; provided, that any increase in the number of directors on the Board pursuant to this Section 3.04(c) shall be effected without detriment to the rights of Shareholders under Sections 3.04(a) and 3.04(b) above. Upon the occurrence of the One Director Date, if the number of directors on the Board is six (6) and there are two Veto Shareholders, all of the Shareholders shall promptly take such actions as may be reasonably required to decrease the number of directors on the Board to five (5). Thereafter, all of the Shareholders shall promptly take such action as may be necessary to increase the number of directors on the Board by one (1) member to a total of six (6) members if the number of Veto Shareholders is increased to three (3). (d) No failure to elect a director at an annual or special meeting of the shareholders of the Company shall prevent any Shareholder from thereafter nominating a director to fill such vacancy or shall constitute a waiver of such party's rights under this Section 3.04. (e) Each Shareholder agrees to vote any Shares owned by it to cause the election of each director nominated to the Board in accordance with this Section 3.04, and the Company agrees to take all necessary action reasonably necessary to cause the election of each such nominee to the Board. Section 3.05. Removal of Directors. (a) Upon the written request of BCI Investments, each Shareholder shall consent in writing to the removal of any of the BCI Directors and shall take or cause to be taken all actions necessary to remove such BCI Directors, and any replacement for such removed BCI Directors shall be nominated and elected as provided in Sections 3.06(a) and 3.06(c). (b) Upon the written request of AM Latin America, each Shareholder shall consent in writing to the removal of any of the AM Latin America Directors and shall take or cause to be taken all actions necessary to remove such AM Latin America Directors, and any replacement for such removed AM Latin America Directors shall be nominated and elected as provided in Sections 3.06(a) and 3.06(c). (c) Upon the written request of SBCI Brazil Holding, each Shareholder shall consent in writing to the removal of any of the SBCI Directors (if any) and shall take or cause to be taken all actions necessary to remove such SBCI Directors, and any replacement for such removed SBCI Directors shall be nominated and elected as provided in Section 3.06(a) and 3.06(c). (d) In the event that (A) the percentage of Outstanding Shares held by any Initial Shareholder is reduced from twenty percent (20%) or greater to below twenty percent (20%) (but such percentage is equal to or exceeds ten percent (10%) of the Outstanding Shares of the Company, and as a result such Initial Shareholder forfeits its existing rights under Section 3.04(a) (and its rights under Section 3.04(b) become effective), or (B) the percentage of Outstanding Shares held by (x) BCI Investments or AM Latin America is reduced from a percentage that is less than twenty percent (20%) but at least ten percent (10%) to less than ten percent (10%) of the Outstanding Shares, or (y) SBCI Brazil Holding is reduced after the One Director Date from a percentage that is less than twenty percent (20%) but at least ten percent (10%) to less than ten percent (10%) of the Outstanding Shares, and, in either case, as a result such Initial Shareholder forfeits its existing rights under Section 3.04(b), upon the written request of any Shareholder, such Initial Shareholder shall be deemed to have consented in writing to the removal of one (1) of the directors nominated by it (or if the case of sub-clause (A) arises prior to the earlier of the One Director Date or the Two Director Date, two (2) directors nominated by it), and all Shareholders shall take such action as may be necessary to remove such director or directors. Any replacement for such removed director shall be nominated and elected as provided in Sections 3.06(b) and 3.06(c). (e) In the event that the percentage of Outstanding Shares held by any Initial Shareholder is reduced from twenty percent (20%) or greater to less than ten percent (10%) of the Outstanding Shares, and as a result such Initial Shareholder forfeits its existing rights under Section 3.04(a) and potential rights under Section 3.04(b), upon the written request of any Shareholder, such Initial Shareholder shall be deemed to have consented in writing to the removal of two (2) of the directors nominated by it (or, prior to the occurrence of the earlier of the One Director Date or the Two Director Date, three (3) directors nominated by it), and all Shareholders shall take such action as may be necessary to remove such directors. Any replacements for such removed directors shall be nominated and elected as provided in Sections 3.06(b) and 3.06(c). (f) For so long as any Shareholder is a Defaulting Shareholder, any other Shareholder may request in writing the removal of the directors nominated by such Defaulting Shareholder pursuant to Section 3.03, 3.04(a) or 3.04(b). Upon such request, each Shareholder shall consent in writing to the removal of such directors and shall take or cause to be taken all actions necessary to remove such directors. Any replacements for such directors shall be nominated and elected as provided in Sections 3.06(b) and 3.06(c). (g) In the event that the number of directors on the Board is reduced to five (5) pursuant to Section 3.04(c), or if the Two Director Date occurs on or prior to the One Director Date, each Veto Shareholder shall be deemed to have consented in writing to the removal of one of the directors nominated by it, and all Shareholders shall take such action as may be necessary to remove such director. Section 3.06. Vacancies. (a) In the event that a vacancy is created on the Board at any time by the death, disability, retirement, resignation or removal of any director (other than removal pursuant to Sections 3.05(d) or 3.05(e) or 3.05(f)), the Shareholder that nominated such director shall have the right to nominate a replacement director to fill such vacancy. (b) Subject to the provisions of Section 3.13, in the event that a vacancy is created on the Board at any time by the removal of any director or directors pursuant to Section 3.05(d) or 3.05(e) or 3.05(f), the determination as to which Shareholder or Shareholders shall have the right to nominate a replacement director or directors to fill such vacancy shall be made on the basis that representation on the Board shall be proportionate to each Shareholders' percentage holdings of the Outstanding Shares, subject to the rights of any Shareholder under Section 3.04. (c) Each Shareholder agrees to vote any and all Shares owned by it to cause the election of each such replacement nominee to the Board, and the Company agrees to take all necessary action promptly to cause the election of each such replacement nominee to the Board. In the event the Shareholder having the right to nominate a replacement director shall not have nominated a replacement director to fill such vacancy at the time of the next following meeting of the Board and such replacement director is necessary in order for a quorum of the Board to be present, the other Shareholders shall have the right to nominate a director to serve on the Board until such Shareholder shall nominate the replacement. Section 3.07. Covenant to Vote. Each Shareholder shall use, from and after the date hereof, its best efforts and take all actions necessary to call, or cause the Company and the appropriate officers and directors of the Company to call, a special or annual meeting of the Shareholders and to vote all Shares owned or held of record by such Shareholder at any such annual or special meeting in favor of all actions, or take all actions by written consent in lieu of any such meeting, necessary to effect the intent of this Article III. In addition, each Shareholder agrees to vote the Shares owned or held of record by such Shareholder upon any other matter arising under this Agreement submitted to a vote of the Shareholders in a manner so as to implement the terms of this Agreement. Section 3.08. Action by the Board. (a) Except as otherwise provided in this Section 3.08 or by Law: (i) meetings of the Board shall be held at least quarterly; (ii) a majority of directors shall be present in person or by telephone at any meeting of the Board, with at least one (1) director nominated by each Veto Shareholder present, in order to constitute a quorum for the transaction of business at such meeting; provided, however, that in the event a quorum is not present at any meeting of the Board at which the transaction of business does not require a Qualified Vote pursuant to Section 3.08(b), then such matter shall be postponed to a Board meeting to be held five (5) Business Days after the first meeting at which the presence of a majority of directors in person or by telephone shall constitute a quorum for the transaction of business at such second Board meeting; and (iii) all actions of the Board shall require the affirmative vote of the majority of the directors present and entitled to vote on the action then being considered at a duly convened meeting of the Board at which a quorum is present or, in lieu of a meeting, by the unanimous written consent of the members of the Board. (b) Notwithstanding the provisions of Section 3.08(a) and notwithstanding that no vote may be required, or that a lesser percentage vote may be required, by Law or otherwise, the Company (except as provided below at the end of this subsection or in Section 5.05(b) or (e)) shall not take, and no party to this Agreement shall cause the Company to take, any action without the affirmative vote of at least one (1) director nominated by each Shareholder permitted to nominate two (2) or more directors to the Board pursuant to Section 3.04(a) and, in the case of a meeting of Shareholders called to approve such actions, the affirmative vote of each Veto Shareholder (the "Qualified Vote") with respect to the following actions: (i) the approval of (A) any material amendments to the Initial Business Plan, (B) from time to time after the term of the Initial Business Plan, the annual budget and multi-year business plan for the Company; which shall include (1) projected statements of income, cash flows and balance sheet; (2) all material capital expenditures for the Company and the Intermediate Companies; and (3) all borrowing plans and other plans to incur Indebtedness, and significant changes to either (each a "Business Plan"), and (C) material amendments to any future Business Plan; provided that if a Business Plan or proposed material amendment to an existing Business Plan has not been adopted by a Qualified Vote one (1) month prior to the first fiscal year corresponding to such Business Plan, a Business Plan (or amendment) providing for an annual budget with expenses and capital expenditures not in excess of 110% of those set forth in the Business Plan for the immediately preceding fiscal year may be approved by the affirmative vote of the majority of directors present; provided, further, that, for the avoidance of doubt, no Business Plan approved by the Board shall impede the exercise by any Person that controls any Regulated Opco of its voting rights with respect to such Regulated Opco. (ii) a public offering of the Capital Stock of the Company or any Intermediate Company (it being understood that the BCI Directors shall not prevent any public offering of the Capital Stock of the Company supported by the AM Latin America Directors and the SBCI Directors (if any) primarily for the purpose of preserving the opportunity of making a Qualified Offer and BCI Investments shall comply with the provisions set forth in Section 5.07(c)); (iii) the issuance or sale of any Capital Stock of the Company; (iv) the issuance or sale of any notes, bonds, debt instruments or other securities, or any option, warrant or other right to acquire the same, of, or any other interest in, the Company or any Intermediate Company, or any securities of any type whatsoever that are, or may become, convertible into or exchangeable or exercisable for Capital Stock of the Company or any Intermediate Company; (v) except as otherwise provided by Section 5.07, the amalgamation or merger of the Company or any Intermediate Company into or with any other Person, the consolidation with any Person by the Company or any Intermediate Company, or the sale, reorganization or restructuring of the Company or any Intermediate Company (or any similar transaction); (vi) the acquisition of assets or businesses of any Person by the Company or any Intermediate Company which exceeds $100 million or which would be reasonably likely to delay the Unwind Date; (vii) the sale, assignment, transfer, lease, sublease, charge, mortgage, pledge, grant of security interest in, sublicense or other disposition of any material license of the Company or any Intermediate Company; (viii) the sale, assignment, transfer, lease, sublease, mortgage, pledge, grant of security interest in, license or other disposition of any assets of the Company or any Intermediate Company that exceeds $50 million; (ix) (a) any incurrence, assumption or issuance by the Company or any Intermediate Company of Indebtedness (i) if, after giving effect to such incurrence, assumption or issuance (including the application of the net proceeds therefrom), the Company's or any Intermediate Company's ratio of Indebtedness to shareholders' equity (based upon book value) would exceed, as of the date of determination, 2.34:1, or (ii) in excess of $50 million, (b) the guaranteeing of any Indebtedness of any Subsidiary of the Company in excess of $50 million, or (c) the guaranteeing of any Indebtedness of any other Person; (x) the entering by the Company or any Intermediate Company into of any agreement, arrangement or transaction with any Affiliate of the Company or any Shareholder or any Affiliate of any Shareholder or Sponsor Party; (xi) any amendment to the Memorandum of Association and Bye-Laws or to the memorandum of association and Bye-Laws (or similar instruments) of the Company or any Intermediate Company; (xii) the establishment or termination of any committee of the Board; (xiii) the commencement, settlement, payment, discharge or satisfaction of any litigation, claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise) by the Company or any Intermediate Company other than where such litigation, claim, liability or obligation is only for money damages that do not exceed $50 million; (xiv) the declaration or payment of dividends or distributions on or with respect to any Capital Stock of the Company or any Intermediate Company; (xv) except as otherwise permitted by the Business Plan, approving any capital expenditure by the Company or any Intermediate Company which exceeds, individually or in the aggregate, $25 million; (xvi) approving any matter to be voted upon at any meeting of the shareholders of the Company; (xvii) instructing the Company with respect to the voting of the shares of any Intermediate Company held directly or indirectly by the Company with respect to any matter listed in Section 3.08(b)(ii), (iv) through (xvi) and (xx); and (xviii) requesting payment under the Promissory Notes or reducing the principal amount of the Promissory Notes prior to the stated maturity of such Promissory Notes (which, in each case, shall be effected on a pro rata basis based on the initial principal amount of each Promissory Note); (xix) approving the operation of the Company in any manner contrary to the first sentence of Section 5.14(a); and (xx) the taking of any action, directly or indirectly, in contemplation of any of the foregoing; provided, that, for the avoidance of doubt, no such action shall impede the exercise by any Person that controls any Regulated Opco to exercise its voting rights with respect to such Regulated Opco. provided, however, that a Qualified Vote will not require the affirmative vote of a Defaulting Shareholder or a director nominated by any Shareholder that, at the time of such vote, is a Defaulting Shareholder and such Shareholder need not be present at a meeting of the Shareholders, in order to achieve a quorum for a meeting to take action on a matter requiring a Qualified Vote; [ ]. Section 3.09. Action by Shareholders. (a) Except as otherwise provided in this Section 3.09: (i) meetings of the Shareholders will only be held when action by the Shareholders is required by Law or if called by the Board to obtain any approval of a matter requiring a Qualified Vote; (ii) Shareholders holding a majority of the Outstanding Shares entitled to vote (which majority shall include all of the Veto Shareholders) shall be present in person, by proxy or by telephone at any meeting of the Shareholders in order to constitute a quorum for the transaction of business at such meeting and all actions of the Shareholders shall require the affirmative vote of the majority of Shareholders present and entitled to vote determined by voting interests at a duly convened meeting of the Shareholders at which a quorum is present; provided, however, that in the event any Veto Shareholder is not present at -------- ------- any duly called meeting of Shareholders at which the transaction of business does not require a Qualified Vote pursuant to Section 3.08(b), then any such matters to be submitted to a vote of Shareholders at such meeting shall be postponed to a meeting of Shareholders to be held five (5) Business Days after the first meeting at which second meeting the presence of Shareholders holding a majority of the Outstanding Shares of the Company shall constitute a quorum for the approval of such matters; and (iii) notwithstanding any other provision to the contrary, the Company shall not take any action without the approval of each Veto Shareholder with respect to any action that requires the approval of Shareholders by Law and, subject to Section 3.08(b), the Company shall not take any action on any matter requiring a Qualified Vote of the Shareholders without the approval of each Veto Shareholder. (b) Each of the Shareholders shall use its best efforts to cause any proposal with respect to any action to be taken by the shareholders or directors of any Regulated Opco, analogous to those described in Section 3.08(b), to be presented to the Board for discussion and a non-binding vote recommending that such proposal be adopted or declined; provided, that a recommendation that any such proposal be adopted must be approved by a Qualified Vote of the Board. Nothing in this Section 3.09(b), however, shall obligate the shareholders or the board of directors of any Regulated Opco, or any member of such a board of directors, to vote in favor of any particular position or in any particular manner. (c) Each of the Shareholders shall use its best efforts to cause information that is made generally available to the shareholders and/or directors of each of the Opcos (including any monthly or other periodic management reports delivered to the respective boards of directors of each of the Opcos) to be provided to the Board on a timely basis, except to the extent that confidentiality restrictions with respect to such information would prevent the Opcos, their respective boards of directors or the Shareholders from delivering such information to the Board. (d) Notwithstanding any other provision of this Agreement and notwithstanding that no vote may be required, or that a lesser percentage vote may be required, by Law or otherwise, the Company shall not take, and no party to this Agreement shall cause the Company to take, any action without the affirmative vote of each Initial Shareholder holding at least ten percent (10%) of the Outstanding Shares of the Company with respect to the following actions: (i) a material change in the nature or scope of the business or corporate strategy of the Company or any Intermediate Company or the entering into a joint venture or similar strategic alliance by any thereof with any Person; and (ii) the winding up or dissolution of the Company or any Intermediate Company; the adoption of a plan of liquidation of the Company or any Intermediate Company; any action by the Company or any Intermediate Company to commence any suit, case, proceeding or other action (A) under any existing or future law of any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors seeking to have an order for relief entered with respect to the Company or any Intermediate Company, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to the Company or any Intermediate Company or (B) seeking appointment of a receiver, trustee, custodian or other similar official for the Company or any Intermediate Company, or for all or any part of its assets, or making a general assignment for the benefit of the creditors of the Company or any Intermediate Company; provided, however, that the affirmative vote of any Initial Shareholder holding at least ten percent (10%) of the Outstanding Shares of the Company shall not be required if such Initial Shareholder, at the time of such vote, is a Defaulting Shareholder, and such Initial Shareholder need not be present at a meeting of the Shareholders, in order to achieve a quorum for a meeting to take action on any of the matters specified in this Section 3.09(d). Section 3.10. Business Plan. Attached hereto as Exhibit C is the initial Business Plan of the Company for the period through December 31, 2002 (the "Initial Business Plan"). The Initial Business Plan has been approved by the parties hereto. Section 3.11. Management. (a) During the term of this Agreement the Senior Officers shall be selected by mutual agreement of the Veto Shareholders; provided, that for so long as AM Latin America is a Veto Shareholder, AM Latin America shall have the sole right to nominate the chief executive officer of the Company and, for so long as BCI Investments is a Veto Shareholder, BCI Investments shall have the sole right to nominate the chief financial officer of the Company. (b) The Senior Officers shall report to the Board. The Senior Officers shall nominate the remaining senior management of the Company and shall nominate the senior management of the Intermediate Companies; provided, however, for the avoidance of doubt, that members of senior management so nominated at any Intermediate Company shall receive instructions solely from the board of directors of the Intermediate Company to which such persons are appointed as manager . To the extent permitted by applicable contractual and regulatory restrictions, the chief executive officer, chief financial officer and chief operating officer of each Opco (other than the Regulated Opcos) shall be nominated by a majority of directors of the Board present at any meeting of the Board. (c) Accounting Matters. The parties agree that the Company and each Subnewco shall be a calendar year company, will keep its books in accordance with U.S. GAAP and will prepare the Financial Statements and the Interim Financial Statements in accordance with U.S. GAAP. The initial auditors of the Company shall be Deloitte & Touche LLP. Subsequent auditors shall be appointed by decision of a majority of directors of the Board present at any meeting of the Board. Section 3.12. Removal of Senior Officers. Upon the written request of Shareholders that hold, in the aggregate, a majority of the Equity Interests of the Company, any Senior Officer may be removed, and each Shareholder shall take or cause to be taken all actions necessary to remove any such Senior Officer. Any replacement for such removed Senior Officer shall be selected in accordance with Section 3.11. Section 3.13. Transferability of Certain Governance Rights. (a) In connection with the transfer by an Initial Shareholder to any one (1) Person of twenty percent (20%) or more of the Outstanding Shares in one or more transactions in accordance with the requirements of Article IV, such Initial Shareholder by prior written notice to all of the parties hereto, and upon transfer of such twenty percent (20%) interest, may transfer its existing right (if any) to nominate three (3) directors or, as the case may be, two (2) directors, to the Board as provided in Section 3.04(a) to such Person (the "Veto Transferee"); provided, however, that the right of an Initial Shareholder to regain the right to nominate three (3) directors or, as the case may be, two (2) directors, to the Board following a forfeiture of such right pursuant to Section 3.04(a) shall not be transferable, and any purported transfer of such right to any Person shall be null and void. In the event such Initial Shareholder validly transfers its transferable rights under Section 3.04(a), such rights may be subsequently transferred by any subsequent Veto Transferee, subject to the restrictions applicable to an Initial Shareholder under this Section 3.13(a). On transferring such right, the transferring Initial Shareholder shall forfeit any rights it may have enjoyed under Section 3.04(b) and, for the avoidance of doubt, Section 3.04(a). Veto Transferees shall enjoy the rights, subject to the obligations, of the transferring Initial Shareholder under Sections 3.04, 3.05, 3.06, 3.08, 3.09, 3.11 and 3.13 hereof and shall otherwise be subject to the obligations of a Shareholder in accordance with Section 4.06 hereof; provided, that the rights of the transferring Initial Shareholder under Section 3.08 may not be transferred to a Person listed in Schedule 3.13 hereto (or to any Affiliate or successor of any such Person) without the prior written consent of each Veto Shareholder. For the avoidance of doubt, in no event shall there ever be more than two (2) Veto Shareholders, except if SBCI Brazil Holding becomes a Veto Shareholder, in which case there shall never be more than three (3) Veto Shareholders. (b) In connection with the transfer (x) by BCI Investments or AM Latin America at any time, or (y) by SBCI Brazil Holding after the earlier to occur of the One Director Date or the Two Director Date, to any one (1) Person of less than twenty percent (20%) but more than ten percent (10%) of the Outstanding Shares in one or more transactions in accordance with the requirements of Article IV, such Initial Shareholder by prior written notice to all of the parties hereto, and upon transfer of such interest, may transfer to such Person (the "Director Transferee") its existing right (if any) to nominate one director to the Board set forth in Section 3.04(b); provided, however, that the right of an Initial Shareholder to regain the right to nominate one (1) director to the Board following a forfeiture of such right pursuant to Section 3.04(b) shall not be transferable, and any purported transfer of such right to any Person shall be null and void. On transferring such right, the transferring Initial Shareholder (and any subsequent transferring Director Transferee) shall forfeit any rights it may have enjoyed under Section 3.04(b) and, for the avoidance of doubt, Section 3.04(a). In the event such Initial Shareholder validly transfers its transferable rights under Section 3.04(b), such rights, in addition to all rights as a Shareholder, may be subsequently transferred by any subsequent Director Transferee, subject to the restrictions applicable to an Initial Shareholder under this Section 3.13(b). The Director Transferee shall enjoy the rights, subject to the obligations, of the transferring Initial Shareholder under Sections 3.04(b), 3.05, 3.06, 3.09(d) and 3.13 hereof and shall otherwise be subject to the obligations of a Shareholder in accordance with Section 4.06 hereof; provided, that the rights of the transferring Initial Shareholder under 3.09(d) may not be transferred to a Person listed in Schedule 3.13 hereto (or to any Affiliate or successor of any such Person) without the prior written consent of each Veto Shareholder. ARTICLE IV RESTRICTIONS ON TRANSFER Section 4.01. General Restriction. (a) Except as provided in Section 4.05, each Shareholder agrees that it will not, directly or indirectly, make or solicit any Sale of, or create, incur, solicit or assume any Encumbrance with respect to, any Equity Interest in the Company beneficially owned, directly or indirectly, by such Shareholder other than (i) any Sale by an Initial Shareholder or Permitted Transferee of such Initial Shareholder of, in the aggregate, not more than ten percent (10%) of the total Equity Interests of the Company during the Standstill Period that is made in compliance with the procedures, and subject to the limitations, set forth in Sections 4.01, 4.03 and 4.06; or (ii) any Sale of Shares (or other Equity Interests of the Company) after the expiration of the Standstill Period that is made in compliance with the procedures, and subject to the limitations, set forth in Sections 4.01, 4.03 and 4.06 and, if applicable, Section 4.04. Any and all Sales of Equity Interests in the Company shall be made in compliance with the Securities Act and other applicable securities Laws of any other country. (b) Notwithstanding anything to the contrary contained herein, each Shareholder agrees that it will not, directly or indirectly, make or solicit any Sale of any Equity Interest in the Company or any Intermediate Company or Regulated Opco beneficially owned, directly or indirectly, by such Shareholder which would be reasonably likely to result in a change of control of any Regulated Opco in conflict with any Law applicable to the Company or any Intermediate Company or Regulated Opco or any of their respective properties, including, without limitation, applicable Brazilian Law, without the prior written consent of the other Shareholders, which consent may be withheld in such other Shareholders' sole discretion. Other than by means of a sale of Shares, no Shareholder shall, directly or indirectly, make or solicit the Sale of, or create, incur or assume any Encumbrance with respect to, any Equity Interest in any Subnewco, any Intermediate Company listed in Schedule 3.03(a) of the Disclosure Schedules of each Venturer (as defined in the Joint Venture Agreement) or any Regulated Opco, which Equity Interest is beneficially owned, directly or indirectly, by such Shareholder, except as provided in Section 5.11 or with the prior express written consent of each Veto Shareholder. Section 4.02. Legends. (a) The Company shall affix to each certificate evidencing Shares a legend in substantially the following form: THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY CANADIAN PROVINCE OR TERRITORY. NO REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS SUCH TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH ACT DOES NOT APPLY. THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN A SHAREHOLDERS AGREEMENT, DATED AS OF NOVEMBER 16, 2000, AS IT MAY THEREAFTER BE AMENDED, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. NO REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH. THE HOLDER OF THE SECURITIES EVIDENCED BY THIS CERTIFICATE IS ENTITLED TO CERTAIN RIGHTS AND SUBJECT TO CERTAIN OBLIGATIONS AS SET FORTH IN A SHAREHOLDERS AGREEMENT, DATED AS OF NOVEMBER 16, 2000, AS IT MAY THEREAFTER BE AMENDED, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. (b) In the event that any Shares shall cease to be Restricted Shares, the Company shall, upon the written request of the holder thereof, issue to such holder a new certificate evidencing such Shares without the first paragraph of the legend required by Section 4.02(a) endorsed thereon; provided, however, that such holder shall furnish the Company or its transfer agent such certificates, legal opinions or other information as the Company or its transfer agent may reasonably require to confirm that the legend is not required on such certificate. (c) If any Shares held by a Shareholder shall cease to be subject to the restrictions on transfer set forth in this Agreement, the Company shall, upon the written request of such Shareholder, issue to such Shareholder a new certificate evidencing such Shares without the second paragraph of the legend required by Section 4.02(a). If any Shares shall cease to be entitled to any rights and subject to any obligations set forth in this Agreement, the Company shall, upon the written request of any Shareholder, issue to the holder thereof a new certificate evidencing such Shares without the third paragraph of the legend required by Section 4.02(a). Section 4.03. Rights of First Offer. (a) (i) If, at any time, any Shareholder (the "Selling Shareholder") shall desire to sell, directly or indirectly, any or all of the Shares (or other Equity Interests in the Company) owned by it (the "Offered Shares"), such Selling Shareholder shall deliver a written notice of its intention to engage in such a Sale of the Offered Shares (a "Notice of Intention"), accompanied by a copy of a proposal relating to such Sale, to each of the other Shareholders (the "First Offer Shareholders"), as well as to the Company, setting forth such Selling Shareholder's intention to make such Sale, the number of Offered Shares, the price at which such Selling Shareholder proposes to sell the Offered Shares (the "First Offer Price"), whether such Selling Shareholder is only prepared to sell all and not part of the Offered Shares and all other material terms and conditions of the offer. A Notice of Intention, once given, shall be irrevocable. The Notice of Intention shall be dated the date it is delivered by the Selling Shareholder to the First Offer Shareholders and the Company. (ii) Upon receipt of the Notice of Intention, each First Offer Shareholder shall have the right to purchase at the First Offer Price (it being specifically agreed that the consideration may be in the form of cash, Cash Equivalents or Marketable Securities), subject to any requirement by the Selling Shareholder that it is willing only to sell all and not part of the Offered Shares, such number of Shares up to the Pro Rata Number for such Shareholder; provided, however, that the First Offer Shareholder may request the right to purchase an additional amount of Offered Shares as indicated in the Notice of Exercise (as defined below) given by such First Offer Shareholder. The right of the First Offer Shareholders pursuant to this Section 4.03(a)(ii) shall be exercisable by written notice to the Selling Shareholder (the "Notice of Exercise"), which notice shall state the maximum number of Offered Shares the First Offer Shareholder is willing to buy, with copies to each of the other First Offer Shareholders and the Company, within 20 days from the date of the Notice of Intention (the "First Offer Shareholder Option Period"). The right of the First Offer Shareholders pursuant to this Section 4.03(a)(ii) shall terminate if it is not exercised within 20 days of the date of the Notice of Intention. A Notice of Exercise, once given, shall be irrevocable. (iii) Upon receipt of the Notices of Exercise, the Selling Shareholder shall promptly calculate the number of Offered Shares which each First Offer Shareholder is entitled to purchase. If the Notices of Exercise indicate that each First Offer Shareholder wishes to purchase at least its Pro Rata Number, the Offered Shares shall be allocated among the First Offer Shareholders pro rata. If the Notices of Exercise indicate that one or more First Offer Shareholders do not wish to purchase their Pro Rata Number, such of the Offered Shares as are not taken up shall be allocated on a pro rata basis among the First Offer Shareholders who shall have indicated that they wish to purchase more than their Pro Rata Number; provided, however, that no such Shareholder shall be obligated to purchase more Offered Shares than such Shareholder shall have indicated it is willing to purchase in its Notice of Exercise. (iv) In the event the calculations made in accordance with Section 4.03(a)(iii) would result in the First Offer Shareholders purchasing all or (except where the Notice of Intention stated that the Selling Shareholder was prepared to sell all but not part of the Offered Shares) part of the Offered Shares, the Selling Shareholder shall sell the Offered Shares to such First Offer Shareholders on the date one hundred ten (110) days following the date of the Notice of Intention, or such other date as may be agreed by the Selling Shareholder and the relevant First Offer Shareholders (the "Settlement Date"). (v) Upon the consummation of any purchase and Sale pursuant to this Section 4.03(a), the Selling Shareholder shall deliver certificates evidencing the Offered Shares sold duly endorsed, or accompanied by written instruments of transfer, in form and substance satisfactory to the purchaser, duly executed by the Selling Shareholder, free and clear of any Encumbrance, against delivery of the purchase price for such shares payable in (i) immediately available funds by wire transfer or check, (ii) Cash Equivalents or (iii) Marketable Securities. Notwithstanding the foregoing provisions of this Section 4.03(a), unless the Selling Shareholder shall have consented to the purchase of less than all of the Offered Shares, no First Offer Shareholder may purchase any Offered Shares unless all of the Offered Shares are to be purchased. (vi) In the event that payment with respect to the Offered Shares is to be made in whole or in part in Cash Equivalents or Marketable Securities, the value of such Cash Equivalents or Marketable Securities shall be the Closing Price of such Cash Equivalents or Marketable Securities as of the Settlement Date. (b) In the event the First Offer Shareholders do not exercise their options to purchase any or all of the Offered Shares and the Selling Shareholder receives a bona fide offer or offers to purchase or otherwise acquire the Offered Shares held by such Shareholder, then the Selling Shareholder shall have the right (subject to the requirements of this Article IV), for a period of ninety (90) days from the expiration of the First Offer Shareholder Option Period, to enter into an agreement to sell the Offered Shares for cash, Cash Equivalents or Marketable Securities at a price not less than the First Offer Price and on such other terms as set forth in the Notice of Intention. The Selling Shareholder shall as promptly as practicable sell the Offered Shares or any remaining Offered Shares, as the case may be, after it enters into an agreement to sell such Offered Shares, but in any event not later than ninety (90) days after the date on which the Selling Shareholder enters into an agreement to sell such Offered Shares. (c) In the event the Selling Shareholder for any reason shall not have entered into an agreement to sell all or the remaining Offered Shares before the expiration of the first ninety (90)-day period described in Section 4.03(b) or shall not have sold the Offered Shares or the remaining Offered Shares, as the case may be, before the expiration of the second ninety (90)-day period described in Section 4.03(b), such Selling Shareholder shall not sell the remaining Offered Shares without again complying with the provisions of this Section 4.03. Section 4.04. Right to Participate in Certain Dispositions. (a) Subject to Section 4.03, at any time a Shareholder or group of Shareholders (the "Divesting Shareholder(s)") receives or solicits a bona fide offer or offers to purchase or otherwise acquire (an "Offer") Shares (or other Equity Interests in the Company) representing more than forty percent (40%) of the Outstanding Shares (or other Equity Interests in the Company) and beneficially owned by such Divesting Shareholder(s) (the "Solicited Shares"), and the Divesting Shareholder intends to sell such Solicited Shares, the Divesting Shareholder(s) shall provide written notice (the "Offer Notice") of such Offer to each of the other Shareholders (the "Tag-Along Shareholders") not later than the 30th day prior to the consummation of the sale or other disposition contemplated by the Offer. The Offer Notice shall identify the Solicited Shares, the price offered for such Solicited Shares (it being specifically agreed that the consideration may be in the form of cash, Cash Equivalents or Marketable Securities) and all other material terms and conditions of the Offer (including any estimated fees or expenses to be shared among the Divesting Shareholder(s) and any Tag-Along Shareholders pursuant to Section 4.04(c) below), as well as a copy of the Offer. Each of the Tag-Along Shareholders shall have the right and option, for a period of twenty-five (25) days after the date the Offer Notice is given to such Tag-Along Shareholders (the "Notice Period"), to notify the Divesting Shareholder(s) of such Tag-Along Shareholder's interest in selling or otherwise disposing of up to the Pro Rata Number of such Tag-Along Shareholder's Shares (or other Equity Interests) pursuant to the Offer. Each Tag-Along Shareholder desiring to exercise such option shall, prior to the expiration of the Notice Period, provide the Divesting Shareholder(s) with a written notice specifying the number of Shares (or other Equity Interests) which such Tag-Along Shareholder has an interest in selling or otherwise disposing of pursuant to the Offer (a "Notice of Interest"), and shall deliver to the Divesting Shareholder(s) the certificate or certificates evidencing the Shares (or other Equity Interests) to be sold or otherwise disposed of pursuant to such Offer by such Tag-Along Shareholder duly endorsed in blank or accompanied by written instruments of transfer in form satisfactory to the Divesting Shareholders(s) executed by such Tag-Along Shareholder and delivery of such certificate or certificates evidencing the Shares (or other Equity Interests) to be sold, shall constitute an irrevocable election by such Tag-Along Shareholder to authorize and permit the Divesting Shareholder(s) to sell such Shares (or other Equity Interests), on behalf of such Tag-Along Shareholder, pursuant to the Offer. (b) If the Person(s) making the Offer is or are unwilling to buy all the Solicited Shares plus all the Shares tendered by Tag-Along Shareholders in their Notices of Interest, then the Divesting Shareholder(s) and each Tag-Along Shareholder who wishes to sell shall be entitled to sell a number of Shares equal to the Pro Rata Number. If any Tag-Along Shareholder wishes to sell less than all the Shares it is entitled to sell in accordance with the preceding sentence, the Shares it declines to sell shall be allocated among the Divesting Shareholder(s) and the Tag-Along Shareholders who wish to sell additional Shares according to the same formula, mutatis mutandis. The Divesting Shareholder(s) shall not effect the Sale of any Shares pursuant to the Offer unless all the Solicited Shares and all of the Shares tendered to the Divesting Shareholder(s) and entitled to be sold pursuant to this Section 4.04 are simultaneously sold. (c) As promptly as practicable after the consummation of the sale or other disposition of the Shares of the Divesting Shareholder(s) and the Shares of the Tag-Along Shareholders pursuant to the Offer, the Divesting Shareholder(s) shall remit to each of the Tag-Along Shareholders the total sales price of the Shares of such Tag-Along Shareholders sold or otherwise disposed of pursuant thereto less a pro rata portion of the reasonable out-of-pocket fees and expenses payable to any Person other than the Divesting Shareholder(s) and its Affiliates (including, without limitation, reasonable legal expenses) incurred by the Divesting Shareholder(s) in connection with such sale or disposition. (d) If at the end of the Notice Period any Tag-Along Shareholder shall not have given a Notice of Interest (and delivered all other required documents) with respect to some or all of the pro rata portion of such Tag-Along Shareholder's Shares, such Tag-Along Shareholder will be deemed to have waived all its rights under this Section 4.04. If, at any time the Divesting Shareholder(s) abandons the proposed sale pursuant to the offer or at the end of the 45-day period following the giving of the Offer Notice, the Divesting Shareholder(s) has not completed the sale of all the Solicited Shares and the Shares with respect to which Tag-Along Shareholders shall have given Notices of Interest pursuant to this Section 4.04, the Divesting Shareholder(s) shall promptly return to such Tag-Along Shareholders all certificates evidencing the unsold Shares that such Tag-Along Shareholders delivered for sale or other disposition pursuant to this Section 4.04 and the provisions of this Section 4.04 shall apply to any subsequent Sale by the Divesting Shareholder(s) of any of the Shares initially proposed to be sold in the Offer; provided, however, that if a Tag-Along Shareholder is unable, notwithstanding its best efforts, to obtain any necessary consents to the sale of its Shares with respect to which it has given a Notice of Interest pursuant to this Section 4.04 prior to the anticipated consummation of the sale, the Divesting Shareholder shall not sell any of the Solicited Shares prior to the 60th day following the date of the Offer Notice unless (i) such Tag-Along Shareholder has ceased to use best efforts to obtain such consents or (ii) such delay would prevent a Divesting Shareholder from consummating the sale of its Solicited Shares. (e) Except as expressly provided in this Section 4.04, no Divesting Shareholder(s) shall have any obligation to any Tag-Along Shareholder with respect to the Sale or other disposition of any Shares owned by such Tag-Along Shareholder in connection with this Section 4.04. Anything herein to the contrary notwithstanding and irrespective of whether any Notice of Interest shall have been given, no Divesting Shareholder(s) shall have any obligation to any Tag-Along Shareholder to sell or otherwise dispose of any Solicited Shares pursuant to this Section 4.04 as a result of any decision by such Divesting Shareholder(s) not to accept or consummate any Offer or Sale or other disposition with respect to the Solicited Shares (it being understood that any and all such decisions shall be made by such Divesting Shareholder(s) in its sole discretion). No Tag-Along Shareholder shall be entitled to sell or otherwise dispose of Shares directly pursuant to an Offer (it being understood that all such sales and other dispositions shall be made only on the terms and pursuant to the procedures set forth in this Section 4.04). Section 4.05. Permitted Transfers. The first sentence of Section 4.01(a), and Sections 4.03 and 4.04, and subclauses (b) and (c) of the first sentence of Section 4.06, shall not be applicable to a Sale of Shares by a Shareholder pursuant to which (a) such Shareholder transfers Shares to a Permitted Transferee of such Shareholder in compliance with the terms hereof and (b) the Sponsor Party of the transferring Shareholder (or BCI, if the Sponsor Party of the transferring Shareholder is BCE, or SBCI, if the Sponsor Party of the transferring Shareholder is SBCI Parent) guarantees the obligations of the Permitted Transferee of the transferring Shareholder and enters into a guarantee and share retention agreement, substantially in the form of Exhibit D to this Agreement (the "Guarantee and Share Retention Agreement"); provided, that if BCI or SBCI, as the case may be, does not hold, directly or indirectly, a majority of economic and voting interest of their respective Permitted Transferees (a "Sister Transferee"), the share retention obligations set forth in the Guarantee and Share Retention Agreement shall not apply to such Sister Transferee and the Guarantee and Share Retention Agreement entered into by BCI or SBCI in respect of such Sister Transferee shall be modified accordingly; provided, further, that in the event any transferee acquiring Shares pursuant to this Section 4.05 would for any reason cease to be a Permitted Transferee, the Sponsor Party of such transferee shall, prior to such cessation, cause such transferee to transfer all Shares so acquired to a Permitted Transferee of such Sponsor Party, which transfer shall comply with the terms of this Section 4.05 and clause (a) of the first sentence of Section 4.06. The transferring Shareholder shall notify the other Shareholders of any transfer of Shares to a Permitted Transferee and shall provide evidence of its compliance with the provisions of this Section 4.05 and clause (a) of the first sentence of Section 4.06, including delivery of an executed Guarantee and Share Retention Agreement in accordance with this Section 4.05. Section 4.06. Prospective Transferees; Guarantee and Share Retention Agreement. Each Shareholder agrees that it will not directly or indirectly make any Sale of, or create, incur or assume any Encumbrance with respect to, any Shares held by such Shareholder unless, prior to the consummation of any such Sale or the creation, incurrence or assumption of any such Encumbrance, the Person to whom such Sale is proposed to be made or the Person in whose favor such Encumbrance is proposed to be created, incurred or assumed (for purposes of this Section 4.06, a "Prospective Transferee") (a) executes and delivers to the Company an Accession Certificate in the form attached as Exhibit E hereto (the "Accession Certificate"), whereby such Prospective Transferee confirms that, with respect to the Shares that are the subject of such Sale or Encumbrance, it shall be deemed to be a Shareholder for the purposes of this Agreement and agrees to be bound by all the terms of this Agreement, (b) causes its ultimate parent company to execute and deliver a Guarantee and Share Retention Agreement, in form and substance reasonably satisfactory to the Company and to agree to be bound by the provisions of Sections 4.05, 5.05 and 5.07 and Article VI hereof, and (c) delivers to the Company a written opinion of counsel, satisfactory in form and substance to the Company, to the effect that the agreements referred to above are the legal, valid and binding obligation of such Prospective Transferee and its ultimate parent company, enforceable against such Prospective Transferee and its ultimate parent company in accordance with their terms. The Company shall execute such Accession Certificate upon verification that the terms of this Article IV have been satisfied. Upon (i) satisfaction of the requirements of this Article IV, (ii) the execution and delivery by such Prospective Transferee, the transferring Shareholder and the Company of the Accession Certificate referred to in clause (a) above, (iii) the execution and delivery of the agreement referred to in clause (b) above, and (iv) the delivery of the opinion of counsel referred to in clause (c) above, such Prospective Transferee shall be deemed a "Shareholder" for the purposes of this Agreement, and shall have the rights and be subject to the obligations of a Shareholder hereunder with respect to the Shares held by such Prospective Transferee or in respect of which such Encumbrance shall have been created, incurred or assumed. Section 4.07. Improper Sale or Encumbrance. Any attempt to make any Sale of, or create, incur or assume any Encumbrance with respect to, any Shares not in compliance with this Agreement shall be null and void and the Company shall not be required to give any effect in the Company's register of members to such attempted Sale or Encumbrance. ARTICLE V ADDITIONAL AGREEMENTS Section 5.01. Financial Statements. The Company shall prepare and deliver to each Shareholder (i) monthly Interim Financial Statements for each fiscal month within 30 days of the end of each fiscal month and (ii) quarterly Interim Financial Statements for each fiscal quarter within 45 days of the end of each fiscal quarter. The Company shall prepare and deliver Financial Statements to each of the Shareholders within 60 days of the end of each fiscal year. Section 5.02. Access to Information. From and after the date of the Closing, the Company and each of the Company Subsidiaries will permit representatives of any of the Shareholders, at such Shareholder's expense and upon reasonable notice, to obtain all documents and other information in the possession of the Company as may reasonably be requested in order to enable any such Shareholder to monitor its investment in the Company and exercise its rights under this Agreement. Section 5.03. Confidential Information. During the Restricted Period applicable to each Shareholder, each Shareholder agrees to keep all Confidential Information confidential, except Confidential Information that (a) is or becomes generally available to the public (other than as a result of a disclosure by such Shareholder or any Affiliate of such Shareholder in breach of this Agreement), (b) the Company agrees in writing may be disclosed, (c) the Company or any Shareholder is required, pursuant to Law, regulation, legal process or regulatory authority to disclose, (d) is developed independently by such Shareholder and is not based on or derived from Confidential Information previously disclosed by other Shareholders, or (e) is known to such Shareholder prior to its disclosure to the Company. The term "Confidential Information" means all information relating to trade secrets, price, customer and supplier lists, pricing and marketing plans, policies and strategies, details of client and consultant contracts, operations methods, product development techniques, business acquisition plans, new personnel acquisition plans, investment processes, systems, strategies and related data and all other confidential information with respect to the Company or any Company Subsidiary. The parties hereto agree and acknowledge that remedies at Law for any breach of their obligations under this Section 5.03 are inadequate and that in addition thereto the Company shall be entitled to seek equitable relief, including injunction and specific performance, in the event of any such breach. Section 5.04. Certain Issuances of New Securities. (a) If the Company proposes to issue New Securities, other than pursuant to a bonus issue, an initial public offering or other pro rata distribution to Shareholders, the Company hereby grants to the Shareholders the right to purchase, in accordance with Section 5.04(b), New Securities which the Company proposes to issue pro rata, based on each Shareholder's Equity Interests in the Company. (b) In the event that the Company proposes to issue New Securities, subject to Section 5.04(a), the Company shall give each Shareholder a written notice (a "Notice of Issuance") of its intention, describing all material terms of the New Securities and the price and all material terms upon which the Company proposes to issue such New Securities. Each Shareholder shall have ten (10) Business Days from the date of the Notice of Issuance to agree to purchase all or any portion of its pro rata share of such New Securities; provided, however, that if the Company is proposing to issue New Securities for consideration other than all cash, the Company shall accept from the Shareholders either non-cash consideration that is reasonably comparable to the non-cash consideration specified in the Notice of Issuance or cash in an amount equal to the fair market value of the non-cash consideration which shall be specified in the applicable Notice of Issuance. Any purchase by any Shareholder of New Securities shall be consummated on the date on which all other New Securities described in the applicable Notice of Issuance are issued. (c) In the event that any Subnewco proposes to issue any Capital Stock, each Shareholder shall, and shall cause each Subnewco to, grant to the Company the right to purchase all such Capital Stock. (d) In the event that any Intermediate Company or Regulated Opco proposes to issue any Capital Stock, each Shareholder agrees, and shall cause the Company and each Subnewco to agree, subject to Section 3.08(b), that it shall cause the Company or the relevant Company Subsidiary to subscribe the amount of such Capital Stock offered to it sufficient to prevent the reduction of the percentage of the Capital Stock of such Intermediate Company or Regulated Opco held by the Company or such Company Subsidiary. Section 5.05. Referral of Opportunities. (a) The Shareholders and their respective Sponsor Parties agree that they intend for the Company to be their principal vehicle for the pursuit of business opportunities arising in the Communications Sector in the Joint Venture Area. [One and a half pages of materials omitted.] Section 5.06. Affiliate Transactions. Each Shareholder agrees to use its best efforts to ensure that any transaction or agreement between or among such Shareholder or any of its Affiliates and the Company, any Company Subsidiary or any Minority Investee shall be on terms no less favorable to the Company or any such Company Subsidiary or Minority Investee than the terms and conditions generally offered by such Shareholder and its Affiliates, as the case may be, to the most favored non-affiliated customers of such Shareholder or Affiliates for transactions or agreements of a similar nature. Section 5.07. Consolidation of the Company and BCI. (a) The Shareholders agree that as between the Company and BCI, there shall only ever be one public company subject to the ongoing reporting obligations of sections 13 or 15(d) of the Exchange Act, except as may otherwise be provided in subsection (c) of this Section 5.07. If BCI proposes that the Company pursuant to a Qualified Offer be consolidated with, merged into, amalgamated with or otherwise become controlled by the Surviving Entity pursuant to any merger, consolidation, amalgamation, reorganization, exchange offer or similar transaction (the "Consolidation"), BCI shall deliver to the parties hereto a written notice (the "Consolidation Notice") setting forth all proposed material terms of such Consolidation. Such proposed Consolidation may be effected by BCI in accordance with this Section 5.07 only if (i) no adverse tax consequences arise from such transaction which are material for any of the Shareholders or their successors, assigns and transferees or a substantial portion of the other public shareholders, if any, of the Company relative to their respective investment in the Company, and (ii) all of the Qualified Offer Conditions set forth in Section 5.07(d) have been satisfied (the conditions set forth in subclauses (i) and (ii), the "Consolidation Conditions"). To the extent reasonably requested by any Shareholder after consideration of (i) any potential adverse tax consequences arising from or related to such Consolidation and (ii) the ability of BCE to discharge all of its obligations under the BCE Indemnity Agreement (as defined below) based on the financial condition of BCE at the date of the Consolidation Notice, BCI shall provide the Shareholders with (A) the written opinion of legal counsel reasonably satisfactory to the Shareholders or (B) a ruling from the applicable taxing authorities regarding the tax-free nature of the Consolidation (which, in the case of each of (A) and (B), shall be reasonably satisfactory to the Shareholders); failure to provide such requested ruling or opinion shall be deemed to be a failure to satisfy the Consolidation Conditions. BCE shall agree to indemnify the Shareholders (other than BCI Investments), their respective Affiliates and Specified Assigns and certain successors, assigns and transferees from any Losses associated with any adverse tax consequences arising as a result of or relating to any such Consolidation by execution prior to Consolidation of a separate instrument in respect thereof in the form set forth in Exhibit G hereto (the "BCE Indemnity Agreement"). Unless the Shareholders unanimously agree otherwise, the accounting policies, headquarters location, name, management practices and other material characteristics of the Company in effect prior to the Consolidation will be preserved following the Consolidation. Each of BCE, BCI and BCI Investments shall permit each Shareholder and their respective representatives and advisors to conduct reasonable due diligence investigations of BCE, BCI and BCI Investments and their Subsidiaries relating to the Consolidation to evaluate the tax consequences of any such transaction and to determine whether the Qualified Offer Conditions have been satisfied. (b) If BCI delivers a Consolidation Notice and the Consolidation Conditions have been satisfied, the Shareholders agree that they shall negotiate in good faith regarding the timing of consolidating the Company into the Surviving Entity with the objective of causing the Company to effect the Consolidation within one year from the date that the Consolidation Conditions have been satisfied. If, after consultation with BCI Investments, any Veto Shareholder reasonably concludes that market conditions are then adverse to the Consolidation of the Company and BCI, each of AM Latin America and SBCI Brazil Holding shall have the right to postpone such Consolidation until the earlier of (i) such time as the Shareholders unanimously agree that market conditions are favorable to such Consolidation or (ii) the first year anniversary of the date that such Qualified Offer Conditions were first satisfied in full. If such Consolidation has not occurred on or prior to the termination of the period referred to in clause (ii) in the immediately preceding sentence, subject to satisfaction of the Consolidation Conditions, BCI, directly or indirectly, may deliver a Consolidation Notice and acquire all, but not less than all, of the Shares pursuant to the Qualified Offer. (c) If prior to satisfaction of the Consolidation Conditions, the AM Latin America Directors and the SBCI Directors (if any) have voted in favor of an initial public offering of the Capital Stock of the Company at a duly convened meeting of the Board (the "Approval Date"), and the BCI Directors shall have voted against such initial public offering at such meeting of the Board, the chief financial officer of BCI shall certify in writing to AM Latin America and SBCI Brazil Holding whether it has reasonable commercial grounds (other than its desire to preserve its opportunity hereunder to make a Qualified Offer) for opposing such initial public offering, detailing any such grounds in such certification within fifteen (15) days after exercising its veto right under Section 3.08(b)(ii). If BCI Investments does not have reasonable commercial grounds for opposing such initial public offering or otherwise fails to deliver such certification, BCI Investments will have 180 days from the Approval Date to satisfy the Consolidation Conditions and, subject to satisfaction of the Consolidation Conditions, to make a Qualified Offer to the Shareholders. In the event BCI Investments is unable to satisfy the Consolidation Conditions within 180 days of the Approval Date, the Company shall be permitted to undertake such initial public offering and BCI Investments, together with the other Shareholders, shall take all necessary action to cause the Company to undertake such initial public offering. If the Company completes an initial public offering in accordance with the terms of this Section 5.07(c) and the Consolidation Conditions are met at a future date, BCI Investments will be entitled, subject to satisfaction of the Consolidation Conditions, to make a Qualified Offer to the Shareholders. For greater certainty, except as specifically set forth in this Section 5.07(c), each Veto Shareholder shall retain its veto right under Section 3.08(b)(ii). (d) Shareholders shall only be obliged to accept a Qualified Offer if each of the conditions listed below (the "Qualified Offer Conditions") are satisfied at the time of the Qualified Offer and at the time of Consolidation. The Qualified Offer Conditions are: (i) BCI does not have any interests in any business or own any operating assets other than the Company; (ii) BCI has sufficient cash to meet all remaining obligations for payment under the terms of all of its outstanding Indebtedness, including any remaining obligations under its Promissory Note and Special Notes (the "Defeasance Amount") and shall have established a cash reserve in the amount of the Defeasance Amount to be used exclusively to pay such liabilities; (iii) BCI is listed on either the New York Stock Exchange or Nasdaq National Market System (or any other exchange acceptable to all the Shareholders); (iv) Subject to Section 5.07(f) below, the number of Surviving Entity Shares offered to each Shareholder (other than BCI Investments and its Permitted Transferees) for each Share then held by each such Shareholder is equal to the Exchange Ratio and no new Surviving Entity Shares are offered or issued to BCI Investments in respect of its Shares; (v) all disproportionate voting rights shall have terminated, the voting rights of each Shareholder shall be commensurate with their economic interest in the Company and the transactions described in Section 5.11 shall have been consummated; (vi) BCI Investments shall have complied with the provisions of Section 5.07(a) hereof; (vii) the Veto Shareholders and BCE will have entered into a registration rights agreement in the form of Exhibit F to this Agreement (the "Registration Rights Agreement"), which Registration Rights Agreement shall supercede the registration rights agreement, dated October 6, 1997, between BCE and BCI; (viii) BCI Investments is a Veto Shareholder and shall not have entered into any contract or other agreement to sell or otherwise dispose of its Shares; (ix) BCE and BCI shall have duly executed and delivered to each of the Shareholders, as indemnitees thereunder, the BCE Indemnity Agreement, and shall have delivered the related legal opinion of counsel reasonably acceptable to the Shareholders (other than BCI Investments) substantially in the form set forth in Exhibit H hereto; (x) BCE has consented in writing to the Consolidation; and (xi) BCE has entered into a Guarantee and Share Retention Agreement in a form reasonably acceptable to the Shareholders; provided, that BCE shall not be obligated to enter into such agreement if it is a direct shareholder of the Company (or the Surviving Entity) and covenants to enter into such an agreement in the event it ceases to be a direct shareholder of the Company or the Surviving Entity while maintaining a direct or indirect ownership interest in the Company or the Surviving Entity. (e) Immediately following the Consolidation, BCE shall enter into a shareholders agreement with the Shareholders hereunder, containing rights and obligations substantially similar to those set forth in this Agreement, and the rights and obligations of BCI Investments in the Transaction Documents shall become the rights and obligations of BCE (other than BCI Investments's obligations under its Promissory Note and its Special Notes, which shall have been defeased by BCI on or prior to Consolidation). (f) To the extent that, prior to the time of calculation of the Exchange Ratio for purposes of Section 5.07(d)(iv), the Company has issued any Equity Interests other than Common Stock or Series C Shares, or the Surviving Entity has issued any Equity Interests other than Surviving Entity Shares, the Shareholders will agree to amend the terms hereof and the BCE Indemnity Agreement in such a manner as to give effect to the original intention of the Shareholders with regard to (i) the ownership of economic and voting interests in the Surviving Entity after the Consolidation and (ii) the economic terms of, and the parties rights and obligations under, the BCE Indemnity Agreement. (g) Promptly after receiving a Consolidation Notice, the Shareholder and the Sponsor Parties shall make good faith efforts to consult with BCI regarding any potential adverse tax consequences which may arise with respect to the proposed Consolidation. (h) In the event any Material Tax Change occurs after the date of the Amended and Restated Joint Venture Agreement, the form of the BCE Indemnity Agreement shall be amended by BCE and the parties hereto to provide indemnification to the Shareholders regarding such Material Tax Change. If the parties fail, after engaging in good faith negotiations, to agree to such amendments or to the amendments referred to in Section 4.05(c) of the Initial Joint Venture Agreement, BCI shall not be permitted to deliver a Consolidation Notice or cause the Consolidation to be consummated. (i) The Shareholders shall not implement any tax planning measures designed solely to cause any proposed Consolidation to fail to satisfy the first Consolidation Condition set forth in Section 5.07(a). (j) AM Latin America and SBCI Brazil Holding shall have the right to cause a redomiciliation and/or reorganization (the "Reorganization") of the Company (or the Surviving Entity) either prior or subsequent to the Consolidation if the Canadian corporate resident status of such entity creates or would create any adverse Tax or other business, financial or economic consequences (as determined by the Initial Shareholders, other than BCI Investments) to any of such Shareholders, their respective Sponsor Parties, or other Shareholders holding at least ten percent (10%) of the Outstanding Shares, which consequences are material for any of such Shareholders or their respective Sponsor Parties relative to their respective investments in the Company. For the avoidance of doubt, if such Shareholders determine prior to the Consolidation that the Canadian corporate resident status of the Company (or the Surviving Entity) would create such adverse consequences, the Consolidation shall not be effected until agreement has been reached with respect to the Reorganization; provided, however, if BCI Investments agrees with SBCI Brazil Holding and AM Latin America in respect of the Reorganization, nothing set forth in this Section 5.07(j) shall otherwise permit SBCI Brazil Holding and AM Latin America to prevent the Consolidation. The new situs of the Surviving Entity outside of Canada and form of Reorganization shall be determined by negotiation among the Shareholders holding at least ten percent (10%) of the Outstanding Shares acting in good faith, with a view toward implementing the most Tax efficient corporate structure for the Shareholders, their respective Sponsor Parties and the Company (or the Surviving Entity) as a going concern. In considering the form of any such Reorganization, the liabilities of all the parties that would arise in connection with such Reorganization shall be taken into account. Any costs or liabilities related to the Reorganization shall be borne by the Company (or the Surviving Entity). If the Shareholders are unable to agree on the new situs outside of Canada and/or the form of the Reorganization after good faith negotiations, any party shall have the right to treat such lack of agreement as a Dispute subject to Sections 6.14 and 6.15. (k) Each Shareholder undertakes to cooperate with each other Shareholder and to act in good faith with respect to the consummation of the Consolidation and Reorganization (if any), including, without limitation, to enter into any arrangement with a Tax authority if such arrangement would be necessary to avoid any material Tax liabilities of such Shareholder and would not otherwise have any significant adverse consequences to such Shareholder, its Sponsor Party or any Affiliate of its Sponsor Party. Section 5.08. Registration Rights. None of the Company, BCI Investments, BCE or BCI, without the prior written consent of each of the Veto Shareholders, shall enter into any agreement providing for registration rights with respect to the Capital Stock of BCI or the Company other than the Registration Rights Agreement. Section 5.09. Voting Structure. [ ]. Section 5.10. Additional Capital Contributions. Subject to the identification of appropriate business opportunities and the decision by each Shareholder to pursue such opportunities, the Shareholders' current intention is to consider opportunities to make available to the Company an additional $1.0 billion of investment capital to support the development of new projects, subject to any veto rights of any of the Shareholders and, subject further, to each Shareholder's absolute and unconditional right, in its sole discretion, to change its current intention to consider making additional capital available to the Company. It is understood that the first sentence of this Section 5.10 shall not create any obligation on the part of any Shareholder or Sponsor Party to make any additional investment capital available or to approve any capital increase or create any right of the Company or any Shareholder to receive any capital. Section 5.11. Unwind. [ ]. Section 5.12. Future Acquisitions. Subject to applicable Law, until the Unwind Date, all future acquisitions made by the Company or any Company Subsidiary shall, to the extent permitted by applicable Law, be held by the Company directly. Section 5.13. Default. (a) If any Shareholder (a "Defaulting Party") fails to make payment with respect to or to perform any Outstanding Obligation or any share issuance approved pursuant to Section 3.08(b) and to which such Shareholder has agreed to subscribe pursuant to Section 5.04(b) within ten (10) Business Days of the date due (the "Due Date"), interest shall accrue on any unpaid amount or, in the case of America Movil's Outstanding Obligation to contribute the Techtel Amount (as defined in the Amended and Restated Joint Venture Agreement) to the Company pursuant to Section 2.03(c) of the Amended and Restated Joint Venture Agreement, on the value attributed to such obligation (the "Default Amount") at a rate per annum of 200%, or, if lower, the maximum rate permitted by applicable law (the "Default Rate") from the Due Date until the date paid in full together with all interest accrued thereon (based on the actual number of days elapsed over a 360-day year). (b) Any Shareholder (an "Advancing Party") may upon written notice to the other Shareholders and the Company, advance all or a portion of the Default Amount in lieu of the Defaulting Party. If more than one Shareholder provides such a notice, such Shareholders shall have the right to fund their pro rata portion of the Default Amount, based on the percentage of Outstanding Shares held by such Shareholders, or such other portion as may be agreed by such Shareholders. In the event that any Shareholder advances all or a portion of the Default Amount in lieu of a Defaulting Party, the obligation of the Defaulting Party to make payment to the Company of the Default Amount, together with accrued interest, shall be deemed assigned to the Advancing Party or Parties in proportion to the percentage of the Default Amount advanced by such Advancing Party. (c) In the event that the Defaulting Party has not made payment in full of the Default Amount, together with all accrued interest, or performed its Outstanding Obligations and paid all accrued interest owed thereunder, to the Company or the Advancing Parties, as appropriate, within one hundred eighty (180) days after the Due Date, the Company shall issue new Shares to the Advancing Parties and, in the case of a default by a Defaulting Shareholder under its Promissory Note or, if applicable, its Special Notes, purchase, for a total amount of $1.00, an equal number of Shares previously issued to the Defaulting Party in amounts sufficient to dilute the Equity Interests of the Defaulting Party in the Company, and reflecting (i) any advances made by Advancing Parties, (ii) amounts paid by other Shareholders pursuant to the Outstanding Obligations or share issuance, as the case may be, (iii) all interest accrued on the Default Amount pursuant to Section 5.13(a), (iv) the fair market value of the Company at the Due Date, as determined in accordance with clause (d) below, and (v) Equity Interests, if any, issued to the other Shareholders at the time of such payment. All Shareholders will be deemed to have consented to such issuance of Shares. For the purpose of effecting a purchase of Shares in accordance with this Section 5.13(c), each Shareholder hereby irrevocably appoints the Company to be its attorney, and in its name and on its behalf to do all acts and things, execute any document or complete any transfer that the Company may require in order to complete such purchase, and each Shareholder hereby agrees to ratify and confirm any act of the Company in connection therewith. Notwithstanding any such issuance of Shares, all interest accrued on the Default Amount pursuant to Section 5.13(a) at the time of such issuance (the "Default Interest Amount") shall be deemed due and owing by the Defaulting Shareholder to the Company and interest shall accrue on the Default Interest Amount at the Default Rate until the Default Interest Amount, together with all interest accrued thereon, is paid in full. (d) For purposes of the preceding clause (c), the fair market value of the Company shall be determined in accordance with the following procedure. Within ten (10) Business Days following the 180-day period referred to in clause (c) above, the Defaulting Party shall select one of the investment banks listed in Schedule 5.13, and the Company shall select one of the investment banks listed in Schedule 5.13. In the event that none of the investment banks listed in Schedule 5.13 accepts an engagement from the Defaulting Party or the Company, as the case may be (through no fault of the Defaulting Party or the Company, as the case may be) and there are no other investment banks listed in Schedule 5.13 from whom such party may choose and which are prepared to accept selection or referral, as the case may be, the Defaulting Party or the Company, as the case may be, shall choose an investment banking firm of international standing in the United States which does not, and whose directors, officers, employees or Affiliates do not, have a direct or indirect material financial interest for its proprietary account in the Defaulting Party or the Company, as the case may be, or any of their respective Affiliates. Within thirty (30) days of its acceptance of such selection, each selected investment bank shall determine independently the fair market value of the Company and provide such valuation in writing to each of the Shareholders and the Company. If the difference between such two valuations is twenty percent (20%) or less, the fair market value of the Company shall be deemed to be the average of such two valuations. If the difference between such two valuations is greater than twenty percent (20%), and if the Defaulting Party and the Company are otherwise unable to agree which valuation is correct, within 270 days after the Default Date the matter shall be referred by the Company to the Company's accountants, which accountants shall select one of the two valuations as being closest to the fair market value of the Company as of the Default Date. Such accountants shall make such selection within thirty (30) days after such referral. The decision of such accountants shall be final, conclusive and binding on all parties, and shall not be subject to arbitration pursuant to Section 6.15. All costs incurred by the non-defaulting Shareholders and the Company in connection with obtaining the valuations referred to above shall be borne by the Defaulting Party. Section 5.14. Additional Tax Matters. (a) For so long as the tax structure in respect of the Company and its Subsidiaries described in Exhibit J is in effect (the "Initial Structure"), except as approved by a Qualified Vote in accordance with Section 3.08(b), the Company shall be operated so that neither it nor any of its Subsidiaries that is located in a tax haven for purposes of the Mexican income tax law (Ley de Impuestos Sobre la Renta, Titulo 1, Disposiciones Generales, Articulo 5(b) (the "Neutral Provisions") will have any income that gives rise to any Mexican income tax payable by America Movil or any of its Mexican Subsidiaries. In addition, for so long as the Initial Structure is in effect, notwithstanding any other provision contained herein, AM Latin America, on behalf of itself and America Movil may elect at any time, in its sole discretion to cause the Company and certain of its Subsidiaries to adopt, either the Danish Structure or the Netherlands-Danish Structure, set forth in Exhibit J hereto (the "Alternate Structure") by delivering the Structure Notice (as defined below) to the other Shareholders and the Shareholders shall take all necessary actions to give effect to such election; provided, however, if any change or modification in the tax laws of Denmark (in the case of the Danish Structure) or Denmark or the Netherlands (in the case of the Netherlands-Danish Structure) takes place after the date hereof but prior to the date of the Structure Notice which would materially adversely affect the tax position of any Veto Shareholder as a Shareholder of the Company under the relevant Alternate Structure, the Veto Shareholders shall negotiate in good faith to agree to a substitute tax structure, and until such agreement is reached, no Structure Notice may be given that specifies an Alternate Structure based in the tax jurisdiction in which such change or modification has occurred; provided, further, that each Shareholder shall be deemed to have agreed to any proposed substitute tax structure under which its net tax obligations are equal to or less than the net tax obligations it would have incurred under the Danish Structure or the Netherlands-Danish Structure absent any such change in law. For purposes of this Section 5.14, "Structure Notice" shall mean a certificate signed by a senior officer of AM Latin America, on behalf of itself and America Movil, stating that implementation of the Alternate Structure specified therein will avoid adverse tax consequences for America Movil and its Mexican Subsidiaries. Such Alternate Structure shall be implemented within 30 days following the date of such notice or as soon as practicable thereafter. The costs, expenses and losses incurred by the Company or any Shareholder in implementing such Alternate Structure shall be borne by the Company. (b) Notwithstanding Section 3.08(b), in the event of a Material Tax Change (as defined below) after Consolidation, the Veto Shareholders (other than any Affiliate of BCE) acting jointly shall have the right to cause the Company to reorganize or redomicile in a new jurisdiction, and the other Shareholders shall take all action necessary to cause the Company to effect such reorganization or redomicilation. The costs, expenses and losses incurred by the Company or any Shareholder in carrying out any such reorganization or redomicilation shall be borne by the Company. Any change or modification in any tax Laws (including treaties) of Canada or any political or taxing subdivision thereof that would materially adversely affect any of SBCI or America Movil or any of its Mexican Subsidiaries (as shareholders in a Canadian company) or the Company (including, without limitation, any change in (i) the effective income tax rate applicable to the Company, (ii) withholding taxes applicable to dividends paid to SBCI, AM Latin America or America Movil or any of its Mexican Subsidiaries, or the Company, (iii) taxes incurred upon the Sale by SBCI or AM Latin America or America Movil or any of its Mexican Subsidiaries, directly or indirectly, of any Equity Interests in the Company, (iv) taxes assessed upon interest income earned by SBCI, AM Latin America or America Movil or any of its Mexican Subsidiaries, or the Company, or (v) taxes payable by the Company in respect of interest payments made) shall be deemed a "Material Tax Change"; Section 5.15. BCE and SBCI Parent Guarantee and Share Retention Agreement. (a) In the event that BCI owns no material assets other than its interest in the Company, BCE shall execute a Guarantee and Share Retention Agreement substantially in the form set forth in Exhibit D hereto, guaranteeing the obligations of any of its Subsidiaries which are Shareholders hereunder. (b) In the event that SBCI owns no material assets other than its interest in the Company, SBCI Parent shall execute a Guarantee and Share Retention Agreement substantially in the form set forth in Exhibit D hereto, guaranteeing the obligations of any of its Subsidiaries which are Shareholders hereunder. Section 5.16. Subnewco4. Effective as of the date hereof and for so long as the Exchangeable Debenture Agreement dated as of November 16, 2000 among SBCI Brazil Holding, the Company and Subnewco4 remains outstanding (such period, the "Payment Period"), SBCI Brazil Holding hereby assigns and sells to the Company any and all rights of SBCI Brazil Holding or any Affiliate of SBCI Brazil Holding to receive any distribution, whether in cash or in kind or in the form of a dividend or otherwise, in respect of the Equity Interests of Subnewco4, and the Company hereby accepts such assignment from SBCI Brazil Holding. Any such distribution received by SBCI Brazil Holding or any Affiliate during the Payment Period or, if received following the Payment Period, to which SBCI Brazil Holding or any Affiliate became entitled during the Payment Period, shall be received and held in trust for the benefit of the Company, shall be segregated from other property and funds, and shall forthwith be paid or delivered to the Company in the same form so received (with any necessary endorsement and assignment). Section 5.17. Compliance with ANATEL Written Confirmation. Each of the parties hereto shall take all necessary action to amend the terms of this Agreement and the other Transaction Documents, as applicable, to (i) comply with the terms of the letter to SBCI, BCI and America Movil (as successor in interest to Telmex), dated November 10, 2000, from Sr. Amadeu de Paula Castro Neto, Executive Superintendent of ANATEL (the "ANATEL Letter"), including, without limitation, with respect to the issue of control by BCI over Subnewco4 and by SBCI and America Movil over Subnewco1 contained in the third paragraph of the ANATEL Letter, and (ii) comply with the terms of that certain letter to the Executive Superintendent of ANATEL, dated November 9, 2000, from BCI, America Movil and SBCI concerning reducing the Company's ownership of the voting capital of each of Subnewco1 and Subnewco4 to 19.99% within twenty (20) days following the Closing Date. Furthermore, the parties hereto agree that, to the fullest extent permitted by applicable Brazilian law and regulations, including, without limitation, the terms of the ANATEL Letter, in structuring the reduction of the Company's ownership of each of Subnewco1 and Subnewco4 as contemplated in the ANATEL Letter, the parties will use their reasonable best efforts to transfer or otherwise provide for the right to acquire all or a portion of the voting capital in Subnewco1 and Subnewco4 held by the Company in excess of 19.99% to AM Latin America or its Permitted Transferee, and will negotiate in good faith the terms of any such transfer, including the structuring of such transfer in such a manner as to avoid any Taxes applicable to the Company, AM Latin America or AM Latin America's Permitted Transferee as a result of such Transfer. Section 5.18. Reserve of Promissory Notes. The Company shall, and each of the Shareholders shall cause the Company to, hold in reserve the Promissory Notes to cover certain obligations of each of SBCI and America Movil assumed by the Company pursuant to an Assumption Agreement, dated as of November 16, 2000, among SBCI, America Movil and the Company (the "Assumption Agreement"), as set forth in this Section 5.18. For the period during which any Promissory Note shall remain outstanding, the Company shall, and each of the Shareholders shall cause the Company to, hold in reserve and not draw upon or otherwise encumber or utilize the Promissory Notes in respect of the aggregate principal amount of $200,000,000, comprised as follows: (i) $100,000,000 with respect to the SBCI Assumed Obligations (as such term is defined in the Assumption Agreement); and (ii) $100,000,000 with respect to the AM Assumed Obligations (as such term is defined in the Assumption Agreement). The aggregate principal amount of the Promissory Notes prior to their repayment or prepayment as set forth above shall be held in reserve by the Company and may not be drawn upon or otherwise encumbered or utilized by the Company without the prior written consent of each of SBCI and America Movil until (A) all the SBCI Assumed Obligations and AM Assumed Obligations have been paid in full and fully discharged or (B) the Company has obtained the unconditional release of each of SBCI and America Movil with respect to all of the SBCI Assumed Obligations and AM Assumed Obligations covered by the Assumption Agreement. ARTICLE VI MISCELLANEOUS Section 6.01. Conflict with Memorandum of Association or Bye-Laws. In the event that any provision of this Agreement conflicts with any provision of the Memorandum of Association or the Bye-Laws, the terms of this Agreement shall prevail, and each Shareholder shall vote all of the shares of Common Stock and Series C Shares that it holds of record, and shall take all actions necessary, to ensure that at all times that the Memorandum of Association and the Bye-Laws of the Company do not conflict with any provision of this Agreement. Section 6.02. Expenses. Except as otherwise specified in this Agreement, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. Section 6.03. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by facsimile, or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 6.03): (a) if to BCI Investments or BCI: Bell Canada International Investments Limited/ Bell Canada International Inc. c/o Bell Canada International Inc. 1000, rue de La Gauchetiere Ouest Suite 1100 Montreal, Quebec H3B 4Y8 Canada Facsimile: (514) 392-2470 Attention : Chief Executive Officer with a copy to: Bell Canada International Inc., 1000, rue de La Gauchetiere Ouest Suite 1100 Montreal, Quebec H3B 4Y8 Canada Facsimile: (514) 392-2342 Attention: Vice President Law and Corporate Secretary and with a further copy to: Shearman & Sterling 599 Lexington Avenue New York, New York 10022 Facsimile: (212) 848-7179 Attention: Alberto Luzarraga, Esq. (b) if to BCE: BCE Inc. 1000 de La Gauchetiere Ouest Suite 3700 Montreal, Quebec H3B 4Y7 Canada Facsimile: (514) 870-4877 Attention : Chief Legal officer with a copy to: Shearman & Sterling 599 Lexington Avenue New York, New York 10022 Facsimile: (212) 848-7179 Attention: Alberto Luzarraga, Esq. (c) if to AM Latin America: AM Latin America, LLC 1105 North Market Street, Suite 1300 Wilmington, DE 19801 Facsimile: (302) 651-8422 Attention: William R. Bechstein (Delaware Corporate Management Inc.) with a copy to: Cleary, Gottlieb, Steen & Hamilton One Liberty Plaza New York, New York 10006 Facsimile: (212) 225-3999 Attention: Nicolas Grabar, Esq. with a further copy to: Franck, Galicia, Duclaud y Robles, S.C. Avenida Paseo de las Palmas No. 405 - 3rd Floor Colonia Lomas de Chapultepec Mexico D.F. 11000 Facsimile: (525) 540-9202 Attention: Rafael Robles (d) if to America Movil: America Movil, S.A. de C.V. Lago Alberto 366 Colonia Anahuac 11320 Mexico, D.F. Mexico Facsimile: (525) 625-3852 Attention: Daniel Hajj with a copy to: Cleary, Gottlieb, Steen & Hamilton One Liberty Plaza New York, New York 10006 Facsimile: (212) 225-3999 Attention: Nicolas Grabar, Esq. with a further copy to: Franck, Galicia, Duclaud y Robles, S.C. Avenida Paseo de las Palmas No. 405 - 3rd Floor Colonia Lomas de Chapultepec Mexico D.F. 11000 Facsimile: (525) 540-9202 Attention: Rafael Robles (e) if to SBCI Brazil Holding or SBCI: SBC International, Inc. 175 East Houston Street San Antonio, TX 78205 Facsimile: (210) 351-5034 Attention: Senior Executive Vice President, Corporate Development with a copy to: SBC International, Inc. 175 East Houston Street San Antonio, TX 78205 Facsimile: (210) 351-3488 Attention : General Attorney, Mergers and Acquisitions with a further copy to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Facsimile: (212) 310-8007 Attention: Howard Chatzinoff, Esq. (f) if to SBCI Parent: SBC International, Inc. 175 East Houston Street San Antonio, TX 78205 Facsimile: (210) 351-5034 Attention : Senior Executive Vice President, Corporate Development with a copy to: SBC International, Inc. 175 East Houston Street San Antonio, TX 78205 Facsimile: (210) 351-3488 Attention : General Attorney, Mergers and Acquisitions With a further copy to : Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Facsimile : (212) 310-8007 Attention : Howard Chatzinoff, Esq. (g) if to the Company: Telecom Americas Ltd. Cedar House 41 Cedar Avenue Hamilton HM 12 Bermuda Facsimile: (441) 292-8666 Attention: Corporate Secretary Section 6.04. Headings. The descriptive headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. Section 6.05. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any Law, governmental regulation or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect as long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. Section 6.06. Entire Agreement. This Agreement and the Transaction Documents constitute the entire agreement of the parties hereto with respect to the subject matter hereof and thereof and supersede all prior agreements and undertakings, both written and oral, between the parties with respect to the subject matter hereof and thereof. Section 6.07. Assignment. This Agreement may not be assigned without the express written consent of the parties (which consent may be granted or withheld in the sole discretion of any party), except that any Shareholder may assign its rights hereunder as permitted by Section 3.13 and Article IV hereof; provided, however, that any Sponsor Party may, without the written consent of any other party, assign and delegate this Agreement and its rights and obligations hereunder in connection with a merger, consolidation or sale of all or substantially all of its assets. Section 6.08. No Third Party Beneficiaries. This Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their permitted assigns and successors and nothing herein, express or implied, is intended to or shall confer upon any other person or entity, any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. Section 6.09. Amendment. Subject to Section 6.17, this Agreement may not be amended or modified, except by an instrument in writing signed by, or on behalf of, each of the parties bound by, or subject to the provision to be amended or modified. Section 6.10. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts executed in and to be performed in that State without regard to conflicts of law. Section 6.11. Counterparts. This Agreement may be executed and delivered in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Section 6.12. Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at Law or in equity. Section 6.13. Waiver of Jury Trial. Each of the parties hereto irrevocably and unconditionally waives trial by jury in any legal action or proceeding relating to this Agreement, the Transaction Documents or the transactions contemplated hereby and thereby and for any counterclaim therein. Section 6.14. Dispute Resolution. The parties agree that any controversy, claim or dispute arising out of or relating to or in connection with this Agreement including, without limitation, any dispute regarding its breach, termination, enforceability or validity hereof (each, a "Dispute") should be regarded as a business problem to be resolved promptly through business-oriented negotiations before resorting to arbitration pursuant to Section 6.15. The parties therefore agree to attempt in good faith to resolve any Dispute promptly by negotiation between the executives of the parties who have authority to settle the Dispute. Such negotiations shall commence upon the mailing of a notice (the "Dispute Notice") from the appropriate executive of the requesting party to an appropriate executive of the responding party. If the Dispute has not been resolved by these Persons within forty-five (45) days of the date of the Dispute Notice, unless the parties agree in writing to a longer period, the Dispute shall be referred to the chief executive officer of each of BCI and America Movil, for discussion and negotiation among them. In the event the Dispute has still not been resolved by negotiation within forty-five (45) days of such referral, then such Dispute shall be settled pursuant to binding arbitration pursuant to Section 6.15. All negotiations pursuant to this Section 6.14 shall be confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence and shall not be used for, or admitted in, any arbitration or court proceedings under this Agreement. Section 6.15. Arbitration . (a) Any Dispute that has not been resolved pursuant to Section 6.14 shall be finally settled by binding arbitration in The City of New York, New York County, before a panel of three arbitrators. The arbitration shall be administered by the International Court of Arbitration of the International Chamber of Commerce (the "ICC") under its Rules of Arbitration as in effect at the time of this Agreement, except as they may be modified herein by agreement of the parties and shall be conducted in the English language. Each party shall nominate one arbitrator, obtain its nominee's acceptance of such nomination, and deliver written notification of such nomination and acceptance to the other party within thirty (30) days after delivery of the request for arbitration. In the event a party fails to nominate an arbitrator or deliver notification of such nomination to the other party within this time period, upon request of any party, such arbitrator shall instead be appointed by the ICC within thirty (30) days of receiving such request. In the event there are two Shareholders who are parties to the dispute, the two arbitrators nominated in accordance with the above provisions shall nominate the third arbitrator, obtain the nominee's acceptance of such nomination and notify the parties in writing of such nomination and acceptance within thirty days of their nomination. If the first two nominated arbitrators fail to nominate a third arbitrator or notify the parties of that nomination within this time period, then, upon request of either party, the third arbitrator shall be appointed by the ICC within thirty (30) days of receiving such request. Nonetheless, in no event shall any such arbitrator nominated by the other arbitrators be a resident in, or a domicile of, any country in which a shareholder is domiciled or has its principal place of business. In the event that more than two Shareholders are parties to the Dispute, each such Shareholder shall be entitled to nominate an arbitrator in the manner and time period referred to above. In the event a party fails to nominate an arbitrator or deliver notification of such nomination to the other parties within this time period, upon request of any party, such arbitrator shall instead be appointed by the ICC within thirty (30) days of receiving such request. The arbitrators appointed in accordance with the previous two sentences shall mutually agree to designate one of them to act as chair within thirty days of their appointment. For the sake of clarity, it is expressly understood that the function of such chair is administrative only and shall not signify that such chair has greater or different powers as arbitrator from the other arbitrators. In the event that the arbitrators nominated in accordance with the above provisions fail to agree upon the selection of a chair within this time period, upon request of any party, the chair shall instead be designated by the ICC within thirty days of receiving such request. The award of the arbitrators shall be final and binding upon the parties, and shall not be subject to any appeal or review. The parties agree to submit to the non-exclusive personal jurisdiction of the federal and state courts sitting in The City of New York, New York for the purpose of enforcing this agreement to arbitrate. (b) No provision of, nor the exercise of any rights under, this Section 6.15 shall limit the right of any party to request and obtain from a court of competent jurisdiction in The City of New York (which shall have exclusive jurisdiction for purposes of this Section 6.15(b)) before, during or after the pendency of any arbitration, provisional or ancillary remedies and relief including, but not limited to, injunctive or mandatory relief or the appointment of a receiver. The institution and maintenance of an action or judicial proceeding for, or pursuit of, provisional or ancillary remedies shall not constitute a waiver of the right of any party, even if it is the plaintiff, to submit the dispute to arbitration if such party would otherwise have such right. Each of the parties hereby submits unconditionally (to the extent permitted by applicable law) to the exclusive jurisdiction of the state and federal courts located in The City of New York, County of New York for purposes of this provision, waives objection to the venue of any proceeding in any such court or that any such court provides an inconvenient forum and consents to the service of process upon it in connection with any proceeding instituted under this Section 6.15(b) in the same manner as provided for the giving of notice hereunder. (c) Judgment upon the award rendered may be entered in any court having jurisdiction. The parties hereby expressly consent to the nonexclusive jurisdiction of the state and federal courts situated in The City of New York, County of New York for this purpose and waive objection to the venue of any proceeding in such court or that such court provides an inconvenient forum. (d) Each of the parties participating in an arbitration pursuant to the terms of this Agreement shall, subject to the award of the arbitrators, pay an equal share of the arbitrators' fees. The arbitrators shall have the power to award recovery of all costs (including reasonable attorneys' fees, administrative fees, arbitrators' fees and court costs) to the prevailing party. (e) Each of: (i) BCI Investments, BCI and BCE hereby irrevocably designates CT Corporation, with offices situated at present at 111 Eighth Avenue, New York, New York 10011; (ii) SBCI Brazil Holding, SBCI and SBCI Parent hereby irrevocably designates CT Corporation, with offices situated at present at 111 Eighth Avenue, New York, New York 10011; and (iii) America Movil and AM Latin America hereby irrevocably designates CT Corporation, with offices situated at present at 111 Eighth Avenue, New York, New York 10011 as its authorized agent, respectively, to accept and acknowledge on its behalf service of any process which may be served in any proceeding in New York. Section 6.16. Termination. This Agreement shall terminate with respect to any Shareholder on the date on which such Shareholder no longer owns any Shares; provided that any liabilities or obligations of such Shareholder arising hereunder on or prior to such date, or based on any event or circumstance arising on or prior to such date, shall survive termination of this Agreement. Section 6.17. Minimum Interests. Notwithstanding any provision to the contrary set forth herein (except as set forth in Sections 3.04(a), 3.04(b) and 5.05(h)), if any Shareholder holds less than ten percent (10%) of the total Equity Interests in the Company, such Shareholder shall have all of the obligations, but none of the rights, of a Shareholder hereunder; provided, that this Agreement may not be amended in any manner that materially adversely affects such Shareholder without the written consent of such a Shareholder. Section 6.18. Aggregating Interests. To the extent that any Shareholder's rights or obligations hereunder are conditioned upon such Shareholder maintaining ownership of a specified percentage of the Outstanding Shares or Equity Interests in the Company, the Equity Interests owned by such Shareholder may, without duplication, be aggregated with the Equity Interests owned by Permitted Transferees of such Shareholder for purposes of calculating such percentages. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized signatories thereunto duly authorized as of the date first written above. BELL CANADA INTERNATIONAL INVESTMENTS LIMITED By -------------------------------------------- Name: Title: AM LATIN AMERICA, LLC By -------------------------------------------- Name: Title: SBC INTERNATIONAL - BRAZIL HOLDING, LTD. By -------------------------------------------- Name: Title: TELECOM AMERICAS LTD. By -------------------------------------------- Name: Title: ACKNOWLEDGED and, with respect to Sections 2.03, 4.05, 5.05, 5.07 and 5.08 and Article VI, AGREED as of the date first written above. BELL CANADA INTERNATIONAL INC. By -------------------------------------------- Name: Title: ACKNOWLEDGED and, with respect to Sections 2.02, 4.05, 5.05, 5.07, 5.08 and 5.15 and Article VI, AGREED as of the date first written above. BCE INC. By -------------------------------------------- Name: Title: ACKNOWLEDGED and, with respect to Sections 2.04, 4.05 and 5.05 and Article VI, AGREED as of the date first written above. SBC INTERNATIONAL, INC. By -------------------------------------------- Name: Title: ACKNOWLEDGED and, with respect to Sections 2.02, 4.05, 5.05 and 5.07 and Article VI, AGREED as of the date first written above. AMERICA MOVIL, S.A. de C.V. By -------------------------------------------- Name: Title: ACKNOWLEDGED and, with respect to Sections 2.02, 4.05, 5.05, 5.07 and 5.15 and Article VI, AGREED as of the date first written above. SBC COMMUNICATIONS, INC. By -------------------------------------------- Name: Title:
SCHEDULE A INITIAL CAPITALIZATION OF THE COMPANY Shares of Percentage Interest Voting Common Stock Shares of In the Company Series C Shares Bell Canada International Investments 8,936.338 1,690.142 44.277% Limited AM Latin America , LLC 10,626.48 0 44.277% SBC International - Brazil Holding, 2,747.04 0 11.446% Ltd.
SCHEDULE 2.03(a) OTHER REGISTRATION RIGHTS AGREEMENTS Registration Rights Agreement between Bell Canada International Inc. and BCE Inc. dated October 6, 1997.
SCHEDULE 2.03(b) EQUITY INTERESTS OF BCI INVESTMENTS IN SUBNEWCO1, SUBNEWCO2 AND SUBNEWCO3 Equity Interests of Subnewco1 Authorized Capital: 12,000 voting common shares ("Subnewco1 Common Shares") 12,001 voting non-participating preferred shares with nominal economic value ("Subnewco1 Preferred Shares") Issued and Outstanding Capital: 12,000 Subnewco1 Common Shares held by the Company 12,001 Subnewco1 Preferred Shares held by BCI Investments Percentage Held Directly by BCI Investments holds 0% of Subnewco1 Common Shares and 100% of BCI Investments: Subnewco1 Preferred Shares. Equity Interests of Subnewco2 Authorized Capital: 12,000 voting common shares ("Subnewco2 Common Shares") 12,001 voting non-participating preferred shares with nominal economic value ("Subnewco2 Preferred Shares") Issued and Outstanding Capital: 12,000 Subnewco2 Common Shares held by the Company 12,001 Subnewco2 Preferred Shares held by BCI Investments Percentage Held Directly by BCI Investments holds 0% of Subnewco2 Common Shares and 100% of BCI Investments: Subnewco2 Preferred Shares. Equity Interests of Subnewco3 Authorized Capital: 12,000 voting common shares ("Subnewco3 Common Shares") 12,001 voting non-participating preferred shares with nominal economic value ("Subnewco3 Preferred Shares") Issued and Outstanding Capital: 12,000 Subnewco3 Common Shares held by the Company 12,001 Subnewco3 Preferred Shares held by BCI Investments Percentage Held Directly by BCI Investments holds 0% of Subnewco3 Common Shares and 100% of BCI Investments: Subnewco3 Preferred Shares.
SCHEDULE 2.04 EQUITY INTERESTS OF SBCI BRAZIL HOLDING IN SUBNEWCO4 Equity Interests of SBCI Brasil Ltda. Authorized Capital: The Articles of Association of SBCI Brasil Ltda. ("Subnewco4") do not provide for an authorized capital. An unlimited number of quotas may be issued, as decided upon by the Quotaholders. Issued and Outstanding 890,062,346 quotas are issued and outstanding, of which Capital: 445,031,172 are Class A quotas (voting stock) and 445,031,174 are Class B quotas (non-voting stock). 294,587,527 Class A quotas are held by SBC International - Brazil Holding, Ltd. ("SBCI Brazil Holding"). 150,443,645 Class A quotas and 445,031,170 Class B quotas are held by Telecom Americas Ltd. (the "Company"). 1 Class B quota is held by Michael A. Meyer. 1 Class B quota is held by Phillip C. Essman. 1 Class B quota is held by Luiz Fernado Teixeira Pinto. 1 Class B quota is held by Daniel Hajj Aboumrad. Percentage held directly by SBCI Brazil Holding holds 66.195% of the Class A quotas and 0% of the Class B SBCI Brazil Holding: quotas of Subnewco4.
Options, Warrants, Calls, Etc. 1. 5th Amendment to the Articles of Association of Subnewco4, dated as of November 16, 2000. 2. Exchangeable Debenture Agreement, dated as of November 16, 2000, by and among SBCI Brazil Holding, the Company and Subnewco4. SCHEDULE 3.13 TRANSFEREES REQUIRING CONSENT [ ] SCHEDULE 5.11 UNWIND PROCEDURES Capitalized terms used but not otherwise defined herein shall have the meaning as set forth in the Shareholders Agreement. [Four pages of materials omitted.] Attachment 1 to Schedule 5.11 FORM OF OPTION AGREEMENT [Ten pages of materials omitted.] SCHEDULE 5.13 LIST OF INVESTMENT BANKS Credit Suisse First Boston Goldman Sachs & Co. Salomon Smith Barney EXHIBIT A MEMORANDUM OF ASSOCIATION OF THE COMPANY AND THE SUBNEWCOS FORM NO. 2 [GRAPHIC OMITTED] BERMUDA THE COMPANIES ACT 1981 MEMORANDUM OF ASSOCIATION OF COMPANY LIMITED BY SHARES (Section 7(1) AND (2) MEMORANDUM OF ASSOCIATION OF Ivey Holdco Ltd. (hereinafter referred to as "the Company") 1. The liability of the members of the Company is limited to the amount (if any) for the time being unpaid on the shares respectively held by them. 2. We, the undersigned, namely,
NAME ADDRESS BERMUDIAN NATIONALITY NUMBER OF STATUS SHARES (Yes/No) SUBSCRIBED Timothy J. Counsell Cedar House, 41 Cedar Avenue Hamilton, HM 12, Bermuda Yes British 1 Ruby L. Rawlins Cedar House, 41 Cedar Avenue Hamilton HM 12, Bermuda Yes British 1 Rachael M. Lathan Cedar House, 41 Cedar Avenue Hamilton HM 12, Bermuda Yes British 1 Antoinette Simmons Cedar House, 41 Cedar Avenue Hamilton HM 12, Bermuda Yes British 1
do hereby respectively agree to take such number of shares of the Company as may be allotted to us respectively by the provisional directors of the Company, not exceeding the number of shares for which we have respectively subscribed, and to satisfy such calls as may be made by the directors, provisional directors or promoters of the Company in respect of the shares allotted to us respectively. 3. The Company is to be an exempted Company as defined by the Companies Act 1981. 4. The Company, with the consent of the Minister of Finance, has power to hold land situate in Bermuda not exceeding in all, including the following parcels- Not Applicable 5. The authorised share capital of the Company is $12,000.00 divided into 12,000 shares of U.S. one dollar each. The minimum subscribed share capital of the Company is $12,000.00 in United States currency. 6. The objects for which the Company is formed and incorporated are - As set forth in paragraphs (b) to (n) and (p) to (u) inclusive of the Second Schedule to The Companies Act, 1981. 7. The Company has the powers set out in the Schedule annexed hereto. Signed by each subscriber in the presence of at least one witness attesting the signature thereof - (Subscribers) (Witnesses) SUBSCRIBED this day of STAMP DUTY (To be affixed) Not Applicable FORM No. 2 [GRAPHIC OMITTED] BERMUDA THE COMPANIES ACT 1981 MEMORANDUM OF ASSOCIATION OF COMPANY LIMITED BY SHARES Section 7(1) and (2) MEMORANDUM OF ASSOCIATION OF Ivey CLEC Ltd. - -------------------------------------------------------------------------------- (hereinafter referred to as "the Company") 1. The liability of the members of the Company is limited to the amount (if any) for the time being unpaid on the shares respectively held by them. 2. We, the undersigned, namely, Name and Address Bermudian Status Nationality Number of Shares (Yes or No) Subscribed Timothy J. Counsell Cedar House 41 Cedar Avenue Hamilton HM 12, Bermuda Yes British 1 Ruby L. Rawlins Cedar House 41 Cedar Avenue Hamilton HM 12, Bermuda Yes British 1 Rachael M. Lathan Cedar House 41 Cedar Avenue Hamilton HM 12, Bermuda Yes British 1 Antoinette Simmons Cedar House 41 Cedar Avenue Hamilton HM 12, Bermuda Yes British 1 do hereby respectively agree to take such number of shares of the Company as may be allotted to us respectively by the provisional directors of the Company, not exceeding the number of shares for which we have respectively subscribed, and to satisfy such calls as may be made by the directors, provisional directors or promoters of the Company in respect of the shares allotted to us respectively. 3. The Company is to be an exempted Company as defined by the Companies Act 1981. 4. The Company, with the consent of the Minister of Finance, has power to hold land situate in Bermuda not exceeding ___ in all, including the following parcels:- Not Applicable 5. The authorised share capital of the Company is $12,000.00 divided into 12,000 shares of US$1.00 each. The minimum subscribed share capital of the Company is $12,000.00 in United States Currency. 6. The objects for which the Company is formed and incorporated are:- As set forth in paragraphs (b) to (n) and (p) to (u) inclusive of the Second Schedule to the Companies Act 1981. 7. The Company has the powers set out in The Schedule annexed hereto. Signed by each subscriber in the presence of at least one witness attesting the signature thereof:- (Subscribers) (Witnesses) Subscribed this day of FORM No. 2 [GRAPHIC OMITTED] BERMUDA THE COMPANIES ACT 1981 MEMORANDUM OF ASSOCIATION OF COMPANY LIMITED BY SHARES Section 7(1) and (2) MEMORANDUM OF ASSOCIATION OF Ivey Wireless Ltd. - -------------------------------------------------------------------------------- (hereinafter referred to as "the Company") 1. The liability of the members of the Company is limited to the amount (if any) for the time being unpaid on the shares respectively held by them. 2. We, the undersigned, namely, Name and Address Bermudian Status Nationality Number of Shares (Yes or No) Subscribed Timothy J. Counsell Cedar House 41 Cedar Avenue Hamilton HM 12, Bermuda Yes British 1 Ruby L. Rawlins Cedar House 41 Cedar Avenue Hamilton HM 12, Bermuda Yes British 1 Rachael M. Lathan Cedar House 41 Cedar Avenue Hamilton HM 12, Bermuda Yes British 1 Antoinette Simmons Cedar House 41 Cedar Avenue Hamilton HM 12, Bermuda Yes British 1 do hereby respectively agree to take such number of shares of the Company as may be allotted to us respectively by the provisional directors of the Company, not exceeding the number of shares for which we have respectively subscribed, and to satisfy such calls as may be made by the directors, provisional directors or promoters of the Company in respect of the shares allotted to us respectively. 3. The Company is to be an exempted Company as defined by the Companies Act 1981. 4. The Company, with the consent of the Minister of Finance, has power to hold land situate in Bermuda not exceeding ___ in all, including the following parcels:- Not Applicable 5. The authorised share capital of the Company is $12,000.00 divided into 12,000 shares of US$1.00 each. The minimum subscribed share capital of the Company is $12,000.00 in United States Currency. 6. The objects for which the Company is formed and incorporated are:- As set forth in paragraphs (b) to (n) and (p) to (u) inclusive of the Second Schedule to the Companies Act 1981. 7. The Company has the powers set out in The Schedule annexed hereto. Signed by each subscriber in the presence of at least one witness attesting the signature thereof:- (Subscribers) (Witnesses) Subscribed this day of TERRITORY OF THE BRITISH VIRGIN ISLANDS THE INTERNATIONAL BUSINESS COMPANIES ACT (CAP. 291) AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION OF BELL CANADA INTERNATIONAL BVI V LIMITED 1. The name of the Company is Bell Canada International BVI V Limited. 2. The registered office of the Company will be situated at Arawak Chambers, Sea Meadow House, P.O. Box 173, Blackburne Highway, Road Town, Tortola, British Virgin Islands or at such other place in the British Virgin Islands as the directors may from time to time determine. 3. The registered agent of the Company will be Arawak Trust Company Limited of Arawak Chambers, Sea Meadow House, P.O. Box 173, Blackburne Highway, Road Town, Tortola, British Virgin Islands or such other person or company being a person or company entitled to act as a registered agent as the directors may from time to time determine. 4. The objects for which the Company is established are:- (1) To invest in telecommunications services and operations and the provisioning of telecommunications services anywhere outside the British Virgin Islands. (2) To buy, sell, mortgage, lease, manage, build, develop, possess and generally deal in real properties; to buy, sell, underwrite, invest in, exchange or otherwise acquire, and to hold, manage, develop, deal with and turn to account any bonds, debentures, shares (whether fully paid or not), stocks, options, commodities, futures, forward contracts, notes, or securities of all types, precious metals, gems, works of art and other articles of value. (3) To borrow or raise money by the issue of debentures, debenture stock (perpetual or terminable), bonds, mortgages, or any other securities founded or based upon all or any of the assets or property of the Company or without any such security and upon such terms as to priority or otherwise as the Company shall think fit. (4) To guarantee loans and to lend money with or without guarantee or security to any persons, firms or corporation. (5) To engage in any other business or businesses whatsoever, or in any acts or activities, which are not prohibited under any law for the time being in force in the British Virgin Islands. (6) To do all such other things as are incidental to, or the Company may think conducive to the attainment of, all or any of the above objects. And it is hereby declared that the intention is that each of the objects specified in each paragraph of this clause shall, except where otherwise expressed in such paragraph, be an independent main object and be in no ways restricted by reference to any inference from the terms of any other paragraph or the name of the Company. 5. The Company has no power to:- (1) carry on business with persons resident in the British Virgin Islands; (2) own an interest in real property situate in the British Virgin Islands, other than a lease of property for use as an office from which to communicate with members or where books and records of the Company are prepared or maintained; (3) carry on banking or trust business, unless it is licensed under the Banks and Trust Companies Act, 1990; (4) carry on business as an insurance or re-insurance company, insurance agent or insurance broker, unless it is licensed under an enactment authorising it to carry on that business; (5) carry on the business of company management unless it is licensed under the Company Management Act, 1990; or (6) carry on the business of providing the registered office or the registered agent for companies incorporated in the British Virgin Islands. 6. The shares of the Company shall be issued in the currency of the United States of America. 7. The authorised capital of the Company is US$95,316.33. 8. The authorised capital of the Company is made up of two classes of shares as follows: (1) 12,000 Common Shares (the "Common Shares") with a par value of US$1.00 per share; and (2) 48,301 Preferred Shares (the "Preferred Shares") with a par value of US$1.72494 per share. 9. The rights attaching to the Common Shares and Preferred Shares are as follows: (1) The holders of the Common Shares shall, subject to the provisions of this Memorandum: (a) be entitled to one vote per share and, for so long as the Preferred Shares are entitled to vote, to vote with the Preferred Shares as if they were a single class, in all matters, including discontinuation, except as otherwise provided in this Memorandum; (b) be entitled to such dividends as the Board may from time to time declare; (c) in the event of a winding-up or dissolution of the Company, whether voluntary or involuntary or for the purpose of a reorganisation or otherwise or upon any distribution of capital, be entitled to the surplus assets of the Company; and (d) generally be entitled to enjoy all of the rights attaching to shares of the Company. (2) The holders of the Preferred Shares shall, subject to the provisions of this Memorandum: (a) prior to the occurrence of the Redemption Condition, be entitled to one vote per share and to vote with the Common Shares as if they were a single class in all matters, including discontinuation, except as otherwise provided in this Memorandum, PROVIDED THAT upon the occurrence of the Redemption Condition, the Preferred Shares shall immediately cease to have any voting rights regardless of whether the Company has given notice of any meeting of members; (b) not be entitled to dividends or other distributions or otherwise participate in the profits of the Company; (c) in the event of a winding-up or dissolution of the Company, whether voluntary or involuntary or for the purpose of a reorganisation or otherwise or upon any distribution of capital, be entitled solely to the par value per share of the Preferred Shares in priority to any payment to the holders of the Common Shares; (d) the Preferred Shares shall only be held by BCI Investments and shall not be transferred to any Person other than (i) Telecom Americas, or its successors and assigns, or (ii) to a Permitted Transferee of BCI Investments holding Telecom Americas Shares transferred to it pursuant to and in accordance with Section 4.05 of the Joint Venture Shareholders Agreement (PROVIDED THAT such Permitted Transferee shall be permitted to hold Preferred Shares only for so long as it continues to hold Telecom Americas Shares and remains a Permitted Transferee of BCI Investments). (1) Upon the occurrence of the Redemption Condition, the Company shall redeem all, but not less than all, of the Preferred Shares outstanding at the time of such redemption. On any such redemption, the Company shall pay a price in cash equal to U.S.$0.01 per share to the Members holding the Preferred Shares. Not more than five days after the occurrence of the Redemption Condition, the Company shall deliver a written notice to all Members holding Preferred Shares indicating: (i) that it intends to redeem the shares pursuant to this sub-clause, (ii) that payment will be made upon surrender of the certificates representing the Preferred Shares, and (iii) specifying the consideration to be paid to each holder and the place, manner and date of such payment and the surrender of the certificates evidencing the Preferred Shares, which shall be within ten days of the date of such notice. (2) The Members holding the Preferred Shares shall surrender the share certificates representing the Preferred Shares to the Company and shall receive the redemption price in accordance with the written notice delivered by the Company. Any Preferred Shares not surrendered in a timely manner shall be automatically redeemed by the Company, and the Company shall segregate and hold in trust the consideration to which such holders are entitled for a period of six years. (3) The failure of the Company to redeem the shares upon the occurrence of the Redemption Condition shall not constitute a waiver of the Company's right and obligation to redeem the Preferred Shares. Shares in the Company may only be issued shares as registered shares and may not be exchanged for shares issued to bearer. No Section of this Memorandum and no Regulation of the Articles of Association shall be rescinded, altered or amended and no new section of this Memorandum or new Regulation shall be made until the same has been approved by a resolution of the Board in accordance with Regulation 9 of the Articles of Association and by a resolution of the majority of the Members holding Common Shares voting as a class, and for so long as the Preferred Shares are entitled to voting rights, a resolution of a majority of the Members holding Preferred Shares voting as a class. The meaning of words in this Memorandum are as defined in the Regulations to the Articles of Association. We, ARAWAK TRUST COMPANY LIMITED of Road Town, Tortola, British Virgin Islands for the purpose of incorporating an International Business Company under the laws of the British Virgin Islands hereby subscribe our name to this Memorandum of Association the 21st day of July, 1995:- - -------------------------------------------------------------------------------- NAME, ADDRESS AND DESCRIPTION OF SUBSCRIBER - -------------------------------------------------------------------------------- ARAWAK TRUST COMPANY LIMITED P O Box 173 Road Town Tortola British Virgin Islands Trust Company (Sgd.) David A. Raworth - ------------------------------------------- Arawak Trust Company Limited - ------------------------------------------- Witness to the above signature: (Sgd.) M. Fahie ---------------------------------- Marsha Fahie P.O. Box 173 Road Town Tortola British Virgin Islands EXHIBIT B AMENDED AND RESTATED BYE-LAWS OF THE COMPANY AND AMENDED AND RESTATED BYE-LAWS OR ARTICLES OF ASSOCIATION, AS THE CASE MAY BE, OF EACH OF THE SUBNEWCOS AMENDED AND RESTATED B Y E - L A W S of TELECOM AMERICAS LTD. TABLE OF CONTENTS Page 1. Interpretation............................................................1 2. Board of Directors........................................................9 3. Management of the Company.................................................9 4. Chairman of the Board....................................................10 5. Power to authorise specific actions......................................10 6. Power to appoint attorney and auditors...................................10 7. Power to delegate to a committee.........................................11 8. Power to appoint and dismiss employees...................................11 9. Power to borrow and charge property......................................11 10. Exercise of power to purchase shares of or discontinue the Company...............................................11 11. Matters Requiring a Qualified Vote of the Board..........................12 12. Nomination of Directors..................................................14 13. Number of Directors......................................................17 14. Defects in appointment of Directors......................................18 15. Alternate Directors......................................................18 16. Removal of Directors.....................................................18 17. Vacancies on the Board...................................................20 18. Notice of meetings of the Board..........................................21 19. Quorum at meetings of the Board..........................................22 20. Meetings of the Board....................................................22 21. Unanimous written resolutions............................................23 22. Contracts and disclosure of Directors' interests.........................23 23. Remuneration of Directors................................................23 24. Officers of the Company..................................................24 25. Appointment of Officers..................................................24 26. Remuneration of Officers.................................................24 27. Duties of Officers.......................................................24 28. Removal of Chief Executive Officer and Chief Financial Officer...........25 29. Chairman of meetings.....................................................25 30. Register of Directors and Officers.......................................25 31. Obligations of Board to keep minutes.....................................25 32. Indemnification of Directors and Officers of the Company.................26 33. Waiver of claim by Member................................................26 34. Notice of annual general meeting; Postponement of Meetings...............27 35. Notice of special general meeting........................................27 36. Accidental omission of notice of general meeting.........................27 37. Meeting called on requisition of Members.................................27 38. Short notice.............................................................28 39. Quorum for general meeting...............................................28 40. Adjournment of meetings..................................................29 41. Attendance at meetings...................................................29 42. Written resolutions......................................................29 43. Attendance of Directors..................................................30 44. Voting at meetings.......................................................30 45. Voting on show of hands..................................................31 46. Other Matters Requiring a Special Vote...................................31 47. Decision of chairman.....................................................32 48. Demand for a poll........................................................32 49. Seniority of joint holders voting........................................33 50. Instrument of proxy......................................................34 51. Representation of corporations at meetings...............................34 52. Rights of shares.........................................................34 53. Power to issue shares....................................................35 54. Variation of rights, alteration of share capital and purchase of shares of the Company....................................36 55. Registered holder of shares..............................................37 56. Death of a joint holder..................................................37 57. Share certificates.......................................................37 58. Calls on shares..........................................................38 59. Forfeiture of shares.....................................................38 60. Defaulting Shareholders..................................................39 61. Certain Issuances of New Securities......................................42 62. Contents of Register of Members..........................................42 63. Inspection of Register of Members........................................42 64. Determination of record dates............................................43 65. Transfer of Certain Veto Rights..........................................43 66. Transfer of Rights to Nominate Directors.................................44 67. Instrument of transfer...................................................45 68. Restriction on transfer..................................................45 69. Transfers by joint holders...............................................45 70. Representative of deceased Member........................................46 71. Registration on death or bankruptcy......................................46 72. Declaration of dividends by the Board....................................47 73. Other distributions......................................................47 74. Reserve fund.............................................................47 75. Deduction of Amounts due to the Company..................................47 76. Issue of bonus shares....................................................47 77. Records of account.......................................................48 78. Financial year end.......................................................48 79. Financial statements.....................................................48 80. Appointment of Auditor...................................................49 81. Remuneration of Auditor..................................................49 82. Vacation of office of Auditor............................................49 83. Access to books of the Company...........................................49 84. Report of the Auditor....................................................49 85. Notices to Members of the Company........................................50 86. Notices to joint Members.................................................50 87. Service and delivery of notice...........................................50 88. The seal.................................................................50 89. Manner in which seal is to be affixed....................................51 90. Winding-up/distribution by liquidator....................................51 91. Alteration of Bye-laws...................................................51 INTERPRETATION 1. Interpretation (1) In these Bye-laws the following words and expressions shall, where not inconsistent with the context, have the following meanings respectively: (a) "Act" means the Companies Act 1981 as amended from time to time; (b) "Affiliate" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by, or is under Common Control with, such specified Person; (c) "Alternate Director" means an alternate Director appointed in accordance with these Bye-laws; (d) "AM Latin America" means AM Latin America, LLC, a limited liability company organized under the laws of the State of Delaware; (e) "Auditor" includes any individual or partnership; (f) "BCE" means BCE Inc., a corporation organized under the laws of Canada; (g) "BCI" means Bell Canada International Inc., a corporation incorporated under laws of Canada; (h) "BCI Investments" means Bell Canada International Investments Limited, a company incorporated under the laws of the British Virgin Islands; (i) "Board" means the Board of Directors appointed or elected pursuant to these Bye-laws and acting by resolution in accordance with the Act and these Bye-laws or the Directors present at a meeting of Directors at which there is a quorum; (j) "Business Day" means any day that is not a Saturday, a Sunday or other day on which banks or stock exchanges are required by Law to be closed in the City of New York, New York, the City of Montreal, Canada, or the City of Sao Paulo, Brazil; (k) "Capital Stock" means, with respect to any Person at any time, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of capital stock, partnership interests (whether general or limited), membership interests or equivalent ownership interests in or issued by such Person; (l) "Common Shares" shall have the meaning as set forth in Bye-law 52(1). (m) "Company" means the company for which these Bye-laws are approved and confirmed; (n) "Control" (including the terms "Controlled by" and "under Common Control with"), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, or as trustee or executor, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise, including, without limitation, the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person; PROVIDED THAT a Person shall not be deemed to Control any Person that is a publicly traded company if its ownership of voting securities does not constitute a majority of the voting securities of such Person; (o) "Defaulting Shareholder" means any Shareholder that (i) has failed to pay its Outstanding Obligations within ten (10) Business Days of when due, (ii) is in material breach of its obligations under Section 3.07 of the Shareholders Agreement or Bye-law 68 or (iii) has willfully failed to refer a material business opportunity to the Company in breach of its obligations under Section 5.05 of the Shareholders Agreement and such material business opportunity is pursued by such Shareholder or any Affiliate independently of the Company; PROVIDED THAT a Shareholder shall cease to be a Defaulting Shareholder upon payment of such Outstanding Obligations or upon the curing of any such material breach; and PROVIDED FURTHER THAT any such material breach of Section 5.05 of the Shareholders Agreement will be considered cured if such business opportunity is referred to the Company in accordance with Section 5.05 of the Shareholders Agreement on terms no less favorable than those originally obtained by such Shareholder or its Affiliate, as the case may be. Notwithstanding the foregoing, no Shareholder shall be deemed to be a Defaulting Shareholder based on any material breach of its obligations under the Shareholders Agreement or Bye-law 68 (other than a failure to pay or perform its Outstanding Obligations in accordance with the terms of the Shareholder's Agreement and, if applicable, its Promissory Note or Special Notes) unless such Shareholder has received express written notice of such material breach from Shareholders holding at least fifty percent (50%) of the Equity Interests of the Company, and such Shareholder fails to cure such material breach within thirty (30) days after receipt of such notice; (p) "Director" means a director of the Company and shall include an Alternate Director; (q) "Encumbrance" means any security interest, pledge, mortgage, lien (including, without limitation, environmental and tax liens), charge, encumbrance or adverse claim; (r) "Equity Interests" means, with respect to any Person, all of the shares of Capital Stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of Capital Stock of (or other ownership or profit interests in) such Person, all of the securities (including loans, notes, debentures or other debt instruments) convertible into or exchangeable for shares of Capital Stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or non-voting; (s) "Fully Diluted Shares" means the aggregate of (i) the number of Shares issued and outstanding (other than Shares held by any wholly owned Subsidiary of the Company) and (ii) the number of Shares issuable upon (A) the exercise of any outstanding options, warrants or similar instruments (other than such instruments held by any wholly owned Subsidiary of the Company) and (B) the exercise of any conversion or exchange rights with respect to any outstanding securities or instruments (other than such securities or instruments held by any wholly owned Subsidiary of the Company); (t) "Governmental Authority" means , in any applicable jurisdiction, any federal, provincial, state or local government, any governmental, regulatory or administrative authority, agency or commission, or any court or tribunal, or judicial or arbitral body; (u) "Indebtedness" means, with respect to any Person, and in the case of clauses (a) through (h) below, whether secured or unsecured, (a), all indebtedness of such Person, whether or not contingent, for borrowed money, (b) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (c) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the sellers or lenders under such agreement in the event of default are limited to repossession or sale of such property), (d) all obligations of such Person as lessee under leases that have been or should be, in accordance with U.S. GAAP, recorded as capital leases, (e) all obligations contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (f) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any Equity Interests of such Person, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference, plus accrued and unpaid dividends, (g) all obligations of such Person for the deferred purchase price of property or services (other than current trade payables incurred in the ordinary course of business), (h) all obligations of such Person in respect of interest rate swaps, caps or collar agreements or similar arrangements, and (i) all Indebtedness of others referred to in clauses (a) through (h) above guaranteed directly or indirectly in any manner by such Person or secured by any Encumbrance on property (including accounts and contract rights) owned by such Person. (v) "Initial Business Plan" means the initial business plan of the Company attached as Exhibit C to the Shareholders Agreement; (w) "Initial Shareholder" means each of BCI Investments, AM Latin America and SBCI Brazil Holding. (x) "Initial Structure" means the tax structure in respect of the Company and its Subsidiaries described in Exhibit J to the Shareholders Agreement; (y) "Interim Financial Statements" means true and complete copies of the unaudited consolidated balance sheet of the Company and the related unaudited consolidated statements of income, retained earnings, shareholders' equity and cash flows of the Company, together with all related notes and schedules thereto, if any, prepared in accordance with U.S. GAAP (except as noted therein). (z) "Intermediate Company" means any Person (other than a Regulated Opco) that is a Subsidiary or Minority Investee of the Company; (aa) "Joint Venture Agreement" means the Amended and Restated Joint Venture Agreement dated as of September 25, 2000 among BCI, America Movil, S.A. de C.V., as successor in interest to Telefonos de Mexico, S.A. de C.V., and SBCI. (bb) "Law" means, in any applicable jurisdiction, any federal, provincial, state, local or foreign statute, law, treaty, ordinance, regulation, rule, code, order or other requirement or rule of law; (cc) "Member" means the person registered in the Register of Members as the holder of shares in the Company and, when two or more persons are so registered as joint holders of shares, means all of such persons; (dd) "Minority Investee" means any Person (other than a Subsidiary of the Company) in which the Company, directly or indirectly, holds an Equity Interest; (ee) "New Securities" means any Capital Stock of the Company, whether or not authorized at the time of adoption of these Bye-laws, and rights, options or warrants to purchase such Capital Stock, and securities of any type whatsoever that are, or may become, convertible into or exchangeable or exercisable for Capital Stock of the Company; PROVIDED THAT the term "New Securities" does not include (i) securities of the Company or any of the Company's Subsidiaries issued to employees, consultants, officers or directors of the Company in their capacity as such, or which have been reserved for issuance, pursuant to any employee share option, share purchase, share bonus plan, or other similar share agreement or arrangement approved by the Board, (ii) securities of the Company issued in connection with any share subdivision, consolidation, bonus issue or recapitalization of the Company and (iii) securities of the Company issued in connection with an initial public offering; (ff) "notice" means written notice as further defined in these Bye-laws unless otherwise specifically stated; (gg) "Officer" means any person appointed by the Board to hold an office in the Company; (hh) "Opco" means any of (i) the Regulated Opcos, (ii) Genesis Telecom C.A., a company organized under the laws of Venezuela, or Comunicaciones 2163 C.A., a company organized under the laws of Venezuela, and (iii) any other operating company in which the Company now or hereafter, directly or indirectly, holds an Equity Interest; (ii) "Outstanding" means, with respect to the common shares of the Company, as of any date of determination, common shares that have been issued on or prior to such date, other than common shares redeemed, repurchased or otherwise reacquired by the Company (or held by any Subsidiary of the Company) on or prior to such date. (jj) "Outstanding Obligations" means, with respect to any Initial Shareholder, the obligations of such Shareholder under (i) such Shareholder's Promissory Note, (ii) additionally, in the case of BCI Investments, the obligations of BCI Investments under the Special Notes, including, without limitation, the obligation to deliver to the Company the Vesper Net Sale Proceeds (as defined in the Joint Venture Agreement), in each case upon such obligations becoming due and payable in accordance with the terms of such Promissory Note or Special Notes, as the case may be, and (iii) additionally, in the case of AM Latin America, the obligation to contribute the Techtel Amount (as defined in the Joint Venture Agreement) to the Company pursuant to Section 2.03(c) of the Joint Venture Agreement; (kk) "Permitted Transferee" means, with respect to any Shareholder, any Person (a "transferee") with respect to which the Sponsor Party of such Shareholder maintains a majority economic and voting interest; PROVIDED THAT no such Person shall be deemed to be a Permitted Transferee if any Person other than the Sponsor Party is permitted, by contract or otherwise, to direct or influence the exercise by such transferee of any rights under the Shareholders Agreement or these Bye-laws, including, without limitation, rights pursuant to Bye-law 11; and, PROVIDED FURTHER THAT such Shareholder and its Sponsor Party comply with their respective obligations set forth in clause (6) of Bye-law 68; (ll) "Person" means any individual, partnership, firm, limited liability company, corporation, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under section 13(d)(3) of the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the U.S. Securities and Exchange Commission thereunder; (mm) "Promissory Note" means (a) with respect to BCI Investments, the promissory note dated November 16, 2000 between BCI Investments and the Company in the principal amount of $427,500,000, and (b) with respect to AM Latin America, the promissory note dated November 16, 2000 between AM Latin America and the Company in the principal amount of $1,007,500,000, in each case as the principal amount of such promissory note may be adjusted pursuant to Section 2.05 or Article VI of the Joint Venture Agreement; (nn) "Qualified Vote" means (a) with respect to any vote of the Board, the affirmative vote of at least one Director nominated by each Veto Shareholder that (i) is not a Defaulting Shareholder at the time of such vote, and (ii) is not prohibited from voting pursuant to the last proviso of Section 3.08(b), the last sentence of Section 5.05(b) or the last sentence of Section 5.05(e) of the Shareholders Agreement and (b) with respect to any vote of the Members, the affirmative vote of each Veto Shareholder that (i) is not a Defaulting Shareholder at the time of such vote, and (ii) is not prohibited from voting pursuant to the last proviso of Section 3.08(b), the last sentence of Section 5.05(b) or the last sentence of Section 5.05(e) of the Shareholders Agreement. (oo) "Register of Directors and Officers" means the Register of Directors and Officers referred to in these Bye-laws; (pp) "Register of Members" means the Register of Members referred to in these Bye-laws; (qq) "Regulated Opcos" means Americel S.A., a corporation (sociedade por acoes) organized under the laws of Brazil, ATL-Algar Telecom Leste, S.A., a corporation (sociedade por acoes) organized under the laws of Brazil, Canbras Participacoes Ltda., a corporation (sociedad por quotas de responsabilidade limitada) organized under the laws of Brazil, Comunicacion Celular S.A., Comcel S.A., a corporation (sociedad anonima) organized under the laws of Colombia, Telet S.A., a corporation (sociedade por acoes) organized under the laws of Brazil, TV Mogno Ltda., a corporation (sociedade por quotas de responsabilidade limitada) organized under the laws of Brazil, TV Eucalipto Ltda., a corporation (sociedade por quotas de responsabilidade limitada) organized under the laws of Brazil, TVA Jacaranda Ltda., a corporation (sociedade por quotas de responsabilidade limitada) organized under the laws of Brazil and Walberg Comunicacoes Ltda., a corporation (sociedade por quotas de responsabilidade limitada) organized under the laws of Brazil; provided, however, that each such Person shall cease to be deemed a Regulated Opco upon expiration or termination of applicable contractual or regulatory requirements restricting the transfer of control of such Person and, in the case of regulatory requirements, upon approval by the relevant Governmental Authorities of the transfer of control of such Person to the Company. (rr) "Resident Representative" means any person appointed to act as resident representative and includes any deputy or assistant resident representative; (ss) "Sale" means any sale, assignment, transfer, distribution or other disposition of Shares, including the grant of an irrevocable option or put in respect of such Shares, or other rights therein, whether voluntarily or by operation of law; (tt) "SBCI" means SBC International, Inc., a corporation incorporated under the laws of the State of Delaware; (uu) "SBCI Brazil Holding" means SBC International - Brazil Holding Ltd., a company incorporated under the laws of the Cayman Islands; (vv) "SBCI Parent" means SBC Communications Inc., a corporation organized under the laws of the State of Delaware; (ww) "Secretary" means the person appointed to perform any or all the duties of secretary of the Company and includes any deputy or assistant secretary; (xx) "Securities Act" means the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder; (yy) "Series C Shares" shall have the meaning as set forth in Bye-law 52(1). (zz) "Shareholder" means each of BCI Investments, AM Latin America and SBCI Brazil Holding and each other Person that becomes a party to the Shareholders Agreement in accordance with Section 4.06 thereof; (aaa) "Shareholders Agreement" means the Shareholders Agreement, dated as of November 16, 2000, among Bell Canada International Investments Limited, AM Latin America, LLC, SBC International - Brazil Holding, Ltd. and Telecom Americas Ltd., as such Agreement may be amended from time to time in accordance with the terms thereof; (bbb) "Shares" means any common share of the Company; (ccc) "Special Notes" means (a) the Exchangeable Promissory Note, Series A, dated November 16, 2000 between BCI Investments and the Company in the principal amount of $300,000,000, and (b) the Redeemable and Exchangeable Promissory Note, Ser