Exhibit 1.1
**(ENGLISH TRANSLATION)**
BY-LAWS OF CORPORACIÓN DURANGO, S.A. DE C.V.
(AS OF JULY 15, 2004)
CHAPTER ONE
NAME, PURPOSES, DOMICILE AND DURATION
ARTICLE ONE. The name of the corporation is “Corporación Durango” which alwaysshall be followed by the words “Sociedad Anónima de Capital Variable” or theabbreviation “S.A. de C.V.”
ARTICLE TWO. The Corporation has the following purposes:
1. To promote, incorporate, organize and participate in the capital andpatrimony of any kind of commercial or civil corporations, partnerships,associations or industrial, commercial, service or any other type ofenterprises, either Mexican or non-Mexican, as well as to participate in themanagement or liquidation thereof.
2. To acquire, sell or carry out all other legal acts concerning stock,certificates of participation, bonds, debentures, partnership interests and alltype of securities issued by Mexican and non-Mexican corporations.
3. The acquisition, establishment and lease of any type of personal and realproperty that may be required for the fulfillment of the corporate purpose andthe execution of the acts and agreements that may be required or appropriatefor such purpose, being able to acquire, dispose of and lease, whether forconsideration or without consideration, by any legal means, all kinds ofpersonal property, real property and equipment.
4. To obtain, register, buy, lease, hold, use, introduce, sell, assign orotherwise dispose of all types of trademarks, commercial names, patents,inventions, improvements and products used in connection therewith and whichmay be obtained under Mexican or non-Mexican registrations or patents or in anyother manner use, exercise, take advantage of, obtain benefits from or grantlicenses in respect to such trademarks, patents, licenses and the like.
5. To have representations, in the Mexican Republic or abroad, as commissioner,intermediary, factor, legal representative or attorney in fact for all kinds ofcorporations or individuals.
6. To grant and obtain credits, whether secured or unsecured, and issue creditinstruments, including debentures in accordance with law, as well as to applyfor and obtain surety bonds and insurance of all type and to discount creditinstruments and invoices.
7. To create or grant guaranties for obligations contracted by the Corporationor by third parties in which the Corporation has a participation, whetherdirect or indirect.
8. To enter into and perform all kinds of acts and civil and commercialagreements related to the aforementioned, activities and as permitted by law.
 

 

ARTICLE THREE. The Corporation shall have its domicile in Durango, State ofDurango, Mexico, although it may establish representative or branch officeswithin the Mexican Republic and abroad, without its domicile deemed to havechanged thereby.
ARTICLE FOUR. The duration of the Corporation is 99 years, commencing onJanuary 22, 1982.
ARTICLE FIVE. Any foreigner who at the time of incorporation or at any timethereafter, acquires a corporate interest or participation in the Corporationshall be considered by that fact alone as Mexican with respect to such interestor participation and it shall be understood that he agrees not to invoke theprotection of his government under penalty, in case of failure to comply withsuch agreement, of forfeiture of such interest or participation in favor of theMexican Republic.
CHAPTER TWO
CAPITAL STOCK, SHARES AND SHAREHOLDERS
ARTICLE SIX. The social capital is variable. The minimum fixed capital notsubject to withdrawal, is $699,713,629.00 (Six Hundred and Ninety Nine Million,Seven Hundred and Thirteen Thousand Six Hundred Twenty Nine Pesos NationalCurrency) represented by 46,610,100 common shares, registered, without parvalue, series “A”, all of which are subscribed and paid.
The variable portion of the capital stock shall not exceed ten times the amountof the minimum fixed capital not subject to withdrawal and shall be representedby registered common shares without par value.
All the shares shall confer equal rights and obligations to their holders.There will be two series of shares, the series “A” (or Mexican) shares, whichmay only be owned by Mexican individuals or corporations with exclusion offoreigners clause or by immigrant foreigners who are not related with economicdecision centers outside of Mexico, and the series “B” (or free subscription) shares whichmay be owned by any of the persons who own series “A” (or Mexican) shares aswell as by any person that may be considered foreigners in accordancewith the Law of Foreign Investment (Ley de Inversión Extranjera); provided,however, that the series “B” shares shall not exceed the 49% of the capitalstock of the Corporation and, at all times, at least 51% of the capital stockof the Corporation shall be owned by Mexican investors. Within theaforementioned imitations, the Ordinary Shareholders Meeting may convert theseries “A” shares into series “B” shares or viceversa.
Each issuance of shares as a result of an increase in the capital stock or foranother reason shall constitute a subseries, each of which shall be given asuccessive number followed by the year, except to the extent that theShareholders’ Meeting resolves otherwise.
In no event shall the corporations in which the Corporation holds a majority ofthe shares of stock or interest, directly or indirectly, invest in shares ofthis Corporation or of any other company which is a majority shareholder ofthis Corporation or which, not being such, is considered by the shareholders ofthe Corporation to be such, except to the extent such shares of thisCorporation are acquired by such companies in connection with stock optionplans which have been granted or
 

 

designed, or which may be granted or designed, in favor of the employees ofsuch companies.
ARTICLE SEVEN. The capital stock may be increased by resolution of theExtraordinary or Ordinary General Shareholders’ Meeting, as the case may be, inaccordance with the rules set forth in this Article.
Increases of the minimum fixed capital of the Corporation shall only beresolved, and the limits on the variable portion shall only be modified, byresolution of the Extraordinary Shareholders’ Meeting and the consequentamendment of these By-laws.
The Corporation may increase the capital and issue non-subscribed shares fortheir public placement in accordance with the provisions of Article 81 of theSecurities Market Law (Ley del Mercado de Valores). In order to facilitate thepublic offer of securities, in the Extraordinary Shareholders’ Meeting whichdecides the issuance of non-subscribed shares it shall be expressly resignedany preemptive right referred to in Article 132 of the General Law ofCommercial Companies (Ley General de Sociedades Mercantiles). With the requiredquorum under the terms of these By-laws, the adopted resolution shall produceall its effect and be applicable even to those shareholders not attending themeeting leaving the Corporation with the authority to sale and distribute thenon-subscribed shares in the open market, without the necessity to comply withthe publication mentioned in the Article previously mentioned. Should aminority representing at least 25% of the outstanding shares, resolve againstthe resolution to issue non-subscribed shares, then such resolution shall bedenied. The notice calling to the Extraordinary Shareholders Meeting mustexpressly mention the purpose referred to herein. Any shareholder votingagainst the resolution pretending the issuance of such non-subscribed shareswill be entitled to demand to the Corporation that his or her shares beincluded in the public offering related to the non-subscribed shares, at theprice established for such offer. The Corporation will have the legal duty tofirst distribute the shares of those shareholders not approving the resolution,in the mentioned public offer.
Increases of the variable capital stock, within the limits provided for inArticle Six of these By-laws, shall be resolved by the Ordinary GeneralShareholders’ Meeting, the corresponding minutes having to be formalized beforea Notary Public, without these By-laws having to be amended nor the respectivedeed having to be registered with the Mexican Public Registry of Commerce,except if such increases derive from public offerings of self-owned shares orthe treasury shares in which such self-owned shares has been converted, whereneither a Shareholders Meeting nor a Board of Directors resolution will berequired for the respective capital increase or the public offering of suchshares. No increase shall be resolved until all shares previously issued arefully paid. When taking the respective resolutions, the Shareholders’ Meetingwhich resolves upon the increase, or any subsequent Shareholders’ Meeting,shall establish the conditions and basic terms in accordance with which suchincrease must be carried out.
Shares issued by virtue of an increase of the variable portion of the capitalstock and which, by resolution of the Shareholders’ Meeting which decides upontheir issuance, are deposited with the treasury of the Corporation in order tobe delivered upon subscription, may be offered for subscription and payment bythe Board of Directors in accordance with the capacity granted to the Board ofDirectors by the Shareholders’ Meeting, in all events granting to theshareholders of the Corporation the preemptive rights referred to in thisArticle.
 

 

Increases of capital stock may be effected through the capitalization ofreserves, of profits pending to be applied or of surplus, or by payment in cashor in kind. In the case of increases by capitalization of reserves, of profitspending to be applied or of surplus, all of the holders of subscribed, paid andoutstanding shares at the time of such increase shall have a preemptive rightto subscribe a proportional part to their actual holdings of the shares beingissued.
In the case of increases through payment in cash or in kind, the shareholderswho hold subscribed, paid and outstanding shares at the time the increase isresolved, shall have a preemptive right for the subscription of the new sharesbeing issued or offered, during a term of fifteen days commencing on the dateof the publication of the notice of the increase in the official newspaper ofthe domicile of the Corporation and in one of the newspapers of generalcirculation in said domicile of the Corporation. Such fifteen day term shallcommence on the date when the Shareholders’ Meeting was held, in the event thatthe entirety of the shares representing the capital stock was represented insuch Shareholders’ Meeting.
In the event that, after the expiration of the term during which theshareholders must exercise the preemptive rights granted to them pursuant tothis Article, shares remain unsubscribed, such shares shall be offered fortheir subscription and payment in the terms and conditions set forth by thesame Shareholders’ Meeting which had resolved upon the increase or in the termsprovided therefor by the Board of Directors, as the case may be, at a pricewhich shall not be less than that at which the shares were offered to theshareholders of the Corporation for their preemptive right subscription.
All increases of the capital stock must be registered in the capital registerledger which the Corporation shall maintain for such purpose.
ARTICLE EIGHT. All reductions in the fixed portion of the capital stock shallbe resolved by the Extraordinary Shareholders’ Meeting and the subsequentamendment to the By-laws in compliance with Article Nine of the General Law ofCommercial Companies (Ley General de Sociedades Mercantiles). Except in thecase where a reduction in the capital stock results from the exercise of theright of withdrawal referred to in Article Nine hereof, reductions of thevariable capital may be effected by resolution of the Ordinary Shareholders’Meeting with the sole formality that the corresponding minutes shall beformalized before a Notary Public, and without the need to register therespective deed with the Mexican Public Registry of Commerce, except if suchreductions derived from the acquisition of self-owned shares paid off from theCorporation’s net worth or if such self-owned shares are transformed intotreasury shares, where a Shareholders’ Meeting resolution shall not be requiredfor the respective capital stock reduction, and only a decision by Board ofDirectors shall be needed.
Reductions in the capital stock may be effected in order to absorb losses, toreimburse the shareholders for partial payments for stock subscriptions whichhave not been carried out and in the event that the shareholders exercise theright of withdrawal referred to in Article Nine hereof. The reductions ofcapital in order to absorb losses shall be effected without the need to cancelshares, given the fact that the latter do not have a par value.
A reduction of the variable capital stock may be effected by means of the totalor partial withdrawal of the contributions made by the shareholders, upon priornotification to the Corporation of its proposal for withdrawal, whichwithdrawal shall be effective at the end of the
 

 

then current fiscal year if the notification is received before the lastquarter of such fiscal year and until the end of the subsequent fiscal year ifit is received later. Nevertheless, the shareholders shall not exercise theirright of withdrawal if, as a result, the fixed capital stock which is notsubject to withdrawal, would be affected.
In the event that the Corporation receives requests for withdrawal which wouldresult in a reduction of the capital stock to a level below the minimumthereof, the Corporation shall be required to satisfy only those requests whichdo not have such result, giving preference to those which are received first.
In the event that the Corporation simultaneously receives several requests forwithdrawal which would have the effect of reducing the capital stock to a levelbelow the minimum thereof, then the Corporation shall only reimburse thoseshares the reimbursement of which will not cause the reduction of the capitalstock to a level below the minimum thereof and such reimbursement shall becarried out, with respect to each shareholder making the request, in a mannerwhich is proportional to the number of shares the reimbursement of which hasbeen simultaneously requested.
The procedure for the exercise of the right of withdrawal, in addition to beinggoverned by Article 220 and Article 221 of the General Law of CommercialCompanies (Ley General de Sociedades Mercantiles), shall be subject to therequirement that the corresponding reimbursement shall be the lower of thefollowing two values: (1) 95% of the value of the price quoted on the MexicanStock Exchange calculated from the weighted average price for the transactionswhich have been effected during the last thirty days in which the shares of theCorporation have been quoted prior to the date on which the withdrawal is totake effect and within a period not exceeding six months, or (2) the book valueof the shares in accordance with the year end general balance pertaining to theimmediately previous fiscal year in which the withdrawal is to take effect,which statement shall have been previously approved by the ordinary GeneralShareholders’ Meeting. If the number of days where shares of the Corporationhave been quoted during the six months period previously mentioned is less than30 days, then the actual number of days where shares of the Corporation werequoted shall be considered. If during the mentioned period there is not evenone quotation, then the book value of the shares shall apply.
Reimbursement shall be payable by the Corporation commencing on the daysubsequent to that of the Ordinary General Shareholders’ Meeting which hasapproved the general balance pertaining to the fiscal year in which thewithdrawal is to take effect.
All reductions of the capital stock shall be registered in a specific ledgerthat the Corporation shall maintain for such events.
ARTICLE NINE. The Corporation may acquire shares representing its own capitalstock in accordance with Article 14 Bis of the Securities Market Law andrelated applicable provisions including without limitation Article 56 toArticle 63 of the “General Dispositions Applicable to Securities Issuers andAdditional Participants of the Stock Exchange”, issued by the NationalSecurities and Banking Commission (Comisión Nacional Bancaria y de Valores)(the “Commission”) with Article 134 of the General Law of Commercial Companiesnot being applied, if the acquisition is made affecting the equity as long asthe shares belong to the Corporation or
 

 

affect the capital stock if such shares are transformed into treasury shares,in which case, a Shareholders’ Meeting resolution shall not be required.
The Ordinary General Shareholders’ Meeting shall expressly resolve, for eachfiscal year, the maximum amount that may be used to buy self-owned shares, withthe only limitation that such amount shall never exceed the total balance ofnet income of the Corporation, including those previously retained.
The Board of Directors shall designate the representatives that shall beresponsible of the acquisition and resale of self-owned stock and resolve thegeneral terms applicable to such representatives and to the Directors,Officers, and additional members with any participation in the production,analysis, approval and presentation of the information that shall be filed withthe Commission, the respective stock exchange and the public market, that mayhelp to determine when such persons shall not request the execution of anytransaction with securities of the Corporation. Such general terms shallinclude, without limitation, the terms referred to in Article 60 of the“General Dispositions Applicable to Securities Issuers and AdditionalParticipants of the Stock Exchange” issued by the Commission.
While the shares be owned by the Corporation, such shares shall not participatein any kind of Shareholders’ Meeting.
Without prejudice of the rules included in the General Law of CommercialCompanies (Ley General de Sociedades Mercantiles), those shares property of theCorporation or the treasury shares previously mentioned, may be resale in thestock market and neither a Shareholders Meeting nor a Board of Directorsresolution will be required for the respective capital increase or and theoffering itself.
The Corporation may also amortize stock with distributable profits, inaccordance with Article 136 of the General Law of Commercial Companies (LeyGeneral de Sociedades Mercantiles), without reducing its capital stock. Thestock certificates to be amortized pursuant to such Article 136 shall becanceled. The designation of those shares which are to be amortized orrepurchased, as the case may be, shall be effected by means of theiracquisition on the stock market under the terms and conditions which aredecided upon by the Shareholders’ Meeting or by the Board of Directors, as thecase may be. With the prior written approval from the Commission and withArticle 198 of the General Law of Commercial Companies (Ley General deSociedades Mercantiles) not being applied, the Corporation may issue stock withno voting power as well as with additional limitations to other corporaterights or, shares with restricted voting power apart from those contemplated inArticle 113 of the General Law of Commercial Companies (Ley General deSociedades Mercantiles). Except with the written approval from the Commission,the issuance of shares other than ordinary shares, shall not exceed twenty fivepercent of the capital stock to be distributed in the stock market, of thetotal outstanding shares distributed therein. In order to determine of thementioned percentage it shall not be considered the shares or fiduciary titlesrepresenting them and that, for reason of citizenship of the owner implies alimitation in the voting power as determined in the legal dispositionsapplicable to foreign investment matters. The non-voting power stock shall notbe considered to determine quorum at any Shareholders’ Meeting while thoseshares with restricted or limited rights shall be computed to decide if quorumis present and the resolutions in the Shareholders’ Meeting that the beneficialowner of those restricted or limited shares may attend to exercise the votingpower.
 

 

ARTICLE TEN. In the event that the registration of the Corporation’s stock inthe securities section of the Commission is cancelled those shareholders whichbeneficially owns the majority of the issued and outstanding ordinary shares ofthe Corporation or those with the possibility by any means to imposeresolutions in the Shareholders’ Meetings or to elect the majority of the Boardof Directors’ members, shall have the obligation to carry out a public purchaseoffer (the “Offer”) to the minority stockholders before such cancellationbecomes effective and to apply and deposit the required amount to purchase therespective shares in trust for a minimum period of six months to purchase theminority shares at the price of the Offer, to the shareholders who did notparticipate in the Offer in the event that, once the Offer has expired andbefore the cancellation of the registration in the referred registry, themajority shareholders have not acquired 100% of the total issued andoutstanding stock.
The aforementioned Offer shall be executed at the higher price resulting fromthe closing average for transactions in which the shares have been quoted inthe respective stock market, in accordance with the following paragraph, or thebook value of the shares in accordance with the last quarterly report filedwith the Commission and the mentioned stock exchange before the Offer, exceptif such price is modified under the applicable criteria to relevantinformation, in which case, the financial information to be considered must bethe most recent information available to the Corporation.
The price quoted on the stock exchange shall be calculated from the weightedaverage price for the transactions which have been effected during the lastthirty days in which the shares of the Corporation have been quoted prior tothe date of the Offer and within a period not exceeding six months. If thenumber of days where shares of the Corporation have been quoted during the sixmonths period previously mentioned is less than 30 days, then the actual numberof days where shares of the Corporation were quoted shall be considered. Ifduring the mentioned period there is not even one quotation, then the bookvalue of the shares shall apply.
If the Offer includes more than one series of shares, the aforementionedweighted average price shall be calculated for each series to be cancelled,considering as price for the Offer of all such series, the highest resultingaverage.
Within 5 business days before the Offer, the Board of Directors shall informabout the opinion with respect to the fairness of the price of the Offer andconsidering both, the minority shareholders interest, in order to comply withthe second paragraph of Article 16 of the Securities Market Law (Ley delMercado de Valores), and the Audit Committee opinion which if contrary to thatof the Board of Directors shall also be informed. In the event that the opinionby the Board of Directors may generate conflict of interest then such opinionshall be rendered together with an opinion from an Independent Expert (as suchterm is defined in the “General Dispositions Applicable to Securities Issuersand Additional Participants of the Stock Exchange” issued by the Commission) tobe selected by the Audit Committee, provided that such independent opinionshall particularly be rendered to protect the minority shareholders’ interest.
The majority shareholders initially mentioned shall not be bound to make theOffer if there is evidence that the vote of at least 95% of the stockholdersconsent to the cancellation, through the appropriate Shareholders’ Meetingresolution, provided that the amount to offer to the Public Stockholders’Market (Gran Público Inversionista) (as such term is defined in the “GeneralDispositions Applicable to Securities Issuers and Additional Participants ofthe Stock Exchange”
 

 

issued by the Commission) as established herein, represents less than 300,000Investment Units (Unidades de Inversión). The previous cancellation procedureshall also be conditioned to the execution of the trust initially mentioned andto the release of the constitution of such trust through the electronic systemof information release authorized by the Commission to the stock public marketwhere the shares of the Corporation be negotiated.
The aforementioned procedure shall also be applied to the OrdinaryParticipation Certificates (Certificados de Participación Ordinarios) issued torepresent shares of the Corporation, as the case may be, and to any other kindof securities or certificates representing 2 or more shares of one or moreseries issued by the Corporation.
Considering the actual and projected financial situation of the Corporation,the shareholders bound to make the Offer, may request to the Commission the useof different basis to determine the price of the Offer, subject to the approvalof the Board of Directors, with the prior positive opinion by the AuditCommittee. The resolution shall mention the reason why such different basis todetermine the price of the Offer is considered fair, and shall also be filedwith the opinion by an Independent Expert (as such term is defined in the“General Dispositions Applicable to Securities Issuers and AdditionalParticipants of the Stock Exchange” issued by the Commission), provided thatsuch independent opinion shall particularly be rendered to determine if suchalternate price is consistent with Article 16 of the Securities Market Law (Leydel Mercado de Valores).
ARTICLE ELEVEN. Provisional or definitive shares shall be represented bycertificates which must contain the text of Article Five of these bylaws andwhich must fulfill the requirements of Article 125 of the General Law ofCommercial Companies (Ley General de Sociedades Mercantiles) and ArticleFifteen of the Mexican Foreign Investments Law. Such certificates may compriseone or more shares and shall be handwritten or facsimile signed by the Chairmanand any other member of the Board of Directors, subject to the condition thatin the case of facsimile, the handwritten signatures be deposited in theappropriate Mexican Public Registry of Commerce. The definitive certificatesshall include coupons numbered in sequence; the provisional certificates may ormay not contain coupons. The definitive or provisional certificatecharacteristics shall be determined by the Board of Directors that may alsodetermine on the issuance of new certificates for substitution of thoseoutstanding at the time of the resolution. The definitive certificates shall beissued within 180 days from the day of incorporation or the issuance orexchange resolution.
CHAPTER THREE
AS TO THE MANAGEMENT AND AUDITING OF THE COMPANY
ARTICLE TWELVE. The management of the Corporation shall be vested in the Boardof Directors comprised of such number of members as may be determined by theshareholders, which shall not be less than five nor more than twenty, subjectto the condition that at least 25% of such Directors shall be independent, andthat it may designate such alternate members as deemed appropriate. Ifdesignations of alternate Directors are made the resolution shall determinewhich regular Director will be substituted by each alternate Director and if anregular independent member is to be substituted, then the alternate Directorshall also be independent. The mentioned substitution rules shall not apply forthe Chairman substitution that always shall be substituted by the Vice Chairmanor if unavailable, by the first regular member in accordance with the sequenceof designation. A Director shall be considered “independent” when such personis not included
 

 

among those mentioned in Article 14 Bis of the Securities Market Law (Ley delMercado de Valores).
Substitution shall take effect in case of any reason whereby any regular memberis not able to serve. The alternate member shall continue to hold office untilthe end of the incapacity of the regular member or, until the shareholdersmakes a new designation, as the case may be.
In order to divulge the regular activities of the Board of Directors, thealternate members shall receive the same information that the regular membersobtain from time to time.
The Board of Directors shall designate from amongst its members one individualto hold the office of the Chairman of the Board of Directors, the ViceChairman, the Secretary and the Assistant Secretary of the Board of Directors,provided that the latter may or may not be members of the Board of Directors.
The Director General and such other officers appointed by the Board ofDirectors shall enjoy those powers which are granted to them in the act whichdesignated them. The individuals holding those titles may be shareholders,members of the Board of Directors, members of other administrative bodies ofthe Corporation, or individuals from outside of the Corporation.
The Chairman of the Board of Directors shall have those powers and duties whichare granted to him or her by law and by these By-laws and, in particular, he orshe shall have the duty of complying with, and causing compliance with, alllaws and these By-laws and the resolutions of the shareholders and of the Boardof Directors.
ARTICLE THIRTEEN. In order to support and guaranty the proper adoption ofmanagement resolutions in the areas of auditing, remuneration and planning andfinance, there shall be committees in each of such areas. The shareholders orthe Board of Directors shall have the power to designate between three andseven members of the Board of Directors to be part of the audit, remunerationand finance and planning committees. The shareholders or the Board of Directorsshall also designate the President of each such committees, provided that thePresident and the majority of the Audit Committee members shall consist ofindependent participants.
The shareholders may additionally designate other members of the Board ofDirectors or alternates of the Board of Directors to act as alternate membersof the mentioned committees for temporary or definitive absentees, with thepowers that the shareholders deem appropriate to develop their functions. Anyindependent member shall only be substituted by persons also independent.
The audit, remuneration and finance and planning committees shall act and adoptany resolution by majority vote, provided that the President of each committeeshall have qualified vote in case of any equality of votes. The committeesshall have such powers specifically granted by the shareholders and shallparticipate in such studies, advisement, and additional matters submitted bythe Board of Directors in addition to the specific functions determined by theShareholders’ Meeting, and in addition to the following general functions:
The remuneration committee shall recommend designations of Director General andmain officers of the Corporation; suggest evaluation criteria in accordancewith the general outlines of the Board of Directors; and analyze and submit tothe Board of Directors the structure and remuneration of
 

 

the main officers.
The audit committee shall recommend to the Board of Directors the externalauditors of the Corporation and approve such additional services to the auditfunctions that such external auditors may render from time to time; suggest theterms and conditions of such auditors service; supervise the auditors work; actas intermediary between the Board of Directors and the external auditors, andguaranty the independence of said auditors; review the working plan,communications and audit reports and inform its results to the Board ofDirectors; submit to the Board of Directors the financial information basis,review such financial information and its issuance process; contribute in thedetermination of the general outline of the internal control system andevaluate its effectiveness; support the Board of Directors in the evaluationand coordination of the annual internal audit programs; coordinate theinternal, external and statutory auditing works; give opinion regarding relatedparty transactions mentioned to in Article Seventeen section “o” of theseBy-laws and recommend independent specialist as the committee may deemappropriate in order to have additional opinion related to such transactions;give opinion to any relevant change in the accounting criteria, practices andpolitics to the financial statements of the Corporation; and verify thecompliance of such statutes and regulations applicable to the Corporation. Theaudit committee shall annually render a report to the Board of Directors, whichin turn shall be bound to submit such report to the Annual OrdinaryShareholders’ Meeting.
The finance and planning committee shall be responsible of evaluate and, ifapplicable, suggest the investment and financing policy of the Corporation;evaluate and, if applicable, suggest the general outline for the strategicplanning of the Corporation; submit opinions as of the annual budget; reviewthe adequate use and implementation of the budget and the strategic plan; andidentify risk factors to the Corporation and evaluate the policy for itsmanagement.
The audit, remuneration and finance and planning committees shall inform to theBoard of Directors of its activities at least twice a year or at any other timewhen any committee deems appropriate or becomes aware of any material acts orfacts to the Corporation.
The audit, remuneration and finance and planning committees shall not delegateany of its powers to anyone, but may request advise from experts to resolveadequately such matters submitted to the mentioned committees and,additionally, the President of each committee, may invite such experts andofficers involved with the particular committee’s activities that mayparticipate without voting power.
The Statutory Auditor must be duly invited to each committee meeting and mayparticipate in the discussions without voting power.
Any participant or member of the committees of auditing, remuneration andplanning and finance, shall inform of any conflict of interest to those of theCorporation and shall not participate and vote in the resolution of therespective matter.
ARTICLE FOURTEEN. The members of the Board of Directors and, as the case maybe, the members of the committees of auditing, remuneration and planning andfinance may or may not be shareholders of the Corporation, shall remain inoffice for one year, may be reelected and their terms shall expire only whentheir successors are appointed and take office.
 

 

ARTICLE FIFTEEN. Any shareholder or a minority group of shareholders, includingrestricted voting power shareholders different from those mentioned to inArticle 113 of the General Law of Commercial Companies (Ley General deSociedades Mercantiles), or limited voting power shareholders referred in suchArticle 113, who represents at least ten per cent of the capital stock of oneor more stock series, shall have the right to appoint at least one regular andalternate member of the Board of Directors. Any minority group of shareholdersrepresenting at least ten percent of the capital stock, may also be entitled todesignate one Statutory Auditor. Those who exercise this right shall notparticipate in the designation of the remaining members of the Board ofDirectors or Statutory Auditors. The appointment of regular or alternatemembers to the Board of Directors or of Statutory Auditor made by the minorityshareholders may only be revoked at the time when the rest of the members tothe Board of Directors and Statutory Auditors be also revoked.
The appointment of a member or members of the Board of Directors designated bythe minority shareholders shall only be revoked when the appointment of all ofthe other members of the Board of Directors is also revoked.
ARTICLE SIXTEEN. The Board of Directors shall be legally installed if themajority of all of its members is present and its resolutions shall be valid ifadopted by a majority of votes cast by the members present.
In the event of a tie, the President shall have the tie-breaking vote.
ARTICLE SEVENTEEN. The Board of Directors shall be responsible for themanagement of all of the businesses of the Corporation and is invested with thebroadest powers for carrying out all of those transactions which may benecessary and appropriate in accordance with the character and purposes of theCorporation, with the exception of transactions for the acquisition or transferof shares or those transactions which; consist of the exercise of the right ofwithdrawal which pertains to the Corporation by reason of its equity interestin companies with variable capital, in which, case the; authorization of theOrdinary General Shareholders’ Meeting shall be required if, in one or moretransactions which are simultaneous or successive, any the followingeventualities arise:
1. The value of the acquisition of shares of another company, according to themost recent statement of financial position of such company, exceeds twenty percent of the shareholders equity of this Corporation:
2. The value of the sale of shares of another company, according to the mostrecent statement of financial position of such company, exceeds twenty per centof the shareholders’ equity of this Corporation; or
3. The exercise of the right of withdrawal of companies with variable capitalrepresents a reimbursement of shares, the value of which, according to the mostrecent statement of financial position of such company, exceeds twenty per centof the shareholders’ equity of this Corporation.
     The Board of Directors shall have the following powers:
     a) To carry out all of those transactions which are inherent to thepurpose of the
 

 

Corporation or which may be the direct or indirect consequence of suchpurpose and to carry out administration and ownership acts.
     b) To represent the Corporation in judicial and administrative matters andbefore all kinds of persons and authorities, with a general power for lawsuitsand collections as well as those general powers, and even those special powers,which may require a special clause or power of attorney under the law; topromote and withdraw from any kind of lawsuits, including the “amparo”litigation; to make and answer depositions, to settle, to submit toarbitration, to make accusations and to submit complaints in criminal mattersand to assist the Public Prosecutor in order to obtain compensation for damagescaused by punishable acts.
     c) To issue, sign and guarantee all kinds of negotiable instruments.
     d) Create or grant guaranties in the name of the Corporation when deemedappropriate by the obligations incurred by the Corporation or by third parties.
     e) Except for those powers specifically reserved to the Board ofDirectors, delegate its powers to any committee or other intermediateadministrative body or to one or more members of the Board of Directors,including, without limitation, for specific activities to be carried out,indicating to those persons their powers and limitations, as the case may be.
     f) To grant general or special powers, whether in delegation or insubstitution of its powers (while retaining its powers, nevertheless), as wellas to revoke them, including those which may be required in order to submitcomplaints or accusations in criminal matters and appoint and revoke officersas necessary for the functioning of the Corporation, and to grant to them orrevoke those powers which it may deem necessary.
     g) To create Special Committees, indicating to them their powers;provided, however, that such committees shall not function as intermediatebodies of the Corporation.
     h) To appoint the Director General.
     i) To determine the manner in which the shares owned by the Corporationshall be voted in the Ordinary and Extraordinary Shareholders’ Meetings ofcompanies in which it is the holder of the majority of the shares, with theunderstanding that the Board of Directors shall not delegate this power. Inorder to vote in favor any acquisition or sale of assets proposal by andcompanies in which the Corporation is the beneficial owner of the majority ofthe shares, the Board of Directors shall obtain the shareholders approval, ifsuch acquisition or sale transaction or series of related transactions, exceedsthe equivalent to 50% (fifty percent) of the net worth of the company thatpropose to enter into such transaction or series of related transactions,except those transactions to be executed between the Corporation and thosecompanies which majority shares are directly or indirectly owned by theCorporation, or between those companies.
     j) To call Special or General Shareholders’ Meetings and, to approve thefinancial statements of the Corporation which must be submitted to the OrdinaryGeneral Shareholders’ Meeting.
     k) To enter into, amend and rescind agreements.
 

 

     l) To accept in the name of the Corporation powers of attorney of Mexicanor foreign individuals or corporations.
     m) To open bank accounts and make withdrawals and deposits on suchaccounts, to appoint the authorized individuals to use the corporate signatureand to make deposits in the above mentioned bank accounts, or to withdrawdeposits from them with the limits established by the Board of Directors.
     n) To subscribe, accept, endorse and in general, carry out all kinds ofacts with negotiable instruments under the terms of and within the scopeprovided by Article 9 of the General Law on Credit Transactions and NegotiableInstruments.
     o) With the prior opinion of the Audit Committee, approve any transactionout of the ordinary course of business of the Corporation that may be executedbetween the Corporation and its shareholders, with persons being part of theadministration of the Corporation or with whom such persons have business orfamiliar relations up to the second degree, including husbands and wives orconcubines, as the case may be. Any transaction for the sale or acquisition often percent or more of the assets, the granting of guarantees for an amountabove thirty percent of the assets, or any different transaction which involvesmore than one percent of the assets of the Corporation, shall be considered asa transaction out of the ordinary course of business of the Corporation. Itshall also be an exclusive power of the Board of Directors to approve the sameout of the ordinary course of business transactions, as previously defined,that those companies where the Corporation is in control of the majority of theshares try to execute with any related party or person as described before. Thepowers mentioned herein shall not be delegated and shall be exerciseexclusively by the Board of Directors.
     p) To resolve upon the temporary acquisition of the shares of theCorporation with charge on the shares repurchase reserve, as well as to theirplacement with the public, provided that such power is not delegable.
     q) To designate those responsible persons for the acquisition and resaleof self-owned shares and to determine the general principles apply to suchtransactions in accordance with Article Nine of these By-laws with relation toArticle 60 of the “General Dispositions Applicable to Securities Issuers andAdditional Participants of the Stock Exchange” issued by the Commission.
     r) To designate and revoke the External Auditor and approve any relevantchange to the application of accounting criteria, politics and practices whichbe used to elaborate Corporation’s financial statements, with the prior opinionof the Audit Committee.
     s) Such other as these By-laws, the General Shareholders’ Meeting or thelaw may confer to it.
ARTICLE EIGHTEEN. The Board of Directors shall meet, at least, once everythree months, and whenever a meeting is called by the Chairman or by twomembers of the Board of Directors. The Statutory Auditor must be called forall of the sessions of the Board of Directors and, when attending suchsessions, he shall have the right to participate, but not to vote. Thesessions of the Board of Directors shall be held in any place, which the Boardof Directors may agree to.
 

 

The notices of meeting for such meetings must be sent to those who are toattend, at least five days in advance of the date of the event and describe thelocation, date and time for the meeting to be held.
The meeting agenda or a report on the subjects to be deliberated and resolvedmust be sent with the notice of meeting, except such information which disclosemay result in any breach of contract or against the Corporation’s benefit.
Whenever a resolution of the Board of Directors is approved in lieu of actualmeeting of the Board of Directors, such resolution shall have all legalconsequences when taken by unanimous vote, ratify by the members of the Boardof Directors in writing.
ARTICLE NINETEEN. The powers and duties of the Secretary of the Board ofDirectors shall be the following:
1. To serve in this capacity in the sessions of the Board of Directors and inthe General Shareholders’ Meetings.
2. To keep the Corporation books required by law and such others as may benecessary in accordance with these By-laws which are not specifically assignedto other officials or employees of the Corporation.
3. To formalize before a Notary the minutes of the Shareholders’ Meetings andof the sessions of the Board of Directors when its so directed and when it maybe, appropriate under law; to issue simple copies and certifications orextracts from the minutes of the sessions of the Board of Directors and of theShareholders’ Meetings, as well as of the items which appear in the booksassigned to him, authorizing them with his signature.
4. Such other powers as these By-laws confer to him.
ARTICLE TWENTY. The President of the Board of Directors shall chair thesessions thereof and, in his absence, such sessions shall be presided by theVice Chairman or such regular member of the Board of Directors in accordancewith the sequence of designation by the shareholders. In the absence of theSecretary of the Board of Directors, the Assistant Secretary or such otherperson, as the member of the Board of Directors who chairs the session maydesignate, shall serve as Secretary.
ARTICLE TWENTY-ONE. For each session of the Board of Directors, the Secretaryshall keep minutes which shall contain the matters deliberated and theresolutions taken. Such minutes shall be entered in the respective minute bookand shall be signed by those who have served as President of the Board ofDirectors and as Secretary for the particular session, as well as by theStatutory Auditors, it they attend. In such minute book, the unanimousresolutions taken without actual reunion shall be included, with thecertification by the Secretary that each member has delivered the writtenratification to the Secretary’s office.
ARTICLE TWENTY-TWO. In order to hold office, the members of the Board ofDirectors and the members of the committees referred to in Article Thirteen ofthese By-laws must guarantee performance of their duties in the termsdetermined by the corporate body, which appoints them.
 

 

CHAPTER FOUR
AS TO THE AUDITING OF THE COMPANY
ARTICLE TWENTY-THREE. The auditing of the Corporation shall be theresponsibility of the Statutory Auditor or Auditors designated by the GeneralShareholders’ Meeting, and they may be shareholders or individuals from outsideof the Corporation. Such Shareholders’ Meeting may designate such AlternateStatutory Auditors as it may deem appropriate, who shall commence performingtheir functions in the sequence in which they were designated, in the event ofthe absence of the Regular Statutory Auditors due to resignation or to themanifest incapacity of the latter and who shall remain in office until suchtime as the incapacity of the holder of the office ends or the Shareholders’Meeting makes a new appointment, as the case may be.
Those shareholders with or without voting power, representing at least 10% ofthe issued and outstanding capital stock may designate one Statutory Auditor,provided that such designation shall only be revoked if the designation of therest of the Statutory Auditors is also revoked.
ARTICLE TWENTY-FOUR. The Statutory Auditor or Auditors shall remain in officefor one year and their term shall expire only when their successors areappointed and taken office.
ARTICLE TWENTY-FIVE. The Statutory Auditors shall have those powers which aregranted to them by the General Law on Commercial Companies (Ley General deSociedades Mercantiles).
ARTICLE TWENTY-SIX. In order to hold office, the Statutory Auditors willguarantee the performance of their duties in the terms determined by thecorporate body which appoints them.
CHAPTER FIVE
AS TO THE FISCAL YEAR AND AS TO THE BALANCE SHEET
ARTICLE TWENTY-SEVEN. The fiscal year shall commence on January 1 and end onDecember 31 of each year, unless the Extraordinary General Meeting ofShareholder resolves otherwise, in accordance with applicable law.
ARTICLE TWENTY-EIGHT. Upon the end of each fiscal year, the Board of Directorsshall prepare financial statements in accordance with Article 172 of theGeneral Law of Commercial Companies (Ley General de Sociedades Mercantiles),which financial statements must be completed and delivered to the StatutoryAuditor or Auditors at latest at the end of the third month following the closeof their fiscal year and, with respect to which, the Statutory Auditor orAuditors must render their report under the terms of law.
With respect to said financial statements, the procedure utilized in preparingthem, shall be that provided by Article 173 to Article 177 of said law.
CHAPTER SIX
AS TO THE MEETINGS OF SHAREHOLDERS
ARTICLE TWENTY NINE. The General Shareholders’ Meeting shall be held inaccordance with
 

 

the provisions of the General Law of Commercial Companies (Ley General deSociedades Mercantiles), the respective notices of meeting having to bepublished with indication of the place, date and time of day of the holding ofthe meeting and the subjects to be deliberated, in one of the newspapers ofgeneral circulation in the corporate domicile, with advance notice of no leesthan fifteen calendar days.
The Ordinary or Extraordinary Shareholders’ Meetings shall be called by theBoard of Directors, through the President or the Secretary of such body; it mayalso be called by any Statutory Auditor or by those referred to in Article 168,Article 184 and Article 185 of the General Law of Commercial Companies (LeyGeneral de Sociedades Mercantiles). Additionally those shareholdersrepresenting at least 10% of the issued and outstanding shares of theCorporation may also request a Shareholders’ Meeting to be called, under theterms of Article 184 of the General Law of Commercial Companies (Ley General deSociedades Mercantiles).
Since the date of publication of the notice for the meeting, the information tobe submitted to the shareholders in accordance with the agenda shall be at thedisposition of the shareholders, in a free and immediate manner.
Meetings may be held without prior notice of meeting when the holders of all ofthe issued and outstanding shares be present. If any resolution is adopted byunanimous decision of all the shareholders with voting power, without actualmeeting, such resolutions shall be valid and have all the legal effects, as ifadopted in a regular shareholders meeting, provided that such resolutions areratified in writing by each shareholder.
The Shareholders’ Meeting is the supreme body of the Corporation and itsresolutions or agreements shall bind all of the other bodies of theCorporation. The Ordinary General Shareholders’ Meetings shall be held on suchdate as determined by the Board of Directors, in all events at least once ayear within the four months following the end of the preceding fiscal year andit shall discuss the matters mentioned in Article 181 of the General Law ofCommercial Companies (Ley General de Sociedades Mercantiles). SuchShareholders’ Meeting must consider the report referred to in Article 172 ofthe General Law of Commercial Corporations (LevyGeneral de SociedadesMercantiles) relating to the immediately preceding fiscal year of theCorporation or of those companies of which the Corporation may be the majorityshareholder when the value of the investment in each one of them, according tothe statement of financial position of the Corporation pertaining to the closeof the fiscal year, exceeds twenty per cent of the shareholders’ equity of thisCorporation.
The Ordinary Shareholders’ Meeting shall expressly resolve, for each fiscalyear, the maximum amount of funds to be used in the purchase of self-ownedshares as mentioned in Article Nine of these By-laws, provided that such fundsshall not exceed the net profits balance of the Corporation, including thosepreviously retained.
An Extraordinary General Shareholders’ Meeting may be convened at any time inorder to deliberate on any of the matters permitted under Article 182 of theGeneral Law of Commercial Companies (Ley General de Sociedades Mercantiles).
In order for their deliberations and voting to be valid, it shall be necessarythat they satisfy those requirements which are set forth in said law. Theprovisions of Article 189 to Article 194 of the
 

 

General Law of Commercial Companies (Ley General de Sociedades Mercantiles)shall be applicable to the Shareholders’ Meetings.
ARTICLE THIRTY. In order for the shareholders to have the right to attend theShareholders’ Meetings, they must deposit their shares in an institution forthe deposit of securities, or leave them in the possession of the Secretary ofthe Board of Directors at his office established at the domicile of theCorporation or with any credit institution, either Mexican or Non-Mexican.
The deposit of the shares with the Corporation or the delivery of thecertificate of deposit must be made before the day indicated for theShareholders’ Meeting, with the anticipation mentioned in the notice to themeeting. Against the shares deposited or the certificate of deposit, anadmission card shall be issued for the Shareholders’ Meeting which shall statethe number and class of shares applicable to it, the name of the shareholderand the number of votes which belong to him.
If the deposit is made with a credit institution, also at least two days inadvance of the day indicated for the meeting, the pertinent certification mustbe submitted to the Corporation, against which the admission card for theShareholders’ Meeting shall be issued. The shares and certifications presentedshall be returned after the Shareholders’ Meeting, in exchange for such receiptas may have been issued.
Any shareholder representative may use the forms that the Corporation shallmake available in order to prove the faculties that have been delegated, thoseforms to include the name of the Corporation and the agenda, with no inclusionof those matters referred to in Article 181 and Article 182 General Law ofCommercial Companies (Ley General de Sociedades Mercantiles) as generalmatters, and to have a broad section to include shareholders’ instructions toexercise the delegation. The Corporation shall make available those formswithin the same previous period referred to in Article 173 of the General Lawof Commercial Companies (Ley General de Sociedades Mercantiles) in order toallow the shareholders have enough time to execute and deliver such forms tothe representative. The Secretary shall confirm such availability and informabout it to the Shareholders’ Meeting with special reference of suchinformation in the minutes of the meeting.
ARTICLE THIRTY-ONE. The Shareholders’ Meetings shall be chaired by thePresident of the Board of Directors and, in the absence thereof, by such personas may be designated by the Shareholders’ Meeting. The Secretary of the Boardof Directors shall serve as the Secretary and, in his absence, such persons asthe President may designate, shall serve as Secretary.
The President shall appoint such Inspector or Inspectors of Election as he maydeem appropriate in order to pass the pertinent attendance list.
Minutes shall be made of the Shareholders’ Meeting, and they shall be signed bysuch person chairing the meeting, by such person serving as Secretary, and bythe Statutory Auditor, in the event that he attends.
The copies, certifications or extracts from the minutes of the Shareholders’Meeting as may be necessary to issue for any reason shall be authorized by theSecretary of the Board of Directors.
 

 

Subject to Article 199 of the General Law of Commercial Companies (Ley Generalde Sociedades Mercantiles), any shareholder or group of shareholders with atleast 10% of the represented voting power in any meeting, even when such poweris limited or restricted, may elect to postpone any resolution about any matterwhere such shareholder believes there is not enough information available. Alsoany shareholder or group of shareholders with at least 20% of the representedvoting power in any meeting, even when such power is limited or restricted, mayfile a motion with the appropriate court in order to oppose any resolutionwhere such shareholder has voting power at the Shareholders’ Meeting, providedthat such shareholders shall comply with Article 201 and Article 202 of theGeneral Law of Commercial Companies (Ley General de Sociedades Mercantiles).
CHAPTER SEVEN
AS TO THE FINANCIAL RESULTS
ARTICLE THIRTY-TWO. The net profits which are obtained in each fiscal yearshall be disposed of in the following manner:
1. 5% (five per cent) shall be devoted to the establishment of the legalreserve until reaching the level of one fifth of the capital stock, and shouldit be reduced under that level, it shall be reestablished in the same manner.
2. Any amount decided upon by the General Shareholders’ Meeting shall beseparated in order to form one or more reserve funds or the stock repurchasereserve.
3. With respect to the balance, if it exists, it shall be disposed of as theShareholders’ Meeting may resolve.
CHAPTER EIGHT
AS TO THE DISSOLUTION AND LIQUIDATION OF THE COMPANY
ARTICLE THIRTY-THREE. The Corporation shall be dissolved in those casesprovided for in the General Law of Commercial Companies (Ley General deSociedades Mercantiles).
ARTICLE THIRTY-FOUR. Upon the dissolution of the Corporation, it shall be putinto liquidation, of which liquidation one or more receivers who shall beappointed by the Shareholders’ Meeting shall be newly placed in charge.
ARTICLE THIRTY-FIVE. With the exception of that provided for by the GeneralMeeting of shareholders, the receiver or receivers shall have those powerswhich are attributed to them in Article 242 of the General Law on CommercialCompanies (Ley General de Sociedades Mercantiles), and shall distribute theremainder among shareholders pursuant to Article 113, Article 247 and Article248 of said law.