Document:

EX-10.1

 

Exhibit 10.1

 

COMBINATION AGREEMENT

BETWEEN

PHELPS DODGE CORPORATION

AND

INCO LIMITED

Dated as of June 25, 2006

 

 

Table of Contents

	 	 	 	 	 	 	 	 
	 	 	 	 	Page	
	 	 	 	 	 	
	
    ARTICLE I DEFINITIONS	 	 	1	 
	 	
    
    1.1.

    	 	
    Certain Definitions	 	 	1	 
	 	
    
    1.2.

    	 	
    Terms Defined in Other Sections	 	 	6	 
	 	
    
    1.3.

    	 	
    Interpretation	 	 	8	 
	 
	
    ARTICLE II THE ARRANGEMENT	 	 	8	 
	 	
    
    2.1.

    	 	
    The Arrangement	 	 	8	 
	 	
    
    2.2.

    	 	
    Implementation Steps by Italy	 	 	9	 
	 	
    
    2.3.

    	 	
    Implementation Steps by Portugal	 	 	10	 
	 	
    
    2.4.

    	 	
    Interim Order	 	 	10	 
	 	
    
    2.5.

    	 	
    Closing	 	 	10	 
	 
	
    ARTICLE III REPRESENTATIONS AND WARRANTIES OF ITALY	 	 	11	 
	 	
    
    3.1.

    	 	
    Organization and Qualification; Subsidiaries	 	 	11	 
	 	
    
    3.2.

    	 	
    Articles of Incorporation and Bylaws	 	 	12	 
	 	
    
    3.3.

    	 	
    Capitalization	 	 	12	 
	 	
    
    3.4.

    	 	
    Authority Relative to this Agreement	 	 	13	 
	 	
    
    3.5.

    	 	
    No Conflict; Required Filings and Consents	 	 	13	 
	 	
    
    3.6.

    	 	
    Compliance; Permits	 	 	14	 
	 	
    
    3.7.

    	 	
    Reports; Financial Statements	 	 	14	 
	 	
    
    3.8.

    	 	
    No Undisclosed Liabilities	 	 	16	 
	 	
    
    3.9.

    	 	
    Absence of Certain Changes or Events	 	 	16	 
	 	
    
    3.10.

    	 	
    Absence of Litigation	 	 	16	 
	 	
    
    3.11.

    	 	
    Employee Plans	 	 	16	 
	 	
    
    3.12.

    	 	
    Labor Matters	 	 	17	 
	 	
    
    3.13.

    	 	
    Property and Title	 	 	18	 
	 	
    
    3.14.

    	 	
    Mineral Reserves and Resources	 	 	18	 
	 	
    
    3.15.

    	 	
    Operational Matters	 	 	18	 
	 	
    
    3.16.

    	 	
    Insurance	 	 	18	 
	 	
    
    3.17.

    	 	
    Taxes	 	 	19	 
	 	
    
    3.18.

    	 	
    Environmental Matters	 	 	20	 
	 	
    
    3.19.

    	 	
    Intellectual Property	 	 	20	 
	 	
    
    3.20.

    	 	
    Agreements, Contracts and Commitments	 	 	21	 
	 	
    
    3.21.

    	 	
    Brokers	 	 	21	 
	 	
    
    3.22.

    	 	
    Opinions of Financial Advisors	 	 	21	 
	 	
    
    3.23.

    	 	
    Vote Required	 	 	21	 
	 	
    
    3.24.

    	 	
    No Other Representations and Warranties	 	 	22	 
	
    ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PORTUGAL	 	 	22	 
	 	
    
    4.1.

    	 	
    Organization and Qualification; Subsidiaries	 	 	22	 
	 	
    
    4.2.

    	 	
    Certificate of Incorporation and Bylaws	 	 	23	 
	 	
    
    4.3.

    	 	
    Capitalization	 	 	23	 
	 	
    
    4.4.

    	 	
    Authority Relative to this Agreement	 	 	24	 
	 	
    
    4.5.

    	 	
    No Conflict; Required Filings and Consents	 	 	24	 

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	 	 	 	 	Page	
	 	 	 	 	 	
	 	
    
    4.6.

    	 	
    Compliance; Permits	 	 	25	 
	 	
    
    4.7.

    	 	
    SEC Filings; Financial Statements	 	 	25	 
	 	
    
    4.8.

    	 	
    No Undisclosed Liabilities	 	 	27	 
	 	
    
    4.9.

    	 	
    Absence of Certain Changes or Events	 	 	27	 
	 	
    
    4.10.

    	 	
    Absence of Litigation	 	 	27	 
	 	
    
    4.11.

    	 	
    Employee Plans	 	 	27	 
	 	
    
    4.12.

    	 	
    Labor Matters	 	 	28	 
	 	
    
    4.13.

    	 	
    Property and Title	 	 	28	 
	 	
    
    4.14.

    	 	
    Mineral Reserves and Resources	 	 	29	 
	 	
    
    4.15.

    	 	
    Operational Matters	 	 	29	 
	 	
    
    4.16.

    	 	
    Insurance	 	 	29	 
	 	
    
    4.17.

    	 	
    Taxes	 	 	30	 
	 	
    
    4.18.

    	 	
    Environmental Matters	 	 	30	 
	 	
    
    4.19.

    	 	
    Intellectual Property	 	 	31	 
	 	
    
    4.20.

    	 	
    Agreements, Contracts and Commitments	 	 	31	 
	 	
    
    4.21.

    	 	
    Brokers	 	 	32	 
	 	
    
    4.22.

    	 	
    Vote Required	 	 	32	 
	 	
    
    4.23.

    	 	
    Portugal Common Shares	 	 	32	 
	 	
    
    4.24.

    	 	
    No Other Representations and Warranties	 	 	32	 
	 
	
    ARTICLE V COVENANTS OF ITALY	 	 	32	 
	 	
    
    5.1.

    	 	
    Conduct of Business	 	 	32	 
	 	
    
    5.2.

    	 	
    Shareholders Meeting	 	 	34	 
	 	
    
    5.3.

    	 	
    No Solicitation; Opportunity to Match	 	 	35	 
	 	
    
    5.4.

    	 	
    Dissent Rights	 	 	38	 
	 	
    
    5.5.

    	 	
    Italy Affiliates	 	 	38	 
	 	
    
    5.6.

    	 	
    Preference Shares and Convertible Debentures	 	 	38	 
	 
	
    ARTICLE VI COVENANTS OF PORTUGAL	 	 	38	 
	 	
    
    6.1.

    	 	
    Conduct of Business	 	 	38	 
	 	
    
    6.2.

    	 	
    Shareholders Meeting	 	 	40	 
	 	
    
    6.3.

    	 	
    Section 3(a)(10) Exemption	 	 	40	 
	 	
    
    6.4.

    	 	
    Stock Exchange Listings	 	 	40	 
	 	
    
    6.5.

    	 	
    Amendment to Governing Documents of Portugal	 	 	40	 
	 	
    
    6.6.

    	 	
    Board Composition	 	 	40	 
	 	
    
    6.7.

    	 	
    Certain Officers	 	 	40	 
	 
	
    ARTICLE VII ADDITIONAL AGREEMENTS	 	 	41	 
	 	
    
    7.1.

    	 	
    Confidentiality; Access to Information	 	 	41	 
	 	
    
    7.2.

    	 	
    Cooperation in Filings	 	 	41	 
	 	
    
    7.3.

    	 	
    Public Announcements	 	 	42	 
	 	
    
    7.4.

    	 	
    Reasonable Best Efforts	 	 	42	 
	 	
    
    7.5.

    	 	
    Regulatory Filings	 	 	43	 
	 	
    
    7.6.

    	 	
    Indemnification	 	 	44	 
	 	
    
    7.7.

    	 	
    Takeover Statutes	 	 	44	 

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	 	 	 	 	Page	
	 	 	 	 	 	
	 	
    
    7.8.

    	 	
    Section 16(b)	 	 	44	 
	 	
    
    7.9.

    	 	
    U.S. Tax Treatment	 	 	44	 
	 
	
    ARTICLE VIII CONDITIONS	 	 	45	 
	 	
    
    8.1.

    	 	
    Conditions to Obligations of Each Party to Effect the Arrangement	 	 	45	 
	 	
    
    8.2.

    	 	
    Additional Conditions to Obligations of Italy	 	 	45	 
	 	
    
    8.3.

    	 	
    Additional Conditions to the Obligations of Portugal	 	 	46	 
	 
	
    ARTICLE IX TERMINATION, AMENDMENT AND WAIVER	 	 	47	 
	 	
    
    9.1.

    	 	
    Termination	 	 	47	 
	 	
    
    9.2.

    	 	
    Notice of Termination; Effect of Termination	 	 	47	 
	 	
    
    9.3.

    	 	
    Fees and Expenses	 	 	48	 
	 	
    
    9.4.

    	 	
    Amendment	 	 	50	 
	 	
    
    9.5.

    	 	
    Extension; Waiver	 	 	50	 
	 
	
    ARTICLE X GENERAL PROVISIONS	 	 	51	 
	 	
    
    10.1.

    	 	
    Non-Survival of Representations and Warranties	 	 	51	 
	 	
    
    10.2.

    	 	
    Notices	 	 	51	 
	 	
    
    10.3.

    	 	
    Counterparts	 	 	52	 
	 	
    
    10.4.

    	 	
    Entire Agreement; Third Party Beneficiaries	 	 	52	 
	 	
    
    10.5.

    	 	
    Severability	 	 	52	 
	 	
    
    10.6.

    	 	
    Other Remedies; Specific Performance	 	 	52	 
	 	
    
    10.7.

    	 	
    Governing Law	 	 	52	 
	 	
    
    10.8.

    	 	
    No Personal Liability	 	 	53	 
	 	
    
    10.9.

    	 	
    Assignment	 	 	53	 
	 	
    
    10.10.

    	 	
    WAIVER OF JURY TRIAL	 	 	53	 
	 	
    
    10.11.

    	 	
    Currency	 	 	53	 

	 	 	 	 	 
	 	Exhibit A	 	 	
    Form of Italy Resolution
	 	Exhibit B	 	 	
    Form of Plan of Arrangement
	 	Exhibit C	 	 	
    Form of Restated Certificate of Incorporation
	 	Exhibit D	 	 	
    Form of Support Agreement Amendment
	 	Exhibit E	 	 	
    Form of Portugal — France Agreement
	 	Exhibit F	 	 	
    Form of Convertible Note Purchase Agreement

iii

 

COMBINATION AGREEMENT

     
This COMBINATION AGREEMENT is made and entered into as of
June 25, 2006, between Phelps Dodge Corporation, a New York
corporation (“Portugal”), and Inco Limited, a
corporation organized and existing under the laws of Canada
(“Italy”).

RECITALS

     
A. The board of directors of Italy has (i)
determined that it is in the best interests of Italy and its
shareholders to effect the business combination and other
transactions provided for herein, including the Arrangement
pursuant to which an indirect wholly-owned subsidiary of
Portugal will acquire all of the outstanding common shares of
Italy and the shareholders of Italy immediately prior to the
effectiveness of the Arrangement will receive the consideration
described herein and in the Plan of Arrangement, and
(ii) resolved to recommend that the shareholders of
Italy vote in favour of the Arrangement.

     
B. The board of directors of Portugal has (i) deemed
it advisable and in the best interests of Portugal and its
shareholders to effect the business combination and other
transactions provided for herein, including the Portugal Share
Issuance and the Portugal Charter Amendment, and (ii)
resolved to recommend that the shareholders of Portugal vote in
favor of the Portugal Share Issuance and the Portugal Charter
Amendment.

     
C. Contemporaneously with the execution and delivery of
this Agreement, (i) Italy and Falconbridge Limited, a
corporation organized and existing under the laws of Ontario
(“France”), have entered into an amendment to
the Support Agreement between them in the form set forth as
Exhibit D hereto, (ii) Portugal and France have
entered into an Agreement in the form set forth as
Exhibit E, and (iii) Italy and Portugal have
entered into the Convertible Note Purchase Agreement in the
form set forth in Exhibit F hereto.

     
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:

ARTICLE I

DEFINITIONS

     
1.1.     Certain
Definitions. The following terms shall have the
following meanings:

		
	 	     
    “1933 Act” means the United States
    Securities Act of 1933, as amended, and the rules and
    regulations promulgated from time to time thereunder.
	 
	 	     
    “1934 Act” means the United States
    Securities Exchange Act of 1934, as amended, and the rules and
    regulations promulgated from time to time thereunder.
	 
	 	     
    “Action” means any action, claim, suit,
    litigation, demand, cause of action, charge, complaint,
    arbitration or other proceeding.
	 
	 	     
    “Affiliate” means, with respect to any
    Person, any other Person that directly, or through one or more
    intermediaries, controls or is controlled by or is under common
    control with such Person. For purposes of the foregoing,
    “control” means the possession, direct or indirect, of
    the power to direct or cause the direction of the management and
    policies of a person, whether through the ownership of voting
    securities, by contract, or otherwise. For the avoidance of
    doubt, a Subsidiary of any Person shall be deemed to be an
    Affiliate of such Person, and such Person shall be deemed to be
    an Affiliate of such Subsidiary.
	 
	 	     
    “Agreement” means this Combination
    Agreement, including the Exhibits and schedules hereto, as the
    same may be amended, supplemented or otherwise modified from
    time to time in accordance with the terms hereof.

1

 

		
	 	     
    “ARC” means an advance ruling
    certificate issued by the Commissioner pursuant to
    Section 102 of the Competition Act.
	 
	 	     
    “Arrangement” means an arrangement under
    section 192 of the CBCA on the terms and subject to the
    conditions set out in the Plan of Arrangement, subject to any
    amendments or variations thereto made in accordance with
    Section 9.4 hereof or Article VII of the Plan of
    Arrangement or made at the direction of the Court in the Final
    Order.
	 
	 	     
    “Articles of Arrangement” means the
    articles of arrangement of Italy in respect of the Arrangement,
    required by the CBCA to be sent to the Director after the Final
    Order is made.
	 
	 	     
    “CBCA” means the Canada Business
    Corporations Act, as now in effect and as it may be amended from
    time to time prior to the Effective Time.
	 
	 	     
    “Canadian Securities Regulatory
    Authorities” means the OSC and each other
    securities commission or similar regulatory authority in each of
    the provinces and territories of Canada.
	 
	 	     
    “Code” means the United States Internal
    Revenue Code of 1986, as amended.
	 
	 	     
    “Commissioner” means the Commissioner of
    Competition under the Competition Act.
	 
	 	     
    “Competition Act” means the Competition
    Act (Canada), as amended.
	 
	 	     
    “Competition Act Approval” means receipt
    of an ARC or, in the alternative to an ARC, the waiver,
    expiration or earlier termination of the waiting period under
    Part IX of the Competition Act and receipt of a letter from
    the Commissioner or a person authorized by the Commissioner that
    the Commissioner has determined not to make an application for
    an order under section 92 of the Competition Act in respect
    of the transactions contemplated by this Agreement.
	 
	 	     
    “Contract” means any written agreement,
    commitment, contract, note, bond, mortgage, indenture, lease,
    instrument or other binding arrangement.
	 
	 	     
    “Court” means the Superior Court of
    Justice (Ontario).
	 
	 	     
    “Director” means the Director appointed
    pursuant to section 260 of the CBCA.
	 
	 	     
    “Disclosed Publicly by Italy” means
    disclosed in a public filing by Italy with the OSC on or after
    January 1, 2004 and prior to the date hereof.
	 
	 	     
    “Disclosed Publicly by Portugal” means
    disclosed in a public filing by Portugal with the SEC on or
    after January 1, 2004 and prior to the date hereof.
	 
	 	     
    “Disclosed to Italy” means disclosed by
    Portugal in the Portugal Dataroom or made available in writing
    by Portugal to Italy.
	 
	 	     
    “Disclosed to Portugal” means disclosed
    by Italy in the Italy Dataroom or made available in writing by
    Italy to Portugal.
	 
	 	     
    “Dissent Rights” means the rights of
    dissent in respect of the Arrangement described in
    Article IV of the Plan of Arrangement.
	 
	 	     
    “Effective Time” has the meaning
    ascribed thereto in the Plan of Arrangement.
	 
	 	     
    “Employee Plan” means, with respect to
    any Person, any “employee benefit plan,” as defined in
    Section 3(3) of ERISA, and any stock purchase, stock
    option, stock appreciation, stock incentive, phantom stock,
    severance, termination, employment,
    change-in-control,
    retention, insurance (including self-insurance), split-dollar,
    health, medical, disability, sick pay, workers compensation,
    supplemental unemployment, post-employment, pension, savings,
    retirement, profit sharing, vacation, fringe benefit,
    multiemployer, collective bargaining, bonus, incentive, deferred
    compensation, loan and any other employee benefit plan,
    agreement, program, policy or other arrangement (including any
    funding mechanism therefor now in effect or required in the
    future as a result of the transactions

2

 

		
	 	
    contemplated by this Agreement or otherwise), whether or not
    subject to ERISA, whether formal or informal.
	 
	 	     
    “Environmental Laws” means all Laws and
    Orders of any international, provincial, federal, state, local
    and any other Governmental Entity that relate to the protection
    of the environment, protection of wildlife and/or wildlife
    habitat, protection of cultural or historic resources, including
    those relating to reclamation, remediation or restoration of
    mineral or other properties, the natural environment or to the
    presence, use, production, generation, handling, transportation,
    treatment, storage, disposal, distribution, labeling, testing,
    processing, discharge, release, threatened release, control, or
    cleanup of any Hazardous Substances, or to the impact of
    Hazardous Substances on the environment, health or property.
	 
	 	     
    “Environmental Lien” means any Lien in
    favor of any Governmental Entity arising under Environmental
    Laws.
	 
	 	     
    “ERISA” means the Employee Retirement
    Income Security Act of 1974, as amended.
	 
	 	     
    “ERISA Affiliate” means, with respect to
    any Person, any trade or business (whether or not incorporated)
    which is a member of a controlled group or which is under common
    control with such Person within the meaning of Section 414
    of the Code.
	 
	 	     
    “France Subsequent Acquisition
    Transaction” means the acquisition by Italy of the
    common shares of France held by Persons who have not accepted
    the Italy Bid in the manner contemplated under the heading
    “Acquisition of France Shares Not Deposited” in the
    Italy Bid Circular.
	 
	 	     
    “Final Order” means the final order of
    the Court approving the Arrangement, as such order may be
    amended or varied at any time prior to the Effective Time or, if
    appealed, then unless such appeal is withdrawn or denied, as
    affirmed or as amended on appeal.
	 
	 	     
    “Governmental Entity” means any
    (a) multinational, federal, provincial, state, regional,
    municipal or other government, or governmental department,
    central bank, court, tribunal, arbitrator, commission, board,
    bureau or agency, whether U.S., Canadian, foreign or
    multinational, (b) subdivision, agent, commission,
    board or authority of any of the foregoing or (c) stock
    exchange, including the NYSE or TSX.
	 
	 	     
    “Hazardous Substance” means any
    chemical, material or substance in any form, whether solid,
    liquid, gaseous, semisolid or any combination thereof, whether
    waste material, raw material, finished product, intermediate
    product, byproduct or any other material or article, that is
    listed or regulated under any applicable Environmental Laws as a
    hazardous substance, toxic substance, waste or contaminant or is
    otherwise listed or regulated under any applicable Environmental
    Laws because it poses a hazard to human health or the
    environment, including petroleum products, asbestos, PCBs, urea
    formaldehyde foam insulation and lead-containing paints or
    coatings.
	 
	 	     
    “ICA” means the Investment Canada Act
    (Canada), as amended, and the regulations thereunder.
	 
	 	     
    “ICA Approval” means the determination
    or deemed approval by the Minister responsible for the
    administration of the ICA that the transactions contemplated
    hereby are of “net benefit to Canada” pursuant to
    Part IV of the ICA.
	 
	 	     
    “In the Money Amount” in respect of a
    stock option at any time means the amount, if any, by which the
    aggregate fair market value at that time of the securities
    subject to the option exceeds the aggregate exercise price under
    the stock option.
	 
	 	     
    “Intellectual Property” means all
    federal, state, provincial, foreign and multinational
    intellectual and industrial property rights, including without
    limitation, all (i) patents; (ii) copyrights;
    (iii) trademarks and service marks, the goodwill of
    any business symbolized thereby, and all common-law rights
    relating thereto; (iv) trade secrets; and (v) all
    registrations, applications, and recordings related to the
    foregoing.

3

 

		
	 	     
    “Interim Order” means the interim order
    of the Court, as the same may be amended in respect of the
    Arrangement, as contemplated by Section 2.4.
	 
	 	     
    “ITA” means the Income Tax Act (Canada),
    as amended, and the regulations thereunder, as amended, in each
    case, except as otherwise provided herein, as of the date hereof.
	 
	 	     
    “Italy Bid” means the offer, as the same
    may be amended from time to time, by Italy to acquire all of the
    outstanding common shares of France as described in the Italy
    Bid Circular.
	 
	 	     
    “Italy Bid Circular” means the take-over
    bid circular of Italy dated October 24, 2005, as the same
    has been amended or varied and as the same may be amended or
    varied from time to time, relating to the Italy Bid.
	 
	 	     
    “Italy Dataroom” means the electronic
    dataroom relating to Italy to which Portugal has had access
    prior to the date hereof.
	 
	 	     
    “Italy Employee Plan” means any Employee
    Plan under which (i) any current or former director,
    officer, consultant or employee of Italy or any of its
    Subsidiaries (or any of their beneficiaries or dependants) has
    any present or future right to benefits and which is contributed
    to, entered into, sponsored by or maintained by Italy, any of
    its Subsidiaries or any of their ERISA Affiliates or
    (ii) Italy or any of its Subsidiaries has or reasonably
    would be expected to have any present or future liability.
	 
	 	     
    “Italy Meeting” means the special
    meeting of holders of Italy Common Shares, including any
    adjournment or postponement thereof, to be called and held in
    accordance with the Interim Order to consider the Arrangement
    and other matters related to this Agreement and the Arrangement.
	 
	 	     
    “Italy Option Plans” means the stock
    option or incentive plans for directors, officers and employees
    of Italy and its Subsidiaries and other eligible persons (as
    applicable).
	 
	 	     
    “Italy Resolution” means the special
    resolution of the holders of the Italy Common Shares, to be
    substantially in the form of Exhibit A hereto.
	 
	 	     
    “Italy SAR” means a stock appreciation
    right included in an Italy Option and exercisable in lieu of
    (but not in addition to) such Italy Option.
	 
	 	     
    “knowledge” of Italy, means the actual
    knowledge of the Persons set forth in Section 1.2 of the
    Italy Disclosure Schedule, and of Portugal, means the actual
    knowledge of the Persons set forth in Section 1.2 of the
    Portugal Disclosure Schedule.
	 
	 	     
    “Laws” means laws (including common
    law), statutes, rules, regulations, orders, ordinances, codes,
    treaties, and judicial, arbitral, administrative, ministerial or
    departmental judgments, awards or other requirements of any
    Governmental Entity.
	 
	 	     
    “Lien” means, with respect to any
    property, right or asset, any mortgage, lien, pledge, charge,
    security interest, purchase option, right of first offer or
    refusal, encumbrance or other adverse claim of any kind in
    respect of such property or asset.
	 
	 	     
    “Material Adverse Effect” means, with
    respect to each party, any fact, change, event, occurrence or
    effect (a) that is or would reasonably be expected to be
    materially adverse to the condition (financial or otherwise),
    properties, assets, liabilities, obligations (whether absolute,
    accrued, conditional or otherwise), businesses, operations or
    results of operations of such party, its Subsidiaries and its
    material joint ventures, taken as a whole, other than any such
    fact, change, event, occurrence or effect relating to
    (i) the announcement of the execution of this Agreement or
    the transactions contemplated hereby, including the consummation
    of the acquisition of common shares of France as contemplated by
    the Support Agreement and this Agreement, the exercise of
    dissent rights in connection with any subsequent acquisition
    transaction, and any divestitures or other actions required to
    obtain all necessary regulatory approvals relating thereto,
    (ii) changes, circumstances or conditions generally
    affecting the mining industry and not having a materially
    disproportionate effect on such

4

 

		
	 	
    party, (iii) changes in general economic conditions in the
    United States or Canada, (iv) changes in any of the
    principal markets served by such party’s business generally
    or shortages or price changes with respect to raw materials,
    metals or other products (including, but not limited to, nickel,
    copper, cobalt, molybdenum, any platinum-group metals, sulfur,
    sulphuric acid, electricity, zinc or aluminum) used or sold by
    that party, (v) changes in generally applicable Laws or
    regulations (other than orders, judgments or decrees against
    such party, any of its Subsidiaries or any of its material joint
    ventures), or (vi) changes in US GAAP or Canadian GAAP or
    (b) that as of the date hereof is, or would reasonably be
    expected to be, materially adverse to the ability of such party
    to consummate the transactions contemplated by this Agreement;
    provided, however, that in no event shall (A) a change in
    the trading prices of a party’s equity securities, or
    (B) any failure by a party, including France, to meet any
    internal or published projections, forecasts or revenue or
    synergy or earnings predictions (collectively
    “Estimates”) by itself, be deemed to constitute a
    Material Adverse Effect (it being understood that the foregoing
    shall not prevent a party from asserting that any fact, change,
    event, occurrence or effect that may have contributed to such
    change in trading prices or Estimates independently constitutes
    a Material Adverse Effect); it being understood and agreed that,
    after the consummation of the acquisition of common shares of
    France as contemplated by the Support Agreement and this
    Agreement, for purposes of determining whether a Material
    Adverse Effect with respect to Italy shall have occurred, the
    financial condition, business and results of operations of Italy
    shall be deemed to include the financial condition, business and
    results of operations of Italy, France and their collective
    Subsidiaries and material joint ventures, taken as a whole.
	 
	 	     
    “NYSE” means The New York Stock
    Exchange, Inc.
	 
	 	     
    “OBCA” means the Business Corporations
    Act (Ontario), as now in effect and as it may be amended from
    time to time prior to the Effective Time.
	 
	 	     
    “Order” means any legally enforceable
    judgment, order, decision, writ, injunction, stipulation, ruling
    or decree of, or any settlement under jurisdiction of, any
    Governmental Entity.
	 
	 	     
    “OSC” means the Ontario Securities
    Commission.
	 
	 	     
    “Person” shall mean any individual,
    corporation (including any non-profit corporation), general
    partnership, limited partnership, limited liability partnership,
    joint venture, estate, trust, company (including any limited
    liability company, unlimited liability company or joint stock
    company), firm or other enterprise, association, organization,
    entity or Governmental Entity.
	 
	 	     
    “Plan of Arrangement” means, subject to
    Section 2.2(a), the plan of arrangement, substantially in
    the form of Exhibit B hereto as amended by any amendments
    or variations thereto made in accordance with Section 9.4
    hereof or Article VII of the Plan of Arrangement or made at
    the direction of the Court in the Final Order.
	 
	 	     
    “Portugal Charter Amendment” means the
    amendment and restatement of the certificate of incorporation of
    Portugal so that, after giving effect thereto, the certificate
    of incorporation of Portugal shall be substantially in the form
    set forth as Exhibit C.
	 
	 	     
    “Portugal Dataroom” means the electronic
    dataroom relating to Portugal to which Italy has had access
    prior to the date hereof.
	 
	 	     
    “Portugal Employee Plan” means any
    Employee Plan under which (i) any current or former
    director, officer, consultant or employee of Portugal or any of
    its Subsidiaries (or any of their beneficiaries or dependants)
    has any present or future right to benefits and which is
    contributed to, entered into, sponsored by or maintained by
    Portugal, any of its Subsidiaries or any of their ERISA
    Affiliates or (ii) Portugal or any of its Subsidiaries
    has or reasonably would be expected to have any present or
    future liability.
	 
	 	     
    “Portugal Meeting” means the special
    meeting of holders of Portugal Common Shares, including any
    adjournment or postponement thereof, to be called to consider
    the Portugal Charter Amendment and the Portugal Share Issuance.

5

 

		
	 	     
    “Portugal Share Issuance” means the
    issuance of Portugal Common Shares pursuant to the Arrangement.
	 
	 	     
    “Proprietary Subject Matter” means:
    (i) all information (whether or not protectable by
    patent, copyright, mask work or trade secret rights) not
    generally known to the public, including know-how and show-how,
    discoveries, processes, formulae, designs, methods, techniques,
    procedures, concepts, specifications, technical manuals and
    data, libraries, blueprints, drawings, product information,
    development
    work-in-process,
    inventions and trade secrets; (ii) patentable subject
    matter, patented inventions and inventions subject to patent
    applications; (iii) industrial models and industrial
    designs; (iv) works of authorship, software and
    copyrightable subject matter; (v) mask works; and
    (vi) trademarks, trade names, service marks, brand
    names, corporate names, emblems, logos, trade dress, domain
    names, insignia and related marks.
	 
	 	     
    “Regulatory Approvals” means, with
    respect to a party, those Orders, sanctions, consents,
    exemptions, waivers, permits, agreements, certificates,
    authorizations and other Approvals (including the lapse, without
    objection, of a prescribed time under a statute or regulation
    that states that a transaction may be implemented if a
    prescribed time lapses following the giving of notice without an
    objection being made) of Governmental Entities that are
    necessary or advisable in connection with the transactions
    contemplated hereby, including, in the case of Italy, those
    referred to in Section 3.5(b) hereof and, in the case of
    Portugal, those referred to in Section 4.5(b) hereof.
	 
	 	     
    “Securities Act (Ontario)” means the
    Securities Act (Ontario) and all rules and regulations enacted
    thereunder, as now in effect and as it may be amended from time
    to time prior to the Effective Time.
	 
	 	     
    “SEC” means the United States Securities
    and Exchange Commission.
	 
	 	     
    “Securities Laws” means the Securities
    Act (Ontario) and the equivalent legislation in the other
    provinces and territories of Canada, the 1933 Act, and the
    1934 Act, all as now enacted or as the same may from time
    to time be amended, and the applicable rules and regulations
    promulgated thereunder.
	 
	 	     
    “Stock Award Exchange Ratio” means the
    sum of (i) the Share Exchange Ratio plus (ii) the
    fraction resulting from dividing the Per Share Cash Amount by
    the closing price of the Portugal Common Shares on the NYSE on
    the last trading day immediately preceding the Closing Date
    expressed in Canadian dollars based upon the noon buying rate of
    the Bank of Canada on such date.
	 
	 	     
    “Subsidiary” shall mean, when used with
    reference to any party, any Person of which such party (either
    alone or through or together with any other Subsidiary) either
    owns, directly or indirectly, fifty percent (50%) or more of the
    outstanding capital stock or other equity interests the holders
    of which are generally entitled to vote for the election of
    directors or members of any other governing body of such Person
    or, in the case of a Person that is a partnership, is a general
    partner of such partnership, or any Person the accounts of which
    such party is required to consolidate in its own financial
    statements under the generally accepted accounting principles
    applicable to such party.
	 
	 	     
    “Support Agreement” means the Support
    Agreement, dated October 10, 2005, between Italy and
    France, as amended from time to time (including pursuant to
    amendments dated January 12, 2006, February 20, 2006,
    March 21, 2006, May 13, 2006 and the date hereof).
	 
	 	     
    “TSX” means The Toronto Stock Exchange.

     
1.2.     Terms Defined in Other
Sections. The following terms are defined elsewhere in
this Agreement in the following Sections:

	 	 	 
	
    
    Acquisition Proposal

    	 	
    Section 5.3(j)
	
    
    Approvals

    	 	
    Section 3.1(a)
	
    
    Canadian GAAP

    	 	
    Section 3.7(b)
	
    
    Change in Italy Recommendation

    	 	
    Section 5.2(c)

6

 

	 	 	 
	
    
    Change in Portugal Recommendation

    	 	
    Section 6.2(c)
	
    
    Change in Recommendation

    	 	
    Section 6.2(c)
	
    
    Closing Date

    	 	
    Section 2.5(a)
	
    
    Collective Agreements

    	 	
    Section 3.12(a)
	
    
    Confidentiality Agreements

    	 	
    Section 7.1(a)
	
    
    Converted Portugal Option

    	 	
    Section 2.1(c)
	
    
    Converted Portugal Option Exercise Price

    	 	
    Section 2.1(c)
	
    
    DOJ

    	 	
    Section 7.5
	
    
    European Commission

    	 	
    Section 7.5
	
    
    Expenses

    	 	
    Section 9.3(d)
	
    
    France

    	 	
    Recitals
	
    
    France Condition

    	 	
    Section 8.1(g)
	
    
    FTC

    	 	
    Section 7.5
	
    
    HSR Act

    	 	
    Section 3.5(b)
	
    
    Indemnified Parties

    	 	
    Section 7.6
	
    
    Infringe

    	 	
    Section 3.19
	
    
    IRD

    	 	
    Section 7.5
	
    
    Italy

    	 	
    Preamble
	
    
    Italy Charter Documents

    	 	
    Section 3.2
	
    
    Italy Circular

    	 	
    Section 5.2(b)
	
    
    Italy Common Shares

    	 	
    Section 3.3(a)
	
    
    Italy Competing Proposal

    	 	
    Section 9.3(d)
	
    
    Italy Disclosure Schedule

    	 	
    Article III
	
    
    Italy Documents

    	 	
    Section 3.7(a)
	
    
    Italy Environmental Permits

    	 	
    Section 3.18(c)
	
    
    Italy Financial Statements

    	 	
    Section 3.7(b)
	
    
    Italy Insurance Policies

    	 	
    Section 3.16
	
    
    Italy Intellectual Property

    	 	
    Section 3.19
	
    
    Italy Options

    	 	
    Section 3.3(a)
	
    
    Italy Preferred Shares

    	 	
    Section 3.3(a)
	
    
    Italy Property

    	 	
    Section 3.18(a)
	
    
    Italy Restricted Shares

    	 	
    Section 3.3(a)
	
    
    Italy Returns

    	 	
    Section 3.17(b)(i)
	
    
    Italy Shareholder Approval

    	 	
    Section 2.4(b)
	
    
    Italy Termination Fee

    	 	
    Section 9.3(d)
	
    
    Italy-Used Proprietary Subject Matter

    	 	
    Section 3.19
	
    
    KEIP Plans

    	 	
    Section 3.3(a)
	
    
    LYON Notes

    	 	
    Section 3.3(a)
	
    
    Material Italy Contract

    	 	
    Section 3.20
	
    
    Material Portugal Contract

    	 	
    Section 4.20
	
    
    Permit

    	 	
    Section 3.5(a)
	
    
    Per Share Cash Amount

    	 	
    Section 2.1(a)(ii)
	
    
    Portugal

    	 	
    Preamble
	
    
    Portugal Canada

    	 	
    Section 2.1(a)
	
    
    Portugal Charter Documents

    	 	
    Section 4.2

7

 

	 	 	 
	
    
    Portugal Competing Proposal

    	 	
    Section 9.3(d)
	
    
    Portugal Common Shares

    	 	
    Section 4.3(a)
	
    
    Portugal Disclosure Schedule

    	 	
    Article IV
	
    
    Portugal Environmental Permits

    	 	
    Section 4.18(c)
	
    
    Portugal Financial Statements

    	 	
    Section 4.7(b)
	
    
    Portugal Insurance Policies

    	 	
    Section 4.16
	
    
    Portugal Intellectual Property

    	 	
    Section 4.19
	
    
    Portugal Preferred Shares

    	 	
    Section 4.3(a)
	
    
    Portugal Property

    	 	
    Section 4.18(a)
	
    
    Portugal Proxy Statement

    	 	
    Section 6.2(b)
	
    
    Portugal Returns

    	 	
    Section 4.17(a)(i)
	
    
    Portugal SEC Reports

    	 	
    Section 4.7(a)
	
    
    Portugal Stockholder Approval

    	 	
    Section 4.22
	
    
    Portugal Termination Fee

    	 	
    Section 9.3(d)
	
    
    Portugal-Used Proprietary Subject Matter

    	 	
    Section 4.19
	
    
    Sarbanes-Oxley Act

    	 	
    Section 3.7(c)
	
    
    Share Exchange Ratio

    	 	
    Section 2.1(a)(ii)
	
    
    Shareholder Solicitations

    	 	
    Section 7.2(a)
	
    
    Superior Proposal

    	 	
    Section 5.3(j)
	
    
    Support Agreement Contracts

    	 	
    Section 3.20(b)
	
    
    Takeover Statute

    	 	
    Section 7.7
	
    
    Tax

    	 	
    Section 3.17(a)
	
    
    Tax Pools

    	 	
    Section 3.17(b)(iv)
	
    
    Termination Date

    	 	
    Section 9.1(b)
	
    
    US GAAP

    	 	
    Section 4.7(b)

     
1.3.     Interpretation.
When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless
otherwise indicated. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. Unless otherwise
indicated, the words “include,” “includes”
and “including” when used herein shall be deemed in
each case to be followed by the words “without
limitation.” The table of contents and headings contained
in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this
Agreement. When reference is made herein to “the business
of” a Person, such reference shall be deemed to include the
business of such Person and all direct and indirect Subsidiaries
of such Person taken as a whole. Reference to the Subsidiaries
of a Person shall be deemed to include all direct and indirect
Subsidiaries of such Person.

ARTICLE II

THE ARRANGEMENT

     
2.1.     The Arrangement.
Subject to the terms hereof, at the Effective Time and as more
fully set forth in the Plan of Arrangement:

		
	 	     
    (a) A newly-formed, Canadian wholly-owned Subsidiary of
    Portugal (“Portugal Canada”) will
    acquire all outstanding Italy Common Shares; Italy and Portugal
    Canada will amalgamate; and each outstanding Italy Common Share
    (other than (x) Italy Common Shares held by a holder who
    has validly exercised its Dissent Rights or by Portugal or any
    Subsidiary of Portugal and (y) the Italy Restricted
    Shares) will be exchanged by the holder thereof for:

8

 

		
	 	     
    (i) 0.672 Portugal Common Shares (the “Share
    Exchange Ratio”), plus
	 
	 	     
    (ii) Cdn.$17.50 in cash (the “Per Share Cash
    Amount”).

		
	 	     
    (b) Each Italy Restricted Share granted under the KEIP
    Plans and outstanding immediately prior to the Effective Time
    will be exchanged for the number of restricted Portugal Common
    Shares (on the same terms and conditions as were applicable
    prior to the Effective Time to such award of Italy Restricted
    Shares pursuant to the relevant KEIP Plan under which such Italy
    Restricted Share was issued and the agreement evidencing the
    grant thereof) equal to the Stock Award Exchange Ratio.
	 
	 	     
    (c) Each Italy Option outstanding immediately prior to the
    Effective Time, whether or not vested, shall be exchanged for a
    fully vested option granted by Portugal (a “Converted
    Portugal Option”) to acquire (on the same terms and
    conditions, other than vesting, as were applicable to such Italy
    Option pursuant to the relevant Italy Option Plan under which it
    was issued and the agreement evidencing the grant thereof prior
    to the Effective Time) the number (rounded down to the nearest
    whole number) of Portugal Common Shares determined by
    multiplying (A) the number of Italy Common Shares subject
    to such Italy Option immediately prior to the Effective Time by
    (B) the Stock Award Exchange Ratio. The exercise price per
    Portugal Common Share subject to any such Converted Portugal
    Option (the “Converted Portugal Option Exercise
    Price”) will be an amount (rounded up to the nearest
    one hundredth of a cent) equal to the quotient of (A) the
    exercise price per Italy Common Share subject to such Italy
    Option immediately prior to the Effective Time and (B) the
    Stock Award Exchange Ratio, expressed in U.S. dollars based
    on the noon buying rate of the Bank of Canada on the last
    trading day immediately preceding the Closing Date; provided
    that the exercise price otherwise determined shall be increased
    to the extent, if any, required to ensure that the In The Money
    Amount of the Converted Portugal Option immediately after the
    exchange is equal to the in the Money Amount of the
    corresponding Italy Option immediately before the exchange. The
    conversion mechanism set forth in this Section 2.1(c) shall
    be adjusted to the extent required to comply with
    Section 409A of the Code and the rules, regulations and
    guidance promulgated thereunder, where applicable.
	 
	 	     
    (d) For greater certainty, if a particular Italy Option
    includes an Italy SAR, the corresponding Converted Portugal
    Option will include a stock appreciation right subject to the
    same terms and conditions (other than vesting) as were
    applicable to the Italy SAR except that the stock appreciation
    right, which may be exercised in lieu of, but not in addition to
    the Converted Portugal Option shall represent the right to
    receive, upon exercise (and consequent surrender of the
    Converted Portugal Option), (i) the number of Portugal
    Common Shares (rounded down to the nearest whole share) having
    an aggregate fair market value on the date of exercise equal to
    the positive difference between (A) the aggregate fair
    market value of the Portugal Common Shares subject to the
    corresponding Converted Portugal Option and (B) the
    aggregate Converted Portugal Option exercise price,
    (ii) the equivalent amount of cash, or (iii) an
    equivalent combination thereof, as Portugal may determine in its
    sole discretion. The conversion mechanism in relation to the
    Italy SAR shall be adjusted as necessary to the extent required
    to comply with section 409A of the Code and the rules,
    regulations and guidance promulgated thereunder, where
    applicable.

     
2.2.     Implementation Steps by
Italy. Italy covenants in favor of Portugal that Italy
shall:

		
	 	     
    (a) subject to the terms of this Agreement and the
    preparation of a substantially complete Italy Circular in
    accordance with Section 5.2 of this Agreement, as soon as
    reasonably practicable, apply in a manner reasonably acceptable
    to Portugal under Section 192 of the CBCA for an order
    approving the Arrangement and for the Interim Order, and
    thereafter proceed with and diligently seek the Interim Order.
    Notwithstanding that this Agreement contemplates that the
    Arrangement will be implemented under the CBCA, the parties
    agree that the Arrangement may, if the parties consider it to be
    appropriate in the circumstances, be effected under the OBCA
    with necessary modifications to the Plan of Arrangement and
    without any requirement to amend or otherwise modify this
    Agreement. In such event, at the option of Portugal, the Plan of
    Arrangement may be modified at any time prior

9

 

		
	 	
    to the Italy Meeting to provide that the France Subsequent
    Acquisition Transaction shall be completed as part of the
    Arrangement;
	 
	 	     
    (b) subject to the terms of this Agreement and in
    accordance with the Interim Order, as soon as reasonably
    practicable, convene and hold the Italy Meeting for the purpose
    of considering the Italy Resolution;
	 
	 	     
    (c) provided that Italy has taken up and paid for not less
    than
    662/3
    % of the outstanding common shares of France pursuant to
    the Italy Bid, to use its reasonable best efforts, in
    consultation and with the prior approval of Portugal, to
    complete a France Subsequent Acquisition Transaction as soon as
    practicable and in any event prior to the Effective Time;
	 
	 	     
    (d) subject to obtaining such approvals as are required by
    the Interim Order, proceed with and diligently pursue the
    application to the Court for the Final Order; and
	 
	 	     
    (e) subject to obtaining the Final Order and the
    satisfaction or waiver of the other conditions herein contained
    in favor of each party, send to the Director, for endorsement
    and filing by the Director, the Articles of Arrangement and such
    other documents as may be required in connection therewith under
    the CBCA to give effect to the Arrangement.

     
2.3.     Implementation Steps by
Portugal. Portugal covenants in favor of Italy that:

		
	 	     
    (a) subject to the terms of this Agreement, Portugal shall,
    as soon as reasonably practicable, convene and hold the Portugal
    Meeting for the purpose of considering the Portugal Share
    Issuance and the Portugal Charter Amendment;
	 
	 	     
    (b) subject to obtaining the Final Order and the
    satisfaction or waiver of the other conditions herein contained
    in favor of each party, on the Closing Date and prior to the
    Effective Time, Portugal shall file the restated certificate of
    incorporation of Portugal, in the form set forth in
    Exhibit C hereto, with the Secretary of State of the State
    of New York.

     
2.4.     Interim Order.
The notice of motion for the application referred to in
Section 2.2(a) shall request that the Interim Order provide:

		
	 	     
    (a) for the class of Persons to whom notice is to be
    provided in respect of the Arrangement and the Italy Meeting and
    for the manner in which such notice is to be provided;
	 
	 	     
    (b) that, subject to the approval of the Court, the
    requisite approval for the Italy Resolution shall be
    662/3%
    of the votes cast on the Italy Resolution by holders of Italy
    Common Shares present in person or by proxy at the Italy Meeting
    (the “Italy Shareholder Approval”);
	 
	 	     
    (c) that, in all other respects, the terms, restrictions
    and conditions of the Italy Charter Documents, including quorum
    requirements and all other matters, shall apply in respect of
    the Italy Meeting;
	 
	 	     
    (d) for the grant of the Dissent Rights; and
	 
	 	     
    (e) for the notice requirements with respect to the
    presentation of the application to the Court for a Final Order.

     
2.5.     Closing.

     
(a) The closing of the transactions contemplated hereby
will take place at 8:00 am, Eastern Time, at the offices of
Debevoise & Plimpton LLP, 919 Third Avenue, New York,
NY 10022, on the second business day after the satisfaction or
waiver (subject to applicable Laws) of the conditions set forth
in Article VIII (excluding conditions that, by their terms,
cannot be satisfied until the Closing Date, but subject to the
satisfaction or, where permitted, waiver of those conditions as
of the Closing Date), or such other date, time and place as is
agreed to in writing by the parties hereto (such date, the
“Closing Date”).

     
(b) On the Closing Date, the Articles of Arrangement shall
be filed with the Director. The Articles of Arrangement shall
implement the Plan of Arrangement.

10

 

     
(c) At the Effective Time, each Italy Common Share
outstanding immediately prior to the Effective Time will be
exchanged or converted, as provided in the Plan of Arrangement,
and the Arrangement will, from and after the Effective Time,
have all of the effects provided by applicable Laws, including
the CBCA.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF ITALY

     
Italy represents and warrants to Portugal, subject to such
exceptions as are specifically disclosed in writing in the
disclosure schedule (arranged in sections and subsections
corresponding to the numbered and lettered sections and
subsections contained in this Article III with the
disclosures in any section or subsection of such schedule
qualifying the corresponding section or subsection in this
Article III, as well as any other section or subsection of
this Article III if the relevance of the disclosed item to
such other section or subsection is reasonably apparent on its
face) supplied by Italy to Portugal dated as of the date hereof
(the “Italy Disclosure Schedule”), as follows:

     
3.1.     Organization and
Qualification; Subsidiaries.

     
(a) Each of Italy and its Subsidiaries that is a
corporation or other legal entity is duly organized, validly
existing and in good standing under the Laws of the jurisdiction
of its incorporation and has the requisite corporate,
partnership or similar power and authority to own, lease and
operate its assets and properties and to carry on its business
as now conducted, except where the failure to do so has not had
and would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect with respect to Italy.
Each of Italy and its Subsidiaries is in possession of all
franchises, grants, qualifications, authorizations, licenses,
permits, easements, consents, certificates, approvals and orders
(“Approvals”) from all Governmental Entities
necessary to own, lease and operate the properties it purports
to own, operate or lease and to lawfully carry on its business
as now conducted, except where the failure to have such
Approvals has not had and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse
Effect with respect to Italy.

     
(b) Italy has no material Subsidiaries except as Disclosed
to Portugal prior to the date hereof.

     
(c) Except as Disclosed Publicly by Italy or as Disclosed
to Portugal, all of the outstanding capital stock of, or other
equity securities or ownership interests in, each Subsidiary of
Italy, is owned by Italy, directly or indirectly, free and clear
of any Lien and free of any other limitation or restriction
(including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other equity
securities or ownership interests). Except as Disclosed Publicly
by Italy or as Disclosed to Portugal, there are no outstanding
(i) securities of Italy or its Subsidiaries convertible
into or exchangeable for capital or equity securities or
ownership interests in any Subsidiary of Italy or (ii)
except for employee or director stock options issued pursuant to
Italy’s stock option plans, options or other rights to
acquire from Italy or any of its Subsidiaries, or other
obligation of Italy or any of its Subsidiaries to issue, any
capital stock or other equity securities or ownership interests
in, or any securities convertible into or exchangeable for any
capital stock or other equity securities or ownership interests
in, any Subsidiary of Italy. Except as Disclosed Publicly by
Italy or as Disclosed to Portugal, there are no outstanding
obligations of Italy or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any of the items referred to in
clauses (i) and (ii) above.

     
(d) Except as Disclosed Publicly by Italy or as Disclosed
to Portugal, neither Italy nor any of its Subsidiaries has
agreed nor is it obligated to make nor is it bound by any
Contract under which it may become obligated to acquire any
material equity interest or investment in, or make any material
capital contribution to, any Person (other than a wholly-owned
Subsidiary of Italy). Except as Disclosed Publicly by Italy or
as Disclosed to Portugal, neither Italy nor any of its
Subsidiaries directly or indirectly owns any material interest
or investment (whether equity or debt) nor has any rights to
acquire any material interest or investment in any Person (other
than a Subsidiary of Italy).

11

 

     
(e) Italy and each of its Subsidiaries that is a
corporation or other legal entity is duly qualified to do
business as a foreign corporation or other foreign legal entity,
and is in good standing, under the Laws of all jurisdictions
where the nature of its business requires such qualification,
except for those jurisdictions where the failure to be so
qualified, individually or in the aggregate, has not had and
would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect with respect to Italy.

     
3.2.     Articles of
Incorporation and Bylaws. Italy has Disclosed to
Portugal complete and correct copies of its Articles of
Incorporation and Bylaws or other similar organizational
documents (together, the “Italy Charter
Documents”), as amended to date. Such Italy Charter
Documents, as so amended, and the equivalent organizational
documents of each of its Subsidiaries, are in full force and
effect. Italy is not in violation of any of the provisions of
the Italy Charter Documents, and no material Subsidiary of Italy
is in violation of any of its organizational documents.

     
3.3.     Capitalization.

     
(a) The authorized capital of Italy consists of (i)
an unlimited number of common shares, without par value (the
“Italy Common Shares”), and (ii)
45,000,000 preferred shares issuable in series (the
“Italy Preferred Shares”). As of June 16,
2006, 198,755,104 Italy Common Shares, including 155,931
restricted Italy Common Shares in respect of which the
restriction period has not expired (the “Italy
Restricted Shares”) awarded pursuant to Italy’s
2001 Key Executive Incentive Plan and 2005 Key Executive
Incentive Plan (the “KEIP Plans”), are
outstanding and no Italy Preferred Shares are outstanding. As of
June 16, 2006, options to acquire an aggregate of 1,780,539
Italy Common Shares (the “Italy Options”) and
715,300 Italy SARs are outstanding under the Italy Option Plans.
In addition, Italy has issued and there are outstanding as of
June 16, 2006: (i) liquid yield option notes
representing an aggregate amount payable at maturity of
U.S. $178,908,000, which are due and payable on
March 29, 2021 (the “LYON Notes”), which
are convertible into an aggregate of 4,750,544 Italy Common
Shares; (ii) subordinated convertible debentures due on
March 14, 2052, which are convertible into an aggregate of
8,670,469 Italy Common Shares with U.S. $225,545,000 amount
payable at maturity; and (iii) U.S. $176,579,000
aggregate principal amount of convertible debentures due on
March 14, 2023, which are convertible into an aggregate of
5,639,121 Italy Common Shares. Italy has also issued warrants
for the purchase of Italy Common Shares at an exercise price of
Cdn. $30, expiring on August 21, 2006, of which
10,770,964 warrants remain outstanding as of June 16, 2006.
As of the date hereof, no shares of capital stock of Italy are
held by any Subsidiary of Italy or in treasury by Italy. All
issued and outstanding shares of capital stock of Italy have
been duly authorized and validly issued and are fully paid and
nonassessable.

     
(b) Except as Publicly Disclosed by Italy or as Disclosed
to Portugal or as set forth in Section 3.3(a), there are no
subscriptions, options, warrants, phantom shares, stock units,
stock appreciation rights, other equity-based awards, equity
securities, partnership interests, conversion privileges or
similar ownership interests, calls, rights (including preemptive
rights) or Contracts of any character to which Italy or any of
its Subsidiaries is a party or by which it is bound obligating
Italy or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, or to repurchase, redeem
or otherwise acquire, or cause the repurchase, redemption or
acquisition of, any equity securities, partnership interests or
similar ownership interests of Italy or any of its Subsidiaries,
or obligating Italy or any of its Subsidiaries to grant, extend,
accelerate the vesting of or enter into any such subscription,
option, warrant, phantom share, stock unit, stock appreciation
right, other equity-based award, equity security, call, right,
commitment or agreement. Except as Disclosed to Portugal or as
set forth in Section 3.3(a), there are no outstanding
bonds, debentures, or other evidences of indebtedness of Italy
or any Subsidiary thereof having the right to vote (or that are
convertible for or exercisable into securities having the right
to vote) with the holders of Italy Common Shares on any matter.
Except as Disclosed to Portugal or as contemplated by this
Agreement, there is no voting trust, proxy, registration rights
agreement, rights plan, anti-takeover plan or other Contract or
understanding to which Italy or any of its Subsidiaries is a
party or by which it is bound with respect to any equity
security of any class of Italy or with respect to any equity
security, partnership interest or similar ownership interest of
any class of any of its Subsidiaries.

12

 

     
3.4.     Authority Relative to
this Agreement.

     
(a) Italy has all necessary corporate power and authority
to execute and deliver this Agreement and to perform its
obligations hereunder and, subject to the receipt of the Italy
Shareholder Approval, the Interim Order and the Final Order, to
consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance by Italy of this Agreement
and the consummation by Italy of the transactions contemplated
hereby have been duly and validly authorized by all necessary
corporate action on the part of Italy, and no other corporate
proceedings on the part of Italy are necessary to authorize this
Agreement, or to consummate the transactions so contemplated,
other than the Italy Shareholder Approval, the Interim Order and
the Final Order. This Agreement has been duly and validly
executed and delivered by Italy and, assuming the due
authorization, execution and delivery by Portugal, constitutes a
valid, legal and binding obligation of Italy, enforceable
against Italy in accordance with its terms, except that
(i) such enforcement may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other
similar Laws, now or hereafter in effect, affecting
creditors’ rights generally, (ii) the remedy of
specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding may be
brought and (iii) the Currency Act (Canada) precludes a
court in Canada from rendering judgment in any currency other
than Canadian currency.

     
(b) At a meeting duly called and held, Italy’s board
of directors has unanimously: (i) determined that this
Agreement and the transactions contemplated hereby (including
the Arrangement) are fair to the holders of the Italy Common
Shares and in the best interests of Italy; (ii)
authorized and approved this Agreement and the transactions
contemplated hereby (including the Arrangement); and
(iii) resolved to recommend approval and adoption of the
Arrangement by its shareholders at the Italy Meeting.

     
3.5.     No Conflict; Required
Filings and Consents.

     
(a) The execution, delivery and performance by Italy of
this Agreement and the consummation by Italy of the transactions
contemplated hereby do not and will not, subject to obtaining
the Italy Shareholder Approval and receipt of the Approvals
referred to in Section 3.5(b) below, (i) contravene,
conflict with or result in a violation or breach of any
provision of the Italy Charter Documents or the equivalent
organizational documents of any of Italy’s material
Subsidiaries, (ii) contravene, conflict with or result in
a violation or breach of any provisions of any Law applicable to
Italy or any of its Subsidiaries or by which its or any of their
respective properties is bound or affected, (iii) require
any consent or other action by any Person under, constitute a
default (or an event that, with or without notice or lapse of
time or both, would constitute a default) under, or cause or
permit the termination, amendment, acceleration, triggering or
cancellation or other change of any right or obligation or the
loss of any benefit to which Italy or any of its Subsidiaries is
entitled under (A) any provision of any Contract or other
instrument binding upon Italy or any of its Subsidiaries or
(B) any license, permit, franchise, certificate, approval
or other similar authorization (a “Permit”)
held by, or affecting, or relating in any way to, the assets or
business of, Italy or any of its Subsidiaries, or (iv)
result in the creation or imposition of any Lien on any asset of
Italy or any of its Subsidiaries, other than such exceptions in
the case of clause (ii), (iii) or (iv) as would
not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect with respect to Italy.

     
(b) The execution, delivery and performance by Italy of
this Agreement and the consummation by Italy of the transactions
contemplated hereby do not, and shall not, require any Approval,
action by or in respect of, filing with or notification to, any
Governmental Entity, to be made or obtained by Italy or its
Subsidiaries, except for (A) the Competition Act
Approval, (B) the compliance with any applicable
requirements of the United States Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the
rules and regulations thereunder (the “HSR
Act”), including pre-merger notification requirements,
(C) compliance with any applicable requirements of
Council Regulation (EC) 139/2004 of 20 January 2004 on the
control of concentrations between undertakings; (D) any
other applicable competition, merger control, antitrust or
similar Law of foreign Governmental Entities, (E) the
filing with the Canadian Securities Regulatory Authorities and
the mailing to the shareholders of Italy of the Italy

13

 

Circular, (F) such other filings, authorizations,
decisions or orders as may be required by the rules and
regulations of the TSX or NYSE, (G) the Interim Order,
the Final Order and any approvals required by the Interim Order,
the Final Order or filings with the Director under the CBCA and
(H) any other Approvals or Permits, which, if not
obtained, would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect with
respect to Italy.

     
3.6.     Compliance;
Permits.

     
(a) Each of Italy and its Subsidiaries is, and at all times
since January 1, 2004 has been, in compliance with all Laws
and Orders applicable to it or by which its properties are bound
or affected, other than non-compliance matters that have not had
and would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect with respect to Italy.

     
(b) Neither Italy nor any of its Subsidiaries is in default
or violation of (i) any Law or Order applicable to Italy
or any of its Subsidiaries or by which its or any of their
respective properties is bound or affected, or (ii) any
material Contract, Permit or other instrument or obligation to
which Italy or any of its Subsidiaries is a party or by which
Italy or any of its Subsidiaries or its or any of their
respective properties is bound or affected; except, in each
case, for any conflicts, defaults or violations that have not
had and would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect with respect to
Italy. To the knowledge of Italy, no investigation or review by
any Governmental Entity is pending or threatened against Italy
or its Subsidiaries, other than, in each such case, those the
outcome of which have not had and would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse
Effect with respect to Italy.

     
(c) Since January 1, 2004 Italy has complied in all
material respects with the applicable listing and corporate
governance rules and regulations of the TSX and NYSE.

     
(d) Each of Italy and its Subsidiaries owns, possesses or
has obtained, and is in compliance with, all Permits of or from
any Governmental Entity necessary to conduct its business as now
conducted, except for such failures which have not had and would
not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect with respect to Italy.

     
3.7.     Reports; Financial
Statements.

     
(a) Since January 1, 2004, Italy has filed with the
Canadian Securities Regulatory Authorities, the SEC, the TSX and
the NYSE the forms, reports and documents, including financial
statements, annual information forms, material change reports
and management proxy circulars required to be filed by Italy
under applicable Securities Laws, including but not limited to
all documents relating to the transactions contemplated by the
Support Agreement (collectively, the “Italy
Documents”). The Italy Documents, at the time filed (or
if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing), complied in all
material respects with the requirements of applicable Securities
Laws and did not contain any misrepresentation (as defined in
the Securities Act (Ontario)) or any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. Italy has not filed any confidential
material change report with the Canadian Securities Regulatory
Authorities or any other securities authority or regulator or
any stock exchange or other self-regulatory authority which as
of the date hereof remains confidential. None of Italy’s
Subsidiaries is required to file any reports or other documents
with any of the Canadian Securities Regulatory Authorities, the
SEC, the TSX or the NYSE.

     
(b) The annual audited consolidated financial statements
and the quarterly unaudited consolidated financial statements
(including in each case, any related notes thereto) contained in
the Italy Documents (the “Italy Financial
Statements”) complied as to form in all material
respects with the published rules and regulations of applicable
Governmental Entities, the Canadian Securities Regulatory
Authorities, the SEC, the TSX and the NYSE with respect thereto
as of their respective dates, and have been prepared in
accordance with Canadian generally accepted accounting
principles (“Canadian GAAP”) applied on a basis
consistent throughout the periods indicated and consistent with
each other (except as may be

14

 

indicated in the notes thereto). The Italy Financial Statements
present fairly, in all material respects, the consolidated
financial position, results of operations and cash flows of
Italy and its Subsidiaries as of the dates and for the periods
indicated therein (subject, in the case of unaudited statements,
to normal, recurring year-end adjustments that are not expected
to be material in amount and the absence of notes thereto) on a
consolidated basis.

     
(c) Since the enactment of the Sarbanes-Oxley Act of 2002
(the “Sarbanes-Oxley Act”), Italy has been and
is in compliance in all material respects with the applicable
provisions of the Sarbanes-Oxley Act (including, without
limitation, Section 402 thereof) and the rules and
regulations promulgated thereunder.

     
(d) The books and records of Italy and its Subsidiaries, in
all material respects, (i) have been maintained in
accordance with good business practices on a basis consistent
with prior years, (ii) state in reasonable detail the
material transactions and dispositions of the assets of Italy
and its Subsidiaries and (iii) accurately and fairly
reflect the basis for the Italy Financial Statements. Italy has
(i) designed and maintains disclosure controls and
procedures to ensure that material information relating to Italy
and its Subsidiaries is made known to management of Italy by
others within those entities to allow timely decisions regarding
required disclosure, and (ii) designed and maintains a
system of internal controls over financial reporting sufficient
to provide reasonable assurances regarding the reliability of
financial reporting and the preparation of financial statements,
including that (A) transactions are executed in
accordance with management’s general or specific
authorization; (B) transactions are recorded as necessary
(x) to permit preparation of consolidated financial
statements in conformity with Canadian GAAP and (y) to
maintain accountability of the assets of Italy and its
Subsidiaries; (C) access to assets is permitted only in
accordance with management’s general or specific
authorization; and (D) the recorded accountability of
assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences. The management of Italy has disclosed, based on its
most recent evaluation, to Italy’s auditors and the audit
committee of Italy’s board of directors (i) all
significant deficiencies in the design or operation of internal
controls which could adversely affect Italy’s ability to
record, process, summarize and report financial data and have
identified for Italy’s auditors any material weaknesses in
internal controls and (ii) any fraud, whether or not
material, that involves management or other employees who have a
significant role in Italy’s internal controls.

     
(e) To the knowledge of Italy, as of the date hereof, Italy
has not identified any material weaknesses in the design or
operation of its internal controls over financial reporting. To
the knowledge of Italy, there is no reason to believe that its
auditors and its chief executive officer and chief financial
officer will not be able to give the certifications and
attestations required pursuant to the rules and regulations
adopted pursuant to Section 404 of the Sarbanes-Oxley Act,
when first due.

     
(f) PricewaterhouseCoopers LLP are and were at all times
during the audit engagement period with Italy
(i) independent registered public accountants with respect
to Italy and its Subsidiaries in accordance with the applicable
rules and regulations thereunder adopted by the SEC and the
Public Company Accounting Oversight Board and (ii) a
“participating audit firm” within the meaning of
National Instrument 52-108 — Auditor Oversight of the
Canadian Securities Administrators and in compliance with any
restrictions or sanctions imposed by the “Canadian Public
Accountability Board”.

     
(g) No attorney representing Italy or any of its
Subsidiaries, whether or not employed by Italy or any of its
Subsidiaries, has reported evidence of a violation of any
Securities Laws, breach of fiduciary duty or similar violation
by Italy or any of its Subsidiaries or their respective
officers, directors, employees or agents to Italy’s chief
legal officer, audit committee (or other committee designated
for the purpose) of the board of directors or the board of
directors.

     
(h) None of the information to be supplied by Italy or its
Affiliates in writing specifically for use in the Portugal Proxy
Statement will, at the time of the mailing of the Portugal Proxy
Statement and any amendments or supplements thereto, and at the
time of the Portugal Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are
made, not misleading.

15

 

     
(i) None of the information to be included in or
incorporated by reference into the Italy Circular (other than
information supplied in writing by Portugal specifically for use
therein) will, at the time of the mailing of the Italy Circular
and any amendments or supplements thereto, and at the time of
the Italy Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not
misleading.

     
3.8.     No Undisclosed
Liabilities. Except as Disclosed to Portugal, neither
Italy nor any of its Subsidiaries has any liabilities (absolute,
accrued, contingent, determined, determinable or otherwise) or
obligations, in each case, of the type that would be required to
be disclosed on a consolidated balance sheet of Italy (or the
notes thereto) and there is no existing condition, situation or
set of circumstances that could be reasonably expected to result
in such a liability or obligation, except
(i) liabilities or obligations fully reflected or
reserved against in Italy’s balance sheet as of
December 31, 2005 (or the notes thereto), included in the
Italy Financial Statements, (ii) liabilities or
obligations disclosed in any Italy Document filed after
December 31, 2005 and prior to the date of this Agreement,
(iii) liabilities incurred since December 31,
2005 in the ordinary course of business consistent with past
practice, (iv) obligations arising pursuant to the
terms of the Contracts disclosed in Section 3.20 (or not
required to be so disclosed) or (v) liabilities or
obligations that have not had and would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse
Effect with respect to Italy.

     
3.9.     Absence of Certain
Changes or Events. Since December 31, 2005, the
business of Italy and its Subsidiaries has been conducted in the
ordinary course consistent with past practices and except as
Disclosed Publicly by Italy there has not been
(i) any event, occurrence or development of a state
of circumstances or facts which has had or would, individually
or in the aggregate, reasonably be expected to have any Material
Adverse Effect with respect to Italy, (ii) any
material revaluation by Italy of any of its assets, including,
without limitation, writing down the value of capitalized
inventory or writing off notes or accounts receivable or any
material sale of assets of Italy other than in the ordinary
course of business, (iii) any material damage,
destruction or loss (whether or not covered by insurance) with
respect to any material assets of Italy or its Subsidiaries,
(iv) any Material Italy Contract cancelled,
terminated, or materially adversely modified that would
reasonably be expected to have a Material Adverse Effect with
respect to Italy or (v) any event or action that if taken
after the date hereof would be prohibited by Section 5.1
hereof.

     
3.10.     Absence of
Litigation. Except as Disclosed Publicly by Italy or as
Disclosed to Portugal, (a) there is no Action that
has been commenced or, to the knowledge of Italy, threatened
against or affecting Italy or any Subsidiary thereof or any of
their respective properties, rights or assets before any
Governmental Entity which, if determined adversely with respect
to Italy, would, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Italy; and
(b) neither Italy nor any Subsidiary thereof, nor
any of their respective properties, rights or assets, is subject
to any outstanding Order that has had or would, individually or
in the aggregate, reasonably be expected to have a Material
Adverse Effect with respect to Italy.

     
3.11.     Employee Plans.

     
(a) Italy and each Subsidiary thereof has complied, in all
material respects, with all the terms of, and all applicable
Laws in respect of, each Italy Employee Plan, and has made all
funding contributions required under applicable Law to be made
to such Italy Employee Plans. All Italy Employee Plans are in
good standing in all material respects under applicable Law.
Italy has Disclosed to Portugal copies of all material Italy
Employee Plans (and in the case of any material Italy Employee
Plan that is not written, a written description of such plan or
board of directors or compensation committee resolution
providing for such plan).

     
(b) Each Italy Employee Plan intended to be tax qualified
under the Code has been the subject of determination letters
from the U.S. Internal Revenue Service to the effect that
such plans are qualified and exempt from Federal income taxes
under Sections 401(a) and 501(a), respectively, of the
Code. Each Italy Employee Plan intended to be tax qualified
under the ITA has been established, registered and

16

 

operated in accordance with the applicable requirements of the
ITA and other applicable Law. No step has been taken, no event
has occurred and no condition or circumstance exists that has
resulted or could reasonably be expected to result in any Italy
Employee Plan being ordered or required to be terminated or
wound up in whole or in part or having its tax qualification or
registration under applicable Law refused or revoked, or being
placed under the administration of any trustee or receiver or
regulatory authority or being required to pay any material
Taxes, fees, penalties or levies under applicable Laws. There
are no actions, suits, claims (other than routine claims for
payment of benefits in the ordinary course), trials, demands,
investigations, arbitrations, or other proceedings which are
pending or threatened in respect of any of the Italy Employee
Plans or their assets which individually or in the aggregate
would have a Material Adverse Effect with respect to Italy.

     
(c) No event has occurred or condition exists with respect
to any of the Italy Employee Plans or relating to any current or
former employee of Italy or any Subsidiary thereof (or any of
their beneficiaries or dependants) which, individually or in the
aggregate, is reasonably likely to result in a Material Adverse
Effect with respect to Italy.

     
(d) Except as Disclosed Publicly by Italy or as Disclosed
to Portugal, the consummation of the transactions contemplated
by this Agreement will not by itself entitle any employee or any
independent contractor of Italy or any Subsidiary thereof to
severance or similar pay or accelerate the time of payment or
vesting or trigger any payment of funding (through a grantor
trust or otherwise) or compensation or benefits under, increase
the amount payable or trigger any other material obligation
pursuant to, any Italy Employee Plan.

     
(e) The consummation of the transactions contemplated by
this Agreement will not (either alone or upon the occurrence of
additional acts or events) result in any payment under any Italy
Employee Plan that would constitute an “excess parachute
payment” for purposes of Section 280G or 4999 of the
Code.

     
3.12.     Labor Matters.

     
(a) Italy has Disclosed to Portugal copies of all
collective agreements (“Collective Agreements”)
to which Italy or any Subsidiary thereof is a party. To the
knowledge of Italy, there are no threatened or apparent union
organizing activities involving employees of Italy or any
Subsidiary thereof that are not already covered by a Collective
Agreement that would have a Material Adverse Effect with respect
to Italy. Neither Italy nor any Subsidiary thereof is in
material violation of any provision under any Collective
Agreement. There is no strike or lock out occurring or, to the
knowledge of Italy, threatened affecting Italy or any Subsidiary
thereof that would have a Material Adverse Effect with respect
to Italy.

     
(b) Neither Italy nor any Subsidiary thereof is subject to
any claim for wrongful dismissal, constructive dismissal or any
other tort claim, actual or threatened, or any litigation,
actual or threatened, relating to its employees or independent
contractors (including any termination of such persons) other
than those claims or such litigation as would not individually
or in the aggregate have a Material Adverse Effect with respect
to Italy. Italy and each Subsidiary thereof has operated in
material compliance with all applicable Laws with respect to
employment and labor, including, but not limited to, employment
and labor standards, occupational health and/or safety,
employment equity, pay equity, workers’ compensation, human
rights and labor relations and there are no current, pending or
threatened proceedings before any board or tribunal with respect
to any of the areas listed herein other than where the failure
to so operate, or for such proceedings which individually or in
the aggregate, would not have a Material Adverse Effect with
respect to Italy. Italy and each Subsidiary thereof has operated
in material compliance with the National Labor Relations Act
(U.S.) as amended, and the rules and regulations promulgated
thereunder, the Labour Relations Act, 1995 (Ontario), and the
rules and regulations promulgated thereunder and any and all
similar Laws.

     
(c) Each of Italy and its Subsidiaries is in compliance
with all applicable Laws covering occupational health and/or
safety, including the Occupational Health and Safety Act
(Ontario), as amended, and the regulations promulgated
thereunder, and the Workplace Safety and Insurance Act, 1977
(Ontario) as

17

 

amended and any regulations promulgated thereunder, except for
any non-compliance that would not reasonably be expected to have
a Material Adverse Effect with respect to Italy.

     
3.13.     Property and
Title. Applying customary standards in the Canadian
mining industry, each of Italy, its Subsidiaries and its
material joint ventures has, to the extent necessary to permit
the operation of their respective businesses as presently
conducted: (a) sufficient title, clear of any title defect
or Lien (other than as Disclosed to Portugal or Disclosed
Publicly by Italy) to its operating properties and properties
with estimated proven and probable mineral reserves and/or
estimated mineral resources (other than property to which it is
lessee, in which case it has a valid leasehold interest) and
(b) good and sufficient title to the real property
interests including, without limitation, fee simple estate of
and in real property, leases, easements, rights of way, permits,
mining claims, concessions or licenses from landowners or
authorities permitting the use of land by Italy, its
Subsidiaries and its material joint ventures (other than as
Disclosed Publicly by Italy). Italy, its Subsidiaries and its
material joint ventures hold all mineral rights required to
continue their respective businesses and operations as currently
conducted and as proposed to be conducted as Disclosed Publicly
by Italy, except to the extent that a failure to do so would not
constitute a Material Adverse Effect with respect to Italy.
Except for such failures of title or liens and royalty burdens
that would, individually or in the aggregate, not have a
Material Adverse Effect with respect to Italy, (x) all
mineral rights held by Italy, its Subsidiaries and its material
joint ventures are free and clear of all Liens and royalty
burdens (other than as Disclosed Publicly by Italy), and
(y) none of such mineral rights are subject to reduction by
reference to mine payout or otherwise except for those created
in the ordinary course of business and which would not have a
Material Adverse Effect with respect to Italy.

     
3.14.     Mineral Reserves and
Resources. The estimated proven and probable mineral
reserves and estimated, indicated, measured and inferred mineral
resources disclosed in the Italy Documents as of
December 31, 2005 have been prepared and disclosed in all
material respects in accordance with all applicable Laws. There
has been no material reduction (other than as a result of
operations in the ordinary course of business) in the aggregate
amount of estimated mineral reserves and estimated mineral
resources of Italy, its Subsidiaries and its material joint
ventures, taken as a whole, from the amounts Disclosed Publicly
by Italy.

     
3.15.     Operational
Matters. Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect with respect to Italy:

		
	 	     
    (a) all rentals, royalties, overriding royalty interests,
    production payments, net profits, interest burdens and other
    payments due or payable on or prior to the date hereof under or
    with respect to the direct or indirect assets of Italy, its
    Subsidiaries and its material joint ventures have been properly
    and timely paid;
	 
	 	     
    (b) all rentals, payments, and obligations due and payable
    or performable on or prior to the date hereof under or on
    account of any of the direct or indirect assets of Italy, its
    Subsidiaries and its material joint ventures have been duly
    paid, performed, or provided for prior to the date hereof;
	 
	 	     
    (c) all (i) mines where Italy or a Subsidiary of
    Italy is operator at the relevant time have been developed and
    operated in accordance with good mining practices and in
    compliance with all then-applicable Laws, and (ii) mines
    located in or on the lands of Italy, any Subsidiary or material
    joint venture of Italy, or lands pooled or unitized therewith,
    which have been abandoned by Italy or any Subsidiary or material
    joint venture of Italy, have been developed, managed, and
    abandoned in accordance with good mining practices and in
    compliance with all applicable Laws, and (iii) all future
    abandonment, remediation and reclamation obligations have been
    accurately Disclosed Publicly by Italy without omission of
    information necessary to make the disclosure not misleading, and
    (iv) all costs, expenses, and liabilities payable on or
    prior to the date hereof under the terms of any Material Italy
    Contract have been properly and timely paid, except for such
    expenses that are being currently paid prior to delinquency in
    the ordinary course of business.

     
3.16.     Insurance.
Italy maintains insurance policies covering the assets,
business, equipment, properties, operations, employees, officers
and directors of Italy and its Subsidiaries (collectively, the
“Italy

18

 

Insurance Policies”) which are of the type and in
amounts which it believes are reasonably appropriate to conduct
its business. To Italy’s knowledge, there is no material
claim by Italy or any of its Subsidiaries pending under any of
the material Italy Insurance Policies as to which coverage has
been questioned, denied or disputed by the underwriters of such
policies or bonds that would have a Material Adverse Effect with
respect to Italy.

     
3.17.     Taxes.

     
(a) Definition of Taxes. For the purposes of
this Agreement, “Tax” and
“Taxes” means any and all taxes, charges, fees,
levies or other assessments imposed by Laws, including all
income taxes (including any tax on or based upon net income,
gross income, income as specially defined, earnings, profits or
selected items of income) and all capital taxes, mining taxes,
gross receipts taxes, environmental taxes, profits taxes,
disability taxes, registration taxes, sales taxes, use taxes, ad
valorem taxes, value added taxes, transfer taxes, franchise
taxes, license taxes, development taxes, education taxes,
business taxes, social services taxes, surtaxes, land transfer
taxes, harmonized sales taxes, withholding taxes or other
withholding obligations, net worth taxes, recording taxes,
capital stock taxes, payroll taxes, employment taxes, excise
taxes, stamp taxes, occupation taxes, premium taxes, property
taxes, windfall profits taxes, alternative or add-on minimum
taxes, goods and services taxes, service use taxes, customs
duties or other governmental charges, estimated or other taxes,
assessments, charges, duties or imposts of any kind whatsoever,
including Canada Pension Plan and provincial pension plan
contributions, unemployment insurance payments and workers’
compensation premiums, together with any installments with
respect thereto, and any interest, penalties, additional taxes,
additions to tax or other amounts imposed by any taxing
authority with respect to the foregoing and any liability for
any such Taxes imposed by Law with respect to any other person,
including under any tax sharing, indemnification or other
agreements or arrangements or any liability for taxes of a
predecessor or transferor entity.

     
(b) Taxes. Except as Disclosed Publicly by
Italy or as Disclosed to Portugal or as would not, individually
or in the aggregate, reasonably be expected to have a Material
Adverse Effect with respect to Italy:

		
	 	     
    (i) All Tax returns, statements, reports, forms,
    declarations, remittances, and similar statements (including
    estimated Tax returns, claims for refunds, amended returns and
    reports and information returns and reports) required to be
    filed with any taxing authority by or on behalf of Italy or any
    of its Subsidiaries (collectively, the “Italy
    Returns”) were filed when due with all appropriate
    taxing authorities (including any applicable extension periods)
    in accordance with all applicable Laws and were correct and
    complete in all material respects.
	 
	 	     
    (ii) Italy and each of its Subsidiaries have timely paid,
    or withheld and remitted to the appropriate taxing authority,
    all Taxes due and payable by any of them under any applicable
    Law, including all Taxes required to be withheld, collected and
    paid in connection with (i) amounts paid or owing to any
    present or former employee, independent contractor, creditor or
    shareholder or to any other Person, (ii) goods and services
    received from or provided to any Person and (iii) amounts
    paid or credited to any Person not resident in the jurisdiction
    of the relevant payor.
	 
	 	     
    (iii) The charges, accruals and reserves for Taxes with
    respect to Italy and its Subsidiaries reflected on the Italy
    Financial Statements (whether or not due and whether or not
    shown on any Italy Return but excluding any provision for
    deferred income Taxes) are adequate under Canadian GAAP to cover
    Taxes accruing through the date thereof.
	 
	 	     
    (iv) The tax basis of the assets of Italy and its
    Subsidiaries by category including the classification of such
    assets as being depreciable, amortizable or resource properties
    giving rise to resource pools (collectively, the “Tax
    Pools”) as reflected in the Italy Returns is true and
    correct in all material respects.
	 
	 	     
    (v) There is no Action or audit now pending or threatened
    in writing in respect of any Tax or “tax asset” of
    Italy or any of its Subsidiaries. For purposes of this
    Section 3.17 and Section 4.17 below, the term
    “tax asset” shall include but is not limited to any
    net operating loss, non-capital

19

 

		
	 	
    losses, net capital losses, Tax Pools, investment tax credit,
    foreign tax credit, charitable deduction or any other credit or
    Tax attribute which could reduce Taxes. There are no
    reassessments of Italy’s or any of its Subsidiaries’
    Taxes that have been issued and which remain outstanding.
	 
	 	     
    (vi) Neither Italy nor any of its Subsidiaries is party to
    any tax sharing agreement, tax indemnification agreement or
    other agreement or arrangement relating to Taxes with any Person
    (other than Italy or any of its Subsidiaries). Neither Italy nor
    any of its Subsidiaries has been a member of an affiliated,
    combined or unitary group filing a combined, unitary, or other
    return for Canadian provincial, local or non-Canadian tax
    purposes reflecting the income, assets, or activities of
    affiliated companies, or has any liability for the Taxes of any
    other Person (other than Italy or any of its Subsidiaries) under
    any provision of Canadian federal, provincial, local, or
    non-Canadian Law, or as a transferee or successor, or by
    contract, or otherwise.

     
3.18.     Environmental
Matters. Except as Disclosed Publicly by Italy or except
for items with respect to which adequate provision in accordance
with Canadian GAAP has been made in the Italy Financial
Statements or except as has not had and would not reasonably be
expected to result, individually or in the aggregate, in a
Material Adverse Effect with respect to Italy:

		
	 	     
    (a) (i) No Hazardous Substance has been discharged,
    disposed of, dumped, pumped, deposited, spilled, leaked, emitted
    or released by Italy or any of its Subsidiaries (or, to the
    knowledge of Italy, is otherwise present) at, on, under or from
    any property now or previously owned, leased or operated by
    Italy or any of its Subsidiaries (“Italy
    Property”) in such manner or quantity that exceeds
    remediation criteria or standards under any applicable
    Environmental Laws or as would require investigation or
    remediation (either by Italy or its Subsidiaries, or for which
    Italy or its Subsidiaries would otherwise be liable) under any
    applicable Environmental Laws or as would adversely affect the
    business or operations of Italy or any of its Subsidiaries and
    (ii) to the knowledge of Italy, there are no liabilities
    of Italy or any of its Subsidiaries arising out of any
    Environmental Laws or any agreement with a third party and
    relating to any Hazardous Substances at, on, under or about any
    property other than a Italy Property.
	 
	 	     
    (b) The operations of Italy and each of its Subsidiaries
    are and have been in compliance with all, and have not violated
    any, applicable Environmental Laws.
	 
	 	     
    (c) (i) Italy and its Subsidiaries hold all
    approvals, certificates, authorizations, agreements, permits,
    licenses, certificates, clearances and consents under or
    pursuant to applicable Environmental Laws (the “Italy
    Environmental Permits”) necessary for the conduct of
    Italy’s and its Subsidiaries’ businesses as conducted
    currently and through the most recent fiscal year, (ii)
    all such Italy Environmental Permits are valid and in full force
    and effect, (iii) Italy and its Subsidiaries have not
    violated any such Italy Environmental Permits, and (iv)
    neither Italy nor any of its Subsidiaries has received any
    notice that any Italy Environmental Permits will be revoked,
    adversely modified or not renewed, and to the knowledge of Italy
    there is no reasonable basis for revoking, adversely modifying
    or refusing to renew any such Italy Environmental Permits.
	 
	 	     
    (d) No Order or Action is pending, and to Italy’s
    knowledge, no Order or Action has been threatened, by any
    Governmental Entity or third party against or, to Italy’s
    knowledge, affecting Italy or any of its Subsidiaries concerning
    any alleged violation of or liability under any Environmental
    Law or concerning any Hazardous Substance.
	 
	 	     
    (e) No Environmental Lien is pending, and to Italy’s
    knowledge, no Environmental Lien has been threatened against or
    affecting Italy, any of its Subsidiaries, or any real or
    personal property of Italy or any of its Subsidiaries.

     
3.19.     Intellectual
Property. Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect with respect to Italy, (i) Italy or one or more of
its Subsidiaries is the owner or has the right to use all
Intellectual Property and Proprietary Subject Matter used in the
conduct of its business as it is currently conducted (such
Intellectual Property which is owned or used by Italy or one of
its Subsidiaries, the “Italy Intellectual
Property” and such Proprietary Subject

20

 

Matter, the “Italy-Used Proprietary Subject
Matter”), free and clear of all Liens; (ii)
there are no Orders or Actions pending, or to Italy’s
knowledge, threatened, respecting the ownership, validity,
enforceability or use of any Italy Intellectual Property or
Italy-Used Proprietary Subject Matter, and to the knowledge of
Italy, no facts or circumstances exist as a valid basis for
same; (iii) the Italy Intellectual Property has not been,
and Italy has no reason to expect it to become, abandoned,
cancelled or invalidated; (iv) Italy and its Subsidiaries
have taken all reasonable actions to protect the Italy
Intellectual Property, including Italy Intellectual Property
that is confidential in nature; and (v) to the knowledge
of Italy the conduct of the business of Italy and its
Subsidiaries as currently conducted does not infringe,
misappropriate, dilute or otherwise violate or make unauthorized
use of (“Infringe”) any Intellectual Property
of any Person, and no Person is currently Infringing Italy
Intellectual Property.

     
3.20.     Agreements, Contracts
and Commitments.

     
(a) Except as Publicly Disclosed by Italy or as limited by
confidentiality obligations and applicable regulatory
requirements, Italy has Disclosed to Portugal (prior to the date
hereof with respect to contracts existing on the date hereof)
each material Contract to which Italy and each of its
Subsidiaries is a party (each, a “Material Italy
Contract”). Except for breaches, violations or defaults
which have not had and would not, individually or in the
aggregate, have a Material Adverse Effect with respect to Italy,
(i) each of the Material Italy Contracts is valid and in
full force and effect, unamended, and (ii) neither Italy
nor any of its Subsidiaries, nor to Italy’s knowledge any
other party to a Material Italy Contract, has violated any
material provision of, or committed or failed to perform any act
which, with or without notice, lapse of time, or both, would
constitute a material default under the provisions of any such
Material Italy Contract, and neither Italy nor any of its
Subsidiaries has received written notice that it has breached,
violated or defaulted under, any of the material terms or
conditions of any of the Material Italy Contracts. Neither Italy
nor any Subsidiary of Italy is a party to, or otherwise a
guarantor of or liable with respect to, any interest rate,
currency or other swap or derivative transaction, other than any
such transactions in the ordinary course of business.

     
(b) All Contracts to which Italy or any of its Subsidiaries
is a party relating to the transactions contemplated by the
Support Agreement (including but not limited to contracts with
France or any of its Subsidiaries) are set forth on
Schedule 3.20 (such contracts, together with the Support
Agreement, the “Support Agreement Contracts”).
All Support Agreement Contracts are valid and in full force and
effect and neither Italy nor any of its Subsidiaries has
violated any material provision of, or committed or failed to
perform any act which, with or without notice, lapse of time, or
both, would constitute a material default under the provisions
of any Support Agreement Contract.

     
3.21.     Brokers. Italy
and its Subsidiaries have not incurred, nor will they incur,
directly or indirectly, any liability for brokerage or finders
fees or agent’s commissions or any similar charges in
connection with this Agreement or any transaction contemplated
hereby, other than fees and expenses payable to Morgan
Stanley & Co. Incorporated, Goldman Sachs Canada Credit
Partners Co. and RBC Dominion Securities Corporation.

     
3.22.     Opinions of Financial
Advisors. On the date of this Agreement the board of
directors of Italy received from its financial advisors, Morgan
Stanley & Co. Incorporated, Goldman, Sachs &
Co. and RBC Dominion Securities Corporation, separate opinions,
each dated the date of this Agreement, to the effect that, as of
such date, the consideration to be received by the holders of
Italy Common Shares pursuant to the Combination Agreement is
fair, from a financial point of view, to the holders of the
Italy Common Shares.

     
3.23.     Vote Required.
The only votes of the holders of any class or series of the
Italy Common Shares, Italy Options or other securities of Italy
necessary to approve this Agreement and the Arrangement and the
transactions contemplated hereby and thereby is, subject to any
requirement of the Interim Order and subject to obtaining any
required exemptions from applicable Canadian Securities
Regulatory Authorities, the Italy Shareholder Approval.

21

 

     
3.24.     No Other
Representations and Warranties. Except for the
representations and warranties contained in this Agreement,
neither Italy nor its Subsidiaries nor any other Person or its
Subsidiaries makes any representation or warranty, express or
implied, on behalf of Italy and its Subsidiaries with respect to
the transactions contemplated by this Agreement.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PORTUGAL

     
Portugal represents and warrants to Italy, subject to such
exceptions as are specifically disclosed in writing in the
disclosure schedule (arranged in sections and subsections
corresponding to the numbered and lettered sections and
subsections contained in this Article IV with the
disclosures in any section or subsection of such schedule
qualifying the corresponding section or subsection in this
Article IV, as well as any other section or subsection of
this Article IV if the relevance of the disclosed item to
such other section or subsection is reasonably apparent on its
face) supplied by Portugal to Italy dated as of the date hereof
(the “Portugal Disclosure Schedule”) as follows:

     
4.1.     Organization and
Qualification; Subsidiaries.

     
(a) Each of Portugal and its Subsidiaries that is a
corporation or other legal entity duly organized, validly
existing and in good standing under the Laws of the jurisdiction
of its incorporation and has the requisite corporate,
partnership or similar power and authority to own, lease and
operate its assets and properties and to carry on its business
as now conducted, except where the failure to do so has not had
and would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect with respect to
Portugal. Each of Portugal and its Subsidiaries is in possession
of all Approvals from all Governmental Entities necessary to
own, lease and operate the properties it purports to own,
operate or lease and to lawfully carry on its business as now
conducted, except where the failure to have such Approvals has
not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect with
respect to Portugal.

     
(b) Portugal has no material Subsidiaries except those as
Disclosed to Italy prior to the date hereof.

     
(c) Except as Disclosed Publicly by Portugal or as
Disclosed to Italy, all of the outstanding capital stock of, or
other equity securities or ownership interests in, each
Subsidiary of Portugal, is owned by Portugal, directly or
indirectly, free and clear of any Lien and free of any other
limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock
or other equity securities or ownership interests). Except as
Disclosed Publicly by Portugal or as Disclosed to Italy, there
are no outstanding (i) securities of Portugal or its
Subsidiaries convertible into or exchangeable for capital stock
or other equity securities or ownership interests in any
Subsidiary of Portugal or (ii) except for employee or
director stock options issued pursuant to Portugal’s
employee stock option plans, options or other rights to acquire
from Portugal or any of its Subsidiaries, or other obligation of
Portugal or any of its Subsidiaries to issue, any capital stock
or other equity securities or ownership interests in, or any
securities convertible into or exchangeable for any capital
stock or other equity securities or ownership interests in, any
Subsidiary of Portugal. Except as Disclosed Publicly by Portugal
or as Disclosed to Italy, there are no outstanding obligations
of Portugal or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any of the items referred to in
clauses (i) and (ii) above.

     
(d) Except as Disclosed Publicly by Portugal or as
Disclosed to Italy, neither Portugal nor any of its Subsidiaries
has agreed nor is it obligated to make nor is it bound by any
Contract under which it may become obligated to acquire any
material equity interest or investment in, or make any material
capital contribution to, any Person (other than a wholly-owned
Subsidiary of Portugal). Except as Disclosed Publicly by
Portugal or as Disclosed to Italy, neither Portugal nor any of
its Subsidiaries directly or indirectly owns any material
interest or investment (whether equity or debt) nor has any
rights to acquire any material interest or investment in any
Person (other than a Subsidiary of Portugal).

22

 

     
(e) Portugal and each of its Subsidiaries that is a
corporation or other legal entity is duly qualified to do
business as a foreign corporation or other foreign legal entity,
and is in good standing, under the Laws of all jurisdictions
where the nature of its business requires such qualification,
except for those jurisdictions where the failure to be so
qualified, individually or in the aggregate, has not had and
would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on Portugal.

     
4.2.     Certificate of
Incorporation and Bylaws. Portugal has Disclosed to
Italy complete and correct copies of its Certificate of
Incorporation and Bylaws (together, the “Portugal
Charter Documents”), as amended to date. Such Portugal
Charter Documents, as so amended, and the equivalent
organizational documents of each of its Subsidiaries, are in
full force and effect. Portugal is not in violation of any of
the provisions of the Portugal Charter Documents, and no
material Subsidiary of Portugal is in violation of any of its
organizational documents.

     
4.3.     Capitalization.

     
(a) The authorized capital stock of Portugal consists of
(i) 300,000,000 shares of common stock, par value
$6.25 per share (“Portugal Common Shares”)
(including 1,642,433 restricted shares in respect of which the
restriction period has not expired awarded pursuant to
Portugal’s equity-based incentive plans), and (ii)
6,000,000 shares of preferred stock (“Portugal
Preferred Shares”). As of June 20, 2006,
(1) 219,991,676 Portugal Common Shares and
(2) no Portugal Preferred Shares are outstanding. As of
the date hereof, options to acquire an aggregate of 582,473
Portugal Common Shares and 129,947 deferred share units payable
in cash or Portugal Common Shares are outstanding under
Portugal’s stock equity-based incentive plans. In addition,
as of the date hereof, no shares of capital stock of Portugal
are held by any Subsidiary of Portugal and
15,998,219 shares of capital stock of Portugal are held by
Portugal in treasury. All issued and outstanding shares of
capital stock of Portugal have been duly authorized and validly
issued and are fully paid and nonassessable.

     
(b) Except as Publicly Disclosed by Portugal or as
Disclosed to Italy or as set forth in Section 4.3(a), there
are no subscriptions, options, warrants, phantom shares, stock
units, stock appreciation rights, other equity-based awards,
equity securities, partnership interests, conversion privileges
or similar ownership interests, calls, rights (including
preemptive rights) or Contracts of any character to which
Portugal or any of its Subsidiaries is a party or by which it is
bound obligating Portugal or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, or to
repurchase, redeem or otherwise acquire, or cause the
repurchase, redemption or acquisition of, any equity securities,
partnership interests or similar ownership interests of Portugal
or any of its Subsidiaries, or obligating Portugal or any of its
Subsidiaries to grant, extend, accelerate the vesting of or
enter into any such subscription, option, warrant, phantom
share, stock unit, stock appreciation right, other equity-based
awards, equity security, call, right, commitment or agreement.
Except as Disclosed to Italy or as set forth in
Section 4.3(a), there are no outstanding bonds, debentures,
or other evidences of indebtedness of Portugal or any Subsidiary
thereof having the right to vote (or that are convertible for or
exercisable into securities having the right to vote) with the
holders of Portugal Common Shares on any matter. Except as
Disclosed to Italy or as contemplated by this Agreement, there
is no voting trust, proxy, registration rights agreement, rights
plan, anti-takeover plan or other Contract or understanding to
which Portugal or any of its Subsidiaries is a party or by which
it is bound with respect to any equity security of any class of
Portugal or with respect to any equity security, partnership
interest or similar ownership interest of any class of any of
its Subsidiaries.

     
(c) The Portugal Common Shares to be issued at the
Effective Time as part of the Arrangement have, subject to the
receipt of the Portugal Stockholder Approval, been duly
authorized and, when issued and delivered in accordance with the
terms of this Agreement will have been validly issued and will
be fully paid and nonassessable and the issuance thereof will
not be subject to any preemptive or other similar right.

     
(d) The Portugal Common Shares are prescribed shares for
the purpose of paragraph 110(1)(d) of the ITA.

23

 

     
4.4.     Authority Relative to
this Agreement.

     
(a) Portugal has all necessary corporate power and
authority to execute and deliver this Agreement and to perform
its obligations hereunder and, subject to the receipt of the
Portugal Stockholder Approval, to consummate the transactions
contemplated hereby. The execution, delivery and performance by
Portugal of this Agreement and the consummation by Portugal of
the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of
Portugal, and no other corporate proceedings on the part of
Portugal are necessary to authorize this Agreement or to
consummate the transactions so contemplated, other than the
Portugal Stockholder Approval, the Interim Order and the Final
Order. This Agreement has been duly and validly executed and
delivered by Portugal and, assuming the due authorization,
execution and delivery by Italy, constitutes a valid, legal and
binding obligation of Portugal, enforceable against Portugal in
accordance with its terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar Laws, now or
hereafter in effect, affecting creditors’ rights generally,
(ii) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any
proceeding may be brought and (iii) the Currency Act
(Canada) precludes a court in Canada from rendering judgment in
any currency other than Canadian currency.

     
(b) At a meeting duly called and held, Portugal’s
board of directors has unanimously: (i) determined that
this Agreement and the transactions contemplated hereby
(including the Portugal Share Issuance, the Portugal Charter
Amendment and the Arrangement) are advisable and fair to and in
the best interests of the Portugal and the holders of the
Portugal Common Shares; (ii) authorized and approved this
Agreement and the transactions contemplated hereby (including
the Portugal Share Issuance, the Portugal Charter Amendment and
the Arrangement); and (iii) resolved to recommend
approval and adoption of the Portugal Charter Amendment and
approval of the Portugal Share Issuance by its shareholders at
the Portugal Meeting.

     
4.5.     No Conflict; Required
Filings and Consents.

     
(a) The execution, delivery and performance by Portugal of
this Agreement and the consummation by Portugal of the
transactions contemplated hereby, do not and will not, subject
to obtaining the Portugal Stockholder Approval and receipt of
the Approvals referred to in Section 4.5(b) below,
(i) contravene, conflict with or result in a violation or
breach of any provision of the Portugal Charter Documents or the
equivalent organizational documents of any of Portugal’s
material Subsidiaries, (ii) contravene, conflict with or
result in a violation or breach of any provisions of any Law
applicable to Portugal or any of its Subsidiaries or by which
its or any of their respective properties is bound or affected,
(iii) require any consent or other action by any Person
under, constitute a default (or an event that, with or without
notice or lapse of time or both, would constitute a default)
under, or cause or permit the termination, amendment,
acceleration, triggering or cancellation or other change of any
right or obligation or the loss of any benefit to which Portugal
or any of its Subsidiaries is entitled under (A) any
provision of any Contract or other instrument binding upon
Portugal or any of its Subsidiaries or (B) any Permit
held by, or affecting, or relating in any way to, the assets or
business of, Portugal or any of its Subsidiaries, or
(iv) result in the creation or imposition of any
Lien on any asset of Portugal or any of its Subsidiaries, other
than such exceptions in the case of clause (ii),
(iii) or (iv) as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect with respect to Portugal.

     
(b) The execution, delivery and performance by Portugal of
this Agreement and the consummation by Portugal of the
transactions contemplated hereby do not, and shall not, require
any Approval, action by or in respect of, filing with or
notification to, any Governmental Entity, to be made or obtained
by Portugal or its Subsidiaries, except for (A) the
Competition Act Approval, (B) the ICA Approval,
(C) the compliance with any applicable requirements
of the HSR Act, including pre-merger notification requirements,
(D) compliance with any applicable requirements of
Council Regulation (EC) 139/2004 of 20 January 2004 on the
control of concentrations between undertakings; (E) any
other applicable competition, merger control, antitrust or
similar Law of foreign Governmental Entities, (F) the
filing with

24

 

the SEC and the mailing to the Portugal shareholders of the
Portugal Proxy Statement, and the filing with the SEC of any
reports that might be required pursuant to the 1934 Act in
connection with this Agreement and the transactions contemplated
hereby, (G) the filing with the Secretary of State of the
State of New York of the restated certificate of incorporation
of Portugal, in the form attached hereto as Exhibit C,
(H) such other filings, authorizations, decisions or
orders as may be required by the rules and regulations of the
NYSE or any state securities or blue sky laws, or by the rules
and policies of the TSX, (I) the Interim Order, the Final
Order and any approvals required by the Interim Order, the Final
Order or filings with the Director under the CBCA and (J)
any other Approvals or Permits, which, if not obtained, would
not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect with respect to Portugal.

     
4.6.     Compliance;
Permits.

     
(a) Each of Portugal and its Subsidiaries is, and at all
times since January 1, 2004 has been, in compliance with
all Laws and Orders applicable to it or by which its properties
are bound or affected, other than non-compliance matters that
have not had and would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect with
respect to Portugal.

     
(b) Neither Portugal nor any of its Subsidiaries is in
default or violation of (i) any Law or Order applicable
to Portugal or any of its Subsidiaries or by which its or any of
their respective properties is bound or affected, or (ii)
any material Contract, Permit or other instrument or obligation
to which Portugal or any of its Subsidiaries is a party or by
which Portugal or any of its Subsidiaries or its or any of their
respective properties is bound or affected; except, in each
case, for any conflicts, defaults or violations that have not
had and would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect with respect to
Portugal. To the knowledge of Portugal, no investigation or
review by any Governmental Entity is pending or threatened
against Portugal or its Subsidiaries, other than, in each such
case, those the outcome of which have not had and would not,
individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect with respect to Portugal.

     
(c) Since January 1, 2004 Portugal has complied in all
material respects with the applicable listing and corporate
governance rules and regulations of the NYSE.

     
(d) Each of Portugal and its Subsidiaries owns, possesses
or has obtained, and is in compliance with, all Permits of or
from any Governmental Entity necessary to conduct its business
as now conducted, except for such failures which have not had
and would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect with respect to
Portugal.

     
4.7.     SEC Filings; Financial
Statements.

     
(a) Since January 1, 2004, Portugal has filed with the
SEC and NYSE all forms, reports, schedules, prospectuses,
registration statements, proxy or information statements and
other documents required to be filed by Portugal under
applicable Securities Laws (collectively, the “Portugal
SEC Reports”). The Portugal SEC Reports, at the time
filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing), (i)
complied in all material respects with the requirements of the
applicable Securities Laws and (ii) did not contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under
which they were made, not misleading. None of Portugal’s
Subsidiaries is required to file any reports or other documents
with the SEC.

     
(b) The annual audited consolidated financial statements
and the unaudited consolidated interim financial statements
(including, in each case, any related notes thereto) contained
in the Portugal SEC Reports (the “Portugal Financial
Statements”) complied as to form in all material
respects with the published rules and regulations of the SEC
with respect thereto as of their respective dates, and have been
prepared in accordance with United States generally accepted
accounting principles (“US GAAP”) applied on a
basis consistent throughout the periods indicated and consistent
with each other (except as may be indicated in the notes thereto
or, in the case of unaudited statements, do not contain
footnotes as permitted by
Form 10-Q under
the 1934 Act) present fairly, in all material respects, the
consolidated

25

 

financial position, results of operations and cash flows of
Portugal and its Subsidiaries as of the dates and for the
periods indicated therein (subject, in the case of unaudited
statements, to normal, recurring year-end adjustments that are
not expected to be material in amount and the absence of notes
thereto) on a consolidated basis.

     
(c) Since the enactment of the Sarbanes-Oxley Act, Portugal
has been and is in compliance in all material respects with the
applicable provisions of the Sarbanes-Oxley Act (including,
without limitation, Section 402 thereof) and the rules and
regulations promulgated thereunder.

     
(d) The books and records of Portugal and its Subsidiaries,
in all material respects, (i) have been maintained in
accordance with good business practices on a basis consistent
with prior years, (ii) state in reasonable detail the
material transactions and dispositions of the assets of Portugal
and its Subsidiaries and (iii) accurately and fairly
reflect the basis for the Portugal Financial Statements.
Portugal has (i) designed and maintains disclosure
controls and procedures to ensure that material information
relating to Portugal and its Subsidiaries is made known to
management of Portugal by others within those entities to allow
timely decisions regarding required disclosure, and (ii)
designed and maintains a system of internal controls over
financial reporting sufficient to provide reasonable assurances
regarding the reliability of financial reporting and the
preparation of financial statements, including that (A)
transactions are executed in accordance with management’s
general or specific authorization; (B) transactions are
recorded in reasonable detail accurately and fairly as necessary
(x) to permit preparation of consolidated financial
statements in conformity with US GAAP, and that receipts and
expenditures of the issuer are being made only in accordance
with authorizations of management and directors of Portugal and
its Subsidiaries, as applicable, (y) to maintain
accountability of the assets of Portugal and its Subsidiaries
and (z) to provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use
or disposition of the issuer’s assets that could have a
material effect on the financial statements; (C) access
to assets is permitted only in accordance with management’s
general or specific authorization; and (D) the recorded
accountability of assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with
respect to any differences. The management of Portugal has
disclosed, based on its most recent evaluation, to
Portugal’s auditors and the audit committee of
Portugal’s board of directors (i) all significant
deficiencies in the design or operation of internal controls
which could adversely affect Portugal’s ability to record,
process, summarize and report financial data and have identified
for Portugal’s auditors any material weaknesses in internal
controls and (ii) any fraud, whether or not material,
that involves management or other employees who have a
significant role in Portugal’s internal controls.

     
(e) To the knowledge of Portugal, as of the date hereof,
Portugal has not identified any material weaknesses in the
design or operation of its internal controls over financial
reporting.

     
(f) PricewaterhouseCoopers LLC are and were at all times
during the audit engagement period with Portugal independent
registered public accountants with respect to Italy and its
Subsidiaries in accordance with the applicable rules and
regulations thereunder adopted by the SEC and the Public Company
Accounting Oversight Board.

     
(g) No attorney representing Portugal or any of its
Subsidiaries, whether or not employed by Portugal or any of its
Subsidiaries, has reported evidence of a violation of any
Securities Laws, breach of fiduciary duty or similar violation
by Portugal or any of its Subsidiaries or their respective
officers, directors, employees or agents to Portugal’s
chief legal officer, audit committee (or other committee
designated for the purpose) of the board of directors or the
board of directors.

     
(h) None of the information to be supplied by Portugal or
its Affiliates in writing specifically for use in the Italy
Circular or the Italy Bid Circular will, at the time of the
mailing of the Italy Circular or any notice of variation in
respect of the Italy Bid and any amendments or supplements
thereto, and in the case of the Italy Circular at the time of
the Italy Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not
misleading.

26

 

     
(i) None of the information to be included in or
incorporated by reference into the Portugal Proxy Statement
(other than information supplied in writing by Italy
specifically for use therein) will, at the time of the mailing
of the Portugal Proxy Statement and any amendments or
supplements thereto, and at the time of the Portugal Meeting,
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the
circumstances under which they are made, not misleading.

     
4.8.     No Undisclosed
Liabilities. Except as Disclosed to Italy, neither
Portugal nor any of its Subsidiaries has any liabilities
(absolute, accrued, contingent, determined, determinable or
otherwise) or obligations, in each case, of the type that would
be required to be disclosed on a consolidated balance sheet of
Portugal (or the notes thereto) and there is no existing
condition, situation or set of circumstances that could be
reasonably expected to result in such a liability or obligation,
except (i) liabilities or obligations fully reflected or
reserved against in Portugal’s balance sheet as of
December 31, 2005 (or the notes thereto), included in the
Portugal Financial Statements, (ii) liabilities or
obligations disclosed in any Portugal SEC Report filed after
December 31, 2005, and prior to the date of this Agreement,
(iii) liabilities incurred since December 31,
2005 in the ordinary course of business consistent with past
practice, (iv) obligations arising pursuant to the terms
of the Contracts disclosed in Section 4.20 (or not required
to be so disclosed) or (v) liabilities or obligations
that have not had and would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect with respect to Portugal.

     
4.9.     Absence of Certain
Changes or Events. Since December 31, 2005, the
business of Portugal and its Subsidiaries has been conducted in
the ordinary course consistent with past practices and except as
Disclosed Publicly by Portugal there has not been (i) any
event, occurrence or development of a state of circumstances or
facts which has had or would, individually or in the aggregate,
reasonably be expected to have any Material Adverse Effect with
respect to Portugal, (ii) any material revaluation by
Portugal of any of its assets, including, without limitation,
writing down the value of capitalized inventory or writing off
notes or accounts receivable or any material sale of assets of
Portugal other than in the ordinary course of business,
(iii) any material damage, destruction or loss (whether
or not covered by insurance) with respect to any material assets
of Portugal or its Subsidiaries, (iv) any Material
Portugal Contract cancelled, terminated, or materially adversely
modified that would reasonably be expected to have a Material
Adverse Effect with respect to Portugal or (v) any event
or action that if taken after the date hereof would be
prohibited by Section 6.1 hereof.

     
4.10.     Absence of
Litigation. Except as Disclosed Publicly by Portugal or
as Disclosed to Italy, (a) there is no Action that
has been commenced or, to the knowledge of Portugal, threatened
against or affecting Portugal or any Subsidiary thereof or any
of their respective properties, rights or assets before any
Governmental Entity which, if determined adversely to Portugal,
would, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect with respect to Portugal; and
(b) neither Portugal nor any Subsidiary thereof, nor any
of their respective properties, rights or assets is subject to
any outstanding Order that has had or would, individually or in
the aggregate, reasonably be expected to have a Material Adverse
Effect with respect to Portugal.

     
4.11.     Employee Plans.

     
(a) Portugal and each Subsidiary thereof has complied, in
all material respects, with all the terms of, and all applicable
Laws in respect of, each Portugal Employee Plan, and all
Portugal Employee Plans required under applicable Law to be
funded are fully funded and in good standing in all material
respects under applicable Law. Portugal has Disclosed to Italy
copies of all material Portugal Employee Plans (and in the case
of any material Portugal Employee Plan that is not written, a
written description of such plan).

     
(b) Each Portugal Employee Plan intended to be tax
qualified under the Code has been the subject of determination
letters from the U.S. Internal Revenue Service to the
effect that such plans are qualified and exempt from Federal
income taxes under Sections 401(a) and 501(a),
respectively, of the Code. No step has been taken, no event has
occurred and no condition or circumstance exists that has
resulted or could reasonably be expected to result in any
Portugal Employee Plan being ordered or required to be
terminated in whole or in part or having its tax qualification
refused or revoked, or being placed under the

27

 

administration of any trustee or receiver or regulatory
authority or being required to pay any material Taxes, fees,
penalties or levies under applicable Laws. There are no actions,
suits, claims (other than routine claims for payment of benefits
in the ordinary course), trials, demands, investigations,
arbitrations, or other proceedings which are pending or
threatened in respect of any of the Portugal Employee Plans or
their assets which individually or in the aggregate would have a
Material Adverse Effect with respect to Portugal.

     
(c) No event has occurred or condition exists with respect
to any of the Portugal Employee Plans or relating to any current
or former employee of Portugal or any Subsidiary thereof (or any
of their beneficiaries or dependants) which, individually or in
the aggregate, is reasonably likely to result in a Material
Adverse Effect with respect to Portugal.

     
(d) Except as Disclosed Publicly by Portugal or as
Disclosed to Italy, the consummation of the transactions
contemplated by this Agreement will not by itself entitle any
employee or any independent contractor of Portugal or any
Subsidiary thereof to severance or similar pay or accelerate the
time of payment or vesting or trigger any payment of funding
(through a grantor trust or otherwise) or compensation or
benefits under, increase the amount payable or trigger any other
material obligation pursuant to, any Portugal Employee Plan.

     
(e) The consummation of the transactions contemplated by
this Agreement will not (either alone or upon the occurrence of
additional acts or events) result in any payment under any
Portugal Employee Plan that would constitute an “excess
parachute payment” for purposes of Section 280G or
4999 of the Code.

     
4.12.     Labor Matters.

     
(a) Portugal has Disclosed to Italy copies of all
Collective Agreements to which Portugal or any Subsidiary
thereof is a party. To the knowledge of Portugal, there are no
threatened or apparent union organizing activities involving
employees of Portugal or any Subsidiary thereof that are not
already covered by a Collective Agreement that would have a
Material Adverse Effect with respect to Portugal. Neither
Portugal nor any Subsidiary thereof is in material violation of
any provision under any Collective Agreement. There is no strike
or lock out occurring or, to the knowledge of Portugal,
threatened affecting Portugal or any Subsidiary thereof that
would have a Material Adverse Effect with respect to Portugal.

     
(b) Neither Portugal nor any Subsidiary thereof is subject
to any claim for wrongful dismissal, constructive dismissal or
any other tort claim, actual or threatened, or any litigation,
actual or threatened, relating to its employees or independent
contractors (including any termination of such persons) other
than those claims or such litigation as would not individually
or in the aggregate have a Material Adverse Effect with respect
to Portugal. Portugal and each Subsidiary thereof has operated
in material compliance with all applicable Laws with respect to
employment and labor, including, but not limited to, employment
and labor standards, occupational health and/or safety,
employment equity, pay equity, workers’ compensation, human
rights and labor relations and there are no current, pending or
threatened proceedings before any board or tribunal with respect
to any of the areas listed herein other than where the failure
to so operate, or for such proceedings which individually or in
the aggregate, would not have a Material Adverse Effect with
respect to Portugal. Portugal and each Subsidiary thereof has
operated in material compliance with the National Labor
Relations Act (U.S.) as amended, and the rules and regulations
promulgated thereunder and any and all similar Laws.

     
(c) Each of Portugal and its Subsidiaries is in compliance
with all applicable Laws covering occupational health and/or
safety, including the Occupational Health and Safety Act (U.S.),
as amended, except for any non-compliance that would not
reasonably be expected to have a Material Adverse Effect with
respect to Portugal.

     
4.13.     Property and
Title. Applying customary standards in the United States
mining industry, each of Portugal, its Subsidiaries and its
material joint ventures has, to the extent necessary to permit
the operation of their respective businesses as presently
conducted: (a) sufficient title, clear of any title defect
or Lien (other than as Disclosed to Italy or Disclosed Publicly
by Portugal) to its operating properties and properties with
estimated proven and probable mineral reserves and/or estimated
mineral resources (other

28

 

than property to which it is lessee, in which case it has a
valid leasehold interest) and (b) good and sufficient title
to the real property interests including, without limitation,
fee simple estate of and in real property, leases, easements,
rights of way, permits, mining claims, concessions or licenses
from landowners or authorities permitting the use of land by
Portugal, its Subsidiaries and its material joint ventures
(other than as Disclosed Publicly by Portugal). Portugal, its
Subsidiaries and its material joint ventures hold all mineral
rights required to continue their respective businesses and
operations as currently conducted and as proposed to be
conducted as Disclosed Publicly by Portugal, except to the
extent that a failure to do so would not constitute a Material
Adverse Effect with respect to Portugal. Except for such
failures of title or liens and royalty burdens that would,
individually or in the aggregate, not have a Material Adverse
Effect with respect to Portugal, (x) all mineral rights
held by Portugal, its Subsidiaries and its material joint
ventures are free and clear of all Liens and royalty burdens
(other than as Publicly Disclosed by Portugal), and
(y) none of such mineral rights are subject to reduction by
reference to mine payout or otherwise except for those created
in the ordinary course of business and which would not have a
Material Adverse Effect with respect to Portugal.

     
4.14.     Mineral Reserves and
Resources. The estimated proven and probable mineral
reserves and estimated, indicated, measured and inferred mineral
resources disclosed in the Portugal SEC Documents as of
December 31, 2005 have been prepared and disclosed in all
material respects in accordance with all applicable Laws. There
has been no material reduction (other than as a result of
operations in the ordinary course of business) in the aggregate
amount of estimated mineral reserves and estimated mineral
resources of Portugal, its Subsidiaries and its material joint
ventures, taken as a whole, from the amounts Disclosed Publicly
by Portugal.

     
4.15.     Operational
Matters. Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect with respect to Portugal:

		
	 	     
    (a) all rentals, royalties, overriding royalty interests,
    production payments, net profits, interest burdens and other
    payments due or payable on or prior to the date hereof under or
    with respect to the direct or indirect assets of Portugal, its
    Subsidiaries and its material joint ventures have been properly
    and timely paid;
	 
	 	     
    (b) all rentals, payments, and obligations due and payable
    or performable on or prior to the date hereof under or on
    account of any of the direct or indirect assets of Portugal, its
    Subsidiaries and its material joint ventures have been duly
    paid, performed, or provided for prior to the date hereof;
	 
	 	     
    (c) all (i) mines where Portugal or a Subsidiary of
    Portugal is operator at the relevant time have been developed
    and operated in accordance with good mining practices and in
    compliance with all then-applicable Laws, and (ii) mines
    located in or on the lands of Portugal, any Subsidiary or
    material joint venture of Portugal, or lands pooled or unitized
    therewith, which have been abandoned by Portugal or any
    Subsidiary or material joint venture of Portugal, have been
    developed, managed and abandoned in accordance with good mining
    practices and in compliance with all applicable Laws, and
    (iii) all future abandonment, remediation and reclamation
    obligations have been accurately Disclosed Publicly by Portugal
    without omission of information necessary to make the disclosure
    not misleading, and (iv) all costs, expenses, and
    liabilities payable on or prior to the date hereof under the
    terms of any Material Portugal Contract have been properly and
    timely paid, except for such expenses that are being currently
    paid prior to delinquency in the ordinary course of business.

     
4.16.     Insurance.
Portugal maintains insurance policies covering the assets,
business, equipment, properties, operations, employees, officers
and directors of Portugal and its Subsidiaries (collectively,
the “Portugal Insurance Policies”) which are of
the type and in amounts which it believes are reasonably
appropriate to conduct its business. To Portugal’s
knowledge, there is no material claim by Portugal or any of its
Subsidiaries pending under any of the material Portugal
Insurance Policies as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds
that would not have a Material Adverse Effect with respect to
Portugal.

29

 

     
4.17.     Taxes.

     
(a) Except as Disclosed Publicly by Portugal or as
Disclosed to Italy or as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect with respect to Portugal:

		
	 	     
    (i) All Tax returns, statements, reports, forms,
    declarations, remittances, and similar statements (including
    estimated Tax returns, claims for refunds, amended returns and
    reports and information returns and reports) required to be
    filed with any taxing authority by or on behalf of Portugal or
    any of its Subsidiaries (collectively, the “Portugal
    Returns”) were filed when due with all appropriate
    taxing authorities (including any applicable extension periods)
    in accordance with all applicable Laws and were correct and
    complete in all material respects.
	 
	 	     
    (ii) Portugal and each of its Subsidiaries have timely
    paid, or withheld and remitted to the appropriate taxing
    authority, all Taxes due and payable by any of them under any
    applicable Law, including all Taxes required to be withheld,
    collected and paid in connection with (i) amounts paid or
    owing to any present or former employee, independent contractor,
    creditor or shareholder or to any other Person, (ii) goods
    and services received from or provided to any Person and
    (iii) amounts paid or credited to any Person not resident
    in the jurisdiction of the relevant payor.
	 
	 	     
    (iii) The charges, accruals and reserves for Taxes with
    respect to Portugal and its Subsidiaries reflected on the
    Portugal Financial Statements (whether or not due and whether or
    not shown on any Portugal Return but excluding any provision for
    deferred income Taxes) are adequate under US GAAP to cover
    Taxes accruing through the date thereof.
	 
	 	     
    (iv) The tax basis of the assets of Portugal and its
    Subsidiaries by category including the classification of such
    assets as being depreciable or amortizable as reflected in the
    Portugal Returns is true and correct in all material respects.
	 
	 	     
    (v) There is no Action or audit now pending or threatened
    in writing in respect of any Tax or “tax asset” of
    Portugal or any of its Subsidiaries. There are no reassessments
    of Portugal’s or any of its Subsidiaries’ Taxes that
    have been issued and which remain outstanding.
	 
	 	     
    (vi) Neither Portugal nor any of its Subsidiaries is party
    to any tax sharing agreement, tax indemnification agreement or
    other agreement or arrangement relating to Taxes with any Person
    (other than Portugal or any of its Subsidiaries). Neither
    Portugal nor any of its Subsidiaries has been a member of an
    affiliated, combined or unitary group filing a consolidated,
    combined, unitary or other return for U.S. federal, state,
    local or
    non-U.S. tax
    purposes reflecting the income, assets or activities of
    affiliated companies (other than a group the common parent of
    which is Portugal), or has any liability for the Taxes of any
    other Person (other than Portugal or any of its Subsidiaries)
    under any provision of U.S. federal, state, local or
    non-U.S. law, or
    as a transferee or successor, or by contract, or otherwise.

     
(b) Tax Status. Portugal is not, and
immediately prior to the Effective Time Portugal will not be, a
“foreign investment entity” within the meaning of the
ITA assuming the enactment into law and the proclamation into
force of proposed sections 94.1 to 94.4 and related provisions
as contained in the draft legislation released on behalf of the
Minister of Finance dated July 18, 2005 or in a form
substantially similar to such proposed sections.

     
4.18.     Environmental
Matters. Except as Disclosed Publicly by Portugal or
except for items with respect to which adequate provision in
accordance with US GAAP has been made in the Portugal Financial
Statements or except as has not had and would not reasonably be
expected to result, individually or in the aggregate, in a
Material Adverse Effect with respect to Portugal:

		
	 	     
    (a) (i) No Hazardous Substance has been discharged,
    disposed of, dumped, pumped, deposited, spilled, leaked, emitted
    or released by Portugal or any of its Subsidiaries (or, to the
    knowledge of Portugal, is otherwise present) at, on, under or
    from any property now or previously owned, leased or operated by
    Portugal or any of its Subsidiaries (“Portugal
    Property”) in such manner or quantity that exceeds
    remediation criteria or standards under any applicable
    Environmental Laws or as would

30

 

		
	 	
    require investigation or remediation (either by Portugal or its
    Subsidiaries, or for which Portugal or its Subsidiaries would
    otherwise be liable) under any applicable Environmental Laws or
    as would adversely affect the business or operations of Portugal
    or any of its Subsidiaries and (ii) to the knowledge of
    Portugal, there are no liabilities of Portugal or any of its
    Subsidiaries arising out of any Environmental Laws or any
    agreement with a third party and relating to any Hazardous
    Substances at, on, under or about any property other than a
    Portugal Property.
	 
	 	     
    (b) The operations of Portugal and each of its Subsidiaries
    are and have been in compliance with all, and have not violated
    any, applicable Environmental Laws.
	 
	 	     
    (c) (i) Portugal and its Subsidiaries hold all
    approvals, certificates, authorizations, agreements, permits,
    licenses, certificates, clearances and consents under or
    pursuant to applicable Environmental Laws (the “Portugal
    Environmental Permits”) necessary for the conduct of
    Portugal’s and its Subsidiaries’ businesses as
    conducted currently and through the most recent fiscal year,
    (ii) all such Portugal Environmental Permits are valid
    and in full force and effect, (iii) Portugal and its
    Subsidiaries have not violated any such Portugal Environmental
    Permits, and (iv) neither Portugal nor any of its
    Subsidiaries has received any notice that any Portugal
    Environmental Permits will be revoked, adversely modified or not
    renewed, and to the knowledge of Portugal there is no reasonable
    basis for revoking, adversely modifying or refusing to renew any
    such Portugal Environmental Permits.
	 
	 	     
    (d) No Order or Action is pending, and to Portugal’s
    knowledge, no Order or Action has been threatened, by any
    Governmental Entity or third party against or, to
    Portugal’s knowledge, affecting Portugal or any of its
    Subsidiaries concerning any alleged violation of or liability
    under any Environmental Law or concerning any Hazardous
    Substance.
	 
	 	     
    (e) No Environmental Lien is pending, and to
    Portugal’s knowledge, no Environmental Lien has been
    threatened against or affecting Portugal, any of its
    Subsidiaries, or any real or personal property of Portugal or
    any of its Subsidiaries.

     
4.19.     Intellectual
Property. Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect with respect to Portugal, (i) Portugal or one or
more of its Subsidiaries is the owner or has the right to use
all Intellectual Property and Proprietary Subject Matter used in
the conduct of its business as it is currently conducted (such
Intellectual Property which is owned or used by Portugal or one
of its Subsidiaries, the “Portugal Intellectual
Property” and such Proprietary Subject Matter, the
“Portugal-Used Proprietary Subject Matter”),
free and clear of all Liens; (ii) there are no
Orders or Actions pending, or to Portugal’s knowledge,
threatened, respecting the ownership, validity, enforceability
or use of any Portugal Intellectual Property or Portugal-Used
Proprietary Subject Matter, and to the knowledge of Portugal, no
facts or circumstances exist as a valid basis for same;
(iii) the Portugal Intellectual Property has not
been, and Portugal has no reason to expect it to become,
abandoned, cancelled or invalidated; (iv) Portugal and
its Subsidiaries have taken all reasonable actions to protect
the Portugal Intellectual Property, including Portugal
Intellectual Property that is confidential in nature; and
(v) to the knowledge of Portugal the conduct of the
business of Portugal and its Subsidiaries as currently conducted
does not Infringe any Intellectual Property of any Person and no
Person is currently Infringing Portugal Intellectual Property.

     
4.20.     Agreements, Contracts
and Commitments. Except as Publicly Disclosed by
Portugal or as limited by confidentiality obligations and
applicable regulatory requirements, Portugal has Disclosed to
Italy (prior to the date hereof with respect to contracts
existing on the date hereof) each material Contract to which
Portugal and each of its Subsidiaries is a party (each, a
“Material Portugal Contract”). Except for
breaches, violations or defaults which have not had and would
not, individually or in the aggregate, have a Material Adverse
Effect with respect to Portugal, (i) each of the Material
Portugal Contracts is valid and in full force and effect,
unamended, and (ii) neither Portugal nor any of its
Subsidiaries, nor to Portugal’s knowledge any other party
to a Material Portugal Contracts, has violated any material
provision of, or committed or failed to perform any act which,
with or without notice, lapse of time, or both, would constitute
a material default under the provisions of any such Material
Portugal Contracts, and neither Portugal nor any of its
Subsidiaries has received written notice that it has breached,

31

 

violated or defaulted under, any of the material terms or
conditions of any of the Material Portugal Contracts. Neither
Portugal nor any Subsidiary of Portugal is a party to, or
otherwise a guarantor of or liable with respect to, any interest
rate, currency or other swap or derivative transaction, other
than any such transactions in the ordinary course of business.

     
4.21.     Brokers.
Portugal and its Subsidiaries have not incurred, nor will they
incur, directly or indirectly, any liability for brokerage or
finders fees or agent’s commissions or any similar charges
in connection with this Agreement or any transaction
contemplated hereby, except for the fees of Citigroup Global
Markets Inc. and HSBC Securities (USA) Inc.

     
4.22.     Vote Required.
The only votes of the holders of any class or series of
Portugal’s capital stock or other securities of Portugal
necessary to approve the transactions contemplated by this
Agreement are: (i) the affirmative vote in favor of the
Portugal Charter Amendment of the holders of a majority of the
outstanding Portugal Common Shares and (ii) the
affirmative vote in favor of the Portugal Share Issuance of a
majority of the votes cast thereon by the holders of the
outstanding Portugal Common Shares (provided that the total
votes cast on the Portugal Share Issuance represent at least a
majority of the Portugal Common Shares issued and outstanding
and entitled to vote at the Portugal Meeting) (such approvals,
collectively, the “Portugal Stockholder
Approval”).

     
4.23.     Portugal Common
Shares. The Portugal Common Shares to be issued pursuant
to the Arrangement will be duly and validly issued by Portugal,
fully paid and non-assessable and free of preemptive rights,
encumbrances, charges and liens on their respective dates of
issue.

     
4.24.     No Other
Representations and Warranties. Except for the
representations and warranties contained in this Agreement,
neither Portugal nor its Subsidiaries nor any other Person or
its Subsidiaries makes any representation or warranty, express
or implied, on behalf of Portugal and its Subsidiaries with
respect to the transactions contemplated by this Agreement.

ARTICLE V

COVENANTS OF ITALY

     
5.1.     Conduct of
Business. During the period from the date of this
Agreement to the Effective Time, except as provided in
Section 5.1 of the Disclosure Schedule or as otherwise
expressly contemplated or permitted in this Agreement and except
to the extent Portugal shall otherwise give its prior written
consent, not to be unreasonably withheld or delayed, each of
Italy and its Subsidiaries shall: (i) conduct its
business in the ordinary course and consistent with past
practice and in compliance in all material respects with
applicable Laws; (ii) pay or perform its material
obligations when due; and (iii) use its commercially
reasonable efforts consistent with past practices to: (A)
preserve intact its present business organization, (B)
keep available the services of its present officers and
employees, (C) preserve in all material respects its
relationships with customers, suppliers, distributors, joint
venture partners, and others with which it has significant
business dealings, and (D) preserve in all material
respects the Italy Intellectual Property. Without limiting the
generality of the foregoing, except as provided in
Section 5.1 of the Italy Disclosure Schedule or as
expressly contemplated by this Agreement or the Plan of
Arrangement, without the prior written consent of Portugal (not
to be unreasonably withheld or delayed, except with respect to
paragraph (l) below), during the period from the date
of this Agreement to the Effective Time, Italy shall not, and
shall not permit any of its Subsidiaries to, do any of the
following:

		
	 	     
    (a) amend its articles of incorporation or by-laws or other
    applicable governing instruments;
	 
	 	     
    (b) split, combine, subdivide or reclassify any shares of
    its capital stock or other equity interests or declare, set
    aside or pay any dividend or other distribution (whether in
    cash, stock or property or any combination thereof) in respect
    of its capital stock, or redeem, repurchase or otherwise acquire
    or offer to redeem, repurchase, or otherwise acquire any of its
    securities, except for (i) cash dividends with respect to
    the Italy Common Shares in the ordinary course, in each case
    with usual declaration, record and payment dates and in
    accordance with Italy’s current dividend policy and
    (ii) dividends

32

 

		
	 	
    paid to Italy or any of its Subsidiaries by any Subsidiary that
    is, directly or indirectly, wholly-owned by Italy; and
    (iii) dividends paid by non-wholly owned Subsidiaries in
    the ordinary course consistent with current dividend policy;
	 
	 	     
    (c) adopt a plan or agreement of complete or partial
    liquidation, dissolution, winding up, merger, consolidation,
    amalgamation, restructuring, recapitalization or other material
    reorganization (other than in connection with the transactions
    contemplated by the Support Agreement or a merger, amalgamation
    or consolidation between wholly owned Subsidiaries of Italy);
	 
	 	     
    (d) issue, deliver or sell, or authorize the issuance,
    delivery or sale of, any shares of its capital stock of any
    class or other equity interests or any securities convertible
    into or exercisable for, or any rights, warrants or options to
    acquire, any such capital stock or other equity interests, other
    than (i) the issuances of Italy Common Shares upon
    the exercise of Italy Options outstanding on the date hereof or
    issued after the date hereof in compliance with the terms of
    this Agreement in accordance with their present terms,
    (ii) grants of options to its employees and directors in
    the ordinary course of business consistent with past practice,
    using Italy’s standard form of stock option award agreement
    as of the date hereof, up to a maximum of 1,114,000 optioned
    Italy Common Shares in the aggregate in calendar year 2006 and
    1,114,000 optioned Italy Common Shares in the aggregate in
    calendar year 2007 (and up to a further 750,000 optioned Italy
    Common Shares following the satisfaction of the France
    Condition), provided that none of the Italy Options
    referred to in this clause shall accelerate or become vested as
    a result of the consummation of the transactions contemplated by
    this Agreement, (iii) issuances of Italy Common Shares
    required pursuant to the conversion of convertible securities
    outstanding on the date hereof, and (iv) issuances of
    Italy Common Shares and Italy Options in connection with the
    acquisition of France pursuant to and on the terms set forth in
    the Support Agreement;
	 
	 	     
    (e) except as required to ensure that any Italy Employee
    Plan in effect on the date of this Agreement is not then out of
    compliance with applicable Law or as specifically required or
    permitted pursuant to this Agreement or as provided in the Italy
    Disclosure Schedule or as required in connection with the
    termination of Italy’s Non-Employee Director Share
    Ownership Plan or the payment of any amount to the holders of
    deferred share units issued under such plan in consideration for
    the cancellation of such deferred share units, (A) adopt,
    enter into, terminate or amend any Italy Employee Plan, other
    than in the ordinary course of business consistent with past
    practice, (B) increase in any manner the compensation or
    benefits of, or pay any bonus to, any employee of Italy or its
    Subsidiaries, except for increases in base salary or payments of
    bonuses in the ordinary course of business consistent with past
    practice, as required to comply with any Italy Employee Plan in
    effect on the date of this Agreement, or in 2007 in connection
    with annual performance assessments consistent with past
    practice, (C) pay or provide to any employee of Italy or
    its Subsidiaries any benefit not provided for under an Italy
    Employee Plan as in effect on the date of this Agreement, other
    than the payment of base compensation in the ordinary course of
    business consistent with prior practice or as permitted by
    clause (B) above, (D) except to the extent expressly
    permitted under Section 5.1(d), grant any awards under any
    Italy Employee Plan (including the grant of stock or other
    equity options, stock or other equity appreciation rights,
    performance units, restricted stock or other equity, stock or
    other equity purchase rights or other stock or other
    equity-based or stock-related awards) or remove existing
    restrictions in any Italy Employee Plan or awards made
    thereunder, (E) take any action to fund or in any other way
    secure the payment of compensation or benefits under any Italy
    Employee Plan, except as required to comply with any Italy
    Employee Plan as in effect on the date of this Agreement or
    (F) take any action to accelerate the vesting or payment of
    any compensation or benefits under any Italy Employee Plan;
	 
	 	     
    (f) acquire (by merger, consolidation, acquisition of stock
    or assets or otherwise), directly or indirectly, any material
    business, other than the acquisition of France pursuant to and
    on the terms set forth in the Support Agreement;

33

 

		
	 	     
    (g) other than pursuant to Contracts in effect as of the
    date hereof and other than sales of inventory in the ordinary
    course of business consistent with past practice, sell, lease,
    license (as licensor or licensee), assign, encumber or otherwise
    transfer in one transaction or any series of related
    transactions, any material assets or material rights;
	 
	 	     
    (h) incur, assume or guarantee any indebtedness for
    borrowed money or issue or sell any debt securities or warrants
    or other rights to acquire debt securities or enter into any
    keep-well or other arrangements to maintain the financial
    condition of any other Person, other than short-term borrowings
    in the ordinary course of business and in amounts and on terms
    consistent with past practices and indebtedness incurred in
    connection with the payment to the shareholders of France of the
    cash consideration provided for in the Support Agreement (for
    greater certainty, including payments to dissenting shareholders
    with respect to the France Subsequent Acquisition Transaction);
	 
	 	     
    (i) make any loan, advance or capital contribution to or
    investment in any Person, other than (i) loans,
    advances or capital contributions to or investments in its
    Subsidiaries or pursuant to Contracts in effect at the date
    hereof, (ii) in connection with acquisitions permitted by
    Section 5.1(e), or (iii) in the ordinary course
    of business consistent with past practice, to the extent not
    individually or in the aggregate material to Italy; provided
    that none of such transactions permitted by this
    clause (iii) shall present a material risk of delaying or
    impairing the parties’ ability to consummate the
    transactions contemplated by this Agreement;
	 
	 	     
    (j) change (i) its methods of accounting or
    accounting practices in any material respect, except as required
    by concurrent changes in Canadian GAAP or by Law and concurred
    in by Italy’s external auditors or (ii) its fiscal
    year;
	 
	 	     
    (k) take any action that would, or would reasonably be
    expected to, prevent or materially impair or delay the ability
    of Italy to consummate the transactions contemplated by this
    Agreement, including the Arrangement and the transactions
    contemplated by the Arrangement;
	 
	 	     
    (l) enter into, cancel, terminate, or grant any waiver in
    respect of any Support Agreement Contract or any Contract that
    would be a Support Agreement Contract if in effect on the date
    hereof; it being understood and agreed between the parties that,
    notwithstanding anything to the contrary set forth herein, after
    consultation with Portugal, Italy may, at its sole discretion,
    terminate any Support Agreement Contract in accordance with its
    terms;
	 
	 	     
    (m) file any registration statement under the 1933 Act
    or an amendment to any 1933 Act registration statement
    (other than an amendment to its registration statement on
    Form F-8 relating
    to the Italy Bid); or
	 
	 	     
    (n) agree or commit to do any of the foregoing.

     
5.2.     Shareholders
Meeting.

     
(a) Subject to the terms of this Agreement, Italy shall use
its reasonable best efforts to cause the Italy Meeting to be
held as soon as reasonably practicable after the date hereof,
provided that (x) the Italy Meeting shall not be
held until counsel to Italy has had reasonable opportunity to
review all comments from the staff of the SEC relating to the
Portugal Proxy Statement or been advised in writing that the
staff of the SEC will not have any comments thereon and
(y) this covenant shall not restrict the ability of Italy
to postpone or adjourn such meeting to the extent that
Italy’s outside counsel advises Italy that it would be
appropriate to do so for the purpose of allowing the holders of
Italy Common Shares to review any additional disclosure that
Italy, with the advice of its outside counsel, determines in
good faith is advisable and should be made available to such
holders by means of a supplemental management information
circular or otherwise.

     
(b) Subject to the terms hereof, Italy shall, promptly
after the execution and delivery of this Agreement
(i) finalize the notice of the Italy Meeting to be sent to
holders of Italy Common Shares, the accompanying management
information circular, and any other documents required by
applicable Laws to be sent to holders of Italy Common Shares in
connection with the Italy Meeting (such documents, as

34

 

amended, supplemented or otherwise modified, the “Italy
Circular”), and (ii) cause the Italy Circular and
any other such documents to be sent to each holder of Italy
Common Shares and filed as required by the Interim Order and
applicable Laws.

     
(c) Subject to the terms of this Agreement, Italy shall
(i) take all lawful action to solicit in favor of the
Italy Resolution and the Italy Shareholder Approval, (ii)
recommend to all holders of Italy Common Shares that they vote
in favor of this Agreement and the Arrangement and the other
transactions contemplated hereby and thereby and (iii)
not withdraw, modify or qualify (or publicly propose to or
publicly state that it intends to withdraw, modify or qualify)
in any manner adverse to Portugal such recommendation (any such
action, a “Change in Italy Recommendation”)
except as explicitly permitted by Section 5.3(b) provided,
however, that Italy may (A) make such Change in Italy
Recommendation if Italy’s board of directors, after
consultation with outside legal counsel, has determined that
failure to take such action would be inconsistent with its
fiduciary duties under applicable Law and (B) upon such
Change in Italy Recommendation, may solicit votes of the Italy
shareholders consistent with such Change in Italy Recommendation.

     
5.3.     No Solicitation;
Opportunity to Match.

     
(a) Italy shall not, directly or indirectly, through any
officer, director, employee, representative (including for
greater certainty any financial or other advisors) or agent of
Italy or any Subsidiary of Italy: (i) solicit, assist,
initiate, encourage or otherwise facilitate (including by way of
furnishing non-public information or permitting any visit to any
facilities or properties of Italy or any Subsidiary of Italy,
including any material joint ventures or material mineral
properties) any inquiries, proposals or offers regarding any
Acquisition Proposal; (ii) engage in any discussions or
negotiations regarding, or provide any confidential information
with respect to, any Acquisition Proposal, provided that for
greater certainty, Italy may advise any Person making an
unsolicited Acquisition Proposal that such Acquisition Proposal
does not constitute a Superior Proposal when the Italy board of
directors has so determined; (iii) withdraw, modify or
qualify, or propose publicly to withdraw, modify or qualify, in
any manner adverse to Portugal, the approval or recommendation
of the Italy board of directors or any committee thereof of this
Agreement; (iv) approve or recommend, or remain neutral
with respect to, or propose publicly to approve or recommend, or
remain neutral with respect to, any Acquisition Proposal (it
being understood that publicly taking no position or a neutral
position with respect to an Acquisition Proposal until 15
calendar days following the formal commencement of such
Acquisition Proposal shall not be considered to be in violation
of this Section 5.3(a)); or (v) accept or enter into,
or publicly propose to accept or enter into, any letter of
intent, agreement in principle, agreement, arrangement or
undertaking related to any Acquisition Proposal.

     
(b) Notwithstanding Section 5.3(a) and any other
provision of this Agreement, the Italy board of directors shall
be permitted to: (i) make a Change in Italy Recommendation,
provided that Italy shall have complied in all material respects
with all requirements of Section 5.3(f) below; and/or
(ii) engage in discussions or negotiations with, or provide
information pursuant to Section 5.3(b) to, any Person in
response to an Acquisition Proposal by any such Person, provided
that (A) it has received an unsolicited bona fide written
Acquisition Proposal from such Person and the Italy board of
directors has determined in good faith based on information then
available and after consultation with its financial advisors
that such Acquisition Proposal constitutes a Superior Proposal
or could reasonably be expected to result in a Superior
Proposal; and (B) prior to providing any confidential
information or data to such Person in connection with such
Acquisition Proposal, (x) the Italy board of directors
receives from such Person an executed confidentiality agreement
which includes a standstill provision that restricts such Person
from acquiring, or publicly announcing an intention to acquire,
any securities or assets of Italy (other than pursuant to a
Superior Proposal) for a period of not less than one year from
the date of such confidentiality agreement and Italy sends a
copy of any such confidentiality agreement to Portugal promptly
upon its execution and promptly provides Portugal a list of, or
in the case of information that was not previously made
available to Portugal, copies of, any information provided to
such Person, and (y) Italy has complied in all material
respects with Section 5.3(d).

35

 

     
(c) Italy will cease and cause to be terminated any
existing solicitation, encouragement, activity, discussion or
negotiation with any Person by Italy or any Subsidiary thereof
or any of its or their representatives or agents with respect to
any Acquisition Proposal, whether or not initiated by Italy,
and, in connection therewith, Italy will discontinue access to
any data rooms (virtual or otherwise) and will request (and
reasonably exercise all rights it has to require) the return or
destruction of all information regarding Italy and its
Subsidiaries previously provided to any such Person or any other
Person and will request (and reasonably exercise all rights it
has to require) the destruction of all material including or
incorporating or otherwise reflecting any information regarding
Italy and its Subsidiaries. Italy shall not terminate, amend,
modify or waive any provision of any confidentiality or
standstill or similar agreement to which Italy or any of its
Subsidiaries is a party with any other Person, other than to
allow such Person to make and consummate a Superior Proposal.

     
(d) From and after the date of this Agreement, Italy shall
promptly (and in any event within 24 hours) notify
Portugal, at first orally and then in writing, of any proposal,
inquiry, offer (or any amendment thereto) or any request for
discussions or negotiations in each case or request relating to
or constituting an Acquisition Proposal, any request for
representation on the Italy board of directors, or any request
for non-public information relating to Italy or any Subsidiary
of Italy or any material joint venture or material mineral
property relating to or constituting an Acquisition Proposal of
which Italy’s directors, officers, representatives or
agents are or became aware. Such notice shall include a
description of the terms and conditions of, and the identity of
the Person making, any proposal, inquiry, offer (including any
amendment thereto) or request, and shall include copies of any
such proposal or offer or any amendment to such proposal or
offer. Italy shall also provide such other details of the
proposal or offer, or any amendment thereto, as Portugal may
reasonably request. Italy shall keep Portugal promptly and fully
informed of the status, including any change to the material
terms, of any such proposal or offer, or any amendment thereto,
and will respond promptly to all inquiries by Portugal with
respect thereto.

     
(e) Italy shall ensure that its officers, directors,
representatives, agents and legal and financial advisors, and
its Subsidiaries and their officers, directors, representatives,
agents and legal and financial advisors, are aware of the
provisions of Sections 5.3(a) to 5.3(d) hereof and agree to
be bound thereby, and it shall be responsible for any breach of
such provisions by any of them or by any employee of Italy or
any Subsidiary.

     
(f) Italy shall not make any Change in Italy Recommendation
in respect of, or enter into any agreement relating to, an
Acquisition Proposal (other than a confidentiality agreement
contemplated by Section 5.3(b)(ii)(B) above) unless:

		
	 	     
    (i) the Acquisition Proposal constitutes a Superior
    Proposal;
	 
	 	     
    (ii) Italy has provided Portugal with notice in writing
    that there is a Superior Proposal together with all
    documentation detailing the Superior Proposal (including a copy
    of the confidentiality agreement between Italy and the Person
    making the Superior Proposal if not previously delivered);
	 
	 	     
    (iii) at least 10 business days shall have elapsed from the
    date that Portugal has received a copy of the written proposal
    in respect of the purported Superior Proposal (or any amendment
    or revision thereof);
	 
	 	     
    (iv) if Portugal has proposed to amend the terms of the
    Arrangement and this Agreement in accordance with
    Section 5.3(g), the Italy board of directors (after
    receiving advice from its financial advisors and outside legal
    counsel) shall have determined in good faith that the
    Acquisition Proposal continues to constitute a Superior Proposal
    after taking into account such amendments;
	 
	 	     
    (v) Italy’s board of directors, after consultation
    with outside legal counsel, determines in good faith that the
    failure to take such action would be inconsistent with its
    fiduciary duties under all applicable Laws; and

36

 

		
	 	     
    (vi) prior to entering into an agreement relating to such
    Superior Proposal (other than the aforesaid confidentiality
    agreement) Italy shall have terminated this Agreement pursuant
    to Section 9.1(j) and paid to Portugal the Italy
    Termination Fee.

     
(g) Italy acknowledges and agrees that, during the 10
business day period referred to in Section 5.3(f)(iii),
Portugal shall have the opportunity, but not the obligation, to
propose to amend the terms of the Arrangement and this
Agreement. The Italy board of directors will review any proposal
by Portugal to amend the terms of the Arrangement and this
Agreement in order to determine, in good faith in the exercise
of its fiduciary duties, whether such proposal would result in
the Acquisition Proposal not being a Superior Proposal compared
to the proposed amendments to the terms of the Arrangement and
this Agreement.

     
(h) Nothing in this Agreement shall prevent the Italy board
of directors from responding through a directors’ circular
or otherwise as required by applicable Securities Laws to any
Acquisition Proposal or from calling and holding a meeting of
the holders of the Italy Common Shares requisitioned by such
shareholders pursuant to Section 143 of the CBCA or ordered
to be held by a court pursuant to section 144 of the CBCA.

     
(i) Italy acknowledges and agrees that each successive
modification of the material terms of any Acquisition Proposal
shall constitute a new Acquisition Proposal for purposes of this
Section 5.3.

     
(j) When used in this Agreement, the following terms shall
have the following meanings:

		
	 	     
    “Acquisition Proposal” means:
    (i) any merger, take-over bid, amalgamation, plan of
    arrangement, business combination, consolidation,
    recapitalization, liquidation or
    winding-up in respect
    of Italy; (ii) any sale or acquisition of 20% or more of
    the fair market value of the assets of Italy on a consolidated
    basis; (iii) any sale or acquisition of 20% or more of
    Italy’s shares of any class or rights or interests therein
    or thereto; (iv) any sale of any material interest in any
    material joint ventures or material mineral properties;
    (v) any similar business combination or transaction, of or
    involving Italy, any material Subsidiary of Italy or material
    joint venture of Italy, other than with Portugal; or
    (vi) any proposal or offer to, or public announcement of an
    intention to do, any of the foregoing from any Person other than
    Portugal, provided, however, that the term
    “Acquisition Proposal” shall not include the
    transactions contemplated by this Agreement or the Support
    Agreement.
	 
	 	     
    “Superior Proposal” means an unsolicited
    bona fide Acquisition Proposal made by a third party to Italy in
    writing after the date hereof: (i) to purchase or otherwise
    acquire, directly or indirectly, by means of a merger, take-over
    bid, amalgamation, plan of arrangement, business combination,
    consolidation, recapitalization, liquidation,
    winding-up or similar
    transaction, all of the Italy Common Shares; (ii) that is
    reasonably capable of being completed, taking into account all
    legal, financial, regulatory (including U.S. and European
    Competition Authority and any Investment Canada approval) and
    other aspects of such proposal and the party making such
    proposal; (iii) in respect of which any required financing
    to complete such Acquisition Proposal has been demonstrated to
    the satisfaction of the Italy board of directors, acting in good
    faith (after receipt of advice from its financial advisors and
    outside legal counsel), is reasonably likely to be obtained,
    (iv) that is not subject to any due diligence condition;
    (v) that is offered or made available to all shareholders
    of Italy in Canada and the United States on the same terms; and
    (vi) in respect of which the Italy board of directors
    determines in good faith (after receipt of advice from its
    financial advisors with respect to (y) below and outside
    legal counsel with respect to (x) below) that
    (x) failure to recommend such Acquisition Proposal to
    Italy’s shareholders would be inconsistent with its
    fiduciary duties and (y) such Acquisition Proposal taking
    into account all of the terms and conditions thereof, if
    consummated in accordance with its terms (but not assuming away
    any risk of non-completion), would result in a transaction more
    favorable to shareholders from a financial point of view than
    the Arrangement (including any adjustment to the terms and
    conditions of the Arrangement and this Agreement proposed by
    Portugal pursuant to Section 5.3(g), and taking into
    account the long-term value and anticipated synergies
    anticipated to be realized as a result of the combination of
    Portugal and Italy).

37

 

     
5.4.     Dissent Rights.
Italy shall provide Portugal with a copy of any purported
exercise of the Dissent Rights and written communications with
such Italy shareholder purportedly exercising the Dissent
Rights; and not settle or compromise any Action brought by any
present, former or purported holder of any of its securities in
connection with the transactions contemplated by this Agreement,
including the Arrangement, without the prior written consent of
Portugal, not to be unreasonably withheld or delayed.

     
5.5.     Italy
Affiliates. At least 10 days prior to the Italy
Meeting, Italy shall provide to Portugal a list of those persons
who may be deemed to be, in Italy’s reasonable judgment,
affiliates of Italy within the meaning of Rule 145
promulgated under the 1933 Act.

     
5.6.     Preference Shares and
Convertible Debentures. At the request of Portugal, in
the event that Italy acquires control of France, Italy shall
cause France to use its reasonable best efforts to redeem or
repurchase all outstanding France preference shares and
convertible debentures (including, without limitation, making
offers to purchase any class of preference shares that are not
redeemable at France’s option on such terms and conditions
as are reasonably acceptable to Portugal and Italy). Without the
prior written approval of Portugal, Italy will not cause France
to amalgamate with Italy prior to the time that all convertible
debentures and preference shares of France (whether or not
redeemable at France’s option) have been redeemed or
repurchased in full.

ARTICLE VI

COVENANTS OF PORTUGAL

     
6.1.     Conduct of
Business. During the period from the date of this
Agreement to the Effective Time, except as otherwise expressly
contemplated or permitted in this Agreement and except to the
extent Italy shall otherwise give its prior written consent, not
to be unreasonably withheld or delayed, each of Portugal and its
Subsidiaries shall: (i) conduct its business in the
ordinary course and consistent with past practice and in
compliance in all material respects with applicable Laws;
(ii) pay or perform its material obligations when due;
and (iii) use its commercially reasonable efforts
consistent with past practices to: (A) preserve intact
its present business organization, (B) keep available the
services of its present officers and employees, (C)
preserve in all material respects its relationships with
customers, suppliers, distributors, joint venture partners and
others with which it has significant business dealings, and
(D) preserve in all material respects the Portugal
Intellectual Property. Without limiting the generality of the
foregoing, except as provided in Section 6.1 of the
Portugal Disclosure Schedule or as expressly contemplated by
this Agreement or the Plan of Arrangement, without the prior
written consent of Italy, not to be unreasonably withheld or
delayed, during the period from the date of this Agreement to
the Effective Time, Portugal shall not, and shall not permit any
of its Subsidiaries to, do any of the following:

		
	 	     
    (a) amend its certificate of incorporation or by-laws or
    other applicable governing instruments;
	 
	 	     
    (b) split, combine, subdivide or reclassify any shares of
    its capital stock or other equity interests or declare, set
    aside or pay any dividend or other distribution (whether in
    cash, stock or property or any combination thereof) in respect
    of its capital stock, or redeem, repurchase or otherwise acquire
    or offer to redeem, repurchase, or otherwise acquire any of its
    securities, except for (i) cash dividends with respect to
    the Portugal Common Shares, consistent with past practice and in
    the ordinary course, in each case with usual declaration, record
    and payment dates and in accordance with Portugal’s current
    dividend policy and (ii) dividends paid to Portugal or
    any of its Subsidiaries by any Subsidiary of Portugal;
	 
	 	     
    (c) adopt a plan or agreement of complete or partial
    liquidation, dissolution, merger, consolidation, amalgamation,
    restructuring, recapitalization or other material reorganization
    (other than a merger, amalgamation or consolidation between
    wholly owned Subsidiaries of Portugal);
	 
	 	     
    (d) issue, deliver or sell, or authorize the issuance,
    delivery or sale of, any shares of its capital stock of any
    class or other equity interests or any securities convertible
    into or exercisable for, or any rights, warrants or options to
    acquire, any such capital stock or other equity interests, other
    than

38

 

		
	 	
    (i) the issuances of Portugal Common Shares upon the
    exercise of stock options outstanding on the date hereof or
    issued after the date hereof in compliance with the terms of
    this Agreement in accordance with their present terms,
    (ii) grants of options, restricted shares, and/or
    deferred stock units to its employees and directors in the
    ordinary course of business consistent with past practice, using
    Portugal’s standard form of award agreement as of the date
    hereof, in respect of a maximum of 500,000 Portugal Common
    Shares in the aggregate; or (iii) issuances of Portugal
    Common Shares required pursuant to the conversion of convertible
    securities outstanding on the date hereof;
	 
	 	     
    (e) except as required to ensure that any Portugal Employee
    Plan in effect on the date of this Agreement is not then out of
    compliance with applicable Law or as specifically required or
    permitted pursuant to this Agreement or as provided in the
    Portugal Disclosure Schedule, (A) adopt, enter into,
    terminate or amend any Portugal Employee Plan, other than in the
    ordinary course of business consistent with past practice, (B)
    increase in any manner the compensation or benefits of, or pay
    any bonus to, any employee of Portugal or its Subsidiaries,
    except for increases in base salary or payments of bonuses in
    the ordinary course of business consistent with past practice or
    as required to comply with any Portugal Employee Plan in effect
    on the date of this Agreement, or in 2007 in connection with
    annual performance assessments consistent with past practices,
    (C) pay or provide to any employee of Portugal or its
    Subsidiaries any benefit not provided for under any Portugal
    Employee Plan as in effect on the date of this Agreement, other
    than the payment of base compensation in the ordinary course of
    business consistent with prior practice or as permitted by
    clause (B) above, (D) except to the extent
    expressly permitted under Section 6.1(d), grant any awards
    under any Portugal Employee Plan (including the grant of stock
    or other equity options, stock or other equity appreciation
    rights, performance units, restricted stock or other equity,
    stock or other equity purchase rights or other stock or other
    equity-based or stock-related awards) or remove existing
    restrictions in any Portugal Employee Plan or awards made
    thereunder, (E) take any action to fund or in any other way
    secure the payment of compensation or benefits under any
    Portugal Employee Plan, except as required to comply with any
    Portugal Employee Plan as in effect on the date of this
    Agreement or (F) take any action to accelerate the vesting
    or payment of any compensation or benefits under any Portugal
    Employee Plan;
	 
	 	     
    (f) acquire (by merger, consolidation, acquisition of stock
    or assets or otherwise), directly or indirectly, any material
    business;
	 
	 	     
    (g) other than pursuant to Contracts in effect as of the
    date hereof and other than sales of inventory in the ordinary
    course of business consistent with past practice, sell, lease,
    license (as licensor or licensee), assign, encumber or otherwise
    transfer in one transaction or any series of related
    transactions, any material assets or material rights;
	 
	 	     
    (h) incur, assume or guarantee any indebtedness for
    borrowed money or issue or sell any debt securities or warrants
    or other rights to acquire debt securities, or enter into any
    keep-well or other arrangements to maintain the financial
    condition of any other Person, other than short-term borrowings
    in the ordinary course of business and in amounts and on terms
    consistent with past practices;
	 
	 	     
    (i) make any loan, advance or capital contribution to or
    investment in any Person, other than (i) loans,
    advances or capital contributions to or investments in its
    Subsidiaries or pursuant to Contracts in effect at the date
    hereof, (ii) in connection with acquisitions permitted by
    Section 6.1(e), or (iii) in the ordinary course
    of business consistent with past practice, to the extent not
    individually or in the aggregate material to Portugal; provided
    that none of such transactions permitted by this
    clause (iii) shall present a material risk of delaying
    or impairing the parties’ ability to consummate the
    transactions contemplated by this Agreement;
	 
	 	     
    (j) change (i) its methods of accounting or
    accounting practices in any material respect, except as required
    by concurrent changes in US GAAP (or the permitted early
    adoption of such changes) or by Law and concurred in by
    Portugal’s external auditors or (ii) its fiscal year;

39

 

		
	 	     
    (k) take any action that would, or would reasonably be
    expected to, prevent or materially impair or delay the ability
    of Portugal to consummate the transactions contemplated by this
    Agreement, including the Arrangement and the transactions
    contemplated by the Arrangement; or
	 
	 	     
    (l) agree or commit to do any of the foregoing.

     
6.2.     Shareholders
Meeting.

     
(a) Subject to the terms of this Agreement, Portugal shall
use its reasonable best efforts to cause the Portugal Meeting to
be held as soon as practicable after the date hereof.

     
(b) Subject to the terms hereof, Portugal shall
(i) promptly after the execution and delivery of this
Agreement, finalize the notice of the Portugal Meeting, the
accompanying proxy statement, and all other documents required
by the Securities Laws or other applicable Laws to be sent to
holders of Portugal Common Shares in connection with the
Portugal Meeting (such documents, as amended, supplemented or
otherwise modified, the “Portugal Proxy
Statement”), (ii) use its reasonable best efforts
to have the Portugal Proxy Statement cleared by the SEC, and
(iii) as promptly as practicable after such clearance,
cause the Portugal Proxy Statement to be sent to each Portugal
shareholder.

     
(c) Subject to the terms of this Agreement, Portugal shall
(i) take all lawful action to solicit in favor of the
transactions contemplated by this Agreement the Portugal
Stockholder Approval, (ii) recommend to holders of
Portugal Common Shares that they vote in favor of (A) the
Portugal Share Issuance and (B) the Portugal Charter
Amendment and (iii) not withdraw, modify or qualify (or
publicly propose to or publicly state that it intends to
withdraw, modify or qualify) in any manner adverse to Italy such
recommendation (any such action, a “Change in Portugal
Recommendation” and, together with a Change in Italy
Recommendation, a “Change in Recommendation”),
provided, however, that Portugal may (A) make such
Change in Portugal Recommendation if Portugal’s board of
directors, after consultation with outside legal counsel, has
determined that failure to take such action would be
inconsistent with its fiduciary duties under applicable Law and
(B) upon such a Change in Portugal Recommendation, may
solicit votes of the Portugal stockholders consistent with such
Change in Portugal Recommendation.

     
6.3.     Section 3(a)(10)
Exemption. In the event that the exemption from
registration under Section 3(a)(10) of the 1933 Act is
not available for any reason to exempt the issuance of the
Portugal Common Shares in accordance with the Plan of
Arrangement from the registration requirements of the
1933 Act, then Portugal shall take all necessary action to
file a registration statement on
Form S-4 (or on
such other form that may be available to Portugal) in order to
register such Portugal Common Shares and shall use its
reasonable best efforts to cause such registration statement to
become effective at or prior to the Effective Time.

     
6.4.     Stock Exchange
Listings. Portugal shall use its reasonable best efforts
to obtain the approval of the NYSE for the listing of the
Portugal Common Shares to be issued in connection with the
transactions contemplated by this Agreement, and for the listing
of the Portugal Common Shares on the TSX, such listings to be
effective prior to or as of the time of issuance of such shares
pursuant to the Arrangement.

     
6.5.     Amendment to Governing
Documents of Portugal. Subject to the receipt of the
Portugal Stockholder Approval, Portugal shall take all actions
necessary to cause the certificate of incorporation of Portugal
at the Effective Time to be in the form of Exhibit C hereto.

     
6.6.     Board
Composition. Portugal shall use its reasonable best
efforts to cause the full board of directors of Portugal,
effective immediately following the filing of the Articles of
Arrangement, to consist of (i) 11 individuals who are
currently members of the board of directors of Portugal and
(ii) 4 individuals who are currently members of the
board of directors of Italy or, provided that the France
Condition has been satisfied, and France, the identity of such
individuals to be determined by the Committee on Directors and
Corporate Governance of the Portugal Board of Directors.

     
6.7.     Certain
Officers. The parties hereby agree that (i) the
current Chief Executive Officer of Portugal shall continue to
serve as the Chairman and Chief Executive Officer of Portugal
immediately

40

 

following the filing of the Articles of Arrangement, (ii)
Portugal shall take all actions necessary to cause the current
Chief Executive Officer of Italy to become the Vice-Chairman of
Portugal effective immediately following the filing of the
Articles of Arrangement, and (iii) provided that the
France Condition shall have been satisfied, Portugal shall take
all action necessary to cause the current Chief Executive
Officer of France to become the President-Operations of Portugal
effective immediately following the filing of the Articles of
Arrangement. The foregoing persons shall continue to serve in
the foregoing positions until otherwise provided in accordance
with the Portugal Charter Documents and applicable Laws.

ARTICLE VII

ADDITIONAL AGREEMENTS

     
7.1.     Confidentiality; Access
to Information.

     
(a) Confidentiality. The parties acknowledge
that Italy and Portugal have previously executed reciprocal
confidentiality agreements, each dated as of June 4, 2006
(the “Confidentiality Agreements”), which
Confidentiality Agreements will continue in full force and
effect in accordance with their respective terms.

     
(b) Access to Information. Each of Portugal
and Italy will (and will use reasonable best efforts to cause
each of its Subsidiaries to) afford the other party and its
accountants, counsel and other representatives reasonable access
during normal business hours, upon reasonable notice, to its
properties, books, records, Contracts and personnel during the
period prior to the Effective Time to obtain all information
concerning its business, properties, results of operations and
personnel, as may be reasonably requested. No information or
knowledge obtained by any party in any investigation pursuant to
this Section 7.1(b) will affect or be deemed to modify any
representation or warranty contained herein or the conditions to
the obligations of the parties to consummate the Arrangement.
Notwithstanding the foregoing, either party may restrict the
foregoing access to the extent that any Law (including Laws
relating to the exchange of information and all applicable
antitrust, competition and similar Laws, and attorney-client and
other privileges) applicable to such party requires such party
or its Subsidiaries to restrict or prohibit such access. The
parties will hold any information obtained pursuant to this
Section 7.1(b) in confidence in accordance with, and
otherwise subject to, the provisions of the applicable
Confidentiality Agreement.

     
7.2.     Cooperation in
Filings.

     
(a) Portugal and Italy shall cooperate in the preparation,
filing and mailing of the Italy Circular and the Portugal Proxy
Statement (collectively, the “Shareholder
Solicitations”). Each of Portugal and Italy shall, as
promptly as practicable after receipt thereof, provide the other
party copies of any written comments and advise the other party
of any oral comments with respect to its respective Shareholder
Solicitation received from the SEC, the Canadian Securities
Regulatory Authorities or any other Governmental Entity. The
parties shall cooperate and each party shall provide the other
with a reasonable opportunity to review and comment on its
respective Shareholder Solicitation and any amendments or
supplements thereto prior to filing such with the SEC, the
Canadian Securities Regulatory Authorities and/or each other
applicable Government Entity, and will provide each other with a
copy of all such filings made. Each party will advise the other
party, promptly after it receives notice thereof, of the time
when its respective Shareholder Solicitation has been cleared by
the SEC, the Canadian Securities Regulatory Authorities or any
other Governmental Entity, or any request by the SEC, the
Canadian Securities Regulatory Authorities or any other
Governmental Entity for amendment of its respective Shareholder
Solicitation.

     
(b) Each of Portugal and Italy shall furnish to the other
all such information concerning it and its shareholders as may
be required (and, in the case of its shareholders, available to
it) for the effectuation of the actions described in
Sections 5.2 and 6.2 and the foregoing provisions of this
Section 7.2, and each covenants that the information
furnished by it (or, to its knowledge, with respect to
information concerning

41

 

its shareholders) in connection with such actions or otherwise
in connection with the consummation of the transactions
contemplated by this Agreement in the aggregate will not contain
any untrue statement of a material fact or omit to state a
material fact required to be stated in any such document or
necessary in order to make any information so furnished for use
in any such document not misleading in the light of the
circumstances in which it is furnished.

     
(c) Each of Portugal and Italy shall use its reasonable
best efforts to ensure that its respective Shareholder
Solicitation complies with all applicable Laws in all material
respects and, without limiting the generality of the foregoing,
that the information furnished by it (or, to its knowledge, with
respect to information concerning its shareholders) for
inclusion in the other party’s respective Shareholder
Solicitation will not, in the aggregate, contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements contained therein not misleading in light of the
circumstances in which they are made (other than with respect to
any information relating to and provided by the other party or
any third party that is not one of its Affiliates).

     
(d) Each of Portugal and Italy shall promptly notify the
other if, at any time before the Effective Time, it becomes
aware that either Shareholder Solicitation or any application
for an Interim Order or Final Order contains any untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the
statements contained therein not misleading in light of the
circumstances in which they are made, or that otherwise requires
an amendment or supplement to such Shareholder Solicitation or
such other document or application. In any such event, each of
Portugal and Italy shall cooperate in the preparation of a
supplement or amendment to such Shareholder Solicitation or such
other document or application, as required and as the case may
be, and, if required, shall cause the same to be distributed to
shareholders of Portugal or Italy, respectively, and/or filed
with the relevant Governmental Entities.

     
7.3.     Public
Announcements. Portugal and Italy shall use reasonable
best efforts (i) to develop a joint communications plan,
(ii) to ensure that all press releases and other public
statements with respect to this Agreement and the transactions
contemplated hereby shall be consistent with such joint
communications plan, and (iii) except where the
circumstances make it impractical or prompt disclosure is
required by applicable law, to consult with each other before
issuing any press release or, to the extent practical, otherwise
making any public statement with respect to this Agreement or
the transactions contemplated hereby. Except in respect of any
announcement required by applicable Law, no party shall issue
any press release or otherwise make any public statement or
disclosure concerning the other party or the other party’s
business, financial condition or results of operations without
the consent of such other party, which consent shall not be
unreasonably withheld or delayed.

     
7.4.     Reasonable Best
Efforts.

     
(a) Upon the terms and subject to the conditions set forth
in this Agreement, each of Portugal and Italy agrees to use its
reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and
cooperate with the other party in doing, all things necessary,
proper or advisable under applicable Laws to consummate and make
effective, in the most expeditious manner practicable, the
Arrangement and the other transactions contemplated by this
Agreement. The parties shall cooperate in all reasonable
respects and will use reasonable best efforts to contest any
action or proceeding and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order,
whether temporary, preliminary or permanent, that prohibits,
prevents or restricts the consummation of the transactions
contemplated by this Agreement.

     
(b) Upon the terms and subject to the conditions set forth
in this Agreement, each of Portugal and Italy shall and shall
use reasonable best efforts to cause its respective Subsidiaries
to perform all obligations required or desirable to be performed
by it or any of such Subsidiaries under this Agreement,
cooperate with the other party in connection therewith, and do
all such other acts and things as may be necessary or desirable
in order to consummate and make effective, as soon as reasonably
practicable, the

42

 

transactions contemplated in this Agreement and, without
limiting the generality of the foregoing, each party shall and
where appropriate shall cause its Subsidiaries to:

		
	 	     
    (i) use its reasonable best efforts to obtain the requisite
    approvals of this Agreement from its shareholders, except to the
    extent that the board of directors of such party has effected a
    Change in Recommendation in compliance with the terms hereof
    (including Sections 5.2 and 6.2);
	 
	 	     
    (ii) apply for and use its reasonable best efforts to
    promptly obtain all Regulatory Approvals to be obtained by it
    and its Subsidiaries and, in doing so, keep the other party
    reasonably informed, subject to ensuring that confidential
    competitively sensitive information is exchanged among outside
    counsel only, as to the status of the proceedings related to
    obtaining the Regulatory Approvals, including, but not limited
    to, (A) providing such other party with copies of all
    material related applications and notifications prepared for
    submission to any other Person or Governmental Entity, in draft
    form, in order for such other party to provide its reasonable
    comments and providing such other party with copies of all
    related material communications regarding this Agreement
    received by such party from, or given by such party to, any
    Governmental Entity and any material communication received or
    given in connection with any proceeding by a private party
    relating to such Regulatory Approvals, (B) consulting
    with the other party to the extent practicable in advance of any
    meeting or conference with Governmental Entities or, in
    connection with any proceeding by a private party, with any
    other Person and, to the extent permitted by such Governmental
    Entities, to permit the other party to attend such meetings and
    conferences, in each case to the extent relating to the
    transactions contemplated by this Agreement and (C)
    receiving the prior written consent of the other party before
    agreeing to extend any waiting period any antitrust merger
    control Laws or entering into any agreement with any
    Governmental Entity regarding antitrust, competition or similar
    Laws;
	 
	 	     
    (iii) use its reasonable best efforts to obtain all
    necessary Approvals required to be obtained by it or its
    Subsidiaries from third parties in connection with the
    transactions contemplated by this Agreement, including the
    Arrangement;
	 
	 	     
    (iv) carry out the terms of the Interim Order and the Final
    Order applicable to it and use its reasonable best efforts to
    comply promptly with all requirements which applicable Laws may
    impose on it or its Subsidiaries with respect to the
    transactions contemplated by this Agreement; and
	 
	 	     
    (v) promptly advise the other party orally and, if then
    requested, in writing of any event occurring subsequent to the
    date of this Agreement that, if uncured at the Effective Time,
    would render it incapable of satisfying any condition to be
    satisfied by it pursuant to Article VII.

     
7.5.     Regulatory
Filings. Without limiting the generality of
Section 7.4, as soon as may be reasonably practicable,
Italy and Portugal each shall (i) file with the United
States Federal Trade Commission (the “FTC”) and
the Antitrust Division of the United States Department of
Justice (“DOJ”) Notification and Report Forms
relating to the transactions contemplated herein as required by
the HSR Act, (ii) notify the Commissioner as required by
Part IX of the Competition Act and/or request an ARC,
(iii) make all appropriate filings with the European
Commission (“European Commission”) pursuant to
Council Regulation (EC) 139/2004 of 20 January 2004 or
otherwise, and (iv) file comparable merger notification
forms required by the merger notification or control Laws of any
other applicable jurisdiction as required by Laws or that
Portugal and Italy reasonably determine to be necessary. Italy
and Portugal each shall promptly (a) supply the other
with any information which may be required in order to
effectuate such filings and (b) supply any additional
information which reasonably may be required by the FTC, the
DOJ, the Commissioner, the European Commission, or the
competition or merger control authorities of any other
jurisdiction. As soon as reasonably practicable, Portugal shall
file with the Investment Review Division of Industry Canada
(“IRD”), an application for review and any
supplemental information (other than privileged information)
which may be required in connection therewith pursuant to the
ICA, which filings will comply in all material respects with the
requirements of the ICA. Italy will provide Portugal with such
information and documents as Portugal reasonably requests for
purposes of preparing such filings.

43

 

     
7.6.     Indemnification.

     
(a) From and after the Effective Time, Portugal will
fulfill, and will cause Italy and/or its successors to fulfill
and honor in all respects its obligations pursuant to any
indemnification agreements between Italy and the present and
former directors or officers of Italy or any Subsidiary thereof
(the “Indemnified Parties”) in effect
immediately prior to the Effective Time and any indemnification
provisions under the Italy Charter Documents or applicable Laws,
in each case, as in effect on the date hereof (and shall also
pay expenses in advance of the final disposition of any such
action, suit or proceeding to each Indemnified Party to the
fullest extent permitted under applicable Law, upon receipt from
the Indemnified Party to whom expenses are advanced of the
undertaking to repay such advances if indemnification is
subsequently found by a court of competent jurisdiction, which
finding is no longer subject to appeal or further proceedings,
that such person is not entitled to indemnification). Portugal
shall cause Italy and/or its successors to not amend, repeal or
otherwise modify the provisions with respect to exculpation and
indemnification contained in the Italy Charter Documents as in
effect on the date hereof for a period of six (6) years
from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who, prior to the
Effective Time, were directors or officers of Italy, unless such
modification is required by Law.

     
(b) Prior to the Effective Time, Italy shall (or if Italy
is unable to, Portugal shall) obtain and pay for
“tail” insurance policies with a claims period of at
least six years from and after the Effective Time from an
insurance carrier with the same or better credit rating as
Italy’s current insurance carrier with respect to
directors’ and officers’ liability insurance and
fiduciary liability insurance (collectively,
“D&O Insurance”) with benefits and levels of
coverage at least as favorable as Italy’s existing policies
with respect to matters existing or occurring at or prior to the
Effective Time (including in connection with this Agreement or
the transactions or actions contemplated hereby). If Italy or
Portugal for any reason fail to obtain such “tail”
insurance policies as of the Effective Time, for a period of six
(6) years after the Effective Time, Portugal will, or will
cause Italy and/or its successors to, maintain in effect
directors’ and officers’ liability insurance covering
those persons who are currently covered by Italy’s
directors’ and officers’ liability insurance policy
with respect to claims arising from facts or events that
occurred on or before the Effective Time on terms comparable to
those applicable to the current directors and officers of Italy.

     
(c) This Section 7.6 is intended to be for the benefit
of, and shall be enforceable by, the Indemnified Parties
referred to herein, their heirs and personal representatives.

     
7.7.     Takeover
Statutes. If any “fair price,”
“moratorium,” “control share acquisition” or
other similar anti-takeover statute or regulation (each a
“Takeover Statute”) is or may become applicable
to the transactions contemplated by this Agreement or the
Arrangement, each of Portugal, Italy and their respective boards
of directors shall grant such approvals and take such actions as
are necessary so that such transactions may be consummated as
promptly as practicable on the terms contemplated by this
Agreement and the Arrangement and otherwise act to eliminate or
minimize the effects of such statute or regulation on such
transactions.

     
7.8.     Section 16(b).
The board of directors of Italy and Portugal shall, prior to the
Effective Time, take all such actions as may be necessary or
appropriate pursuant to
Rule 16b-3(d) and
Rule 16b-3(e)
under the 1934 Act to exempt the exchange of Italy Common
Shares for Portugal Common Shares pursuant to the terms of this
Agreement by officers or directors of Italy who may become an
officer or director of Portugal subject to the reporting
requirements of Section 16(a) of the 1934 Act.

     
7.9.     U.S. Tax
Treatment. Italy and Portugal intend for the acquisition
by Portugal Canada of Italy Common Shares pursuant to this
Agreement to be treated as a “qualified stock
purchase” for U.S. federal income tax purposes in
respect of which an election under Section 338(g) of the
Code may be made. Italy and Portugal shall take all reasonable
steps to ensure such treatment, including, if necessary,
amending the Plan of Arrangement.

44

 

ARTICLE VIII

CONDITIONS

     
8.1.     Conditions to
Obligations of Each Party to Effect the Arrangement. The
respective obligations of each party to this Agreement to effect
the Arrangement and the other transactions contemplated herein
shall be subject to the satisfaction at or prior to the
Effective Time of the following conditions:

		
	 	     
    (a) Portugal Stockholder Approval. The
    Portugal Stockholder Approval shall have been obtained.
	 
	 	     
    (b) Italy Shareholder Approval. The Italy
    Shareholder Approval shall have been obtained, in accordance
    with any conditions which may be imposed by the Interim Order.
	 
	 	     
    (c) Interim Order; Final Order. The Interim
    Order and the Final Order shall each have been obtained in form
    and terms reasonably satisfactory to each of Portugal and Italy,
    and shall not have been set aside or modified in a manner
    unacceptable to such parties, acting reasonably, on appeal or
    otherwise.
	 
	 	     
    (d) No Orders. No Order or Law entered,
    enacted, promulgated, enforced or issued by any court or other
    Governmental Entity of competent jurisdiction shall be in effect
    which restrains or enjoins the consummation of the Arrangement
    or makes the Arrangement or the other transactions contemplated
    by this Agreement illegal.
	 
	 	     
    (e) Regulatory Approvals.

		
	 	     
    (i) Portugal shall have obtained the Competition Act
    Approval and the ICA Approval;
	 
	 	     
    (ii) all applicable waiting periods (and any extensions
    thereof) under the HSR Act shall have expired or been
    terminated; and
	 
	 	     
    (iii) the applicable waiting periods under Council
    Regulation (EC) 139/2004 of 20 January 2004 shall have
    expired or been terminated.

		
	 	     
    (f) Listing of Shares. The Portugal Common
    Shares issuable pursuant to the Arrangement shall have been
    approved for listing on the NYSE and TSX, subject to notice of
    issuance.
	 
	 	     
    (g) France. Either (i) Italy shall
    have acquired at least two-thirds of the outstanding common
    shares of France on the terms set forth in the Support Agreement
    and the Italy Bid Circular, without the waiver or change of any
    material term or condition thereof except as approved by
    Portugal in writing, and shall have completed a France
    Subsequent Acquisition Transaction (the “France
    Condition”), or (ii) the Support Agreement has
    been terminated in accordance with its terms. Italy will give
    Portugal at least 5 days written notice of any
    determination to waive any material term or condition of the
    Support Agreement and the Italy Bid Circular and Portugal will
    inform Italy within such period whether or not Portugal consents
    to such waiver.
	 
	 	     
    (h) Portugal Charter Amendment.
    Portugal’s certificate of incorporation shall have been
    amended and restated in the form attached as Exhibit C,
    provided that (i) such amendment and restatement
    shall be effectuated only upon satisfaction or waiver of all
    other conditions set forth in this Article VIII and
    (ii) Portugal shall not be entitled to rely on this
    condition precedent to the extent that it is in breach of its
    obligations hereunder in respect of the implementation of such
    amendment.

     
8.2.     Additional Conditions to
Obligations of Italy. The obligation of Italy to
consummate and effect the Arrangement shall be subject to the
satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing,
exclusively by Italy:

		
	 	     
    (a) Representations and Warranties. The
    representations and warranties of Portugal contained in this
    Agreement (without giving effect to any materiality (including
    the word “material”) or “Material Adverse
    Effect” qualification) shall be true and correct as of the
    Closing Date with the

45

 

		
	 	
    same effect as if made at and as of the Closing Date (other than
    such representations that are made as of a specified date, which
    shall be true and correct as of such date), except as would not
    reasonably be expected to have, individually or in the
    aggregate, a Material Adverse Effect on Portugal. Italy shall
    have received a certificate with respect to the foregoing signed
    on behalf of Portugal by an authorized officer of Portugal.
	 
	 	     
    (b) Agreements and Covenants. Portugal shall
    have performed or complied in all material respects with all
    material agreements and covenants required by this Agreement to
    be performed or complied with by it on or prior to the Closing
    Date, and Italy shall have received a certificate to such effect
    signed on behalf of Portugal by an authorized officer of
    Portugal.
	 
	 	     
    (c) No Material Adverse Effect. Since the
    date hereof, there shall not have occurred any fact, event,
    change, development, circumstance or effect which, individually
    or in the aggregate, has had or would reasonably be expected to
    have a Material Adverse Effect on Portugal.
	 
	 	     
    (d) Portugal Board of Directors. Portugal
    shall have taken all such actions as are necessary to cause the
    board of directors of Portugal as of the Effective Time to be
    constituted in accordance with Section 6.6.

     
8.3.     Additional Conditions to
the Obligations of Portugal. The obligations of Portugal
to complete the Arrangement shall be subject to the satisfaction
at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively
by Portugal:

		
	 	     
    (a) Representations and Warranties. The
    representations and warranties of Italy contained in this
    Agreement (without giving effect to any materiality (including
    the word “material”) or “Material Adverse
    Effect” qualification) shall be true and correct as of the
    Closing Date with the same effect as if made at and as of the
    Closing Date (other than such representations that are made as
    of a specified date, which shall be true and correct as of such
    date), except as would not reasonably be expected to have,
    individually or in the aggregate, a Material Adverse Effect on
    Italy; it being understood and agreed that for purposes of
    measuring the truth and correctness of the representations and
    warranties of Italy as of the Closing Date, if the France
    Acquisition has occurred, France, its Subsidiaries and material
    joint ventures shall not be considered to be Subsidiaries or
    material joint ventures of Italy. Portugal shall have received a
    certificate with respect to the foregoing signed on behalf of
    Italy by an authorized officer of Italy.
	 
	 	     
    (b) Agreements and Covenants. Italy shall
    have performed or complied in all material respects with all
    material agreements and covenants required by this Agreement to
    be performed or complied with by it at or prior to the Closing
    Date, and Portugal shall have received a certificate to such
    effect signed on behalf of Italy by an authorized officer of
    Italy.
	 
	 	     
    (c) No Material Adverse Effect. Since the
    date hereof, there shall not have occurred any fact, event,
    change, development, circumstance or effect which, individually
    or in the aggregate, has had or would reasonably be expected to
    have a Material Adverse Effect on Italy.
	 
	 	     
    (d) Dissent Rights. The holders of no more
    than 10% of all of the issued and outstanding Italy Common
    Shares shall have exercised their Dissent Rights (and shall not
    have lost or withdrawn such rights) in respect of the
    Arrangement, provided that in the event that any Person who
    holds, directly or indirectly, on the date hereof more than 10%
    of the common shares of France exercises Dissent Rights in
    respect of the Arrangement in respect of more than 5% of the
    Italy Common Shares, the first reference to 10% in this
    Section 8.3(d) shall be increased to 15%.

46

 

ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

     
9.1.     Termination.
This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approval
of the shareholders of Italy or Portugal:

		
	 	     
    (a) by mutual written consent duly authorized by the boards
    of directors of each of Portugal and Italy;
	 
	 	     
    (b) by either Italy or Portugal, if the Arrangement shall
    not have been consummated by March 31, 2007 for any reason
    (the “Termination Date”); provided, however,
    that the right to terminate this Agreement under this
    Section 9.1(b) shall not be available to any party whose
    action or failure to act has been a principal cause of or
    resulted in the failure of the Arrangement to occur on or before
    such date and such action or failure to act constitutes a breach
    of this Agreement;
	 
	 	     
    (c) by either Italy or Portugal, if there shall be passed
    any Law that makes the consummation of the Arrangement illegal
    or otherwise prohibited, or if a Governmental Entity in the
    United States or Canada shall have issued an Order or taken any
    other action, in any case having the effect of permanently
    restraining, enjoining or otherwise prohibiting the Arrangement,
    which Order or other action is final and nonappealable;
	 
	 	     
    (d) by either Italy or Portugal, if the Italy Shareholder
    Approval shall not have been obtained by reason of the failure
    to obtain the Italy Shareholder Approval upon a vote taken
    thereon at the duly convened Italy Meeting or at any adjournment
    or postponement thereof;
	 
	 	     
    (e) by either Italy or Portugal, if the Portugal
    Stockholder Approval shall not have been obtained by reason of
    the failure to obtain the Portugal Stockholder Approval upon a
    vote taken thereon at the duly convened Portugal Meeting or any
    adjournment or postponement thereof;
	 
	 	     
    (f) by Italy, upon a breach of any representation,
    warranty, covenant or agreement on the part of Portugal set
    forth in this Agreement such that the conditions set forth in
    Section 8.2(a) or Section 8.2(b) are incapable of
    being satisfied on or before the Termination Date;
	 
	 	     
    (g) by Portugal, upon a breach of any representation,
    warranty, covenant or agreement on the part of Italy set forth
    in this Agreement such that the conditions set forth in
    Section 8.3(a) or Section 8.3(b) are incapable of
    being satisfied on or before the Termination Date;
	 
	 	     
    (h) by Italy or Portugal if the board of directors of
    Portugal shall have effected a Change in Portugal Recommendation;
	 
	 	     
    (i) by Portugal or Italy if the board of directors of Italy
    shall have effected a Change in Italy Recommendation; or
	 
	 	     
    (j) by Italy, if Italy proposes to enter into a definitive
    agreement with respect to a Superior Proposal in compliance with
    the provisions of Section 5.3(f), provided that Italy has
    previously or concurrently will have paid to Portugal the Italy
    Termination Payment.

     
9.2.     Notice of Termination;
Effect of Termination. Subject to Sections 9.1(j),
any termination of this Agreement under Section 9.1 above
will be effective immediately upon the delivery of written
notice of the terminating party to the other party hereto. In
the event of the termination of this Agreement as provided in
Section 9.1, this Agreement shall be of no further force or
effect, except that (i) Section 9.2,
Section 9.3 and Article X (General Provisions) shall
survive the termination of this Agreement, and
(ii) nothing herein shall relieve any party from
liability for any intentional or willful breach of this
Agreement. No termination of this Agreement shall affect the
obligations of the parties contained in the Confidentiality
Agreements, all of which obligations shall survive termination
of this Agreement in accordance with their terms.

47

 

     
9.3.     Fees and
Expenses.

     
(a) General. Except as set forth in this
Section 9.3, all fees and expenses incurred in connection
with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expenses whether or
not the Arrangement is consummated.

     
(b) Italy Payments.

     
(i) Italy shall pay to Portugal in immediately available
funds, within one (1) business day after demand by
Portugal, the Italy Termination Fee if this Agreement is
terminated by Portugal or Italy pursuant to Section 9.1(i),
unless: (A) the termination arises as a result of a
Material Adverse Effect in respect of Portugal that has occurred
since the date hereof, and (B) the Italy board of directors
has determined in good faith (after receipt of advice from its
legal and financial advisors) the failure to change the
Board’s recommendation, or refusal to reaffirm such
recommendation, would be inconsistent with its fiduciary duties.

     
(ii) Italy shall pay Portugal in immediately available
funds, within one (1) business day after demand by
Portugal, the Expenses of Portugal if this Agreement is
terminated by Portugal pursuant to Section 9.1(g).

     
(iii) Italy shall pay Portugal in immediately available
funds, within one (1) business day after demand by
Portugal, the amount of US$125 million, if:

		
	 	     
    (A) this Agreement is terminated by Portugal or Italy
    pursuant to Section 9.1(b) and following the date hereof
    and prior to the termination of this Agreement, an Italy
    Competing Proposal shall have been publicly announced or
    otherwise communicated to the shareholders of Italy, or
	 
	 	     
    (B) this Agreement is terminated by Italy or Portugal
    pursuant to Section 9.1(d).

     
(iv) If any payment becomes due and payable either
(x) pursuant to clause (ii) above in circumstances
where an Italy Competing Proposal was publicly announced or
otherwise communicated to the shareholders of Italy prior to the
termination of this Agreement or (y) pursuant to
clause (iii) above, and within twelve (12) months
following the termination of this Agreement, an Italy Competing
Proposal is consummated, then Italy shall pay to Portugal,
within one (1) business day after demand by Portugal, an
amount equal to the amount by which (A) the Italy
Termination Fee exceeds (B) the amount Italy paid to
Portugal pursuant to clause (ii) or (iii) above.

     
(v) Italy shall pay to Portugal in immediately available
funds the Italy Termination Fee immediately prior to the
termination of this Agreement by Italy pursuant to
Section 9.1(j).

     
(vi) In the event that Italy acquires at least two-thirds
of the outstanding common shares of France after the date that
it has become obligated to pay pursuant to the terms hereof the
Italy Termination Fee to Portugal, Italy shall, within one day
of such acquisition, pay to Portugal an additional $450 million,
so that the total amount paid by Italy in respect of the Italy
Termination Fee shall equal $925 million.

     
(vii) Italy acknowledges that the agreements contained in
this Section 9.3(b) are an integral part of the
transactions contemplated by this Agreement, and that if Italy
fails to pay in a timely manner the amounts due pursuant to this
Section 9.3(b) and, in order to obtain such payment,
Portugal makes a claim that results in a judgment against Italy
for the amounts set forth in this Section 9.3(b), Italy
shall pay to Portugal its reasonable costs and expenses
(including reasonable attorneys’ fees and expenses) in
connection with such suit, together with interest on the amounts
set forth in this Section 9.3(b) at the prime rate of
Citibank N.A. in effect on the date such payment was required to
be made. Payment of the fees described in this
Section 9.3(b) shall not be in lieu of damages incurred in
the event of intentional or willful breach of this Agreement.

     
(c) Portugal Payments.

     
(i) Portugal shall pay to Italy in immediately available
funds, within one (1) business day after demand by Italy,
the Portugal Termination Fee if this Agreement is terminated by
Italy or Portugal

48

 

pursuant to Section 9.1(h) unless: (A) the termination
arises as a result of a Material Adverse Effect in respect of
Italy that has occurred since the date hereof, and (B) the
Portugal board of directors has determined in good faith (after
receipt of advice from its legal and financial advisors) that
the failure to change the Board’s recommendation, or
refusal to reaffirm such recommendation, would be inconsistent
with its fiduciary duties.

     
(ii) Portugal shall pay Italy in immediately available
funds, within one (1) business day after demand by Italy,
the Expenses of Italy if this Agreement is terminated by Italy
pursuant to Section 9.1(f).

     
(iii) Portugal shall pay Italy in immediately available
funds, within one (1) business day after demand by Italy,
the amount of US$125 million, if:

		
	 	     
    (A) this Agreement is terminated by Portugal or Italy
    pursuant to Section 9.1(b), and following the date hereof
    and prior to the termination of this Agreement, a Portugal
    Competing Proposal shall have been publicly announced or
    otherwise communicated to the shareholders of Portugal, or
	 
	 	     
    (B) this Agreement is terminated by Italy or Portugal
    pursuant to Section 9.1(e).

     
(iv) If any payment becomes due and payable either
(x) pursuant to clause (ii) above in
circumstances where a Portugal Competing Proposal was publicly
announced or otherwise communicated to the shareholders of
Portugal prior to the termination of this Agreement or
(y) pursuant to clause (iii) above, and within
twelve (12) months following the termination of this
Agreement, an Portugal Competing Proposal is consummated, then
Portugal shall pay to Italy, within one (1) business day after
demand by Italy, an amount equal to the amount by which
(A) the Portugal Termination Fee exceeds (B)
the amount Portugal paid to Italy pursuant to
clause (ii) or (iii) above.

     
(v) Portugal acknowledges that the agreements contained in
this Section 9.3(c) are an integral part of the
transactions contemplated by this Agreement and that if Portugal
fails to pay in a timely manner the amounts due pursuant to this
Section 9.3(c) and, in order to obtain such payment, Italy
makes a claim that results in a judgment against Portugal for
the amounts set forth in this Section 9.3(c), Portugal
shall pay to Italy its reasonable costs and expenses (including
reasonable attorneys’ fees and expenses) in connection with
such suit, together with interest on the amounts set forth in
this Section 9.3(c) at the prime rate of Citibank N.A. in
effect on the date such payment was required to be made. Payment
of the fees described in this Section 9.3(c) shall not be
in lieu of damages incurred in the event of intentional or
willful breach of this Agreement.

     
(d) Defined Terms. For purposes of
Sections 9.3(b) and (c), the following terms shall have the
following meanings:

		
	 	     
    “Expenses” means all
    out-of-pocket fees and
    expenses (including all fees and expenses of counsel,
    accountants, financial advisors and investment bankers to a
    party hereto and its Affiliates), up to $40 million in the
    aggregate, incurred by a party or on its behalf in connection
    with or related to the authorization, preparation, negotiation,
    execution and performance of this Agreement, the preparation,
    printing, filing and mailing of its Shareholder Solicitation,
    the filing of any required notices under applicable antitrust
    Laws or in connection with other Regulatory Approvals, and all
    other matters related to the Arrangement (including the Interim
    Order and Final Order) and the other transactions contemplated
    hereby.
	 
	 	     
    “Italy Competing Proposal” means:
    (i) any merger, take-over bid, amalgamation, plan of
    arrangement, business combination, consolidation, or similar
    transaction in respect of Italy; (ii) any purchase or other
    acquisition by a Person (other than Portugal) of such number of
    Italy’s Common Shares or any rights or interests therein or
    thereto which together with such Person’s other direct or
    indirect holdings of Common Shares and the holdings of any other
    Person or Persons with whom such first Person may be acting
    jointly or in concert constitutes at least a majority of
    Italy’s outstanding Common Shares; (iii) any similar
    business combination or transaction, of or involving Italy; or
    (iv) any proposal or offer to, or public announcement of an
    intention to do, any of the foregoing from any Person other than
    Portugal; provided that notwithstanding the foregoing
    neither (a) the

49

 

		
	 	
    acquisition by Italy of a third party, whether structured by
    means of a merger, amalgamation, consolidation or otherwise, in
    which Italy remains as the parent company and the shareholders
    of Italy immediately prior to the consummation of such
    transaction hold a majority of the outstanding shares of Italy
    calculated on a fully diluted basis immediately following such
    consummation nor (b) the acquisition by Italy of France as
    contemplated by the Support Agreement shall constitute an Italy
    Competing Proposal, and provided, further, that
    the offer by Teck Cominco in respect of the Italy Common Shares
    that was announced on May 8, 2006 shall not be considered
    an Italy Competing Proposal unless Teck Cominco amends such
    offer to increase or materially improve the consideration
    proposed to be paid by Teck Cominco thereunder.
	 
	 	     
    “Italy Termination Fee” means an amount
    equal to US$475 million, provided that such amount
    shall be US$925 million from and after the date that Italy
    has acquired at least two-thirds of the outstanding common
    shares of France.
	 
	 	     
    “Portugal Competing Proposal” means:
    (i) any merger, take-over bid, amalgamation, plan of
    arrangement, business combination, consolidation, or similar
    transaction in respect of Portugal; (ii) any purchase or
    other acquisition by a Person (other than Italy) of such number
    of Portugal Common Shares or any rights or interests therein or
    thereto which together with such Person’s other direct or
    indirect holdings of Portugal Common Shares and the holdings of
    any other Person or Persons with whom such first Person may be
    acting jointly or in concert constitutes at least a majority of
    Portugal Common Shares outstanding; (iii) any similar
    business combination or transaction, of or involving Portugal;
    or (iv) any proposal or offer to, or public announcement of
    an intention to do, any of the foregoing from any Person other
    than Italy; provided that notwithstanding the foregoing
    the acquisition by Portugal of a third party, whether structured
    by means of a merger, amalgamation, consolidation or otherwise,
    in which Portugal remains as the parent company and the
    shareholders of Portugal immediately prior to the consummation
    of such transaction hold a majority of the outstanding shares of
    Portugal immediately following such consummation shall not
    constitute a Portugal Competing Proposal.
	 
	 	     
    “Portugal Termination Fee” means an
    amount equal to US$500 million.

     
9.4.     Amendment.
Subject to applicable Law and the Interim Order, this Agreement
may be amended, not later than the Effective Time, whether
before or after the Italy Shareholder Approval and the Portugal
Stockholder Approval have been obtained, by action taken or
authorized by the respective boards of directors of the parties
(or, to the extent permitted by Laws, any duly empowered
committee thereof) at any time by execution of an instrument in
writing signed on behalf of each of Portugal and Italy;
provided that after the Portugal Stockholder Approval or
Italy Shareholder Approval is obtained, no such amendment which
requires further approval by the shareholders of Portugal or
Italy, as the case may be, shall be effected without such
further approval.

     
9.5.     Extension;
Waiver. At any time prior to the Effective Time, any
party hereto may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant
hereto and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party, shall be
limited to its terms and shall not be deemed to extend or waive
any other provision of this Agreement. Delay in exercising any
right under this Agreement shall not constitute a waiver of such
right.

50

 

ARTICLE X

GENERAL PROVISIONS

     
10.1.     Non-Survival of
Representations and Warranties. The representations and
warranties of Italy and Portugal contained in this Agreement
shall terminate at the Effective Time, and only the covenants
and agreements that by their terms specifically survive the
Effective Time shall survive the Effective Time.

     
10.2.     Notices. All
notices and other communications hereunder shall be in writing
and shall be deemed given if delivered personally or by
commercial delivery service, or sent via telecopy (receipt
confirmed) to the parties at the following addresses or telecopy
numbers (or at such other address or telecopy numbers for a
party as shall be specified by like notice):

     
(i) if to Portugal, to:

		
	 	
    Phelps Dodge Corporation
	 	
    One North Central Ave.
	 	
    Phoenix, AZ 85004
	 	
    Attention: David Colton
	 	
    Telecopy No.: (602) 366-7321
	 
	 	
    with copies to:
	 
	 	
    Debevoise & Plimpton LLP
	 	
    919 Third Avenue
	 	
    New York, N.Y. 10022
	 	
    Attention: Michael W. Blair
	 	
                          Gregory
    V. Gooding
	 	
    Telecopy No.: (212) 909-6870
	 
	 	
    and
	 
	 	
    Heenan Blaikie LLP
	 	
    P.O. Box 185, Suite 2600
	 	
    200 Bay Street
	 	
    South Tower, Royal Bank Plaza
	 	
    Toronto, Ontario M5J 2J4
	 	
    Attention: Jeff Barnes
	 	
    Telecopy No.: (416) 360-8425

     
(ii) if to Italy, to:

		
	 	
    Inco Limited
	 	
    145 King Street West
	 	
    Suite 1500
	 	
    Toronto, Ontario M5H 4B7,
	 	
    Canada
	 	
    Attention: Simon Fish
	 	
    Telecopy No.: (416) 361-7781
	 
	 	
    with copies to:
	 
	 	
    Sullivan & Cromwell LLP
	 	
    125 Broad Street
	 	
    New York, New York 10004
	 	
    Attention: James C. Morphy
	 	
                          George
    J. Sampas
	 	
    Telecopy No.: 212-558-3588

51

 

and

Osler, Hoskin & Harcourt LLP

P.O. Box 50

1 First Canadian Place, Suite 6600

Toronto, Ontario

Canada M5X 1B8

		
	Attention:	
    Dale R. Ponder

Douglas R. Marshall

		
		
    Telecopy No.: 416-862-6666

     
10.3.     Counterparts.
This Agreement may be executed in one or more counterparts,
which may be delivered by facsimile transmission, all of which
shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being
understood that all parties need not sign the same counterpart.

     
10.4.     Entire Agreement; Third
Party Beneficiaries. This Agreement and the documents
and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Italy
Disclosure Schedule and the Portugal Disclosure Schedule,
(a) constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all
prior representations, agreements and understandings, both
written and oral, among the parties with respect to the subject
matter hereof, and neither party is relying on any prior oral or
written representations, agreements, understandings or
undertakings with respect to the subject matter hereof, it being
understood that the Confidentiality Agreements shall continue in
full force and effect and shall survive any termination of this
Agreement; and (b) are not intended to confer upon any
other person any rights or remedies hereunder, except (i)
as specifically provided in Section 7.6 and (ii) the
right of Italy’s shareholders to receive Portugal Common
Shares and cash at the Effective Time and to recover, solely
through an action brought by Italy, damages from Portugal in the
event of a wrongful termination of this Agreement by Portugal.

     
10.5.     Severability.
In the event that any provision of this Agreement, or the
application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the
remainder of this Agreement will continue in full force and
effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement
with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of
such void or unenforceable provision.

     
10.6.     Other Remedies;
Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a
party will be deemed cumulative with and not exclusive of any
other remedy conferred hereby, or by Law or equity upon such
party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to
seek an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity. The parties agree
that, notwithstanding anything to the contrary herein, in the
event of a willful or intentional breach of this Agreement by
Portugal or any of its Subsidiaries, the damages recoverable by
Italy for itself and on behalf of its shareholders shall be
determined by reference to the total amount that would have been
recoverable by the holders of the Italy Common Shares if all
such holders brought an action against Portugal and were
recognized as intended third party beneficiaries hereunder.

     
10.7.     Governing Law.
This Agreement shall be deemed to be made in and in all respects
shall be interpreted, construed and governed by and in
accordance with, and any disputes arising out of or related to
this Agreement shall be interpreted, construed and governed by
and in accordance with, the laws of the

52

 

State of New York, except to the extent mandatorily governed by
the laws of Canada. Except with respect to the Interim Order or
Final Order or any other matter relating thereto over which the
Court has jurisdiction, the parties hereby irrevocably submit to
the jurisdiction of the courts of the State of New York solely
in respect of the interpretation and enforcement of the
provisions of this Agreement and of the documents referred to in
this Agreement, and in respect of the transactions contemplated
hereby, and hereby waive, and agree not to assert, as a defense
in any Action for the interpretation or enforcement hereof or of
any such document, that it is not subject thereto or that such
Action 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, and the parties hereto irrevocably agree that all claims
with respect to such Actions shall be heard and determined in
such New York court. 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 and agree that mailing of
process or other papers in connection with any such Action in
the manner provided in Section 10.2 or in such other manner
as may be permitted by Law shall be valid and sufficient service
thereof.

     
10.8.     No Personal
Liability.

     
(a) No director or officer of Portugal shall have any
personal liability whatsoever to Italy under this Agreement, or
any other document delivered in connection with the Arrangement
on behalf of Portugal.

     
(b) No director or officer of Italy shall have any personal
liability whatsoever to Portugal under this Agreement, or any
other document delivered in connection with the Arrangement on
behalf of Italy.

     
10.9.     Assignment. No
party may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written
approval of the other parties. Any attempted assignment in
violation hereof shall be null and void. Subject to the
foregoing, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective
successors and permitted assigns.

     
10.10.     WAIVER OF JURY
TRIAL. EACH OF PORTUGAL AND ITALY HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PORTUGAL OR ITALY
IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT
HEREOF.

     
10.11.     Currency.
Unless otherwise specifically indicated, all sums of money
referred to in this Agreement are expressed in U.S. Dollars.

* * * * *

53

 

     
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized respective
officers as of the date first written above.

		
	 	
    PHELPS DODGE CORPORATION

			
	 	By: 	
    /s/ J. Steven Whisler

		
	 	
     

	 	
    Name: J. Steven Whisler
	 	
    Title:   Chairman and Chief Executive Officer
	 
	 	
    INCO LIMITED

			
	 	By: 	
    /s/ Scott M. Hand

		
	 	
     

		
	 	
    Name: Scott M. Hand
	 	
    Title:   Chairman and Chief Executive Officer

54

 

Exhibit A

SPECIAL RESOLUTION OF THE ITALY SHAREHOLDERS

	1.	 	The arrangement (the “Arrangement”) under Section 192 of the Canada Business
Corporations Act (the “CBCA”)involving Italy, as more particularly described in the
management information circular of Italy accompanying the notice of this meeting (as the
Arrangement may be or may have been modified or amended) is hereby authorized, approved and
adopted.

	2.	 	The plan of arrangement, as it may be or have been amended, (the “Plan of
Arrangement”) involving Italy, the full text of which is set out as Exhibit B to the
combination agreement dated as of June 25, 2006, as amended, between Italy and Portugal (the
“Combination Agreement”) is hereby approved and adopted.

	3.	 	The Combination Agreement, the actions of the directors of Italy in approving the Arrangement
and the actions of the officers of Italy in executing and delivering the Combination Agreement
and any amendments thereto are hereby ratified and approved.

	4.	 	Notwithstanding that this resolution has been passed (and the Arrangement adopted) by the
shareholders of Italy or that the Arrangement has been approved by the Superior Court of
Justice (Ontario), the directors of Italy are hereby authorized and empowered without further
notice to or approval of the shareholders of Italy (a) to amend the Combination Agreement, or
the Plan of Arrangement to the extent permitted by the Combination Agreement, and (b) subject
to the terms of the Combination Agreement, not to proceed with the Arrangement.

	5.	 	Any officer or director of Italy is hereby authorized and directed for and on behalf of Italy
to execute and to deliver articles of arrangement and such other documents as are necessary or
desirable to the Director under the CBCA in accordance with the Combination Agreement.

	6.	 	Any officer or director of Italy is hereby authorized and directed for and on behalf of Italy
to execute or cause to be executed and to deliver or cause to be delivered, all such other
documents and instruments and to perform or cause to be performed all such other acts and
things as in such person’s opinion may be necessary or desirable to give full effect to the
foregoing resolution and the matters authorized thereby, such determination to be conclusively
evidenced by the execution and delivery of such document, agreement or instrument or the doing
of any such act or thing.

A-1

 

Exhibit B

 

PLAN OF ARRANGEMENT

 

 

 

PLAN OF ARRANGEMENT

ARTICLE I

INTERPRETATION

     1.1 Definitions. In this Plan of Arrangement, unless there is something in the
subject matter or context inconsistent therewith, the following terms shall have the respective
meanings set out below and grammatical variations of such terms shall have corresponding meanings:

     “Amalgamating Corporations” means Inco and Phelps Dodge Subco and “Amalgamating
Corporation” means either one of them;

     “Amalco” has the meaning ascribed thereto in section 3.2(e);

     “Amalco Common Shares” means the common shares which Amalco is authorized to issue and
having the rights, privileges, restrictions and conditions set forth in Exhibit 1;

     “Amalgamation” has the meaning ascribed thereto in section 3.2(e);

     “Arrangement” means an arrangement under section 192 of the CBCA on the terms and
subject to the conditions set out in this Plan of Arrangement, subject to any amendments or
variations thereto made in accordance with section 9.4 of the Combination Agreement or Article VII
hereof or made at the direction of the Court in the Final Order;

     “Articles of Arrangement” means the articles of arrangement of Inco in respect of the
Arrangement that are required by the CBCA to be sent to the Director after the Final Order is made;

     “Business Day” means any day on which commercial banks are generally open for business
in Toronto, Ontario or New York, New York other than a Saturday, a Sunday or a day observed as a
holiday in New York, New York under the laws of the State of New York or the federal laws of the
United States of America or in Toronto, Ontario under the laws of the Province of Ontario or the
federal laws of Canada;

     “Cash Consideration” means $• per Inco Common Share;

     “CBCA” means the Canada Business Corporations Act, as amended;

     “Certificate” means the certificate of arrangement giving effect to the Arrangement,
issued pursuant to subsection 192(7) of the CBCA after the Articles of Arrangement have been filed;

     “Code” means the United States Internal Revenue Code of 1986, as amended;

     “Combination Agreement” means the combination agreement made as of June 25, 2006
between Phelps Dodge and Inco, as amended, supplemented and/or restated in accordance therewith
prior to the Effective Time, providing for, among other things, the Arrangement;

     “Converted Phelps Dodge Option” has the meaning ascribed thereto in section 3.2(c);

B-1

 

     “Converted Phelps Dodge Option Exercise Price” has the meaning ascribed thereto in
section 3.2(c);

     “Court” means the Superior Court of Justice (Ontario);

     “Depositary” means •, at its offices set out in the Letter of Transmittal, being the
depositary appointed by Phelps Dodge for the purpose of, among other things, exchanging the
certificates representing Inco Common Shares for Phelps Dodge Common Shares and cash in connection
with the Arrangement;

     “Director” means the Director appointed pursuant to section 260 of the CBCA;

     “Dissenting Shareholder” means an Inco Shareholder who dissents in respect of the
Arrangement in compliance with the Dissent Rights and who has not withdrawn such exercise of
Dissent Rights and is ultimately determined to be entitled to be paid fair value in respect of the
Inco Common Shares so held;

     “Dissent Rights” has the meaning ascribed thereto in section 4.1;

     “Effective Date” means the date shown on the Certificate;

     “Effective Time” means 12:01 a.m. (Toronto time) on the Effective Date;

     “Exchange Ratio” means • of a Phelps Dodge Common Share for each • Inco Common Share
held;

     “Falconbridge” means Falconbridge Limited;

     “Falconbridge Subsequent Acquisition Transaction” has the meaning ascribed thereto in
the Combination Agreement;

     “Final Order” means the final order of the Court approving the Arrangement as such
order may be amended by the Court at any time prior to the Effective Date or, if appealed, then,
unless such appeal is withdrawn or denied, as affirmed;

     “Final Proscription Date” has the meaning ascribed thereto in section 6.4;

     “Former Inco Shareholders” means the Inco Shareholders, other than Phelps Dodge and
its Subsidiaries, immediately prior to the Effective Time;

     “Government Entity” means any (i) multinational, federal, provincial, state, regional,
municipal, local or other government, governmental or public department, central bank, court,
tribunal, arbitral body, commission, board, bureau or agency, domestic or foreign, (ii) any
subdivision, agent, commission, board, or authority of any of the foregoing, (iii) any
quasi-governmental or private body exercising any regulatory, expropriation or taxing authority
under or for the account of any of the foregoing, or (iv) stock exchange, including the NYSE and
the TSX;

     “Inco” means Inco Limited;

B-2

 

     “Inco Bid” has the meaning ascribed thereto in the Combination Agreement;

     “Inco Circular” means the management information circular prepared by Inco in
connection with the Inco Meeting;

     “Inco Common Shares” means all of the common shares of Inco that are issued and
outstanding immediately prior to the Effective Time including any Rights as such term is defined in
the Shareholder Rights Plan Agreement dated as of September 14, 1998, as amended as of April 28,
1999 and amended and restated as of April 17, 2002, between Inco and CIBC Mellon Trust Company, as
rights agent, as the same may be amended or replaced from time to time;

     “Inco Meeting” means the special meeting of Inco Shareholders, including any
adjournment thereof, to be called and held in accordance with the Interim Order at which a
resolution with respect to the Arrangement is to be voted on;

     “Inco Option Plans” means the stock option or incentive plans for directors, officers
and employees of Inco or its Subsidiaries (as applicable) and other eligible persons;

     “Inco Options” means options to acquire Inco Common Shares granted pursuant to the
Inco Option Plans, including in the case of any particular Inco Option, any stock appreciation
right included therewith and exercisable in lieu of (but not in addition to) such Inco Option;

     “Inco Restricted Shares” has the meaning ascribed thereto in the Combination
Agreement;

     “Inco SAR” means the stock appreciation rights included in certain Inco Options and
exercisable in lieu of (but not in addition to) such Inco Options;

     “Inco Shareholders” means, collectively, the holders of Inco Common Shares;

     “Interim Order” means the interim order of the Court, as the same may be amended, in
respect of the Arrangement, as contemplated by section 2.2 of the Combination Agreement;

     “In the Money Amount” in respect of a stock option at any time means the amount, if
any, by which the aggregate fair market value at that time of the securities subject to the option
exceeds the aggregate exercise price under the stock option;

     “KEIP Plans” has the meaning ascribed thereto in the Combination Agreement;

     “Letter of Transmittal” means the letter of transmittal for use by an Inco Shareholder
in the form accompanying the Inco Circular;

     “NYSE” means the New York Stock Exchange;

     “Person” includes any individual, firm, partnership, joint venture, venture capital
fund, limited liability company, unlimited liability company, association, trust, trustee,
executor, administrator, legal personal representative, estate, group, body corporate, corporation,
unincorporated association or organization, Government Entity, syndicate or other entity, whether
or not having legal status;

B-3

 

     “Phelps Dodge” means Phelps Dodge Corporation;

     “Phelps Dodge Common Shares” means the common shares of Phelps Dodge;

     “Phelps Dodge Subco” means •, a company incorporated under the CBCA which, at the time
of the consummation of the Arrangement, will be an indirect wholly-owned subsidiary of Phelps
Dodge;

     “Preferred Shares” has the meaning ascribed thereto in section 5.3;

     “Stock Award Exchange Ratio” means the sum of (i) the Exchange Ratio plus (ii) the
fraction resulting from dividing the Cash Consideration by the closing price of the Phelps Dodge
Common Shares on the NYSE on the last trading day immediately preceding the Effective Date
expressed in Canadian dollars based upon the noon buying rate of the Bank of Canada on such date;

     “Subject Shares” means the Inco Common Shares held, directly or indirectly, by or for
the benefit of Phelps Dodge or its Subsidiaries immediately prior to the Effective Time, together
with the Inco Common Shares deemed to be transferred to Phelps Dodge Subco pursuant to section 4.1;

     “Subsidiary” means, when used with reference to any party, any Person of which such
party (either alone or through or together with any other Subsidiary) either owns, directly or
indirectly, fifty percent (50%) or more of the outstanding capital stock or other equity interests
the holders of which are generally entitled to vote for the election of directors or members of any
other governing body of such Person or, in the case of a Person that is a partnership, is a general
partner of such partnership, or any Person the accounts of which such party is required to
consolidate in its own financial statements under the generally accepted accounting principles
applicable to such party; and

     “TSX” means the Toronto Stock Exchange.

     1.2 CBCA. In addition to the terms defined above, words and phrases used herein and
defined in the CBCA shall have the same meaning herein as in the CBCA unless the context requires
otherwise.

     1.3 Sections and Headings. The division of this Plan of Arrangement into sections and
the insertion of headings are for reference purposes only and shall not affect the interpretation
of this Plan of Arrangement. Unless otherwise indicated, any reference in this Plan of Arrangement
to a section or an exhibit refers to the specified section of or exhibit to this Plan of
Arrangement.

     1.4 Number, Gender and Persons. In this Plan of Arrangement, unless the context
otherwise requires, words importing the singular number include the plural and vice versa and words
importing any gender include all genders.

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ARTICLE II

ARRANGEMENT

     2.1 Combination Agreement. This Plan of Arrangement is made pursuant to, and is
subject to the provisions of, the Combination Agreement.

ARTICLE III

ARRANGEMENT

     3.1 Binding Effect. This Plan of Arrangement, within the meaning of section 192 of
the CBCA, will become effective at, and be binding at and after, the Effective Time on (i) Inco,
(ii) Phelps Dodge, (iii) Phelps Dodge Subco, (iv) Amalco, (v) all Inco Shareholders, and (vi) all
holders and beneficial owners of Inco Options and Converted Phelps Dodge Options.

     3.2 Arrangement. Commencing at the Effective Time, the following shall occur and
shall be deemed to occur in the following order without any further act or formality:

     (a) each Inco Common Share (other than an Inco Restricted Share or a Subject Share) will be
transferred by the holder thereof to Phelps Dodge Subco in exchange for (i) the number of Phelps
Dodge Common Shares equal to the Exchange Ratio, and (ii) cash in the amount of the Cash
Consideration, and the name of such holder will be removed from the register of holders of Inco
Common Shares, and Phelps Dodge Subco will be recorded as the registered holder of such Inco Common
Share and will be deemed to be the legal and beneficial owner of such share free of any claims or
encumbrances;

     (b) each Inco Restricted Share outstanding immediately prior to the Effective Time will be
transferred by the holder thereof to Phelps Dodge Subco in exchange for a number of Phelps Dodge
Common Shares equal to the Stock Award Exchange Ratio, and the name of such holder will be removed
from the register of holders of Inco Common Shares, and Phelps Dodge Subco will be recorded as the
registered holder of such Inco Restricted Share and will be deemed to be the legal and beneficial
owner of such share free of any claims or encumbrances, and the former holder of each Inco
Restricted Share shall hold the Phelps Dodge Common Shares receivable in exchange on the same terms
and conditions as were applicable to such Inco Restricted Share pursuant to the KEIP Plan under
which it was issued and the agreement evidencing the grant thereto prior to the Effective Time;

     (c) each Inco Option outstanding immediately prior to the Effective Time, whether or not
vested, shall be cancelled and in exchange therefor the holder shall receive a fully vested option
granted by Phelps Dodge (a “Converted Phelps Dodge Option”) to acquire (on the same terms
and conditions other than vesting as were applicable to such Inco Option pursuant to the relevant
Inco Option Plan under which it was issued and the agreement evidencing the grant thereof prior to
the Effective Time) the number (rounded down to the nearest whole number) of Phelps Dodge Common
Shares determined by multiplying (A) the number of Inco Common Shares subject to such Inco Option
immediately prior to the Effective Time by (B) the Stock Award Exchange Ratio. The exercise price
per Phelps Dodge Common Share subject to any such Converted Phelps Dodge Option (the “Converted
Phelps Dodge Option Exercise Price”) will be an amount (rounded up to the nearest one hundredth
of a cent) equal to the quotient of (A) the exercise price per Inco Common Share subject to such
Inco Option immediately prior to the Effective Time and (B) the Stock Award Exchange Ratio,
expressed in U.S. dollars based on

B-5

 

the noon buying rate of the Bank of Canada on the last trading day immediately preceding the
Effective Date; provided that the exercise price otherwise determined shall be increased to the
extent required to ensure that the In The Money Amount of the Converted Phelps Dodge Option is
equal to the In The Money Amount of the corresponding Inco Option. For greater certainty, if a
particular Inco Option includes an Inco SAR, the corresponding Converted Phelps Dodge Option will
include a stock appreciation right subject to the same terms and conditions (other than vesting) as
were applicable to the Inco SAR (including for greater certainty the right to exercise it in
respect of part of the Converted Phelps Dodge Option to which it relates) except that the stock
appreciation right, which may be exercised in lieu of, but not in addition to, the Converted Phelps
Dodge Option, shall represent the right to receive, upon exercise (and consequent surrender of the
Converted Phelps Dodge Option), (i) the number of Phelps Dodge Common Shares (rounded down to the
nearest whole share) having an aggregate fair market value on the date of exercise equal to the
positive difference between (A) the aggregate fair market value of the Phelps Dodge Common Shares
subject to the corresponding Converted Phelps Dodge Option and (B) the aggregate Converted Phelps
Dodge Option exercise price, (ii) the equivalent amount of cash, or (iii) an equivalent combination
thereof, as Phelps Dodge may determine in its sole discretion. The conversion mechanism set forth
in this section 3.2(c) shall be adjusted to the extent required to comply with Section 409A of the
Code and the rules, regulations and guidance promulgated thereunder, where applicable;

     (d) Phelps Dodge Subco shall add to the stated capital account maintained for its common
shares the fair market value of the Phelps Dodge Common Shares delivered by Phelps Dodge on behalf
of Phelps Dodge Subco pursuant to section 6.1(a)(i); and

     (e) the Amalgamating Corporations shall be amalgamated and continue as one corporation
(“Amalco”) on the terms prescribed in this Plan of Arrangement (the “Amalgamation”)
and:

     (i) Amalco shall possess all of the property, rights, privileges and franchises and
shall be subject to all of the liabilities, including civil, criminal and quasi-criminal,
and all contracts, disabilities and debts of each of the Amalgamating Corporations (in each
case excluding any security issued by one Amalgamating Corporation and held by the other
Amalgamating Corporation and any liability or obligation of one Amalgamating Corporation to
the other Amalgamating Corporation);

     (ii) a conviction against, or ruling, order or judgment in favour of or against an
Amalgamating Corporation may be enforced by or against Amalco;

     (iii) the Articles of Arrangement shall be deemed to be the articles of amalgamation of
Amalco and, except for the purposes of subsection 104(1) of the CBCA, the Certificate shall
be deemed to be the certificate of amalgamation of Amalco;

     (iv) Amalco shall be deemed to be the party plaintiff or the party defendant, as the
case may be, in any civil action commenced by or against an Amalgamating Corporation before
the Effective Time;

     (v) all issued and outstanding Inco Common Shares, including for certainty all issued
and outstanding Inco Restricted Shares and Subject Shares, shall be cancelled without any
repayment of capital in respect thereof; and

B-6

 

     (vi) each common share of Phelps Dodge Subco shall become one Amalco Common Share.

     3.3 No Fractional Phelps Dodge Common Shares. No fractional Phelps Dodge Common
Shares shall be issued to Former Inco Shareholders. Any fractional number of Phelps Dodge Common
Shares that would otherwise be received by a Former Inco Shareholder shall be rounded down to the
nearest whole number. Where the number of Phelps Dodge Common Shares receivable by a Person under
the Arrangement is reduced as a result of such rounding down, such Person shall receive in lieu of
any such fractional share a cash payment equal to the fraction of a Phelps Dodge Common Share so
rounded down multiplied by the volume weighted average closing price of the Phelps Dodge Common
Shares on the NYSE on the last five trading days immediately before the Effective Date.

     3.4 Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted, as required,
to reflect fully the effect of any stock split, reverse split, stock dividend (including any
dividend or distribution of securities convertible into Phelps Dodge Common Shares or Inco Common
Shares other than stock dividends paid in lieu of ordinary course dividends), consolidation,
reorganization, recapitalization or other like change with respect to Phelps Dodge Common Shares or
Inco Common Shares occurring after the date of the Combination Agreement and prior to the Effective
Time (but, for greater certainty, not including consummation of the Inco Bid or any Falconbridge
Subsequent Acquisition Transaction), so that the Former Inco Shareholders shall be entitled to
receive consideration of the same value that they were entitled to receive before such event.

     3.5 Withholding Rights. Phelps Dodge, Phelps Dodge Subco, Inco, Amalco and the
Depositary shall be entitled to deduct and withhold from all amounts payable under the Plan of
Arrangement (including, without limitation, any amounts payable pursuant to section 4.1) to any
Former Inco Shareholder, or holder of Inco Options or other Inco securities or to withhold from all
dividends or other distributions payable in respect of Phelps Dodge Shares to be issued under the
Plan of Arrangement, such amounts as Phelps Dodge, Phelps Dodge Subco, Inco, Amalco or the
Depositary is required or permitted to deduct and withhold with respect to such payment under the
Income Tax Act (Canada), the Code or any provision of any applicable federal, provincial, state,
local or foreign tax law, in each case, as amended. To the extent that amounts are so withheld,
such withheld amounts shall be treated for all purposes hereof as having been paid to the Former
Inco Shareholder, holder of Inco Options or other Inco securities, in respect of which such
deduction and withholding was made, provided that such withheld amounts are actually remitted to
the appropriate taxing authority. To the extent that the amounts so required or permitted to be
deducted or withheld from any payment to a Person exceed the cash portion of the consideration
otherwise payable to that Person, Phelps Dodge, Phelps Dodge Subco, Inco, Amalco and the Depositary
are hereby authorized to sell or otherwise dispose of such portion of the consideration as is
necessary to provide sufficient funds to Phelps Dodge, Phelps Dodge Subco, Inco, Amalco or the
Depositary, as the case may be, to enable it to comply with such deduction or withholding
requirement or entitlement, and Phelps Dodge, Phelps Dodge Subco, Inco, Amalco or the Depositary
shall notify the Person thereof and remit to the Person any unapplied balance of the net proceeds
of such sale.

B-7

 

ARTICLE IV

RIGHTS OF DISSENT

     4.1 Rights of Dissent. Each Inco Shareholder may, with respect to the Inco Common
Shares held by such Inco Shareholder, including for greater certainty Inco Restricted Shares,
exercise rights of dissent pursuant to and in the manner set forth in section 190 of the CBCA, the
Interim Order and this section 4.1 (the “Dissent Rights”) in connection with the
Arrangement; provided that, notwithstanding subsection 190(5) of the CBCA, the written objection to
the Inco resolution referred to in subsection 190(5) of the CBCA must be received by Inco not later
than 5:00 p.m. (Toronto time) on the Business Day preceding the Inco Meeting. Each Inco
Shareholder who:

     (a) is a Dissenting Shareholder shall be deemed to have transferred the Inco Common Shares
held by such Dissenting Shareholder to Phelps Dodge Subco immediately prior to the transfers
described in section 3.2(a) without any further act or formality and free and clear of all liens,
claims and encumbrances, with Phelps Dodge Subco being obligated to pay such Dissenting Shareholder
in consideration therefor the fair value of such Inco Common Shares, which fair value,
notwithstanding anything to the contrary in the CBCA, if permitted by the Court, shall be
determined as of the Effective Time, and the name of such Dissenting Shareholder will be removed
from the register of holders of Inco Common Shares and Phelps Dodge Subco will be recorded as the
registered holder of the Inco Common Shares so transferred and will be deemed to be the legal and
beneficial owner of such Inco Common Shares; or

     (b) withdraws such exercise of Dissent Rights or is ultimately determined not to be entitled,
for any reason, to be paid fair value for such Person’s Inco Common Shares shall be deemed to have
participated in the Arrangement and will be deemed to have transferred each of such Person’s Inco
Common Shares to Phelps Dodge Subco in exchange for Phelps Dodge Common Shares and cash at the time
and on the terms set out in section 3.2(a), and in no case shall Phelps Dodge, Phelps Dodge Subco,
Inco, Amalco or any other Person be required to recognize such Inco Shareholder as an Inco
Shareholder after the Effective Time, and the name of such Inco Shareholder shall be removed from
the register of holders of Inco Common Shares at the Effective Time.

ARTICLE V

AMALCO

     5.1 Name. The name of Amalco shall be • or such other name as may be assigned to
Amalco by the Director.

     5.2 Registered Office. The registered office of Amalco shall be located in the City
of Toronto in the Province of Ontario and the address of the registered office of Amalco shall be •.

     5.3 Authorized Capital. Amalco shall be authorized to issue an unlimited number of
Amalco Common Shares to which are attached the rights, privileges, restrictions and conditions set
forth in Exhibit 1 and an unlimited number of preferred shares issuable in series (the
“Preferred Shares”).

     5.4 Stated Capital. On the Amalgamation, Amalco shall add to the stated capital
account maintained by Amalco for the Amalco Shares an amount equal to the aggregate of (i) the

B-8

 

amount of the stated capital account maintained by Phelps Dodge Subco in respect of the common
shares of Phelps Dodge Subco immediately prior to the Effective Time and (ii) the amount described
in section 3.2(d) hereto.

     5.5 Directors.

     (a) Minimum and Maximum. The directors of Amalco shall, until otherwise changed in
accordance with the CBCA, consist of a minimum number of one and a maximum number of ten directors.

     (b) Initial Directors. The number of directors on the board of directors shall
initially be set at two. The initial directors of Amalco immediately following the Amalgamation
shall be the persons whose names and residential addresses appear below:

	 	 	 
	Name	 	Residential Address
	 
	 	 
	•
	 	•
	 
	 	 
	•
	 	•

The initial directors shall hold office until the next annual meeting of the shareholders of
Amalco or until their successors are elected or appointed. The actual number of directors within
the minimum and maximum number set out in section 5.5(a) may be determined from time to time by
resolution of the directors. Any vacancy on the board of directors resulting from an increase in
the number of directors as so determined may be filled by resolution of the directors.

     5.6 Business and Powers. There shall be no restriction on the business which Amalco
is authorized to carry on or on the powers which Amalco may exercise.

     5.7 By-Laws. The by-laws of Amalco, until repealed, amended or altered, shall be the
by-laws of Phelps Dodge Subco.

     5.8 Charging Power. Without restricting any of the powers and capacities of Amalco,
whether under the CBCA or otherwise, Amalco may mortgage, hypothecate, pledge or otherwise create a
security interest in all or any present or future, real or personal, movable or immovable, legal or
equitable property of Amalco (including without limitation its book debts, rights, powers,
franchises and undertaking) for any purpose whatsoever.

ARTICLE VI

DELIVERY OF CASH AND PHELPS DODGE COMMON SHARES

     6.1 Delivery of Cash and Phelps Dodge Common Shares.

     (a) On or before the Effective Time, Phelps Dodge and Phelps Dodge Subco shall ensure the
deposit with the Depositary, for the benefit of the Former Inco Shareholders, of:

     (i) certificates representing that number of Phelps Dodge Common Shares which are to be
delivered to the Depositary by Phelps Dodge on behalf of Phelps Dodge Subco pursuant to
Article III upon the exchange of Inco Common Shares; and

B-9

 

     (ii) sufficient funds for the purpose of paying for the acquisition of Inco Common
Shares pursuant to Article III.

     (b) Upon surrender to the Depositary for cancellation of a certificate which immediately prior
to the Effective Time represented one or more outstanding Inco Common Shares, which were exchanged
in whole or in part for Phelps Dodge Common Shares in accordance with section 3.2, together with
the Letter of Transmittal and such other documents and instruments as would have been required to
effect the transfer of the Inco Common Shares formerly represented by such certificate under the
CBCA and the by-laws of Inco and such additional documents and instruments as the Depositary may
reasonably require, the holder of such surrendered certificate shall be entitled to receive in
exchange therefor, and the Depositary shall deliver to such holder, or in the case of Inco
Restricted Shares, to Amalco pursuant to the relevant plan under which the Inco Restricted Shares
were issued and the agreement evidencing the grant thereof prior to the Effective Time, following
the Effective Time, a certificate representing the Phelps Dodge Common Shares which such holder is
entitled to receive in accordance with section 3.2.

     (c) In the case of Inco Common Shares, other than Inco Restricted Shares and Subject Shares,
upon surrender to the Depositary for cancellation of a certificate which immediately prior to the
Effective Time represented one or more outstanding Inco Common Shares which were exchanged in part
for cash in accordance with section 3.2, together with the Letter of Transmittal and such other
documents and instruments as would have been required to effect the transfer of the Inco Common
Shares formerly represented by such certificate under the CBCA and the by-laws of Inco and such
additional documents and instruments as the Depositary may reasonably require, the holder of such
surrendered certificate shall be entitled to receive in exchange therefor, and the Depositary shall
deliver to such holder following the Effective Time, a cheque in Canadian currency representing the
cash to be paid in connection with the acquisition of such Inco Common Shares.

     (d) After the Effective Time and until surrendered for cancellation as contemplated by section
6.1(a), each certificate which immediately prior to the Effective Time represented one or more Inco
Common Shares (other than Subject Shares) shall be deemed at all times to represent only the right
to receive the entitlements described in this Article VI.

B-10

 

     6.2 Lost Certificates. In the event that any certificate which immediately prior to
the Effective Time represented one or more outstanding Inco Common Shares which were exchanged (in
whole or in part) for Phelps Dodge Common Shares in accordance with section 3.2(a) shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the holder claiming such
certificate to be lost, stolen or destroyed, the Depositary shall deliver in exchange for such
lost, stolen or destroyed certificate, the cash and a certificate representing the Phelps Dodge
Common Shares which such holder is entitled to receive in accordance with section 3.2(a). When
authorizing such delivery of cash and a certificate representing the Phelps Dodge Common Shares
which such holder is entitled to receive in exchange for such lost, stolen or destroyed
certificate, the holder to whom a certificate representing such Phelps Dodge Common Shares is to be
delivered shall, as a condition precedent to the delivery of such cash and Phelps Dodge Common
Shares, give a bond satisfactory to Phelps Dodge and the Depositary in such amount as Phelps Dodge
and the Depositary may direct, or otherwise indemnify Phelps Dodge, Phelps Dodge Subco and the
Depositary in a manner satisfactory to Phelps Dodge and the Depositary, against any claim that may
be made against Phelps Dodge, Phelps Dodge Subco or the Depositary with respect to the certificate
alleged to have been lost, stolen or destroyed and shall otherwise take such actions as may be
required by the by-laws of Amalco.

     6.3 Distributions with Respect to Unsurrendered Certificates. No dividend or other
distribution declared or made after the Effective Time with respect to Phelps Dodge Common Shares
with a record date after the Effective Time shall be delivered to the holder of any unsurrendered
certificate which, immediately prior to the Effective Time, represented outstanding Inco Common
Shares unless and until the holder of such certificate shall have complied with the provisions of
section 6.1 or section 6.2. Subject to applicable law and to section 3.5, at the time of such
compliance, there shall, in addition to the delivery of a certificate representing the Phelps Dodge
Common Shares to which such holder is thereby entitled, be delivered to such holder, without
interest, the amount of the dividend or other distribution with a record date after the Effective
Time theretofore paid with respect such Phelps Dodge Common Shares. No interest shall be payable
with respect to the cash to be paid in connection with the acquisition of Inco Common Shares.

     6.4 Limitation and Proscription. To the extent that a Former Inco Shareholder shall
not have complied with the provisions of section 6.1 or section 6.2 on or before the date which is
six years after the Effective Date (the “Final Proscription Date”), then the Phelps Dodge
Common Shares which such Former Inco Shareholder was entitled to receive shall be automatically
cancelled without any repayment of capital in respect thereof and the certificates representing
such Phelps Dodge Common Shares and the cash shall be delivered to Phelps Dodge by the Depositary
and such Phelps Dodge Common Shares shall be cancelled by Phelps Dodge, and the interest of the
Former Inco Shareholder in such Phelps Dodge Common Shares and the cash shall be terminated as of
such final proscription date.

ARTICLE VII

AMENDMENTS

     7.1 Amendments to Plan of Arrangement.

     (a) Inco reserves the right to amend, modify and/or supplement this Plan of Arrangement at any
time and from time to time prior to the Effective Time, provided that each such amendment,
modification and/or supplement must be (i) set out in writing, (ii) approved by

B-11

 

Phelps Dodge, (iii) filed with the Court and, if made following the Inco Meeting, approved by
the Court and (iv) communicated to Inco Shareholders if and as required by the Court.

     (b) Phelps Dodge reserves the right to amend, modify and/or supplement this Plan of
Arrangement at any time and from time to time prior to the Effective Date as provided for in the
Combination Agreement.

     (c) Any amendment, modification or supplement to this Plan of Arrangement may be (i) proposed
by Inco at any time prior to the Inco Meeting (provided that Phelps Dodge shall have consented
thereto); or (ii) proposed by Phelps Dodge at anytime prior to the Inco Meeting (provided that
Inco, except as provided in section 7.1(b), shall have consented thereto) and in each case with or
without any other prior notice or communication, and if so proposed and accepted by the Persons
voting at the Inco Meeting (other than as may be required under the Interim Order), shall become
part of this Plan of Arrangement for all purposes.

     (d) Any amendment, modification or supplement to this Plan of Arrangement that is approved by
the Court following the Inco Meeting shall be effective only if (i) it is consented to by each of
Inco and Phelps Dodge and (ii) if required by the Court, it is consented to by holders of the Inco
Common Shares voting in the manner directed by the Court.

     (e) Any amendment, modification or supplement to this Plan of Arrangement may be made
following the Effective Time unilaterally by Phelps Dodge, provided that it concerns a matter
which, in the reasonable opinion of Phelps Dodge, is of an administrative nature required to better
give effect to the implementation of this Plan of Arrangement and is not adverse to the financial
or economic interests of any holder of Inco Common Shares or Inco Options at the Effective Time.

ARTICLE VIII

FURTHER ASSURANCES

     8.1 Further Assurances. Notwithstanding that the transactions and events set out
herein shall occur and be deemed to occur in the order set out in this Plan of Arrangement without
any further act or formality, each of the parties to the Combination Agreement shall make, do and
execute, or cause to be made, done and executed, all such further acts, deeds, agreements,
transfers, assurances, instruments or documents as may reasonably be required by any of them in
order further to document or evidence any of the transactions or events set out herein.

* * * *

[the remainder of this page intentionally left blank]

B-12

 

     IN WITNESS WHEREOF,
the parties hereto have caused this Plan of Arrangement to be executed by
their duly authorized respective officers as of •, 2006.

	 	 	 	 	 
	 	PHELPS DODGE

 	 
	 	By:  	 	 
	 	 	 	 
	 	 	Name: •	 	 
	 	 	Title: • 	 	 
	 

	 	 	 	 	 
	 	PHELPS DODGE SUBCO

 	 
	 	By:  	 	 
	 	 	 	 
	 	 	Name: •	 	 
	 	 	Title: • 	 	 
	 

	 	 	 	 	 
	 	INCO

 	 
	 	By:  	 	 
	 	 	 	 
	 	 	Name: •	 	 
	 	 	Title: • 	 	 
	 

B-13

 

EXHIBIT 1

Share Provisions of

Amalco

The rights, privileges, restrictions and conditions attaching to the common shares (each a “Common
Share”) and the Preferred Shares of Amalco are as follows:

1. Common Shares

     (a) Voting Rights

          Except for meetings at which the holders of shares of another class or series of the Amalco’s
capital stock from time to time authorized are entitled to vote separately as a class or series,
the holders of Common Shares shall be entitled to receive notice of, to attend (in person or by
proxy) and be heard, and to vote on the basis of one vote in respect of each such share held, at
all meetings of the shareholders of the Amalco.

     (b) Dividends

     (i) Subject to any preference as to dividends attached to any other class or series of
            shares in the Amalco’s capital stock authorized from time to time and ranking in priority to
the Common Shares as to dividends, the holders of the Common Shares shall be entitled to
receive, and the Amalco shall pay, out of the moneys or property of the Amalco properly
applicable to the payment of dividends, such dividends (if any and in such form) as the
directors of the Amalco (the “Directors”) may in their discretion declare.

     (ii) The Directors may (but need not) determine at any time or from time to time, with
respect to any cash dividend declared payable on the Common Shares, that the holders of the
            shares of such class, or the holders of shares of such class whose addresses, on the books
of the Amalco, are in Canada and/or in specified jurisdictions outside Canada, shall have
the right to elect to receive such dividend in the form of a stock dividend payable in
Common Shares having a value, as determined by the Directors, that is substantially
equivalent, as of a date or a period of days determined by the Directors, to the cash amount
of such dividend, provided that the Directors may (but need not) value the shares to be
issued by way of stock dividend at a discount from the relevant market value thereof of up
to five per cent (5%), and provided further that shareholders shall receive cash in lieu of
any fractional interests in shares to which they would otherwise be entitled unless the
Directors shall otherwise determine. If the Directors shall determine that shareholders are
entitled to fractional interests in shares issued by way of stock dividend, shareholders
shall be entitled to receive dividends in respect of such fractional share interests.

     (c) Liquidation, Dissolution or Winding-up

          Subject to the prior rights of any other class or series of shares in the Amalco’s capital
stock authorized from time to time and ranking in priority to the Common Shares, the holders of the
Common Shares shall, in the event of a distribution of assets of the Amalco among

B(1)-1

 

its shareholders on a liquidation, dissolution or winding-up of the Amalco, whether voluntary
or involuntary, or any other distribution of assets of the Amalco among its shareholders for the
purpose of winding up its affairs, be entitled to receive the remaining property of the Amalco.

     (d) Other Distributions

          The Amalco may issue or distribute securities of the Amalco or of any other body corporate
(including rights, options or warrants to acquire such securities and any securities convertible
into or exchangeable for such securities) or any other property or assets of any kind (including
evidences of indebtedness and any rights, options or warrants to acquire such property or assets),
exclusively to holders of the Common Shares by way of a special distribution or otherwise, as the
Directors in their discretion may declare.

2. Preferred Shares

     (a) The Directors may, at any time and from time to time, issue the Preferred Shares in one or
more series, each series to consist of such number of shares as the Directors determine before
issuance of any shares of such series.

     (b) Subject to the following provisions, and subject to the filing of articles of amendment in
prescribed form and the endorsement thereon of a certificate of amendment, in accordance with the
Canada Business Corporations Act, the Directors may fix from time to time before the issue of
shares of any series, the number of shares that is to comprise such series and the designation,
rights, privileges, restrictions and conditions attaching to such series of Preferred Shares
including, without limitation, the rate or amount of any dividends or the method of calculating any
dividends, the dates of payment of dividends, and any redemption, purchase, conversion or exchange
prices and terms. In addition, the Directors may change the rights, privileges, restrictions and
conditions attaching to any series of Preferred Shares of which no shares have been issued.

     (c) The Preferred Shares of any series may be made convertible into or exchangeable for Common
Shares of the Company or another corporation.

     (d) The Preferred Shares of each series, with respect to the payment of any dividends and any
distribution of assets or return of capital in the event of liquidation, dissolution or winding up
of the Company, rank on a parity with the Preferred Shares of every other series with respect to
priority in the payment of dividends and return of capital in the event of the liquidation,
dissolution or winding-up of the Company.

     (e) Subject to the provisions respecting any particular series and subject to subparagraphs
(f) and (g), the holders of Preferred Shares are not entitled to receive notice of, nor to attend
or vote at meetings of the shareholders of the Company.

     (f) The provisions attaching to the Preferred Shares as a class may be amended or repealed at
any time with such approval as is then required by law to be given by the holders of the Preferred
Shares as a class.

     (g) Subject to the terms of any series of Preferred Shares, the holders of the Preferred
Shares as a class and the holders of shares of any particular series of Preferred Shares are not

B(1)-2

 

entitled to vote separately as a class or series, as the case may be, upon, and are not
entitled to dissent in respect of, any proposal to amend the articles of the Company to:

     (i) increase or decrease any maximum number of authorized shares of such class or
series, or increase any maximum number of authorized shares of a class or series having
rights or privileges equal or superior to the shares of such class or series;

     (ii) effect an exchange, reclassification or cancellation of all or part of the shares
of such class or series; and

     (iii) create a new class or series of shares equal or superior to the shares of such
class or series.

B(1)-3

 

Exhibit
C

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

PHELPS DODGE INCO CORPORATION

(Under Section 807 of the

Business Corporation Law)

     I, [          ], being the [               ] of Phelps Dodge Inco Corporation, a
corporation formed under the laws of the State of New York (the “Corporation”), to effect the
amendment and restatement of the Restated Certificate of Incorporation of the Corporation, do
hereby certify as follows:

     1. The name of the corporation is Phelps Dodge Inco Corporation (the “Corporation”).

     2. The Certificate of Incorporation of the Corporation was filed by the Department of State of
the State of New York on August 10, 1885. Restated Certificates of Incorporation were filed by
such Department on June 16, 1987 and July 13, 1999.

     3. The Restated Certificate of Incorporation of the Corporation, as amended to date, is hereby
further amended as authorized by Section 801 of the Business Corporation Law (a) to change the name
of the Corporation, (b) to increase the authorized capital of the Corporation, (c) to increase the
maximum number of directors of the Corporation from 12 to 15; and (d) to delete as obsolete
provision A.2 regarding the 6.75% Series A Mandatory Convertible Preferred Shares.

     4. The text of the Restated Certificate of Incorporation of the Corporation as amended and
supplemented to date, and as further amended by the filing of this Amended and Restated Certificate
of Incorporation, is hereby amended and restated to read in full as follows:

* * * * *

FIRST: The name of the Corporation is Phelps Dodge Inco Corporation.

SECOND: The objects for which this Corporation is formed are to do any of the things herein set
forth to the same extent as natural born persons might, and in any part of the world and as
principal or agent, to wit: To conduct mining operations of all kinds; to explore for, develop and
deal in, any natural resources of any kind; to purchase, take, hold, sell, convey, lease, explore,
develop, improve or otherwise deal in mining, natural resources, land, town site, building, power,
water and other properties of all forms; to mine, extract or otherwise develop minerals, ores,
metals, oil and other substances of all kinds; to smelt, reduce and otherwise treat minerals, ores,
metals, oil and other substances

C-1

 

of all kinds; to sell the product of all the foregoing operations; to undertake and carry on any
business and operations incidental to such dealings, exploration, development; mining and
treatment.

     To apply for, purchase, or otherwise acquire, and to hold, own, use, operate and to sell,
assign or to otherwise dispose of, to grant licenses in respect to or otherwise turn to account
letters patent and any and all inventions, improvements and processes used in connection with or
secured under letters patent of the United States or elsewhere, or otherwise.

     To build and construct houses, structures, engines, cars, machinery and other equipment, and
mining and metallurgical facilities and plants, including plants for the handling, concentrating,
smelting, reduction and treatment of minerals, ores, metals, oil and other substances of all kinds,
and to operate the same.

     To conduct manufacturing operations of all kinds; to manufacture, purchase or otherwise
acquire, hold, own, mortgage, pledge, sell, assign, transfer or otherwise dispose of, invest, trade
and deal in goods, wares and merchandise and property of all classes and descriptions; to transact
a general mercantile business.

     To act as the agent of others in disposing of their minerals, ores and metals of all kinds or
other substances, and to make contracts with others with reference to handling, smelting, treating
and disposing of their minerals, ores and metals of all kinds and other substances.

     The Corporation may purchase, acquire, hold and dispose of the stocks, bonds and other
evidences of indebtedness of any corporation, domestic or foreign, and issue in exchange therefor
its stock, bonds or other obligations.

     The Corporation may do everything necessary, suitable and proper for the accomplishment of any
of the purposes or the attainment of any of the objects or the furtherance of any of the powers
hereinabove set forth, either alone or in association with other corporations, firms or
individuals, and do every other act or thing incidental or appurtenant to or growing out of or
connected with the aforesaid business or powers, or any part thereof.

THIRD: The total number of shares that the Corporation shall have authority to issue shall be one
billion five hundred and six million (1,506,000,000), consisting of six million (6,000,000)
Preferred Shares having a par value of one dollar per share and one billion five hundred million
(1,500,000,000) Common Shares having a par value of six dollars and twenty-five cents ($6.25) per
share. The designations, relative rights, preferences and limitations of each class of shares of
the Corporation shall be as follows:

C-2

 

A. The Preferred Shares may be issued from time to time in one or more series, in such number, and
with such distinctive serial designations and relative rights, preferences and limitations, as may
be fixed by the Board of Directors. Subject to the limitations set forth herein and any limitations
prescribed by law, the Board of Directors is expressly authorized, prior to issuance of any series
of Preferred Shares, to fix the number of shares included in such series and the designation,
relative rights, preferences and limitations of such series and to file a certificate of amendment
pursuant to Section 805 of the Business Corporation Law or any statute amendatory thereof or
supplemental thereto, establishing or changing the number, designation and relative rights,
preferences and limitations of such series. Pursuant to the foregoing general authority vested in
the Board of Directors, but not in limitation of the powers conferred on the Board of Directors
thereby and by the laws of the State of New York, the Board of Directors is expressly authorized to
determine with respect to each series of Preferred Shares:

(a) the distinctive designation or designations of such series and the number of shares
constituting such series;

(b) the rate or amount and times at which, and the preferences and conditions under which,
dividends shall be payable on shares of such series, the status of such dividends as cumulative or
noncumulative, the date or dates form which dividends, if cumulative, shall accumulate, and the
status of such shares as participating or non-participating after the payment of dividends as to
which such shares are entitled to any preference;

(c) the rights and preferences, if any, of the holders of shares of such series upon the
liquidation, dissolution or winding-up of the affairs of, or upon any distribution of the assets
of, the Corporation, which amount may vary depending upon whether such liquidation, dissolution or
winding-up is voluntary or involuntary and, if voluntary, may vary at different dates, and the
status of the shares of such series as participating or non-participating after the satisfaction of
any such rights and preferences;

(d) the full or limited voting rights, if any, to be provided for shares of such series, in
addition to the voting rights provided by law;

(e) the times, terms and conditions, if any, upon which shares of such series shall be subject to
redemption, including the amount the holders of shares of such series shall be entitled to receive
upon redemption (which amount may vary under different conditions or at different redemption dates)
and the amount, terms, conditions and manner of operation of any purchase, retirement or sinking
fund to be provided for the shares of such series;

(f) the rights, if any, of holders of shares of such series to convert such shares into, or to
exchange such shares for, shares of any other class or classes or of any other series of

C-3

 

the same class, the prices or rates of conversion or exchange, and adjustments thereto, and any
other terms and conditions applicable to such conversion or exchange;

(g) the limitations, if any, applicable while such series is outstanding on the payment of
dividends or making of distributions on, or the acquisition or redemption of, Common Shares or any
other class of share ranking junior, either as to dividends or upon liquidation, to the shares of
such series;

(h) the conditions or restrictions, if any, upon the issue of any additional shares (including
additional shares of such series or any other series or of any other class) ranking on a parity
with or prior to the shares of such series either as to dividends or upon liquidation; and

(i) any other preferences and relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, of shares of such series;

in each case, so far as not inconsistent with the provisions of this Certificate of Incorporation
or the laws of the State of New York as then in effect. All Preferred Shares shall be identical and
of equal rank except in respect to the particulars that may be fixed by the Board of Directors as
provided above, and all shares of each series of Preferred Shares shall be identical and of equal
rank except as to the times from which cumulative dividends, if any, thereon shall be cumulative.
The number of authorized Preferred Shares may be increased or decreased by the affirmative vote of
the holders of a majority of the shares of the Corporation entitled to vote thereon, without any
requirement that such increase or decrease be approved by a class vote on the part of the holders
of the Preferred Shares or any series thereof, or on the part of any other class of stock of the
Corporation, except as may be otherwise required by the laws of the State of New York or provided
in the certificate of amendment establishing the voting rights of any series of Preferred Shares.
The Board of Directors may from time to time amend any of the provisions of any certificate of
amendment establishing any series of Preferred Shares, subject to any class voting rights of the
holders of such shares and subject to the requirements of the laws of the State of New York.

A. 1. Junior Participating Cumulative Preferred Shares

The number, designation, relative rights, preferences and limitations of the Junior
Participating Cumulative Preferred Shares are as follows:

(1) Designation and Number of Shares. 400,000 of the Preferred Shares shall be, and be
designated as, Junior Participating Cumulative Preferred Shares (hereinafter referred to as the
“Junior Preferred Shares”).

(2) Dividends.

C-4

 

A. Subject to the provisions of subclauses B and D of this clause (2), holders of the Junior
Preferred Shares shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends payable in cash on the tenth
day of March, June, September and December in each year (each such date, which is subject to change
pursuant to the provisions of subclause D of this clause (2), being hereinafter referred to as a
“Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a Junior Preferred Share, in an amount per share (rounded to the nearest
cent) equal to the greater of (i) $2.50 per share ($10.00 per annum), and (ii)
subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, other than a dividend payable in Common Shares or a
subdivision of the outstanding Common Shares (by reclassification or otherwise), declared on the
Common Shares since the immediately preceding Quarterly Dividend Payment Date, or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any Junior Preferred Share.
In the event the Corporation shall at any time declare or pay any dividend on Common Shares payable
in Common Shares, or effect a subdivision or combination or consolidation of the outstanding Common
Shares (by reclassification or otherwise than by payment of a dividend in Common Shares) into a
greater or lesser number of Common Shares, then the number 100 (or such number to which it may
previously have been adjusted) in subclause (ii) of the preceding sentence shall be adjusted (or
further adjusted) by multiplying such number by a fraction the numerator of which is the number of
Common Shares outstanding immediately after such event and the denominator of which is the number
of Common Shares that were outstanding immediately prior to such event.

B. Holders of the Junior Preferred Shares shall be entitled to receive such dividends in preference
to and in priority over dividends upon the Common Shares and upon any other shares which are by
their terms junior to the Junior Preferred Shares as to dividends. Junior Preferred Shares shall be
junior as to dividends to any other Preferred Shares which are by their terms senior to the Junior
Preferred Shares as to dividends, and if at any time the Corporation has failed to pay accrued
dividends on any such other Preferred Shares at the time outstanding at the times such dividends
are payable, the Corporation shall not declare or pay any dividends on the Junior Preferred Shares.

C. If at any time the Corporation has failed to pay accrued dividends on any Junior Preferred
Shares at the time outstanding at the times such dividends are payable, the Corporation shall not

(i) declare or pay any dividend on the Common Shares or make any payment on account of, or set
apart money for a sinking or other analogous fund for, the purchase, redemption or other retirement
of any Common Shares or make any distribution in

C-5

 

respect thereof, either directly or indirectly and whether in cash or property or in obligations or
shares of the Corporation (other than in Common Shares),

(ii) purchase any Junior Preferred Shares (except for a consideration payable in Common Shares), or

(iii) permit any corporation or other entity directly or indirectly controlled by the Corporation
to purchase any Common Shares or Junior Preferred Shares,

unless, in the case of any such dividend, payment, distribution, purchase or redemption, all
dividends accrued and payable but unpaid on the Junior Preferred Shares have been or
contemporaneously are declared and paid in full or declared and a sum sufficient for the payment
thereof set aside for such payment.

D. The Corporation shall declare a dividend or distribution on the Junior Preferred Shares as
provided in subclause A of this clause (2) immediately after it declares a dividend or distribution
on the Common Shares (other than a dividend payable in Common Shares); provided that, in the event
no dividend or distribution shall have been declared on the Common Shares during the period between
any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $2.50 per share ($10.00 per annum) on the Junior Preferred Shares shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date. The Board of Directors may change any
of the Quarterly Dividend Payment Dates to a different date to coincide with the payment date for a
dividend or distribution on the Common Shares.

E. Dividends at the $10.00 minimum annual rate shall begin to accrue and be cumulative on
outstanding Junior Preferred Shares from the Quarterly Dividend Payment Date next preceding the
date of issue of such Junior Preferred Shares, unless the date of issue of such shares is prior to
the record date for the first Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is
a Quarterly Dividend Payment Date or is a date after the record date for the determination of
holders of Junior Preferred Shares entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and
be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
accumulate but shall not bear interest. Dividends paid on the shares of Junior Preferred Shares in
an amount less than the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination of holders of
Junior Preferred Shares entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be not more than 50 days prior to the date fixed for the payment thereof.

(3) No Redemption. The Junior Preferred Shares shall not be redeemable.

C-6

 

(4) Liquidation.

A. The liquidation price of the Junior Preferred Shares, in case of the voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, shall be an amount per share equal to
the greater of (i) $100 and ( ii ) an aggregate amount (subject to the provisions
for adjustment hereinafter set forth) equal to 100 times the aggregate per share amount to be
distributed to holders of Common Shares. In the event the Corporation shall at any time declare or
pay any dividend on Common Shares payable in Common Shares, or effect a subdivision or combination
or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment
of a dividend in Common Shares) into a greater or lesser number of Common Shares, then the number
100 (or such number to which it may previously have been adjusted) in subclause (ii) of the
preceding sentence shall be adjusted (or further adjusted) by multiplying such number by a fraction
the numerator of which is the number of Common Shares outstanding immediately after such event and
the denominator of which is the number of Common Shares that were outstanding immediately prior to
such event.

B. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, the holders of Junior Preferred Shares ( i ) shall not be entitled to receive
the liquidation price of such shares held by them until the liquidation price of any other
Preferred Shares which are by their terms senior to the Junior Preferred Shares as to the
distribution of assets on any voluntary or involuntary liquidation of the Corporation shall have
been paid in full and ( ii ) shall be entitled to receive the liquidation price of such
shares held by them in preference to and in priority over any distributions upon the Common Shares
and upon any other shares which are by their terms junior to the Junior Preferred Shares as to the
distribution of assets on any voluntary or involuntary liquidation of the Corporation. Upon payment
in full of the liquidation price to which the holders of Junior Preferred Shares are entitled, the
holders of Junior Preferred Shares will not be entitled to any further participation in any
distribution of assets by the Corporation. If the assets of the Corporation are not sufficient to
pay in full the liquidation price payable to the holders of Junior Preferred Shares, the holders of
all such shares shall share pro rata on a share-by-share basis among all such shares at the time
outstanding.

C. Neither a consolidation or merger of the Corporation with or into any other corporation, nor a
merger of any other corporation with or into the Corporation, nor a sale or transfer of all or any
part of the Corporation’s assets for cash or securities shall be considered a liquidation,
dissolution or winding-up of the Corporation within the meaning of this clause (4).

(5) Convertibility . The Junior Preferred Shares shall not be convertible into any other
securities of the Corporation.

C-7

 

(6) Other Shares . The Junior Preferred Shares do not restrict in any way the issuance of
any additional shares (including additional Junior Preferred Shares) ranking on a parity with or
prior to the Junior Preferred Shares either as to dividends or upon liquidation or any additional
Common Shares or other shares that may be entitled to vote with the Junior Preferred Shares. Any
Junior Preferred Shares which are acquired by the Corporation and subsequently cancelled by the
Board of Directors shall have the status of authorized but unissued Preferred Shares, without
designation as to series, subject to reissuance by the Board of Directors as Junior Preferred
Shares or of any one or more series.

(7) Voting Rights . The holders of Junior Preferred Shares shall have the following voting
rights:

A. Subject to the provisions for adjustment hereinafter set forth, each Junior Preferred Share
shall entitle the holder thereof to 100 votes on all matters submitted to a vote of shareholders of
the Corporation and the holders of Junior Preferred Shares and the holders of Common Shares shall
vote together as one class on all such matters. In the event the Corporation shall at any time
declare or pay any dividend on Common Shares payable in Common Shares, or effect a subdivision or
combination or consolidation of the outstanding Common Shares (by reclassification or otherwise
than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares,
then the number 100 in the preceding sentence (or such number to which it may previously have been
adjusted) shall be adjusted (or further adjusted) by multiplying such number by a fraction the
numerator of which is the number of Common Shares outstanding immediately after such event and the
denominator of which is the number of Common Shares that were outstanding immediately prior to such
event.

B. Except as otherwise provided herein or required by law, the holders of Junior Preferred Shares
shall have no voting rights for taking any corporate action.

(8) Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation,
merger, combination or other transaction in which the Common Shares are exchanged for or changed
into other stock or securities, cash and/or any other property, then in any such case (subject to
the provision for adjustment hereinafter set forth) each Junior Preferred Share shall at the same
time be similarly exchanged for or changed into 100 times the aggregate per share amount of stock,
securities, cash and/or any other property (payable in kind), as the case may be, for which or into
which each Common Share is exchanged or changed. In the event the Corporation shall at any time
declare or pay any dividend on Common Shares payable in Common Shares, or effect a subdivision or
combination or consolidation of the outstanding Common Shares (by reclassification or otherwise
than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares,
then the number 100 in the preceding sentence (or such number to which it may previously have been
adjusted) shall be adjusted (or further adjusted) by multiplying such number by a fraction the
numerator of which is the number

C-8

 

of Common Shares outstanding immediately after such event and the denominator of which is the
number of Common Shares that were outstanding immediately prior to such event.

(9) Definition of “Common Shares” . As used in this Paragraph A.1 of this Certificate of
Incorporation, the term “Common Shares” shall mean the Common Shares of the Corporation having a
par value of six dollars and twenty-five cents ($6.25) per share, as such shares may be changed
through any subdivision, combination or consolidation thereof.

B. Except as otherwise provided by the laws of the State of New York or by any certificate of
amendment filed pursuant to Paragraph A of this Article THIRD, setting forth the relative rights,
preferences and limitations of any series of Preferred Shares, the entire voting power of the
shares of the Corporation for the election of Directors and for all other purposes, as well as all
other rights appertaining to shares of the Corporation, shall be vested exclusively in the Common
Shares. Each Common Share shall have one vote upon all matters to be voted on by the holders of the
Common Shares, and shall be entitled to participate equally in all dividends payable with respect
to the Common Shares and to share ratably, subject to the rights and preferences of any such
Preferred Shares, in all assets of the Corporation in the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of the Corporation.

C. No present or future holder of any shares of the Corporation, whether heretofore or hereafter
issued, shall have any preemptive rights with respect to ( a ) any shares of the
Corporation or ( b ) any other securities of the Corporation (including bonds and
debentures) convertible into or carrying rights or options to purchase any shares of the
Corporation.

FOURTH: The office of the Corporation shall be located in the City of New York, County of New
York, State of New York. CT Corporation System, 1633 Broadway, New York, New York 10019, is
designated as the registered agent of the Corporation upon whom process in any action or proceeding
against it may be served. The Secretary of State of the State of New York is also designated as the
agent of the Corporation upon whom process in any action or proceeding against it may be served.
The address to which the Secretary of State shall mail a copy of process in any action or
proceeding against the Corporation which may be served upon him is: Phelps Dodge Inco Corporation,
c/o CT Corporation System, 1633 Broadway, New York, New York 10019.

FIFTH: The duration of the Corporation shall be perpetual.

SIXTH: The number of the Corporation’s Directors shall not be less than nine nor more than
fifteen, provided that whenever the holders of any one or more series of Preferred Shares of the
Corporation become entitled to elect one or more Directors to the Board of Directors in accordance
with any applicable provisions of this Certificate of

C-9

 

Incorporation, such maximum number of Directors shall be increased automatically by the number of
Directors such holders are so entitled to elect. Such increase shall remain in effect until the
right of such holders to elect such Director or Directors shall cease and until the Director or
Directors elected by such holders shall no longer hold office. No Director may be removed without
cause by shareholders of the Corporation.

SEVENTH: The personal liability of the Directors of the Corporation for any breach of duty in such
capacity is hereby eliminated and limited to the fullest extent permitted by Section 402(b) of the
New York Business Corporation Law, as the same may be amended from time to time.

* * * * *

     5. The majority of the stockholders of the Corporation, at meeting duly called, approved said
restatement and amendment in accordance with the applicable provisions of section 803 of the
Business Corporation Law of the State of New York.

     IN WITNESS WHEREOF, I have executed this certificate, and affirm that the statements made
herein are true under penalties of perjury, on this [     ] day of [     ], 2006.

C-10

 

Exhibit D

FIFTH AMENDING AGREEMENT

THIS FIFTH AMENDING AGREEMENT made the 25th day of June, 2006

B E T W E E N:

	 	 	 
	 

	 	INCO LIMITED,
	 

	 	a corporation existing under the laws
	 

	 	of Canada,
	 
	 	 
	 

	 	(hereinafter called the “Offeror”),
	 
	 	 
	 

	 	                    - and -
	 
	 	 
	 

	 	FALCONBRIDGE LIMITED,
	 

	 	a corporation existing under the laws
	 

	 	of the Province of Ontario,
	 
	 	 
	 

	 	(hereinafter called the
“Company”).

     WHEREAS the Offeror mailed the Offer dated October 24, 2005 to purchase all outstanding Common
Shares of the Company in accordance with Section 1.1(b) of the Support Agreement dated October 10,
2005 entered into between the Offeror and the Company, as amended by Amending Agreement dated
January 12, 2006, Second Amending Agreement dated February 20, 2006, Third Amending Agreement dated
March 21, 2006 and Fourth Amending Agreement dated May 13, 2006 (as amended from time to time, the
“Support Agreement”);

     AND WHEREAS the Offeror has entered into a combination agreement, dated as of June 25, 2006
(the “Combination Agreement”), with Phelps Dodge Corporation (“Phelps Dodge”), which
provides, among other things, for the amalgamation of the Offeror with a newly-formed, wholly-owned
subsidiary of Phelps Dodge pursuant to a plan of arrangement;

     AND WHEREAS, the board of directors of the Offeror, upon consultation with its financial and
legal advisors, has unanimously approved the terms of the Combination Agreement and the
transactions contemplated thereby;

D-1

 

     AND WHEREAS the board of directors of the Offeror has determined, after receiving financial
and legal advice, that it would be advisable and in the best interests of the Offeror and its
shareholders to pursue the acquisition of the Company as contemplated by the Support Agreement by
amending the Offer in accordance with the amended terms and conditions contained herein (the
“Amended Offer”);

     AND WHEREAS the Board of Directors has determined, after receiving financial and legal advice,
that it would be advisable and in the best interests of the Company for the Board of Directors to
support the Combination Agreement and the Amended Offer and to recommend acceptance of the Amended
Offer to Shareholders in writing and for the Company to continue to co-operate with the Offeror and
to use its reasonable best efforts to permit the Amended Offer to be successful;

     AND WHEREAS the Offeror proposes to extend the expiry time of the Offer;

     NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the mutual covenants and
agreements hereinafter set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each party, the parties hereby covenant and agree
as follows:

     1. Amendments to the Support Agreement

     (a) Section 1.1(a) of the Support Agreement is hereby amended by:

     (i) deleting the reference to Cdn. $51.17 where it appears in clause (i) of Section
1.1(a) and substituting therefor a reference to Cdn. $53.83;

     (ii) deleting the reference to Cdn. $4,786,678,875 where it appears in Section 1.1(a)
and substituting therefor a reference to Cdn. $6,700,377,653;

     (iii) deleting the reference to 0.6927 of a common share of the Offeror where it
appears in clause (ii) of Section 1.1(a) and substituting therefor a reference to 0.82419
of a common share of the Offeror; and

     (iv) deleting the reference to 200,657,578 Offeror Shares where it appears in Section
1.1(a) and substituting therefor a reference to 213,171,558 Offeror Shares.

     Accordingly, the first sentence of Section 1.1(a) shall now read as follows:

“The Offeror shall promptly publicly announce its intention to
make an offer and, subject to the terms and conditions set forth
below, either make, or cause a directly or indirectly wholly-owed
subsidiary of the Offeror (the “Acquisition Company”) to make,
either alone, or jointly

D-2

 

with the Offeror, an offer (the “Offer”) to purchase all
outstanding Common Shares (other than those owned directly or
indirectly by the Offeror), including Common Shares issuable (and
that, prior to the Expiry Time (as defined below) are actually
issued) upon the conversion, exchange or exercise of any
securities of the Company that are convertible into or
exchangeable or exercisable for Common Shares (the “Convertible
Securities”) at a price per Common Share of: (i) Cdn. $53.83 in
cash; or (ii) 0.82419 of a common share of the Offeror (the
“Offeror Shares”) and Cdn. $0.05 in cash, at the election of the
holder thereof, but subject to an aggregate maximum of Cdn.
$6,700,377,653 in cash (the “Cash Maximum”) and an aggregate
maximum of 213,171,558 Offeror Shares (the “Share Maximum”) in
accordance in all material respects with all applicable securities
Laws (as defined in Schedule B to this Agreement) in Canada and
the United States (collectively, “Securities Laws”).”

     (b) Section 1.4 of the Support Agreement is hereby amended by deleting each reference to
0.6934 where it appears in Section 1.4 and substituting therefor a reference to 0.8250.

     (c) Section 5.1 of the Support Agreement is hereby amended by adding at the end of such
Section the following new paragraph (i):

"(i) Subject to the conditions herein provided, the Company agrees
to use its reasonable best efforts to obtain all necessary
waivers, consents, rulings, orders and approvals, and to effect
all necessary registrations and filings, including, but not
limited to, filings under applicable Laws and submissions of
information requested by Governmental Entities with respect to the
transactions contemplated by the Combination Agreement. The
Company shall use its reasonable best efforts to co-operate with
the Offeror in taking such actions.”

     (d) Article 5 of the Support Agreement is amended by adding the following subsections (j) to
Section 5.1:

(j) The Company will furnish to the Offeror all information
concerning it and its shareholders as may be required (and, in the
case of its shareholders, available to it) for the preparation,
filing and mailing of the Notice of

D-3

 

Variation (as hereinafter defined), the Inco Proxy Circular (as
defined in the Combination Agreement), the approval by the
shareholders of the Offeror of the transactions contemplated by
the Combination Agreement, the making of the regulatory filings
referred to in Section 7.5 of the Combination Agreement or
otherwise required to consummate the transactions contemplated
thereby, and the obtaining of all such regulatory approvals,
provided that the Offeror acknowledges that Falconbridge may
restrict access to any of its information to the extent that any
Law (including Laws relating to the exchange of information and
all applicable antitrust, competition and similar Laws, and
attorney-client and other privileges) applicable to the Company or
any confidentiality agreement (other than with Phelps Dodge and
other than in connection with any take-over bid for the Company)
requires such party or its subsidiaries to restrict or prohibit
such access. The Company represents that none of the Company
information (“Falconbridge Information”) to be supplied by it in
writing by the Company or its Subsidiaries for inclusion in the
Inco Proxy Circular will, at the time of mailing of the Inco Proxy
Circular contain any untrue statement of a material fact or omit
to state a material fact required to be stated in any such
document or necessary in order to make any information so
furnished for use in any such document not misleading in the light
of the circumstances in which it is furnished; provided that the
Offeror has complied with section 7(ii) of the Fifth Amending
Agreement dated June 25, 2006 entered into between the Offeror and
the Company and provided further that if the Company notifies the
Offeror pursuant to the following sentence that it has become
aware that the Falconbridge Information in the Inco Proxy Circular
(as defined in the Combination Agreement) contains any untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
contained therein not misleading in light of the circumstances in
which they are made, or that the Falconbridge Information in the
Inco Proxy Circular must otherwise be amended or supplemented, the
Offeror prepares and files a supplement or amendment to the Inco
Proxy Circular to correct such information in compliance with
applicable Securities Laws. The Company shall promptly notify the
Offeror if, at any

D-4

 

time before the Effective Time, it becomes aware that any
Falconbridge Information supplied in writing by the Company or its
Subsidiaries for inclusion in the Inco Proxy Circular contains any
untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the
statements contained therein not misleading in light of the
circumstances in which it is made, or that the Falconbridge
Information must otherwise be amended or supplemented and, in such
event, shall cooperate with the Offeror in the preparation of a
supplement or amendment to the Inco Proxy Circular.

     (e) Section 5.2(g) of the Support Agreement is amended by (i) deleting the reference to seven
business days where it appears in subparagraph (iii) and substituting therefor a reference to 10
business days; (ii) inserting at the beginning of subparagraph (v) thereof “if the Company proposes
to enter into a definitive agreement with respect to a Superior Proposal after complying with this
Section 5.2(g)”; (iii) inserting at the beginning of subparagraph (vi) thereof “in the case of (v)
above”; and (iv) adding as subparagraph (vii) “if the Company proposes to approve or recommend an
Acquisition Proposal in the circumstances where Section 5.3(d)(ii) is applicable, the Company has
previously, or concurrently will have, paid to the Offeror the Offeror Enhanced Expense Payment”
and accordingly, Section 5.2(g) shall now read as follows:

(g) The Company shall not accept, approve or recommend, nor enter
into any agreement relating to, an Acquisition Proposal (other
than a confidentiality agreement contemplated by Section 5.2(c)(D)
above) unless:

(i) the Acquisition Proposal constitutes a Superior Proposal;

(ii) the Company has complied with Sections 5.2(b) through 5.2(h),
inclusive;

(iii) the Company has provided the Offeror with notice in writing
that there is a Superior Proposal together with all documentation
related to and detailing the Superior Proposal (including a copy
of the confidentiality agreement between the Company and the
Person making the Superior Proposal if not previously delivered)
at least 10 business days prior to the date on which the Board of
Directors proposes to accept, approve, recommend or to enter into
any agreement relating to such Superior Proposal;

D-5

 

(iv) 10 business days shall have elapsed from the later of the
date the Offeror received notice of the Company’s proposed
determination to accept, approve, recommend or to enter into any
agreement relating to such Superior Proposal, and the date the
Offeror received a copy of the written proposal in respect of the
Acquisition Proposal and, if the Offeror has proposed to amend the
terms of the Offer in accordance with Section 5.2(h), the Board of
Directors (after receiving advice from its financial advisors and
outside legal counsel) shall have determined in good faith that
the Acquisition Proposal is a Superior Proposal compared to the
proposed amendment to the terms of the Offer by the Offeror;

(v) if the Company proposes to enter into a definitive agreement
with respect to a Superior Proposal after complying with this
Section 5.2(g), the Company concurrently terminates this Agreement
pursuant to Section 6.1(k);

(vi) in the case of (v) above, the Company has previously, or
concurrently will have, paid to the Offeror the Company
Termination Payment; and

(vii) if the Company proposes to approve or recommend an
Acquisition Proposal in the circumstances where Section 5.3(d)(ii)
is applicable, the Company has previously, or concurrently will
have, paid to the Offeror the Offeror Enhanced Expense Payment.

     (f) Section 6.1(g) is hereby amended by deleting Section 6.1(g) in its entirety and
substituting the following therefor:

“by the Company, if (i) the Offeror has not complied in all
material respects with its covenants or obligations under this
Support Agreement or (ii) any representation or warranty of the
Offeror set out in Schedule B to this Support Agreement (without
giving effort to any materiality (including the word “material”)
or “Material Adverse Effect” qualification) shall have been at
October 10, 2005 untrue or incorrect or shall have become untrue
or incorrect at any time prior to the Expiry Time and such untrue
or incorrect representation or warranty is not curable or, if
curable, is not cured by the earlier of such date which

D-6

 

is 30 days from the date of notice of such breach and Expiry Time,
except, in each case, for any untrue or incorrect representations
or warranties which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect with
respect to the Offeror.”

     (g) Section 6.1(h) is hereby amended by deleting Section 6.1(h) in its entirety and
substituting the following therefor:

“by the Offeror, if (i) the Company has not complied in all
material respects with any of its covenants or obligations under
this Support Agreement; or (ii) any representation or warranty of
the Company set out in Schedule C to this Support Agreement
(without giving effort to any materiality (including the word
“material”) or “Material Adverse Effect” qualification) shall have
been at October 10, 2005 untrue or incorrect of shall have become
untrue or incorrect at any time prior to the Expiry Time and such
untrue or incorrect representation or warranty is not curable or,
if curable, is not cured by the earlier of such date which is 30
days from the date of notice of such breach and the Expiry Time,
except, in each case for any untrue or incorrect representations
or warranties which, individually or in the aggregate, would not,
or would not reasonably be expected to, have a Material Adverse
Effect with respect to the Company or would not, or would not
reasonably be expected to, prevent or materially delay the
completion of the Offer prior to the Expiry Time or the completion
of a Contemplated Transaction, including any amalgamation of the
Offeror and the Company under a Subsequent Acquisition
Transaction.”

     (h) Section 6.4 of the Support Agreement is hereby amended by deleting Section 6.4 in its
entirety and substituting the following therefor:

“For greater certainty, the parties agree that the compensation or
damages to be received pursuant to Section 5.3 of this Agreement
is the sole remedy in compensation or damages of the party
receiving such payment. In the event of termination of this
Agreement as provided in Section 6.1, this Agreement shall be of
no further force or effect, except that (i) for greater certainty,
Sections 1.3, 5.3 and 6.4 shall survive termination of this

D-7

 

Agreement; and (ii) nothing herein shall relieve or have the
effect of relieving any party in any way from liability for
damages incurred or suffered by a party as a result of an
intentional or wilful breach of this Agreement. Nothing herein
shall preclude a party from seeking injunctive relief to restrain
any breach or threatened breach of the covenants or agreements set
forth in this Agreement or otherwise to obtain specific
performance of any such covenants or agreements, without the
necessity of posting bond or security in connection therewith.”

     (i) Section 7.8 of the Support Agreement is hereby amended by adding to such section the
following definitions:

"Combination Agreement” means the Combination Agreement, dated as
of June 25, 2006, between the Offeror and Phelps Dodge, as the
same may be amended from time to time in accordance with its
terms.”

"Phelps Dodge” means Phelps Dodge Corporation.

     2. Public Announcement of Fifth Amending Agreement. Each of the Offeror and the
Company agrees that, promptly after the entering into of this Agreement, it shall issue a press
release announcing the entering into of this Agreement and, in the case of the Offeror, its
intention to make the Amended Offer and consummate the transactions contemplated by the Combination
Agreement, which press release shall, in each case, be satisfactory in form and substance to the
other party acting reasonably.

     3. Amended Offer. The Offeror shall vary the Offer in accordance with the terms
contained in Section 1 of this Agreement and shall mail the Amended Offer by way of a notice of
variation of the Offer (the “Notice of Variation”) in accordance in all material respects
with applicable Securities Laws to all registered shareholders as soon as reasonably practicable.
Prior to printing the Notice of Variation, the Offeror shall provide the Company with an
opportunity to review and comment on it, recognizing that whether or not such comments are
appropriate will be determined by the Offeror, acting reasonably.

     4. Company Approval of the Amended Offer. The Company represents and warrants to and
in favour of the Offeror, and acknowledges that the Offeror is relying upon such representations in
entering into this Agreement, that as of the date hereof:

     (a) The Board of Directors, upon consultation with its financial and legal advisors, has
unanimously determined to support the transactions contemplated by the Support Agreement, as
amended by this Agreement, and the Combination Agreement;

D-8

 

     (b) CIBC World Markets Inc. has delivered an oral opinion to the Board of Directors to the
effect that the consideration to be received under the Amended Offer is fair from a financial point
of view to all Shareholders (other than the Offeror);

     (c) the Board of Directors, upon consultation with its financial and legal advisors, has
unanimously determined that the price offered under the Amended Offer is fair from a financial
point of view to all Shareholders (other than the Offeror) and that it is in the best interests of
the Company for the Amended Offer to be made and the Board of Directors to support it and,
accordingly, has unanimously approved the entering into of this Agreement and the making of a
recommendation that Shareholders (other than the Offeror) accept the Amended Offer. Each member of
the Board of Directors has agreed to support the Amended Offer and has agreed that the press
release to be issued by the Offeror announcing the Amended Offer may so state and that references
to such agreement may be made in the Amended Offer, the Notice of Variation and any other documents
relating to the Offer; provided, however, that references herein to the unanimous determination and
approval of the Board of Directors and to the agreement of each of the Directors shall not include
Directors who have declared a conflict of interest and have not participated in any consideration
of the Offer; and

     (d) the Company shall prepare and make available for distribution contemporaneously and
together with the Notice of Variation, in both the English and French languages as circumstances
may require, sufficient copies of a notice of change to its directors’ circular relating to the
Amended Offer (the “Notice of Change”), prepared in all material respects in accordance
with all applicable Securities Laws, which shall reflect the foregoing determinations and
recommendation, and the Company shall take all other reasonable action to support the Offer. Prior
to printing the Notice of Change, the Company shall provide the Offeror with an opportunity to
review and comment on it, recognizing that whether or not such comments are appropriate will be
determined by the Company, acting reasonably. The Company shall file the Notice of Change and any
other documents required by all applicable Securities Laws in connection with the Notice of Change
with applicable securities regulatory authorities within the times and in the manner required by
all applicable Securities Laws.

     5. Confirmation of Support Agreement. The Offeror and the Company hereby confirm that
the Support Agreement remains in full force and effect, unamended except as provided for in this
Agreement.

     6. Consistency with Support Agreement. The Company acknowledges to the Offeror that
the entry by the Offeror into the Combination Agreement and the performance by the Offeror of its
obligations thereunder in accordance with the terms of the Combination Agreement do not constitute
a breach by the Offeror of its obligations under the Support Agreement. The Offeror acknowledges
to the Company that the entry by the Company into a cooperation agreement with Phelps Dodge
contemplated by the Combination Agreement and the performance by the Company of its obligations

D-9

 

thereunder in accordance therewith do not constitute a breach by the Company of its
obligations under the Support Agreement. Each of the Company and the Offeror (i) represents to the
other that it is not aware of: (A) any default or breach by the other of any of the other’s
covenants or obligations under the Support Agreement or (B) any representations or warranties of
the other in the Support Agreement which were as at October 10, 2005, or have become, untrue or
incorrect, including any default, breach, untruth or incorrectness that would entitle it to
terminate the Support Agreement whether before or after notice or failure to cure; and (ii)
expressly waives and hereby releases the other from all claims it may have with respect to any
possible default or breach of the other’s covenants under the Support Agreement in existence on or
prior to the date hereof and any untrue or incorrect representation or warranty by the other under
the Support Agreement on or prior to the date hereof, which in any case was known to it on the date
hereof.

     7. Cooperation by Inco. Until the Company is a subsidiary of the Offeror: (i) the
Offeror shall consult with the Company in advance prior to entering into any amendment to the
Combination Agreement with Phelps Dodge; and (ii) the Company shall be given an opportunity to
review and comment upon the Inco Proxy Circular prior to mailing, recognizing that whether or not
such comments are appropriate will be determined by the Offeror, acting reasonably.

     8. Support Agreement Definition. For greater certainty, the Company agrees that the
definition of “Support Agreement” in the glossary of the Offer may be amended by the Offeror by
inserting after the date October 10, 2005 the words “as the agreement may be amended by Inco and
Falconbridge from time to time”.

     9. Counterparts. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original and all of which taken together shall be deemed to
constitute one and the same instrument, and it shall not be necessary in making proof of this
Agreement to produce more than one counterpart.

     IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the date first above
written, by the duly authorized representatives of the parties hereto.

D-10

 

IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the date first above
written, by the duly authorized representatives of the parties hereto.

	 	 	 	 	 
	 
	 	 	 	 
	 	 	INCO LIMITED
	 
	 	 	 	 
	 

	 	By:	 	
	 

	 	 	 	 
	 

	 	Name:
	 	
	 

	 	Title:
	 	
	 
	 	 	 	 
	 

	 	By:	 	
	 

	 	 	 	 
	 

	 	Name:
	 	
	 

	 	Title:
	 	
	 

	 	 	 	
	 
	 	 	 	 
	 	 	FALCONBRIDGE LIMITED
	 
	 	 	 	 
	 

	 	By:	 	
	 

	 	 	 	 
	 

	 	Name:
	 	
	 

	 	Title:
	 	
	 
	 	 	 	 
	 

	 	By:	 	
	 

	 	 	 	 
	 

	 	Name:
	 	
	 

	 	Title:
	 	

D-11

 

Exhibit E

COOPERATION AGREEMENT

     This COOPERATION AGREEMENT is made and entered into as of June 25, 2006, between Phelps Dodge
Corporation, a New York corporation (“Phelps Dodge”), and Falconbridge Limited, a
corporation organized and existing under the laws of the Province of Ontario
(“Falconbridge”).

RECITALS

     A. Falconbridge and Inco Limited, a corporation organized and existing under the laws of
Canada (“Inco”), are party to a Support Agreement dated October 10, 2005 and amended on
January 12, 2006, February 20, 2006, March 21, 2006, May 13, 2006 (as further amended on the date
hereof, and as may be further amended from time to time, the “Support Agreement”), which
agreement contemplates the acquisition by Inco of all of the outstanding shares of Falconbridge on
the terms set forth therein.

     B. Phelps Dodge and Inco have entered into a Combination Agreement, dated as of the date
hereof (as may be amended from time to time, the “Combination Agreement”), providing that
subject to the terms and conditions of such agreement, Phelps Dodge and Inco would implement a plan
of arrangement pursuant to which a wholly-owned subsidiary of Phelps Dodge would acquire all of the
outstanding common shares of Inco, and the shareholders of Inco immediately prior to the
effectiveness of the Arrangement would receive a combination of shares of common stock of Phelps
Dodge and cash as further described in the Combination Agreement and the plan of arrangement (the
“Plan of Arrangement”) attached thereto as Exhibit B.

     C. On the date hereof, Falconbridge and Inco have amended the Support Agreement to provide,
among other things, for an increase in the amount of the Offer described therein (as so increased,
the “Revised Offer”).

     D. In order to assist Inco to fund the Revised Offer, Phelps Dodge and Inco have entered into
a note purchase agreement, dated as of the date hereof (the “Note Purchase Agreement”)
pursuant to which, on the terms and subject to the conditions set forth therein, Phelps Dodge has
agreed to purchase convertible note(s) of Inco in an aggregate principal amount of up to
$3,000,000,000.

     E. In order to facilitate the consummation of the transactions contemplated by the Combination
Agreement and the Support Agreement, and as a condition to Phelps Dodge’s willingness to enter into
the Note Purchase Agreement and to Inco’s agreeing to the Revised Offer, Phelps Dodge and
Falconbridge wish to enter into this Agreement.

     NOW, THEREFORE, in consideration of the foregoing and of the covenants, promises and
representations set forth herein, and for other good and valuable

E-1

 

consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:

ARTICLE I

COVENANTS

     1.1. Confidentiality. The parties acknowledge that Falconbridge and Phelps Dodge have
previously executed reciprocal confidentiality agreements, each dated as of June 12, 2006 (the
“Confidentiality Agreements”), which Confidentiality Agreements will continue in full force
and effect in accordance with their respective terms.

     1.2. Access to Information. Each of Phelps Dodge and Falconbridge will (and will
cause each of its Subsidiaries to) afford the other party and its accountants, counsel and other
representatives reasonable access during normal business hours, upon reasonable notice, to its
properties, books, records, contracts and personnel during the period prior to the Effective Time
to obtain all information concerning its business, properties, results of operations and personnel,
as may be reasonably requested. No information or knowledge obtained by any party in any
investigation pursuant to this Section 1.2 will affect or be deemed to modify any representation or
warranty contained herein. Notwithstanding the foregoing, either party may restrict the foregoing
access to the extent that any Law (including Laws relating to the exchange of information and all
applicable antitrust, competition and similar Laws, and attorney-client and other privileges)
applicable to such party or any confidentiality agreement (other than with Inco or other than in
connection with a takeover bid for Falconbridge) requires such party or its Subsidiaries to
restrict or prohibit such access. The parties will hold any information obtained pursuant to this
Section 1.2 in confidence in accordance with, and otherwise subject to, the provisions of the
Confidentiality Agreement.

     1.3. Cooperation in Filings. Subject to the exceptions set out in Section 1.2,
Falconbridge shall furnish to Phelps Dodge all information concerning it and its shareholders as
may be required (and, in the case of its shareholders, available to it) for the preparation, filing
and mailing of the Phelps Dodge Proxy Statement, the approval by the shareholders of Phelps Dodge
of the transactions contemplated by the Combination Agreement, the making of the regulatory filings
referred to in Section 7.5 of the Combination Agreement or otherwise required to consummated the
transactions contemplated thereby, and the obtaining of all such regulatory approvals.
Falconbridge shall promptly notify Phelps Dodge if, at any time before the Effective Time, it
becomes aware that the Falconbridge Information (as defined herein) in the Phelps Dodge Proxy
Statement contains any untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements contained therein not misleading
in light of the circumstances in which they are made, or that the Falconbridge Information in the
Phelps Dodge Proxy Statement must otherwise be amended or

E-2

 

supplemented and, in such event, shall cooperate with Phelps Dodge in the preparation of a
supplement or amendment to the Phelps Dodge Proxy Statement.

     1.4. Public Announcements. Falconbridge and Phelps Dodge shall cooperate to develop a
joint communications plan along with Inco relating to the transactions contemplated hereby and by
the Support Agreement and the Combination Agreement. Each of Phelps Dodge and Falconbridge shall
use its reasonable best efforts (i) to ensure that all press releases and other public
statements made by it with respect to this Agreement or the transactions contemplated hereby or by
the Support Agreement or the Combination Agreement shall be consistent with such joint
communications plan, and (ii) except where the circumstances make it impractical or prompt
disclosure is required by applicable law, to consult with the other before issuing any press
release or, to the extent practical, otherwise making any public statement with respect to this
Agreement or the transactions contemplated hereby or by the Support Agreement or the Combination
Agreement. Except in respect of any announcement required by applicable Law, neither Falconbridge
nor Phelps Dodge shall issue any press release or otherwise make any public statement or disclosure
concerning the other party or the other party’s business, financial condition or results of
operations without the consent of such other party, which consent shall not be unreasonably
withheld or delayed.

     1.5. Cooperation by Phelps Dodge. Until Falconbridge is a subsidiary of Inco:
(i) Phelps Dodge shall consult with Falconbridge prior to entering into any amendment to
the Combination Agreement with Inco; and (ii) Falconbridge shall be given an opportunity to
review and comment upon the Phelps Dodge Proxy Statement prior to mailing, recognizing that whether
or not such comments are appropriate will be determined solely by Phelps Dodge.

     1.6. Certain Filings. Without the prior written consent of Phelps Dodge, Falconbridge
shall not and shall not permit its Subsidiaries to file any registration statement under the 1933
Act or an amendment to any 1933 Act registration statement (other than amendments to Falconbridge’s
currently effective S-8 registration statements that may be necessary or advisable pursuant to
applicable Securities Laws).

ARTICLE II

REPRESENTATIONS AND WARRANTIES

     2.1. Representations and Warranties of Falconbridge. Falconbridge represents and
warrants to Phelps Dodge, as of the date hereof, as follows:

     (a) Falconbridge has all necessary corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution, delivery and performance by
Falconbridge of this Agreement has been duly and validly authorized by all necessary corporate
action on the part of Falconbridge, and no other

E-3

 

corporate proceedings on the part of Falconbridge are necessary to authorize this Agreement,
or to allow Falconbridge to perform its obligations hereunder. This Agreement has been duly and
validly executed and delivered by Falconbridge and, assuming the due authorization, execution and
delivery by Phelps Dodge, constitutes a valid, legal and binding obligation of Falconbridge,
enforceable against Falconbridge in accordance with its terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar Laws, now or hereafter in effect, affecting creditors’ rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of equitable relief
may be subject to equitable defenses and to the discretion of the court before which any proceeding
may be brought.

     (b) The execution, delivery and performance by Falconbridge of this Agreement and the
performance of its obligations hereunder do not and will not (i) contravene, conflict with
or result in a violation or breach of any provision of the Articles of Incorporation, By-laws and
other organizational documents of Falconbridge or the equivalent organizational documents of any of
Falconbridge’s material Subsidiaries, (ii) contravene, conflict with or result in a
violation or breach of any provisions of any Law applicable to Falconbridge or any of its
Subsidiaries or by which its or any of their respective properties is bound or affected,
(iii) require any consent or other action by any Person under, constitute a default (or an
event that, with or without notice or lapse of time or both, would constitute a default) under, or
cause or permit the termination, amendment, acceleration, triggering or cancellation or other
change of any right or obligation or the loss of any benefit to which Falconbridge or any of its
Subsidiaries is entitled under (A) any provision of any agreement, commitment, contract,
note, lease, or other instrument binding upon Falconbridge or any of its Subsidiaries or
(B) any license, permit, franchise, certificate, approval or other similar authorization (a
“Permit”) held by, or affecting, or relating in any way to, the assets or business of,
Falconbridge or any of its Subsidiaries, or (iv) result in the creation or imposition of
any Lien on any asset of Falconbridge or any of its Subsidiaries, other than such exceptions in the
case of clause (ii), (iii) or (iv) as would not, individually or in the aggregate, affect the
ability of Falconbridge to perform its obligations or the rights of Phelps Dodge hereunder.

     (c) The execution, delivery and performance by Falconbridge of this Agreement and the
performance by Falconbridge of its obligations hereunder do not, and shall not, require any
approval, action by or in respect of, filing with or notification to, any Governmental Entity, to
be made or obtained by Falconbridge or its Subsidiaries other than filings required under
applicable securities laws related to the take-over bids of Falconbridge by Inco and Xstrata plc
and any approvals, actions, filings to be made in connection with the amendment to the Support
Agreement and the execution of the Combination Agreement.

E-4

 

     (d) None of the information (the “Falconbridge Information”) to be supplied in writing
by Falconbridge or its Affiliates specifically for inclusion in the Phelps Dodge Proxy Statement
will, at the time of the mailing of the Phelps Dodge Proxy Statement and any amendments or
supplements thereto, and at the time of the Phelps Dodge Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under which they are made,
not misleading; provided that Phelps Dodge has complied with section 1.5 and provided further that
if Falconbridge notifies Phelps Dodge pursuant to section 1.3 that it has become aware that the
Falconbridge Information in the Phelps Dodge Proxy Statement contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or necessary to make
the statements contained therein not misleading in light of the circumstances in which they are
made, or that the Falconbridge Information in the Phelps Dodge Proxy Statement must otherwise be
amended or supplemented, Phelps Dodge prepares and files a supplement or amendment to the Phelps
Dodge Proxy Statement to correct such information in compliance with applicable Securities Laws.

     2.2. Representations and Warranties of Phelps Dodge. Phelps Dodge represents and
warrants to Inco, as of the date hereof, as follows:

     (a) Phelps Dodge has all necessary corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution, delivery and performance by
Phelps Dodge of this Agreement has been duly and validly authorized by all necessary corporate
action on the part of Phelps Dodge, and no other corporate proceedings on the part of Phelps Dodge
are necessary to authorize this Agreement, or to allow Phelps Dodge to perform its obligations
hereunder. This Agreement has been duly and validly executed and delivered by Phelps Dodge and,
assuming the due authorization, execution and delivery by Phelps Dodge, constitutes a valid, legal
and binding obligation of Phelps Dodge, enforceable against Phelps Dodge in accordance with its
terms, except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar Laws, now or hereafter in effect, affecting
creditors’ rights generally, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the discretion of the
court before which any proceeding may be brought.

     (b) The execution, delivery and performance by Phelps Dodge of this Agreement and the
performance of its obligations hereunder do not and will not (i) contravene, conflict with
or result in a violation or breach of any provision of the Articles of Incorporation, By-laws and
other organizational documents of Phelps Dodge or the equivalent organizational documents of any of
Phelps Dodge’s material Subsidiaries, (ii) contravene, conflict with or result in a
violation or breach of any provisions of any Law applicable to Phelps Dodge or any of its
Subsidiaries or by which its or any of their

E-5

 

respective properties is bound or affected, (iii) require any consent or other action
by any Person under, constitute a default (or an event that, with or without notice or lapse of
time or both, would constitute a default) under, or cause or permit the termination, amendment,
acceleration, triggering or cancellation or other change of any right or obligation or the loss of
any benefit to which Phelps Dodge or any of its Subsidiaries is entitled under (A) any
provision of any agreement, commitment, contract, note, lease, or other instrument binding upon
Phelps Dodge or any of its Subsidiaries or (B) any Permit held by, or affecting, or
relating in any way to, the assets or business of, Phelps Dodge or any of its Subsidiaries, or
(iv) result in the creation or imposition of any Lien on any asset of Phelps Dodge or any
of its Subsidiaries, other than such exceptions in the case of clause (ii), (iii) or (iv) as would
not, individually or in the aggregate, affect the ability of Phelps Dodge to perform its
obligations or the rights of Falconbridge hereunder.

     (c) The execution, delivery and performance by Phelps Dodge of this Agreement and the
performance by Phelps Dodge of its obligations hereunder do not, and shall not, require any
Approval, action by or in respect of, filing with or notification to, any Governmental Entity, to
be made or obtained by Phelps Dodge or its Subsidiaries other than filings required under
applicable securities laws related to the take-over bids of Falconbridge by Inco and Xstrata plc
and any approvals, action, filings to be made in connection with the amendment to the Support
Agreement and the execution of the Combination Agreement.

ARTICLE III

GENERAL PROVISIONS

     3.1. Termination. This Agreement shall terminate, and other than section 3.9 which
provision shall survive the termination of this Agreement, be of no further force and effect, upon
any termination of either (i) the Support Agreement by either Falconbridge or Inco or
(ii) the Combination Agreement by either Phelps Dodge or Inco.

     3.2. Certain Defined Terms. The following terms shall have the following meanings:

     “1933 Act” means the United States Securities Act of 1933, as amended, and the rules
and regulations promulgated from time to time thereunder.

     “1934 Act” means the United States Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated from time to time thereunder.

     “Effective Time” has the meaning ascribed thereto in the Plan of Arrangement.

     “Governmental Entity” means any (a) multinational, federal, provincial, state,
regional, municipal or other government, governmental or public department, central

E-6

 

bank, court, tribunal, arbitrator, commission, board, bureau or agency, whether U.S.,
Canadian, foreign or multinational, (b) subdivision, agent, commission, board or authority
of any of the foregoing or (c) self-regulatory organization or stock exchange, including
The New York Stock Exchange, Inc. or The Toronto Stock Exchange.

     “Laws” means laws (including common law), statutes, rules, regulations, orders,
ordinances, codes, treaties, and judicial, arbitral, administrative, ministerial or departmental
judgments, awards or other requirements of any Governmental Entity.

     “Lien” means, with respect to any property, right or asset, any mortgage, lien,
pledge, charge, security interest, purchase option, right of first offer or refusal, encumbrance or
other adverse claim of any kind in respect of such property or asset.

     “Phelps Dodge Proxy Statement” means the notice of the meeting of the holders of the
common shares of Phelps Dodge to be held for purposes of approving the transactions contemplated by
the Combination Agreement, the proxy statement accompanying such notice, and all other documents
required by the Securities Laws or other applicable Laws to be sent to holders of the common shares
of Phelps Dodge in connection with such meeting, as the same may be amended, supplemented or
otherwise modified from time to time.

     “Securities Laws” means the Securities Act (Ontario) and the equivalent legislation in
the other provinces and territories of Canada, the 1933 Act, and the 1934 Act, all as now enacted
or as the same may from time to time be amended, and the applicable rules and regulations
promulgated thereunder.

     “Subsidiary” shall mean, when used with reference to any party, any Person of which
such party (either alone or through or together with any other Subsidiary) either owns, directly or
indirectly, fifty percent (50%) or more of the outstanding capital stock or other equity interests
the holders of which are generally entitled to vote for the election of directors or members of any
other governing body of such Person or, in the case of a Person that is a partnership, is a general
partner of such partnership, or any Person the accounts of which such party is required to
consolidate in its own financial statements under the generally accepted accounting principles
applicable to such party.

     3.3. Notices. All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or by commercial delivery service, or sent via
telecopy (receipt confirmed) to the parties at the following addresses or telecopy numbers (or at
such other address or telecopy numbers for a party as shall be specified by like notice):

E-7

 

	 	(a)	 	if to Phelps Dodge, to:
	 
	 	 	 	Phelps Dodge Corporation

One North Central Ave.

Phoenix, AZ 85004

Attention: David Colton

Telecopy No.: (602) 366-7321

	 
	 	 	 	with copies to:
	 
	 	 	 	Debevoise & Plimpton LLP

919 Third Avenue

New York, N.Y. 10022

Attention:     Michael W. Blair

                    
Gregory V. Gooding

Telecopy No.: (212) 909-6870
	 
	 	 	 	and
	 
	 	 	 	Heenan Blaikie

P.O. Box 185, Suite 2600

200 Bay Street

South Tower, Royal Bank Plaza

Toronto, Ontario M5J 2J4

Attention:     Jeff Barnes

Telecopy No.: (416) 360-8425
	 
	 	(b)	 	if to Falconbridge, to:
	 
	 	 	 	Falconbridge Limited

207 Queen’s Quay West, Suite 800

Toronto, ON, Canada M5J 1A7

Attention: Jeffery Snow

Telecopy No.: (416) 982-7490
	 
	 	 	 	with copies to:
	 
	 	 	 	McCarthy Tétrault LLP

Suite 4700, Toronto Dominion Bank Tower

Toronto, ON M5K 1E6

Attention:     Garth Girvan

Telecopy No.: (416) 868-0673

E-8

 

     3.4. Counterparts. This Agreement may be executed in one or more counterparts, which
may be delivered by facsimile transmission, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been signed by each of the
parties and delivered to the other party, it being understood that all parties need not sign the
same counterpart.

     3.5. Entire Agreement; Third Party Beneficiaries. This Agreement and the documents
and instruments and other agreements between the parties hereto as contemplated by or referred to
herein, (a) constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior representations, agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof, and neither party is relying
on any prior oral or written representations, agreements, understandings or undertakings with
respect to the subject matter hereof, it being understood that the Confidentiality Agreements shall
continue in full force and effect and shall survive any termination of this Agreement; and
(b) are not intended to confer upon any other person any rights or remedies hereunder.

     3.6. Severability. In the event that any provision of this Agreement, or the
application thereof, becomes or is declared by a court of competent jurisdiction to be illegal,
void or unenforceable, the remainder of this Agreement will continue in full force and effect and
the application of such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of such void or
unenforceable provision.

     3.7. Other Remedies; Specific Performance. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by Law or equity upon such party, and the
exercise by a party of any one remedy will not preclude the exercise of any other remedy. The
parties hereto agree that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to seek an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.

     3.8. Governing Law. This Agreement shall be deemed to be made in and in all respects
shall be interpreted, construed and governed by and in accordance with, and any disputes arising
out of or related to this Agreement shall be interpreted, construed and governed by and in
accordance with, the laws of the State of New York. The parties

E-9

 

hereby irrevocably submit to the jurisdiction of the courts of the State of New York solely in
respect of the interpretation and enforcement of the provisions of this Agreement and of the
documents referred to in this Agreement, and in respect of the transactions contemplated hereby,
and hereby waive, and agree not to assert, as a defense in any Action for the interpretation or
enforcement hereof or of any such document, that it is not subject thereto or that such Action 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,
and the parties hereto irrevocably agree that all claims with respect to such Actions shall be
heard and determined in such New York court. 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 and
agree that mailing of process or other papers in connection with any such Action in the manner
provided in Section 10.2 or in such other manner as may be permitted by Law shall be valid and
sufficient service thereof.

     3.9. No Personal Liability.

     (a) No director or officer of Phelps Dodge shall have any personal liability whatsoever to
Falconbridge under this Agreement, or any other document delivered in connection with this
Agreement on behalf of Phelps Dodge.

     (b) No director or officer of Falconbridge shall have any personal liability whatsoever to
Phelps Dodge under this Agreement, or any other document delivered in connection with this
Agreement on behalf of Falconbridge.

     3.10. Assignment. No party may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written approval of the other parties.
Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted assigns.

     3.11. Interpretation. When a reference is made in this Agreement to Sections, such
reference shall be to a Section of this Agreement unless otherwise indicated. Unless otherwise
indicated, the words “include,” “includes” and “including” when used herein shall be deemed in each
case to be followed by the words “without limitation.” The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or interpretation of this
Agreement. When reference is made herein to “the business of” a Person, such reference shall be
deemed to include the business of such Person and all direct and indirect Subsidiaries of such
Person. Reference to the Subsidiaries of a Person shall be deemed to include all direct and
indirect Subsidiaries of such Person.

E-10

 

     3.12. WAIVER OF JURY TRIAL. EACH OF PHELPS DODGE AND FALCONBRIDGE HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PHELPS DODGE OR
FALCONBRIDGE IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.

* * * * *

E-11

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly
authorized respective officers as of the date first written above.

	 	 	 	 	 
	 	PHELPS DODGE CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	FALCONBRIDGE LIMITED

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

E-12

 

	 	 	 	 	 

     IN WITNESS WHEREOF, the undersigned hereby consents to the execution and delivery of this
Agreement by each of Falconbridge Limited and Phelps Dodge Corporation and to the performance by
each such party of its obligations hereunder.

	 	 	 	 	 
	INCO LIMITED

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 
	 

E-13

 

Exhibit
F

 

NOTE PURCHASE AGREEMENT

8% CONVERTIBLE SUBORDINATED NOTE

BY AND AMONG

PHELPS DODGE CORPORATION

AND

INCO LIMITED

June 25, 2006

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	ARTICLE I
	 	 	 	 
	 
	 	 	 	 
	ISSUANCE AND SALE OF NOTES
	 	 	 	 
	1.1 Authorization of Notes

	 	 	1	 
	1.2 Use of Proceeds

	 	 	1	 
	1.3 Sale and Purchase of Notes

	 	 	2	 
	1.4 Closing Issuance of Notes and Cash Payment

	 	 	3	 
	 
	 	 	 	 
	ARTICLE II
	 	 	 	 
	 
	 	 	 	 
	REPRESENTATIONS AND WARRANTIES OF ITALY
	 	 	 	 
	2.1 Organization and Qualification

	 	 	3	 
	2.2 Articles of Incorporation and Bylaws

	 	 	3	 
	2.3 Authority Relative to this Agreement

	 	 	4	 
	2.4 No Conflict; Required Filings and Consents

	 	 	4	 
	2.5 Issuance of Notes

	 	 	5	 
	2.6 Offering

	 	 	5	 
	2.7 Private Offering by Italy

	 	 	5	 
	2.8 Margin Regulations

	 	 	5	 
	2.9 Status under Certain Statutes

	 	 	6	 
	2.10 Combination Agreement Representations

	 	 	6	 
	 
	 	 	 	 
	ARTICLE III
	 	 	 	 
	 
	 	 	 	 
	REPRESENTATIONS AND WARRANTIES OF PORTUGAL
	 	 	 	 
	3.1 Accredited Investor Status

	 	 	6	 
	3.2 Transfer Restrictions

	 	 	6	 
	3.3 Authority Relative to this Agreement

	 	 	7	 
	3.4 No Conflict; Required Filings and Consents

	 	 	7	 
	 
	 	 	 	 
	ARTICLE IV
	 	 	 	 
	 
	 	 	 	 
	COVENANTS OF ITALY
	 	 	 	 
	4.1 Availability of Common Shares for Conversion

	 	 	8	 
	4.2 Covenants in Combination Agreement

	 	 	8	 

 

 

	 	 	 	 	 
	ARTICLE V
	 	 	 	 
	 
	 	 	 	 
	FURTHER AGREEMENTS
	 	 	 	 
	5.1 Form of Notes

	 	 	8	 
	5.2 Confidentiality

	 	 	8	 
	5.3 Public Announcements

	 	 	8	 
	5.4 Reasonable Best Efforts

	 	 	8	 
	5.5 Fees and Expenses

	 	 	9	 
	5.6 Transfer and Exchange of Notes

	 	 	9	 
	 
	 	 	 	 
	ARTICLE VI
	 	 	 	 
	 
	 	 	 	 
	CONDITIONS TO CLOSING
	 	 	 	 
	Portugal’s obligation to purchase the Notes at each Note Closing is subject to the
fulfillment to its satisfaction on or prior to the related Note Closing Date of each of
the following conditions:

	 	 	10	 
	6.1 Legal Investment

	 	 	10	 
	6.2 Representations and Warranties

	 	 	10	 
	6.3 Agreements and Covenants

	 	 	10	 
	6.4 Use of Proceeds

	 	 	10	 
	6.5 Regulatory Approvals

	 	 	10	 
	6.6 Registration Rights

	 	 	10	 
	6.7 Opinions of Counsel

	 	 	11	 
	6.8 Issuance Taxes

	 	 	11	 
	6.9 France Acquisition

	 	 	11	 
	6.10 Combination Agreement

	 	 	11	 
	6.11 Outside Date

	 	 	11	 
	 
	 	 	 	 
	ARTICLE VII
	 	 	 	 
	 
	 	 	 	 
	TERMINATION OF COMMITMENT
	 	 	 	 
	7.1 Termination of Commitment

	 	 	11	 
	ARTICLE VIII
	 	 	 	 
	 
	 	 	 	 
	GENERAL PROVISIONS
	 	 	 	 
	8.1 Certain Defined Terms and Interpretation

	 	 	12	 
	8.2 Notices

	 	 	12	 
	8.3 Counterparts

	 	 	14	 
	8.4 Entire Agreement; Third Party Beneficiaries

	 	 	14	 
	8.5 Amendment

	 	 	14	 
	8.6 Severability

	 	 	14	 
	8.7 Other Remedies; Specific Performance

	 	 	14	 

 

 

	 	 	 	 	 
	8.8 Governing Law

	 	 	15	 
	8.9 No Personal Liability

	 	 	15	 
	8.10 Assignment

	 	 	15	 
	8.11 WAIVER OF JURY TRIAL

	 	 	16	 
	8.12 Currency

	 	 	16	 
	8.13 Delays or Omissions

	 	 	16	 
	 
	 	 	 	 
	EXHIBITS
	 	 	 	 
	 
	 	 	 	 
	Exhibit A      Form of Note
	 	 	 	 

 

 

NOTE PURCHASE AGREEMENT

     NOTE PURCHASE AGREEMENT, dated as of June 25, 2006 (this “Agreement”), between INCO
LIMITED, a corporation organized and existing under the laws of Canada (“Italy”), and
PHELPS DODGE CORPORATION, a New York corporation (“Portugal”).

RECITALS

     A. Italy and Portugal have entered into a Combination Agreement, dated as of the date hereof
(the “Combination Agreement”), which agreement provides for the acquisition by Portugal of
all of the outstanding capital stock of Italy pursuant to the Plan of Arrangement attached as an
exhibit to the Combination Agreement, subject to the conditions therein.

     B. Italy and France, a corporation organized and existing under the laws of Ontario
(“France”), are party to a Support Agreement providing for the acquisition of France by
Italy, which agreement has been amended as of the date hereof in order, among other things, to
increase the cash consideration to be paid to the shareholders of France in connection with such
acquisition.

     C. Portugal wishes to commit to purchase from Italy, on the terms and subject to the
conditions set forth in this Agreement, up to US$3.0 billion principal amount of Italy’s 8.0%
Convertible Subordinated Notes due April 1, 2012 (the “Notes”). The parties agree that
each Note so purchased will comprise a separate debt issue by Italy.

     NOW, THEREFORE, in consideration of the covenants, promises and representations set forth
herein, and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:

ARTICLE I

ISSUANCE AND SALE OF NOTES

     1.1 Authorization of Notes. Italy will authorize the issue and sale of the Notes,
which shall be substantially in the form set forth in Exhibit A.

     1.2 Use of Proceeds. Subject to the following two sentences, proceeds from the sale
of Notes may be applied by Italy only for (a) the acquisition of Falconbridge common shares as
contemplated by the Support Agreement (an “Acquisition Use”) and/or (b) the satisfaction of
the obligations of Italy and France to any shareholders exercising dissent rights in respect of
such transaction (a “Dissent Right Use”). Proceeds from the sale of Notes may be applied
to an Acquisition Use provided, and to the extent,

F-1

 

that Italy has fully drawn all commitments under all financing facilities that it has in place
on June 25, 2006 or that are contemplated by financing commitments in place on such date for the
purpose of funding its acquisition of France (collectively, the “France Acquisition
Facilities”) and such funds, together with Italy’s reasonably available cash resources, are
insufficient to pay the cash portion of the consideration payable to the shareholders of France
pursuant to the offer and the subsequent acquisition transaction contemplated by the Support
Agreement. Proceeds from the sale of Notes may be applied to a Dissent Right Use provided, and to
the extent, that (1) the product of (x) the number of France common shares in respect of which
dissent rights have been validly exercised and not withdrawn multiplied by (y) Cdn$80.13 is in
excess of (2) the amount of undrawn commitments under the France Acquisition Facilities plus the
amount of Italy’s reasonably available cash resources.

     1.3 Sale and Purchase of Notes.

     (a) On the terms and subject to the conditions of this Agreement (including Section 1.2), on
the date (the “Initial Note Closing Date”) of the closing of the acquisition by Italy of at
least two-thirds of the outstanding common shares of France (or such lesser amount as shall be
approved by Portugal in writing) (the “Initial Take-Up”) on the terms and subject to the
conditions set forth in the Support Agreement (no material term or condition of which shall be
waived or amended by Italy without the prior written consent of Portugal), Italy shall issue,
transfer, deliver and sell to Portugal, and Portugal shall purchase and accept from Italy, Notes in
an aggregate principal amount (the “Initial Purchase Amount”) , as shall be specified by
Italy, not to exceed US$3,000,000,000.

     (b) On the terms and subject to the conditions of this Agreement (including Section 1.2), on
any one date (a “Second Note Closing Date”) subsequent to the Initial Take-Up and prior to
the France Subsequent Acquisition Transaction that Italy acquires additional common shares of
France as contemplated by the Support Agreement, Italy shall issue, transfer, deliver and sell to
Portugal, and Portugal shall purchase and accept from Italy, Notes in an aggregate principal amount
(the “Second Purchase Amount”), as shall be specified by Italy, not to exceed
US$3,000,000,000 less the Initial Purchase Amount.

     (c) On the terms and subject to the conditions of this Agreement (including Section 1.2), on
such date (the “Third Note Closing Date”) as Italy shall consummate the France Subsequent
Acquisition Transaction, Italy shall issue, transfer, deliver and sell to Portugal, and Portugal
shall purchase and accept from Italy, Notes in an aggregate principal amount (the “Third
Purchase Amount”), as shall be specified by Italy, not to exceed US$3,000,000,000 less the sum
of the Initial Purchase Amount and the Second Purchase Amount.

F-2

 

     (d) On the terms and subject to the conditions of this Agreement (including Section 1.2), on
such date (the “Final Note Closing Date,” and together with the Initial Note Closing Date,
the Second Note Closing Date, and the Third Note Closing Date, a “Note Closing Date”) as
shall be specified by Italy that is within 90 calendar days following the consummation of the
France Subsequent Acquisition Transaction, Italy shall issue, transfer, deliver and sell to
Portugal, and Portugal shall purchase and accept from Italy, Notes in an aggregate principal
amount, as shall be specified by Italy, not to exceed US$3,000,000,000 less the sum of the Initial
Purchase Amount, the Second Purchase Amount and the Third Purchase Amount.

     (e) Italy shall give Portugal at least five business days written notice of (i) each Note
Closing Date and (ii) the amount of Notes to be purchased on such date.

     1.4 Closing Issuance of Notes and Cash Payment. At the closing (a “Note
Closing”) of any purchase of Notes hereunder (a “Note Purchase”) (i) Italy
shall deliver to Portugal one or more Notes, as may be specified by Portugal, each dated as of the
Closing Date related to such Note Purchase and registered in the name of Portugal or its nominee,
duly authorized, free and clear of all liens and restrictions of any kind (except for those imposed
by applicable securities laws) and (ii) Portugal shall deliver or cause to be delivered to
Italy by wire transfer of immediately available funds, to an account or accounts designated by
Italy, the related Purchase Price.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF ITALY

     Italy represents and warrants to Portugal as follows:

     2.1 Organization and Qualification. Each of Italy and its Subsidiaries that is a
corporation or other legal entity duly is organized, validly existing and in good standing under
the Laws of the jurisdiction of its incorporation and has the requisite corporate, partnership or
similar power and authority to own, lease and operate its assets and properties and to carry on its
business as now conducted, except where the failure to do so has not had and would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect with respect to
Italy. Each of Italy and its Subsidiaries is in possession of all Approvals from all Governmental
Entities necessary to own, lease and operate the properties it purports to own, operate or lease
and to lawfully carry on its business as now conducted, except where the failure to have such
Approvals has not had and would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect with respect to Italy.

     2.2 Articles of Incorporation and Bylaws. Italy has Disclosed to Portugal complete
and correct copies of the Italy Charter Documents, as amended to date. Such Italy Charter
Documents, as so amended, and the equivalent organizational documents of

F-3

 

each of its Subsidiaries, are in full force and effect. Italy is not in violation of any of
the provisions of the Italy Charter Documents, and no material Subsidiary of Italy is in violation
of any of its organizational documents, except where such violation has not had and would not be
reasonably expected to have, individually or in the aggregate, a Material Adverse Effect with
respect to Italy.

     2.3 Authority Relative to this Agreement. Italy has all necessary corporate power and
authority to execute and deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution, delivery and performance by Italy
of this Agreement and the consummation by Italy of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of Italy, and no other
corporate proceedings on the part of Italy are necessary to authorize this Agreement, or to
consummate the transactions so contemplated. This Agreement has been duly and validly executed and
delivered by Italy and, assuming the due authorization, execution and delivery by Portugal,
constitutes a valid, legal and binding obligation of Italy, enforceable against Italy in accordance
with its terms, except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar Laws, now or hereafter in effect, affecting
creditors’ rights generally, (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the discretion of the
court before which any proceeding may be brought and (iii) the Currency Act (Canada)
precludes a court in Canada from rendering judgment in any currency other than Canadian currency.

     2.4 No Conflict; Required Filings and Consents.

     (a) The execution, delivery and performance by Italy of this Agreement and the consummation by
Italy of the transactions contemplated hereby do not and will not, subject to receipt of the
Approvals referred to in Section 2.4(b) below, (i) contravene, conflict with or result in a
violation or breach of any provision of the Italy Charter Documents or the equivalent
organizational documents of any of Italy’s material Subsidiaries, (ii) contravene, conflict
with or result in a violation or breach of any provisions of any Law applicable to Italy or any of
its Subsidiaries or by which its or any of their respective properties is bound or affected,
(iii) require any consent or other action by any Person under, constitute a default (or an
event that, with or without notice or lapse of time or both, would constitute a default) under, or
cause or permit the termination, amendment, acceleration, triggering or cancellation or other
change of any right or obligation or the loss of any benefit to which Italy or any of its
Subsidiaries is entitled under (A) any provision of any Contract or other instrument
binding upon Italy or any of its Subsidiaries or (B) any Permit held by, or affecting, or
relating in any way to, the assets or business of, Italy or any of its Subsidiaries, or
(iv) result in the creation or imposition of any Lien on any asset of Italy or any of its
Subsidiaries, other than such

F-4

 

exceptions in the case of clause (ii), (iii) or (iv) as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on Italy.

     (b) The execution, delivery and performance by Italy of this Agreement and the consummation by
Italy of the transactions contemplated hereby do not, and shall not, require any Approval, action
by or in respect of, filing with or notification to, any Governmental Entity, to be made or
obtained by Italy or its Subsidiaries, except for (A) such filings, authorizations,
decisions or orders as may be required by the rules and regulations of the TSX, (B) the listing of
the Common Shares issuable upon conversion or maturity of the Notes on the NYSE, and (C)
any other Approvals or Permits, which, if not obtained, would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect with respect to Italy.

     2.5 Issuance of Notes. The issuance, sale and delivery of the Notes in accordance
with this Agreement, and the issuance and delivery of any Italy Common Shares upon conversion of
all or any portion of the Notes, have been, or will be on or prior to the Closing, duly authorized
by all necessary corporate action on the part of Italy, and a bona fide estimate of the number of
Italy Common Shares so issuable has been duly reserved for issuance. The Notes when issued, sold
and delivered against payment therefor in accordance with the provisions of this Agreement will be
duly and validly issued, and any Italy Common Shares issuable upon conversion of all or part of the
Notes, will be duly and validly issued, fully paid and nonassessable. No person has any preemptive
right or rights of first refusal which will be triggered by reason of the issuance of any Italy
Common Shares upon conversion of all or part of the Notes.

     2.6 Offering. Assuming the accuracy of Portugal’s representations and warranties in
Article III hereof, the offer, issuance and sale of the Notes as contemplated by this Agreement and
the issuance and delivery of the Italy Common Shares issuable on the conversion of the Notes, are
exempt from the registration requirements of the 1933 Act and the registration and prospectus
requirements of the Securities Act (Ontario), and neither Italy nor anyone acting on its behalf
will take any action hereafter that would cause the loss of such exemption.

     2.7 Private Offering by Italy. Neither Italy nor anyone acting on its behalf has
offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the
same from, or otherwise approached or negotiated in respect thereof with, any person other than
Portugal. Neither Italy nor anyone acting on its behalf has taken, or will take, any action that
would subject the issuance or sale of the Notes to the registration requirements of Section 5 of
the Securities Act or to the registration requirements of any securities or blue sky laws of any
applicable jurisdiction.

     2.8 Margin Regulations. No part of the proceeds from the sale of the Notes hereunder
will be used, directly or indirectly, for the purpose of buying or carrying any

F-5

 

margin stock within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities,
in either case under such circumstances as to involve Italy in a violation of Regulation X of said
Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board
(12 CFR 220). Margin stock does not constitute more than 10% of the value of the consolidated
assets of Italy and its Subsidiaries, but Italy expects that margin stock will constitute more than
10% of the value of such assets after the initial take-up of France shares pursuant to the pending
offer to acquire such shares. As used in this Section, the terms “margin stock” and “purpose of
buying or carrying” shall have the meanings assigned to them in said Regulation U.

     2.9 Status under Certain Statutes. Neither Italy nor any of its Subsidiaries is
subject to regulation under the Investment Company Act of 1940, as amended.

     2.10 Combination Agreement Representations. As of the date hereof, each of the
representations and warranties of Italy set forth in the Combination Agreement are, subject to the
Italy Disclosure Schedule referred to therein, true and correct in all respects, except to the
extent that the failure of such representations and warranties to be true (ignoring for such
purpose any materiality (including the word “material”) or “Material Adverse Effect” qualification)
would not reasonably be expected to have, individually or in the aggregate, a Material Adverse
Effect on Portugal.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF PORTUGAL

     Portugal represents and warrants to Italy as follows:

     3.1 Accredited Investor Status. Portugal is an “Accredited Investor” as that term is
defined in (i) Rule 501 of Regulation D promulgated under the Securities Act and (ii) National
Instrument 45-106 – Prospectus and Registration Exemptions of the Canadian Securities
Administrators. Portugal is able to bear the economic risk of the purchase of the Notes pursuant
to the terms of this Agreement, including a complete loss of Portugal’s investment in the Notes.

     3.2 Transfer Restrictions. Portugal understands that the Notes have not been
registered under the 1933 Act, or qualified for distribution under any Canadian provincial
securities laws, nor qualified under any state securities law. Portugal understands that the
resale of the Notes in the United States may be restricted unless a subsequent disposition thereof
is registered under the Securities Act and registered under any state securities law or is exempt
from such registration; provided, however, that nothing in this paragraph shall affect Portugal’s
rights as set forth in the Registration Rights Agreement.

F-6

 

     3.3 Authority Relative to this Agreement. Portugal has all necessary corporate power
and authority to execute and deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution, delivery and performance by
Portugal of this Agreement and the consummation by Portugal of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action on the part of Portugal,
and no other corporate proceedings on the part of Portugal are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by Portugal and, assuming the due authorization, execution and
delivery by Italy, constitutes a valid, legal and binding obligation of Portugal, enforceable
against Portugal in accordance with its terms, except that (i) such enforcement may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws, now
or hereafter in effect, affecting creditors’ rights generally, (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding may be brought and (iii) the
Currency Act (Canada) precludes a court in Canada from rendering judgment in any currency other
than Canadian currency.

     3.4 No Conflict; Required Filings and Consents. The execution, delivery and
performance by Portugal of this Agreement and the consummation by Portugal of the transactions
contemplated hereby, do not and will not (i) contravene, conflict with or result in a
violation or breach of any provision of the Portugal Charter Documents or the equivalent
organizational documents of any of Portugal’s material Subsidiaries, (ii) contravene,
conflict with or result in a violation or breach of any provisions of any Law applicable to
Portugal or any of its Subsidiaries or by which its or any of their respective properties is bound
or affected, (iii) require any consent or other action by any Person under, constitute a
default (or an event that, with or without notice or lapse of time or both, would constitute a
default) under, or cause or permit the termination, amendment, acceleration, triggering or
cancellation or other change of any right or obligation or the loss of any benefit to which
Portugal or any of its Subsidiaries is entitled under (A) any provision of any Contract or
other instrument binding upon Portugal or any of its Subsidiaries or (B) any Permit held
by, or affecting, or relating in any way to, the assets or business of, Portugal or any of its
Subsidiaries, or (iv) result in the creation or imposition of any Lien on any asset of
Portugal or any of its Subsidiaries, other than such exceptions in the case of clause (ii), (iii)
or (iv) as would not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect with respect to Portugal.

F-7

 

ARTICLE IV

COVENANTS OF ITALY

     4.1 Availability of Common Shares for Conversion. Italy will not issue or agree to
issue any Italy Common Shares or options, rights or warrants to purchase Italy Common Shares or
securities convertible into or exchangeable for Italy Common Shares or take any other action if,
after giving effect thereto, the number of Italy Common Shares remaining unissued and duly reserved
for issuance upon conversion of the Notes shall be insufficient to permit conversion.

     4.2 Covenants in Combination Agreement. Italy will comply with each of the covenants
and agreements in the Combination Agreement that are applicable to it, on the terms and subject to
the conditions set forth therein.

ARTICLE V

FURTHER AGREEMENTS

     5.1 Form of Notes. The Notes shall be substantially in the form attached as Exhibit
A.

     5.2 Confidentiality. The parties acknowledge that Italy and Portugal have previously
executed the Confidentiality Agreements, which will continue in full force and effect in accordance
with their respective terms.

     5.3 Public Announcements. Portugal and Italy shall use reasonable best efforts
(i) to develop a joint communications plan, (ii) to ensure that all press releases
and other public statements with respect to this Agreement and the transactions contemplated hereby
shall be consistent with such joint communications plan, and (iii) except where the
circumstances make it impractical or prompt disclosure is required by applicable law, to consult
with each other before issuing any press release or, to the extent practical, otherwise making any
public statement with respect to this Agreement or the transactions contemplated hereby. Except in
respect of any announcement required by applicable Law, no party shall issue any press release or
otherwise make any public statement or disclosure concerning the other party or the other party’s
business, financial condition or results of operations without the consent of such other party,
which consent shall not be unreasonably withheld or delayed.

     5.4 Reasonable Best Efforts. Upon the terms and subject to the conditions set forth
in this Agreement, each of Portugal and Italy agrees to use its reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with
the other party in doing, all things necessary, proper or advisable under applicable Laws to
consummate and make effective, in the most

F-8

 

expeditious manner practicable, the Agreement and the transactions contemplated hereby,
including the issuance, sale and delivery of the Notes.

     5.5 Fees and Expenses. All fees and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party incurring such
expenses whether or not the transactions contemplated hereby are consummated. Notwithstanding the
foregoing, Italy shall pay all necessary issue, transfer and other stamp taxes in connection with
the issuance and sale of the Notes.

     5.6 Transfer and Exchange of Notes.

     (a) Portugal agrees that it will not transfer any Notes to any person in the mining business
having an equity market capitalization of $10 billion or more, or any person known by Portugal
(without any duty of investigation) to be an affiliate of such person or person acting jointly or
in concert with any such person, and that any Person to whom Portugal transfers any Notes must
agree to the foregoing restriction.

     (b) Subject to the foregoing section 5.6(a), upon surrender of the Notes at the principal
executive office of Italy for registration of transfer or exchange (and in the case of a surrender
for registration of transfer, accompanied by a written instrument of transfer duly executed by the
registered holder of the Notes or such Holder’s attorney duly authorized in writing and accompanied
by the address for notices of each transferee of the Notes or part thereof), Italy shall, within
five Business Days thereafter, execute and deliver, at Italy’s expense (except as provided below),
one or more new notes (as requested by the holder thereof, each in a principal amount no less than
US$250,000,000) (the “New Notes”) in exchange therefor, in an aggregate principal amount
equal to the unpaid principal amount of the surrendered Notes. Each of the New Notes shall be
payable to such Person as such holder may request and shall be substantially in the form of Exhibit
A. Each of the New Notes shall be dated and bear interest from the date to which interest shall
have been paid on the surrendered Notes or dated the date of the surrendered Notes if no interest
shall have been paid thereon. Italy may require payment of a sum sufficient to cover any stamp tax
or governmental charge imposed in respect of any such transfer of the Notes.

     (c) Any transferee, by its acceptance of a note registered in its name (or the name of its
nominee), shall be deemed to have made the representation set forth in Section 3.2. Italy may
require that a transferee acknowledge the restrictions herein.

     5.7 Voting by Portugal. For so long as Portugal holds any Italy Common Shares
acquired upon the conversion of the Notes, it will use its reasonable best efforts to cause such
shares to be voted in proportion with the votes cast by the other holders of outstanding Italy
Common Shares.

F-9

 

ARTICLE VI

CONDITIONS TO CLOSING

     Portugal’s obligation to purchase the Notes at each Note Closing is subject to the fulfillment
to its satisfaction on or prior to the related Note Closing Date of each of the following
conditions:

     6.1 Legal Investment. At the time of the Note Closing, the purchase of the Notes by
Portugal hereunder shall be legally permitted by all Laws to which Portugal and Italy are subject.

     6.2 Representations and Warranties. The representations and warranties of Italy
contained in this Agreement shall be true and correct in all material respects as of such Note
Closing Date with the same effect as if made at and as of such Note Closing Date, and Portugal
shall have received a certificate with respect to the foregoing signed on behalf of Italy by an
authorized officer of Italy.

     6.3 Agreements and Covenants. Italy shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be performed or complied
with by it on or prior to such Note Closing Date, and Portugal shall have received a certificate to
such effect signed on behalf of Italy by an authorized officer of Italy.

     6.4 Use of Proceeds. Portugal shall have received a certificate signed on behalf of
Italy by an authorized officer of Italy to the effect that either (i) proceeds from the sale of
Notes will be applied to an Acquisition Use and Italy has fully drawn on all commitments under the
France Acquisition Facilities and such funds, together with Italy’s reasonably available cash
resources, are insufficient to pay the cash portion of the consideration payable to the
shareholders of France as contemplated by the Support Agreement or (ii) proceeds from the sale of
Notes will be applied to a Dissent Right Use and (1) the product of (x) the number of France common
shares in respect of which dissent rights have been validly exercised and not withdrawn multiplied
by (y) Cdn$80.13 is in excess of (2) the amount of undrawn commitments under the France Acquisition
Facilities plus the amount of Italy’s reasonably available cash resources.

     6.5 Regulatory Approvals. Italy shall have obtained (i) the conditional approval of
the TSX to the issuance and sale of the Notes and the issuance of the Italy Common Shares upon the
conversion of the Notes and (ii) the conditional approval for the listing of such Italy Common
Shares on the TSX, and (iii) application shall have been made for the listing of such Italy Common
Shares on the NYSE.

     6.6 Registration Rights. Italy shall have executed and delivered a registration
rights agreement, having customary terms and otherwise in form and substance

F-10

 

reasonably
satisfactory to Portugal, it being understood that the parties intend to use reasonable commercial
efforts to agree on the form of such an agreement promptly after the date hereof.

     6.7 Opinions of Counsel. Portugal shall have received a favorable written opinions
from Osler, Hoskin & Harcourt LLP and Sullivan & Cromwell LLP, counsel to Italy, reasonably
satisfactory to Portugal, as to the validity and enforceability of the Notes and the registration
rights agreement and the exemption of the sale of the Notes from registration under the Securities
Act.

     6.8 Issuance Taxes. All taxes imposed by law in connection with the issuance, sale
and delivery of the Notes shall have been fully paid by Italy, and all laws imposing such taxes
shall have been fully complied with by Italy.

     6.9 France Acquisition. All of the conditions set forth in Section 1.1 of the Support
Agreement shall have been satisfied in full without waiver thereof (except as may have been agreed
in writing by Portugal).

     6.10 Combination Agreement. The Combination Agreement shall not have been terminated
pursuant to any of clauses (a), (g) (to the extent resulting from the failure of the condition set
forth in Section 8.3(b) of the Combination Agreement), (i) (except in circumstances arising as a
result of a Material Adverse Effect in respect of Portugal), or (j) of Section 9.1 thereof.

     6.11 Outside Date. Such Note Closing Date is not later than March 31, 2007.

ARTICLE VII

TERMINATION OF COMMITMENT

     7.1 Termination of Commitment.

     (a) The purchase commitment of Phelps Dodge under Article I hereof may be terminated at any
time by the mutual written consent of Italy and Portugal.

     (b) Phelps Dodge may terminate its purchase commitment under Article I hereof (i) if there has
been a material breach of any representation or warranty of Italy contained in this Agreement or
(ii) if there has been a material breach of any of the covenants or agreements contained in this
Agreement on the part of Italy, which breach under clause (i) or (ii) is not curable or, if
curable, is not cured within 10 business days after written notice of such breach is given by
Portugal to Italy; or (iii) if a Change of Control (as defined in the Notes) shall have occurred,
or (iv) at any time after March 31, 2007.

F-11

 

     (c) This Agreement shall be terminated and the Note Purchase may be abandoned by either Italy
or Portugal prior to the Initial Note Closing if there shall be passed any Law that makes the
consummation of the transaction contemplated by this Agreement or the Support Agreement illegal or
otherwise prohibited, or if a Governmental Entity in the United States or Canada shall have issued
an Order or taken any other action, in any case having the effect of permanently restraining,
enjoining or otherwise prohibiting the transaction contemplated by this Agreement or the Support
Agreement, which Order or other action is final and nonappealable.

ARTICLE VIII

GENERAL PROVISIONS

     8.1 Certain Defined Terms and Interpretation.

     (a) All capitalized terms used herein that are not specifically defined herein are used as
defined in the Combination Agreement.

     (b) When a reference is made in this Agreement to Exhibits, such reference shall be to an
Exhibit to this Agreement unless otherwise indicated. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated.
Unless otherwise indicated, the words “include,” “includes” and “including” when used herein shall
be deemed in each case to be followed by the words “without limitation.” The table of contents and
headings contained in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. When reference is made herein to “the
business of” a Person, such reference shall be deemed to include the business of such Person and
all direct and indirect Subsidiaries of such Person. Reference to the Subsidiaries of a Person
shall be deemed to include all direct and indirect Subsidiaries of such Person.

     8.2 Notices. All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or by commercial delivery service, or sent via
telecopy (receipt confirmed) to the parties at the following addresses or telecopy numbers (or at
such other address or telecopy numbers for a party as shall be specified by like notice):

	 	(i)	 	if to Portugal, to:

Phelps Dodge Corporation

One North Central Ave.

Phoenix, AZ 85004

Attention: David Colton

Telecopy No.: (602) 366-7321

F-12

 

with copies to:

Debevoise & Plimpton LLP

919 Third Avenue

New York, N.Y. 10022

Attention:    Michael W. Blair

                    Gregory V. Gooding

Telecopy No.:     (212) 909-6870

and

Heenan Blaikie

P.O. Box 185, Suite 2600

200 Bay Street

South Tower, Royal Bank Plaza

Toronto, Ontario M5J 2J4

Attention:   Jeff Barnes

Telecopy No.:   (416) 360-8425

	 	(ii)	 	if to Italy, to:

Inco Limited

145 King Street West

Suite 1500

Toronto, Ontario M5H 4B7,

Canada

Attention: Simon Fish

Telecopy No.: (416) 361-7781

with copies to:

Sullivan & Cromwell LLP

125 Broad Street

New York, New York 10004

Attention:    Donald R. Crawshaw

Telecopy No.: 212-558-3588

F-13

 

and

Osler, Hoskin & Harcourt LLP

P.O. Box 50

1 First Canadian Place, Suite 6600

Toronto, Ontario

Canada M5X 1B8

Attention: Dale Ponder

Telecopy No.:

     8.3 Counterparts. This Agreement may be executed in one or more counterparts, which
may be delivered by facsimile transmission, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been signed by each of the
parties and delivered to the other party, it being understood that all parties need not sign the
same counterpart.

     8.4 Entire Agreement; Third Party Beneficiaries. This Agreement and the documents and
instruments and other agreements among the parties hereto as contemplated by or referred to herein
(a) constitute the entire agreement among the parties with respect to the subject matter
hereof and supersede all prior representations, agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof, and (b) are not intended
to confer upon any other person any rights or remedies hereunder.

     8.5 Amendment. This Agreement may be amended, not later than the Closing Date, by
action taken or authorized by the respective boards of directors of the parties (or, to the extent
permitted by Laws, any duly empowered committee thereof) at any time by execution of an instrument
in writing signed on behalf of each of Portugal and Italy.

     8.6 Severability. In the event that any provision of this Agreement, or the
application thereof, becomes or is declared by a court of competent jurisdiction to be illegal,
void or unenforceable, the remainder of this Agreement will continue in full force and effect and
the application of such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of such void or
unenforceable provision.

     8.7 Other Remedies; Specific Performance. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by Law or equity upon such party, and the
exercise by a party of any one remedy will not preclude the exercise of any other remedy. The
parties hereto agree that irreparable damage would

F-14

 

occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to seek an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.

     8.8 Governing Law. This Agreement shall be deemed to be made in and in all respects
shall be interpreted, construed and governed by and in accordance with, and any disputes arising
out of or related to this Agreement shall be interpreted, construed and governed by and in
accordance with, the laws of the State of New York. Except with respect to any matter relating
thereto over which the Court has jurisdiction, the parties hereby irrevocably submit to the
jurisdiction of the courts of the State of New York solely in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred to in this Agreement,
and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert,
as a defense in any Action for the interpretation or enforcement hereof or of any such document,
that it is not subject thereto or that such Action 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, and the parties hereto irrevocably agree that
all claims with respect to such Actions shall be heard and determined in such New York court. 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 and agree that mailing of process or other papers in
connection with any such Action in the manner provided in Section 8.2 or in such other manner as
may be permitted by Law shall be valid and sufficient service thereof.

     8.9 No Personal Liability.

     (a) No director or officer of Portugal shall have any personal liability whatsoever to Italy
under this Agreement, or any other document delivered in connection with the Arrangement on behalf
of Portugal.

     (b) No director or officer of Italy shall have any personal liability whatsoever to Portugal
under this Agreement, or any other document delivered in connection with the Arrangement on behalf
of Italy.

     8.10 Assignment. No party may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written approval of the other party. Subject
to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns.

F-15

 

     8.11 WAIVER OF JURY TRIAL. EACH OF PORTUGAL AND ITALY HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PORTUGAL OR ITALY IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.

     8.12 Currency. Unless otherwise specifically indicated, all sums of money referred to
in this Agreement are expressed in U.S. Dollars.

     8.13 Delays or Omissions. No delay or omission to exercise any right, power or remedy
accruing to Portugal as holder of the Notes, upon any breach or default of Italy under this
Agreement, shall impair any such right, power or remedy of Portugal nor shall it be construed to be
a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of Portugal of any breach or default under
this Agreement, or any waiver on the part of Portugal of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent specifically set forth
in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.

[the remainder of this page is left intentionally blank.]

F-16

 

     IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above
written.

	 	 	 	 	 	 	 
	 	 	INCO LIMITED	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	PHELPS DODGE CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 

F-17<PAGE>
                                                                    EXHIBIT 4.10

                                                                  EXECUTION COPY

                             RESTRUCTURING AGREEMENT

                                  BY AND AMONG

                       SATELITES MEXICANOS, S.A. DE C.V.,

                SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.,

                           SUPPORTING EQUITY HOLDERS,

                             SUPPORTING FRN HOLDERS

                                     - AND -

                             SUPPORTING NOTEHOLDERS

                              AS OF MARCH 31, 2006

<PAGE>

                             RESTRUCTURING AGREEMENT

                                     PREFACE

     This RESTRUCTURING AGREEMENT (this "Agreement"), dated as of March 31,
2006, is entered into by and among:

     (a)  Satelites Mexicanos, S.A. de C.V. (the "Company");

     (b)  Servicios Corporativos Satelitales, S.A. de C.V. ("Servicios");

     (c)  Loral Skynet Corporation and Loral SatMex Ltd. (collectively,
          "Loral");

     (d)  Principia, S.A. de C.V. ("Principia" and, together with Loral, the
          "Supporting Equity Holders");

     (e)  the undersigned beneficial owners (or investment managers or advisors
          with power to vote or dispose of all or substantially all of the
          relevant securities on behalf of the beneficial owners) of the Senior
          Secured Floating Rate Notes due June 30, 2004, identified on Exhibit B
          hereto (the "Supporting FRN Holders"); and

     (f)  the undersigned beneficial owners (or investment managers or advisors
          with power to vote or dispose of all or substantially all of the
          relevant securities on behalf of the beneficial owners) of the 10-1/8%
          Senior Notes due November 1, 2004, identified on Exhibit B hereto (the
          "Supporting Noteholders" and, together with the Supporting Equity
          Holders, the Supporting FRN Holders and each other beneficial owner
          (or investment managers or advisors with power to vote or dispose of
          all or substantially all of the relevant securities on behalf of the
          beneficial owners) of the FRNs, Senior Notes and the Existing Equity
          (each as defined below) that executes, after the date hereof, a
          counterpart signature page to this Agreement as provided in section 25
          below or an Accession Agreement in accordance with the terms hereof,
          the "Supporting Holders," and each, individually, a "Supporting
          Holder").

     For purposes hereof, all references in this Agreement to Supporting Holders
shall mean, as of any date of determination, those Supporting Holders who have
executed and delivered this Agreement as an original signatory on or before the
date of this Agreement, together with those additional Supporting Holders who
after the date of this Agreement, but on or before any such date of
determination, have become party to this Agreement by executing and delivering
counterpart signature pages as provided in section 25 below or an Accession
Agreement in accordance with the terms hereof, other than those Supporting
Holders, if any, who after the date of this Agreement cease to be a party hereto
in accordance with the terms of this Agreement. After the date of this
Agreement, as other Supporting Holders become signatories to this Agreement or
Supporting Holders cease to be parties hereto in accordance with the terms of
this Agreement, Exhibits B and/or C, as applicable, to this Agreement shall be
deemed to be updated to include such Supporting Holder and the Securities (as
defined below) held by such Supporting Holder, and to exclude any such
Supporting Holder that ceases to be a party hereto.

<PAGE>

     Capitalized terms used in this Agreement shall have the meaning ascribed to
them in section 1 hereof, unless otherwise defined in the Term Sheet (as defined
below), in which case any such term shall have the meaning ascribed to it in the
Term Sheet.

                                    RECITALS

     Whereas, (i) on June 29, 2005, the Company initiated the Concurso
Proceeding by filing a concurso mercantil petition; (ii) on September 7, 2005,
the Mexican Bankruptcy Court declared the Company in concurso mercantil under
the MBRA; (iii) on October 11, 2005, the Mexican Bankruptcy Court appointed
Thomas Stanley Heather Rodriguez as conciliador in the Concurso Proceeding (the
"Conciliador"); (iv) on December 30, 2005, the Mexican Bankruptcy Court issued a
judgment acknowledging claims (sentencia de reconocimiento, graduacion y
prelacion de creditos) (the "Recognition Judgment"); and (v) under the MBRA, the
Conciliador is required to attempt to facilitate a plan of reorganization
(Convenio Concursal) that he believes is supported by the Company and holders of
a majority of Recognized Claims, to submit such plan (Convenio Concursal) to
such holders for their assent and, if applicable, execution, and to subsequently
file such plan (Convenio Concursal) with the Mexican Bankruptcy Court for its
approval, as executed by the Company and by the requisite number and amount of
holders of Recognized Claims as provided by the MBRA.

     Whereas, the Company, the Ad Hoc FRN Committee, the Ad Hoc Senior Note
Committee and the Supporting Equity Holders, with the support of the
Conciliador, have engaged in good faith negotiations with the objective of
consummating the Restructuring.

     Whereas, to expedite and ensure the implementation of the Restructuring,
the Company is prepared to commit, on the terms and subject to the conditions of
this Agreement and Applicable Law, to execute the Concurso Plan, subject to the
terms hereof, and take the steps described herein and in the Term Sheet to
effect the Restructuring.

     Whereas, to expedite and ensure the implementation of the Restructuring,
Servicios and each of the Supporting Equity Holders is prepared to commit, on
the terms and subject to the conditions of this Agreement and Applicable Law, to
support the approval, execution and consummation of the Concurso Plan, take the
steps described herein and in the Term Sheet to effect the Restructuring, and to
perform its other obligations hereunder, if any.

     Whereas, to expedite and ensure the implementation of the Restructuring,
each Supporting Holder (other than the Supporting Equity Holders) is prepared to
commit, on the terms and subject to the conditions of this Agreement, to, if and
when solicited to do so, execute (or, in the case of Supporting Noteholders,
subject to the terms hereof, instruct the indenture trustee of the Senior Notes
to execute, and, if allowed under the MBRA, to allow such Supporting Noteholders
to execute) the Concurso Plan as part of the Restructuring and to support its
approval, and to perform its other obligations hereunder, if any.

     Whereas, as specified further herein, to consummate the implementation of
the Restructuring, each Supporting Holder is prepared to commit, on the terms
and subject to the conditions of this Agreement and applicable bankruptcy law,
to, if and when solicited to do so, vote (or, in the case of managed accounts,
instruct its custodial agents to vote) to accept the Chapter 11 Plan in a case
as part of the Restructuring in the Bankruptcy Court under chapter 11

                                     - 2 -
<PAGE>

of the Bankruptcy Code with respect to the Company (the "Chapter 11 Case"), to
support confirmation of the Chapter 11 Plan, and to perform its other
obligations hereunder, if any.

     Whereas, to expedite and ensure the implementation of the Restructuring,
Servicios and each of the Supporting Holders acknowledge the necessity of the
Servicios Restructuring and are prepared to commit (as may be applicable), on
the terms and subject to the conditions of this Agreement and Applicable Law, to
support the approval and consummation of the Servicios Restructuring.

     Now, therefore, in consideration of the promises and the mutual covenants
and agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
each of the parties signatory to this Agreement, intending to be bound hereby,
agrees as follows:

     Section 1. Definitions.

     As used in this Agreement, the following terms shall have the following
meanings:

     "304 Proceeding" means that proceeding commenced ancillary to the Concurso
Proceeding pursuant to section 304 of the Bankruptcy Code in the Bankruptcy
Court by the Company on August 4, 2005 and styled as In re Satelites Mexicanos,
S.A. de C.V., Case No. 05-16103 (RDD).

     "304 Stipulation" means the Stipulation, Agreement and Order, a copy of
which is annexed as Annex G hereto, executed on behalf of the Company, the
Supporting FRN Holders, the Supporting Noteholders and Loral (together with its
affiliated entities) on or about the date hereof, in connection with the 304
Proceeding.

     "Accession Agreement" means the instrument of accession attached hereto as
Annex B.

     "Ad Hoc Senior Note Committee" means the informal committee of holders of
the Senior Notes, the members of which are set forth in Annex D hereto, that,
directly and through its legal and financial advisors, has negotiated the terms
of the Restructuring with the Company.

     "Ad Hoc FRN Committee" means the informal committee of holders of the FRNs,
the members of which are set forth in Annex D hereto, that, directly and through
its legal and financial advisors, has negotiated the terms of the Restructuring
with the Company.

     "Agreement" shall have the meaning ascribed to that term in the Preface and
shall include all annexes and exhibits hereto, all of which are incorporated by
reference herein, and all amendments and modifications made pursuant hereto.

     "Akin" shall have the meaning ascribed to that term in section 8(a) of this
Agreement.

     "Applicable Law" means, with respect to any Person, any Law applicable to
such Person or its business, properties or assets.

                                     - 3 -

<PAGE>

     "Article 980" shall have the meaning ascribed to that term in section
5A(a)(iv) of this Agreement.

     "Bankruptcy Code" means title 11 of the United States Code, 11 U.S.C.
Sections. 101-1532 (as may be amended).

     "Bankruptcy Court" means the United States Bankruptcy Court for the
Southern District of New York.

     "Bondholder Equity" shall have meaning ascribed to that term in the Term
Sheet.

     "Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in either New York City or Mexico City are authorized or
required by Applicable Law to close. Any event scheduled to occur on a day that
is not a Business Day shall be deferred until the next succeeding Business Day.

     "CAAYS" shall have the meaning ascribed to that term in section 8(a) of
this Agreement.

     "CAN" shall have the meaning ascribed to that term in section 8(a) of this
Agreement.

     "Chanin" shall have the meaning ascribed to that term in section 8(a) of
this Agreement.

     "Chapter 11 Case" shall have the meaning ascribed to that term in the
Recitals.

     "Chapter 11 Filing Deadline" shall mean July 14, 2006.

     "Chapter 11 Filing Trigger" shall have the meaning ascribed to that term in
section 3(b) of this Agreement.

     "Chapter 11 Order Date" shall mean the date that the Chapter 11 Plan Order
is entered on the Bankruptcy Court's docket.

     "Chapter 11 Plan" means a plan of reorganization of the Company filed in
the Chapter 11 Case, which plan shall be substantially on the terms and
conditions set forth in the Term Sheet, restructuring the debt and equity of the
Company.

     "Chapter 11 Plan Order" means an order by the Bankruptcy Court in the
Chapter 11 Case confirming the Chapter 11 Plan.

     "CNIE" means the Foreign Investments National Commission (Comision Nacional
de Inversiones Extranjeras) of Mexico.

     "COFECO" means the Federal Antitrust Commission (Comision Federal de
Competencia) of Mexico.

     "Committees" means the Ad Hoc FRN Committee and the Ad Hoc Senior Note
Committee, collectively.

     "Company" shall have the meaning ascribed to that term in the Preface.

                                     - 4 -

<PAGE>

     "Conciliador" shall have the meaning ascribed to that term in the Recitals.

     "Conciliador Termination Notice" shall have the meaning ascribed to that
term in section 2(b) of this Agreement.

     "Conciliador's Submission" means the submission by the Conciliador of the
Concurso Plan to the holders of Recognized Claims in accordance with the first
and second paragraphs of article 161 of the MBRA.

     "Concurso Filing Deadline" means the tenth (10th) Business Day following
the effective date of the Conciliador's Submission.

     "Concurso Filing Trigger" means the receipt by the Conciliador of executed
counterpart signature pages of the Concurso Plan from the Required Noteholders.

     "Concurso Plan" means a plan of reorganization (Convenio Concursal) of the
Company filed in the Concurso Proceeding, which plan shall (a) be substantially
on the terms and conditions set forth in the Term Sheet and (b) set forth the
manner for implementing the restructuring of the debt and equity of the Company
through consummation of the Chapter 11 Plan.

     "Concurso Plan Order" means a final and non-appealable order entered by the
Mexican Bankruptcy Court approving the Concurso Plan.

     "Concurso Proceeding" means the proceeding for the Company under the MBRA
currently pending before the Mexican Bankruptcy Court under file number
129/2005.

     "Confidential Information" shall have the meaning ascribed to that term in
section 5(b) of this Agreement.

     "Confirmation of Termination" shall have the meaning ascribed to that term
in section 2(b) of this Agreement.

     "Debt" means the term debt as defined in section 101(12) of the Bankruptcy
Code.

     "Designee" shall have the meaning ascribed to that term in section
5A(a)(iv) of this Agreement.

     "Disclosure Statement" means a disclosure statement for the Chapter 11 Plan
prepared in accordance with the requirements of section 1125 of the Bankruptcy
Code.

     "Effective Date" means the first Business Day on which (a) all conditions
precedent to the effectiveness of the Chapter 11 Plan have been satisfied or
waived pursuant to the terms of the Chapter 11 Plan and (b) the Chapter 11 Plan
Order has become a final non-appealable order.

     "Enlaces" shall have the meaning ascribed to that term in the Term Sheet.

                                     - 5 -

<PAGE>

     "Equity Documents" shall have the meaning ascribed to that term in section
11(b) of this Agreement.

     "Equity Holder Documents" shall have the meaning ascribed to that term in
section 11(f) of this Agreement.

     "Equity Trust" shall have meaning ascribed to that term in the Term Sheet.

     "Evercore" shall have the meaning ascribed to that term in section 8(h) of
this Agreement.

     "Existing Equity" means the issued and outstanding common stock (Series "A"
or "B"), the convertible preferred stock (Series "C") and the neutral investment
stock (Series "N"), which represent all of the Company's issued and outstanding
capital stock, identified on Exhibit C hereto.

     "Firmamento" means Firmamento Mexicano, S. de R.L. de C.V.

     "First Priority Senior Secured Notes" shall have the meaning ascribed to
that term in the Term Sheet.

     "First Priority Senior Secured Notes Documents" shall have the meaning
ascribed to that term in section 11(c) of this Agreement.

     "FRN Advisors" shall have the meaning ascribed to that term in section 8(a)
of this Agreement.

     "FRNs" means the Senior Secured Floating Rate Notes due June 30, 2004,
issued by the Company, in the aggregate outstanding principal amount of U.S.
$203,400,000 as of the date hereof.

     "FRN Collateral Trustee" shall have the meaning ascribed to such term in
section 4(a) of this Agreement.

     "Governmental Authority" means any entity exercising executive,
legislative, judicial, regulatory or administrative functions (or other similar
functions) of or pertaining to any national, federal, state, municipal, regional
or local government (whether foreign or domestic), including any governmental
authority, agency, department, board, commission or instrumentality or any
political subdivision thereof, and any tribunal, court or arbitrator(s) of
competent jurisdiction.

     "Grant Holders" shall have the meaning ascribed to that term in section
5A(a)(iv) of this Agreement.

     "Initial Draft" shall have the meaning ascribed to that term in section
5A(a)(iii) of this Agreement.

                                     - 6 -

<PAGE>

     "Intercreditor Agreement" shall have the meaning ascribed to that term in
section 11(e) of this Agreement.

     "Law" means any law (including common law), statute, code, ordinance, rule,
regulation or other requirement enacted, promulgated, issued or entered by any
Governmental Authority.

     "Lease Agreements" means collectively (i) that certain Agreement Concerning
the Lease of Transponders dated June 14, 2005, between the Company and Loral
Skynet, a division of Loral SpaceCom Corporation, as amended and (ii) that
certain Agreement Concerning the Lease of Transponders dated June 14, 2005,
between the Company and SS/L (as assignee of Loral Space & Communications
Corporation), as amended.

     "Local Rules" means the Local Bankruptcy Rules for the Bankruptcy Court.

     "Loral" shall have the meaning ascribed to that term in the Preface.

     "Loral Documents" means the documents set forth on Exhibit F hereto.

     "Loral Entities" shall have the meaning ascribed to that term in section
5A(a)(iv) of this Agreement.

     "Loral Grant" shall have the meaning ascribed to that term in section
5A(a)(iv) of this Agreement.

     "Loral Pledge" shall mean that certain pledge of 473,449 Series C,
Sub-Series C-1, shares of the Company pursuant to the Security Agreement, dated
November 21, 2005, by and among the Bank of New York, Loral Skynet Corporation
and certain subsidiaries of Loral Skynet Corporation signatories thereto to
secure Loral Skynet Corporation's 14% Senior Secured Notes due 2015.

     "Loral Settlement Agreements" means collectively (i) that certain
Settlement Agreement (the "Settlement Agreement") dated June 14, 2005, by and
among the Company, Loral Space & Communications Corporation, Loral SpaceCom
Corporation, Loral Skynet, a division of Loral SpaceCom Corporation, Loral
Skynet Network Services, Inc. and SS/L, (ii) the New Agreements (as defined in
the Settlement Agreement) and (iii) the Active Capacity Agreements (as defined
in the Settlement Agreement).

     "Loral Termination Notice" shall have the meaning ascribed to that term in
section 5A(a) of this Agreement.

     "Loral Transponders" means those transponders that are the subject of the
Lease Agreements.

     "Loral Usufructo" shall have the meaning ascribed to that term in section
5A of this Agreement.

     "MAH" shall have the meaning ascribed to that term in section 8(a) of this
Agreement.

                                     - 7 -

<PAGE>

     "Majority FRN Holders" means, as of any applicable date of determination,
holders of FRNs who are signatories to this Agreement that hold at least
fifty-one percent (51%) of the principal amount of all outstanding FRNs.

     "Majority Noteholders" means, as of any applicable date of determination,
holders of Senior Notes who are signatories to this Agreement that hold at least
fifty-one percent (51%) of the principal amount of all outstanding Senior Notes.

     "MBRA" means the Ley de Concursos Mercantiles, published in the Official
Gazette of the Federation (Diario Oficial de la Federacion) on May 12, 2000, as
amended from time to time.

     "Mexican Bankruptcy Court" means the Second Federal District Court for
Civil Matters in Mexico City, Mexico.

     "MXP" means pesos, the legal currency of Mexico.

     "Outside Date" means, with respect to the Concurso Plan Order, July 29,
2006; with respect to the Chapter 11 Plan Order, the date that is one hundred
and twenty (120) days from the date on which the Petition is filed with the
Bankruptcy Court by the Company; and, with respect to the Effective Date, the
date that is sixty (60) days from the Chapter 11 Order Date.

     "Person" means any individual, partnership, corporation, limited liability
company, association, trust, joint venture, unincorporated organization or other
entity.

     "Petition" means a voluntary petition for bankruptcy under chapter 11 of
the Bankruptcy Code to be filed by the Company to effectuate and implement the
Restructuring through the Chapter 11 Plan in accordance with section 3 of this
Agreement.

     "Plan and Approval Documents" shall have the meaning ascribed to that term
in section 11(a) herein.

     "Principia" shall have the meaning ascribed to that term in the Preface.

     "Recognition Judgment" shall have the meaning ascribed to that term in the
Recitals.

     "Recognized Claims" means those claims against the Company specified in the
Recognition Judgment and identified on Exhibit D hereto.

     "Required FRN Holders" means, as of any applicable date of determination,
holders of FRNs that hold at least sixty-seven percent (67%), in the aggregate,
of the principal amount of all outstanding FRNs.

     "Required Noteholders" means, as of any applicable date of determination,
holders of Senior Notes that hold at least sixty-seven percent (67%), in the
aggregate, of the principal amount of all outstanding Senior Notes.

                                     - 8 -

<PAGE>

     "Restructuring" means the restructuring of the debt and equity of the
Company substantially on the terms and conditions set forth in the Term Sheet
and as otherwise provided in this Agreement through the (i) Concurso Plan and
(ii) Chapter 11 Plan.

     "Restructuring Documents" shall have the meaning ascribed to that term in
section 11(g) of this Agreement.

     "Satmex 5 Satellite" means Satmex's satellite referred to as "Satmex 5."

     "Satmex 6 Satellite" means the Satmex 6 satellite provided to the Company
pursuant to the contract dated June 14, 2005 (as amended), between SS/L and the
Company.

     "SCT" means the Ministry of Communication and Transportation (Secretaria de
Comunicaciones y Transportes) of Mexico.

     "Second Priority Senior Secured Notes" shall have the meaning ascribed to
that term in the Term Sheet.

     "Second Priority Senior Secured Notes Documents" shall have the meaning
ascribed to that term in section 11(d) of this Agreement.

     "Securities" means the FRNs, the Senior Notes and the Existing Equity.

     "Securities Act" means the Securities Act of 1933, as amended.

     "Senior Note Advisors" shall have the meaning ascribed to that term in
section 8(a) of this Agreement.

     "Senior Notes" means the 10-1/8% Unsecured Senior Notes due November 1,
2004, issued by the Company, in the aggregate outstanding principal amount of
U.S. $320,000,000 as of the date hereof.

     "Servicios" shall have the meaning ascribed to that term in the Preface.

     "Servicios Proceeding" means the proceeding for Servicios under the MBRA
currently pending before the Mexican Bankruptcy Court, which proceeding shall
reflect the terms and conditions set forth in the Term Sheet, and which
proceeding shall be converted from the conciliation phase to the quiebra phase
in accordance with this Agreement.

     "Servicios Restructuring" means the liquidation of the assets of Servicios
in the Servicios Proceeding through the transfer by the liquidator (sindico) to
the Mexican Government of the rights of Servicios under the Equity Trust to
receive payment of any amounts resulting from the future sale or disposition of
the shares to be contributed and the shares underlying the interests to be
contributed by Servicios to such Equity Trust in full satisfaction of the
obligation of Servicios to the Mexican Government arising from that certain
agreement dated December 29, 1997 (the "Menoscabo").

     "Sitrick" shall have the meaning ascribed to that term in section 8(a) of
this Agreement.

                                     - 9 -

<PAGE>

     "Solicitation Materials" means the Disclosure Statement, ballots to vote
for or against the Chapter 11 Plan and other related materials that are
distributed by the Company in accordance with an order of the Bankruptcy Court
authorizing, among other things, procedures for the solicitation of votes on the
Chapter 11 Plan.

     "SS/L" means Space Systems/Loral Inc., a corporation organized under the
laws of the State of Delaware.

     "Subsequent Concurso Proceeding" shall have the meaning ascribed to that
term in section 3(f) of this Agreement.

     "Successive Draft" shall have the meaning ascribed to that term in section
5A(a)(iii) of this Agreement.

     "Supporting Equity Holders" shall have the meaning ascribed to that term in
the Preface.

     "Supporting FRN Holders" shall have the meaning ascribed to that term in
the Preface.

     "Supporting Holder" and "Supporting Holders" shall each have the meaning
ascribed to such term in the Preface.

     "Supporting Noteholders" shall have the meaning ascribed to that term in
the Preface.

     "Target" means each item under the column "Target" in the attached Annex C,
hereto.

     "Target Date" means with respect to each Target that certain date under the
column "Target Date" associated with such Target as further described in Annex
C, hereto.

     "Term Sheet" means that certain term sheet, including any exhibits or
schedules thereto, attached hereto as Annex A, that sets forth the material
terms and conditions of the Restructuring.

     "Termination Date" shall have the meaning ascribed to that term in section
33 of this Agreement.

     "Transfer" means to, directly or indirectly (whether by one or more
transactions), (i) lend, offer, sell, pledge, assign, encumber, grant any option
or any right with respect to, transfer or otherwise dispose of any participation
or interest (whether a voting interest, an economic interest or otherwise) in or
(ii) enter into an agreement, commitment or other arrangement to lend, offer,
sell, pledge, assign, encumber, grant any option or any right with respect to,
transfer or otherwise dispose of any participation or interest (whether a voting
interest, an economic interest or otherwise) in, or the act thereof; provided,
however, that the grant of any option or any right with respect to, or any
participation or interest in, any of the Senior Notes or FRNs shall not be
deemed a "Transfer" hereunder so long as the transferor Supporting Noteholder or
Supporting FRN Holder, as applicable, retains the absolute right to vote such
Senior Notes or FRNs, including the absolute right to vote such Senior Notes or
FRNs in support of the Restructuring as contemplated herein (including the
actions set forth in section 5(a) of this Agreement) until the end of the
Transfer Restriction Period.

                                     - 10 -

<PAGE>

     "Transferor Obligation" shall have the meaning ascribed to that term in
section 5(c) of this Agreement.

     "Transfer Restriction Period" shall have the meaning ascribed to that term
in section 5(c) of this Agreement.

     "WilmerHale" shall have the meaning ascribed to that term in section 8(a)
of this Agreement.

     Section 2. Agreement to Complete Restructuring and Consummate Concurso Plan
and Chapter 11 Plan.

          (a) Subject to the terms and conditions of this Agreement, the parties
to this Agreement agree to use their commercially reasonable efforts to
effectuate the Restructuring, as expeditiously as practicable, under the MBRA,
the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, the Local Rules
and other Applicable Law, through the execution and approval of the Concurso
Plan and the consummation of the Chapter 11 Plan. With respect to the Concurso
Plan, the requisite acceptances and executions will be solicited pursuant to the
requirements of the MBRA. The parties to this Agreement acknowledge that the
Concurso Plan will set forth the final framework for the Restructuring but not
implement the restructuring of the debt or equity of the Company, which will be
restructured on the Effective Date.

          (b) The Concurso Plan shall not be binding upon any Supporting FRN
Holder or Supporting Noteholder that is a party to both this Agreement and the
Concurso Plan if, prior to the Effective Date, the Conciliador delivers a notice
(pursuant to the procedures immediately below) to the Mexican Bankruptcy Court
stating that this Agreement has terminated pursuant to its terms as to such
Supporting FRN Holder or Supporting Noteholder (the "Conciliador Termination
Notice"). Upon the good faith termination of this Agreement pursuant to its
terms by any Supporting FRN Holder or Supporting Noteholder, such Supporting FRN
Holder or Supporting Noteholder may deliver a certificate to the Company, its
U.S. counsel and the Conciliador stating that this Agreement has terminated
pursuant to its terms with respect to such Supporting FRN Holder or Supporting
Noteholder. Upon receipt of such certificate, the Company shall have, for
purposes of preventing delivery of the Conciliador Termination Notice, three (3)
Business Days to challenge the validity of such termination. If the Company
challenges the validity of such termination, the Conciliador shall not be
obligated to deliver the Conciliador Termination Notice unless the Supporting
FRN Holder or Supporting Noteholder has obtained an order of a court of
competent jurisdiction confirming the termination, as duly evidenced to the
Conciliador by written notice delivered pursuant to section 16 hereof, which
notice shall be accompanied by a copy of such order and all appropriate legal
documentation, if any, required by such court order (such notice, the
"Confirmation of Termination"). The Conciliador shall deliver a Conciliador
Termination Notice as to the applicable Supporting FRN Holder or Supporting
Noteholder to the Mexican Bankruptcy Court promptly upon (a) expiration of the
three (3) Business Day objection period so long as the Conciliador did not
receive within such period written notice delivered pursuant to section 16
hereof evidencing that the Company objected within the objection period or (b)
receiving a Confirmation of Termination if the Company did object within the
objection period. The delivery of the Conciliador Termination Notice

                                     - 11 -

<PAGE>

following the commencement of the Chapter 11 Case shall not affect the Chapter
11 Case in any manner.

          (c) With respect to the Chapter 11 Plan, the requisite acceptances
will be solicited after the Company commences the Chapter 11 Case and in
accordance with the Bankruptcy Code and other Applicable Law. The parties to
this Agreement acknowledge that this Agreement is not a "convenio particular"
under Article 154 of the MBRA and that this Agreement shall be void ab initio in
the event that a court of competent jurisdiction enters a final order holding
otherwise.

     Section 3. Company's Obligations to Support Restructuring.

     The Company agrees that:

          (a) It shall use commercially reasonable efforts to propose, execute,
and seek creditor, Mexican Bankruptcy Court, and all other necessary approvals
(including all necessary government approvals) of the Concurso Plan and shall
seek entry of the Concurso Plan Order as promptly as practicable and in no event
later than the Outside Date; provided, however, that the Company shall not be
required to execute the Concurso Plan until the Conciliador has received
counterpart signature pages of the Concurso Plan executed by the Required FRN
Holders and the Required Noteholders.

          (b) It shall move to dismiss the 304 Proceeding and commence the
Chapter 11 Case to effectuate and implement the Restructuring through the
Chapter 11 Plan within five (5) Business Days following the entry of the
Concurso Plan Order (the "Chapter 11 Filing Trigger").

          (c) It shall use commercially reasonable efforts to (i) obtain the
approval by the Bankruptcy Court of the Disclosure Statement with respect to the
Chapter 11 Plan within forty-five (45) days of filing of the Petition and (ii)
cause the Chapter 11 Plan Order to be entered within one hundred and twenty
(120) days of filing of the Petition.

          (d) Subject to the terms and conditions set forth in this Agreement,
it shall perform its obligations hereunder and under the Term Sheet.

          (e) Except as required by Applicable Law, it will not take any action
(including, without limitation, any filing, pleading or other action in
connection with the Concurso Proceeding or Servicios Proceeding) that is
inconsistent with the implementation and effectuation of the Restructuring, the
Servicios Restructuring, the Concurso Plan or the Chapter 11 Plan in accordance
with this Agreement, nor take any action that would unreasonably delay the
consummation of the Restructuring, the Servicios Restructuring, the Concurso
Plan or the Chapter 11 Plan.

          (f) In the event that (i) the Effective Date has not occurred, (ii)
the Concurso Proceeding remains open or is continued, reactivated, or reopened,
or otherwise is or becomes pending, or any other or new proceeding under the
MBRA or successor statute in which the Company is the debtor is or becomes open,
pending, or active (such continued, reactivated, reopened, open, pending, or
active Concurso Proceeding or proceeding being a "Subsequent Concurso
Proceeding"), and (iii) this Agreement has been terminated as to all parties
hereto

                                     - 12 -

<PAGE>

(other than a termination of this Agreement pursuant to section 33 hereof), the
parties to this Agreement hereby, subject to Applicable Law, waive and agree to
terminate (and to take all necessary actions to terminate) the conciliation
phase (as defined in Title V of the MBRA) of the Subsequent Concurso Proceeding;
provided, however, that such waiver and termination shall not take effect, and
the conciliation phase of the Subsequent Concurso Proceeding shall not be waived
or terminated, until the later of (x) the date that this Agreement is terminated
as to all parties hereto in accordance with the terms hereof, and (y) July 27,
2006. Notwithstanding anything to the contrary in this Agreement, this paragraph
shall survive the termination of this Agreement.

          (g) It shall use its reasonable best efforts to cause the Conciliador
to file the Concurso Plan with the Mexican Bankruptcy Court as soon as both the
Required FRN Holders and the Required Noteholders accept and execute the
Concurso Plan.

     Section 4. Conduct of Business Pending Consummation of Chapter 11 Plan.

     From and after the date hereof until the earlier of the (i) termination of
this Agreement in accordance with the terms specified herein and (ii) Effective
Date, the Company agrees to comply with the following covenants, unless
compliance is waived by a majority of the Supporting FRN Holders and a majority
of the Supporting Noteholders; provided, however, that only a majority of the
Supporting FRN Holders is necessary to waive the requirements of section 4(d)
below:

          (a) The Company shall not directly or indirectly take any action to or
suffer or permit any Person to do any of the following: (i) except that the
Company may, solely to the extent required to effect the Restructuring,
including any transactions set forth in the Term Sheet, (A) issue, sell, pledge,
dispose of or encumber any additional shares of, or any options, warrants,
conversion privileges or rights of any kind to acquire any shares of, its
capital stock, (B) materially amend its by-laws (estatutos sociales), (C) split,
combine or reclassify any outstanding shares of its capital stock, or declare,
set aside or pay any dividend or other distribution payable in cash, stock,
property or otherwise with respect to any of its shares of capital stock, (D)
redeem, purchase or acquire or offer to acquire any of its shares of capital
stock, (E) acquire, transfer, or sell (by merger, exchange, consolidation,
acquisition of stock or assets or otherwise) any corporation, partnership, joint
venture or other business organization or division, material asset thereof or
interest therein, (F) incur any indebtedness for borrowed money outside the
ordinary course of business consistent with prior business practices or issue
any debt securities outside the ordinary course of business consistent with
prior business practices and consistent with the allowance originally provided
for in the indentures pursuant to which the FRNs and Senior Notes were issued,
(G) enter into any transaction with any affiliate of the Company or its
shareholders (including Loral, Principia and their respective affiliates) other
than pursuant to existing agreements, (H) redeem, purchase or acquire or offer
to acquire any of the FRNs or Senior Notes; provided, however, that,
notwithstanding the foregoing and subject to the approval of the Majority
Noteholders, the Company may at any time redeem the FRNs, (I) increase the
compensation payable or to become payable to, or grant any severance or
termination pay or stay bonus to, any executive officer or director of the
Company except as agreed in connection with the Restructuring, (J) cancel or
terminate any applicable material insurance policy naming the Company as a
beneficiary or the Company or the collateral trustee

                                     - 13 -

<PAGE>

for the FRNs (the "FRN Collateral Trustee") as a loss payee, (K) take any action
to modify, amend or cancel, any concession or other license from the Mexican
Government or any landing right agreements or concessions with any other country
necessary for the continued operation of the Company's satellite communications
network in the same manner as the Company operates such network on the date
hereof, or (L) transfer, sell, or otherwise dispose of any assets outside the
ordinary course of business consistent with prior practices; (ii) enter into any
material agreement or material arrangement, or materially modify any agreement
or arrangement, with any banker, advisors, consultants or attorney of the
Company in connection with any matter relating to the Restructuring or any
merger or acquisition of the Company or its assets; (iii) enter into any
agreement, arrangement or understanding to pay or provide to the holder of any
of the Company's Securities or any affiliate thereof, directly or indirectly,
any fee, expense or other payment or compensation, in connection with the
Restructuring or any part thereof; provided, however, that, upon notice to
counsel to the respective Committees, the Company shall be permitted to enter
into any such agreement, arrangement or understanding if such agreement,
arrangement or understanding is on equally or more favorable terms to the
Company than any agreement, arrangement or understanding to which the Company is
a party as of the date hereof; or (iv) enter into or propose to enter into, or
modify or propose to modify, any agreement, arrangement or understanding
inconsistent with the matters set forth in this section 4(a).

          (b) The Company shall not directly or indirectly engage in, agree to
or consummate any transaction outside the ordinary course of its business;
provided, however, that nothing herein shall limit the Company's ability to (i)
pay or otherwise satisfy all of the Recognized Claims (other than those related
to or connected with the FRNs and Senior Notes) immediately prior to the filing
of the Petition with the Bankruptcy Court or (ii) take such action as is
reasonably required to effect the Restructuring, including any transactions set
forth in this Agreement or the Term Sheet. For the avoidance of doubt, any
action taken by the Company consistent with industry practices to protect the
Satmex 6 Satellite during launch shall constitute activities conducted in the
ordinary course of business.

          (c) The Company shall (i) maintain its legal existence under the Laws
of Mexico and (ii) notify the Committees' respective counsel of any governmental
or third party complaints, investigations or hearings (or communications
indicating that the same may be contemplated or threatened) regarding the
Company, which could reasonably be anticipated to materially adversely affect
the business, property, or financial condition of the Company and its
subsidiaries considered as one enterprise.

          (d) The Company shall not launch the Satmex 6 Satellite until the
Concurso Filing Trigger has occurred; provided, however, that the restriction
provided for in this section 4(d) shall not apply if the Concurso Filing Trigger
does not occur due to (x) a breach by any Supporting FRN Holder or Supporting
Noteholder, or (y) the failure of the Required FRN Holders to (A) sign this
Agreement or (B) otherwise become irrevocably bound to support the Restructuring
(including to vote to accept the Chapter 11 Plan).

          (e) The Company shall use commercially reasonable efforts to keep the
FRN Advisors and Senior Note Advisors informed of any material development
concerning its negotiations with the Mexican Government on the Restructuring or
any of the concessions granted to the Company by the Mexican Government or
landing rights with other countries

                                     - 14 -

<PAGE>

reasonably necessary for the continued operation of the Company's satellite
communications network as operated on the date hereof.

          (f) The Company shall insure the Satmex 6 Satellite in accordance with
Annex E, which insurance shall name the FRN Collateral Trustee as loss payee
and, to the extent the insurers will permit, as an additional insured. The
Company shall use its reasonable best efforts to cause the insurers to name the
FRN Collateral Trustee as additional insured. Prior to the launch of the Satmex
6 Satellite, the Company shall provide counsel to the Ad Hoc FRN Committee and
counsel to the Ad Hoc Senior Note Committee with an insurance certificate
demonstrating the Company's compliance with the first sentence of this
paragraph.

     Section 5. Supporting Holders' Obligations to Support Restructuring,
Concurso Plan and Chapter 11 Plan.

     From and after the date hereof and until the earlier of the (i) termination
of this Agreement in accordance with the terms specified herein and (ii)
Effective Date:

          (a) Each Supporting FRN Holder and Supporting Noteholder agrees to (i)
execute or cause to be executed the Concurso Plan and deliver to the Concilador
counterpart signature pages of the Concurso Plan promptly, but (A) with respect
to the Supporting FRN Holders, no later than eight (8) Business Days after the
effective date of the Conciliador's Submission and (B) with respect to the
Supporting Noteholders, no later than ten (10) Business Days after the effective
date of the Conciliador's Submission (provided, however, that no Supporting
Noteholder shall be required to execute the Concurso Plan unless Required FRN
Holders (1) sign this Agreement or (2) otherwise become irrevocably bound to
support the Restructuring (including to vote to accept the Chapter 11 Plan)) and
(ii) vote (or, in the case of managed accounts, instruct the custodial agent to
vote) to accept the Chapter 11 Plan promptly upon receipt of the Solicitation
Materials (but in all events before any deadlines for submitting such votes),
and to vote or take any other action (or, in the case of managed accounts,
instruct the custodial agent to vote) to reject any other bankruptcy plan,
convenio concursal, restructuring, reorganization, liquidation or similar
arrangement (in whatever jurisdiction proposed) that does not contain the terms
of the Restructuring substantially as set forth in the Term Sheet.

          (b) Each Supporting FRN Holder and Supporting Noteholder agrees,
subject to the provisions of this section 5(b) and Annex F hereto, that it shall
not, directly or indirectly, use (other than solely in connection with the
evaluation of, negotiation of or voting with respect to the Restructuring) or
disclose to any Person any information relating to the transactions contemplated
hereby or any information included herein including, without limitation, the
existence of this Agreement or the Term Sheet or any of the transactions
contemplated therein (such information being referred to herein as "Confidential
Information"). Each Supporting FRN Holder that is a party to that certain
confidentiality agreement with the Company, dated January 30, 2006, and
Supporting Noteholder that is a party to that certain confidentiality agreement
with the Company, dated November 30, 2005 (whether expired pursuant to its terms
or not), agrees, pending termination of this Agreement (either in its entirety
or with respect to such individual holder), to keep in strict confidence all
information previously provided to it regarding the Company pursuant to the
terms of such confidentiality agreement, and agrees that

                                     - 15 -

<PAGE>

the "Disclosure Date" under any such agreement shall be the date of termination
of this Agreement.

          (c) Each Supporting Holder (except in the case of the Loral Pledge or
any exercise of rights by the secured party or collateral trustee in connection
therewith) hereby agrees that it shall not Transfer any Securities.
Notwithstanding the foregoing, except for the period beginning five (5) days
prior to the Conciliador's Submission (such date to be set forth in a notice
from the Company to counsel for the Committees) and ending upon the expiration
of the five (5) Business Day period referred to under article 162 of the MBRA
(or, if such five (5) Business Day period does not commence within twenty (20)
Business Days following the Conciliador's Submission, then the end of such
twenty (20) Business Day period) (the "Transfer Restriction Period"), any
Supporting FRN Holder or Supporting Noteholder may Transfer any Securities so
long as (i) the transferee agrees in writing to be bound by all of the terms and
conditions of this Agreement by executing the Accession Agreement attached
hereto as Annex B and/or a counterpart signature page to this Agreement in
accordance with section 25 below and (ii) to the extent such transfer is made
prior to the commencement of the Transfer Restriction Period, the transferee
provides the Company with certifications of the record holders (e.g., DTC or
Euroclear) and, if applicable, the custodian and the transferee evidencing the
beneficial ownership of the FRNs or Senior Notes (as applicable) transferred
thereby as soon as practicable following the effectiveness of the Transfer, but
in no circumstances later than two (2) Business Days after the effectiveness of
such Transfer. The transferee Supporting FRN Holder or Supporting Noteholder
must provide a copy of such executed Accession Agreement and/or signature page
to this Agreement within three (3) Business Days after the effectiveness of any
Transfer to any transferee; provided, however, that, from the date of such
Transfer to the date such transferee executes and delivers the Accession
Agreement and/or signature page to this Agreement to the Company, the transferor
Supporting FRN Holder or Supporting Noteholder shall remain fully liable for any
and all obligations of such transferee under this Agreement (including without
limitation any failure to act or breach hereunder) (the "Transferor
Obligation"). Subject to compliance with this section 5(c), (i) nothing
contained in this Agreement shall affect or restrict the right of a Supporting
FRN Holder or Supporting Noteholder to Transfer its Securities and (ii) upon the
transfer by a Supporting FRN Holder or Supporting Noteholder of all of its
Securities in compliance with the terms of this Agreement, such Supporting FRN
Holder or Supporting Noteholder shall have no further obligation or liability
hereunder other than for any default by such Supporting FRN Holder or Supporting
Noteholder that occurred prior to the effectiveness of the Transfer or the
Transferor Obligation. Additionally, except for Supporting FRN Holders that are
not domiciled in the United States of America, each Supporting FRN Holder hereby
agrees that prior to delivery of its vote to accept the Chapter 11 Plan, it
shall not, without the prior written consent of the Company (not to be
unreasonably withheld), Transfer any Securities to a transferee unless the
transferee is (x) a Person domiciled in the United States of America or with a
place of business in the United States of America, (y) is a fund managed by a
person domiciled in the United States of America or with a place of business in
the United States of America or (z) a Supporting FRN Holder or another holder
that has become party to this Agreement by executing the Accession Agreement
attached hereto as Annex B and/or a counterpart signature page to this Agreement
in accordance with section 25 below. Notwithstanding the foregoing, following
the performance by the Supporting Equity Holders of all obligations to be
performed hereunder, the Supporting Equity Holders may seek to cause the
transfer of the shares of Firmamento and Servicios directly or indirectly held
by

                                     - 16 -

<PAGE>

them as necessary for tax purposes, as provided under the Term Sheet. For the
avoidance of doubt, any Transfer of the Senior Notes or FRNs that does not
comply with this section 5(c) shall be deemed ineffective to transfer any right
to accept or reject the Concurso Plan and Chapter 11 Plan, which right shall
remain with and be exercised only by the purported transferor.

          (d) No Supporting Holder may revoke, withdraw or modify the execution
of the Concurso Plan or any ballot tendered in connection with a vote to accept
the Chapter 11 Plan; provided, however, that prior to the Effective Date, if any
term or condition of the Chapter 11 Plan or Concurso Plan is modified, amended,
or waived in any material respect, a Supporting Holder shall have the right to
revoke, withdraw, or modify its vote to the extent that such vote may be
revoked, withdrawn or modified under Applicable Law unless such modification,
amendment, or waiver has been approved pursuant to section 13 hereof.

          (e) Each Supporting Holder agrees that (i) it will not, directly or
indirectly, execute, vote (or, in the case of managed accounts, instruct the
custodial agent to vote) for, consent to, provide any support for, participate
in the formulation of, or solicit or encourage others to formulate any
bankruptcy plan, convenio concursal, restructuring, reorganization, liquidation
or similar arrangement (in whatever jurisdiction proposed) for the Company or of
any of its affiliates other than the Restructuring, the Concurso Plan, the
Chapter 11 Plan and the Servicios Restructuring, (ii) in the case of the
Supporting FRN Holders and the Supporting Noteholders, it will use its
commercially reasonable efforts to cause all of the members of the Ad Hoc FRN
Committee and/or the Ad Hoc Senior Note Committee (as applicable) to take all
actions necessary to effectuate the Restructuring and consummate the Concurso
Plan and the Chapter 11 Plan; provided, however, that nothing herein shall
require the Supporting FRN Holders or Supporting Noteholders to indemnify the
indenture trustee for the FRNs or Senior Notes or the FRN Collateral Trustee, as
applicable, (iii) in the case of the Supporting FRN Holders, it will use its
commercially reasonable efforts to cause all of the members of the Ad Hoc FRN
Committee to take all actions necessary to effectuate the Servicios
Restructuring and, except as otherwise required to effect the Servicios
Restructuring, each Supporting FRN Holder shall not, directly or indirectly
through the FRN Collateral Trustee, take or cause to be taken, by exercise of
rights under the stock trusts securing the guarantees of the FRNs, any
shareholder action of Servicios; provided, however, that nothing herein shall
require the Supporting FRN Holders to indemnify the FRN Collateral Trustee, (iv)
it will support the Restructuring and approval of the Concurso Plan and the
Chapter 11 Plan including without limitation, in the case of the Supporting
Equity Holders, to vote (or cause to be voted) their direct and indirect shares
of Existing Equity in support of the Restructuring and to approve the Concurso
Plan; provided, however, that the Supporting Equity Holders shall vote (or cause
to be voted by the exercise of rights under the stock trusts securing the
guarantees of the FRNs or the Menoscabo or otherwise) their indirect shares of
Existing Equity only if they have the right to vote such shares and only if the
voting of such shares is not reasonably likely to lead based on the advise of
counsel to the incurrence of any liability of the Supporting Equity Holders as a
result thereof and (v) subject to section 30 hereof, it will permit public
disclosure, in a mutually agreed upon press release of the contents of this
Agreement (including, but not limited to, the commitments given in this section
5 and the Term Sheet).

          (f) Each Supporting Holder further agrees that it will not object to,
or otherwise commence any proceeding to oppose, the Restructuring or the
Concurso Plan or

                                     - 17 -
<PAGE>

Chapter 11 Plan or the Servicios Restructuring and shall not
take any action in opposition to, or that would unreasonably delay the
consummation of, the Restructuring or the Concurso Plan or Chapter 11 Plan or
the Servicios Restructuring.

          (g) Each Supporting Holder further agrees that any and all Securities
acquired by such Supporting Holder following the date of this Agreement shall be
subject to the terms and conditions of this Agreement and shall be subject to
the same treatment as the Securities held by such Supporting Holder as of the
date hereof. Notwithstanding anything contrary to the foregoing, each Supporting
Holder that acquires or disposes of any Securities after the date hereof shall
promptly send a written notice to the other parties hereto specifying the type,
amount and/or number (as applicable) of Securities acquired or disposed.

          (h) Each Supporting Holder further agrees that it will not request (or
support any other Supporting Holder or other party requesting) or otherwise file
any motion or commence any action or proceeding, seeking adequate protection.

          (i) Each Supporting Noteholder agrees that it will cause its appeal of
the Recognition Judgment to be withdrawn on or before the submission of the
Concurso Plan to the Mexican Bankruptcy Court by the Conciliador.

          (j) Except as otherwise required to effect the Restructuring, each
Supporting FRN Holder shall not, directly or indirectly through the FRN
Collateral Trustee, take or cause to be taken, by exercise of rights under the
stock trusts securing the guarantees of the FRNs, any shareholder action of the
Company including, among others, any of the actions mentioned in section 4.

          (k) For the avoidance of doubt, nothing in this Agreement shall, or
shall be construed to, impose any restriction or limitation on the ability of
any party to the Loral Settlement Agreements to enforce its rights or to
exercise its remedies in respect of the Loral Settlement Agreements and such
party shall incur no liability under this Agreement for the enforcement of its
rights or exercise of its remedies in respect of the Loral Settlement
Agreements.

          (l) The Supporting Holders hereby consent (to the extent such consent
is required) to (i) the representation of Servicios by Javier Quijano Baz and/or
Alfonso Martin Lopez Melih in the Servicios Proceeding and (ii) the appointment
of Thomas Stanley Heather Rodriguez as conciliador and/or sindico in the
Servicios Proceeding; provided, however, that such persons will not be
compensated for such services other than for all reasonable out-of-pocket
expenses incurred in connection with the Servicios Proceeding, which shall be
borne by the Company in accordance with section 8(k) hereof. Nothing in this
paragraph will affect payment of the Conciliador's fees, as provided under
section 8(o) hereof.

          (m) The Supporting Holders hereby consent to the payment by the
Company of success fees to the Company's advisors in accordance with the
retention agreements of such advisors as amended as of the date hereof, in each
case that have been provided to the FRN Advisors and Senior Note Advisors by the
Company.

                                     - 18 -
<PAGE>

          (n) The Supporting FRN Holders and the Supporting Noteholders hereby
consent to the execution of the 304 Stipulation by the Company.

     Section 5A. Loral's Obligation to Support Restructuring, Concurso Plan and
Chapter 11 Plan.

          (a) Notwithstanding anything to the contrary set forth herein, this
Agreement may be terminated by Loral as to itself only, if any of the following
shall not have occurred or not have been complied with in all respects:

          (i) The 304 Stipulation shall become a final and non-appealable order
     by May 9, 2006 and time is of the essence with respect thereto.

          (ii) The provisions of the 304 Stipulation shall have been fully
     complied with.

          (iii) The Loral Documents and the Equity Documents shall be in form
     and substance reasonably satisfactory to counsel to Loral on or before the
     respective effective dates of such documents. Loral shall be provided with
     an initial draft of each of the Loral Documents and the Equity Documents
     (each, an "Initial Draft") at the same time such Initial Draft is provided
     to counsel for any of the Supporting Holders but in no event later than
     forty-five (45) days prior to the earlier of (I) the respective effective
     date of each Loral Document or Equity Document and (II) the Effective Date.
     Loral shall only be permitted to terminate this Agreement pursuant to this
     section 5A(a)(iii) if (x) Loral is not provided with an Initial Draft as
     specified in the immediately preceding sentence, (y) after provision of
     notice to the Company that an Initial Draft is not in form and/or substance
     reasonably satisfactory to Loral, Loral does not receive a successive draft
     (a "Successive Draft") of such Initial Draft within five (5) Business Days,
     or (z) if such Successive Draft is not in form and/or substance reasonably
     satisfactory to Loral, and Loral notifies the Company of such termination
     within ten (10) Business Days of receipt of such Successive Draft.

          (iv) On the Effective Date, the Company shall grant to certain
     affiliates of Loral as designated by Loral (the "Loral Entities") a
     usufructo under Articles 980 et seq. of Mexico's Federal Civil Code
     ("Article 980") (the "Loral Usufructo") with respect to the Loral
     Transponders (the "Loral Grant"), which Loral Grant shall conform to the
     requirements set forth herein and in the Term Sheet. Each of the parties to
     this Agreement agrees that (a) consistent with Mexican law, the Loral
     Usufructo shall constitute an in rem property right whereby the Loral
     Entities and their assignees (collectively, the "Grant Holders") are
     entitled to the quiet use and enjoyment of the Loral Transponders for (x)
     the life of the Satmex 6 Satellite as to the Loral Transponders on the
     Satmex 6 Satellite and (y) the life of the Satmex 5 Satellite as to the
     Loral Transponders on the Satmex 5 Satellite; (b) as a consequence of the
     Loral Usufructo and consistent with Mexican law, the Loral Transponders
     cannot, under any circumstances, including, without limitation, in an
     insolvency, bankruptcy or similar proceeding under Mexican or U.S. law, be
     sold, transferred, pledged or otherwise disposed of free and clear of the
     usufructo embodied in the Loral Grant and any purchaser or transferee
     thereof takes subject to the Loral Usufructo; provided, however, that
     solely in the event the Grant Holders determine to accept the Sale Proceeds
     (as defined in the Term Sheet) in exchange for the termination and
     extinguishment

                                     - 19 -

<PAGE>

     of the Loral Usufructo as provided herein and in the Term Sheet, the
     collateral trust agreements shall provide and the collateral trustee under
     the First Priority Senior Secured Notes and/or Second Priority Senior
     Secured Notes, as applicable, shall be irrevocably directed to pay the Sale
     Proceeds to the applicable Grant Holders; (c) the Grant Holders may take
     any action necessary to enforce their rights under the Loral Usufructo
     against the Company, its successors and assigns, or any other party in any
     context; (d) each party to this Agreement and any party with an interest in
     or claim to the Satmex 5 Satellite or the Satmex 6 Satellite shall be
     subject to and shall not foreclose and shall waive any right to foreclose
     the Loral Usufructo in the Loral Transponders; (e) in any proceeding
     outside Mexico with respect to (x) the subject matter of this section
     5A(a)(iv), (y) the Loral Usufructo or the Loral Grant or (z) the Satmex 5
     Satellite or the Satmex 6 Satellite as it relates to the rights of the
     Grant Holders in the Loral Transponders, the parties to this Agreement
     hereby irrevocably agree that Luis A. Nicolau or such other designee
     selected by the Grant Holders (the "Designee"), which Designee shall be
     reasonably acceptable to Satmex and the collateral trustees for the First
     Priority Senior Secured Notes and Second Priority Senior Secured Notes,
     shall be the sole expert on Mexican law (specifically including Article
     980) and agree that Mr. Nicolau or such Designee will be the only witness
     (expert or otherwise) that may submit evidence including, without
     limitation, any expert report, testimony or opinion, for all purposes in
     interpreting, enforcing or otherwise explaining the Mexican Federal Civil
     Code, including Article 980 thereof, with respect to the Loral Usufructo
     and the Loral Grant or the parties' rights in respect thereof (and each
     party shall waive any right to call any other witness in respect of these
     matters); (f) each of the parties to this Agreement is and shall be
     estopped from arguing or taking any position that the Loral Usufructo
     embodied in the Loral Grant is other than as expressly described herein;
     and (g) in any dispute (in any court or other proceeding whether in Mexico,
     the United States or otherwise) with respect to the Loral Usufructo
     embodied in the Loral Grant, the laws of Mexico shall apply in connection
     with the interpretation, enforceability and application of the Loral
     Usufructo, and such application of Mexican law is to be considered to the
     fullest extent under Rule 44.1 of the Federal Rules of Civil Procedure and
     Rule 9017 of the Federal Rules of Bankruptcy Procedure, as may be
     applicable.

          (v) A provision identical in substance to that set forth above in
     section 5A(a)(iv) shall be contained in each of (a) the collateral trust
     agreement relating to the First Priority Senior Secured Notes, (b) the
     collateral trust agreement relating to the Second Priority Senior Secured
     Notes, (c) the security agreement entered between the Company and the
     collateral trustee in favor of the First Priority Senior Secured Notes and
     (d) the security agreement entered by the Company and the collateral
     trustee in favor of the Second Priority Senior Secured Notes.

          (vi) The parties to the Loral Settlement Agreements shall timely
     perform their material obligations under the Loral Settlement Agreements,
     including without limitation making payments when due, and with respect to
     the Company, complying with section 1C of the Lease Agreement regarding the
     Satmex 5 Satellite and section 1D of the Lease Agreement regarding the
     Satmex 6 Satellite; provided, however, that Loral shall not be entitled to
     terminate this Agreement pursuant to this section 5A(a)(vi) unless the
     failure to timely perform material obligations under the Loral Settlement
     Agreements extends beyond

                                     - 20 -

<PAGE>

     the expiration of any applicable notice and cure periods under the Loral
     Settlement Agreements but; provided, however, that Loral shall be entitled
     to suspend performance under this Agreement until such default has been
     cured.

          Notwithstanding the foregoing, Loral shall not be entitled to
     terminate this Agreement pursuant to section 5A(a)(v) unless, within twenty
     (20) days following the occurrence of any ground for such termination,
     Loral provides the Company and counsel to the Committees with five (5)
     Business Days' notice of termination (the "Loral Termination Notice")
     specifying the grounds for termination and unless such grounds shall not be
     remedied, removed or cured to the reasonable satisfaction of Loral within
     such five (5) Business Day period; provided that (x) Loral shall be
     permitted to suspend its performance under this Agreement from the date of
     such Loral Termination Notice until such grounds have been remedied,
     removed or cured as provided for above and (y) the Loral Termination Notice
     shall be immediately effective, with no opportunity for remedy, removal or
     cure, if the termination grounds stated by Loral cannot be (I) remedied,
     removed or cured or (II) remedied, removed or cured prior to the Effective
     Date. Nothing herein shall affect, limit or modify the ability of Loral and
     its affiliates to exercise any and all rights and remedies under the Loral
     Settlement Agreements.

          (b) Notwithstanding anything to the contrary contained herein or in
the Term Sheet, including section 13 of this Agreement, the following shall not
be amended, modified, supplemented or waived, nor any term or condition thereof
amended, modified, supplemented or waived, except in a writing signed by Loral:
section 5A of this Agreement and Section I of the Term Sheet under the captions
"Treatment of Enlaces," "Loral Transponders" and "SS/L Right of First Offer."
For the avoidance of doubt, no party, including the Company, the Supporting
Noteholders, the Supporting FRN Holders or the Equity Holders, shall have the
right to amend, modify or supplement this section 5A, nor the provisions of the
Term Sheet under the captions "Treatment of Enlaces," "Loral Transponders" and
"SS/L Right of First Offer," nor waive any term or condition thereof, without
the express written approval of Loral.

     Section 6. Obligations of Servicios to Support Restructuring, Concurso
                Plan, Chapter 11 Plan and Servicios Restructuring.

     To the extent of its legal capacity, from and after the date hereof and
until the earlier of the (i) termination of this Agreement in accordance with
the terms specified herein and (ii) Effective Date:

          (a) Servicios agrees that (i) it will not, directly or indirectly,
execute, vote for, consent to, provide any support for, participate in the
formulation of, or solicit or encourage others to formulate any bankruptcy plan,
convenio concursal, restructuring, reorganization, liquidation or similar
arrangement (in whatever jurisdiction proposed) for itself, for the Company or
of any of its affiliates other than the Restructuring, the Concurso Plan, the
Chapter 11 Plan and the Servicios Restructuring, (ii) it will support the
Restructuring and the Servicios Restructuring and approval of the Concurso Plan
and the Chapter 11 Plan, and (iii) it will permit public disclosure, in a
mutually agreed upon press release of the contents of this Agreement (including,
but not limited to, the commitments given in this section 6 and the Term Sheet);

                                     - 21 -

<PAGE>

          (b) Servicios agrees that it will not object to or otherwise commence
any proceeding to oppose the Restructuring, the Concurso Plan, the Chapter 11
Plan or the Servicios Restructuring and shall not take any action in opposition
to or that would unreasonably delay the consummation of the Restructuring, the
Concurso Plan, the Chapter 11 Plan or the Servicios Restructuring; and

          (c) Except as otherwise required to effect the Restructuring,
Servicios shall not, directly or indirectly, take or cause to be taken any
shareholder action of the Company including, among others, any of the actions
mentioned in section 4.

          (d) In order to effect the Restructuring and the Servicios
Restructuring and to approve the Concurso Plan and the Chapter 11 Plan,
Servicios shall vote (or cause to be voted, by the exercise of rights under the
stock trust securing the guarantees of the FRNs or otherwise) the shares of
Existing Equity originally held by Servicios in the Company.

     Section 7. Forbearance.

     From and after the date hereof and until the earlier of the (i) termination
of this Agreement in accordance with the terms specified herein and (ii)
Effective Date, each Supporting Holder shall (x) forbear (and agrees not to give
instructions to any applicable indenture trustee or agent or other Person that
are inconsistent with the terms and conditions of this Agreement) from the
exercise of any rights, powers or remedies against the Company or any affiliate
it may have (including the right to call a default or seek payment or any other
relief in connection with any of the Securities) under (a) the Securities, (b)
any applicable documents governing the FRNs and Senior Notes, (c) any Applicable
Law in connection with the Securities and/or such documents or (d) the Concurso
Proceeding and (y) not challenge or cause to be challenged the Concurso Plan
Order; provided, however, that this section 7 shall not apply to actions in
furtherance of the Restructuring that are consistent with this Agreement and the
Term Sheet. Additionally, each of the Supporting Holders will direct its
indenture trustee(s) and in the case of the Supporting FRN Holders, the FRN
Collateral Trustee, each as reasonably necessary, to take actions in furtherance
of the Restructuring, the Concurso Plan, the Chapter 11 Plan and the Servicios
Restructuring; provided, further, that no direction shall be required if it
involves indemnification by the Supporting Holder of any party.

     Section 8. Payment of Advisors and Conciliador Fees.

          (a) In connection with the Restructuring, (i) the members of the Ad
Hoc FRN Committee have retained Wilmer Cutler Pickering Hale and Dorr LLP
("WilmerHale") as U.S. legal counsel; Cervantes, Aguilar-Alvarez, y Sainz, S.C.
("CAAYS") as Mexican counsel; and Mitchell A. Harwood Partners, LLC ("MAH") as
financial advisor (collectively, WilmerHale, CAAYS, and MAH are referred to
herein as the "FRN Advisors"), and (ii) the Ad Hoc Senior Note Committee has
retained Akin Gump Strauss Hauer & Feld LLP ("Akin") as U.S. legal counsel;
Asesoria Juridica-Canales y Socios ("CAN") as Mexican counsel; and Chanin
Capital Partners ("Chanin") as financial advisor (collectively, Akin, CAN, and
Chanin are referred to herein as the "Senior Note Advisors").

                                     - 22 -

<PAGE>

          (b) Advisor Fees from March 23, 2006 to the Petition Date. In order to
enable the Supporting FRN Holders and the Supporting Noteholders to effectuate
the Restructuring, the Company shall pay for all of the reasonable fees (based
on existing engagements as of the date of this Agreement and upon the
representation from the Committees that all such engagements have been provided
to the Company), actual and documented out-of-pocket costs, and actual and
documented out-of-pocket expenses of the FRN Advisors and Senior Note Advisors
related to the Restructuring incurred from March 23, 2006 until the earlier of
(a) filing of the Petition and (b) termination of this Agreement pursuant to the
terms hereof.

               (i) To obtain payment for the fees and expenses set forth in this
     section 8(b), each of the FRN Advisors and Senior Note Advisors shall
     render bills to the Company on a bi-weekly basis for the reasonable fees
     and actual, documented out-of-pocket expenses incurred in the prior two
     weeks. The first such bills will cover the period from March 23, 2006
     through and including April 2, 2006. Until filing of the Petition, the
     Company shall pay all such bills, to the extent the fees and expenses
     therein qualify for payment under this section 8(b), within five (5)
     Business Days of delivery. In addition to the foregoing, the Company shall,
     upon execution of this Agreement, pay to Akin U.S. $280,660.85, which
     amount shall be on account of Akin's and CAN's unpaid bills for January 1,
     2006 through March 22, 2006.

               (ii) Upon the first to occur of (A) termination of an FRN
     Advisor's or Senior Note Advisor's engagement by the members of the Ad Hoc
     FRN Committee (or by members holding more than a majority of the FRNs held
     by the members of the Ad Hoc FRN Committee as of the date hereof) or the Ad
     Hoc Senior Note Committee (as the case may be), (B) completion of the
     Restructuring, (C) the day that is two (2) Business Days prior to the date
     the Petition is to be filed, (D) termination of this Agreement pursuant to
     section 9 hereof, or (E) finalization of an FRN Advisor's or Senior Note
     Advisor's representation of the Supporting FRN Holders or the Supporting
     Noteholders (as the case may be), the applicable FRN Advisor or Senior Note
     Advisor shall render a final bill (or final pre-petition bill, as
     applicable) in accordance with this section 8(b) and such bills shall be
     promptly paid; provided, however, that, in the case of the filing of the
     Petition in clause (C), such bill shall be paid on or before the Business
     Day that immediately precedes the date the Petition is filed.

          (c) Retainers. On or before the Business Day that immediately precedes
the date the Petition is filed, the Company shall pay U.S. $150,000 to the group
of the legal counsel to members of the Ad Hoc Commitees and U.S. $150,000 to the
group of the Senior Notes Advisors as a retainer for services to be rendered
related to the Restructuring in accordance with the FRN Advisors' and Senior
Notes Advisors' respective engagements as of the date of this Agreement.

          (d) Pre-Petition Payment of Fees for the period 9/8/05 - 3/22/06. On
or before the Business Day that immediately precedes the date the Petition is
filed, the Company shall pay the reasonable fees and actual documented
out-of-pocket expenses incurred by the FRN Advisors and Senior Note Advisors
from the period of September 8, 2005, through and including March 22, 2006, to
the extent not previously paid by the Company. The bills for such fees and
expenses shall be submitted to the Company by May 6, 2006.

                                     - 23 -

<PAGE>

          (e) Effective Date Payments. All fees and expenses of the FRN Advisors
and Senior Note Advisors not paid by the Company prior to the Effective Date
shall be paid by the Company on the Effective Date or as soon as practicable
thereafter in accordance with the Term sheet.

          (f) Payment of MAH Fees. From the date hereof through the Effective
Date, the Company shall pay to MAH a monthly advisory fee for services to be
rendered related to the Restructuring of U.S. $50,000 and expenses; provided,
however, that from the date of the filing of the Petition through the Effective
Date, all such advisory fees and expenses shall accrue and be paid on or as soon
as practicable after the Effective Date. In addition to the foregoing monthly
fees, the Company shall be obligated to pay MAH an additional fee in the amount
of one million two hundred fifty thousand dollars (U.S. $1,250,000) upon the
Effective Date or as soon as practicable thereafter.

          (g) Payment of Sitrick Fees. Prior to the filing of the Petition, the
Company shall make a one-time payment of U.S. $258,215.09 to reimburse the
members of the Ad Hoc FRN Committee for fees and expenses actually paid to
Sitrick and Company ("Sitrick") for public relations services rendered to the Ad
Hoc FRN Committee prior to the date hereof. Except for such one-time payment,
the Company will not pay or be obligated to pay any other fees or expenses of
Sitrick, directly or indirectly by reimbursement of any other Person that paid
or pays any other fees or expenses to Sitrick.

          (h) Payment of Evercore Fees. Prior to the filing of the Petition, the
Company shall make a one-time payment to WilmerHale of U.S. $515,687.00 on
account of the fees and expenses of Evercore Restructuring L.P. ("Evercore") in
final satisfaction of all bills for services rendered by Evercore to the Ad Hoc
Committee.

          (i) Payment of Chanin Fees. Upon the Effective Date or as soon as
practicable thereafter, the Company shall pay to Chanin its fees and expenses in
accordance with Chanin's engagement agreement as amended as of the date hereof.

          (j) Payment of Loral and Principia Fees in Connection with Servicios
Proceeding. Upon the Effective Date or as soon as practicable thereafter, the
Company shall pay the amounts incurred by Loral and/or Principia for the
reasonable fees, costs and expenses of Principia and/or Loral's legal advisors
solely in connection with the Servicios Proceeding, if any; provided, however,
that the Company's payments of such fees and expenses shall not exceed U.S.
$50,000.00 in the aggregate.

          (k) Payment of Servicios Expenses in Connection with Servicios
Proceeding. The Company shall pay the reasonable out-of-pocket expenses incurred
by Servicios in connection with the Servicios Proceeding, if any, upon the
Effective Date or as soon as practicable thereafter.

          (l) Payment of Loral Fees. The Company shall pay (i) all fees, costs
and expenses of Loral's legal advisors incurred to date by the Loral Entities in
connection with the Loral Usufructo and (ii) from the date this Agreement is
executed, any and all amounts incurred by Loral and its affiliates for the fees,
costs and expenses of its legal advisors incurred in

                                     - 24 -

<PAGE>

connection with the protection of Loral's rights and obligations under the
Restructuring Agreement, the Term Sheet (other than section IV thereof),
including without limitation with respect to the Loral Usufructo and the Loral
Grant, and the 304 Stipulation; provided, however, that from the date of the
filing of the Petition through the Effective Date, all such fees and expenses
shall accrue and be paid on or as soon as practicable after the Effective Date.
Notwithstanding the foregoing, the Company's payments of all fees and expenses
pursuant to this section 8(l) shall not exceed two hundred fifty thousand
dollars (U.S. $250,000) in the aggregate.

          (m) The Company shall make all payments hereunder on account of fees
and expenses of WilmerHale, MAH, Evercore, Sitrick, Akin, Chanin and Loral's
legal advisors (other than any Mexican legal advisor) in U.S. currency without
deduction for any and all present or future taxes, duties, levies, imposts,
deductions, charges, or withholdings imposed by Mexico or any political
subdivision thereof. Payments hereunder to CAAYS, CAN, Principia, its legal
advisors and any Mexican legal advisor of Loral shall be billed and made in
Mexican currency.

          (n) The Company acknowledges and agrees that each FRN Advisor and
Senior Note Advisor has been retained to act solely as counsel to the members of
the Ad Hoc FRN Committee and the Ad Hoc Senior Note Committee, respectively, and
that, notwithstanding the Company's agreement to pay the reasonable fees and
actual, documented out-of-pocket expenses of the FRN Advisors and Senior Note
Advisors, no FRN Advisor or Senior Note Advisor shall owe any duty or obligation
whatsoever to the Company, and that each FRN Advisor's and Senior Note Advisor's
sole responsibility with respect to the Restructuring is to the members of the
Ad Hoc FRN Committee and the Ad Hoc Senior Note Committee, respectively.

          (o) Payment of Fees to the Conciliador. From the date hereof through
the Effective Date, the Company shall pay to the Conciliador, fees, costs and
expenses of the Conciliador, and of litigation counsel (Santamarina y Steta,
S.C.) and accounting advisors (Ernst & Young Mancera) to the Conciliador, for
services rendered relating to the Restructuring in the amount of MXP $2,000,000
per month; provided, however, that from the date of the filing of the Petition
through the Effective Date, all such advisory fees and expenses shall accrue and
be paid on or as soon as practicable after the Effective Date. The Conciliador
will not be entitled to any other success or other fee in connection with the
Concurso Proceeding or the Restructuring.

     Section 9. Termination of Agreement.

     This Agreement may be terminated, unless the Restructuring has been
consummated, as follows:

          (a) By the Majority FRN Holders and the Majority Noteholders, acting
jointly, upon a breach of any covenant or agreement of the Company, Servicios or
any Supporting Equity Holder set forth in this Agreement, or if any
representation or warranty of the Company, Servicios, or any Supporting Equity
Holder set forth in this Agreement shall have been or becomes untrue, in each
case such that the ability of the Company or Servicios to perform its
obligations hereunder or otherwise to consummate the Restructuring or the
Servicios

                                     - 25 -

<PAGE>

Restructuring has been materially adversely affected; provided, however, that,
except in the case of an intentional or willful breach, the Majority FRN Holders
and the Majority Noteholders shall not be entitled to terminate this Agreement
pursuant to this section 9(a), (i) so long as the Company, Servicios or such
Supporting Equity Holder, as applicable, is using commercially reasonable
efforts to cure such breach or untruth and such breach or untruth is capable of
cure and is cured on or before the 30th calendar day after receiving notice
thereof or (ii) if such breach or untruth is proximately caused by a breach of
any obligation of any Supporting FRN Holder or Supporting Noteholder hereunder
and; provided, further, that the right to terminate this Agreement under this
section 9(a) shall not be available to any (x) Majority FRN Holders if such
majority includes and is dependent upon a Supporting FRN Holder in breach of its
obligations hereunder where such breach has caused the failure of the Concurso
Plan Order to be entered, the Chapter 11 Plan Order to be entered or has caused
the failure of the Effective Date to occur, in each case by the applicable
Outside Date and (y) Majority Noteholders if such majority includes and is
dependent upon a Supporting Noteholder in breach of its obligations hereunder
where such breach has caused the failure of the Concurso Plan Order to be
entered, the Chapter 11 Plan Order to be entered or has caused the failure of
the Effective Date to occur, in each case by the applicable Outside Date;

          (b) By either the Company, the Majority FRN Holders, or the Majority
Noteholders, if the Concurso Plan Order or Chapter 11 Plan Order has not been
entered or the Effective Date has not occurred on or before the applicable
Outside Date; provided, however, that the right to terminate this Agreement
under this section 9(b) shall not be available to (1) the Company, if the
Company's default of its obligations under this Agreement has resulted in the
failure of the Concurso Plan Order or the Chapter 11 Plan Order to be entered,
or the Effective Date to occur on or before the applicable Outside Date and (2)
any (x) Majority FRN Holders if such majority includes and is dependent upon a
Supporting FRN Holder in breach of its obligations hereunder where such breach
has caused the failure of the Concurso Plan Order or the Chapter 11 Plan Order
to be entered, or has caused the failure of the Effective Date to occur, in each
case by the applicable Outside Date or (y) Majority Noteholders if such majority
includes and is dependent upon a Supporting Noteholder in breach of its
obligations hereunder where such breach has caused the failure of the Concurso
Plan Order or the Chapter 11 Plan Order to be entered, or has caused the failure
of the Effective Date to occur, in each case by the applicable Outside Date;

          (c) By any Supporting Noteholder or Supporting FRN Holder, as to
itself only, if the Concurso Plan Order has not been entered or the Chapter 11
Plan Order has not been entered or the Effective Date has not occurred on or
before the applicable Outside Date;

          (d) By the Company, so long as the Company is not then in breach of
its obligations under this Agreement in any material respect, upon a breach of
any covenant or agreement by any Supporting FRN Holder or Supporting Noteholder
set forth in this Agreement, or if any representation or warranty set forth in
this Agreement by any Supporting FRN Holder or Supporting Noteholder shall have
been or becomes untrue, in each case such that the ability of the Company to
consummate the Restructuring has been materially adversely affected; provided,
however, that, except in the case of an intentional or willful breach, the
Company shall not be entitled to terminate this Agreement pursuant to this
section 9(d) so long as the Supporting FRN Holder or Supporting Noteholder, as
applicable, is using commercially reasonable efforts to cure

                                     - 26 -

<PAGE>

such breach or untruth and such breach or untruth is capable of cure and is
cured on or before the 30th calendar day after receiving notice thereof;

          (e) (i) By the Company or the Majority FRN Holders, if the Concurso
Filing Trigger has not occurred by the earlier of (A) the Concurso Filing
Deadline and (B) May 22, 2006, and (ii) by the Company, the Majority FRN
Holders, or the Majority Noteholders, if the Chapter 11 Filing Trigger has not
occurred within ten (10) days following the Chapter 11 Filing Deadline;
provided, however, that the right to terminate this Agreement under this section
9(e) shall not be available to (x) the Majority FRN Holders if such majority
includes and is dependent upon a Supporting FRN Holder in breach of its
obligations hereunder where such breach has caused the failure of the Concurso
Filing Trigger or Chapter 11 Filing Trigger to occur, or (y) the Majority
Noteholders if such majority includes and is dependent upon a Supporting
Noteholder in breach of its obligations hereunder where such breach has caused
the failure of the Chapter 11 Filing Trigger to occur, or (z) the Company if the
Company is in breach of its obligations hereunder where such breach has caused
the failure of the Concurso Filing Trigger or Chapter 11 Filing Trigger to
occur;

          (f) By the Majority FRN Holders and the Majority Noteholders, acting
jointly, if a Target has not occurred within ten (10) Business Days of the
applicable Target Date; provided, however, that the right to terminate this
Agreement under this section 9(f) shall not be available to the (x) Majority FRN
Holders, if such majority includes and is dependent upon a Supporting FRN Holder
in breach of its obligations hereunder where such breach has caused a Target not
to occur within ten (10) Business Days of the applicable Target Date and (y)
Majority Noteholders, if such majority includes and is dependent upon a
Supporting Noteholder in breach of its obligations hereunder where such breach
has caused a Target not to occur within ten (10) Business Days of the applicable
Target Date;

          (g) By any party to this Agreement if (i) the Concurso Proceeding
shall be converted to a quiebra under article 167 of the MBRA or (ii) if the
Chapter 11 Case shall be converted to a case under Chapter 7 of the Bankruptcy
Code or a liquidating chapter 11 case or (iii) if there is a total loss of the
Satmex 6 Satellite prior to the Effective Date;

          (h) By the Required FRN Holders and the Required Noteholders, acting
jointly, if there shall be issued any medida cautelar, suspension order or
similar order by a court or other governmental body of competent jurisdiction
that materially and adversely affects the Company's obligations with respect to
this Agreement; provided, (i) such proceeding or order was issued at the request
or with the acquiescence of the Company or its affiliates or (ii) in all other
circumstances, if such order is not stayed, reversed or vacated before the
earlier of 30 days thereafter and the Outside Date; provided, further, that the
right to terminate this Agreement under this section 9(h) shall not be available
to the Required Noteholders or Required FRN Holders, as the case may be, if such
medida cautelar, suspension order or similar order is issued as a result of
actions taken by a Supporting Noteholder or Supporting FRN Holder or is
otherwise supported by a Supporting Noteholder or Supporting FRN Holder;

          (i) By the Company, if there shall be issued any medida cautelar,
suspension order or similar order by a court or other governmental body of
competent jurisdiction that materially and adversely affects the Restructuring
and if such order is not stayed, reversed or

                                     - 27 -

<PAGE>

vacated before the earlier of 30 days thereafter and the Outside Date; provided,
however, that the Company shall not be entitled to terminate this Agreement
pursuant to this section 9(i) if such medida cautelar, suspension order or
similar order was issued at the request of, or acquiescence of, the Company or
its affiliates or is otherwise supported by the Company or its affiliates.

          (j) By the Majority FRN Holders, upon a breach of any obligation of
any Supporting Noteholder set forth in section 5 of this Agreement, or if any
representation provided pursuant to section 10(b)(i) shall have been or becomes
untrue, such that the ability to consummate the Restructuring has been
materially adversely affected; provided, however, that the Majority FRN Holders
shall not be entitled to terminate this Agreement pursuant to this section 9(j)
so long as the Supporting Noteholder is using commercially reasonable efforts to
cure such breach or untruth and such breach or untruth is capable of cure on or
before the 30th calendar day after receiving notice thereof; provided, further,
that the right to terminate this Agreement under this section 9(j) shall not be
available to the Majority FRN Holders if such majority includes and is dependent
upon a Supporting FRN Holder in breach of its obligations set forth in section 5
of this Agreement, or if any representation provided by any such Supporting FRN
Holder pursuant to section 10(b)(i) shall have been or becomes untrue, such that
the breach or untruth has caused the failure of the Concurso Plan Order to be
entered, the Chapter 11 Plan Order to be entered or has caused the failure of
the Effective Date to occur, in each case by the applicable Outside Date;

          (k) By the Majority Noteholders, upon a breach of any obligation of
any Supporting FRN Holder set forth in section 5 of this Agreement, or if any
representation provided pursuant to section 10(b)(i) shall have been or becomes
untrue, such that the ability to consummate the Restructuring has been
materially adversely affected; provided, however, that the Majority Noteholders
shall not be entitled to terminate this Agreement pursuant to this section 9(k)
so long as the Supporting FRN Holder is using commercially reasonable efforts to
cure such breach or untruth and such breach or untruth is capable of cure on or
before the 30th calendar day after receiving notice thereof; provided, further,
that the right to terminate this Agreement under this section 9(k) shall not be
available to the Majority Noteholders, if such majority includes and is
dependent upon a Supporting Noteholder in breach of its obligations set forth in
section 5 of this Agreement, or if any representation provided by any such
Supporting Noteholder pursuant to section 10(b)(i) shall have been or becomes
untrue, such that the breach or untruth has caused the failure of the Concurso
Plan Order to be entered, the Chapter 11 Plan Order to be entered or has caused
the failure of the Effective Date to occur, in each case by the applicable
Outside Date;

          (l) By the Majority FRN Holders, if the Company fails (a) to insure
the Satmex 6 Satellite in accordance with section 4(f), and naming the FRN
Collateral Trustee as loss payee and additional insured, or (b) to provide
counsel to the Ad Hoc FRN Committee with the certificate of insurance referenced
in section 4(f) prior to the launch of the Satmex 6 Satellite;

          (m) By Loral, as to itself only, pursuant to section 5A of this
Agreement; or

          (n) By the Majority FRN Holders and the Majority Noteholders, acting
jointly, if SS/L fails to perform its obligations in accordance with the terms
of the Loral

                                     - 28 -

<PAGE>

Settlement Agreements but only to the extent such failure has a material impact
on the Restructuring or the business operation of the Company.

     Upon any termination of this Agreement, no party shall have any further
right obligation or liability under this Agreement or the Term Sheet except that
such party shall not be relieved of any liability for damages resulting from its
breach of any representation, warranty, covenant or obligation that occurs prior
to the termination of this Agreement; provided, however, that (i) the Company
shall be liable for any reasonable fees and actual, documented out-of-pocket
expenses incurred pursuant to section 8 from the date hereof to the termination
of this Agreement and (ii) the Company shall provide the Loral Usufructo and
Loral Grant to the Loral Entities on the terms described in section I of the
Term Sheet under the caption "Loral Transponders"; provided, further, that as to
a termination of this Agreement solely with respect to a party, such party shall
have no further right, obligation or liability under this Agreement or the Term
Sheet except that such party shall not be relieved of any liability for damages
resulting from its breach of any representation, warranty, covenant or
obligation that occurs prior to the termination of this Agreement; provided,
further, that solely with respect to a termination by Loral as to itself only,
and in connection with the Restructuring, upon the Effective Date, the parties
to this Agreement shall provide the Loral Usufructo and Loral Grant to the Loral
Entities on the terms described in section I of the Term Sheet under the caption
"Loral Transponders". For the avoidance of doubt, Loral shall have no liability
under this Agreement for exercising any of its rights under the 304 Stipulation.
Upon the consummation of the Restructuring, neither the Company nor any
Supporting Holder shall have any further obligation or liability hereunder,
except for the Company's obligations under section 8. In the event of any
termination with respect to a party, the Company shall (i) promptly notify the
respective counsel to the Committees and Loral of such termination, and (ii)
advise the respective counsel to the Committees and Loral whether, following
such termination, (A) the aggregate principal amount of FRNs held by all
remaining Supporting FRN Holders has decreased below either a majority or
66-2/3% of the total outstanding FRNs, as applicable, and (B) the aggregate
principal amount of Senior Notes held by all remaining Supporting Noteholders
has decreased below a majority or 66-2/3% of the outstanding Senior Notes, as
applicable. The parties acknowledge that the Company will be relying upon
information provided to it from the security holders.

     Section 10. Representations and Warranties.

          (a) Each of the signatories to this Agreement represents and warrants
to the other signatories to this Agreement that, as of the date hereof:

          (i) if an entity, it is duly organized, validly existing and in good
     standing (to the extent applicable) under the Laws of the jurisdiction of
     its organization and has all requisite corporate, partnership or other
     power and authority to enter into this Agreement and, subject to the
     provisions of section 10(d) below with respect to the Company, to carry out
     the transactions contemplated by, and perform its respective obligations
     under, this Agreement;

                                     - 29 -

<PAGE>

          (ii) except with respect to the Company, the execution and delivery of
     this Agreement and the performance of its obligations hereunder have been
     duly authorized by all necessary corporate, partnership or other action on
     its part (as it relates to the Company, all necessary corporate or other
     action required for the execution and delivery of this Agreement and the
     performance of its obligations hereunder will be obtained upon approval by
     Firmamento);

          (iii) the execution, delivery and performance by it of this Agreement
     does not (A) violate any provision of Applicable Law applicable to it or
     its certificate of incorporation or bylaws, estatutos sociales or other
     organizational documents (subject to the provisions of section 10(d) below
     with respect to the Company), or (B) conflict with, result in the breach of
     or constitute (with due notice or lapse of time or both) a default under
     any contractual obligations to which it is a party or under its certificate
     of incorporation, bylaws, estatutos sociales or other governing instruments
     (subject to the provisions of section 10(d) below with respect to the
     Company), in each case so that such violation, breach or conflict would
     materially adversely affect the ability of the Company to consummate the
     Chapter 11 Plan;

          (iv) this Agreement is a legally valid and binding obligation of it,
     enforceable against it in accordance with the terms hereof (subject to the
     provisions of section 10(d) below with respect to the Company), except as
     enforceability may be limited by applicable bankruptcy, insolvency,
     reorganization, moratorium or similar Laws, including the provisions of the
     MBRA affecting the enforcement of creditors' rights generally and by
     general equitable principles (whether enforcement is sought by proceedings
     in equity or at law); and

          (v) it has been represented by counsel in connection with this
     Agreement and the transactions contemplated by this Agreement.

          (b) Each of the Supporting Holders further represents and warrants to
the other signatories to this Agreement that:

          (i) as of the date of this Agreement, such Supporting Holder is the
     beneficial owner of, or the investment adviser or manager for the
     beneficial owners of, or the indirect parent of the entity that holds, the
     Securities, as specified with respect to it on Exhibits B and C hereto,
     with full power and authority to vote and dispose of such Securities;

          (ii) such Supporting Holder has reviewed, with the assistance of
     professional and legal advisors of its choosing, all information necessary
     for such Supporting Holder to decide to support the Restructuring through
     the Concurso Plan and Chapter 11 Plan and as described herein and in the
     Term Sheet on an informed basis;

          (iii) such Supporting Holder is an "Accredited Investor" as defined in
     Rule 501 of Regulation D under the Securities Act; and

                                     - 30 -

<PAGE>

          (iv) such Supporting Holder does not owe any fiduciary or similar duty
     to any other Person that would prevent it from taking any action required
     of it under this Agreement.

          (c) The Company further represents and warrants to the other
signatories to this Agreement that, as of the date hereof:

          (i) the execution, delivery and performance by it of this Agreement
     does not require any registration or filing with, the consent or approval
     of, notice to, or any other action with respect to, any Governmental
     Authority, except such filings and approvals as may be required for
     disclosure, the U.S. Bankruptcy Court and the Securities and Exchange
     Commission and, except further, that the performance by the Company
     hereunder and the consummation of the Restructuring is subject to (a) the
     prior approval by SCT to the amendment of the Company's bylaws (estatutos
     sociales) as provided in the Term Sheet and to modify the existing equity
     structure of the Company as provided in the Term Sheet, (b) the prior
     approval by CNIE to issue Bondholder Equity in the form of "neutral
     investment" Series N shares, (c) the prior approval by the Federal
     Communications Commission, (d) the prior authorization of the Restructuring
     by COFECO and (e) the registration of the First Priority Senior Secured
     Notes and the Second Priority Senior Secured Notes in the Special Section
     of the National Securities Registry of Mexico; provided, however, that it
     is anticipated that in accordance with section 1145 of the Bankruptcy Code,
     the issuance by the Company of the First Priority Senior Secured Notes to
     holders of the FRNs and the Second Priority Senior Secured Notes and
     Bondholder Equity to holders of the Senior Notes in the Restructuring shall
     be exempt from registration under the Securities Act;

          (ii) except for the FRN Advisors and the Senior Note Advisors, and
     except for Milbank, Tweed, Hadley & McCloy LLP; Galicia y Robles, S.C.;
     Javier Quijano Baz and/or Alfonso Martin Lopez Melih; UBS Warburg LLC;
     Valor Consultores, S.A. de C.V.; Martinez, Algaba, Estrella, De Haro y
     Galvan Duque, S.C., as counsel to Citibank, N.A.; Citibank, N.A., as
     indenture trustee for the FRNs; Nixon Peabody, as counsel to Citibank,
     N.A.; The Bank of New York, as indenture trustee for the Senior Notes;
     Baker & McKenzie, LLP and Baker & McKenzie, S.C., as counsel to The Bank of
     New York; Weil, Gotshal & Manges LLP, as counsel to Loral; Ritch Mueller,
     S.C., as counsel to Loral; Chevez, Ruiz, Zamarripa y Compania, S.C., as
     counsel to Principia; Villegas, Cassis y Asociados, S.C., as counsel to
     Principia; Mansur y Ruiz Ortega, S.C., as counsel to Principia; and the
     Conciliador, in each case pursuant to written agreements or arrangements
     that have been provided or disclosed in full to the FRN Advisors and the
     Senior Note Advisors or as set forth herein, the Company is not subject to
     or bound by any other material agreement, arrangement or understanding to
     pay or provide any Person, directly or indirectly, any fee, expense or
     other payment or compensation, on account of advisory, banking, consulting,
     legal, accounting or similar services in connection with the Restructuring
     or any part thereof, or in connection with any other transaction now or
     hereafter involving the Company, other than fees, expenses or other
     payments or compensation that may relate to the Restructuring by ordinary
     course professionals of the Company;

                                     - 31 -

<PAGE>

          (iii) except as expressly provided in the Term Sheet or this
     Agreement, the Company is not subject to or bound by any agreement,
     arrangement or understanding to pay or provide directly or indirectly to
     the holder of any of the Company's Securities or any affiliate thereof in
     their capacity as such, directly or indirectly, any fee, expense or other
     payment or compensation, in connection with the Restructuring or any part
     thereof, or in connection with any other transaction now or hereafter
     involving the Company;

          (iv) neither the Company nor any of the service companies is a party
     to or bound by any material employment, severance or retention agreements
     or arrangements except for those as have been previously disclosed to the
     FRN Advisors and the Senior Notes Advisors.

          (d) As it relates to the Company, the other parties to this Agreement
acknowledge and agree that, until such time as the Company delivers to the
Supporting Holders item number "3" on Annex C, performance of this Agreement by
the Company and the consummation of the transactions herein contemplated
requires shareholder and, in some cases, board action which, pursuant to its
by-laws, requires further approval of Firmamento.

          (e) Loral represents and warrants that, notwithstanding the Loral
Pledge, Loral has the right as of the date hereof to (i) vote the shares pledged
thereunder to support the Restructuring, (ii) exchange such shares for new
Series B Shares of the Company, and (iii) transfer such new Series B Shares to
the Equity Trust and sell such new Series B Shares, all as provided herein and
in the Term Sheet.

     Section 11. Preparation of Restructuring Documents.

     Promptly upon the effectiveness of this Agreement,

          (a) the Company shall instruct its counsel to prepare (i) the
Petition, (ii) the Disclosure Statement, (iii) the Chapter 11 Plan, (iv) all
schedules, motions, pleadings, and other papers it deems necessary in connection
with the filing of the Petition, the presentation of the Concurso Plan to
holders of Recognized Claims and subsequent filing of the Concurso Plan with the
Mexican Bankruptcy Court and (v) all other motions, pleadings, papers,
agreements, documents (including without limitation the notices and writs to
obtain approvals by CNIE, COFECO, and SCT) and other materials necessary or
useful in implementing the Restructuring and consummating the Chapter 11 Plan
(collectively, with the Concurso Plan, the "Plan and Approval Documents"). The
Company shall provide all Plan and Approval Documents to the Supporting Holders'
respective counsel prior to their filing and/or execution (as the case may be)
and shall consult with such counsel with respect to the form and substance of
such Plan and Approval Documents.

          (b) the Company shall instruct its counsel to prepare the documents
identified in Exhibit E hereto (collectively, the "Equity Documents"). The
Company shall provide all Equity Documents to the Supporting Holders' respective
counsel prior to their filing and/or execution (as the case may be) and shall
consult with such counsel with respect to the form and substance of such Equity
Documents.

                                     - 32 -

<PAGE>

          (c) the holders on the Ad Hoc FRN Committee shall instruct their
counsel to prepare (i) the indenture for the First Priority Senior Secured Notes
to be issued by the Company, (ii) the new note for the First Priority Senior
Secured Notes, (iii) the new Collateral Trust Agreement for the First Priority
Senior Secured Notes, (iv) the mortgage instrument securing the First Priority
Senior Secured Notes, and (v) all other motions, pleadings, papers, agreements,
documents and other materials they and the Company deem necessary or useful in
issuing the First Priority Senior Secured Notes (collectively, the "First
Priority Senior Secured Notes Documents"). The Supporting FRN Holders shall
provide all First Priority Senior Secured Notes Documents to the Company's and
other Supporting Holders' counsel prior to their filing and/or execution (as the
case may be) and shall consult with such counsel with respect to the form and
substance of such First Priority Senior Secured Notes Documents.

          (d) the Supporting Noteholders shall instruct their counsel to prepare
(i) the indenture for the Second Priority Senior Secured Notes to be issued by
the Company, (ii) the new note for the Second Priority Senior Secured Notes,
(iii) the mortgage instrument securing the Second Priority Senior Secured Notes,
(iv) the Collateral Trust Agreement for the Second Priority Senior Secured
Notes, (v) the registration rights agreement, (vi) the articles of incorporation
and by-laws of the SPE, and (vii) all other motions, pleadings, papers,
agreements, documents and other materials they and the Company deem necessary or
useful in issuing the Second Priority Senior Secured Notes (collectively, the
"Second Priority Senior Secured Notes Documents"). The Supporting Noteholders
shall provide all Second Priority Senior Secured Notes Documents to the
Company's and other Supporting Holders' counsel prior to their filing and/or
execution (as the case may be) and shall consult with such counsel with respect
to the form and substance of such Second Priority Senior Secured Notes
Documents.

          (e) the members of the Ad Hoc FRN Committee and the Supporting
Noteholders shall instruct their respective counsel to prepare an intercreditor
agreement (the "Intercreditor Agreement") in connection with the issuance of the
First Priority Senior Secured Notes and the Second Priority Senior Secured
Notes. The Supporting FRN Holders and the Supporting Noteholders shall provide
the Intercreditor Agreement to the Company's and other Supporting Holders'
counsel prior to its execution and shall consult with such counsel.

          (f) the Supporting Equity Holders shall take such resolutions and
shall instruct their counsel to prepare all motions, pleadings, papers,
agreements, documents and other materials as the Supporting Equity Holders
determine are reasonably necessary or useful in implementing the Restructuring
and consummating the Concurso Plan and the Chapter 11 Plan except as otherwise
provided in this Section 11 (collectively, the "Equity Holders Documents"). The
Supporting Equity Holders shall provide all Equity Holders Documents to the
Company's and other Supporting Holders' counsel prior to their filing and/or
execution (as the case may be) and shall consult with such counsel with respect
to the form and substance of such Equity Holders Documents.

          (g) the (i) Plan and Approval Documents, (ii) Equity Documents, (iii)
First Priority Senior Secured Note Documents, (iv) Second Priority Senior
Secured Notes Documents, (v) Intercreditor Agreement, (vi) Equity Holder
Documents, and (vii) Loral Documents (collectively, the "Restructuring
Documents") shall be in form and substance reasonably satisfactory to the
respective counsel to the Committees and to the Company.

                                     - 33 -

<PAGE>

          (h) the Company shall instruct its counsel to prepare the Loral
Documents. The Loral Documents and the Equity Documents shall be in form and
substance reasonably satisfactory to counsel to Loral.

     Section 12. Good Faith.

     Each of the signatories to this Agreement agrees to cooperate in good faith
with each other to facilitate the performance by the parties of their respective
obligations hereunder and the purposes of this Agreement. Each of the
signatories to this Agreement further agrees to negotiate the Restructuring
Documents in good faith and, in any event, in all respects consistent with the
Term Sheet.

     Section 13. Amendments and Modifications.

     This Agreement and the Term Sheet may be amended, modified, or
supplemented, and any term or condition of this Agreement or the Term Sheet may
be waived, only in writing signed by the Company and the Majority FRN Holders
and Majority Noteholders, provided, however, that:

          (a) the written consent of a Supporting Equity Holder shall be
required with respect to any amendment, modification, supplement, or waiver that
(i) imposes any new or additional material obligation on that Supporting Equity
Holder, (ii) materially reduces the value of the rights of that Supporting
Equity Holder as set forth in the Term Sheet in a manner that is
disproportionate to reductions in value of similar rights of the other
Supporting Equity Holder and/or the Supporting Noteholders under section IV of
the Term Sheet, or (iii) has a material adverse effect on that Supporting Equity
Holder's ability to perform its obligations under this Agreement;

          (b) the written consent of Loral shall be required as set forth in
section 5A(b) hereof; and

          (c) the written consent of a Supporting FRN Holder or a Supporting
Noteholder shall be required with respect to any amendment, modification,
supplement, or waiver that (i) has a material effect on that Supporting FRN
Holder or Supporting Noteholder that is disproportionately adverse to that
Supporting FRN Holder as compared to other Supporting FRN Holders or to that
Supporting Noteholder as compared to other Supporting Noteholders, or (ii)
alters the rights of that Supporting FRN Holder or Supporting Noteholder to
terminate this Agreement as to itself pursuant to section 9(c) or 9(g);
provided, however, that any Outside Date may be extended for a period of up to
thirty (30) days with the consent of the Majority FRN Holders and Majority
Noteholders.

Notwithstanding the foregoing provisions of this section 13, the Majority FRN
Holders and the Majority Noteholders, acting jointly, without the consent of any
other party hereto, may change any Target Date to a later date by written notice
to the other parties hereto.

                                     - 34 -

<PAGE>

     Section 14. Further Assurances.

     Each of the signatories to this Agreement hereby further covenants and
agrees to execute and deliver all further documents, agreements and take all
further action that in good faith may be reasonably necessary or desirable, or
that the Company, the Conciliador, FRN Advisors, or Senior Note Advisors may
reasonably request, in order to enforce and effectively implement the terms and
conditions of this Agreement.

     Section 15. Complete Agreement.

     This Agreement, including the annexes and exhibits hereto, constitutes the
complete agreement between the parties to this Agreement with respect to the
subject matter hereof and supersedes all prior and contemporaneous negotiations,
agreements and understandings with respect to the subject matter hereof. The
provisions of this Agreement shall be interpreted in a reasonable manner to
effect the intent of the parties to this Agreement. In the event that any
provision of this Agreement conflicts with any annexes or exhibits hereto, the
provisions of this Agreement shall be controlling.

     Section 16. Notices.

     All notices, requests, demands, claims and other communications hereunder
shall be in writing and shall be (a) transmitted by hand delivery, (b) mailed by
first class, registered or certified mail, postage prepaid, (c) transmitted by
overnight courier or (d) transmitted by telecopy, and in each case, if to the
Company, at the address set forth below:

                             Rodolfo Gaona #86
                             Col. Lomas de Sotelo
                             Mexico D.F.  11200   Mexico
                             Telephone:    (52) (55) 2629-5808
                             Facsimile:    (52) (55) 2629-5895
                             Attention:  General Counsel

               with a copy (which shall not constitute notice) to:

                             Milbank, Tweed, Hadley & McCloy LLP
                             1 Chase Manhattan Plaza
                             New York, NY 10005
                             Telephone:    (212) 530-5000
                             Fax:          (212) 530-5219
                             Attention:  Luc A. Despins, Esq.
                                         Matthew S. Barr, Esq.

                                     - 35 -

<PAGE>

if to Principia, at the address set forth below:

                             Rodolfo Gaona 86-F
                             Col. Lomas de Sotelo
                             Mexico D.F.  11200   Mexico
                             Telephone:    (52) (55) 2629-5889
                             Facsimile:    (52) (55) 2629-5848
                             Attention:    Sergio Miguel Angel Autrey Maza

if to Loral, at the address set forth below:

                             600 Third Avenue
                             New York, NY 10016
                             Telephone:    (212) 697-1105
                             Facsimile:    (212) 338-5320
                             Attention: General Counsel

if to the Conciliador, at the address set forth below:

                             Thomas S. Heather
                             c/o White & Case, S.C.
                             Torre del Bosque - PH
                             Blvd. Manuel Avila Camacho #24
                             Col. Lomas de Chapultepec
                             11000 Mexico, D.F., Mexico
                             Telephone:    (52) (55) 5540-9600
                             Fax:          (52) (55) 5540-9699

if to a Supporting FRN Holder, to the address set forth on the signature pages
to this Agreement, with a copy (which shall not constitute notice) to:

                             Wilmer Cutler Pickering Hale and Dorr LLP
                             60 State Street
                             Boston, MA 02109
                             Telephone:    (617) 526-6000
                             Facsimile:    (617) 526-5000
                             Attention:  Dennis Jenkins, Esq.
                                         George  Shuster, Esq.

if to a Supporting Noteholder, to the address set forth on the signature pages
to this Agreement, with a copy (which shall not constitute notice) to:

                             Akin, Gump, Strauss, Hauer & Feld LLP
                             590 Madison Avenue
                             New York, NY 10022

                                     - 36 -

<PAGE>

                             Telephone:    (212) 872-1000
                             Facsimile:    (212) 872-1002
                             Attention:  Michael S. Stamer, Esq.
                                         Steven Scheinman, Esq.

if to a Supporting Equity Holder, to the address set forth on the signature
pages to this Agreement, with a copy (which shall not constitute notice) to:

                             Loral Space & Communications Inc.
                             600 Third Avenue
                             New York, NY 10016
                             Telephone:    (212) 697-1105
                             Facsimile:    (212) 338-5320
                             Attention:    General Counsel

                             Principia, S.A. de C.V.
                             Rodolfo Gaona 86-F
                             Col. Lomas de Sotelo
                             Mexico D.F.  11200   Mexico
                             Telephone:    (52) (55) 2629-5889
                             Facsimile:    (52) (55) 2629-5848
                             Attention:    Sergio Miguel Angel Autrey Maza

Notices mailed or transmitted in accordance with the foregoing shall be deemed
to have been given upon receipt. Notices may be given by United States of
America counsel to the party hereto.

     Section 17. Several Liability. The obligations of the parties to this
Agreement hereunder are ratable and several and not joint nor joint and several,
and no party to this Agreement shall be liable for any breach or nonperformance
by any other party to this Agreement.

     Section 18. No Waiver. Each of the signatories to this Agreement expressly
acknowledges and agrees that, except as expressly provided in this Agreement,
nothing in this Agreement is intended to, or does, in any manner waive, limit,
impair or restrict the ability of any party to this Agreement to protect and
preserve all of its rights, remedies and interests, including, without
limitation, with respect to its claims against and interests in the Company.

     Section 19. Governing Law.

     THIS AGREEMENT, THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS
AGREEMENT, AND ANY CLAIM OR CONTROVERSY DIRECTLY OR INDIRECTLY BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT
(WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER THEORY), INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, SHALL IN ALL RESPECTS BE

                                     - 37 -

<PAGE>

GOVERNED BY AND INTERPRETED, CONSTRUED, AND DETERMINED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO ANY CONFLICTS OF LAW
PROVISION THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER
JURISDICTION).

     NOTWITHSTANDING THE FOREGOING, THE CONCURSO PLAN CONTEMPLATED BY THIS
AGREEMENT, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES THEREUNDER, INCLUDING
ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE THEREUNDER, SHALL IN ALL
RESPECTS BE GOVERNED BY AND INTERPRETED, CONSTRUED, AND DETERMINED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE UNITED MEXICAN STATES (WITHOUT REGARD TO ANY
CONFLICTS OF LAW PROVISION THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY
OTHER JURISDICTION).

     Section 20. Jurisdiction.

     By its execution and delivery of this Agreement, each of the signatories to
this Agreement (i) irrevocably and unconditionally agrees that so long as the
Company has commenced a Chapter 11 Case, any legal action, suit or proceeding
against it with respect to any matter under or arising out of or in connection
with this Agreement or for recognition or enforcement of any judgment rendered
in any such action, suit or proceeding, shall be brought exclusively in the
Bankruptcy Court and (ii) so long as the Company has commenced a Chapter 11
Case, expressly waives any other forum that may correspond by virtue of
domicile, whether present or future, or otherwise.

     The foregoing shall not preclude the jurisdiction of the Mexican Bankruptcy
Court with respect to any legal action, suit or proceeding against it with
respect to any matter under or arising out of or in connection with the Concurso
Plan contemplated by this Agreement, and the rights and obligations of the
parties thereunder, including all matters of construction, validity and
performance thereunder.

     Section 21. 304 Injunction.

     The Company shall, by April 20, 2006, file a motion seeking the
modification of the injunction pending in its 304 Proceeding solely in order to
permit the parties hereto only to terminate this Agreement in accordance with
the terms hereof, and this Agreement shall automatically terminate if the
Company does not file such motion within such period, and if the Bankruptcy
Court does not grant such modification by May 11, 2006, unless such deadline is
waived or extended by the majority of the Supporting FRN Holders hereto and the
majority of the Supporting Noteholders hereto, acting jointly; provided,
however, that the foregoing waiver shall not apply and shall have no effect as
to Loral and this Agreement shall automatically terminate as to Loral only if
the Company does not file such motion by April 20, 2006, and if the Bankruptcy
Court does not grant such modification by May 11, 2006, unless such deadline is
waived or extended by Loral in writing. Notwithstanding anything to the contrary
contained in this section 21, the parties agree that the Company may seek such
modification of the injunction in the 304 Proceeding by notice of presentment
attaching a form of order.

                                     - 38 -

<PAGE>

     Section 22. Specific Performance.

     It is understood and agreed by each of the signatories to this Agreement
that money damages may not be a sufficient remedy for any breach of this
Agreement by any party and each non-breaching party shall be entitled to seek
specific performance, injunctive, rescissionary or other equitable relief as a
remedy for any such breach.

     Section 23. Headings.

     The headings of the sections, paragraphs and subsections of this Agreement
are inserted for convenience only and shall not affect the interpretation
hereof.

     Section 24. Successors and Assigns.

     This Agreement is intended to bind and inure to the benefit of the parties
to this Agreement and their respective successors, permitted assigns, heirs,
executors, administrators and representatives.

     Section 25. Counterparts.

     This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original and all of which shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page by telecopier
shall be effective as delivery of a manually executed counterpart. Any Person
may become party to this Agreement on or after the date of this Agreement by
executing a signature page to this Agreement and/or, if applicable, in
accordance with section 5(c), executing an Accession Agreement. Upon the
delivery of such executed signature pages and/or Accession Agreement to the
Company, such Person shall be deemed to be a Supporting Holder as if it had been
an initial signatory hereto.

     Section 26. No Third-Party Beneficiaries.

     This Agreement shall be solely for the benefit of the parties to this
Agreement, and no other Person or entity shall be a third-party beneficiary
hereof.

     Section 27. No Solicitations.

     This Agreement is not intended to be, and each party to this Agreement
acknowledges that it is not, a solicitation of the acceptance or rejection of
any plan of reorganization for the Company pursuant to section 1125 of the
Bankruptcy Code. This Agreement is not a solicitation for acceptances or
rejections of a plan (Convenio Concursal) under the Concurso Proceeding of the
Company.

     Section 28. Consideration.

     It is hereby acknowledged by each of the parties that no consideration
(other than the obligations of the other parties under this Agreement) shall be
due or paid to the parties for their agreement to support the transactions
contemplated herein.

                                     - 39 -

<PAGE>

     Section 29. Independent Due Diligence and Decision-Making.

          (a) Each of the parties hereby confirms that its decision to execute
this Agreement has been based upon its independent investigation of the
operations, business, financial and other conditions and prospects of the
Company.

          (b) Each of the Supporting Holders acknowledges that all documents,
records and books pertaining to the Company requested by such Supporting Holders
have been made available for inspection by it, its attorneys, financial advisors
and accountants, and that it understands that all such documents, books and
records will continue to be made available to it, its attorneys, financial
advisors and accountants for inspection upon reasonable notice, during
reasonable business hours. Each of the Supporting Holders and their respective
advisors has had a reasonable opportunity to ask questions of and receive
answers from the officers of the Company, or a Person or Persons acting on their
behalf, concerning the Company and the terms and conditions of the
Restructuring, the Concurso Plan and the Chapter 11 Plan, and to obtain
additional information, to the extent possessed or obtainable without
unreasonable effort or expense by the officers of the Company, necessary to
confirm the accuracy of the information provided by, or on behalf of, the
Company.

          (c) Each of the Supporting Holders has such knowledge and experience
in financial and business matters as to enable it (i) to utilize the information
made available to it in connection with the Restructuring (including the Term
Sheet), (ii) to evaluate the merits and risks associated with the Restructuring
(including the Term Sheet) and (iii) to make an informed decision with respect
thereto.

          (d) Each of the Supporting Holders has the capacity to protect its own
interests in connection with the Restructuring (including the Term Sheet) and
has obtained, in such Supporting Holder's judgment, sufficient information
relating to the Company and its business to evaluate the merits and risks of the
transactions contemplated herein.

          (e) Each of the Supporting Holders understands that any and all
financial forecasts provided by, or on behalf of, the Company are based on
various estimates and assumptions of the officers of the Company and their
respective advisors and are subject to the caveats set forth in such materials.

          (f) Between the date hereof and the Effective Date, the Company shall
afford or use its reasonable best efforts to cause to afford, in the case of
Enlaces, to the FRN Advisors and the Senior Note Advisors reasonable access to
the Company's and Enlaces' business, operations, properties, books, files and
records, and shall cooperate in the examination thereof and furnish such
advisors with all reasonable information with respect to the business and
affairs of the Company and Enlaces as such advisors may reasonably request
during normal business hours, subject to existing confidentiality obligations
and to any applicable privileges. Nothing in this section 29(f) shall obligate
the Company to prepare any information not prepared in the ordinary course of
business. All information furnished to the FRN Advisors and the Senior Note
Advisors pursuant to this section 29(f) shall be subject to the provisions of
their respective confidentiality agreements between the Company and the FRN
Advisors and the Senior Note Advisors.

                                     - 40 -
<PAGE>

      Section 30. Public Disclosures.

      Prior to the issuance of any public disclosures regarding the
Restructuring, the Company shall consult with the Committees' and Supporting
Equity Holders' respective counsel as to the form and substance of such public
disclosures materially related to this Agreement or any other transaction
contemplated hereby; provided, however, that nothing in this section 30 shall be
deemed to prohibit the Company from making any disclosure it deems necessary or
advisable in order to satisfy its respective disclosure obligations imposed by
Applicable Law or the rules of any stock exchange on which securities of the
Company are listed or quoted or to obtain any governmental approvals or filings
necessary to implement the Restructuring and consummate the Concurso Plan and
the Chapter 11 Plan. Notwithstanding the foregoing, the amount of Securities
held by a specific Supporting FRN Holder or Supporting Noteholder shall not be
publicly disclosed by the Company or any party hereto without the prior written
consent of such Supporting FRN Holder or Supporting Noteholder other than in
connection with the Chapter 11 Case and then only the identity of such
Supporting FRN Holder or Supporting Noteholder and the amount of Securities held
on an aggregate basis with all members of the applicable Committee; provided,
however, that, to the extent requested, the Company may disclose individual
Supporting FRN Holder and Supporting Noteholder information to a Governmental
Authority in order to obtain any governmental approvals or filings necessary to
implement the Restructuring and consummate the Concurso Plan and the Chapter 11
Plan.

      Section 31. Impact of Appointment to Creditors' Committee.

      Notwithstanding anything herein to the contrary, if any Supporting Holder
is appointed to and serves on any official committee of creditors or equity
holders in the Company's Chapter 11 Case, the terms of this Agreement shall not
be construed so as to limit such Supporting Holders' exercise (in its reasonable
judgment and discretion) of its fiduciary duties to any Person arising from its
service on such official committee, and any such exercise (in the reasonable
judgment and discretion of such Supporting Holder) of such fiduciary duties
shall not be deemed to constitute a breach of the terms of this Agreement.
Notwithstanding anything to the contrary herein, no Supporting Holder shall
request the appointment and/or creation of any trustee, examiner or committee
pursuant to the Bankruptcy Code or otherwise until such time as this Agreement
has been terminated pursuant to the terms specified herein.

      Section 32. Survival.

      The representations, warranties, covenants, obligations, rights and
remedies of the parties hereto under this Agreement shall be of no further force
and effect upon the termination of this Agreement pursuant to the terms
specified herein; provided, however, that the Company shall be liable pursuant
to section 8 of this Agreement for any reasonable fees and actual, documented
out-of-pocket expenses incurred from the date hereof until termination of this
Agreement.

      Section 33. Automatic Termination.

      This Agreement shall automatically terminate if on or before the earlier
of (i) the Concurso Filing Deadline and (ii) May 22, 2006 (the "Termination
Date"), Required FRN Holders have not (A) signed this Agreement or (B) otherwise
become irrevocably bound to

                                      - 41 -

<PAGE>

support the Restructuring (including to vote to accept the Chapter 11 Plan);
provided, however, that the Termination Date may be extended, or this section 33
may be waived, by (x) the majority of the Supporting Noteholders and (y) the
Company, acting jointly. The Company shall promptly notify the respective
counsel to the Committees in the event the Required FRN Holders have (A) signed
this Agreement or (B) otherwise become irrevocably bound to support the
Restructuring (including to vote to accept the Chapter 11 Plan) and, in the case
of (B), shall provide such counsel with the relevant documentation thereof or
other evidence reasonably acceptable to counsel to the Committees. The parties
acknowledge that the Company will be relying upon information provided to it
from the security holders.

                  [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

                                     - 42 -

<PAGE>

      IN WITNESS WHEREOF, each of the parties to this Agreement has caused this
Agreement to be executed and delivered by its duly authorized officers as of the
date first written above.

                                   Satelites Mexicanos, S.A. de C.V.

                                   By: /s/ Cynthia Pelini Addario
                                       -----------------------------------------
                                       Name:  Cynthia Pelini Addario
                                       Title: EVP Finance & Administration

                                       Rodolfo Gaona #86
                                       Col. Lomas de Sotelo
                                       Mexico D.F. 11200 Mexico
                                       Telephone:    (52) (55) 2629-5808
                                       Fax:          (52) (55) 2629-5895

                                   By: /s/ Carmen Ochoa
                                       -----------------------------------------
                                       Name:  Carmen Ochoa
                                       Title: General Counsel

                                       Rodolfo Gaona #86
                                       Col. Lomas de Sotelo
                                       Mexico D.F. 11200 Mexico
                                       Telephone:    (52) (55) 5201-0858
                                       Fax:          (52) (55) 2629-0895

                                   Servicios Corporativos Satelitales, S.A. de
                                   C.V.

                                   By: /s/ Sergio Miguel Angel Autrey Maza
                                       -----------------------------------------
                                       Name: Sergio Miguel Angel Autrey Maza
                                       Title: Attorney-in-fact

                                       Rodolfo Gaona 86-F
                                       Col. Lomas de Sotelo
                                       Mexico D.F. 11200 Mexico
                                       Telephone:    (52) (55) 1250-6300
                                       Fax:          (52) (55) 1250-6329

<PAGE>

                                   Principia, S.A. de C.V.

                                   By: /s/ Sergio Miguel Angel Autrey Maza
                                       -----------------------------------------
                                       Name:  Sergio Miguel Angel Autrey Maza
                                       Title: Attorney-in-fact

                                       Rodolfo Gaona 86-F
                                       Col. Lomas de Sotelo
                                       Mexico D.F. 11200 Mexico
                                       Telephone:    (52) (55) 1250-6300
                                       Fax:          (52) (55) 1250-6329

<PAGE>

                                   Loral Skynet Corporation and Loral SatMex
                                   Ltd., (collectively, "Loral")

                                   By: /s/ Richard P. Mastoloni
                                       -----------------------------------------
                                       Name: Richard P. Mastoloni
                                       Title: Vice President and Treasurer

<PAGE>
                                   SUPPORTING FRN HOLDERS:

                                   CANYON VALUE REALIZATION FUND, L.P.

                                   CANYON VALUE REALIZATION MAC 18 LTD.

                                   INSTITUTIONAL BENCHMARKS SERIES
                                   (MASTER FEEDER) LIMITED IN RESPECT OF
                                   CENTAUR SERIES

                                   THE CANYON VALUE REALIZATION FUND(CAYMAN)LTD.

                                   By: CANYON CAPITAL ADVISORS LLC
                                       Their Investment Advisor

                                   By: /s/ Mitch Julis
                                       -----------------------------------------
                                   Name: Mitch Julis
                                   Title: Managing Partner

                                   CANYON CAPITAL ADVISORS LLC hereby represents
                                   that it is the investment advisor with the
                                   power to vote and dispose of all or
                                   substantially all of the FRNs held on behalf
                                   of the above-named beneficial owners of the
                                   respective principal amounts of FRNs listed
                                   next to the names of such beneficial owners
                                   on Exhibit B to this Agreement.

                                   Contact Person: Jack Hersch
                                   Address: c/o Canyon Capital Advisors LLC
                                            9665 Wilshire Boulevard
                                            Beverly Hills, CA 90212
                                   Telephone: 310.858.4249
                                   Facsimile: 310.247.2701
                                   E-mail: jhersch@canyonpartners.com
<PAGE>

                                   ALPHA U.S. SUBFUND II, LLC
                                   CITI GOLDENTREE LTD.
                                   REYNOLDS AMERICAN DEFINED BENEFIT MASTER
                                   TRUST
                                   GOLDENTREE CREDIT OPPORTUNITIES FINANCING I,
                                   LTD.
                                   GOLDENTREE CREDIT OPPORTUNITIES FINANCING II,
                                   LTD.
                                   GOLDENTREE HIGH YIELD MASTER FUND, LTD.
                                   GOLDENTREE HIGH YIELD MASTER FUND II, LTD.
                                   GOLDENTREE HIGH YIELD OPPORTUNITIES II, L.P.
                                   GOLDENTREE HIGH YIELD VALUE MASTER, L.P.
                                   GOLDENTREE MULTISTRATEGY FINANCING, LTD.
                                   GPC LVIII, LLC

                                   By: GOLDENTREE ASSET MANAGEMENT, LP
                                       Their Investment Advisor

                                   By: /s/ Adam Tuckman
                                       -----------------------------------------
                                   Name: Adam Tuckman
                                   Title: Portfolio Manager

                                   GOLDENTREE ASSET MANAGEMENT, LP hereby
                                   represents that it is the investment advisor
                                   with the power to vote and dispose of all or
                                   substantially all of the FRNs held on behalf
                                   of the above-named beneficial owners of the
                                   respective principal amounts of FRNs listed
                                   next to the names of such beneficial owners
                                   on Exhibit B to this Agreement.

                                   Contact Person: Adam Tuckman
                                   Address: c/o GoldenTree Asset Management, LP
                                            300 Park Avenue
                                            New York, NY 10022
                                   Telephone: 212.847.3542
                                   Facsimile: 212.847.3535
                                   E-mail: atuckman@goldentree.com

<PAGE>

                                   HIGHLAND CRUSADER OFFSHORE PARTNERS, L.P.
                                   PAM CAPITAL FUNDING, L.P.
                                   PAMCO CAYMAN, LTD.

                                   By: HIGHLAND CAPITAL MANAGEMENT,L.P.
                                       Their Collateral Manager

                                   By: /s/ Mark Okada
                                       -----------------------------------------
                                   Name: Mark Okada
                                   Title: Executive Vice President
                                          Strand Advisors, Inc., General
                                          Partner of Highland Capital
                                          Management, L.P.

                                   HIGHLAND CAPITAL MANAGEMENT, L.P. hereby
                                   represents that it is the collateral manager
                                   with the power to vote and dispose of all or
                                   substantially all of the FRNs held on behalf
                                   of the above-named beneficial owners of the
                                   respective principal amounts of FRNs listed
                                   next to the names of such beneficial owners
                                   on Exhibit B to this Agreement.

                                   Contact Person: Kenneth Toudouze
                                   Address: c/o Highland Capital Management, LP
                                            13455 Noel Road, Suite 800
                                            Dallas, TX 75240
                                   Telephone: 972.628.4100
                                   Facsimile: 972.628.4147
                                   E-mail: ktoudouze@hcmlp.com

<PAGE>

                                   MURRAY CAPITAL MANAGEMENT,INC., as agent on
                                   behalf of certain discretionary accounts

                                   By: /s/ Scott V. Beechert
                                       -----------------------------------------
                                   Name: Scott V. Beechert
                                   Title: General Counsel &
                                          Chief Compliance Officer

                                   MURRAY CAPITAL MANAGEMENT,INC. hereby
                                   represents that it is the investment advisor
                                   with the power to vote and dispose of all or
                                   substantially all of the FRNs held on behalf
                                   of certain beneficial owners of the principal
                                   amount of FRNs listed on Exhibit B to this
                                   Agreement.

                                   Contact Person: Scott V. Beechert
                                   Address: Murray Capital Management, Inc.
                                            680 Fifth Avenue, 26th Floor
                                            New York, NY 10019
                                   Telephone: 212.582.5505
                                   Facsimile: 212.582.5525
                                   E-mail: sbeechert@murraycapital.com
<PAGE>

                                   FEDERATED INTERNATIONAL HIGH INCOME FUND

                                   By: /s/Roberto Sanchez-Dahl
                                       -----------------------------------------
                                   Name: Roberto Sanchez-Dahl
                                   Title: Vice President/Portfolio Manager
                                          Federated Investment Mangement
                                          Co. as Attorney-in-Fact

                                   Federated International High Income Fund
                                   hereby represents that it is the beneficially
                                   owner and/or investment advisor or manager
                                   (with the power to vote and dispose of all or
                                   substantially all of the Senior Notes held on
                                   behalf of their beneficial owner) of
                                   discretionary accounts for holders of
                                   beneficial owners of the aggregate principal
                                   amount of the Senior Notes listed next to its
                                   name on Exhibit B to this Agreement.

                                   Contact Person: Roberto Sanchez-Dahl
                                   Address: Federated Investment Management Co.
                                            1001 Liberty Avenue
                                            Pittsburgh, PA 15222
                                   Telephone: (412) 288-2287
                                   Facsimile: (412) 288-6737
                                   E-mail: rsanchez-dahl@federatedinv.com

<PAGE>

                                   FEDERATED STRATEGIC INCOME FUND

                                   By: /s/ Roberto Sanchez-Dahl
                                       -----------------------------------------
                                   Name: Roberto Sanchez-Dahl
                                   Title: Vice President/Portfolio Manager
                                          Federated Investment Mangement
                                          Co. as Attorney-in-Fact

                                   Federated Strategic Income Fund hereby
                                   represents that it is the beneficially owner
                                   and/or investment advisor or manager (with
                                   the power to vote and dispose of all or
                                   substantially all of the Senior Notes held on
                                   behalf of their beneficial owner) of
                                   discretionary accounts for holders of
                                   beneficial owners of the aggregate principal
                                   amount of the Senior Notes listed next to its
                                   name on Exhibit B to this Agreement.

                                   Contact Person: Roberto Sanchez-Dahl
                                   Address: Federated Investment Management Co.
                                            1001 Liberty Avenue
                                            Pittsburgh, PA 15222
                                   Telephone: (412) 288-2287
                                   Facsimile: (412) 288-6737
                                   E-mail: rsanchez-dahl@federatedinv.com

<PAGE>

                                   ATLANTIC PACIFIC MANAGEMENT GROUP LLC

                                   By: /s/ Jay A. Johnston
                                       -----------------------------------------
                                   Name: Jay A. Johnston
                                   Title: Managing Director
                                          Indian Harbor Capital Management
                                          Advisor of Account

                                   Atlantic Pacific Management Group LLC hereby
                                   represents that it is the beneficially owner
                                   and/or investment advisor or manager (with
                                   the power to vote and dispose of all or
                                   substantially all of the Senior Notes held on
                                   behalf of their beneficial owner) of
                                   discretionary accounts for holders of
                                   beneficial owners of the aggregate principal
                                   amount of the Senior Notes listed next to its
                                   name on Exhibit B to this Agreement.

                                   Contact Person: Jason Cook
                                   Address: c/o Gramercy Advisors LLC
                                            20 Dayton Avenue
                                            Greenwich, CT 06830
                                   Telephone: (203) 552-1920
                                   Facsimile: (203) 552-1906
                                   E-mail: jcook@gramercy.com

<PAGE>

                                   LPETE LLC

                                   By: /s/ Jay A. Johnston
                                       -----------------------------------------
                                   Name: Jay A. Johnston
                                   Title: President
                                          LPETE LLC

                                   LPETE LLC hereby represents that it is the
                                   beneficially owner and/or investment advisor
                                   or manager (with the power to vote and
                                   dispose of all or substantially all of the
                                   Senior Notes held on behalf of their
                                   beneficial owner) of discretionary accounts
                                   for holders of beneficial owners of the
                                   aggregate principal amount of the Senior
                                   Notes listed next to its name on Exhibit B to
                                   this Agreement.

                                   Contact Person: Jason Cook
                                   Address: c/o Gramercy Advisors LLC
                                            20 Dayton Avenue
                                            Greenwich, CT 06830
                                   Telephone: (203) 552-1920
                                   Facsimile: (203) 552-1906
                                   E-mail: jcook@gramercy.com

<PAGE>

                                   SSGDP LLC

                                   By: /s/ Jay A. Johnston
                                       -----------------------------------------
                                   Name: Jay A. Johnston
                                   Title: President
                                          SSGDP LLC

                                   SSGDP LLC hereby represents that it is the
                                   beneficially owner and/or investment advisor
                                   or manager (with the power to vote and
                                   dispose of all or substantially all of the
                                   Senior Notes held on behalf of their
                                   beneficial owner) of discretionary accounts
                                   for holders of beneficial owners of the
                                   aggregate principal amount of the Senior
                                   Notes listed next to its name on Exhibit B to
                                   this Agreement.

                                   Contact Person: Jason Cook
                                   Address: c/o Gramercy Advisors LLC
                                            20 Dayton Avenue
                                            Greenwich, CT 06830
                                   Telephone: (203) 552-1920
                                   Facsimile: (203) 552-1906
                                   E-mail: jcook@gramercy.com

<PAGE>

                                   DRALLI LLC

                                   By: /s/ Jay A. Johnston
                                       -----------------------------------------
                                   Name: Jay A. Johnston
                                   Title: Managing Director
                                          Gramercy Investment Management
                                          LLC, Sole Manager of the Company

                                   DRALLI LLC hereby represents that it is the
                                   beneficially owner and/or investment advisor
                                   or manager (with the power to vote and
                                   dispose of all or substantially all of the
                                   Senior Notes held on behalf of their
                                   beneficial owner) of discretionary accounts
                                   for holders of beneficial owners of the
                                   aggregate principal amount of the Senior
                                   Notes listed next to its name on Exhibit B to
                                   this Agreement.

                                   Contact Person: Jason Cook
                                   Address: c/o Gramercy Advisors LLC
                                            20 Dayton Avenue
                                            Greenwich, CT 06830
                                   Telephone: (203) 552-1920
                                   Facsimile: (203) 552-1906
                                   E-mail: jcook@gramercy.com

<PAGE>
                                   GRAMERCY EMERGING MARKETS FUND

                                   By: /s/ Jay A. Johnston
                                       -----------------------------------------
                                   Name: Jay A. Johnston
                                   Title: Director
                                          Gramercy Emerging Markets Fund

                                   Gramercy Emerging Markets Fund hereby
                                   represents that it is the beneficially owner
                                   and/or investment advisor or manager (with
                                   the power to vote and dispose of all or
                                   substantially all of the Senior Notes held on
                                   behalf of their beneficial owner) of
                                   discretionary accounts for holders of
                                   beneficial owners of the aggregate principal
                                   amount of the Senior Notes listed next to its
                                   name on Exhibit B to this Agreement.

                                   Contact Person: Jason Cook
                                   Address: c/o Gramercy Advisors LLC
                                            20 Dayton Avenue
                                            Greenwich, CT 06830
                                   Telephone: (203) 552-1920
                                   Facsimile: (203) 552-1906
                                   E-mail: jcook@gramercy.com

<PAGE>

                                   HFR EM SELECT MASTER TRUST

                                   By: /s/ Jay A. Johnston
                                       -----------------------------------------
                                   Name: Jay A. Johnston
                                   Title: Co-Managing Partner, Gramercy
                                          Advisors by Power of Attorney

                                   HFR EM Select Master Trust hereby represents
                                   that it is the beneficially owner and/or
                                   investment advisor or manager (with the power
                                   to vote and dispose of all or substantially
                                   all of the Senior Notes held on behalf of
                                   their beneficial owner) of discretionary
                                   accounts for holders of beneficial owners of
                                   the aggregate principal amount of the Senior
                                   Notes listed next to its name on Exhibit B to
                                   this Agreement.

                                   Contact Person: Jason Cook
                                   Address: c/o Gramercy Advisors LLC
                                            20 Dayton Avenue
                                            Greenwich, CT 06830
                                   Telephone: (203) 552-1920
                                   Facsimile: (203) 552-1906
                                   E-mail: jcook@gramercy.com

<PAGE>
                                   KAPALI LLC

                                   By: /s/ Jay A. Johnston
                                       -----------------------------------------
                                   Name: Jay A. Johntson
                                   Title: President
                                          KAPALI LLC

                                   KAPALI LLC hereby represents that it is the
                                   beneficially owner and/or investment advisor
                                   or manager (with the power to vote and
                                   dispose of all or substantially all of the
                                   Senior Notes held on behalf of their
                                   beneficial owner) of discretionary accounts
                                   for holders of beneficial owners of the
                                   aggregate principal amount of the Senior
                                   Notes listed next to its name on Exhibit B to
                                   this Agreement.

                                   Contact Person: Jason Cook
                                   Address: c/o Gramercy Advisors LLC
                                            20 Dayton Avenue
                                            Greenwich, CT 06830
                                   Telephone: (203) 552-1920
                                   Facsimile: (203) 552-1906
                                   E-mail: jcook@gramercy.com

<PAGE>

                                   LMC RECOVERY FUND LLC

                                   By: /s/ Jay A. Johnston
                                       -----------------------------------------
                                   Name: Jay A. Johnston
                                   Title: Co-Managing Partner
                                          Gramercy Advisors LLC
                                          Investment Manager of Account

                                   LMC Recovery Fund LLC hereby represents that
                                   it is the beneficially owner and/or
                                   investment advisor or manager (with the power
                                   to vote and dispose of all or substantially
                                   all of the Senior Notes held on behalf of
                                   their beneficial owner) of discretionary
                                   accounts for holders of beneficial owners of
                                   the aggregate principal amount of the Senior
                                   Notes listed next to its name on Exhibit B to
                                   this Agreement.

                                   Contact Person: Jason Cook
                                   Address: c/o Gramercy Advisors LLC
                                            20 Dayton Avenue
                                            Greenwich, CT 06830
                                   Telephone: (203) 552-1920
                                   Facsimile: (203) 552-1906
                                   E-mail: jcook@gramercy.com

<PAGE>

                                   PALLMALL LLC

                                   By: /s/ Jay A. Johnston
                                       -----------------------------------------
                                   Name: Jay A. Johnston
                                   Title: President
                                          PALLMALL LLC

                                   PALLMALL LLC hereby represents that it is the
                                   beneficially owner and/or investment advisor
                                   or manager (with the power to vote and
                                   dispose of all or substantially all of the
                                   Senior Notes held on behalf of their
                                   beneficial owner) of discretionary accounts
                                   for holders of beneficial owners of the
                                   aggregate principal amount of the Senior
                                   Notes listed next to its name on Exhibit B to
                                   this Agreement.

                                   Contact Person: Jason Cook
                                   Address: c/o Gramercy Advisors LLC
                                            20 Dayton Avenue
                                            Greenwich, CT 06830
                                   Telephone: (203)552-1920
                                   Facsimile: (203)552-1906
                                   E-mail: jcook@gramercy.com

<PAGE>

                                   UVIADO LLC

                                   By: /s/ Jay A. Johnston
                                       -----------------------------------------
                                   Name: Jay A. Johnston
                                   Title: President
                                          UVIADO LLC

                                   UVIADO LLC hereby represents that it is the
                                   beneficially owner and/or investment advisor
                                   or manager (with the power to vote and
                                   dispose of all or substantially all of the
                                   Senior Notes held on behalf of their
                                   beneficial owner) of discretionary accounts
                                   for holders of beneficial owners of the
                                   aggregate principal amount of the Senior
                                   Notes listed next to its name on Exhibit B to
                                   this Agreement.

                                   Contact Person: Jason Cook
                                   Address: c/o Gramercy Advisors LLC
                                            20 Dayton Avenue
                                            Greenwich, CT 06830
                                   Telephone: (203)552-1920
                                   Facsimile: (203)552-1906
                                   E-mail: jcook@gramercy.com

<PAGE>

                                   GRNPARK LLC

                                   By: /s/ Jay A. Johnston
                                       -----------------------------------------
                                   Name: Jay A. Johnston
                                   Title: President
                                          GRNPARK LLC

                                   GRNPARK LLC hereby represents that it is the
                                   beneficially owner and/or investment advisor
                                   or manager (with the power to vote and
                                   dispose of all or substantially all of the
                                   Senior Notes held on behalf of their
                                   beneficial owner) of discretionary accounts
                                   for holders of beneficial owners of the
                                   aggregate principal amount of the Senior
                                   Notes listed next to its name on Exhibit B to
                                   this Agreement.

                                   Contact Person: Jason Cook
                                   Address: c/o Gramercy Advisors LLC
                                            20 Dayton Avenue
                                            Greenwich, CT 06830
                                   Telephone: (203) 552-1920
                                   Facsimile: (203) 552-1906
                                   E-mail: jcook@gramercy.com

<PAGE>

                                   KADESI LLC

                                   By: /s/ Jay A. Johnston
                                       -----------------------------------------
                                   Name: Jay A. Johnston
                                   Title: President
                                          KADESI LLC

                                   KADESI LLC LLC hereby represents that it is
                                   the beneficially owner and/or investment
                                   advisor or manager (with the power to vote
                                   and dispose of all or substantially all of
                                   the Senior Notes held on behalf of their
                                   beneficial owner) of discretionary accounts
                                   for holders of beneficial owners of the
                                   aggregate principal amount of the Senior
                                   Notes listed next to its name on Exhibit B to
                                   this Agreement.

                                   Contact Person: Jason Cook
                                   Address: c/o Gramercy Advisors LLC
                                            20 Dayton Avenue
                                            Greenwich, CT 06830
                                   Telephone: (203) 552-1920
                                   Facsimile: (203) 552-1906
                                   E-mail: jcook@gramercy.com

<PAGE>

                                   HARBINGER CAPITAL PARTNERS MASTER FUND I, LTD
                                   (F/K/A HARBERT DISTRESSED INVESTMENT MASTER
                                   FIND, LTD.)

                                   By: Harbinger Capital Partners Offshore
                                       Manager, LLC, as investment manager

                                   By: /s/ Philip Falcone
                                       -----------------------------------------
                                   Name: Philip Falcone
                                   Title: Vice President

                                   Harbinger Capital Partners Master Fund I,
                                   Ltd. (f/k/a Harbert Distressed Investment
                                   Master Fund, Ltd.) hereby represents that it
                                   is the beneficially owner and/or investment
                                   advisor or manager (with the power to vote
                                   and dispose of all or substantially all of
                                   the Senior Notes held on behalf of their
                                   beneficial owner) of discretionary accounts
                                   for holders of beneficial owners of the
                                   aggregate principal amount of the Senior
                                   Notes listed next to its name on Exhibit B to
                                   this Agreement.

                                   Contact Person: Philip Falcone
                                   Address: Harbinger Capital Partners
                                            555 Madison Avenue, 16th Floor
                                            New York, NY 10022
                                   Telephone: (212) 521-6988
                                   Facsimile: (212) 508-3721
                                   E-mail: pfalcone@harbingercap.net

<PAGE>
                                   ALPHA US SUB FUND VI, LLC

                                   By: Harbert Fund Advisors, Inc.,*
                                       as investment manager

                                   By: /s/ Philip Falcone
                                       -----------------------------------------
                                   Name: Philip Falcone
                                   Title: Vice President

                                   *Pursuant to an Investment Advisory
                                   Agreement, dated as of April 29, 2003 as
                                   amended.

                                   Alpha US Sub Fund VI, LLC hereby represents
                                   that it is the beneficially owner and/or
                                   investment advisor or manager (with the power
                                   to vote and dispose of all or substantially
                                   all of the Senior Notes held on behalf of
                                   their beneficial owner) of discretionary
                                   accounts for holders of beneficial owners of
                                   the aggregate principal amount of the Senior
                                   Notes listed next to its name on Exhibit B to
                                   this Agreement.

                                   Contact Person: Philip Falcone
                                   Address: Harbinger Capital Partners
                                            555 Madison Avenue, 16th Floor
                                            New York, NY 10022
                                   Telephone: (212) 521-6988
                                   Facsimile: (212) 508-3721
                                   E-mail: pfalcone@harbingercap.net
<PAGE>

                                   FOR ACKNOWLEDGEMENT PURPOSES ONLY:

                                   Thomas Stanley Heather Rodriguez, solely in
                                   his capacity as Conciliador appointed in the
                                   Company's Concurso Proceeding and not as a
                                   party hereto.

                                   By: /s/ Thomas S. Heather
                                       -----------------------------------------
                                   Name: Thomas S. Heather
                                   Title: Conciliador

                                       c/o White & Case, S.C.
                                       Torre del Bosque - PH
                                       Blvd. Manuel Avila Camacho #24
                                       Col. Lomas de Chapultepec
                                       11000 Mexico, D.F., Mexico
                                       Telephone: (52) (55) 5540-9600
                                       Fax:       (52) (55) 5540-9699
<PAGE>

                                    EXHIBIT A

                             [INTENTIONALLY OMITTED]

<PAGE>

                                    EXHIBIT B

                             SUPPORTING FRN HOLDERS

<TABLE>
<CAPTION>
NAME     PRINCIPAL AMOUNT OF FRNS HELD*
----     -----------------------------
<S>      <C>
***                   ***
             ---------------------
TOTAL:       $107,304,280   (52.76%)
             =====================
</TABLE>

-------------
*  Confidential - individual (not aggregate) holdings to be held by Company
   counsel and counsel to FRNs only.

*** Confidential Treatment Requested by Satmex
<PAGE>

                                    EXHIBIT B

                             SUPPORTING NOTEHOLDERS

<TABLE>
<CAPTION>
NAME     PRINCIPAL AMOUNT OF SENIOR NOTES HELD*
----     -------------------------------------
<S>      <C>
***                       ***

TOTAL:           $229,356,000
</TABLE>

--------------
*  Confidential - individual (not aggregate) holdings to be held by Company
   counsel and counsel to Senior Notes only

*** Confidential Treatment Requested by Satmex
<PAGE>

                                    EXHIBIT C

                                 EXISTING EQUITY

Series "A"

<TABLE>
<CAPTION>

NAME                                                                NUMBER OF SHARES HELD
------------------------------------------------------------------  ---------------------
<S>                                                                 <C>
BBVA Bancomer, S.A., Institucion de Banca Multiple, Grupo           2,550 - Class I
Financiero BBVA Bancomer, Direccion Fiduciaria, as trustee for      2,598,450 - Class II
the shares of Servicios Corporativos Satelitales, S.A. de C.V.

                                                                    ---------------------
                                                                    2,601,000
                                                                    =====================
</TABLE>

Series  "B"

<TABLE>
<CAPTION>
NAME                                                               NUMBER OF SHARES HELD
-----------------------------------------------------------------  ---------------------
<S>                                                                <C>
BBVA Bancomer, S.A., Institucion de Banca Multiple, Grupo          2,450 - Class I
Financiero BBVA Bancomer, Direccion Fiduciaria, as trustee for     2,496,550 - Class II
the shares of Servicios Corporativos Satelitales, S.A. de C.V.

                                                                   ---------------------
                                                                   2,499,000
                                                                   =====================
</TABLE>

Series  "C"

<TABLE>
<CAPTION>
NAME                                                               NUMBER OF SHARES HELD
-----------------------------------------------------------------  ---------------------
<S>                                                                <C>
Loral Skynet Corporation, which shares have been pledged to the    473,449 - Class I, Sub-series "C-1"
Bank of New York pursuant to the Loral Pledge

                                                                   -----------------------------------
Principia, S.A. de C.V.                                            133,281 - Class I, Sub-series "C-1"
                                                                   -----------------------------------

TOTALS:                                                            606,730
                                                                   ===================================
</TABLE>

Series "N"

<TABLE>
<CAPTION>
NAME                                                               NUMBER OF SHARES HELD
-----------------------------------------------------------------  ---------------------
<S>                                                                <C>
BBVA Bancomer, S.A., Institucion de Banca Multiple, Grupo          1,650,000 - Class II
Financiero BBVA Bancomer, Direccion Fiduciaria, as trustee for
the shares of Servicios Corporativos Satelitales, S.A. de C.V.

                                                                   ---------------------
Servicios Corporativos Satelitales, S.A. de C.V.                   750,000 - Class II
                                                                   ---------------------

                                                                   2,400,000
                                                                   =====================
</TABLE>

<PAGE>

                                    EXHIBIT D
                    RECOGNIZED CLAIMS IN CONCURSO PROCEEDING
                             AS OF DECEMBER 30, 2005

<TABLE>
<CAPTION>
<S>                                                                             <C>
IFECOM APPOINTEE CREDITOR                                                       AMOUNT

SERGIO FRANCISCO HERMIDA GUERRERO (VISITOR'S FEES)                              36,587.50 UDI'S

SECURED CREDITOR                                                                AMOUNT

CITIBANK, N.A. (FRN TRUSTEE FEES)                                               U.S. $467,698.21

CITIBANK, N.A. (AS TRUSTEE FOR FRNS)                                            U.S. $219,446,948.04

UNSECURED CREDITOR                                                              AMOUNT

HUGHES NETWORK SYSTEMS, INC.                                                    U.S. $12,377.00

AKIN  (SENIOR NOTE ADVISOR)                                                     U.S. $675,765.19

CAAYS (FRN ADVISOR)                                                             U.S. $205,649.81

WILMERHALE (FRN ADVISOR)                                                        U.S. $434,618.18

THE BANK OF NEW YORK (AS TRUSTEE FOR SENIOR NOTES)                              U.S. $413,774,527.00

LORAL SKYNET                                                                    U.S. $126,000.00

ANTENNA TECHNOLOGY COMMUNICATIONS, INC.                                         U.S. $59.00

AGENTE ADUANAL ELIZONDO                                                         MXP $9,715
</TABLE>

<PAGE>

                                    EXHIBIT E

                                EQUITY DOCUMENTS

Shareholder Resolutions of Satmex authorizing (i) the issuance of Bondholder
Equity, (ii) restructuring of existing equity, (iii) amendment of By-laws, (iv)
election of board members, and (v) related resolutions

By-laws of Satmex

New stock certificates

Notice of concentration to the Antitrust Commission

Release to Bancomer (as trustee) regarding the Servicios shares in Satmex

Release to Bancomer (as trustee) regarding the Firmamento shares in Servicios

Release or reinstatement of existing FRN mortgage on Satmex's assets

Transfer documents of service companies

Notice to SCT relating to the execution by Satmex of a mortgage instrument
pursuant to article 96 of the Ley de Vias Generales de Comunicacion

Equity Trust Documents

<PAGE>

                                    EXHIBIT F

                                 LORAL DOCUMENTS

Documents implementing and relating to the Loral Usufructo arrangement and the
Loral Grant

Form of order to be submitted to the Bankruptcy Court in respect of the Loral
Grant

Letter agreement from the Company granting SS/L a right of first offer with
regard to its next satellite procurement, as further described in the Term Sheet
(the "ROFO")

Documents implementing the provisions of section I of the Term Sheet under the
caption "Treatment of Enlaces"

Any portion of any Restructuring Document referencing or directly impacting the
Loral Grant, the Loral Transponders, the Loral Settlement Agreements, the ROFO,
the Equity Documents or any of the foregoing documents in this Exhibit F

<PAGE>

                                    EXHIBIT G

                         ELIGIBLE EMPLOYEE BONUS PROGRAM

<TABLE>
<CAPTION>
                                                                         Payment 1**
                                                                       (to be released
                                                                           when the       Payment 2**
                                                                         Conciliador    (to be released      Final Payment
                                                                          Submission     one day prior    (to be released 90
                                                                            Period      to the Petition     days following
            Employee                        Bonus Amount                   expires)          Date)          Effective Date)
-------------------------------  -----------------------------------   ---------------  ---------------   ------------------
<S>                              <C>                                   <C>              <C>               <C>
                                                                  Tier 1

              CFO                65% of base annual salary plus 2005         25%              25%                 50%
                                          Christmas bonus*
              CSO                65% of base annual salary plus 2005         25%              25%                 50%
                                          Christmas bonus*
              CLO                65% of base annual salary plus 2005         25%              25%                 50%
                                          Christmas bonus*
                                                                  Tier 2

         CEO of Enlaces          35% of base annual salary plus 2005         25%              25%                 50%
                                          Christmas bonus*
Executive Director of Satellite  35% of base annual salary plus 2005         25%              25%                 50%
   Engineering and Operations             Christmas bonus*
 Director Program Satellite TI   35% of base annual salary plus 2005         25%              25%                 50%
                                          Christmas bonus*
 Director of Regulatory Branch   35% of base annual salary plus 2005         25%              25%                 50%
                                          Christmas bonus*
   Access Management Director    35% of base annual salary plus 2005         25%              25%                 50%
                                          Christmas bonus*
    Director of Engineering      35% of base annual salary plus 2005         25%              25%                 50%
                                          Christmas bonus*
</TABLE>

---------------
*   Counsel to the Committees shall receive dollar amounts separately.

**  Only payable to the extent this Agreement is not terminated in accordance
    with its terms.

<PAGE>

                                     ANNEX A

                     THIS DOCUMENT IS NOT A SOLICITATION FOR
           ACCEPTANCES OR REJECTIONS OF THE PLAN (CONVENIO CONCURSAL)
                         UNDER THE CONCURSO MERCANTIL OF
                  SATELITES MEXICANOS, S.A. DE C.V. ("SATMEX")
                     OR ANY PLAN OF REORGANIZATION OF SATMEX
                 PURSUANT TO SECTION 1125 OF THE BANKRUPTCY CODE

                     TERM SHEET FOR RESTRUCTURING OF SATMEX

Capitalized terms not otherwise defined in this Annex shall have the meaning
ascribed to such term in the body of the Restructuring Agreement (the
"AGREEMENT").

INTRODUCTION

      This Term Sheet is to be maintained in strict confidence in accordance
with the Agreement and sets forth the principal terms of a proposal for the
Restructuring. As indicated in the Agreement, the framework for the
Restructuring of SATMEX will be established through a Concurso Plan of SATMEX in
its Concurso Proceeding, and will be implemented through the Chapter 11 Plan in
the Chapter 11 Case.

      The consummation of the transactions described herein are subject to the
provisions of the MBRA and the Bankruptcy Code including, among others, approval
by the Mexican Bankruptcy Court and the Bankruptcy Court. The transactions
described herein are further subject to the execution of all necessary documents
and agreements. Any offer of securities in connection with the transactions
described below will be made only in compliance with all applicable securities
laws and other laws, including the MBRA and the Bankruptcy Code.

      This Term Sheet is not a solicitation for approval of (i) a Plan under
Article 161 of the MBRA or (ii) a plan of reorganization under sections 1125 and
1126 of the Bankruptcy Code.

I.    TREATMENT OF LABOR COSTS, TAXES, SUPPLIERS AND OTHER INDEBTEDNESS

General Operating Expenses:     Except as otherwise provided herein or in the
                                Agreement, SATMEX will continue to make payment
                                of all direct and indirect labor and tax
                                obligations (including, but not limited to,
                                withholding taxes to the extent required by
                                applicable law, payroll taxes, and Social
                                Security contributions) as they become due, on a
                                timely basis; and suppliers and other
                                indebtedness, including but not limited to, the
                                costs associated with the Concurso Proceeding,
                                as approved by the Mexican Bankruptcy Court upon
                                the recommendation of the Conciliador, will be
                                paid in full on the terms provided for under
                                applicable contracts and/or purchase orders,
                                executory contracts and unexpired leases. Except
                                as provided for herein

                                      A-1
<PAGE>

                                or in the Agreement, other unsecured
                                indebtedness not paid prior to the commencement
                                of the Chapter 11 Case will be paid in full on
                                or before the later of (i) the Effective Date or
                                as soon as practicable thereafter without any
                                interest and (ii) the date such claim becomes
                                due and payable in the ordinary course of
                                business.

Treatment of Enlaces:           As of December 31, 2005, Loral and Principia
                                contributed U.S. $2.3 million in equity to and
                                there were loans totaling U.S. $7.6 million from
                                SATMEX on the books of Enlaces Integra, S.A. de
                                C.V. ("ENLACES"). On or before the Effective
                                Date, or as soon thereafter as all required
                                regulatory approvals are obtained, SATMEX will
                                capitalize the entire U.S. $7.6 million of such
                                loans in return for seventy-five percent (75%)
                                of the fully diluted equity of Enlaces.

                                Any new equity infusions with respect to Enlaces
                                will be subject to a rights offering. The
                                Enlaces board of directors will be comprised of
                                three members, two of which will be designated
                                by SATMEX and one of which will be designated
                                jointly by Loral and Principia. SATMEX, Loral
                                and Principia will agree on a list of Enlaces
                                extraordinary actions that will be subject to
                                the prior approval of the Loral/Principia
                                director.

                                On or before the Effective Date, Enlaces will
                                enter into a contract with Globalstar de Mexico
                                S. de R.L. de C.V. ("GLOBALSTAR DE MEXICO"), a
                                company owned jointly by an affiliate of Loral
                                and Principia, or its designee, to provide
                                services at Enlaces' current market rates to
                                support Globalstar de Mexico's Enciclomedia
                                business. Satmex will continue to support
                                Enlaces with the transponder capacity necessary
                                to meet its obligations under the
                                above-referenced contract, on commercially
                                reasonable terms negotiated on an arms-length
                                basis. For the avoidance of doubt, all contracts
                                between Enlaces and Globalstar de Mexico or
                                between SATMEX and Globalstar de Mexico shall be
                                on an arms-length basis and subject to approval
                                by the Bondholders.

                                SATMEX will endeavor to obtain all required
                                regulatory approvals prior to the Effective
                                Date, or as soon thereafter as is practicable.
                                Except for the capitalization of the U.S. $7.6
                                million in loans described above, nothing herein
                                shall affect any right or remedy of Satmex or
                                Enlaces under any existing agreement, contract,
                                Applicable Law or other course of business
                                between Satmex and Enlaces.

Loral Transponders:             On the Effective Date, SATMEX shall grant to
                                certain affiliates of Loral as designated by
                                Loral (the "LORAL ENTITIES") a usufructo under
                                Articles 980 et seq. of Mexico's Federal Civil
                                Code ("ARTICLE 980") (the "LORAL USUFRUCTO")
                                with respect to the Loral Transponders (the
                                "LORAL GRANT"), before a Mexican notary public,
                                and which Loral Grant will be registered at
                                SATMEX's commercial file with the relevant
                                Public Registry of Commerce. Each of the parties
                                to the Agreement agrees that (a)

                                      A-2
<PAGE>

                                consistent with Mexican law, the Loral Usufructo
                                shall constitute an in rem property right
                                whereby the Loral Entities and their assignees
                                (collectively, the "GRANT HOLDERS") are entitled
                                to the quiet use and enjoyment of the Loral
                                Transponders for (x) the life of the SATMEX 6
                                satellite ("SATMEX 6") as to the Loral
                                Transponders on SATMEX 6 and (y) the life of the
                                SATMEX 5 satellite ("SATMEX 5") as to the Loral
                                Transponders on SATMEX 5; (b) as a consequence
                                of the Loral Usufructo and consistent with
                                Mexican law, the Loral Transponders cannot,
                                under any circumstances, including, without
                                limitation, in an insolvency, bankruptcy or
                                similar proceeding under Mexican or U.S. law, be
                                sold, transferred, pledged or otherwise disposed
                                of free and clear of the usufructo embodied in
                                the Loral Grant and any purchaser or transferee
                                thereof takes subject to the Loral Usufructo;
                                provided, however, that solely in the event the
                                Grant Holders determine to accept the Sale
                                Proceeds (as defined below) in exchange for the
                                termination and extinguishment of the Loral
                                Usufructo as provided herein, the collateral
                                trust agreements shall provide and the
                                collateral trustee under the First Priority
                                Senior Secured Notes and/or Second Priority
                                Senior Secured Notes, as applicable, shall be
                                irrevocably directed to pay the Sale Proceeds to
                                the applicable Grant Holders; (c) the Grant
                                Holders may take any action necessary to enforce
                                their rights under the Loral Usufructo against
                                SATMEX, its successors and assigns, or any other
                                party in any context; (d) each party to the
                                Agreement and any party with an interest in or
                                claim to SATMEX 5 or SATMEX 6 shall be subject
                                to and shall not foreclose and shall waive any
                                right to foreclose the Loral Usufructo in the
                                Loral Transponders; (e) in any proceeding
                                outside Mexico with respect to (x) the subject
                                matter of this Section, (y) the Loral Usufructo
                                or the Loral Grant or (z) SATMEX 5 or SATMEX 6
                                as it relates to the rights of the Grant Holders
                                in the Loral Transponders, the parties to the
                                Agreement hereby irrevocably agree that Luis A.
                                Nicolau or such other designee selected by the
                                Grant Holders (the "DESIGNEE"), which Designee
                                shall be reasonably acceptable to Satmex and the
                                collateral trustees for the First Priority
                                Senior Secured Notes and Second Priority Senior
                                Secured Notes, shall be the sole expert on
                                Mexican law (specifically including Article 980)
                                and agree that Mr. Nicolau or such other
                                Designee will be the only witness (expert or
                                otherwise) that may submit evidence including,
                                without limitation, any expert report, testimony
                                or opinion, for all purposes in interpreting,
                                enforcing or otherwise explaining the Mexican
                                Federal Civil Code, including Article 980
                                thereof, with respect to the

                                      A-3
<PAGE>

                                Loral Usufructo and the Loral Grant or the
                                parties' rights in respect thereof (and each
                                party shall waive any right to call any other
                                witness in respect of these matters); (f) each
                                of the parties to the Agreement is and shall be
                                estopped from arguing or taking any position
                                that the Loral Usufructo embodied in the Loral
                                Grant is other than as expressly described
                                herein; and (g) in any dispute (in any court or
                                other proceeding whether in Mexico, the United
                                States or otherwise) with respect to the Loral
                                Usufructo embodied in the Loral Grant, the laws
                                of Mexico shall apply in connection with the
                                interpretation, enforceability and application
                                of the Loral Usufructo, and such application of
                                Mexican law is to be considered to the fullest
                                extent under Rule 44.1 of the Federal Rules of
                                Civil Procedure and Rule 9017 of the Federal
                                Rules of Bankruptcy Procedure, as may be
                                applicable. Further, the Loral Grant shall (a)
                                be subject to the provisions of this Section,
                                (b) be on the same business terms as the Lease
                                Agreements, subject to certain modifications,
                                solely to the extent necessary, to reflect the
                                change from a lease to a usufructo structure, it
                                being expressly understood that the parties
                                hereto are agreeing to a usufructo and not a
                                lease in respect of the Loral Transponders and
                                (c) expressly set forth that (i) SATMEX shall,
                                to the extent reasonably necessary, assist the
                                Grant Holders in describing to their customers
                                the extent of the Grant Holders' rights, (ii)
                                the Grant Holders shall not be obligated to
                                maintain the Loral Transponders, except to the
                                extent, if any, expressly provided in the Lease
                                Agreements, (iii) the Loral Grant shall
                                terminate only in the circumstance described in
                                the following paragraph, (iv) except as provided
                                in the following paragraph, the Loral Grant
                                shall survive any sale or foreclosure of the
                                record title of the Loral Transponders or the
                                satellite in which the Loral Transponders are
                                located (v) the Grant Holders shall not be
                                obligated to provide any guarantee (fianza) in
                                respect of the Loral Grant and (vi) the Grant
                                Holders shall be entitled to indemnification
                                from SATMEX as provided in the Lease Agreements.
                                The liens on substantially all of SATMEX's
                                assets securing the First Priority Senior
                                Secured Notes and the Second Priority Senior
                                Secured Notes shall, with respect to the Loral
                                Transponders, be subject to, and acknowledge the
                                existence of, the Loral Grant as described
                                herein. The Loral Grant shall provide the Grant
                                Holders with the right to make one or more
                                protective UCC filings with regard to the Loral
                                Grant. SATMEX shall cooperate with the Grant
                                Holders and execute such documents as may be
                                necessary or appropriate to effect such filings.

                                The Loral Grant will not affect the exercise of
                                rights and remedies of the First Priority Senior
                                Secured Notes and the Second Priority Senior
                                Secured Notes. The Loral Grant shall survive any
                                exercise of such rights and remedies; provided,
                                however, that, if as a result of any such
                                exercise, SATMEX 5 or 6 is sold and moved from
                                the orbital slot for which it was designed, the
                                applicable Grant Holder shall be entitled to
                                receive, but only if the applicable Grant Holder
                                shall, in its sole discretion, elect not to
                                continue the Loral Grant at the new orbital
                                location from the net proceeds from the sale of
                                the respective satellite, the following (the
                                "SALE PROCEEDS"): the greater of (A) (i) in the
                                case of SATMEX 5, an amount equal to 6.25% of
                                such net sale proceeds and (ii) in the case of
                                SATMEX 6, an amount equal to 6.7% of such net
                                sale proceeds and (B) an amount equal to the
                                fair market value of the Loral Transponders as
                                determined by a panel of three satellite
                                industry experts on satellite valuation, with
                                such

                                      A-4
<PAGE>

                                experts to be selected in the following manner:
                                each of (x) the Grant Holders and (y) the
                                applicable collateral trustee shall appoint one
                                of the experts and the experts so appointed by
                                the Grant Holders and the applicable collateral
                                trustee shall mutually agree on the third
                                expert. It is agreed that for the purposes of
                                such valuation, the experts shall assume that
                                the satellite has not been and will not be moved
                                from the orbital location for which it was
                                designed and, further, that the experts shall
                                take into account, among other things, the
                                customer base on the Loral Transponders existing
                                at the time of the valuation. The applicable
                                collateral trustee shall afford the Grant
                                Holders the same opportunity as any other
                                third-party bidder to bid on and purchase the
                                applicable satellite in any foreclosure, but
                                nothing in this sentence shall give the Grant
                                Holders any rights greater than any other
                                third-party bidder. The applicable Grant Holder
                                shall release the Loral Grant with respect to
                                the satellite in question (and shall be
                                obligated only to return the Loral Transponders
                                in their "as is" condition) upon receipt of the
                                Sale Proceeds. In addition, whether or not the
                                applicable Grant Holder elects to continue the
                                Loral Grant at the new orbital location pursuant
                                to any such exercise of rights and remedies that
                                result in the move of the satellite from its
                                orbital slot, the applicable Grant Holder shall
                                be entitled to an unsecured claim against SATMEX
                                in an amount equal to the direct damages that
                                will be incurred by the applicable Grant Holder
                                under customer contracts utilizing capacity on
                                the Loral Transponders that arise from or relate
                                to the move of the satellite from its orbital
                                slot. Receipt of the Sale Proceeds shall be in
                                full satisfaction of any and all claims that the
                                applicable Grant Holder may have against the
                                applicable satellite or any subsequent owner
                                thereof.

                                The Loral Grant shall become effective upon
                                filing for registration in the Public Registry
                                of Commerce, at which time the Lease Agreements
                                shall be terminated and the Grant Holders shall
                                have no further right to a lien on, or title to,
                                the Loral Transponders, except as provided in
                                the Loral Grant.

                                For purposes hereof, "LEASE AGREEMENTS" means,
                                collectively, (i) that certain Agreement
                                Concerning the Lease of Transponders dated June
                                14, 2005 between SATMEX and Loral Skynet, a
                                division of Loral SpaceCom Corporation, as
                                amended and (ii) that certain Agreement
                                Concerning the Lease of Transponders dated June
                                14, 2005 between SATMEX and SS/L (as assignee of
                                Loral Space & Communications Corporation), as
                                amended; and "LORAL TRANSPONDERS" means those
                                transponders that are the subject of the Lease
                                Agreements.

                                Upon the Effective Date, irrespective of whether
                                Loral has breached or terminated the Agreement
                                (as may be amended in accordance therewith), the
                                Loral Entities shall receive the Loral
                                Usufructo. With respect to SATMEX, the
                                obligation to provide the Loral Usufructo to the
                                Loral

                                      A-5
<PAGE>

                                Entities shall survive termination of the
                                Agreement.

SS/L Right of First Offer:      Space Systems/Loral, Inc. ("SS/L") shall have a
                                right of first offer ("ROFO") from SATMEX with
                                respect to the construction of SATMEX's next
                                satellite to be placed into one of SATMEX's
                                existing orbital locations or any orbital
                                location obtained in exchange for any of
                                SATMEX's existing orbital locations (the "NEXT
                                SATELLITE"). Pursuant to this ROFO, SATMEX
                                shall, in the event it determines to procure the
                                Next Satellite, provide to SS/L a request for
                                proposal (an "RFP") outlining the specifications
                                for the Next Satellite.

                                SS/L shall have a period of forty-five (45) days
                                from receipt of the RFP to respond with a
                                written proposal. After receipt of SS/L's
                                proposal, SATMEX shall for a period not to
                                exceed forty-five (45) days thereafter negotiate
                                in good faith with SS/L regarding the proposal
                                and shall elect (the "ELECTION") either to enter
                                into a contract with SS/L based on the terms
                                proposed and negotiated or to reject SS/L's
                                proposal. If SATMEX elects to reject SS/L's
                                proposal, SATMEX may then solicit proposals
                                (based on the same RFP submitted to SS/L) from
                                other satellite manufacturers that could lead to
                                a Superior Proposal, and during the one hundred
                                twenty (120) day period after the Election,
                                enter into a contract for the construction of
                                the Next Satellite with a party other than SS/L
                                if SATMEX receives a Superior Proposal from such
                                party. A "SUPERIOR PROPOSAL" shall mean a
                                proposal that provides superior value to SATMEX,
                                as reasonably determined by SATMEX, taking into
                                account technical capabilities, schedule,
                                reliability, price and terms and conditions. If
                                (i) after the expiration of such 120-day period,
                                SATMEX has not entered into a satellite contract
                                with another manufacturer for the Next
                                Satellite, or (ii) at any time, SATMEX makes any
                                material changes or modifications to the
                                original or any subsequently modified RFP
                                submitted to SS/L, then SATMEX shall again
                                extend the ROFO to SS/L (a "SUBSEQUENT ROFO") in
                                accordance with the above terms; provided,
                                however, that in the event of a Subsequent ROFO
                                pursuant to clause (i), each 45-day period and
                                the 120-day period set forth above shall be
                                reduced to thirty (30) and sixty (60) days,
                                respectively. Notwithstanding the foregoing,
                                SATMEX may elect to accept a proposal from
                                another manufacturer that is not fully compliant
                                with the RFP, and such acceptance shall not be
                                construed as a material change or modification
                                to the original or any subsequently modified RFP
                                requiring the Subsequent ROFO, so long as such
                                variance from the RFP was not made at SATMEX's
                                request or with SATMEX's prior consent and such
                                proposal, after taking into account this
                                variance, nevertheless constitutes a Superior
                                Proposal. For the avoidance of doubt, the
                                acceptance by SATMEX of a non-compliant bid from
                                another manufacturer shall not constitute
                                consent for the purpose of the preceding
                                sentence.

                                Provided SATMEX shall comply with this ROFO,
                                SATMEX shall have

                                      A-6
<PAGE>

                                no other or further obligation to SS/L with
                                respect to SATMEX's Next Satellite. Any dispute
                                between the parties concerning this ROFO shall
                                be governed by New York law, and the courts of
                                New York shall have exclusive jurisdiction to
                                determine such dispute.

                                If SATMEX purchases an existing satellite to be
                                located in one of SATMEX's orbital slots, then
                                the Next Satellite shall be the next satellite
                                to be constructed and placed in a SATMEX orbital
                                slot. The ROFO described in this section shall
                                apply to any successor-in-interest to or buyer
                                of SATMEX, but only with respect to the Next
                                Satellite.

                                The ROFO provided for herein shall expire ten
                                (10) years from the Effective Date.

Releases:                       On the Effective Date, appropriate discharges
                                and releases reasonably acceptable to the
                                Conciliador shall be provided by SATMEX to its
                                current officers and directors, to the extent
                                permitted by law. The Conciliador shall use
                                reasonable efforts to obtain similar discharges
                                and releases of SATMEX's current officers and
                                directors from the Mexican Government.

II. TREATMENT OF EXISTING SENIOR SECURED FLOATING RATE NOTES DUE 2004: FIRST
PRIORITY SENIOR SECURED NOTES

Issuer:                         SATMEX.

Targeted Securities:            For all outstanding principal amount of the FRNs
                                and all past due and unpaid interest on the
                                FRNs, the holders thereof will receive First
                                Priority Senior Secured Notes due 2011 (the
                                "FIRST PRIORITY SENIOR SECURED NOTES").

Principal Amount:               Approximately U.S. $203,400,000 plus unpaid
                                accrued interest through the Effective Date with
                                such interest calculated such that, assuming an
                                Effective Date of September 30, 2006, the
                                principal amount of the First Priority Senior
                                Secured Notes will be U.S. $234,400,000. In the
                                event the Effective Date is other than September
                                30, 2006, the principal amount shall be adjusted
                                upward for each day after September 30, 2006, or
                                downward for each day before September 30, 2006,
                                as applicable, that the Effective Date occurs,
                                by the following amount: U.S. $234,400,000
                                multiplied by the per Diem Rate multiplied by
                                the number of days before or after September 30,
                                2006, that the Effective Date occurs. The "PER
                                DIEM RATE" shall mean a percentage equal to the
                                one-month LIBOR rate as of the date that is
                                three (3) business days prior to the Effective
                                Date

                                      A-7
<PAGE>

                                plus four hundred and fifty basis points
                                (LIBOR+4.5%) divided by three hundred sixty
                                (360). For the avoidance of doubt, nothing
                                herein shall create an obligation by SATMEX for
                                its internal accounting purposes to treat
                                amounts paid above the principal amount of the
                                FRNs in a manner inconsistent with its current
                                tax and accounting practices.

Ranking and Security:           The First Priority Senior Secured Notes will
                                continue to be secured by a first priority lien
                                on all present and after acquired assets of
                                SATMEX on substantially the same terms provided
                                for under the existing security documents for
                                the holders of the FRNs (junior only to
                                priorities recognized by statute in Mexico)
                                except (i) as provided for in Section I above
                                under the caption "LORAL TRANSPONDERS", and (ii)
                                as provided for immediately below under the
                                caption "GUARANTEES".

Guarantees:                     The First Priority Senior Secured Notes will not
                                be guaranteed in any manner by Servicios or by
                                Firmamento; consequently, liens on the shares of
                                SATMEX owned by Servicios and those of Servicios
                                owned by Firmamento will be discontinued as of
                                the Effective Date. The First Priority Senior
                                Secured Notes will be guaranteed by Restricted
                                Subsidiaries, following the concept in the
                                existing Senior Notes indenture. Restricted
                                Subsidiary guarantors will grant a lien on all
                                of their respective assets to secure the
                                guarantees, which liens will be senior in
                                priority, operation, and effect to the security
                                interests of the Second Priority Senior Secured
                                Notes in accordance with Exhibit A.

Interest Payments:              1 (one) or 3 (three) month LIBOR plus eight
                                hundred seventy five basis points per annum
                                (LIBOR+8.75%), payable in arrears in cash on the
                                last day of the applicable one or three month
                                period.

Final Maturity:                 Five years from the Effective Date.

Optional Prepayment:            At any time in cash at 103%, 102% and 101% of
                                par in years one, two and three respectively,
                                thereafter at par; plus accrued and unpaid
                                interest.

Mandatory Prepayments:          In the event of qualifying asset sales, future
                                new debt security issuances not contemplated
                                herein, and certain insured losses and subject
                                to prepayment at the terms described under the
                                immediately preceding "OPTIONAL PREPAYMENT"
                                caption. In addition, SATMEX shall be required
                                to repay all outstanding unpaid principal of the
                                First Priority Senior Secured Notes with 100% of
                                cash balances in excess of five million dollars
                                (U.S. $5,000,000) on a quarterly basis,
                                commencing on the last day of the first complete
                                calendar quarter following the launch of SATMEX
                                6, based on cash balances as estimated five (5)
                                business days before such quarterly payment
                                date, taking into account amounts expected to be
                                payable (including scheduled cash interest
                                payments

                                      A-8
<PAGE>

                                under the First Priority Senior Secured Notes
                                and the Second Priority Senior Secured Notes)
                                and cash expected to be received up to and
                                including such quarterly payment date (the
                                "AVAILABLE CASH FLOW REPAYMENT FORMULA");
                                provided, however, that if the launch of SATMEX
                                6 occurs after October 31, 2006, Satmex shall be
                                required to begin repaying the First Priority
                                Senior Secured Notes on March 31, 2007, based on
                                the Available Cash Flow Repayment Formula
                                modified to include an additional reserve of
                                135% of the estimated unpaid costs necessary to
                                launch SATMEX 6 including any satellite, launch
                                and insurance costs; provided, further, that
                                such additional reserve is held
                                by the collateral trustee for the First Priority
                                Senior Secured Notes in a collateral account;
                                and; provided, further, that if the launch of
                                SATMEX 6 does not  occur within
                                30 months from the Effective Date, the funds in
                                the additional reserve shall be released as a
                                mandatory prepayment on the First Priority
                                Senior Secured Notes.

Covenants:                      To be based upon those provided for in the
                                existing FRN indenture, with financial covenants
                                revised to reflect the financial condition of
                                SATMEX, plus a covenant against the incurrence
                                of any additional indebtedness (other than
                                unsecured and subordinated indebtedness for
                                replacement satellites and other agreed upon
                                exceptions) and a covenant against capital
                                expenditures (with details and permitted
                                exceptions to be determined). Mandatory periodic
                                reporting requirements in compliance with U.S.
                                GAAP; SATMEX will be subject to periodic
                                reporting requirements applicable to non-U.S.
                                reporting companies under the U.S. Securities
                                Exchange Act of 1934, as amended (the
                                "SECURITIES EXCHANGE ACT"). Covenants to include
                                restrictions on (i) optional redemption of
                                Second Priority Senior Secured Notes so long as
                                First Priority Senior Secured Notes are
                                outstanding; (ii) offer of asset sale proceeds
                                or any other proceeds of collateral to Second
                                Priority Senior Secured Notes prior to offering
                                the First Priority Senior Secured Notes the
                                first right to such proceeds; and (iii) in the
                                event of a Change of Control (as defined below)
                                where both the First Priority Senior Secured
                                Notes and the Second Priority Senior Secured
                                Notes have put rights, the redemption of the
                                Second Priority Senior Secured Notes other than
                                on a pari passu basis with the  First
                                Priority Senior Secured Notes.

Events of Default:              Substantially the same as provided in the
                                existing FRN indenture and otherwise typical for
                                similar restructuring transactions.

Change of Control:              In the event of a change of control of SATMEX
                                ("CHANGE OF CONTROL")*, holders of the First
                                Priority Senior Secured Notes shall have a put
                                option

--------------------
* "Change of Control" shall include the acquisition directly or indirectly by
  any other person or group of a majority of the equity voting rights and/or
  equity financial rights of SATMEX.

                                      A-9
<PAGE>

                                whereby such holders shall be entitled to redeem
                                all or any portion of their First Priority
                                Senior Secured Notes in exchange for payment in
                                cash from SATMEX of one hundred one percent
                                (101%) of the sum of the then-outstanding
                                principal amount plus accrued and unpaid
                                interest, which redemption shall be consummated
                                simultaneously with such Change of Control.

Default Rate of Interest:       Upon the occurrence and during the continuance
                                of an Event of Default, the interest rate on the
                                unpaid principal balance shall be two hundred
                                (200) basis points above the then-applicable
                                non-default rate.

Advisory Fees:                  SATMEX will pay all fees and out-of-pocket
                                expenses (not previously paid by SATMEX) of one
                                financial advisor, one Mexican legal counsel and
                                one U.S. legal counsel to the members of the FRN
                                Ad Hoc Committee, and the fees and out-of-pocket
                                expenses of Evercore Partners and Sitrick and
                                Company (as specified in the Agreement), on or
                                as soon as practicable after the Effective Date
                                in accordance with the terms of the Agreement.

Trustee Fees:                   SATMEX will pay the reasonable fees and
                                out-of-pocket expenses directly related to the
                                Concurso Proceeding, the Chapter 11 Case and the
                                implementation of the respective "Plans" under
                                those proceedings, of one Mexican legal counsel
                                and one U.S. legal counsel to Citibank, N.A., as
                                Indenture Trustee to the FRNs promptly upon
                                receipt of reasonable documentation as soon as
                                practicable after the Effective Date.

                                      A-10
<PAGE>

DTC and Transferability:        The First Priority Senior Secured Notes shall be
                                eligible securities for clearance through The
                                Depository Trust Company ("DTC") and, at the
                                option of the holders thereof, be issued in
                                whole or in part in global form to DTC or a
                                nominee of DTC. The issuance of the First
                                Priority Senior Secured Notes will be exempt
                                from registration under the U.S. Securities Act
                                of 1933, as amended (the "SECURITIES ACT")
                                pursuant to Section 1145 of the Bankruptcy Code.

                                So long as a registration demand has been
                                granted to an Affiliated Bondholder (as defined
                                below), any holder of First Priority Senior
                                Secured Notes that believes that it cannot
                                transfer its First Priority Senior Secured Notes
                                without registration under the Securities Act
                                (without regard to whether an exemption from
                                registration is available, other than pursuant
                                to an exemption under Section 1145 of the
                                Bankruptcy Code) shall have the right to
                                register such First Priority Senior Secured
                                Notes as part of any registration conducted
                                pursuant to the registration demand of an
                                Affiliated Bondholder.

     III. RESTRUCTURING OF 10.125% SENIOR NOTES DUE 2004 ("SENIOR NOTES"):
               NEW SECOND PRIORITY SENIOR SECURED NOTES DUE 2013

Issuer:                         SATMEX.

Targeted Securities:            For all outstanding principal amount of the
                                Senior Notes and all past due and unpaid
                                interest on the Senior Notes, holders thereof
                                (the "BONDHOLDERS") will be given a combination
                                of (a) Second Priority Senior Secured Notes due
                                2013 (the "SECOND PRIORITY SENIOR SECURED
                                NOTES") and (b) equity (shares) of reorganized
                                SATMEX as described below in Section IV.

Principal Amount:               U.S. $140,000,000 Second Priority Senior Secured
                                Notes.

Issue Date:                     Effective Date.

Mandatory Prepayments:          In the event of qualifying asset sales, future
                                new debt security issuances not contemplated
                                hereunder, and certain insured losses and
                                subject to prepayment at the terms described
                                below under "Call Rights". In addition, after
                                the payment in full of the First Priority Senior
                                Secured Notes, SATMEX shall be required to make
                                prepayments as per the Available Cash Flow
                                Prepayment Formula.

Interest:                       Interest will be payable quarterly in arrears at
                                the rate of 10.125% per annum. Interest will be
                                paid in kind and in cash as set forth below:

                                      A-11
<PAGE>

<TABLE>
<CAPTION>
Year            PIK                Cash
<S>           <C>                <C>
1             10.125%            0%
2              8.125%            2%
3              8.125%            2%
4              8.125%            2%
5              8.125%            2%
6                  0%            10.125%
7                  0%            10.125%
</TABLE>

                                All interest paid in kind will be capitalized
                                quarterly. Notwithstanding the foregoing, upon
                                repayment in full of the First Priority Senior
                                Secured Notes, all interest shall be payable in
                                cash.

Final Maturity:                 Seven (7) years from the Effective Date.

Ranking and Security:           The Second Priority Senior Secured Notes will
                                rank pari passu in right of payment to all
                                existing and future senior indebtedness
                                (including the First Priority Senior Secured
                                Notes) and will rank senior to all existing and
                                future subordinated indebtedness, subject to any
                                priorities recognized by statute, such as tax
                                and labor obligations. The security interests of
                                the Second Priority Senior Secured Notes on all
                                present and future assets of SATMEX will be
                                junior in priority, operation and effect to the
                                security interests created by the First Priority
                                Senior Secured Notes, all in accordance with the
                                terms set forth in Exhibit A hereto except (i)
                                as provided for in Section I above
                                under the caption "LORAL TRANSPONDERS", and (ii)
                                as provided for in Section II above under the
                                caption "GUARANTEES".

Call Rights:                    Callable, in whole or in part, at any time by
                                SATMEX at a price equal to the principal amount
                                of such Second Priority Senior Secured Notes
                                then outstanding plus accrued and unpaid
                                interest thereon.

Guarantors:                     Restricted Subsidiaries, as defined in and
                                required by the existing Senior Notes indenture,
                                which guarantees will rank pari passu in right
                                of payment to all existing and future senior
                                indebtedness of such Guarantors and will rank
                                senior to all existing and future subordinated
                                indebtedness of such Guarantors, subject to any
                                priorities recognized by statute, such as tax
                                and labor obligations. Restricted Subsidiary
                                guarantors will grant a lien on all of their
                                respective assets to secure the guarantees,
                                which liens will be junior in priority,
                                operation, and effect to the security interests
                                of the First Priority Senior Secured Notes in
                                accordance with Exhibit A.

Covenants:                      Substantially the same as those provided for in
                                the existing Senior Notes indenture and
                                otherwise as is typical for similar
                                restructuring transactions, plus covenants
                                against (a) the incurrence of any new

                                      A-12
<PAGE>

                                indebtedness (other than unsecured and
                                subordinated indebtedness for replacement
                                satellites and other agreed upon exceptions) and
                                (b) the making of any capital expenditures (with
                                details and permitted exceptions to be
                                determined). Mandatory periodic reporting
                                requirements in compliance with U.S. GAAP;
                                SATMEX will be subject to periodic reporting
                                requirements applicable to non-U.S. reporting
                                companies under the Securities Exchange Act. In
                                any event, covenants shall not be more
                                restrictive than those agreed upon in the First
                                Priority Senior Secured Notes Indenture.

Events of Default:              Substantially the same as provided in the
                                existing Senior Notes indenture and otherwise as
                                is typical for similar restructuring
                                transactions, plus cross acceleration to the
                                First Priority Senior Secured Notes.

Change of Control:              In the event of a Change of Control to other
                                than an Approved Buyer (as defined below)
                                (unless waived by the vote of holders of 66-2/3%
                                of the aggregate principal amount of the Second
                                Priority Senior Secured Notes), holders of the
                                Second Priority Senior Secured Notes shall have
                                a put option whereby such holders shall be
                                entitled to redeem all or any portion of their
                                Second Priority Senior Secured Notes in exchange
                                for payment in cash from SATMEX of one hundred
                                percent (100%) of the sum of the
                                then-outstanding principal amount plus accrued
                                and unpaid interest, which redemption shall be
                                consummated simultaneously with such Change of
                                Control.

                                For purposes hereof, an "APPROVED BUYER" shall
                                mean a Buyer (as defined below) that is, or is
                                controlled by (A) a leading international
                                satellite or telecommunications company having a
                                minimum net worth of one billion dollars (U.S.
                                $1,000,000,000), and/or (B) a person or company
                                listed on Schedule D hereto; provided, however,
                                that (whether or not otherwise qualifying as an
                                Approved Buyer) no person or group may be an
                                Approved Buyer if such person or group, or
                                affiliate thereof, has been indicted for a
                                felony or charged (civilly or criminally) with a
                                violation of securities laws or regulations of
                                the U.S. or Mexico during the preceding five (5)
                                years; and a "BUYER" shall mean a person or
                                group (within the meaning of Section 13(d)(3) of
                                the Securities Exchange Act) that following a
                                Change of Control is the beneficial owner of,
                                and solely controls, shares of SATMEX
                                representing not less than a majority of the
                                equity financial rights of SATMEX and not less
                                than a majority of the equity voting rights of
                                SATMEX (including the right to appoint or elect
                                a majority of the Board of Directors of SATMEX).
                                If the Approved Buyer is a "foreign investor" or
                                its investment in SATMEX would be deemed a
                                "foreign investment" within the meaning provided
                                under the Foreign Investment Law, then the
                                Approved Buyer must be part of a group
                                (constituting a "Buyer" as defined above) with
                                another Approved Buyer

                                      A-13
<PAGE>

                                that is not a "foreign investor", nor whose
                                investment in SATMEX would be deemed a "foreign
                                investment" within such meanings.

                                For purposes of the foregoing definitions, (x)
                                the term "CONTROL", when used with respect to
                                any specified person, means the power to direct
                                the management and policies of such person,
                                directly or indirectly, whether through the
                                ownership of voting securities, by contract or
                                otherwise, and the terms "CONTROLLING" and
                                "CONTROLLED" have meanings correlative to the
                                foregoing; (y) the term "PERSON" means any
                                individual, corporation, partnership, joint
                                venture, trust, unincorporated organization or
                                other entity; and (z) a person shall have
                                "BENEFICIAL OWNERSHIP" of any securities as to
                                which such person may be deemed the beneficial
                                owner pursuant to Rule 13d-3 under the
                                Securities Exchange Act and shall include,
                                without limitation, any securities such person
                                has the right to become the beneficial owner of
                                (whether or not such right is immediately
                                exercisable) pursuant to any agreement,
                                arrangement or understanding or upon the
                                exercise of any exchange right, conversion
                                right, option, warrant or other right.

Default Rate of Interest:       Upon the occurrence and during the continuance
                                of an Event of Default, the interest rate on the
                                unpaid principal balance shall be two hundred
                                (200) basis points above the then applicable
                                non-default rate.

Acceleration:                   The Second Priority Senior Secured Notes may be
                                accelerated upon the occurrence of an Event of
                                Default and the affirmative vote of the majority
                                of the holders of the aggregate principal amount
                                of the Second Priority Senior Secured Notes.

                                      A-14
<PAGE>

Advisory Fees:                  SATMEX will pay all fees and out-of-pocket
                                expenses (not previously paid by SATMEX) of one
                                financial advisor, one Mexican legal counsel and
                                one U.S. legal counsel to the Senior Notes Ad
                                Hoc Committee on or as soon as practicable after
                                the Effective Date in accordance with the terms
                                of the Agreement.

Trustee Fees:                   SATMEX will pay the reasonable fees and
                                out-of-pocket expenses directly related to the
                                Concurso Proceeding, the Chapter 11 Case and the
                                implementation of the respective "Plans" under
                                those proceedings, of one Mexican legal counsel
                                and one U.S. legal counsel to the Indenture
                                Trustee to the Senior Notes promptly upon
                                receipt of reasonable documentation as soon as
                                practicable after the Effective Date.

DTC and Transferability:        The Second Priority Senior Secured Notes shall
                                be eligible securities for clearance through DTC
                                and, at the option of the holders thereof, be
                                issued in whole or in part in global form to DTC
                                or a nominee of DTC. The issuance of the Second
                                Priority Senior Secured Notes by SATMEX shall be
                                exempt from registration under the Securities
                                Act, pursuant to Section 1145 of the Bankruptcy
                                Code.

                                Bondholders that cannot transfer the Second
                                Priority Senior Secured Notes without
                                registration under the Securities Act (without
                                regard to whether an exemption from registration
                                is available, other than pursuant to an
                                exemption under Section 1145 of the Bankruptcy
                                Code) ("AFFILIATED BONDHOLDERS") shall be
                                granted demand registration rights to require
                                SATMEX to file a registration statement on Form
                                F-1 (or Form F-3, if such form may then be
                                utilized by SATMEX) with the U.S. Securities and
                                Exchange Commission to register for resale the
                                Second Priority Senior Secured Notes held by the
                                Affiliated Bondholders (or their successors or
                                assigns); such rights shall be set forth in a
                                registration rights agreement to be entered into
                                on the Effective Date (the "REGISTRATION RIGHTS
                                AGREEMENT") that will contain customary terms
                                and conditions, including, without limitation,
                                with respect to (i) the number of demand
                                registrations (not to exceed three) and the time
                                periods in which such registration statements
                                shall be filed (upon 60 days notice in the first
                                instance, and upon 30 days notice thereafter),
                                including customary delay fees, provided that
                                the first such demand may not be made until six
                                months after the Effective Date (ii) the
                                duration of the demand registration rights (so
                                long as any Affiliated Bondholder shall remain
                                an affiliate or until all securities of SATMEX
                                held by any Affiliated Bondholder can be sold
                                within a 3-month period pursuant to Rule 144
                                under the Securities Act), (iii) suspension
                                periods (up to 75 days in the aggregate per
                                year) to comply with U.S. securities laws and to
                                prevent the premature disclosure of material
                                confidential information, (iv) the obligation of
                                the Affiliated Bondholder to provide information

                                      A-15
<PAGE>

                                for the registration statement concerning such
                                Affiliated Bondholder and the plan of
                                distribution, (v) the right of the Affiliated
                                Bondholders and their counsel to review and
                                comment on any information contained in any
                                registration statement, prospectus and any
                                amendments and supplements thereto, (vi) the
                                payment by SATMEX of the registration expenses
                                and all expenses (including fees of counsel and
                                advisors) of SATMEX and the fees of one U.S. and
                                one Mexican counsel of such Affiliated
                                Bondholders in connection therewith and (vii)
                                indemnification and contribution by the
                                Affiliated Bondholder of and to SATMEX for all
                                information concerning such Affiliated
                                Bondholder and the plan of distribution provided
                                by such Affiliated Bondholder contained in such
                                registration statement, prospectus and any
                                amendments or supplements thereto, and
                                indemnification and contribution by SATMEX of
                                and to the Affiliated Bondholder for all other
                                information contained in such registration
                                statement, prospectus and any amendments or
                                supplements thereto. Mandatory periodic
                                reporting requirements in compliance with U.S.
                                GAAP; SATMEX will be subject to periodic
                                reporting requirements applicable to non-U.S.
                                reporting companies under the Securities
                                Exchange Act.

IV.     EQUITY ISSUED TO BONDHOLDERS AND DILUTION OF EXISTING SHAREHOLDERS

New Bondholder Equity:          On the Effective Date, the holders of the Senior
                                Notes ("BONDHOLDERS") will receive a portion of
                                newly-issued Series B Shares and Series N Shares
                                (neutral nonvoting shares) of SATMEX, which
                                portion of the Series B Shares and Series N
                                Shares will jointly represent 78% of the total
                                equity financial rights, and which portion of
                                the Series B Shares will represent 43% of the
                                total equity voting rights, of reorganized
                                SATMEX on a fully diluted basis (the "BONDHOLDER
                                EQUITY"). Bondholder Equity will be issued in
                                exchange for U.S. $180,000,000 in face amount of
                                existing Senior Notes, plus 100% of all other
                                amounts due in respect of the Senior Notes up to
                                the Effective Date, for an aggregate amount of
                                approximately U.S. $274,000,000 (the "EXCHANGED
                                DEBT"). The Exchanged Debt will be capitalized
                                upon the issuance of the Bondholder Equity.

                                On the Effective Date, stock certificates
                                representing the Bondholder Equity will be
                                issued and delivered to Nacional Financiera,
                                S.N.C. or another Mexican bank approved by the
                                Bondholders, as trustee (the "TRUSTEE"), which
                                shall hold the Bondholder Equity for the benefit
                                of a special purpose entity incorporated in a
                                jurisdiction other than Mexico ("SPE")
                                acceptable to the Bondholders. The SPE will
                                issue depository receipts against the assets of
                                the SPE, consisting of the beneficial ownership
                                of the Bondholder Equity, which depository
                                receipts initially will be issued to the
                                Bondholders.

                                      A-16
<PAGE>

Existing Equity:                Immediately prior to the Effective Date, the
                                shares of SATMEX owned by Servicios Corporativos
                                Satelitales, S.A. de C.V. ("SERVICIOS") that are
                                held in trust by BBVA Bancomer (the "BANCOMER
                                TRUST") to secure payment of the existing FRNs
                                will be released as security for the FRNs.

                                On or prior to the Effective Date, (a) the
                                shares of SATMEX owned by the Mexican Government
                                and the shares of SATMEX owned by Servicios
                                (both those held directly and those held in the
                                Bancomer Trust), will be exchanged for Series A
                                Shares of common stock of SATMEX, and (b) the
                                606,730 shares of preferred stock of SATMEX held
                                by Loral Skynet Corporation ("LORAL SKYNET") and
                                Principia, S.A. de C.V. ("PRINCIPIA"), with face
                                amount of U.S. $31,900,000 and convertible into
                                4.0016 shares of common stock for each one share
                                of preferred stock, will not be converted and,
                                instead, will be exchanged for Series B Shares
                                of common stock of SATMEX.

                                The shares to be held by or for the benefit of
                                Servicios, the Mexican Government, Loral Skynet
                                and Principia will be referred to in this Term
                                Sheet as the "SERVICIOS SHARES", the "GOVERNMENT
                                SHARES", the "LORAL SHARES" and the "PRINCIPIA
                                SHARES", respectively.

                                Upon the issuance of Bondholder Equity, (1) the
                                Servicios Shares and the Government Shares will
                                be diluted and will jointly represent 20% of the
                                total equity financial rights and 55% of the
                                total equity voting rights of reorganized SATMEX
                                on a fully-diluted basis, and (2) the Loral
                                Shares and the Principia Shares will be diluted
                                and will jointly represent an aggregate of 2% of
                                the total equity financial rights and 2% of the
                                total equity voting rights of reorganized SATMEX
                                on a fully-diluted basis.

                                A capitalization table of the reorganized
                                SATMEX, indicating the ownership of its equity
                                financial rights and equity voting rights,
                                respectively, upon the Effective Date, shown in
                                final percentages, is set forth in Schedule A.

                                The Loral Shares and the Principia Shares may be
                                transferred on or before the Effective Date to a
                                special purpose entity or company which is
                                wholly owned by Loral and Principia,
                                respectively. On and after the Effective Date,
                                there shall be no restrictions (other than
                                restrictions required by U.S. securities laws)
                                on the sale or transfer of the equity interests
                                of any such special purpose entity or company.
                                On or after the Effective Date, after release of
                                the shares of Servicios held by Firmamento from
                                the security of the FRNs and release of the
                                equity interests of Firmamento held by Principia
                                and Loral SatMex Ltd. ("LORAL SATMEX") from the
                                security of the Mexican Government, Firmamento,
                                Principia and/or Loral Satmex shall have the
                                right to transfer such shares or equity
                                interests as they deem necessary or advisable.

                                      A-17
<PAGE>

Equity Trust:                   On the Effective Date, the Servicios Shares, the
                                Government Shares, the Loral Shares and the
                                Principia Shares, together with the Bondholder
                                Equity (collectively, the "TRUST SHARES"), will
                                be transferred (or issued) to the Trustee to be
                                held pursuant to an equity trust (the "EQUITY
                                TRUST"). If requested by a beneficial owner of
                                the Trust Shares, the Trustee will issue
                                certificates evidencing beneficial interests in
                                the Equity Trust to such beneficial owner
                                corresponding to such owner's beneficial
                                interest therein; provided such interests shall
                                not be negotiable instruments under Mexican law
                                (Article 228-D, Third Paragraph, General Law of
                                Negotiable Instruments and Credit Transactions).
                                The economic interest derived from the future
                                sale or disposition of the Servicios Shares held
                                by the Trustee will be transferred to the
                                Mexican Government to be applied in full
                                satisfaction of the menoscabo obligation
                                pursuant to the quiebra of Servicios.

                                A technical committee of three (3) persons (the
                                "TECHNICAL COMMITTEE") will be established
                                pursuant to the Equity Trust. The initial
                                members of the Technical Committee, and
                                alternates for such members, if any, will be
                                appointed from among the persons listed on
                                Schedule B-1. The initial term of such
                                appointment shall be 2 years, and to the extent
                                necessary, shall renew automatically for an
                                additional term of 2 years. Any subsequent
                                appointment to the Technical Committee shall be
                                approved by (i) the Voting Committee (as defined
                                below) and (ii) the SPE which, in turn, will
                                require the affirmative vote of the holders of
                                depository receipts representing not less than
                                66-2/3% of the Bondholder Equity. The majority
                                of the members of the Technical Committee shall
                                qualify as independent directors (in accordance
                                with Schedule B-2) and members of the Technical
                                Committee may also be directors of SATMEX.

                                The Technical Committee will be charged with
                                effecting the sale of the Trust Shares in a
                                manner to maximize the value thereof for the
                                holders of all of the beneficial interests in
                                the Trust Shares. The Technical Committee will
                                determine when the Trust Shares shall be offered
                                for sale, the method of sale, and whether to
                                recommend any proposed sale and, if applicable,
                                submit any proposed sale for approval by the
                                beneficial owners of the Trust Shares. The
                                Technical Committee may engage professional
                                advisors (consisting of legal counsel,
                                accountants and internationally recognized
                                investment bankers and financial advisors, the
                                latter of which shall be an Approved Bank, as
                                defined below) as it deems appropriate in
                                connection with any sale or proposed sale of the
                                Trust Shares, the fees and expenses of which
                                shall be paid by SATMEX. The Trust Shares shall
                                be offered pursuant to a competitive auction
                                process under which potential bidders shall be
                                afforded access to all material information
                                concerning SATMEX.

                                If the Trust Shares have not sooner been sold,
                                during the 180 day period

                                      A-18
<PAGE>

                                following each of (i) the successful launch and
                                operational certification of the SATMEX 6
                                satellite and (ii) the leasing of 80% of the
                                capacity available for permanent service
                                (excluding the Loral Transponders and capacity
                                reserved for the Mexican Government or SATMEX's
                                own use) of the SATMEX 6 satellite, the
                                Technical Committee shall retain one of Credit
                                Suisse, Morgan Stanley, Goldman Sachs, JPMorgan
                                Chase, Citigroup and Merrill Lynch (each, an
                                "APPROVED BANK") as investment banker or
                                financial advisor to market the Trust Shares for
                                sale as provided above.

                                Any recommendation for the sale of the Trust
                                Shares by the Technical Committee shall be
                                accompanied by a fairness opinion of an Approved
                                Bank that is independent of SATMEX. None of the
                                Trust Shares (or any beneficial ownership in any
                                Series A Shares or the right to vote any Series
                                A Shares), may be sold or otherwise transferred
                                except in a sale of all of the Trust Shares
                                pursuant to the foregoing procedure.

                                Provided (i) the proposed sale is for 100% of
                                the Trust Shares and the price per share
                                (whether Series A, Series B or Series N) shall
                                be the same, and (ii) the price for the Trust
                                Shares is payable 100% in cash (U.S. dollars),
                                no approval of the beneficial owners of the
                                Trust Shares shall be required for the sale of
                                the Trust Shares; provided, however, that if
                                such sale is consummated, or a binding agreement
                                with respect to such sale is entered into, on or
                                before the second (2nd) anniversary of the
                                Effective Date, the price for 100% of the Trust
                                Shares shall be not less than the amount
                                resulting from a total enterprise value (i.e.,
                                outstanding debt under First Priority Senior
                                Secured Notes and Second Priority Senior Secured
                                Notes, plus equity) of five hundred million
                                dollars (U.S. $500,000,000). If the proposed
                                sale of the Trust Shares does not meet the
                                foregoing conditions, such sale shall be subject
                                to the approval of (i) the Voting Committee and
                                (ii) the SPE which, in turn, will require the
                                affirmative vote of the holders of depository
                                receipts representing not less than 66-2/3% of
                                the Bondholder Equity.

                                Notwithstanding anything to the contrary herein,
                                unless the Buyer is an Approved Buyer (as such
                                terms are defined in Section III), a Change of
                                Control purchase offer for the Second Priority
                                Senior Secured Notes shall be consummated
                                simultaneously with the sale of the Trust Shares
                                as provided above or upon any subsequent Change
                                of Control (provided that such purchase offer
                                requirement may be waived by the vote of holders
                                of 66-2/3% of the aggregate principal amount of
                                the Second Priority Senior Secured Notes).

                                Pending the sale of the Trust Shares, in any
                                matter submitted to the vote of the shareholders
                                of SATMEX, the Trustee shall vote the voting
                                Trust Shares in accordance with the instructions
                                of the respective beneficial

                                      A-19
<PAGE>

                                owners of the Trust Shares; provided that with
                                respect to the Servicios Shares such
                                instructions shall be given by the Voting
                                Committee. A committee of three (3) persons (the
                                "VOTING COMMITTEE") will be established under
                                the Equity Trust and pursuant to the quiebra of
                                Servicios for purposes of providing instructions
                                to the Trustee with respect to the voting of the
                                Servicios Shares. The members of the Voting
                                Committee may be the same as the members of the
                                Technical Committee or of the Board of
                                Directors, provided that the initial members of
                                the Voting Committee, and alternates for such
                                members, if any, will be appointed from among
                                the persons listed on Schedule B-1. The initial
                                term of such appointment shall be 2 years, and
                                to the extent necessary, shall renew
                                automatically for an additional term of 2 years.
                                Any subsequent appointment to the Voting
                                Committee shall be approved by the members of
                                the Technical Committee appointed from the list
                                of candidates for Series A Directors. The
                                members of the Voting Committee shall qualify as
                                independent directors (in accordance with
                                Schedule B-2). Notwithstanding the foregoing,
                                the Trust Shares may not be voted in any manner
                                that conflicts with or is inconsistent with the
                                sale or corporate governance provisions
                                described in this Term Sheet.

                                Decisions with respect to the Bondholder Equity
                                (including the voting and disposition of 100% of
                                the Bondholder Equity) will be made by the
                                Trustee upon the affirmative vote of the SPE
                                which, in turn, will require the affirmative
                                vote of the holders of depository receipts
                                representing not less than 66-2/3% of the
                                Bondholder Equity.

                                The Equity Trust may be amended or terminated
                                only with the approval of (i) the Voting
                                Committee and (ii) the SPE which, in turn, will
                                require the affirmative vote of the holders of
                                depository receipts representing not less than
                                66-2/3% of the Bondholder Equity. All beneficial
                                owners of shares in the Equity Trust shall be
                                bound by any such amendment or termination;
                                provided that any amendment having a
                                disproportionate and material adverse impact on
                                the Loral Shares or Principia Shares shall
                                require the approval of the respective
                                beneficial holder of such shares.

Governance of SATMEX:           The by-laws of SATMEX will be revised and
                                simplified, including eliminating existing veto
                                rights afforded to Firmamento, and will also be
                                revised in a manner acceptable to the
                                Bondholders consistent with the voting and
                                governance matters set forth in this Term Sheet,
                                subject to applicable regulatory approvals that
                                do not have a material impact on the provisions
                                herein.

                                To the extent not inconsistent with the terms of
                                this Term Sheet, SATMEX will adopt the
                                principles contained in the Code of Best
                                Corporate Practices (the "PRINCIPLES"), upon the
                                Effective Date.

                                      A-20
<PAGE>

Board of Directors:      The Board of Directors of SATMEX will consist of seven
                         (7) members, appointed as follows:

                         (a) the holders of the Series A Shares will appoint
                         four (4) directors, as follows: (i) the Mexican
                         Government will appoint one (1) director, who will be
                         independent and a Mexican national; and (ii) the Voting
                         Committee with respect to the Servicios Shares will
                         appoint three (3) directors, who will be independent
                         and will be Mexican nationals (the "SERIES A
                         DIRECTORS");

                         (b) Principia and Loral Skynet, for so long as they
                         (individually or collectively) collectively
                         beneficially own 100% of the shares of SATMEX held by
                         them as of the Effective Date, will jointly appoint one
                         (1) Series B Director. The Series B Director appointed
                         by Principia and Loral Skynet shall not (i) participate
                         in, or have any access to the minutes of, any
                         discussion or action concerning the sale of SATMEX or
                         the Trust Shares as contemplated herein or (ii) be a
                         member of the Technical Committee or Voting Committee.
                         Notwithstanding the foregoing, such Series B Director
                         shall have such right to participate and to have access
                         (subject to customary standards of recusal in the event
                         of conflict of interest) if Principia and Loral Skynet
                         shall notify the Technical Committee in writing that
                         neither Principia nor Loral Skynet intends to offer or
                         otherwise seek, directly or indirectly, to purchase
                         SATMEX or its assets or the Trust Shares for a period
                         of twelve (12) months thereafter. The Series B Director
                         appointed by Loral Skynet and Principia may participate
                         in, and have access to the minutes of, any discussion
                         or action concerning the Next Satellite procurement by
                         SATMEX (subject to the recusal of the Series B Director
                         from (1) those Board discussions or any vote involving
                         an evaluation of proposals submitted in response to
                         Satmex's RFP for the Next Satellite and (2) the
                         decision as to which manufacturer will be awarded the
                         contract for the Next Satellite).

                         (c) the Bondholder Equity will appoint two (2)
                         directors (together with the director appointed
                         pursuant to clause (b) above, the "SERIES B
                         DIRECTORS"). In the event Principia and Loral Skynet
                         shall no longer (individually or collectively)
                         beneficially own 100% of the shares of SATMEX held by
                         them as of the Effective Date, the Bondholder Equity
                         may remove the Series B Director appointed by Principia
                         and Loral Skynet pursuant to clause (b) above, and
                         thereafter the Bondholder Equity will appoint such
                         third Series B Director.

                         The Series B Shares will be entitled to appoint the
                         Secretary of the Board of Directors, and will also have
                         the right to appoint a Statutory Auditor (Comisario).
                         Unless otherwise specified by the Bondholder Equity,
                         the Secretary and the Statutory Auditor shall be the
                         persons specified on Schedule B-1.

                                      A-21
<PAGE>

                         Director independence will be determined in accordance
                         with the principles set forth on Schedule B-2.

                         The Audit Committee and the Compensation Committee (or
                         a single committee, if permitted by applicable law)
                         each will be comprised of three persons, consisting
                         initially of two Series A independent directors and one
                         Series B Director designated by the Bondholder Equity
                         (which may be the Series B Director appointed by
                         Principia and Loral Skynet if so designated by the
                         Bondholder Equity and such designation is accepted by
                         such Director). Each of such committee member shall be
                         independent within the meaning of Section 10A(m)(3) of
                         the Securities Exchange Act. If the Board of Directors
                         determines to increase the size of such committee(s),
                         the Series B Director appointed by Principia and Loral
                         Skynet shall not be precluded from serving on such
                         committee(s). In any event, all committees of the Board
                         will include at least one Series B Director appointed
                         by the Bondholder Equity. The initial members of the
                         Board of Directors shall be appointed from among the
                         persons listed on Schedule B-1. The term of each
                         director shall be renewed automatically from year to
                         year, unless replaced by the holders of the shares that
                         appointed them, except that, in the case of directors
                         appointed by the Voting Committee, such replacement
                         shall be made by the Voting Committee. Directors may be
                         removed and replaced by the holders of the shares that
                         appointed them, and any successors to such directors
                         shall be appointed by the holders of the shares that
                         first appointed such directors, except that, in the
                         case of directors appointed by the Voting Committee,
                         such removal, replacement or appointment shall be made
                         by the Voting Committee.

                         Directors, as well as members of the Technical
                         Committee and Voting Committee, shall be entitled to
                         full indemnification and exculpation to the extent
                         permitted by law.

                         The indenture trustee for the First Priority Senior
                         Secured Notes shall have the right upon an event of
                         default (as defined in the First Priority Senior
                         Secured Notes indenture) to appoint an observer to the
                         Board of Directors.

                                      A-22
<PAGE>

Quorum and Voting;
Extraordinary Matters:   Other than for Extraordinary Matters (as defined
                         below), a quorum of the Board shall be a majority of
                         the Board including a minimum of two Series B
                         Directors, unless such Series B Directors fail to be
                         present after a first call, in which case a quorum
                         shall be a majority of the Board with or without such
                         Series B Directors. For Extraordinary Matters, a quorum
                         requires a majority of the Board, including a majority
                         of the Series B Directors.

                         Actions of the Board shall require a majority vote,
                         provided that the approval of two Series A Directors
                         and two Series B Directors shall be required for
                         Extraordinary Matters. If an Extraordinary Matter is
                         submitted to the Board for consideration, but such
                         matter fails to obtain the required approval as
                         described above, the Extraordinary Matter can
                         nevertheless be approved by the shareholders of SATMEX
                         but only through an Extraordinary Shareholders Meeting
                         and only if such matter has been approved by the
                         affirmative vote of at least 75% of all of the voting
                         stock of SATMEX.

                         If an Extraordinary Matter is required by law or the
                         by-laws of SATMEX to be submitted to the shareholders
                         for consideration, such Extraordinary Matter shall be
                         submitted to an Extraordinary Shareholders Meeting and
                         will require approval by the affirmative vote of at
                         least 75% of all of the voting stock of SATMEX.

                         Resolutions taken by an Extraordinary Shareholders
                         Meeting on first or subsequent call shall be valid if
                         approved by the affirmative vote of at least 75% of all
                         of the voting stock of SATMEX.

                         "EXTRAORDINARY MATTERS" shall be the matters set forth
                         on Schedule C. The sale of the Trust Shares in
                         accordance with the provisions set forth above shall
                         not be an Extraordinary Matter.

Management; Appointment
of Officers:             The CEO of SATMEX shall be appointed by the holders of
                         the Series A Shares (or the Series A Directors), and,
                         to the extent required by law, must be a Mexican
                         national. The CFO of SATMEX shall be appointed from a
                         list of nominees submitted by a majority of the holders
                         of the Series B Shares (or by a majority of the Series
                         B Directors). All other officers to be mutually agreed
                         upon by the Series A Directors and Series B Directors,
                         except that the COO of SATMEX (to the extent such
                         officer is deemed by the Board of Directors to be
                         necessary) will be appointed from a list of nominees
                         submitted by a majority of the holders of the Series B
                         Shares (or by a majority of the Series B Directors).

Foreign Investment Law:  Series A Shares shall constitute at all times at least
                         51% of the voting stock of SATMEX and shall be held
                         exclusively by Mexican nationals in accordance with the
                         Foreign Investment Law. Series B Shares and Series

                                      A-23
<PAGE>

                         N Shares may be held by non-Mexicans. The Series B
                         Shares will be full voting shares and the Series N
                         Shares will be neutral nonvoting shares.

                         In the event Mexican law changes to permit voting
                         majority ownership of SATMEX by non-Mexicans, then,
                         within one (1) year after the enactment of such change,
                         the Series N Shares issued as part of the Bondholder
                         Equity will be converted into full voting Series B
                         Shares, such that the equity voting rights in SATMEX
                         will be in the same percentages as the equity financial
                         rights in SATMEX. In such event, the majority of the
                         Board of Directors will be appointed by a majority of
                         the Series B Shares.

Approvals:               SATMEX and its shareholders, together with the
                         Conciliador, shall use commercially reasonable efforts
                         to obtain all governmental approvals required in
                         connection with the transactions contemplated in this
                         Term Sheet, including approvals of the Ministry of
                         Communications and Transportation, Foreign Investment
                         Commission, Federal Competition Commission, CNBV and
                         the U.S. Federal Communications Commission.

Service                  Companies: The shares of the three services companies
                         where all SATMEX personnel are currently lodged will be
                         transferred for nominal consideration and will become
                         subsidiaries of SATMEX on the Effective Date;
                         alternatively, all such personnel will be transferred
                         to SATMEX or to one or more wholly-owned subsidiaries
                         thereof on or before the Effective Date (then current
                         compensation to be continued, as required by Mexican
                         labor law).

Transferability:         The issuance of the depository receipts representing
                         the beneficial ownership of the Trust Shares that
                         constitute the Bondholder Equity shall be exempt from
                         registration under the Securities Act pursuant to
                         Section 1145 of the Bankruptcy Code. Bondholders that
                         are identified on or before the Effective Date as
                         Affiliated Bondholders (as defined above) shall be
                         granted demand registration rights to require SATMEX to
                         file a registration statement on Form F-1 (or Form F-3,
                         if such form may then be utilized by SATMEX) with the
                         U.S. Securities and Exchange Commission to register for
                         resale any equity securities (e.g., depository
                         receipts) held by the Affiliated Bondholders (or their
                         successors or assigns); such rights shall be set forth
                         in the Registration Rights Agreement (as defined
                         above). Mandatory periodic reporting requirements in
                         compliance with U.S. GAAP; SATMEX will be subject to
                         periodic reporting requirements applicable to non-U.S.
                         reporting companies under the Securities Exchange Act.

                                      A-24
<PAGE>

             V. SEVERANCE AND PERFORMANCE AND SUCCESS BONUS PROGRAMS

Compensation:            The Board of Directors of reorganized SATMEX will
                         promptly establish a compensation, bonus and recruiting
                         program for certain key executives of SATMEX, including
                         the new CEO and the CFO and COO (if applicable) and key
                         sales and marketing executives, upon the recommendation
                         of the Compensation Committee.

Severance and            Prior to the Effective Date, SATMEX, with the
Performance and Success  concurrence of the Conciliador, shall enter into
Bonus Programs:          certain severance arrangements with up to five (5)
                         technical engineers; such severance compensation, which
                         is to be paid in the event of severance following a
                         Change of Control within two years of the Effective
                         Date, shall not exceed six (6) months salary and
                         medical coverage benefits for such 6-month period, in
                         addition to the statutory requirement under Mexican
                         law. The contract entered into on November 1, 2003 by
                         SATMEX shall be honored with respect to the existing
                         CFO, CLO and Chief Sales Officer of SATMEX and the CEO
                         of Enlaces; provided, however, that with respect to the
                         CEO of Enlaces, any payment due under such contract
                         will be paid by Enlaces and guaranteed by SATMEX.

                         In addition, SATMEX, with the concurrence of the
                         Conciliador and approval of the Committees, Principia
                         and Loral, will establish the two-tiered performance
                         and success bonus program for certain employees set
                         forth on Schedule G to the Agreement (the "Eligible
                         Employees") that have and will continue to contribute
                         to the success of the Restructuring of SATMEX, which
                         program will be approved in connection with the
                         Concurso Proceeding. SATMEX will immediately deposit
                         funds in an escrow account in an
                         internationally-recognized Mexican bank for payment of
                         bonuses equal to the total of all amounts listed on
                         Schedule G to the Agreement. Eligible Employees will
                         receive payments in the amounts and manner described in
                         Schedule G to the Agreement. The existing CEO shall not
                         be a beneficiary of any of the foregoing arrangements.

                                      A-25
<PAGE>

                                   SCHEDULE A

                                  SATMEX EQUITY

<TABLE>
<CAPTION>
                        SERIES            VOTING RIGHTS     FINANCIAL RIGHTS
                        ------            -------------     ----------------
<S>                     <C>               <C>               <C>
MEXICAN GOV'T              A                  10.0%               4.0%
SERVICIOS                  A                  45.0%              16.0%
PRINCIPIA                  B                  0.67%              0.67%
LORAL                      B                  1.33%              1.33%
BONDHOLDERS                B                  43.0%              43.0%
BONDHOLDERS                N                     0%              35.0%
                                             100.0%             100.0%
</TABLE>

                                      A-26
<PAGE>

                                  SCHEDULE B-1

CANDIDATES FOR BOARD OF DIRECTORS (7):

Series A

Voting Committee designees (4):

Luis Rebollar
Vicente Aristegui
Alberto Mulas
Erwin Starke
Ruben Goldberg
Eugenio Gamboa Hirales
Arturo D'Acosta
Edgardo Mendoza
Juan Carlos Braniff

Series B

Loral/Principia designee (1):

Sergio Autrey
Eric Zahler
Michael Targoff
Richard Mastoloni

Bondholder Equity designees (2):

Robert Rauch
Roberto Colliard
John Stevens
Arturo D'Acosta
Roberto Maza

TECHNICAL COMMITTEE (3):

Two persons from the list of candidates for Series A Directors, as appointed by
the Voting Committee
One person from the list of candidates for Series B Directors, as appointed by
the Bondholder Equity

                                      A-27
<PAGE>

VOTING COMMITTEE (3):

Three persons from the list of candidates for Series A Directors, as appointed
pursuant to the Servicios quiebra.

Secretary of the Board:  Michel Nader S.

Statutory Auditor: Manuel Canal

                                      A-28
<PAGE>

                                  SCHEDULE B-2

                              DIRECTOR INDEPENDENCE

      "Independent Director" shall mean a director whose appointment is based
upon his/her experience, expertise and professional prestige. An Independent
Director cannot, however, be any of the following:

1.    A person that is, or was at any time during the prior 3 years, an employee
      or officer of SATMEX or any parent or subsidiary of SATMEX;

2.    A person that is, or that is a partner, shareholder, director or officer
      of an organization that is, or was at any time during the prior 3 years, a
      direct or indirect shareholder of Satmex,

3.    A person that has, or is a partner, shareholder, director or officer of an
      organization that has, the direct or indirect power to elect or direct a
      majority of the members of the Board of Directors of SATMEX;

4.    A person that is an advisor or consultant of SATMEX or its affiliates or a
      partner, shareholder, director or officer of an organization that acts as
      an advisor or consultant of SATMEX or its affiliates and such person's or
      organization's income significantly depends on such relationship with
      SATMEX;

5.    A person that is, or is a partner, shareholder, officer or employee of,
      the outside auditor of SATMEX;

6.    A person that is a client, customer, supplier, borrower or lender of
      SATMEX, or a partner, advisor, employee, director or officer of any such
      client, customer, supplier, borrower or lender;

7.    A person that is an official or employee of any governmental agency or,
      unless specified as a candidate for Series A Director on Schedule B-1, a
      person that was at any time during the prior 3 years an official or
      employee of any governmental agency,;

8.    A person that is an officer, director, trustee or employee of a
      foundation, university, association or non-profit association that
      receives donations from SATMEX; or

9.    A person that is a family member, up to the third degree, of any of the
      persons mentioned in paragraphs 1 to 5 above, or up to the first degree of
      any of the persons mentioned in paragraphs 6 and 8 above.

                                      A-29
<PAGE>

                                   SCHEDULE C

                              EXTRAORDINARY MATTERS

1.    New Line of Business

2.    Transfer of Material Assets (all or any significant portion)

3.    Merger, Liquidation, Voluntary Bankruptcy or Concurso

4.    Change in Organizational Documents (estatutos sociales)

5.    Adopt or Amend Strategic Business Plan and Annual Budget

6.    Dividends or Distributions

7.    Transactions with Affiliated Parties (including modification of any
      existing agreements with Loral and any new agreements with Loral)

8.    Deviations from the Business Plan that would impact Operating Cash Flow by
      US$10 mm or 10%

9.    Incurrence or Prepayment of Indebtedness

10.   Issuance or Redemption of Equity

11.   Engage Accountants other than a "Big-4" Firm, or change Accounting or Tax
      Methods

12.   Settlement of Litigation and Arbitration over U.S. $1,000,000

13.   Compensation of Executive Management and Employee Benefit Plans

14.   Request or Filing for, or Consent to, Modification or Transfer of
      Telecommunications Concessions/Licenses

                                      A-30
<PAGE>

                                   SCHEDULE D

                             CERTAIN APPROVED BUYERS

Provided any of the following persons (individually or as a group) shall
constitute the "Buyer" as defined in Section III, any of the following persons
(individually or as a group) shall be deemed to be "Approved Buyers":

-     Alejandro Burillo Azcarraga and/or Pegaso Comunicaciones

-     Clemente Serna and/or Grupo Medcom

-     Telefonos de Mexico, S.A. de C.V. and/or Grupo Carso

-     Grupo Televisa, S.A. de C.V.

-     Loral Space & Communications Inc. or any controlled affiliate thereof

-     Principia or any controlled affiliate thereof (provided Principia or any
      such controlled affiliate is wholly-owned (directly or indirectly) by
      Sergio Autrey or his family)

                                      A-31
<PAGE>

                              EXHIBIT A TO ANNEX A

                        DESCRIPTION OF SILENT SECOND LIEN
                     OF SECOND PRIORITY SENIOR SECURED NOTES

Collateral:              SATMEX's obligations to pay interest and principal when
                         due on the First Priority Senior Secured Notes and
                         Second Priority Senior Secured Notes will be secured by
                         separate liens on all present and after acquired assets
                         of SATMEX and any Restricted Subsidiaries except as
                         provided for in Section I of this Term Sheet under the
                         caption "Loral Transponders" (the "SHARED COLLATERAL").

Ranking:                 Without giving effect to the liens on the Shared
                         Collateral, the First Priority Senior Secured Notes and
                         the Second Priority Senior Secured Notes will rank pari
                         passu in right of payment to all existing and future
                         senior indebtedness of SATMEX and any Restricted
                         Subsidiaries, and will rank senior to all existing and
                         future subordinated indebtedness of SATMEX, subject to
                         any priorities recognized by statute, such as tax and
                         labor obligations.

Lien Subordination:      The Second Priority Senior Secured Notes will be junior
                         in priority, operation and effect at all times and
                         under all circumstances to the security interests of
                         the First Priority Senior Secured Notes and any
                         enforcement of the second priority lien and any payment
                         of the Second Priority Senior Secured Notes from the
                         collateral securing the Second Priority Senior Secured
                         Notes shall be subject to the prior payment in full of
                         the First Priority Senior Secured Notes. Subject to
                         Section I of this Term Sheet under the caption "Loral
                         Transponders", the proceeds of the Shared Collateral
                         will be applied to satisfy all outstanding obligations
                         under the First Priority Senior Secured Notes prior to
                         any proceeds being applied to any obligations under the
                         Second Priority Senior Secured Notes. The First
                         Priority Senior Secured Notes and the Second Priority
                         Senior Secured Notes will be structurally senior to all
                         unsecured indebtedness of SATMEX by virtue of their
                         lien rights.

Collateral Trustee:      The respective trustees under the indentures
                         governing the First Priority Senior Secured Notes and
                         the Second Priority Senior Secured Notes will each be
                         granted a security interest in the Shared Collateral
                         and the indenture trustees shall enter into an
                         intercreditor agreement containing the terms set forth
                         herein (the "INTERCREDITOR AGREEMENT").

<PAGE>

Prohibition on Liens:    The indenture governing the Second Priority
                         Senior Secured Notes will prohibit SATMEX or any
                         guarantor from granting or suffering to exist any lien
                         on the Shared Collateral other than liens securing:

                         -  the First Priority Senior Secured Notes and any
                            refinancing thereof;

                         -  the Second Priority Senior Secured Notes and any
                            refinancing thereof;

                         -  taxes, assessments or other governmental charges or
                            levies not yet delinquent or which are being validly
                            contested in good faith;

                         -  carriers', warehousemen's, mechanics', laborers' or
                            similar liens arising in the ordinary course of
                            business and securing obligations that are not yet
                            due and payable or that are being contested in good
                            faith and in respect of which SATMEX will have set
                            aside on its books reserves;

                         -  purchase money liens to finance the acquisition of
                            assets in the ordinary course of business so long as
                            such lien is limited to the assets so acquired, the
                            indebtedness does not exceed the purchase price and
                            such lien exists at the time of the acquisition or
                            will be created within 180 days of such acquisition;
                            and

                         -  other customary permitted liens.

Refinancing:             Notwithstanding anything to the contrary herein, SATMEX
                         will be permitted to refinance each of the First
                         Priority Senior Secured Notes and the Second Priority
                         Senior Secured Notes, provided that (i) the aggregate
                         principal amount outstanding after such refinancing is
                         not greater than the aggregate amount of all
                         obligations outstanding immediately prior to such
                         refinancing with respect to the obligations being
                         replaced, (ii) such refinancing shall not have a
                         shorter Average Life (as defined below) as compared
                         with the indebtedness being replaced, and (iii) the
                         interest rate and the cash interest payment terms on
                         such refinancing shall not be greater or more favorable
                         to the holders of such refinancing debt than the
                         interest rate and the cash interest payment terms on
                         the respective debt being refinanced unless such
                         greater or more favorable terms are commercially
                         reasonable at the time of such refinancing. "Average
                         Life" shall have the meaning set forth in the current
                         Senior Notes indenture without regard to any mandatory
                         prepayments. Any such refinancing debt will be entitled
                         to the same benefits, waivers and priority provided
                         under this Term Sheet to the debt being refinanced and
                         subject to the same burdens provided under this Term
                         Sheet, as applicable. The Available Cash Flow Repayment
                         Formula shall apply to any refinancing debt in
                         accordance with the terms of the debt being refinanced.

                                       2
<PAGE>

Release of Collateral:   The lien of the Second Priority Senior Secured Notes
                         will be automatically released upon the foreclosure or
                         sale of any Shared Collateral by the holders of the
                         First Priority Senior Secured Notes in accordance with
                         the First Priority Senior Secured Notes Indenture,
                         provided that proceeds from such sale shall be applied
                         in accordance with the Intercreditor Agreement and the
                         respective Indentures. Notwithstanding the foregoing,
                         the holders of the Second Priority Senior Secured Notes
                         will not be permitted to object to any bankruptcy court
                         or concurso mercantil ordered sale of the Shared
                         Collateral that has been approved by the holders of the
                         First Priority Senior Secured Notes provided that the
                         lien of the Second Priority Senior Secured Notes
                         attaches to the proceeds of any such sale in accordance
                         with the priorities set forth in the Intercreditor
                         Agreement. In the event that any concurso mercantil
                         proceeding is filed in Mexico, the liens in favor of
                         the Second Priority Senior Secured Notes may be
                         released by the Common Representative (as defined
                         below) with the approval of the holders of more than
                         50% in principal amount of the outstanding Second
                         Priority Senior Secured Notes, with such release to be
                         effective as of immediately prior to the commencement
                         of the concurso mercantil.

Common Representative:   A common representative shall be irrevocably appointed
                         under Mexican law to act for the benefit of 100% of the
                         holders of the Second Priority Senior Secured Notes
                         (the "COMMON REPRESENTATIVE") solely for the purposes
                         of (i) voting in favor of or accepting a plan of
                         reorganization in any future concurso mercantil
                         proceeding, (ii) exercising all veto rights in
                         connection with the approval of such concurso plan in
                         Mexico, but only in the event that such plan is
                         accepted by holders of a majority of the aggregate
                         outstanding principal amount of the Second Priority
                         Senior Secured Notes, and (iii) releasing liens as
                         described in the immediately preceding section.

Waivers:                 The Intercreditor Agreement will provide that until the
                         First Priority Senior Secured Notes have been paid in
                         full, the Second Priority Senior Secured Notes will be
                         deemed to have waived the following:

                         -  right to exercise remedies against the Shared
                            Collateral,

                         -  right to challenge the validity, enforceability or
                            priority of the first priority lien of the holders
                            of the First Priority Senior Secured Notes,

                         -  all claims against the holders of the First Priority
                            Senior Secured Notes or their representatives based
                            on actions or inactions taken with respect to the
                            Shared Collateral, and the Second Priority Senior
                            Secured Notes will not contest any actions taken by
                            the holders of the First Priority Senior Secured
                            Notes with respect to Shared Collateral,

                                       3
<PAGE>

                         -  right to seek adequate protection pursuant to
                            Section 361 of the Bankruptcy Code or its Mexican
                            equivalent in the event of any bankruptcy or
                            concurso mercantil proceeding, as applicable;
                            provided, however, that the holders of the Second
                            Priority Senior Secured Notes will be permitted to
                            cause the indenture trustee for the Second Priority
                            Senior Secured Notes to seek a junior lien on any
                            assets on which the United States bankruptcy court
                            grants a lien as adequate protection to secure the
                            First Priority Senior Secured Notes, so long as (i)
                            the junior lien is subject to the same lien
                            subordination arrangements as set forth in the
                            Intercreditor Agreement and (ii) the holders of the
                            Second Priority Senior Secured Notes waive all
                            rights, if any, to seek payment in cash of any
                            claims arising by virtue of such liens unless the
                            First Priority Senior Secured Notes have been paid
                            in full in cash,

                         -  right to oppose adequate protection pursuant to
                            Section 361 of the Bankruptcy Code or its Mexican
                            equivalent in the event of a bankruptcy or concurso
                            mercantil proceeding, as applicable,

                         -  right to oppose any debtor in possession financing
                            or concurso financing, including any right to oppose
                            debtor in possession financing that grants liens
                            senior to the liens securing the Second Priority
                            Senior Secured Notes or otherwise entitles the
                            debtor in possession financing or concurso financing
                            to payment prior to any payment to the holders of
                            Second Priority Senior Secured Notes; provided,
                            however, the holders of the Second Priority Senior
                            Secured Notes will retain the right to object to
                            such financing solely on the basis that more
                            favorable financing terms are available to SATMEX,

                         -  right to seek payment in cash of any post-petition
                            interest that might otherwise accrue following
                            commencement of any insolvency proceedings unless
                            the First Priority Senior Secured Notes have been
                            paid in full in cash, and

                         -  right to seek relief from the automatic stay or any
                            similar stay under Mexican law.

Governing Law:           The Indentures and the Intercreditor Agreement will be
                         governed by the laws of the State of New York.

                                       4
<PAGE>

                                     ANNEX B

                             INSTRUMENT OF ACCESSION

      The undersigned __________________ (the "Transferee"), as a condition
precedent to becoming the beneficial holder and/or owner of [INSERT NAME AND
FACE AMOUNT OF DEBT SECURITY BEING ACQUIRED] of SATELITES MEXICANOS, S.A. DE
C.V. (the "Company"), (a) hereby agrees to become a party to and bound by the
terms and conditions of that certain Restructuring Agreement by and between the
Company and Supporting Holder, dated as of March 31, 2006 (as amended or
modified, the "Restructuring Agreement") and assume all of the Supporting
Holder's1 obligations thereunder and (b) such Transferee represents and warrants
that it has reviewed, with the assistance of professional and legal advisors of
its choosing, all information necessary for such Transferee to decide to support
the Restructuring through the Concurso Plan and Chapter 11 Plan as described in
the Restructuring Agreement and in the Term Sheet. This Instrument of Accession
shall take effect and shall become an integral part of the Restructuring
Agreement immediately upon execution and delivery to the Company of this
Instrument and the Transferee shall be deemed to be a party to the Restructuring
Agreement (and bound by all of its rights and obligations) as if it had been an
initial signatory thereto.

      IN WITNESS WHEREOF, this INSTRUMENT OF ACCESSION has been duly executed by
or on behalf of the undersigned as of the date below written.

                                            [For Entities]

                                            ____________________________________

                                            By: ________________________________
                                                Name:
                                                Title:

                                            [For Individuals]

                                            ____________________________________
                                            Name:

                                            Address: ___________________________
                                                     ___________________________

-----------
(1)   Capitalized terms not defined herein shall have the meaning ascribed to
      such term in the Restructuring Agreement.

<PAGE>

                                            Date:  _____________________________

Acknowledged:

SATELITES MEXICANOS, S.A. DE C.V.
By: ___________________________
Date: _________________________

<PAGE>

                                     ANNEX C

<TABLE>
<CAPTION>
                                                                                           TARGET DATE
                                                                                           -----------
<S>                                                                         <C>
I.       COMPANY'S CONCURSO PROCEEDING

1.       Delivery to Supporting Holders of form of Equity Trust              Ninety (90) days after filing of the Petition
                                                                             but in no event later than thirty (30) days
                                                                             before the Confirmation Hearing

2.       Delivery to Supporting Holders of executed Partner                  Within five (5) Business Days of entry of the
         resolutions of Firmamento authorizing commencement of the           Concurso Plan Order
         Chapter 11 Case

3.       Delivery to Supporting Holders of executed Partner                  Effective Date
         resolutions of Firmamento authorizing the Restructuring

4.       Delivery to Supporting Holders of form of  Shareholder              Ninety (90) days after filing of the Petition
         resolutions of the Company                                          but in no event later than thirty (30) days
                                                                             before the Confirmation Hearing

5.       Approval from CNIE                                                  June 6, 2006

6.       Request approval from SCT (i.e., By-laws)                           April 24, 2006

7.       Approval from SCT (i.e., By-laws)                                   June 6, 2006

8.       Approval from SCT (i.e., subscription of shares)                    June 6, 2006

9.       Request authorization from COFECO                                   May 26, 2006

10.      Authorization from the COFECO                                       July 24, 2006

II.      U.S. CHAPTER 11

11.      Delivery  of  draft  U.S.  Chapter  11 Plan  and  Disclosure        June 2, 2006 but in no event later than
         Statement                                                           thirty (30) days prior to the filing of the
                                                                             Petition

12.      Filing of U.S. Chapter 11 Plan and Disclosure Statement and         Within two (2) Business Days of the filing of
         motion to approve same                                              the Petition

13.      Approval of Disclosure Statement by Bankruptcy Court                Within sixty (60) days of the filing of the
                                                                             Petition

14.      Confirmation of U.S. Chapter 11 Plan                                Within one hundred and twenty (120) of the
                                                                             filing of the Petition

III.     SERVICIOS PROCEEDING

15.      Request of Servicios' "quiebra" to the Mexican Bankruptcy           May 9, 2006
         Court

16.      Entering of a "quiebra" order of Servicios                          May 17, 2006

</TABLE>

<PAGE>

                                     ANNEX D

MEMBERS OF THE FLOATING RATE NOTES AD HOC NOTEHOLDERS' COMMITTEE:

Canyon Value Realization Fund, L.P.
Canyon Value Realization MAC 18 Ltd.
Institutional Benchmarks Series (Master Feeder) Limited in Respect of Centaur
   Series
The Canyon Value Realization Fund (Cayman), Ltd.
Alpha US Sub Fund II, LLC
Citi GoldenTree Ltd
GoldenTree Credit Opportunities II, Ltd.
GoldenTree Credit Opportunities Financing I, Ltd.
GoldenTree High Yield Master Fund, Ltd.
GoldenTree High Yield Master Fund II, Ltd.
GoldenTree High Yield Opportunities I, L.P.
GoldenTree High Yield Opportunities II, L.P.
GoldenTree High Yield Value Master Fund, L.P.
Reynolds American Defined Benefit Master Trust
GoldenTree MultiStrategy Financing, Ltd.
Highland Crusader Offshore Partners, L.P.
Pam Capital Funding, L.P.
Pamco Cayman, Ltd.
Murray Capital Management, Inc.

MEMBERS OF THE SENIOR NOTES AD HOC NOTEHOLDERS' COMMITTEE:

Federated International High Income Fund
Federated Strategic Income Fund
Atlantic Pacific Management Group LLC
LPETE LLC
SSGDP LLC
DRALLI LLC
Gramercy Emerging Markets Fund
HFR EM Select Master Trust
KAPALI LLC
LMC Recovery Fund LLC
PALLMALL LLC
UVIADO LLC
GRNPARK LLC
KADESI LLC
Harbinger Capital Partners Master Fund I, LTD (f/k/a Harbert Distressed
   Investment Master Fund, LTD)
Alpha US Sub Fund VI, LLC

<PAGE>

                                     ANNEX E

                      SATMEX 6 SATELLITE INSURANCE PROTOCOL

Standard satellite insurance market terms and conditions based on the following:

Amount of Insurance:     U.S. $230,000,000 (less LRG Credit, if applicable)

Coverage Period:         Launch plus One Year

Named Insured:           Satmex

Loss Payee:              FRN Indenture Trustee

Coverage:                Total, constructive total and partial loss

Exclusions:              Standard for launch insurance

Deposit/Payment Terms:   10% of premium upon the binding of coverage,
                         remainder payable 4 weeks before launch

LRG Credit:              U.S. $68,850,000 payable by Arianespace, applied as a
                         reduction to the Amount of Insurance, in the event of
                         Launch Failure under Launch Services Agreement

<PAGE>

                                     ANNEX F

                           CONFIDENTIALITY PROVISIONS

The provisions hereof (this "Annex") shall govern with respect to the
Confidential Information as described in section 5(b) of the Agreement.
Capitalized terms not defined herein shall have the meanings given to them in
the Agreement.

      1. (a) The term "Confidential Information" has the meaning set forth in
      section 5(b) of the Agreement. The term "Confidential Information" shall
      not include information: (i) that is or becomes generally available to the
      public (including any information contained in a press release issued
      pursuant to section 30 of the Agreement) or to a recognized creditor in
      connection with the Concurso Proceeding other than as a result of a breach
      of section 5(b) of the Agreement and this Annex; (ii) that is already in
      the possession of a Recipient without, to the knowledge of such Recipient,
      restriction or (iii) that is or has been disclosed to a Recipient by a
      third party, not employed by or otherwise affiliated with such Recipient,
      who is, to the knowledge of such Recipient, after reasonable inquiry, not
      prohibited from disclosing such information to such Recipient.

      (b) The term "Recipient" means any Supporting FRN Holder or any Supporting
      Noteholder.

      (c) The term "Representatives" means, with respect to any Recipient, its
      affiliates, its subsidiaries, its related or associated entities, or its
      or their directors, members, officers, affiliates, partners, employees,
      agents, advisers or representatives, including, without limitation,
      attorneys, accountants, consultants, bankers, financial advisers and any
      representatives of such advisers.

2. Confidential Information may be disclosed:

            (a) as permitted by Paragraph 4 below;

            (b) if approved by the Company in writing prior to its disclosure or
      use; and

            (c) if required by law, regulation, regulatory authority or other
      applicable judicial or governmental order or process (including any
      discovery request) or any governmental authority, or any "self regulatory
      organization" as defined in section 3(a)(26) of the Securities Exchange
      Act of 1934, as amended, or any successor act; provided, however, each
      Recipient that is so required, will use its commercially reasonable
      efforts to provide the Company with prompt notice of such request or
      requirement so that the Company may at its election and sole expense seek
      a protective order or other appropriate remedy and such Recipient and its
      Representatives will, at the Company's sole expense, reasonably cooperate
      with the Company's efforts to obtain the same. If, absent the entry of
      such a protective order or other remedy, such Recipient or its
      Representative is,

<PAGE>

      upon the advice of its counsel, compelled to disclose Confidential
      Information, such Recipient or its Representative may disclose that
      portion of the Confidential Information that such Recipient or its
      Representative believes on the advice of counsel that it is compelled to
      disclose.

3. Confidential Information may be used by any Recipient and its Representatives
in any discussions or negotiations with any other Recipient (and their
Representatives) or any holder of the Company's Securities (and its
Representatives) that is a party to the Agreement, the Conciliador, or the
government of Mexico, provided that the Recipient's discussion or negotiation
which may include Confidential Information does not render such Confidential
Information public and such discussion or negotiation of Confidential
Information shall be treated as Confidential Information pursuant hereto.

4. Each Recipient may disclose Confidential Information only to (i) its
Representatives on a need to know basis and in connection with the Restructuring
(and the Recipient agrees to be liable for any breaches of this Agreement by its
Representatives) and (ii) any Recipient or any other holder of the Debt that has
signed a confidentiality agreement acceptable to the Company. Notwithstanding
anything contained herein to the contrary, a Recipient may disclose to (i) any
third party that the Recipient has signed the Agreement and may be in possession
of material nonpublic information, (ii) to any member of any of the Committees
that the Recipient has signed this Agreement and that the Recipient may be in
possession of material nonpublic information, in each case without revealing any
Confidential Information and (iii) to any transferee of Securities in accordance
with section 5(c) of the Agreement. In any event, each Recipient shall maintain
a list of those of its Representatives or other persons to whom Confidential
Information has been disclosed (which list shall be presented to the Company on
request).

5. Each Recipient acknowledges that it has been advised by the Company and/or
its Representatives that the Confidential Information includes information that
may be material, nonpublic and highly confidential. The Company has been advised
that any Recipient may establish an information blocking device or "Ethical
Wall" between such Recipient's employees who receive the Confidential
Information and its other employees. The Company expressly takes no position on
the propriety of any such arrangement under applicable securities laws and
regulations and each Recipient agrees that it shall at all times comply with all
state and federal securities laws and regulations. Each Recipient agrees that,
in the event it establishes such an information blocking device or Ethical Wall,
that it will designate to the Company in writing the employees who, pursuant to
the Ethical Wall, are permitted to receive information or otherwise participate
in discussions concerning the Restructuring (the "Designated Representatives").
In order to preserve such Ethical Wall, if established (and without limiting the
generality of other provisions of this Agreement), each Recipient agrees that
the Designated Representatives shall not disclose Confidential Information to,
or otherwise discuss any matter concerning or relating to the Restructuring
with, any employee or director of the Recipient or the Recipient's affiliates
who is not a Designated Representative. The Company acknowledges that the
Recipients have disclosed that, in the event an Ethical Wall is established,
funds and accounts managed by a Recipient and its affiliates that are not

<PAGE>

advised, directly or indirectly, by any Designated Representative may from time
to time purchase, hold or dispose of securities issued by the Company or its
affiliates during or after the term hereof. Each Recipient acknowledges that the
Company has not taken a position regarding the propriety of any such purchase,
retention or disposition of such securities under applicable securities laws and
regulations. Nothing contained in this Annex shall be deemed to restrict or
impair a Recipient's ability to purchase, hold or dispose of securities issued
by the Company or its affiliates in accordance with applicable securities laws
during or after the term hereof.

6. The obligations of each Recipient under section 5(b) of the Agreement and
this Annex shall terminate on the earliest of (a) the termination of the
Agreement as to such Recipient or (b) the date that the Disclosure Statement is
filed by the Company with the Bankruptcy Court (the "Disclosure Date"). Upon the
Disclosure Date (unless the Disclosure Date is pursuant to (b) above), the
Company shall promptly file an appropriate summary of the Confidential
Information, on Form 6-K or other periodic report required or permitted to be
filed under the Securities Exchange Act of 1934, as amended, with the Securities
and Exchange Commission. In the event the Company fails to make a filing of the
type prescribed in the foregoing sentence within five business days of the
Disclosure Date, any Recipient, any Recipient's Representatives or the
Recipients as a group, are hereby authorized to disclose publicly the
Confidential Information. If, upon the advice of counsel, any filing by the
Company made within such five business day period is insufficient to unrestrict
the Recipients, the Recipients or their Representatives shall so notify the
Company in writing, which notice shall set forth why the Recipient considers the
Company's public disclosure insufficient and what disclosure it feels is
required. If, within three business days of its receipt of such notice, the
Company and the Recipients do not agree on the nature or extent of the
disclosure required pursuant hereto, the Recipients are hereby authorized to
disclose publicly the Confidential Information, to the extent the Recipient on
the advice of counsel believes it is necessary to remedy the alleged
insufficiency of the Company's prior public disclosure. Each Recipient
acknowledges and agrees that its sole remedy for the Company's failure to make a
public filing as required pursuant to this Paragraph 6 is the remedy of public
disclosure by the Recipient as is expressly provided for in this Paragraph 6.

<PAGE>

                                    ANNEX G

                                304 STIPULATION

                  PRESENTMENT DATE: APRIL 27, 2006 AT 10:00 A.M. (NEW YORK TIME)
                 OBJECTION DEADLINE: APRIL 24, 2006 AT 4:00 P.M. (NEW YORK TIME)

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK

-------------------------------------x
                                     :
In re                                :  In Proceeding Under
                                     :  Section 304 of
SATELITES MEXICANOS, S.A. DE C.V.,   :  Bankruptcy Code
                                     :
                                     :  Case No. 05-16103 (RDD)
Debtor in Foreign Proceeding.        :
                                     :
-------------------------------------x

                    STIPULATION, AGREEMENT AND ORDER BETWEEN
            SATELITES MEXICANOS, S.A. DE C.V. AND CERTAIN CREDITORS,
              ON THE ONE HAND, AND THE LORAL ENTITIES, ON THE OTHER

     WHEREAS on August 4, 2005 (the "Commencement Date"), Sergio Autrey, the
foreign representative of Satelites Mexicanos, S.A. de C.V. ("Satmex"), a debtor
in a proceeding under the MBRA(1) currently pending before the Second Federal
District Court for Civil Matters in Mexico City, Mexico under file number
129/2005 (the "Concurso Proceeding"), commenced the above-captioned proceeding
(the "304 Proceeding") under section 304 of title 11 of the United States Code
(the "Bankruptcy Code");

     WHEREAS prior to the Commencement Date, on May 20, 2005, after more than a
year of intense negotiations, certain affiliates of Loral Space & Communications
Ltd.(2) and Satmex reached agreement on the terms of a global settlement
resolving all outstanding issues under various of the parties' then-existing
agreements, which settlement agreement and related

----------
(1)  The "MBRA" means the Ley de Concursos Mercantiles, published in the
     Official Gazette of the Federation (Diario Oficial de la Federacion) on May
     12, 2000.

(2)  Loral Space & Communications Ltd. and its affiliated debtors were debtors
     and debtors in possession (as reorganized, the "Loral Reorganized Debtors")
     in cases under chapter 11 of title 11 of the United States Code, which
     cases are being jointly administered under the caption In re Loral Space &
     Communications Ltd., et al., Lead Case No. 03-41710 (RDD) (collectively,
     the "Loral Cases"). On November 21, 2005, the effective date of the Loral
     Reorganized Debtors' plan of reorganization occurred.

<PAGE>

documents (collectively, the "Loral Settlement Agreements") were approved by
this Court in the Loral Cases and Satmex's Board of Directors;

     WHEREAS the Loral Settlement Agreements consist of (a) that certain
Settlement Agreement, dated as of June 14, 2005 (the "Settlement Agreement"), by
and among Satmex and Loral Space & Communications Corporation ("LSCC"), Loral
SpaceCom Corporation ("SpaceCom"), Loral Skynet, a division of SpaceCom ("Loral
Skynet"), Loral Skynet Network Services, Inc. ("LSNS") and Space Systems/Loral,
Inc. ("SS/L" and, together with LSCC, SpaceCom, Loral Skynet and LSNS, the
"Loral Entities"), (b) that certain Contract between Satmex and SS/L for the
SATMEX 6 Satellite Program dated June 14, 2005, as amended, (c) that certain
Agreement Between Loral Skynet and Satmex Concerning the Lease of Transponders
for the SATMEX 5 Satellite dated June 14, 2005, (d) that certain Agreement
Between SS/L (as assignee of LSCC) and Satmex Concerning the Lease of
Transponders for the SATMEX 6 Satellite dated June 14, 2005 and (e) the Active
Capacity Agreements;(3)

     WHEREAS on May 25, 2005, certain holders of Satmex's debt securities filed
an involuntary petition under chapter 11 of the Bankruptcy Code against Satmex
in the United States Bankruptcy Court for the Southern District of New York (the
"Satmex Involuntary Case"), which case was entitled In re Satelites Mexicanos,
S.A. de C.V., Case No. 05-13862 (RDD);(4)

----------
(3)  The "Active Capacity Agreements" consist of (i) that certain Satmex
     Contract Number 673-1 between Loral Skynet and Satmex for the lease of
     satellite capacity dated October 1, 2003, as amended, (ii) that certain
     Satmex Contract Number 383-1 between Loral Skynet and Satmex for the lease
     of satellite capacity dated March 1, 2000, as amended, and (iii) that
     certain Satmex Contract Number 257-1 between Loral Skynet Network Services,
     Inc. and Satmex for the lease of satellite capacity dated September 1,
     1999, as amended.

(4)  The Satmex Involuntary Case was dismissed upon commencement of the 304
     Proceeding.

                                        2

<PAGE>

     WHEREAS on June 28, 2005, the Loral Entities filed in the Loral Cases and
the Satmex Involuntary Case a motion pursuant to sections 362 and 365 of the
Bankruptcy Code for, among other things, approval of the Loral Settlement
Agreements;

     WHEREAS after a hearing held in the Loral Cases and the Satmex Involuntary
Case on July 19, 2005, the Court, on or about July 26, 2005, entered an order in
the Loral Cases [Docket No. 2247] and an order in the Satmex Involuntary Case
[Docket No. 73] as further described below (collectively, the "Settlement
Orders");

     WHEREAS the Settlement Orders entered in the Satmex Involuntary Case
provided for the modification and waiver of the "automatic stay" extant in the
Satmex Involuntary Case pursuant to section 362(a) of the Bankruptcy Code (the
"Automatic Stay") to the extent necessary to (i) effect the offsets and
accommodations set forth in the Loral Settlement Agreements and (ii) permit the
Loral Entities to exercise upon the occurrence of an event of default or right
of termination under any of the Loral Settlement Agreements, after notice to
Satmex, counsel to certain ad hoc committees of Satmex's debt securities and
counsel to Citibank, N.A., as indenture trustee, all rights and remedies under
the Loral Settlement Agreements, without further application to the Court (the
"Loral Carve-Out");

     WHEREAS the Settlement Order entered in the Loral Cases provided for, among
other things, (i) authority for the Loral Entities to execute, deliver,
implement and fully perform all obligations and to take any and all actions
reasonably necessary or appropriate to consummate the transactions contemplated
by the Loral Settlement Agreements, (ii) modification and waiver of the
Automatic Stay to the extent necessary to permit the Loral Entities to
effectuate the offsets and accommodations set forth in the Loral Settlement
Agreements and (iii) the Loral Carve-Out;

                                       3

<PAGE>

     WHEREAS the launch of the SATMEX 6 satellite ("SATMEX 6") currently is
scheduled to occur the week of May 22, 2006;

     WHEREAS Satmex cannot launch SATMEX 6 without the assistance of SS/L;

     WHEREAS the launch of SATMEX 6 is integral to the restructuring of Satmex's
businesses and affairs and in the best interests of Satmex;

     WHEREAS Satmex, the Loral Entities, certain holders of the Senior Secured
Floating Rate Notes due June 30, 2004 issued by Satmex (the "FRNs") and certain
holders of the 10-1/8% Unsecured Senior Notes due November 1, 2004 issued by
Satmex (the "Senior Noteholders" and, together with the FRNs, the "Noteholders"
and those Noteholders executing the Restructuring Agreement (as defined below)
hereinafter the "Supporting Debtholders" and, together with Satmex and the Loral
Entities, the "Parties") have been engaged in active negotiations and recently
have reached a general accord on the principal terms of an agreement which is
being executed contemporaneously herewith (the "Restructuring Agreement") to
effectuate a Restructuring (as defined in the Restructuring Agreement);

     WHEREAS Satmex will pursue the Restructuring through approval of a plan of
reorganization in the Concurso Proceeding (the "Concurso Plan"), which will set
forth the framework for the Restructuring and will provide for implementation of
the Restructuring through a case under chapter 11 of the Bankruptcy Code, to be
commenced by Satmex in this Court after approval of the Concurso Plan in the
Concurso Proceeding;

     WHEREAS in contemplation and reliance on the dismissal of the 304
Proceeding and the commencement of a chapter 11 case, Satmex, the Supporting
Debtholders and the Loral Entities specifically, knowingly and intelligently
bargained for and agreed to each of the provisions herein;

                                       4

<PAGE>

     WHEREAS SS/L is providing launch support and related services to Satmex in
respect of SATMEX 6 in express reliance on Satmex (i) waiving any right to
reject the Loral Settlement Agreements in any chapter 11 case, (ii) assuming the
Loral Settlement Agreements in any chapter 11 case, if filed, and (iii)
modifying the Automatic Stay extant in any chapter 11 case, if filed; and

     WHEREAS Satmex is executing this Stipulation, Agreement and Order in
express reliance on SS/L continuing to provide launch support and related
services to Satmex in respect of SATMEX 6 so long as Satmex continues to comply
with its obligations under the Loral Settlement Agreements.

     NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and between Satmex,
the Supporting Debtholders and the Loral Entities, through their undersigned
counsel, that:

     1. Consistent with this Court's Settlement Orders, the Loral Settlement
Agreements are approved. For the avoidance of doubt, nothing in this
Stipulation, Agreement and Order shall be deemed an assumption of the Loral
Settlement Agreements pursuant to section 365 of the Bankruptcy Code, which will
occur in accordance with paragraph 4 hereof.

     2. Satmex may not, and waives any right to, reject the Loral Settlement
Agreements, whether in the 304 Proceeding or any case under chapter 11 of the
Bankruptcy Code (the "Chapter 11 Case"), in connection with the Restructuring or
otherwise.

     3. No injunction entered in this 304 Proceeding shall be more restrictive
as against the Loral Entities than those injunctions issued pursuant to Orders
entered in the Satmex Involuntary Case dated August 8, 2005 [Docket No. 11],
October 19, 2005 [Docket No. 17] and January 11, 2006 [Docket No. 19].

                                       5

<PAGE>

     4. Satmex shall file a motion in the Chapter 11 Case seeking assumption of
the Loral Settlement Agreements within five (5) days after the commencement of
the Chapter 11 Case and there shall be a final and non-appealable order (the
"Assumption Order") assuming such Loral Settlement Agreements in the Chapter 11
Case by no later than July 24, 2006 (time being of the essence).

     5. The Automatic Stay in the Chapter 11 Case automatically and without any
further action or filing is and shall be waived, modified and lifted immediately
upon commencement of the Chapter 11 Case to permit the Loral Entities to
exercise all of their rights and remedies under the Loral Settlement Agreements.
The Parties to this Stipulation, Agreement and Order enter into this waiver
knowingly and intelligently and are estopped from contesting its validity. From
the date hereof and terminating upon entry of the Assumption Order, the Loral
Entities shall provide five (5) business days' advance notice of an exercise of
any of their termination rights under the Loral Settlement Agreements to (a)
Satmex and its undersigned counsel, (b) Wilmer Cutler Pickering Hale and Dorr
LLP (Attn: George W. Shuster, Jr.) as counsel to FRNs, (c) Akin Gump Strauss
Hauer & Feld LLP (Attn: Steven H. Scheinman) as counsel to the Ad Hoc Committee
of Senior Noteholders, and (d) Nixon Peabody, LLP (Attn: Frank S. Hamblett), as
counsel to Citibank, N.A. as Indenture Trustee for the FRNs. To the extent the
Automatic Stay is implicated other than as provided in this paragraph, the
provisions of the Automatic Stay, including, without limitation, those
provisions prohibiting any act to collect, assess or recover a claim that arose
before the commencement of a Chapter 11 Case and/or assets or property of
Satmex's estate (as defined in section 541 of the Bankruptcy Code) shall remain
in full force and effect.

                                        6

<PAGE>

     6. Upon execution by Satmex, the Supporting Debtholders and the Loral
Entities, the terms and provisions of this Stipulation, Agreement and Order are
fully binding, effective and enforceable against the Parties hereto and
effectiveness hereof is not subject to the approval of the Court.

     7. For the avoidance of doubt, nothing herein shall obligate Satmex to
commence a case under chapter 11 of the Bankruptcy Code.

     8. This Stipulation, Agreement and Order shall be binding on all successors
and assigns of the Parties hereto.

     9. This Stipulation, Agreement and Order shall be governed by the laws of
the State of New York.

     10. Each person who executes this Stipulation, Agreement and Order
represents that he or she is duly authorized to execute this Stipulation,
Agreement and Order on behalf of the respective Parties hereto and that each
such party has full knowledge of and has consented to the terms and provisions
hereof.

     11. This Stipulation, Agreement and Order may be executed in counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument and it shall constitute sufficient proof
of this Stipulation, Agreement and Order to present any copy, copies or
facsimiles signed by the Parties hereto to be charged.

                                       7

<PAGE>

     12. This Stipulation, Agreement and Order can only be amended or otherwise
modified by a writing executed by the Parties hereto.

Dated: April 7, 2006
       New York, New York        /s/ Matthew S. Barr
                                 -----------------------------------------------
                                 Matthew Barr (MB 9170)
                                 Milbank, Tweed, Hadley & McCloy LLP
                                 1 Chase Manhattan Plaza
                                 New York, New York 10005
                                 Telephone: (212) 530-5000
                                 Facsimile: (212) 530-5219

                                 Attorneys for Satelites Mexicanos, S.A. de C.V.

Dated: April 7, 2006
       New York, New York        /s/ Shai Y. Waisman
                                 -----------------------------------------------
                                 Stephen Karotkin (SK 7357)
                                 Lori R. Fife (LF 2839)
                                 Shai Y. Waisman (SW 6854)
                                 Weil, Gotshal & Manges LLP
                                 767 Fifth Avenue
                                 New York, New York 10153
                                 Telephone: (212) 310-8000
                                 Facsimile: (212) 310-8007

                                 Attorneys for the Loral Entities

Dated: April 7, 2006
       New York, New York        /s/ Steven H. Scheinman
                                 ------------------------------------
                                 Steven H. Scheinman (SS 2606)
                                 Michael S. Stamer (MS 4900)
                                 Akin Gump Strauss Hauer & Feld LLP
                                 590 Madison Avenue
                                 New York, NY 10022-2524
                                 Telephone: (212) 872-1000
                                 Facsimile: (212) 872-1002

                                 Attorneys for the Supporting Noteholders (as
                                 defined in the Restructuring Agreement)

                                       8

<PAGE>

Dated: April 7, 2006
       Boston, Massachusetts     /s/ Dennis L. Jenkins
                                 --------------------------------------------
                                 Dennis L. Jenkins (DJ 4698)
                                 Wilmer Cutler Pickering Hale and Dorr LLP
                                 60 State Street
                                 Boston, Massachusetts 02109
                                 Telephone: (617) 526-6491
                                 Facsimile: (617) 526-5000

                                 Attorneys for the Supporting FRN Holders (as
                                 defined in the Restructuring Agreement)

SO ORDERED, this ___ day of ______, 2006

-------------------------------
UNITED STATES BANKRUPTCY JUDGE

                                       9

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