Document:

Exhibit 4.3

 

Any text removed pursuant to Portugal
Telecom, SGPS, S.A.’s confidential treatment request has been separately filed
with
 the U.S. Securities and Exchange
Commission and is marked “[***]” herein.

 

 

SHAREHOLDERS AGREEMENT

 

Dated as of October 17, 2002

 

Amended as noted for the purposes of this filing as of
December 3, 2004

 

By and among

 

TELEFÓNICA MÓVILES, S.A.,

 

PORTUGAL TELECOM, SGPS, S.A.,

 

PT MÓVEIS, SGPS, S.A.,

 

and

 

BRASILCEL B.V.,

 

in relation to

 

BRASILCEL B.V.

 

 

TABLE OF CONTENTS

 

	
  SECTION 1.

  	
  SHARE CAPITAL
  AND BUSINESS OF THE COMPANY

  	
   

  
	
  1.1

  	
  Share Capital
  and General Share Premium Reserve

  	
   

  
	
  1.2

  	
  Company Growth Principles

  	
   

  
	
  1.3

  	
  Scope of
  Business of the Company; Synergies

  	
   

  
	
  1.4

  	
  Actions Relating to
  Company Shares

  	
   

  
	
  1.5

  	
  Exercise of Voting Rights

  	
   

  
	
  SECTION 2.

  	
  BOARD OF DIRECTORS

  	
   

  
	
  2.1

  	
  Governance Principles

  	
   

  
	
  2.2

  	
  Composition of
  the Board of Directors

  	
   

  
	
  2.3

  	
  The
  Chairman and the Vice-Chairman of the Board of Directors

  	
   

  
	
  2.4

  	
  Meetings of the
  Board of Directors

  	
   

  
	
  2.5

  	
  Place of the
  Board of Directors’ Meetings

  	
   

  
	
  2.6

  	
  Board of Directors
  Decisions

  	
   

  
	
  2.7

  	
  Secretary
  and Minutes of the Board of Directors

  	
   

  
	
  2.8

  	
  Officers

  	
   

  
	
  2.9

  	
  Performance of the Officers

  	
   

  
	
  2.10

  	
  Meetings of the Officers

  	
   

  
	
  2.11

  	
  Subsidiary Governance

  	
   

  
	
  2.12

  	
  Effects
  of Dilution on the Provisions of this Section 2

  	
   

  
	
  2.13

  	
  Representation of the
  Company

  	
   

  
	
  SECTION 3.

  	
  SHAREHOLDERS MEETINGS
  AND RIGHTS

  	
   

  
	
  3.1

  	
  Shareholders Meetings

  	
   

  
	
  3.2

  	
  Call Procedure

  	
   

  
	
  3.3

  	
  Chairing of
  Shareholders Meetings

  	
   

  
	
  3.4

  	
  Shareholder Decisions

  	
   

  
	
  3.5

  	
  Effects
  of Dilution on the Provisions of this Section 3

  	
   

  
	
  SECTION 4.

  	
  CELLULAR
  CHAIRMEN DEADLOCKS, WISE PERSONS PROCEDURE AND LIQUIDATION

  	
   

  
	
  4.1

  	
  Cellular Chairmen Deadlocks

  	
   

  
	
  4.2

  	
  Wise Persons Procedure

  	
   

  
	
  4.3

  	
  Liquidation of the Company

  	
   

  
	
  SECTION 5.

  	
  TRANSFER OF COMPANY SHARES

  	
   

  
	
  5.1

  	
  Transfer

  	
   

  
	
  5.2

  	
  Permitted
  Transferees; Transfers in the Context of Consolidation

  	
   

  
	
  5.3

  	
  Indirect Transfers

  	
   

  
	
  5.4

  	
  Right of First Refusal

  	
   

  
	
  5.5

  	
  Tag-Along Right

  	
   

  
	
  5.6

  	
  Conditional Put

  	
   

  
	
  5.7

  	
  Pre-emptive Rights

  	
   

  
	
  5.8

  	
  Tax Efficiency

  	
   

  
	
  5.9

  	
  Encumbrance of Company
  Shares

  	
   

  
	
  5.10

  	
  Transfer
  Restriction in Articles of Association, Exercise of Voting Rights

  	
   

  

 

2

 

	
  SECTION 6.

  	
  DILUTION

  	
   

  
	
  6.1

  	
  Dilution

  	
   

  
	
  6.2

  	
  Diluted Interest
  Between 50% and 40%

  	
   

  
	
  6.3

  	
  Diluted Interest Below 40%

  	
   

  
	
  6.4

  	
  PT Group Put

  	
   

  
	
  6.5

  	
  Governance and Dilution in
  the Event of Listing

  	
   

  
	
  6.6

  	
  Listing of Holding
  Companies

  	
   

  
	
  SECTION 7.

  	
  FINANCIAL POLICIES

  	
   

  
	
  7.1

  	
  Financial Policies

  	
   

  
	
  7.2

  	
  Business Plan and
  Financing of the Company

  	
   

  
	
  7.3

  	
  GAAP

  	
   

  
	
  7.4

  	
  Annual Budget

  	
   

  
	
  7.5

  	
  Books of Account

  	
   

  
	
  7.6

  	
  Reasonable Access

  	
   

  
	
  7.7

  	
  Management Fees

  	
   

  
	
  7.8

  	
  Financial Services

  	
   

  
	
  SECTION 8.

  	
  NON-COMPETITION AND BUSINESS OPPORTUNITIES

  	
   

  
	
  8.1

  	
  Non-compete

  	
   

  
	
  8.2

  	
  Wireless Business
  Opportunities

  	
   

  
	
  SECTION 9.

  	
  INTERESTS IN NEW ACQUISITIONS AND FURTHER
  INTERESTS IN WIRELESS PROPERTIES

  	
   

  
	
  9.1

  	
  Acquisition of Interests
  in New Acquisitions and Further Interests

  	
   

  
	
  SECTION 10.

  	
  CONFIDENTIALITY

  	
   

  
	
  10.1

  	
  Confidential
  Information

  	
   

  
	
  10.2

  	
  Use and Disclosure

  	
   

  
	
  10.3

  	
  Duties of the Receiving
  Party

  	
   

  
	
  10.4

  	
  Exclusions

  	
   

  
	
  SECTION 11.

  	
  TERMINATION

  	
   

  
	
  11.1

  	
  Termination

  	
   

  
	
  11.2

  	
  Survival of Obligations
  and Liabilities

  	
   

  
	
  SECTION 12.

  	
  COVENANTS, REPRESENTATIONS AND WARRANTIES,
  REGISTRATION

  	
   

  
	
  12.1

  	
  Covenants,
  Representations and Warranties of the Shareholders and the Company

  	
   

  
	
  12.2

  	
  Survival of Covenants,
  Representations and Warranties

  	
   

  
	
  12.3

  	
  Shareholders’ Register

  	
   

  
	
  12.4

  	
  Consent by the Company

  	
   

  
	
  SECTION 13.

  	
  GOVERNING LAW AND SETTLEMENT OF DISPUTES

  	
   

  
	
  13.1

  	
  Governing Law

  	
   

  
	
  13.2

  	
  Arbitration

  	
   

  
	
  SECTION 14.

  	
  COMMUNICATIONS

  	
   

  
	
  14.1

  	
  Communications

  	
   

  

 

3

 

	
  SECTION 15.

  	
  MISCELLANEOUS PROVISIONS

  	
   

  
	
  15.1

  	
  Entire Agreement

  	
   

  
	
  15.2

  	
  Modification and
  Amendment; Indexation

  	
   

  
	
  15.3

  	
  Waiver

  	
   

  
	
  15.4

  	
  Survival of Provisions

  	
   

  
	
  15.5

  	
  Exclusive Benefit of the
  Parties and the Company

  	
   

  
	
  15.6

  	
  Bona Fide

  	
   

  
	
  15.7

  	
  Penalty and Delay
  Interest

  	
   

  
	
  15.8

  	
  Counterparts

  	
   

  
	
  15.9

  	
  Language

  	
   

  
	
  15.10

  	
  Period of Time

  	
   

  
	
  15.11

  	
  General
  Interpretation

  	
   

  
	
  15.12

  	
  No Partnership

  	
   

  
	
  15.13

  	
  Severability

  	
   

  
	
  15.14

  	
  Taxes and Expenses

  	
   

  
	
  15.15

  	
  IPO

  	
   

  
	
  15.16

  	
  Public Announcements

  	
   

  
	
  15.17

  	
  Joint and Several

  	
   

  
	
  SECTION 16.

  	
  DEFINITIONS

  	
   

  
	
  16.1

  	
  Definitions

  	
   

  

 

4

 

THIS AGREEMENT is made as
of October 17, 2002 by and among:

 

 

TELEFÓNICA
MÓVILES, S.A., a corporation duly organized, existing and
established in accordance with the laws of the Kingdom of Spain (“Spain”), with head offices at Goya 24,
Madrid, Spain, represented herein in accordance with its bylaws (“TEM”);

 

PORTUGAL
TELECOM, SGPS, S.A., a corporation duly organized, existing
and established in accordance with the laws of Portugal (“Portugal”), with head offices at Av.
Fontes Pereira de Melo, 40, 11o andar, Lisbon, Portugal, represented herein in
accordance with its bylaws (“Portugal
Telecom”);

 

PT
MÓVEIS, SGPS, S.A., a corporation duly organized, existing
and established in accordance with the laws of Portugal, with head offices at
Av. 5 de Outubro, 208, 4o andar, Lisbon, Portugal, represented herein in
accordance with its bylaws (“PT Móveis”);

and

 

BRASILCEL
B.V., a private company with limited liability duly
organized, existing and established in accordance with the laws of the
Netherlands, with corporate seat at Strawinskylaan 3105 (1077 ZX), Amsterdam,
the Netherlands, represented herein in accordance with its articles of
association (the “Company”).

 

5

 

Capitalized terms used
herein shall have the meaning ascribed to them in Section 16 hereto,
elsewhere in this Agreement or in the Subscription Agreement (as defined
below).  For the avoidance of doubt, in
the event of any conflict between capitalised terms used and defined in this
Agreement and capitalised terms defined in the Subscription Agreement, then for
purposes of this Agreement, the definitions in this Agreement shall
prevail.  Where any term is used in this
Agreement, but defined in the Subscription Agreement, the termination of the
latter agreement shall not affect such definition.

 

RECITALS

 

(A)          WHEREAS,
Portugal Telecom, PT Móveis and TEM, among others, in accordance with the terms
of a certain Joint Venture Agreement dated January 23, 2001 (the “Joint Venture Agreement”), entered into
a certain Subscription Agreement dated the date hereof (the “Subscription Agreement”), and agreed to
use the Company and to subscribe for all of the Company Shares with all of
their properties now or hereafter used in connection with the operation of the
Wireless Business, including the Interest in Wireless Properties and the Global
Telecom Interest listed in Exhibit I hereto as well as any Interest in New
Acquisitions and any Further Interest in Wireless Properties plus, when
applicable, cash and other Liquid Assets, as set forth in the Subscription
Agreement;

 

(B)           WHEREAS,
the Parties desire to promote their mutual interest by agreeing to certain
matters, among others, relating to the operation and management of the Company
and the disposition of the Company Shares;

 

(C)           WHEREAS,
the Parties commit to comply and to cause the Company to comply with this
Agreement;

 

(D)          NOW,
THEREFORE, in consideration of the mutual covenants and agreements herein
contained, the Parties do hereby agree as follows:

 

SECTION 1.         SHARE CAPITAL AND BUSINESS OF
THE COMPANY

 

1.1          Share Capital and
General Share Premium Reserve

 

(a)           The
issued share capital of the Company, in the amount of Euro 18,000 (eighteen
thousand) on the date hereof, consists of 18,000 (eighteen thousand) Company
Shares, with a nominal value of Euro 1 (one Euro) each, divided between the
Shareholders in the proportion of 50% (fifty percent) to each Group as follows:

 

	
  (i)

  	
  TEM:

  	
  9000 (nine thousand) Company Shares;

  
	
   

  	
   

  	
   

  
	
  (ii)

  	
  PT Móveis:

  	
  8999 (eight thousand nine hundred ninety nine)

  
	
   

  	
   

  	
  Company Shares; and

  
	
   

  	
   

  	
   

  
	
  (iii)

  	
  Portugal Telecom:

  	
  1 (one) Company Share.

  
				

 

6

 

(b)           The
Shareholders further agree to procure that the Company establishes a general
share premium reserve for the benefit of all Shareholders in proportion to
their shareholding interest in the Company at any time (the “General Share Premium
Reserve”).

 

(c)           The
Shareholders undertake to take all necessary actions to transform the corporate
nature of the Company from a private company with limited liability (besloten vennootschap) into a limited
liability company (naamloze vennootschap)
under the laws of the Netherlands.  The
Shareholders shall further take such actions under applicable Netherlands law
as may be necessary to ensure that the organisational documents of the Company,
including the Articles of Association, at all times conform in all respects
with Netherlands law and any other applicable laws and regulations and executed
in such a manner so as to permit the Company to fully comply with this
Agreement.

 

(d)           As
between the Shareholders, the provisions of this Agreement and the Subscription
Agreement take precedence over any provision of the Articles of Association to
the extent such provision conflicts with this Agreement or the Subscription
Agreement.

 

1.2          Company Growth
Principles

 

(a)           The
Shareholders agree that the Company shall be the vehicle used for the
development of all the Wireless Business of the Groups in Brazil.  Consequently, the Shareholders undertake to
contribute or to procure that the relevant members of their respective Group
transfer to the Company, and to procure that the Company acquires, their
Wireless Properties and any Interest in a New Acquisition acquired directly by
either Group, on the terms and conditions set forth in this Agreement and in
the Subscription Agreement.

 

(b)           The
Shareholders also agree:

 

(X)          not
to prevent the Company from acquiring or developing, as the case may be, any
new Wireless Business, proposed by any or both Groups, provided that the
acquisition or development of the new business meets some of the following
criteria:

 

(i)            expands
footprint in Brazil;

 

(ii)           enhances
the Company’s market share or subscriber base;

 

(iii)          allows
for an increase in marketing, technological or operational efficiency;

 

(iv)          enhances
the platform for growth and profitability;

 

(v)           allows
for leveraging on management skills and know-how; or

 

(vi)          provides
a smooth transition to new products and services;

 

7

 

provided that
all the new business to be acquired or developed, as the case may be, must
enhance shareholder value as demonstrated by an independent analysis from time
to time; and

 

(Y)           that:

 

(i)            [***];
and

 

(ii)           additional
spectrum and licenses, provided that spectrum and licenses enhance
shareholders value as demonstrated by an independent analysis, are within the
Company Growth Principles.

 

(c)           The
Shareholders also agree that the Company’s investments will be funded in
accordance with Section 7 hereto.

 

1.3          Scope of Business of
the Company; Synergies

 

(a)           The
Shareholders confirm their objective to build the leading wireless and mobile
telephone venture in Brazil by operating solely through the Company and
otherwise to take, or refrain from taking, any actions in such a manner to
permit the Company to fully comply with the Company Growth Principles.

 

(b)           The
Shareholders also agree that one of the main objectives of the joint venture is
to achieve synergies by working together for the development of the Wireless
Business of the Company (the “Synergies”).

 

(c)           In
this connection, the Shareholders agree that as long [***] holds directly or
indirectly [***] in cellular and wireless operators [***], the Shareholders
shall procure to [***] in the management of the Company of all potential [***]
for those cellular and wireless operators as well as for [***] Brazil, provided
that [***] to the Company as a result of such actions.  The proposed [***] shall be submitted by
either Group (the “Proposing Party”): (i) to the management team of the
Company through its CEO, which management team shall analyse the matter; or
(ii) directly to the Board of Directors. 
In the event that the management team of the Company or the Board of
Directors determines that the proposal requires further analysis, the cost of
preparing such additional analysis shall fall upon the Proposing Party.  In the event that the matter is submitted
first to the management team of the Company and, within thirty (30) days
following the proposal of the Proposing Party, such management team fails to
consider or rejects such proposal, the Proposing Party shall have the right to
submit the proposal (together with such additional analysis considered relevant
in order to demonstrate [***] to the Company) to the Board of Directors for
final decision by [***].  In the event
that, pursuant to the foregoing, a manager authorised to represent the Company
approves the proposal or the Board of Directors approves the proposal, the
Shareholders shall use reasonable efforts [***] by the Company (and relevant
Subsidiaries), provided that, in such event, the Proposing Party shall
[***] that may [***] to the Company (or any such Subsidiaries) as a result of
[***].

 

8

 

(d)           The
identification and use of the most appropriate brand will be made by mutual
agreement between TEM and PT Móveis and may be used by the TEF Group or the PT
Group anywhere.  The Parties agree that
in the event of [***], the brand thus identified to be used by the Company will
be [***] (or of the [***] they may agree); but [***].

 

1.4          Actions Relating to
Company Shares

 

Each Shareholder agrees
and shall procure that all actions taken by it in relation to any Company
Shares now or hereafter owned by it (or any of its Affiliates) shall be subject
to and taken in accordance with the terms of this Agreement.

 

1.5          Exercise of Voting
Rights

 

Each Shareholder agrees
to exercise its voting rights on the Company Shares in such a manner as to
allow the other Shareholders to exercise their rights and perform their
obligations under this Agreement and the Subscription Agreement.  The Shareholders in the PT Group shall always
exercise their voting rights on the Company Shares unanimously and the
Shareholders in the TEF Group shall always exercise their voting rights on the
Company Shares unanimously.  Wherever
this Agreement or the Subscription Agreement contains a provision placing an obligation
on a Group, the Shareholders which are members of such Group shall be obliged
to procure the performance of such obligation.

 

SECTION 2.         BOARD OF DIRECTORS

 

2.1          Governance Principles

 

(a)           The
Shareholders agree that, subject to applicable laws, the Articles of
Association and this Agreement, the Board of Directors shall be responsible for
the management of the Company.  The
Shareholders further agree that the Company and the Wireless Business of the
Company shall be managed in the spirit of a 50 - 50 (fifty - fifty) joint
venture, subject to the exceptions set forth in this Agreement with respect to
the dilution below certain levels of each Group’s Interest in the total issued
and outstanding share capital of the Company. 
The Shareholders agree that the management of the Company shall be
professional, oriented to obtaining results and excellence in the performance
of the Company’s activities and in compliance with the Company Growth
Principles.

 

(b)           (i)            Each
Shareholder agrees not to (nominate to) appoint any individual or entity which
may directly or indirectly be related to, employed or retained by another
telecommunications operator or any Person who directly or indirectly competes
with the Company and the Subsidiaries in Brazil (a “Conflicted Person”)
as its representatives for the Shareholders Meeting, in the Board of Directors
or in the board of directors of any of the Subsidiaries, or to any managerial
or official position in the Company or in any of the Subsidiaries, or to any
other business relationship with the Company or any of the Subsidiaries.

 

(ii)           The
restriction as set forth in Section 2.1(b)(i) above, agreed upon for the
benefit of the other Group, will not apply if the other Group has consented in
writing to

 

9

 

the Person that would qualify as Conflicted Person
being involved in the management of, or having access to information
concerning, the Company or the Subsidiaries.

 

(iii)          Prior
to the (nomination for) appointment of each individual or entity to a position
referred to in Section 2.1(b)(i) above, the relevant Group shall provide
the other Group with such details of the individual or entity as are reasonably
necessary to enable the latter Group to determine whether the individual or entity
is, in its reasonable judgement, a Conflicted Person.  Unless, within 15 (fifteen) days of receipt
by the latter Group of such details, said Group objects to the appointment of
the individual or entity on the grounds that same is a Conflicted Person, the
relevant Group may proceed with the (nomination for) appointment of such
individual or entity to the aforementioned position.

 

(iv)          Notwithstanding
Section 2.1(b)(iii) above, in the event that in the reasonable judgement
of a Group, any individual or entity appointed (pursuant to the nomination) by
the other Group falls within the definition of a Conflicted Person and
therefore is subject to the restriction set forth in this Section 2.1(b)(i),
such other Group shall immediately thereafter use its best efforts to procure
that the restrictions are observed, that the Conflicted Person is removed from
any position or function being performed and that any other measure is
implemented by such other Group and the Company that might be appropriate to
prevent access to the Confidential Information by the Conflicted Person.

 

2.2          Composition of the
Board of Directors

 

(a)           The
Company shall have a Board of Directors composed of 12 (twelve) members each
Director having a term in office of 3 (three) years, re-election being
permitted.  Subject to the provisions of
Sections 2.12 and 6 hereto, each of the TEF Group and the PT Group shall have
the right to make binding nominations to appoint 6 (six) Directors, provided
that at least 3 (three) of each such 6 (six) Directors shall be required to
be resident in the Netherlands.

 

(b)           Each
of the Shareholders agrees to exercise its voting rights in the relevant
Shareholders Meeting to appoint the Directors nominated by each of the TEF
Group and the PT Group in terms of Section 2.2(a) above.  In the event of a vacancy in the Board of
Directors (including, without limitation, as a result of removal), the
replacement member shall be nominated by binding nomination of the Shareholder’s
Group which nominated the Director being replaced, for the period left to
complete the relevant term in office.  A
Shareholder may require the suspension, removal or replacement of a Director
nominated by that Shareholder’s Group at any time and for any reason.  Each Shareholder in a Group shall have the
right to require the suspension or removal of a Director nominated by the
Shareholders in the other Group, provided that this is for Just
Cause.  The Shareholder requesting the
replacement of a Director shall deliver a notice to the other Shareholders which
shall contain the request to replace the relevant Director and in the event
that such Director was nominated by the other Group a description of the
relevant Just Cause.  Provided that
the Just Cause as stated in such notice is accepted by the other

 

10

 

Shareholders, a Shareholders
Meeting shall be held within 30 (thirty) days of the receipt of such notice to
replace the relevant Director.  Subject
to the mandatory provisions of any applicable law, and more particularly
Netherlands employment law, each of the TEF Group, the PT Group and the
Company, as the case may be, shall procure that the terms and conditions upon
which Directors are appointed in terms of the provisions of this Section 2.2,
shall be such that the Directors will not have the right to indemnification in
the event of suspension or removal from their duty as Directors.

 

2.3          The Chairman and the
Vice-Chairman of the Board of Directors

 

(a)           The
Board of Directors shall have a Chairman (the “Chairman”) and a Vice-Chairman (the “Vice-Chairman”).  The TEF Group shall designate by binding
nomination the Chairman and the PT Group shall designate by binding nomination
the Vice-Chairman.  The Chairman and the
Vice-Chairman shall be selected among the Directors then in office, for a term
of 3 (three) years (or, if shorter, the selected Director’s remaining term in
office as Director), re-election being permitted.  The first election of the Chairman and
Vice-Chairman shall take place at the first meeting of the Board of Directors
after its election at a Shareholders Meeting, and such Board of Directors
meeting shall occur as soon as practicable after the date of the Shareholders
Meeting that so elected the Board of Directors.

 

(b)           Without
prejudice to other matters provided for under Netherlands law, or in the
Articles of Association, or expressly established by the Shareholders, or this
Agreement, the Chairman shall have the following powers and duties:

 

(i)            to
call the Shareholders Meetings and the Board of Directors meetings whenever
deemed necessary or at the binding request of any Director and to prepare the
list of matters to be discussed at such meetings, which list shall also include
such matters as may be proposed by a Director;

 

(ii)           to
ensure that the decisions taken at the Shareholders Meetings and at the Board
of Directors meetings are properly implemented; and

 

(iii)          to
chair the Shareholders Meetings and the Board of Directors meetings.

 

(c)           In
the absence of the Chairman, the Vice-Chairman shall succeed the Chairman with
regard to the performance of the powers and duties of the Chairman as
established herein.

 

(d)           In
the event of a vacancy in the position of Chairman or Vice-Chairman (including,
without limitation, as a result of removal), the replacement member shall be
nominated among the Directors by binding nomination of the Group which
nominated the Chairman or the Vice-Chairman (as the case may be) such
replacement member being replaced for the period left to complete the relevant
term in office.  A Group may require the
suspension, removal or replacement of the Chairman or Vice-Chairman nominated
by that Group at any time and for any reason by delivering written notice
thereof to the other Group.

 

11

 

(e)           Neither
the Chairman nor the Vice-Chairman shall have a casting vote in the event of a
tie vote at a meeting of the Board of Directors.

 

2.4          Meetings of the Board
of Directors

 

(a)           The
Board of Directors shall hold meetings on a regular basis, but at least once
every quarter and, on an extraordinary basis, whenever called by the Chairman
in accordance with Section 2.3(b)(i) above.  The quorum for a meeting of the Board of
Directors shall be 7 (seven) Directors. 
Directors shall participate at Board of Directors meetings (i) in
person, provided that an absent Director may be represented at any such
meeting by proxy granted by the absent Director to any other Director who was
appointed pursuant to a binding nomination of the Group which nominated the
absent Director, or (ii) by conference call or video conference, provided
that each participant has the ability to hear and speak to each other
participant.

 

(b)           Unless
all of the Directors are present, or those absent have expressly waived notice,
no meeting of the Board of Directors shall be validly convened unless at least
3 (three) Business Days prior written notice thereof, specifying the matters to
be discussed at the meeting, shall have been given to all of the Directors.  Notice of such meetings may be given by
letter sent by fax or by e-mail.

 

2.5          Place of the Board of
Directors’ Meetings

 

Meetings of the Board of
Directors shall be held at the registered office of the Company in the
Netherlands, or at such other place as agreed among its members.

 

2.6          Board of Directors
Decisions

 

(a)           The
Board of Directors shall decide on those matters as provided by applicable law,
or expressly provided for in the Articles of Association, or expressly
determined by the Shareholders from time to time.  Any resolution of, or proposal to the
Shareholders Meeting by the Board of Directors, shall require the affirmative
vote of a simple majority of Directors present or represented at the relevant
Board of Directors meeting, provided that:

 

(X)          (i)            for
as long as the PT Group and the TEF Group each hold an Interest of at least 40%
(forty percent) in the Company’s total issued and outstanding share capital
(except if such decrease in the participation in the Company derives from a
Transfer of Company Shares) and

 

(ii)           in the
case where a Group’s Interest is diluted to less than 40% (forty percent) due
to a capital increase by the Company, during the 6 (six) month period following
the occurrence of the relevant Dilution Event Below 40% (forty percent)
(subject to Section 2.6(c) below),

 

the affirmative vote shall be required of at least one Director
nominated by each of the PT Group and TEF Group;

 

12

 

(Y)           subject
to Section 2.6(a)(Z) below, the following matters shall require the
affirmative vote of at least 7 (seven) Directors:

 

(i)            a
proposal to the Shareholders Meeting to adopt a Shareholders’ resolution for
the issuance of Company Shares and the determination of the conditions of such
issuance, including price, type and class of the shares to be issued;

 

(ii)           a
proposal to the Shareholders Meeting to adopt a Shareholders’ resolution for
the reduction of the Company’s share capital or for the reorganisation, merger,
de-merger or consolidation of the Company and/or any of the Subsidiaries (where
applicable, such proposal to also address the appointment of the COO of the
surviving entity or entities (as the case may be), as well as appropriate
adjustments to be made to the division of assets on Liquidation in terms of Section 4.3
below and the exercise of the Put in the case of a Change of Control pursuant
to Section 5.6 below);

 

(iii)          a
proposal to the Shareholders Meeting to adopt a Shareholders’ resolution for
the amendment of the Articles of Association or for a change in the corporate
nature of the Company;

 

(iv)          any
important decision about branding and technology, as adopted by the Company and
the Subsidiaries;

 

(v)           without
detracting from Sections 2.8 and 2.9 below, any appointment, amendment to the
terms of appointment of or proxies granted to, suspension or removal of the
secretary to the Board of Directors, any Officers or other members of senior
management of the Company or any of the Subsidiaries;

 

(vi)          a
proposal to the Shareholders Meeting to adopt a Shareholders’ resolution for
adoption of the consolidated annual accounts of the Company and its
Subsidiaries;

 

(vii)         a
proposal to the Shareholders Meeting to adopt a Shareholders’ resolution for
the dissolution or liquidation of the Company, other than as set forth in Section 4
below;

 

(viii)        the
acquisition or disposal by the Company, of any material assets, including,
without limitation, any Interest in a Subsidiary or a New Acquisition which is
not a Subsidiary, without detracting from the applicable provisions under the
Subscription Agreement;

 

(ix)           a
proposal to the Shareholders Meeting to adopt a Shareholders’ resolution for
the declaration and/or payment of dividends or other distributions by the
Company;

 

13

 

(x)            adoption
or amendment of the annual Business Plan and the Annual Budget;

 

(xi)           any
increase or decrease with respect to the borrowing of amounts set forth in the
annual Business Plan, the execution of any amendment to any loans or other
borrowing facilities of the Company, and the creation of any security interest
on the current and/or future assets of the Company or the granting of any
guarantees to any Person whatsoever; and

 

(xii)          any
instruction to the Company’s legal representatives as to how to exercise the
Company’s voting rights at the shareholders meetings and meetings of the board
of directors of each Subsidiary (and any other similar corporate bodies
thereof), as necessary to procure compliance with the aforementioned items; and

 

(Z)           for
as long as the PT Group and the TEF Group each hold an Interest of at least 10%
(ten percent) in the Company’s total issued and outstanding share capital
(except if such decrease in the participation in the Company derives from a
Transfer of Company Shares):

 

(i)            the
acquisition by the Company of any Interest in an entity which is not a Wireless
Business shall require the affirmative vote of at least 1 (one) Director
nominated by each of the PT Group and the TEF Group;

 

(ii)           the
execution of any related party agreement between the Company and either of the
Groups shall require the approval by an internal audit committee to be created
by the Board of Directors, provided that such approval shall not be
denied, or withheld in the event that the relevant related party agreement is
on arms-length terms and conditions; or

 

(iii)          the
proposal to the Shareholders Meeting to adopt a Shareholders’ resolution for
any change in the purpose or scope of business of the Company shall require the
affirmative vote of at least one Director nominated by each of the PT Group and
the TEF Group,

 

provided that
the PT Group shall have no rights under this Section 2.6(a)(Z) during the
period commencing on the date on which the PT Group is diluted to holding an
Interest of less than 40% (forty percent) in the Company’s total issued and
outstanding share capital and ending on the date on which the PT Group Put is
no longer exercisable with respect to such Dilution Event Below 40% (forty
percent).

 

(b)           With
respect to matters contemplated in Section 2.6(a) above, it is expressly
agreed by the Shareholders that they shall procure that the Board of Directors
and the Shareholders Meeting shall affirmatively vote on such matters so as to
permit (i) the Company to achieve the Company Growth Principles (provided
that, if the Directors nominated by a Group vote on a bona fide basis
against the acquisition of an Interest in a New Acquisition and, subsequent
thereto, in terms of an arbitration decision pursuant to

 

14

 

Section 10 of the
Subscription Agreement, it is determined that said acquisition is within the
Company Growth Principles, no penalty (as referred to in Section 15.7
below) shall attach to the relevant Group or the Directors who voted against the
acquisition, provided further that said Group shall, and shall procure
that the Directors nominated by it shall, following the arbitration decision,
vote in favour of the transfer to the Company of the relevant Interest in the
relevant New Acquisition, if applicable, (ii) a Group to increase its Interest
in the Company’s total issued and outstanding share capital pursuant to Section 6.1,
6.2, and 6.3 below, and (iii) each Shareholder to exercise its rights and
perform its obligations set out in this Agreement.

 

(c)           Without
detracting from the provisions set forth in Sections 6.1, 6.2 and 6.3 below,
the non-diluted Group may in its sole discretion decide to grant an additional
period to the diluted Group during which such diluted Group may maintain its corporate
governance rights in accordance with this Section 2.

 

2.7          Secretary and Minutes
of the Board of Directors

 

The secretary to the
Board of Directors shall be nominated and appointed by the Board of Directors
and shall keep minutes of all matters discussed and actions taken at any Board
of Directors meeting.  Such minutes shall
be distributed to all the Directors by such secretary within the 10 (ten)
Business Days following each Board of Directors meeting unless agreed otherwise
by the Board of Directors from time to time. 
The minutes shall be signed for approval by the Chairman, Vice-Chairman
and the secretary to the Board of Directors. 
The secretary to the Board of Directors shall not be a Director of the
Company and may or may not be an employee of the Company.

 

2.8          Officers

 

(a)           Without
detracting from Section 2.1 above, the Company shall be represented on a
day to day basis by the Officers in accordance with Section 2.9, which
shall include, at least: (i) a Chief Executive Officer (“CEO”); (ii) a Chief Financial
Officer (“CFO”), (iii) 1 (one) Chief
Operating Officer (“COO”) for
each of the Subsidiaries, and (iv) the general counsel of the Company, who
shall be responsible for all legal matters relating to the Wireless Properties
and New Acquisitions and will be nominated and appointed by the Board of
Directors, it being agreed that Mr. Francisco Padinha shall be the first CEO,
Mr. Fernando Abella shall be the first CFO and Mr. Evandro P. Kruel shall
be the first general counsel of the Company. 
The Officers shall not be Directors of the Company and may or may not be
employees of the Company.  The
Shareholders agree that, for the positions of Officers, there shall be
necessarily appointed recognized professionals with a background and experience
suitable to their duties and, whenever applicable, with proven
technical/managerial skills.

 

(b)           The
CEO shall be appointed by the Board of Directors upon the binding nomination of
the PT Group and shall report to the Board of Directors.  The CFO shall be appointed by the Board of
Directors upon the binding nomination of the TEF Group and shall report to the
Board of Directors.

 

15

 

(c)           (i)            Each
of the COO’s of each Subsidiary (other than Subsidiaries which have not been
contributed by one or both of the Groups), shall be appointed as an Officer by
the Board of Directors upon the binding nomination of the Group transferring
the Contribution to the Company or, if the Contribution is transferred to the
Company by both Groups, by the Group which controlled such Subsidiary (being
the Group holding the highest voting Interest in the Subsidiary at the time of
transfer to the Company of the Contribution, or, if both Group’s have the same
voting Interest, the Group which first acquired an Interest in the Subsidiary),
the Company and the Groups undertaking to procure that such nominated person be
appointed as COO of the relevant Subsidiary. 
The COO’s shall report to the CEO.

 

(ii)           The
COO’s (and their replacement from time to time) of each Subsidiary which has
not been contributed by one or both of the Groups, shall be nominated and
appointed by the Board of Directors.

 

(d)           Each
of the TEF Group and the PT Group may require the suspension or removal of an
Officer nominated by that Group at any time and for any reason by delivering
written notice thereof to the Company and the other Group, provided that
each first COO appointed pursuant to Section 2.8(c)(i) shall not, within
the first 12 (twelve) months from the date on which the respective Contribution
is transferred to the Company, be removed by the Group that nominated it
without Just Cause.

 

(e)           The
CEO, the CFO and each COO appointed pursuant to Section 2.8(c)(i), shall
be suspended or removed upon the request of the Group that did not nominate it
only if a Just Cause occurs.

 

(f)            In
the event of a vacancy in the position of CEO, the replacement CEO shall be
appointed by the Board of Directors upon the binding nomination of the PT
Group.  In the event of a vacancy in the
position of CFO, the replacement CFO shall be appointed by the Board of
Directors upon the binding nomination of the TEF Group.  In the event of a vacancy in the position of
a COO, the replacement COO shall be appointed by the Board of Directors upon
the binding nomination of the relevant Group referred to in Section 2.8(c)(i)
above.  In the event of a vacancy in the
position of any other Officer, the replacement Officer shall be nominated and
appointed by the Board of Directors.

 

(g)           Each
of the TEF Group and the PT Group shall procure that each Director appointed
pursuant to its binding nomination shall exercise its voting rights in the
relevant Board of Directors meeting to allow each Group to exercise its rights
under this Agreement.

 

2.9          Performance of the Officers

 

The Officers shall be
vested with the powers of management and representation of the Company as set
forth by the Board of Directors in written proxies to be deposited with the
relevant trade registry.  The Board of Directors
shall procure that such powers shall be exercised in accordance with said
powers of attorney, the provisions of this Agreement, the provisions of

 

16

 

the Subscription
Agreement, the resolutions of the Shareholders Meetings and of the Board of
Directors meetings, the Business Plan, the Articles of Association and
applicable law.

 

2.10        Meetings of the
Officers

 

The Officers shall hold
meetings, on a regular basis, but at least once every 30 (thirty) days, and, on
an extraordinary basis, whenever called by any of the Officers, it being
incumbent upon the CEO to establish the agenda for such meetings.

 

2.11        Subsidiary Governance

 

(a)           The
Company shall procure that, at any shareholders meeting or meeting of the board
of directors (or other similar corporate bodies) of the Subsidiaries, each
individual acting as its representative in such meeting votes in accordance
with the instructions given by the Board of Directors from time to time.  To this effect the Parties shall procure that
the Board of Directors duly decides in advance on such instructions to be given
to the representatives.

 

(b)           The
parties agree that (i) New Acquisitions and Wireless Properties shall not be
required to be kept and maintained as separate legal entities, and (ii) New
Acquisitions and Wireless Properties may merge, consolidate or amalgamate,
either between them or with any other Person, before or after the transfer to
the Company of the Interest acquired in the New Acquisition or Wireless
Property, as the case may be, provided that, prior to any of the same
occurring and as a condition precedent thereto, the Board of Directors shall
approve such action in accordance with Section 2.6(a)(Y)(ii) above and the
Parties, after a non-binding proposal submitted by the Board of Directors,
shall be required to agree in each specific case on the appropriate adjustments
to be made to the division of assets on liquidation of the Company in terms of Section 4.3
below and to the Put in Section 5.6 below).

 

2.12        Effects of Dilution on
the Provisions of this Section 2

 

(a)           The
Shareholders agree that the right of:

 

(i)            the
TEF Group to nominate by binding nomination (A) 6 (six) members of the Board of
Directors; (B) the CFO of the Company and (C) the COO’s of certain Subsidiaries
as set forth in Section 2.8 above; and

 

(ii)           the
PT Group to nominate by binding nomination (A) 6 (six) members of the Board of
Directors; (B) the CEO of the Company and (C) the COO’s of certain Subsidiaries
as set forth in Section 2.8 above,

 

subject to Section 2.12(e)
below, shall remain in full force until any Group is diluted as a consequence
of a capital increase by the Company to an Interest in the Company lower than
40% (forty percent)  of the Company’s
total issued and outstanding share capital, and shall continue to apply until
an additional period of 6 (six) months has elapsed calculated from the later of
(i) the date of such dilution or (ii) the date that this Section 2.12
becomes effective.

 

17

 

(b)           Should
the aforementioned 6 (six)- month period elapse and the diluted Group fails to
increase its Interest in the Company’s total issued and outstanding share
capital, pursuant to Section 6 below, to a level at or above 40% (forty
percent) of the Company’s total issued and outstanding share capital, such
diluted Group shall, within 15 (fifteen) days from the delivery of a written
notice by the other Group to the Company and the diluted Group:

 

(i)            remove
a proportionate number of the Directors nominated by it to the Board of
Directors by causing such Directors to deliver their resignation letters to the
Company (with a copy to the other Group), in which case the Shareholder
belonging to the diluted Group shall exercise its voting rights in the relevant
Shareholders Meeting to appoint the replacement Directors nominated by binding
nomination of the non-diluted Group.  For
purposes of the foregoing, the proportionate number of Directors shall be
calculated as follows, based on the percentage of Company Shares which a Group
holds in the total issued and outstanding share capital of the Company:

 

	
  0 (zero)%-9
  (nine)%

  	
  :

  	
  no Directors;

  
	
  10 (ten)%-19
  (nineteen)%

  	
  :

  	
  2 (two)
  Directors;

  
	
  20 (twenty)%-39
  (thirty nine)%

  	
  :

  	
  4 (four)
  Directors;

  
	
  40 (forty)%-60
  (sixty)%

  	
  :

  	
  6 (six)
  Directors;

  
	
  61(sixty
  one)%-80 (eighty)%

  	
  :

  	
  8 (eight)
  Directors;

  
	
  81 (eighty
  one)%-90 (ninety)%

  	
  :

  	
  10 (ten)
  Directors;

  
	
  91 (ninety
  one)%-100 (one hundred)%

  	
  :

  	
  12 (twelve)
  Directors,

  
	
   

  	
   

  	
   

  
	
  (decimal amounts
  to be rounded up or down to the nearest whole number);

  

 

(ii)           cause
the CEO (in the case of the PT Group) or the CFO (in the case of the TEF Group)
(as the case may be) and all of the COO’s nominated by the diluted Group, to
resign from their offices, in which case the diluted Group agrees to take such
action as is necessary to appoint to those positions new Officers nominated by
binding nomination of the non-diluted Group.

 

(c)           If
the diluted Group increases its Interest in the total issued and outstanding
share capital of the Company to 50% (fifty percent) (but not less than 50%
(fifty percent), such diluted Group shall be entitled to restate such corporate
governance rights as of the date its Interest in the Company’s total issued and
outstanding share capital is so increased.

 

(d)           The
Shareholders agree that this Section 2.12 shall become effective on the
earlier of the following:

 

(i)            after
the Balance Closing; and

 

(ii)           without
detracting from Section 3.1.1(a) of the Subscription Agreement, after any
of the Balance Capital Contributions have been transferred to the Company by
only one of the Groups, provided that the relevant regulatory
constraints have been removed and accordingly all the Balance Capital
Contributions could have been transferred by both Groups to the Company.

 

18

 

(e)           Without
detracting from the provisions as set forth in Sections 6.1, 6.2 and 6.3 below,
the non-diluted Group may at its sole discretion decide to grant an additional
period to the diluted Group during which such diluted Group may maintain its
corporate governance rights in accordance with Section 2.

 

2.13        Representation of the
Company

 

Only (i) the Board of
Directors acting in accordance with a resolution validly passed by it, and (ii)
the Person or Persons duly empowered through a valid power of attorney approved
by the Board of Directors in writing; will have the authority to represent the
Company.

 

SECTION 3.         SHAREHOLDERS MEETINGS AND RIGHTS

 

3.1          Shareholders Meetings

 

Shareholders Meetings
shall take place at the registered office of the Company in the Netherlands or
at such other place as permitted by the Articles of Association.  The Shareholders agree that an annual
Shareholders Meeting shall be held within the 4 (four) months following the
closing of each fiscal year, but in any event prior to the earlier of the
annual general meeting of any of the Shareholders following the closing of the
same fiscal year, for the discussion, and adoption of the consolidated audited
annual accounts of the Company and for the discharge of the Directors from
liability for their management over the last financial year.  Furthermore, special Shareholders Meetings
may be held following the request of any of the Groups for the replacement of
Directors in accordance with Section 2.2.(b) and 2.12.(b)(i) above, and
whenever and insofar as the business of the Company so requires.

 

3.2          Call Procedure

 

Shareholders Meetings may
be called by the Chairman directly or at the written request of any of the
Shareholders.

 

3.3          Chairing of
Shareholders Meetings

 

The Shareholders Meetings
shall be presided over by the Chairman. 
In the event of absence or temporary impediment of the Chairman, the
Shareholders Meeting shall be presided over by the Vice-Chairman, and in his
absence, by a person elected by the Shareholders in attendance.  The secretary to the Shareholders Meetings
shall be the person acting as secretary to the Board of Directors, from time to
time and in the absence or the temporary impediment of such secretary, by a
person as elected by the Shareholders in attendance.

 

3.4          Shareholder Decisions

 

(a)           Each
Company Share shall have attached to it the right to cast one vote.

 

19

 

(b)           In
order to maintain the spirit of a 50-50 (fifty-fifty) joint venture, the
Shareholders agree that, subject to Section 3.5 below:

 

(i)            save
as otherwise required by applicable law, all shareholders’ resolutions,
including those matters in Section 2.6(a)(Y) above, which expressly
provide for a Shareholders’ resolution or Shareholders’ approval, shall require
the consensual approval by all of the Shareholders; and

 

(ii)           without
detracting from Section 3.4(b)(i) above, the quorum for a Shareholders
Meeting shall be 1 (one) Shareholder from each of the TEF Group and the PT
Group, represented by a duly authorised person, which may include a proxy;

 

(c)           Each
Shareholder shall affirmatively vote so as to permit a Group to increase its
Interest in the Company’s total issued and outstanding share capital pursuant
to Section 6.1, 6.2, and 6.3 hereto.

 

(d)           Each
Shareholder shall exercise its voting rights in the corporate bodies of the
Company in accordance with the Company Growth Principles, provided that,
if the Shareholders of a Group vote on a bona fide basis against the
acquisition of an Interest in a New Acquisition and, subsequent thereto, in
terms of an arbitration decision pursuant to Section 10 of the
Subscription Agreement, it is determined that said acquisition is within the
Company Growth Principles, no penalty (as referred to in Section 15.7
below) shall attach to the relevant Group or any of the Shareholders within
such Group who voted against the acquisition, provided further that the
Shareholders of said Group shall, and shall procure that the Directors
nominated by it shall, following the arbitration decision, vote in favour of
the transfer to the Company of the contribution of the relevant Interest in a
New Acquisition, as applicable.

 

(e)           The
Parties agree that each Shareholder shall have pre-emptive rights to subscribe
for newly issued Company Shares (or securities convertible into or exchangeable
for Company Shares) in the proportion as may be required in order to maintain
the same proportion of the Interest of each Shareholder in the voting and total
issued and outstanding share capital of the Company immediately prior to any
such issuance of new Company Shares.

 

3.5          Effects of Dilution
on the Provisions of this Section 3

 

(a)           (i)            The
requirement that the matters referred to in Section 3.4(b)(i) must be
approved by consensus and the quorum requirement set out in Section 3.4(b)(ii)
(collectively, the “Consensus Rule”), subject to Section 3.5(d) below,
shall remain in full force until any Group is diluted as a consequence of a
capital increase by the Company to an Interest in the Company lower than 40%
(forty percent) of the Company’s total issued and outstanding share capital,
and shall continue to apply until an additional period of 6 (six) months has
elapsed calculated from the later of (i) the date of such dilution, or (ii) the
date that this Section 3.5 becomes effective.

 

20

 

(ii)           Should
the diluted Group have failed within the aforesaid 6 (six)-month period to
increase its Interest in the Company’s total issued and outstanding share
capital pursuant to Section 6 below, to a level at or above 40% (forty
percent) of the Company’s total issued and outstanding share capital, then upon
receipt of a written notice from the other Group the Consensus Rule shall no
longer apply.  In such event, unless
otherwise required by applicable law (X) the matters referred to in Section 3.4(b)(i)
shall require the affirmative vote of a simple majority of votes cast, and (Y)
the quorum for a Shareholders Meeting will be the presence (in person or by
proxy) of Shareholders representing a majority of the issued and outstanding
share capital of the Company.

 

(iii)          Notwithstanding
the provisions of Sections 3.5(a)(i) and (ii) above, for as long as the PT
Group and the TEF Group each hold an Interest of at least 10% (ten percent) in
the Company’s total issued and outstanding share capital (except if such
decrease in the participation in the Company derives from a Transfer of Company
Shares), any change in the purpose or scope of business of the Company or any
merger with any entity which is not a Wireless Business shall require the
affirmative vote of at least 1 (one) Shareholder from each of the PT Group and
the TEF Group, provided that the PT Group shall have no rights under
this Section 3.5.(a)(iii) during the period commencing on the date on
which the PT Group is diluted to holding an Interest of less than 40% (forty
percent) in the Company’s total issued and outstanding share capital and ending
on the date on which the PT Group Put is no longer exercisable with respect to
such Dilution Event Below 40%.

 

(b)           If
the diluted Group increases its Interest in the total issued and outstanding
share capital of the Company to 50% (fifty percent), such diluted Group shall
be entitled to restate the Consensus Rule as of the date its Interest in the
Company’s total issued and outstanding share capital is so increased.

 

(c)           The
Shareholders agree that this Section 3.5 shall become effective on the
earlier of the following:

 

(i)            after
the Balance Closing; and

 

(ii)           without
detracting from Section 3.1.1(a) of the Subscription Agreement, after any
of the Balance Capital Contributions have been transferred to the Company by
only one of the Groups, provided that the relevant regulatory
constraints have been removed and accordingly all the Balance Capital
Contributions could have been transferred by both Groups to the Company.

 

(d)           Without
detracting from the provisions as set forth in Sections 6.1, 6.2 and 6.3 below,
the non-diluted Group may in its sole discretion decide to grant an additional
period to the diluted Group during which such diluted Group may maintain its
corporate governance rights in accordance with Section 3.

 

21

 

SECTION 4.         CELLULAR CHAIRMEN DEADLOCKS,
WISE PERSONS PROCEDURE AND LIQUIDATION

 

4.1          Cellular Chairmen
Deadlocks

 

(a)           If,
after (i) the holding of good faith negotiations and (ii) discussions between
the Shareholders or the Directors (as the case may be) in at least 2 (two)
different meetings of the corresponding corporate body of the Company, any
resolution to be passed or approval to be given by the Shareholders, or any
resolution to be passed or proposal to be made by the Board of Directors (as
the case may be) constituting a Cellular Chairmen Issue (as defined below),
results in a deadlock (a “Cellular Chairmen Deadlock”), which deadlock
shall also be considered to occur if the Shareholders Meeting or the Board of
Directors cannot take place due to the absence of a quorum, then, at the
request of any Shareholder, the Shareholders shall observe the following
procedure to resolve such Cellular Chairmen Deadlock (the “Deadlock Resolution
Procedure”):

 

(A)          Within
15 (fifteen) days from the date the Cellular Chairmen Deadlock occurred, the
Shareholders shall refer such Cellular Chairmen Deadlock to the Chairmen of TEM
and PT Móveis (the “Cellular Chairmen”),
and shall cause the Cellular Chairmen to meet and hold good faith discussions
to attempt to find a solution and to resolve the Cellular Chairmen Deadlock
within the 15 (fifteen) days period thereafter, after consulting with their
respective Group nominees in the Board of Directors.  In holding such discussions, the Cellular
Chairmen shall always make their determination based on the best interests of
the Company in achieving and in compliance with the Company Growth Principles,
and the basic principles underlying the ultimate goals of this Agreement and
the Subscription Agreement.

 

(B)           In
the event the Cellular Chairmen are unable to resolve the Cellular Chairmen
Deadlock within said 15 (fifteen) days period, the Cellular Chairmen Deadlock
will be submitted by the Shareholders and the Cellular Chairmen to the Chairmen
(the “Group
Chairmen”) and the Chief Executive Officers (the “Group CEO’s”)
of Telefónica, and Portugal Telecom, who shall meet to attempt to find a final
solution and resolve the Cellular Chairmen Deadlock.  In their attempt to find a solution for the
Cellular Chairmen Deadlock, the Group Chairmen and the Group CEO’s shall always
make their determination based on the best interests of the Company in
achieving and in compliance with the Company Growth Principles, and the basic
principles underlying the ultimate goals of this Agreement and the Subscription
Agreement.

 

(b)           In
the event that, notwithstanding the efforts made by the Shareholders, the
Cellular Chairmen, the Group Chairmen and the Group CEO’s, a Cellular Chairmen
Deadlock remains unresolved for 90 (ninety) days calculated from the date on
which the occurrence of such Cellular Chairmen Deadlock as set forth in Section 4.1.(a)
has been notified by one of the Groups to the other Group, each Group shall be
entitled during the 15 (fifteen) Business Days following the expiration of the
aforesaid 90 (ninety) days period to (i) declare the existence of an
irreconcilable difference with the Shareholders of the other Group (a “Cellular Chairmen Deadlock
Event”), and (ii) at its option (a) propose in

 

22

 

writing to the other Group the
dissolution and liquidation of the Company, or (b) submit the Cellular Chairmen
Deadlock Event to the Wise Persons in accordance with Section 4.2 below.

 

4.2          Wise Persons
Procedure

 

(a)           If
one of the Groups proposes to the other Group the dissolution and liquidation
of the Company in accordance with Section 4.1 and the other Group so
expressly accepts in writing, then the provisions set forth in Section 4.3
below shall apply.  However, if (i) the
other Group does not accept in writing the dissolution and liquidation of the
Company within 15 (fifteen) Business Days from the receipt of the notice
delivered to it in this respect by the other Group, or (ii) a Group proposes to
submit the Cellular Chairmen Deadlock Event to the Wise Persons then, at the
request of either Group, the Company shall submit the matter to a committee of
3 (three) persons (the “Wise Persons”) for binding determination
between the proposals submitted by the Groups.

 

The Wise Persons shall
comprise of three persons, each of whom shall be required to be highly regarded
and experienced in the wireless telecommunications industry.  The Wise Persons shall be nominated as
follows:

 

(i)            Each
Group shall have the right to nominate one of the Wise Persons, such nomination
to be notified to the other Group within 15 (fifteen) Business Days after
expiry of the period referred to in Section 4.1(b), or 4.2(a) above (as
the case may be), which notification shall include confirmation by the nominee
to act as a Wise Person;

 

(ii)           If
a Group fails to deliver such notification within the aforesaid period, the
other Group shall have the right to nominate a Wise Person in lieu of the Wise
Person that would otherwise have been nominated by first mentioned Group; and

 

(iii)          The
two Wise Persons nominated pursuant to this Section 4.2(a), shall, within
10 (ten) Business Days of the last such Wise Person being nominated, by
agreement nominate a third Wise Person.

 

(b)           The
Wise Persons shall make their determination by majority vote, each Wise Person
having 1 (one) vote.

 

(c)           The
fees to be charged by the Wise Persons shall be discussed with and agreed to by
the Groups in advance.  The Wise Persons
shall be required to include in their determination, a ruling on which Group
should pay (which portion of) the fees, provided that, to the extent
possible, the Wise Persons shall apply the rule that, having regard to the
proposal made by each of the Groups and Directors nominated by such Group, the
unsuccessful Group pays the fees.

 

(d)           The
Wise Persons shall be required to act impartially, expeditiously (but in any
event within 15 (fifteen) Business Days of being requested to determine the
matter), and in the best interests of the Company and the Subsidiaries, having
due regard to the proposal made by each of the Groups and Directors and between
the proposals submitted to them

 

23

 

by the Groups.  The Wise Persons shall not have the authority
(i) to take any other decision or (ii) to deviate from such proposals, or (iii)
to decide that the Company shall be dissolved and liquidated.

 

(e)           The
Parties agree that the determination of the Wise Persons shall be final and
binding on the Parties and each Party shall duly effect and/or procure that
such determination is duly effected by the Company and relevant Subsidiaries.

 

(f)            The
Parties agree that the proposals or resolutions that shall comprise a “Cellular Chairmen Issue” shall only
be those proposals or resolutions involving an amount in excess of Euro [***], provided
that, to the extent that any of such decisions relate to the acquisition of
an Interest in a New Acquisition, the acquisition of a Further Interest in a
Wireless Property, or the increase by a Group of its Interest in the Company’s
total issued and outstanding share capital pursuant to Section 6, the
aforesaid Wise Person procedure shall not apply.

 

4.3          Liquidation of the
Company

 

(a)           Should
a Cellular Chairmen Deadlock Event occur, and should both Groups agree in
writing on the dissolution and liquidation (the “Liquidation”) of the Company as set
forth above, all the Shareholders shall take all such corporate actions,
including exercising their voting rights in favour of the Liquidation, which
may be required or convenient for the implementation thereof.

 

(b)           Subject
to applicable laws and subject to any adjustments to the [***] pursuant to Section 1.6.3
of the Subscription Agreement and Sections 2.6(a)(Y)(ii) and 2.11(b) above, the
Parties shall use their best efforts to procure that each Group receives, as
Liquidation distribution:

 

(i)            In
case of a 50% - 50% (fifty - fifty percent) Interest of each Group in the
Company at the time of initiating the Liquidation:  (a) [***] Interests in Wireless Properties [***]
as well as [***] in any Wireless Property [***] before the date hereof, which
was [***] and (b) [***] held by the Company.

 

(ii)           If
the Liquidation is initiated at a time when the Interests of the Groups in the
Company are not 50% - 50% (fifty – fifty percent) and the Balance Capital
Contributions have still not been transferred to the Company: the [***] to
which the Parties [***] pursuant to the provisions of the preceding Section 4.3(b)(i)
shall [***] to each Group.

 

(iii)          If
the Liquidation is initiated at a time when the Interests of the Groups in the
Company are not 50%  - 50% (fifty – fifty
percent), and the Balance Capital Contributions have been transferred by both
Groups to the Company, then:

 

(A)          [***]
in Wireless Properties [***] Group to the Company [***], as well as [***]
Interest in any Wireless Property [***];

 

(B)           50%
(fifty percent) [***] other than those referred to in [***]

 

24

 

(C)           [***]
Interests in [***] the relevant Group to the Company that have [***]; and

 

(iv)          Such
[***] of the [***] not referred to in Section [***], as the case may be,
as corresponds with such [***].

 

(c)           Any
[***] the [***] to each Group pursuant to [***], and [***] in the Company will
be [***].  Both the [***] the assets
[***] to, and [***] of the Interest [***] the Company by each Shareholder will
be [***] to an [***]  made at the time of
[***] the [***] in accordance with Sections 1.4 and 1.5 of the Subscription
Agreement.

 

(d)           In
addition to the right to a portion of the assets in the Company, the TEF Group
will have a call option to purchase 50% (fifty percent) of that portion of the
Global Telecom Interest still not transferred to the Company, as set forth in Section 1.6.1
of the Subscription Agreement.

 

(e)           The
provisions of this Section 4.3 shall apply mutatis mutandis to any other liquidation of the Company.

 

(f)            Each
Group shall fulfil all legal requirements which may be applicable in the event
of a liquidation of the Company (including but not limited to any requirements
imposed by regulatory agency, including, ANATEL, CVM, or any other Governmental
Authority with jurisdiction over the Company or the Subsidiaries).  The Parties undertake to use their reasonable
efforts to fulfill any such requirements and to obtain any such necessary
approval as soon as practicable.

 

SECTION 5.         TRANSFER OF COMPANY SHARES

 

5.1          Transfer

 

No Shareholder belonging
to one Group (a “Transferring Party”)
may Transfer all or part of its Company Shares (the “Offered Shares”), or agree to do so, to
a Third Party (a “Third Party Sale”),
without first offering such Offered Shares to the Shareholders belonging to the
other Group (collectively the “Non-Transferring
Party”), who shall have the option of (i) exercising a right of
first refusal to acquire all but not less than all of the Offered Shares (the “Right of First Refusal”) or (ii) a
right to co-sell the Non-Transferring Party’s own Company Shares in the same
proportion as the Offered Shares represents to the Transferring Party’s entire
Interest in the Company (the “Tag-Along
Right”) (except as provided in Section 5.2 below).  Such offer shall be effected in compliance
with the procedures set forth in this Section. 
Any transfer made in violation of the provisions of this Section 5
shall be null and void and of no effect against the Company or the other
Shareholders.

 

5.2          Permitted
Transferees; Transfers in the Context of Consolidation

 

(a)           Notwithstanding
anything in this Agreement to the contrary, each Shareholder of a Group may
freely transfer all or part of its Company Shares to a Permitted Transferee
without the consent of the Shareholders in the other Group and without
compliance with the Right

 

25

 

of First Refusal provisions
hereof and the Tag-Along Right, provided that the Permitted Transferee
shall, as a condition for any such transfer, have agreed in writing to be bound
by the terms of this Agreement and the Subscription Agreement, and to be
jointly and severally liable for any debt, liability or obligation of the
Transferring Party under this Agreement or the Subscription Agreement,
irrespective of whether such obligation, debt or liability arises prior or
subsequent to any such transfer.

 

(b)           It
is acknowledged by the Groups that the trends in the mobile telecommunication
sector are for the establishment of global mobile companies.  The Parties are willing to discuss such
combinations in the future with third parties, while reserving the right to
contribute or not contribute their Company Shares to any combined entity.  It is hereby agreed that the Right of First
Refusal and Tag-Along Right referred to in this Section 5 shall not be
applicable if the transfer of the Company Shares by either Group has been
agreed previously by the Groups and forms part of a consolidation process in
the mobile telecommunication industry.

 

5.3          Indirect Transfers

 

Each Shareholder
acknowledges, agrees and shall procure that the provisions of
Sections 5.1, 5.2, 5.4, 5.7, and 5.9, shall apply, mutatis mutandis, to any Transfer of any
Interest held by either Group in any Person (irrespectively whether such Person
is also a Shareholder), the assets of which consist, now or at the time of the
transfer, exclusively or virtually exclusively of, directly or indirectly,
Company Shares.

 

5.4          Right of First
Refusal

 

(a)           Prior
to the proposed Third Party Sale, the Transferring Party shall deliver a
written notice to the Non-Transferring Party and the Company, indicating the
terms of the irrevocable offer by the Third Party (the “Third Party Offer”)
which shall contain, at least, the following: (i) the total number of Offered
Shares; (ii) the name, address and nationality of the Third Party and of its
direct and indirect controlling shareholders; (iii) the consideration per
Company Share; (iv) the payment conditions; (v) the means of payment, which in
any event must be cash and/or marketable securities and/or shares listed on an
internationally recognised stock exchange; and (vi) any other material terms
and conditions.  This notice (the “Transfer Notice”),
shall have the effect of an irrevocable offer to sell and transfer the Offered
Shares to the Non-Transferring Party.

 

(b)           Within
3 (three) Business Days from the receipt by the Non-Transferring Party of the
Transfer Notice, it may deliver a notice to the Transferring Party (the “Initial Non-Transferring
Party Offer”) in which it shall include:

 

(i)            the
payment conditions and the means of payment under which it proposes to exercise
its Right of First Refusal, and/or

 

(ii)           in
the event the Third Party Offer and/or the Initial Non-Transferring Party Offer
contemplates a total or partial non-cash consideration or a deferred payment,
or if the Non-Transferring Party is willing to exercise its Tag-Along Right a
list of 3 (three) internationally recognized investment banks and/or

 

26

 

(iii)          an
indication as to whether or not it whishes to transfer to the Third Party the
number of Company Shares equal to the number of Offered Shares as a result of
the exercise of the Tag-Along Right in terms of this Section 5.4 (the “Tag
Along Shares”),

 

provided that
such Initial Non-Transferring Party Offer shall not be considered as a binding
offer and shall not be understood as an exercise of its Right of First Refusal
or of the Tag-Along Right.

 

The Initial Non-Transferring
Party Offer may contain an offer to exercise the Right of First Refusal in (i)
cash and/or PT shares in the event the Non-Transferring Party is a member of
the PT Group, or (ii) in cash and/or Telefónica shares and/or TEM shares in the
event the Non-Transferring Party is a member of the TEF Group.

 

(c)           Within
2 (two) Business Days from the receipt of the Initial Non-Transferring Party
Offer, the Transferring Party shall communicate in writing (the “Election Notice”)
to the Non-Transferring Party the name of 1 (one) investment bank selected from
the list of 3 (three) investment banks included in the Non-Transferring Party
Offer, which shall determine, within 10 (ten) Business Days from the execution
of the relevant Mandate Letter:

 

(A)          in
the event the Initial Non-Transferring Party Offer contains an offer for the
exercise of the Right of First Refusal:

 

(i)            whether
or not the Third Party Offer and the Initial Non-Transferring Party Offer are
[***];

 

(ii)           in
the event that the Initial Non-Transferring Party Offer [***] than the Third
Party Offer, the value [***], and

 

(iii)          in
the event that the Initial Non-Transferring Party Offer [***] Third Party
Offer, [***] to the Initial Non-Transferring Party Offer in order to [***] to
the Third Party Offer, which, if the Initial Non-Transferring Party Offer
contemplates [***], at the option of the Non-Transferring Party, [***] of the
consideration or to the [***] of the consideration;

 

(the report issued by the investment bank with respect
to paragraphs (i), (ii) and (iii) above referred to as the “Right of First Refusal Valuation”); and

 

(B)           in
the event the Initial Non-Transferring Party Offer contains the intention of
the Non-Transferring Party to exercise the Tag-Along Right, the value of the
Company as of the date of delivery of the Transfer Notice (in accordance with
the principles and criteria set forth in Exhibit I of the Subscription
Agreement) and the percentage that the Third Party Offer, if made with respect
to 100% of the total outstanding share capital of the Company, would represent
over the value of the Company in accordance with such valuation (the “Tag-Along Valuation”).

 

27

 

(d)           As
soon as practicable, but in no event later than 2 (two) Business Days after the
receipt of the Election Notice, the Non-Transferring Party shall execute the
relevant Mandate Letter and shall otherwise correspond with the elected
investment bank (the Transferring Party and the other Shareholders of its Group
[***] to [***] with [***]).  The fees of
the elected investment bank shall be paid by the Non-Transferring Party, but
the Transferring Party shall reimburse the Non-Transferring Party such
fees.  In the event the Transferring
Party does not deliver an Election Notice or otherwise fails to select one
investment bank from the list of 3 (three) investment banks included in the Non-Transferring
Party Offer within 2 (two) Business Days from the receipt of such Initial Non-Transferring
Party Offer, the Non-Transferring Party shall execute the relevant Mandate
Letter with any of the 3 (three) Banks included in the Non-Transferring Party
Offer.  In any event, the relevant
Mandate Letter shall state:

 

(A)          with
respect to the Right of First Refusal Valuation, that the investment bank [***]
the guidelines and criteria referred to in Section 1.5 of the Subscription
Agreement, but the valuation shall be based [***] and the terms and conditions
of the Third Party Offer and of the Initial Non-Transferring Party Offer, and
that the same criteria shall be applied to both such offers;

 

(B)           with
respect to the Tag-Along Valuation, an indication to follow the provisions of Section 1.5
of the Subscription Agreement, the [***] and the [***] set forth in [***] of
the Subscription Agreement.

 

(e)           The
Non-Transferring Party may exercise its Right of First Refusal or the Tag-Along
Right, by delivery of a written notice to the Transferring Party (the “Acceptance Notice”),
within 3 (three) Business Days following the receipt of the Right of First
Refusal Valuation and the Tag-Along Valuation (or if the Non-Transferring Party
Offer did not include the list of investment banks in accordance with Section 5.4.(b)(ii))
(the “Acceptance
Period”), provided, however, that the Tag-Along
Right may only be exercised by the Non-Transferring Party if the circumstances
set forth in Section 5.5 below occur.

 

(f)            In
the event the Non-Transferring Party does not deliver the Acceptance Notice
within the Acceptance Period, it will be considered that it does not desire to
exercise its Right of First Refusal nor its Tag-Along Right, whether or not it
has delivered an Initial Non-Transferring Party Offer.

 

(g)           In
the event of exercise of the Right of First Refusal by the delivery of the
Acceptance Notice, the Initial Non-Transferring Party Offer, [***] as set forth
above [***] Initial Non-Transferring Party Offer [***] Third Party Offer, shall
be referred hereinafter to as the “Definitive Non-Transferring Party Offer”.  The Acceptance Notice shall be binding and
irrevocable.

 

The consummation of any
transfer of the Offered Shares pursuant to Section 5.4(g) above shall
occur within the period and in accordance with the terms and conditions
provided in the Definitive Non-Transferring Party Offer, provided  that
the Definitive Non-Transferring Party Offer shall [***] to the Non-Transferring
Party of the Third Party

 

28

 

Offer, unless the Third
Party Offer contemplates a longer period for the payment, in which event the
Definitive Non-Transferring Party Offer may equalize the term contained in the
Third Party Offer.

 

(h)           In
the event of exercise of the Tag-Along Right by the delivery of the Acceptance
Notice, such Acceptance Notice shall be binding and irrevocable, and the
consummation of the transfer of the Tag-Along Shares pursuant to this Section 5.4(h)
shall occur within the period and in accordance with the terms and conditions
provided in the Transfer Notice.

 

(i)            If
within the Acceptance Period, the Transferring Party has not received the Acceptance
Notice in accordance with Section 5.4.(e) above, the Transferring Party
shall transfer all, but not less than all, the Offered Shares to the Third
Party in accordance with the terms and conditions of the Transfer Notice.

 

(j)            If
after receipt of an Acceptance Notice in accordance with Section 5.4.(e)
above, the Non-Transferring Party fails (other than as a result of force majeure or the Transferring Party’s
own actions or omissions) to (x) consummate the acquisition of the Offered
Shares in accordance with the terms and conditions provided for in the
Definitive Non-Transferring Party Offer; or (y) consummate the transfer of the
Tag-Along Shares in accordance with the terms and conditions provided for in
the Transfer Notice; then the Transferring Party will be free to transfer all,
but not less than all, the Offered Shares to the Third Party in accordance with
the terms and conditions of the Transfer Notice.  Such transfer of the Offered Shares to the
Third Party must be consummated within twenty (20) days from the expiration of
the Acceptance Period.

 

(k)           If
the transfer to a Third Party by the Transferring Party is not consummated
within the time period set forth in Sections 5.4.(i) and 5.4.(j) above, the
Transferring Party may not transfer any Company Shares without repeating the
procedures set out in this Section 5.4.

 

(l)            Notwithstanding
anything to the contrary contained in this Agreement, in no event shall a
Transferring Party have any liability (except to reimburse cost in accordance
with this Section) to the Non-Transferring Party in the event that the sale and
transfer of the Offered Shares and the Tag Along Shares contemplated pursuant
to this Section 5.4 is not consummated provided the Transferring Party has
not breached its obligations under this Section 5.4, and provided
further that such Transferring Party has not consummated the Third Party
Sale.  In any event, if the Third Party
decides not to acquire the Tag-Along Shares tendered by the Non-Transferring
Party in exercise of its Tag-Along Right, the Transferring Party shall not
Transfer to the Third Party the Offered Shares, and the Transferring Party
shall reimburse the Non-Transferring Party for any cost incurred by it in
connection with the proposed sale.

 

(m)          In
the event the Initial Non-Transferring Party Offer [***], such Initial Non-Transferring
Party Offer shall include a list of 3 (three) internationally recognized
investment banks, among which the Transferring Party shall elect 1 (one)
bank.  In the event the Non-Transferring
Party exercises its Right of First Refusal, (i) [***] in terms of the
Definitive Non-Transferring Party Offer, shall be delivered to [***], and (ii)
any transaction [***] by the Non-Transferring Party [***] exercise of its Right
of First Refusal, shall be [***]

 

29

 

the aforesaid investment bank
in compliance with the terms and conditions, if any, provided for in the
Initial Non-Transferring Party Offer. 
[***] be borne by the Transferring Party, provided, however,
that a [***], to be borne by the Non-Transferring Party, may be agreed between
the Non-Transferring Party and the aforesaid investment bank, provided further
that [***] delivered by the Non-Transferring Party as payment for the exercise
of its Right of First Refusal, being stable over time

 

(n)           Notwithstanding
the periods set forth in this Section 5.4 for the consummation of any
transfer of Company Shares (either to a Third Party or to the Non-Transferring
Party), in the event the relevant transfer of shares is subject to the prior
(i) fulfillment of legal or regulatory constraints, and/or (ii) approval by any
regulatory agency (including, without limitation, ANATEL, CVM or any other
Governmental Authority with jurisdiction over the Company and the Subsidiaries),
the time period during which such transfer shall be consummated shall be
extended until the expiration of 5 (five) Business Days after such requirements
have been fulfilled and/or all such approvals shall have been received.  In connection with the consummation of the
transfer as contemplated herein, the involved parties shall deliver to each
other all documents reasonably required to be executed in connection with the
transfer of the Offered Shares.

 

(o)           At
the sole and exclusive option of the Non-Transferring Party, the exercising of
such option to be notified in writing to the Transferring Party (the “Notification”)
within the Acceptance Period, the validity of a Third Party Sale involving the
sale of the entire Interest of one of the Groups in the Company shall be
expressly conditional upon the execution of an agreement by the Third Party by
virtue of which the Third Party shall assume all rights and obligations of the
Transferring Party under this Agreement and the Subscription Agreement concerning
the Transferring Party as a shareholder of the Company (the “Assignment Agreement”),
with the exception of the representations, warranties covenants and
indemnities, in which event the provisions set forth in Section 11.1(iii)
bellow shall apply, such condition being construed as a condition precedent, so
long as the execution is not evidenced. 
In the event of a Third Party Sale involving only a portion of the
entire Interest of one of the Groups in the Company, the voting rights of both
Groups will be immediately and automatically syndicated and, therefore, both
Groups undertake in such event to exercise their voting rights in the Company
in accordance with the instructions given by the Group holding a higher number
of Company Shares.  In this event, this
Agreement will remain in force an effect exclusively between the two Groups, provided
that any provisions of this Agreement contrary to the aforementioned
syndication of voting rights or which could prevent the effectiveness of such
syndication, shall be considered null and superseded by such syndication of
votes.

 

5.5          Tag-Along Right

 

The Tag-Along Right may
only be exercised by the Non-Transferring Party if (i) the Offered Shares grant
to its holder 50% or more of the voting rights in the Company in accordance
with this Agreement; and (ii) if the Tag-Along Valuation determines that the
Third Party Offer (if made with respect to 100% of the total outstanding share
capital of the Company) [***]. 
Notwithstanding the above, in the event of a series of sales to the

 

30

 

same Third Party, to
Affiliates of such Third Party or to any other Person acting in concert with
such Third Party, such series of sales shall be considered as a single
transaction for purposes of Section 5.4 above.

 

5.6          Conditional Put

 

(a)           If
there is a Change of Control relating to a Group, the other Group shall have
the right to put (the “Put”) all but not less than all of the Company Shares held
by it to any of the Shareholders being part of the Group which is the subject
of the Change of Control (the “Target Shareholder”) at a value determined by
an Independent Valuation.  The payment
for the Company Shares under this Put shall be made, at the option of the Group
exercising the Put, either:

 

(i)            in
cash; or

 

(ii)           subject
to the applicable laws and regulations and subject to any adjustments pursuant
to Section 1.6.3 of the Subscription Agreement and Sections 2.6(a)(Y)(ii)
and 2.11(b) above, in kind [***] or

 

(iii)          in
kind, [***], Section 5.6.(a)(ii)(A), or (y) [***] in Section 5.6(a)(ii)(A)
and Section 5.6(a)(ii)(B), or (z) [***] Section 5.6(a)(ii)(A), Section 5.6(a)(ii)(C)
and Section 5.6(a)(ii)(D),

 

provided that,
in the event that the Put is exercised while the Balance Capital Contributions
have not been transferred to the Company due to regulatory restraints, the
Group exercising the Put shall be entitled to receive, under Section 5.6(a)(ii)(B)
above, [***] of the [***] solely by any one of the Groups and not balanced by
the other Group; and in such case the provisions of Section 5.6(iii) shall
be construed and applied accordingly.

 

Payment of the price
defined under Section 5.6(a)(ii) or (iii) above due to the Group
exercising the Put will be combined with a cash settlement for the difference
between [***].  The value of the Company
and of each of its assets will be determined by an Independent Valuation in
accordance with Sections 1.4 and 1.5 of the Subscription Agreement.

 

(b)           The
Target Shareholder acknowledges and expressly agrees that, if it fails to
structure otherwise the fulfilment of its obligation hereunder in favour of the
Group exercising the Put, the Target Shareholder [***] the Company, and the
Company [***] Target Shareholder, [***]. 
The Target Shareholder [***].  The
Target Shareholder shall indemnify and hold harmless the Company and the Group
exercising the Put against any and all costs and Taxes incurred by the Company
or said Group pursuant to this Section 5.6.

 

(c)           In
addition to the settlement of the obligations arising out of the exercise of
the Put, TEF Group will have a call option to purchase up to 50% (fifty
percent) of that portion of the Global Telecom Interest still not transferred
to the Company as a Contribution, as set forth in Section 1.6.1 of the
Subscription Agreement.

 

31

 

(d)           The
Put can be exercised by written notice delivered to the Target Shareholder
within 6 (six) months from the date on which the other Group becomes aware of
the relevant Change of Control.  The
consummation of any transfer of the relevant Company Shares pursuant to Section 5.6(a)
above shall occur as promptly as practicable but in no event later than (i) 30
(thirty) days after the delivery of the Independent Valuations in case the
Group exercising the Put elected payment in cash, and (ii) 60 (sixty) days
after the delivery of the Independent Valuations in case the Group exercising
the Put elected payment in kind, at the time and place as may be agreed upon by
the Target Shareholder and the Group exercising the Put; provided that
if such transfer is subject to the prior (i) fulfilment of legal or
regulatory requirements, and/or (ii) approval by any regulatory agency
(including, without limitation, ANATEL, CVM or any other Governmental Authority
with jurisdiction over the Company and the Subsidiaries), the time period
during which such transfer may be consummated shall be extended until the
expiration of 5 (five) Business Days after all such requirements have been
fulfilled and/or such approvals shall have been received.  In connection with the consummation of the
transfer as contemplated herein, the involved parties shall deliver to each
other all documents reasonably required to be executed in connection with the
transfer of the relevant Company Shares. 
The Parties undertake to use their reasonable efforts to fulfill any
such requirements and to obtain any such necessary approval as soon as
practicable.

 

5.7          Pre-emptive Rights

 

The same rules provided
for in this Section 5 shall be applicable mutatis mutandis to transfers,
by any Shareholder of a Group, of its pre-emptive rights for the subscription
of new Company Shares, provided that the periods for the exercise of the
Right of First Refusal or the Tag-Along Right with respect to the pre-emptive
rights for new Company Shares shall be the following: (i) the Transfer Notice
must be delivered to the Non-Transferring Party within 5 (five) Business Days
from the approval of the capital increase and must contain the number of
Offered Shares subject to the pre-emptive rights, the selling price and the
other conditions of the sale and the name and complete identification of the
Third Party and of its direct and indirect controlling shareholders, and the
agreement by the Third Party to increase the Third Party Offer so as to permit
the Non-Transferring Party to sell to the Third Party its pre-emptive rights
for the subscription of new Company Shares as a result of the exercise of the
Tag-Along; (ii) the Acceptance Period shall be 5 (five) Business Days from the
effective receipt of the Transfer Notice, and should the above mentioned period
elapse without the Non-Transferring Party expressing its intention in a written
notice delivered to the Transferring Party, the offer shall be deemed not to
have been accepted; and (iii) within 3 (three) Business Days from the effective
receipt of the Acceptance Notice, the acquisition of all offered pre-emptive
rights shall be completed.  Any decision
taken by the Non-Transferring Party, will be irrevocable and binding upon such
Non-Transferring Party.

 

Upon the expiration of
the period mentioned in Section 5.7(a)(ii) above without the Non-Transferring
Party exercising its Right of First Refusal or the Tag-Along Right with respect
to the pre-emptive rights of the offering Shareholder, such rights may be
assigned to the Third Party who may exercise them under the same conditions of
the offer made to

 

32

 

the Non-Transferring
Party pursuant to such item until the end of the term for the exercise of the
pre-emptive right established by the relevant Shareholders Meeting.

 

5.8          Tax Efficiency

 

Any transfer as provided
for in this Section 5 shall be made in the most tax efficient manner vis-à-vis the Company and the Non-Transferring
Party, or the Group exercising the Put (as the case may be).

 

5.9          Encumbrance of
Company Shares

 

Except with the prior
written consent of the Shareholders in the other Group, no Shareholder shall
create, or permit the creation of, any lien on, pledge, option, charge, debt,
restriction, security interest, demand or other encumbrances of whatsoever
nature and howsoever incurred, whether voluntarily or involuntarily, in respect
of any of its or any other Shareholder in its Group’s Company Shares.  Without detracting from the generality of the
foregoing, a Shareholder shall not have the right to vest the voting rights in
any Company Shares in any pledgee or usufructuary of such Company Shares.

 

5.10        Transfer Restriction in
Articles of Association, Exercise of Voting Rights

 

In order to achieve that
no transfer of Company Shares is made in breach of any provision of this Section 5,
the Shareholders agree that the Articles of Association shall provide for the
unanimous prior approval of the Shareholders being required for any transfer of
Company Shares.  For the avoidance of
doubt it is expressly agreed that each Shareholder shall exercise its voting
rights on the Company Shares in such a manner as to allow the other Shareholders
to exercise their rights under this Section 5, provided that such
other Shareholders have complied with the relevant provisions of this Section 5.

 

SECTION 6.         DILUTION

 

6.1          Dilution

 

Without prejudice to the
provisions of Sections 2 and 3 above concerning the effects of dilution on the
corporate governance rights, the provisions of this Section 6 shall only
apply after the Balance Closing.  The
total direct and indirect Interest of any Group (a “Reduced Shareholder”) in the Company’s
total issued and outstanding share capital that does not reach, or is reduced
to less than, 50% (fifty percent) of the Company’s total issued and outstanding
share capital as a consequence of a capital increase by the Company will be
referred to as the “Diluted Interest”).

 

6.2          Diluted Interest
Between 50% and 40%

 

(a)           In
the event that as a consequence of a capital increase by the Company the
Diluted Interest is less than 50% (fifty percent) but at or above 40% (forty
percent) of the Company’s total issued and outstanding share capital (the “Dilution Event Above 40%”),
the Reduced Shareholder shall have the right to transfer Additional Capital
Contributions to the Company, so as to cause such Reduced Shareholder’s total
Interest

 

33

 

 

to be increased to 50% (fifty
percent) of the total issued and outstanding share capital of the Company, provided
that such Additional Capital Contributions shall be transferred to the
Company not later than 12 (twelve) months from the occurrence of the relevant
Dilution Event Above 40%.

 

(b)           For
purposes of determining the total amount of the Additional Capital
Contributions required under Section 6.2(a), the Shareholders agree that
such total amount will be equivalent to the value of (that portion of) the
Contribution having caused the dilution, as determined in the Contribution
Valuation, as set forth in the Subscription Agreement (the “Locked-up Price”),
provided that such Locked-up Price shall only be valid if the increase
to the agreed-upon 50% (fifty percent) Interest is consummated within the 6
(six)-month period following the Dilution Event Above 40%.  If the increase to the agreed-upon 50% (fifty
percent) Interest is consummated later than 6 (six) months after the Dilution
Event Above 40%, but in any event prior to expiry of the period of 12 (twelve)
months after the occurrence of such Dilution Event Above 40%, the Shareholders
agree that the Locked-up Price shall be accrued with the Cost of Carrying.

 

In any case, if the value
of the Additional Capital Contribution transferred to the Company under Section 6.2(a)
exceeds the aggregate nominal value of the Company Shares issued in respect of
such Contribution, then such difference shall be credited to the General Share
Premium Reserve.

 

6.3          Diluted Interest
Below 40%

 

(a)           In
the event that as a consequence of a capital increase by the Company the
Diluted Interest is less than 40% (forty percent) of the Company’s total issued
and outstanding share capital (the “Dilution Event Below 40%”), the Reduced Shareholder
shall have the right to transfer to the Company Additional Capital
Contributions at one or more Additional Closings, so as to cause the Reduced
Shareholder’s total Interest to be increased to:

 

(i)            at
least 40% (forty percent) (and not less than forty percent), but in any case to
no more than 50% (fifty percent), of the total issued and outstanding share
capital of the Company, in which case such Additional Capital Contributions
shall be transferred to the Company no later than 6 (six) months from the
occurrence of the Dilution Event Below 40%. 
In this case, the Shareholders agree that the Reduced Shareholder shall
transfer to the Company as a Contribution an amount equal to the relevant
portion of the Locked-up Price in order to return to an Interest of at least
40% (forty percent) of the total issued and outstanding share capital of the
Company; or

 

(ii)           in
the event that the increase set forth in Section 6.3(a)(i) above shall not
occur, 50% (fifty percent) (and not less or more than fifty percent) of the
total issued and outstanding share capital of the Company, in which case such
Additional Capital Contributions shall be transferred to the Company within the
6 (six)-month period following the expiration of the period set forth in Section 6.3(a)(i)
above and in no event later than 12 (twelve) months from the occurrence of the
Dilution Event

 

34

 

Below 40%.  In this case, the Shareholders agree that the
Reduced Shareholder shall transfer to the Company as a Contribution an amount
equal to the Locked-up Price plus the Cost of Carrying in order to return to an
Interest of 50% (fifty percent) of the total issued and outstanding share
capital of the Company.

 

In any case, any
difference between the value of the Additional Capital Contribution transferred
to the Company under this Section and the aggregate nominal value of the
Company Shares issued in respect of such Contribution, shall be credited to the
General Share Premium Reserve.

 

6.4          PT Group Put

 

(a)           If
(i) the PT Group is the Reduced Shareholder as a consequence of a capital
increase, (ii) the Diluted Interest is lower than 40% and (iii) the PT
Group has not exercised its right to build up its Interest back to at least 40%
of the total issued and outstanding share capital of the Company within the
prescribed 6 month time period, then the PT Group shall have the right to sell
and transfer all but not less than all the Company Shares which it owns at the
date of delivery of the PT Group Notice, as defined below, (the “PT Group Company Shares”)
to TEM at the value resulting from an Independent Valuation (the “PT Group Put”),
such right, subject to the last sentence of this paragraph, to be exercised
within the 12 month period (the “PT Group Put Exercise Term”) following the end
of the aforementioned 6-month period; provided  that the PT Group
Put Exercise Term shall terminate if the PT Group recovers its corporate
governance rights as a consequence of increasing its Interest in the Company to
50%, on the date such increase takes place, and provided, further,
that the PT Group Put, subject to Section 6.4.(b) below, may not be
exercised at any time after 31 December 2007.  In the event the PT Group Put Exercise Term
expires due to the PT Group building up its Interest in the Company to 50% and
the PT Group has not exercised the PT Group Put, this will not prevent the
exercise of the PT Group Put in the event the PT Group is diluted below 40% and
the PT Group has not exercised its right to build up its Interest back to at
least 40% of the total issued and outstanding share capital of the Company
within the prescribed 6 month time period.

 

Subject to Section 6.4.(e)
below, at the option of TEM, payment for the PT Group Company Shares may be
made in (i) cash, (ii) shares in Telefónica and/or shares in TEM, or (iii) a
combination of cash and shares in Telefónica and/or shares in TEM.

 

The acquisition of the PT
Group Company Shares shall, at the option of TEM, be performed by one or more
members of the TEF Group and/or Telefónica, and/or by one or more Third Parties
(hereinafter, the “Acquirer/s”),
provided  that in such event the TEF Group shall be jointly and
severally liable with the Acquirer/s for the obligation of payment of the PT
Group Company Shares in accordance with this Agreement.

 

(b)           If
the PT Group wishes to exercise the PT Group Put, it shall deliver a notice to
TEM and the Company not later than 5 (five) Business Days prior to the expiry
of the PT Group Put Exercise Term, indicating that it is exercising such PT
Group Put and the number of

 

35

 

the Company Shares that is then
owned by such PT Group (the “PT
Group Put Notice”). 
This notice will have the effect of an irrevocable exercise of the PT
Group Put.

 

(c)           In
the event the PT Group delivers the PT Group Put Notice, an Independent
Valuation shall be conducted as set forth in Sections 1.4 and 1.5 of the
Subscription Agreement, which shall take into account the following specific
rules:

 

(A)          The
Mandate Letter shall provide that the Investment Banks must complete the
Initial Valuations of the Company as of the date the PT Group Put Notice is
received by TEM, for purposes of determining the value in Euros of the PT Group
Put.

 

(B)           The
Investment Banks shall prepare neither the Company Shares Exchange Ratio
referred to in Section 1.5 of the Subscription Agreement nor the
Contribution Valuation.

 

(C)           The
Initial Valuations and the Finalized Initial Valuation of the Company shall be
based on the equity value of the Company as a going concern, without iliquidity
or minority share discount, and the valuation methodology followed to value the
Company will include a discounted cash flow, precedent transactions multiples
and trading multiples of comparable companies analysis.

 

(D)          Each
of the TEF Group and the PT Group, to the extent that it is able to do so,
shall cause the Company to provide to the Investment Banks and, if applicable,
the Third Investment Bank, reasonable access to the Company management and all
information concerning the business, assets, liabilities, operations, financial
condition and prospects of the Company and its Subsidiaries which any of the
Investment Banks reasonably request in connection with the preparation of the
valuations contemplated by this Section 6.4.  All such information shall be complete and
accurate and each of the Investment Banks and, if applicable, the Third
Investment Bank, shall be afforded equal access to such information.

 

(d)           The
purchase price to be paid by the TEF Group for the transfer to it (and/or to
the Person/s nominated by it) of the PT Group Company Shares owned by the PT
Group shall be determined by multiplying the Finalized Initial Valuation of the
Company by the percentage that such PT Group Company Shares represent over the
total issued and outstanding share capital of the Company at the time of the
delivery of the PT Group Put Notice.

 

(e)           The
Acquirer/s shall have the option to pay for the PT Group Company Shares with
(i) cash, and/or (ii) existing and/or new shares in Telefónica and/or TEM,
provided that the number of such Telefónica and/or TEM shares shall not
exceed the total number of TEF and/or TEM shares (as the case may be) traded on
the Madrid Stock Exchange and the New York Stock Exchange (ADRs converted into
shares) [***] for the PT Group Company Shares.

 

(f)            Within
twenty two (22) Business Days following the receipt by TEM of the Independent
Valuation, (provided, that exclusively for purposes of this Section 6.4,
the days falling

 

36

 

between (i) August 1st
and August 30th (both inclusive) and (ii) December 15th
and January 15th (both inclusive), shall not be considered
Business Days), TEM shall send a written notice to the PT Group which shall
contain: (i) the kind of consideration for the payment of the PT Group Company
Shares; (ii) the Person/s appointed by TEM to act as Acquirer/s; (iii) the date
of the TEM board meeting (and/or Telefónica board meeting, if applicable) which
decided the kind of consideration for the payment of the PT Group Company
Shares; and (iv) the value per share of the TEM shares (and of the shares in
Telefónica, if applicable) calculated in accordance with Section 6.4.(l)
below.  Failure by TEM to deliver the
written notice to the PT Group in accordance with this Section 6.4.(f)
will be considered as an election of TEM to pay in cash the PT Group Company
Shares.

 

(g)           In
the event that the Acquirer/s decide to pay all or a portion of the purchase
price for the PT Group Company Shares using cash and/or existing shares in
Telefónica and/or TEM, the sale and transfer of the PT Group Company Shares
shall take place on the date notified by TEM to the PT Group, provided  that
such date shall fall within 10 Business Days after the date of the written
communication referred to in Section 6.4.(f) above, and provided
further that, in the event of payment in existing shares in Telefónica
and/or TEM, such shares shall be credited to a securities account or accounts
in Spain designated by the PT Group with the investment bank selected in
accordance with the provision of Section (B) of Exhibit II.  In the event such transfer is subject to the
prior fulfillment of any requirements and/or to the prior approval by any
regulatory agency (including, without limitation, ANATEL, CVM or any other
Governmental Authority with jurisdiction over the Company and the
Subsidiaries), the sale and transfer of the PT Group Company Shares shall be
extended until the expiration of 5 (five) Business Days after all such
requirements are fulfilled and/or all such approvals shall have been received,
provided that in this event, the relevant purchase price for the PT Group
Company Shares shall not be increased with any Cost of Carrying.  The Parties undertake to use their reasonable
efforts to fulfill any such requirements and to obtain any such regulatory
approval as soon as possible.

 

(h)           In
the event that the Acquirer/s decides to pay all or a portion of the purchase
price for the PT Group Company Shares using new shares in Telefónica and/or
TEM, the sale and transfer of the PT Group Company Shares shall take place, as
defined below, as soon as possible after (A) compliance with applicable law and
regulations, and (B) the first annual general meeting of shareholders of Telefónica
(if applicable) and/or TEM, as the case may be, convened on or after the date
of the board meetings referred to in Section 6.4.(f) above, provided
that such sale and transfer of the PT Group Company Shares shall be
performed and settled no later than [***] after the date of the written
communication referred to in Section 6.4.(f) above (taking into account
that if an annual general shareholders meeting is not going to be convened on
or after the date of the board meetings referred to in Section 6.4.(f)
above and to be held before the expiration of the aforesaid [***], an
extraordinary shareholders meeting shall be convened in order to be held within
such [***]), provided  further that if such transfer is subject to
the prior fulfillment of any requirements and/or to the prior approval by any
regulatory agency (including, without limitation, ANATEL, CVM or any other
Governmental Authority with jurisdiction over the Company and the
Subsidiaries), the sale and transfer of the PT Group Company Shares shall take
place as soon as possible after all such requirements

 

37

 

are fulfilled and/or all such
approvals shall have been received, provided that in this event, the relevant
purchase price for the PT Group Company Shares shall not be increase with any
Cost of Carrying.  The proposed date of
sale and transfer shall be notified by TEM (or the Acquirer/s) to the PT Group
in writing.  In the event the sale and
transfer of the PT Group Company Shares in accordance with the provisions of
this Section 6.4.(h) does not take place within the [***] period provided
for herein, the relevant portion of the PT Group Company Shares shall be
purchased and sold, and the relevant portion of the purchase price for the PT
Group Company Shares shall then be paid by TEM and/or Telefónica, within 10
(ten) Business Days from the date which is [***] after the date of the written
communication referred to in Section 6.4.(f) above, provided  that,
in such event, the purchase price for the PT Group Company Shares shall be
increased in the Cost of Carrying from the date of the written communication
referred to in Section 6.4.(f) above until the date such sale and transfer
of the relevant portion PT Group Company Shares takes place, unless the delay
in the sale and purchase of the relevant portion of the PT Group Company Shares
is attributable to the PT Group.

 

On the date of sale and
transfer, the PT Group shall deliver the number of the PT Group Company Shares
equal to all or a portion, as applicable, of the purchase price to be paid in
new shares in Telefónica and/or TEM to a notary and/or to the notaries in Spain
selected by TEM and/or Telefónica (if applicable), before whom the capital
increase/s will be notarized.  Telefónica
and/or TEM shall have filed, prior to the date of sale and transfer, the
prospectus for such newly issued shares with the CNMV.

 

Telefónica and/or TEM
shall, immediately after the above mentioned delivery by the PT Group, (A) seek
to obtain the granting of a Public Deed and/or the Public Deeds evidencing the
increase and/or increases in share capital in an amount equal to the value of
the newly issued shares to be delivered and declaring the subscription and
disbursement of said shares; (B) file the Public Deed with the Mercantile
Registry of Madrid to register such share capital increase and/or share capital
increases; (C) deliver a copy of the Public Deed and/or the Public Deeds to the
SCLV and cause the SCLV to credit such shares to a securities account or
accounts in Spain designated by the PT Group with the investment bank selected
in accordance with the provision of Section (B) of Exhibit II; (D) deliver
a copy of the Public Deed to the CNMV and the Madrid Stock Exchange with a
request that such shares be admitted to listing on the Spanish Stock Exchanges
as soon as practicable; and (E) cause such shares to be listed on the Spanish
Stock Exchanges.  Thereafter, as soon as
practicable, Telefónica and/or TEM shall certify to the PT Group that the
foregoing actions have been completed.

 

In the event TEM (or the
Acquirer/s) communicated to the PT Group its intention to pay all or a portion
of the PT Group Company Shares using new shares in Telefónica and/or TEM and
(i) the shareholders’ meeting of TEM and/or Telefónica does not resolve to
increase their share capital and to issue the new shares in favor of the PT
Group in exchange of the PT Group Company Shares, or (ii) such capital increase
cannot take place due to any legal restriction, the relevant portion of the PT
Group Company Shares shall be purchased and sold, and the relevant portion of
the purchase price for the PT Group Company Shares shall then be paid by TEM
and/or Telefónica in cash and/or

 

38

 

existing shares, within
10 (ten) Business Days from the date of the shareholders’ meeting of TEM and/or
Telefónica (as the case may be).

 

(i)            In
the event the consideration for the payment of all or a portion of the purchase
price for the PT Group Company Shares consist of existing and/or new shares in
Telefónica and/or TEM, certain provisions as set out in the Exhibit II will
apply in respect of said shares of Telefónica and/or TEM (as the case may be).

 

(j)            Unless
otherwise agreed by the PT Group and the TEF Group, where payment of all or
part of the purchase price for the PT Group Company Shares is made using new
shares in Telefónica and/or TEM, the sale and transfer of the PT Group Company
Shares pursuant to this Section 6.4 shall be effected at the registered
office of Telefónica in Spain.  In any
other case, unless otherwise agreed by the PT Group and the TEF Group, the sale
and transfer of the PT Group Company Shares pursuant to this Section 6.4
shall take place at the registered office of the Company in the Netherlands.

 

(k)           On
the date of sale and transfer, the PT Group shall deliver to the TEF Group
and/or its nominee or nominees:

 

(i)            the
PT Group Company Shares to TEM and/or the Person/s nominated by TEM, free and
clear of any and all encumbrances, by executing the relevant notarial deed of
transfer, (if payment is to be made totally or partially in newly issued shares
the corresponding PT Group Company Shares shall be delivered to the notary
and/or notaries as set forth in Section 6.4.(h) for granting the
corresponding Public Deed of capital increase),

 

(ii)           to
the extent the purchase price is paid in cash and/or existing Telefónica and/or
TEM shares, a receipt for the relevant purchase price payment (to the extent
the purchase price is paid, totally or partially, in new Telefónica and/or TEM
shares the corresponding receipt for the purchase price paid in new shares
shall be issued upon delivery of such new shares).

 

(l)            In
the event that the Acquirer/s elects to use Telefónica and/or TEM shares to pay
all or part of the purchase price for the PT Group Company Shares, those
Telefónica and/or TEM shares shall be valued [***].

 

(m)          Upon
the consummation of the transfer of the PT Group Company Shares in terms of
this Section 6.4, the PT Group shall be prevented from competing in the
Wireless Business for a period of one year following such transfer and from
hiring any Senior Executive employed by any Wireless Property, the Company or
any New Acquisition at any time during the 12 (twelve) month period prior to
the consummation of the transfer and that was not employed by the PT Group
before being employed by the Company, any Wireless Property or any New
Acquisition.  For the purposes of this
Section, “Senior Executive” shall mean any employee which reports directly to
the board of directors, the chief executive officer, the chief operating
officer, the chief financial officer or any equivalent manager or officer of
the Company, any Wireless Property or any New Acquisition.  The consummation of the sale and transfer of
the PT Group Company

 

39

 

Shares in terms of this Section 6.4
shall constitute full, satisfactory and final compensation to the PT Group for
its participation in the Company and in any New Acquisition.

 

(n)           In
case of a valid exercise of the PT Group Put pursuant to this Section 6.4,
the TEF Group will have a call option to purchase up to 100% of that portion of
the Global Telecom Interest still not transferred to the Company.  This call right will be governed by the
provisions of Section 1.6.1 of the Subscription Agreement, provided
that references therein to “up to 50%” will be read as references to “up
to 100%”.

 

6.5          Governance and
Dilution in the Event of Listing

 

The Groups will analyse
the advisability of applying for the listing of the Company on such stock
exchanges they consider convenient.  The
governance and dilution provisions contained in this Agreement would in that
case remain applicable to the extent legally permissible, comparing the
Interest of each Group to the total Interests that the Groups hold (directly or
indirectly) in the Company’s total issued and outstanding share capital from
time to time.

 

6.6          Listing of Holding
Companies

 

Notwithstanding Section 6.5
above, unless otherwise agreed by the TEF Group and the PT Group, neither Group
shall have the right to cause the listing on any stock exchange of any
securities in any entity which holds any Company Shares as its only significant
asset and whose operations are primarily centred in Brazil.

 

SECTION 7.         FINANCIAL POLICIES

 

7.1          Financial Policies

 

The Company’s Board of
Directors shall, from time to time adopt, by resolution, financial policies to
support the achievement of the Business Plan and the Synergies and in
compliance with the Company Growth Principles.

 

7.2          Business Plan and
Financing of the Company

 

(a)           As
between the TEF Group and the PT Group, the Groups undertake to have the Board
of Directors agree on a medium term business plan up-front which, in any event,
must allow the achievement of the Company Growth Principles and provide the
Company with cash through shareholder loans, guarantees from the Groups to
institutions lending to the Company (which guarantees may carry a fee to be
charged to the Company if agreed by both Groups), or capital contributions, all
as to be resolved by the Board of Directors from time to time, to be provided
by the Groups from time to time pro-rata to their respective Interests in the
Company’s total issued and outstanding share capital.  The contribution of a Reduced Shareholder may
be proportionally higher if such Reduced Shareholder so requests to exercise
its rights hereunder to build up to 40% (forty percent) or 50% (fifty percent)
(as the case may be) in accordance with Sections 6.2 and 6.3 its Interest in
the Company’s total issued and outstanding share capital.

 

40

 

(b)           No
Shareholder shall be under any obligation to subscribe for Company Shares to be
issued against cash, the effect on the non-subscribing Shareholder being
dilution of its interest in the Company and for the subscribing Shareholder the
right to subscribe for all or part of the Company Shares not subscribed for by
the other Shareholder.  Additionally, no
Shareholder will be under the obligation to fund the Company, or to provide
loans or parent guarantees to the Company, as set out in a Business Plan in the
event that the Directors appointed upon their nomination voted against such
Business Plan.

 

(c)           The
TEF Group and PT Group further agree that:

 

(A)          Each
Group shall use its reasonable efforts to prevent any early repayment
obligations or any other adverse consequences in respect of any third party
debt, financing, bonds, debentures, loans, credits or any other kind of
indebtedness (“Financing”)
being triggered as a result of the execution of and performance by the Parties
in terms of this Agreement and the Subscription Agreement;

 

(B)           No
early repayment obligations or any other adverse consequences in respect of any
inter-company Financing (of any Group to any of the Subsidiaries or vice versa,
or of any of the Subsidiaries to another Subsidiary), whether or not the
creditor’s rights under such Financing are assigned or otherwise transferred to
a third party, shall be triggered as a result of the execution of and
performance by the Parties in terms of this Agreement and the Subscription
Agreement; and

 

(C)           No
agreement entered into after the date hereof in respect of any Financing of the
Company or any of the Subsidiaries, shall include a provision that performance
by the parties in terms of this Agreement and the Subscription Agreement
(including without limitation the transfer to the Company of the Balance
Capital Contributions) shall be a breach of such agreement or trigger an early
repayment obligation or any other adverse consequences in respect of any
Financing of the Company or any of the Subsidiaries.

 

7.3          GAAP

 

Books and records of the
Company shall be maintained and financial reports and statements shall be
prepared in a manner to comply with the Generally Accepted Accounting
Principles as in force under Netherlands law (“GAAP”).  If
practicable, such mutually-accepted GAAP shall not affect the ability of the
Shareholders to, as permitted by applicable laws, consolidate the Company in
their respective year-end results.  Such
GAAP principles shall remain in full force and effect until the moment that it
will be allowed under Netherlands law to apply the International Accounting
Principles (“IAS”) for the
books and records of the Company, after which moment the Company will apply IAS
for its books and records.

 

7.4          Annual Budget

 

The Company shall be
operated in accordance with an annual budget adopted or amended by the Board of
Directors in terms of Section 2.6(a)(Y)(x) above.

 

41

 

7.5          Books of Account

 

Without detracting from Section 7.3,
the Company shall keep and maintain or cause to be kept and maintained books of
account and records in accordance with good accounting and business practice.  Such books and records shall be kept at the
registered office of the Company.

 

7.6          Reasonable Access

 

Each Shareholder or its
representatives shall, at its own expense and subject to the restrictions
imposed under Section 10 herein, be entitled to:

 

(i)            reasonable
access at reasonable times to, and the right to inspect and obtain copies of,
books and records under the control of the Company as well as of the
Subsidiaries, if any; and

 

(ii)           reasonable
access at reasonable times to, and the right to inspect and observe, the
operations of the Company as well as at the Subsidiaries, if any.

 

7.7          Management Fees*

 

The Shareholders shall
share the economic interest in any existing or future management contracts
signed by each Shareholder with any Wireless Property and New Acquisition.  For this purpose, no later than the day that
is fifteen days after the termination of each quarter (i.e. on April 15th,
July 15th, October 15th and January 15th)
of each year, TEM will send a notice to Portugal Telecom and Portugal Telecom
will send a notice to TEM (each, a “Management
Notice”), stating the amount in Euros effectively received (and
not only accrued or accounted for) up to such date by the Party delivering the
Management Notice from the Wireless Properties and the New Acquisitions and
corresponding to management fees and not already included in previous
Management Notices (the “Management Amount”),
provided that the first Management Notice shall be delivered by either
Party no later than on December 14th, 2004 and shall include all the
amount in Euros effectively received (and not only accrued or accounted for) by
the Parties up to such date corresponding to the management fees from January 1st,
2003 until the date of delivery of such first Management Notice.

 

In the event TEM or PT
disagrees with the Management Amount provided for in the Management Notice, the
disputing Party shall provide notice to the other Party within 10 Business Days
from the receipt of the Management Notice. 
In this event, the Management Amount shall be audited by the auditors of
the relevant Wireless Property or New Acquisition, at the request of any of the
Parties, and their decision shall be final and binding for the TEF Group and
for the PT Group.  Such audit shall be
finalized no later than 30 days after the dispute has been notified to the
auditors, and the TEF Group and the PT Group undertake to provide all the
information reasonably requested by the auditors in order to perform their
duty.

 

* Amended for the
purposes of this filing as of December 3, 2004.

 

42

 

No later than 5 Business
Days after (i) the receipt by the Parties of the Management Notice (if the
Management Amount is not disputed) or (ii) after the final decision of the
auditors of the relevant Wireless Property or New Acquisition (if the
Management Amount is disputed), the Party which has received the higher of the
Management Amounts shall pay in Euros and in immediately available funds to the
other Party fifty per cent (50%) of the difference between the two Management
Amounts, to the bank account notified by the recipient Party for that purpose.

 

The Parties will
undertake their commercial reasonable efforts to ensure that any amounts owed
to the PT Group and to the TEF Group by any Wireless Properties or New
Acquisitions deriving from management agreements entered into with them shall
be paid in accordance with the provisions of the relevant agreement.

 

7.8          Financial Services

 

The Shareholders shall
procure that the Company shall contract from the TEF Group or its Affiliates
located in Brazil (subject to the agreement with the relevant member of the TEF
Group or the relevant Affiliate) on arm’s-length and “most favoured nation”
basis the financial and administrative services that are currently provided by
the TEF Group or its Affiliates located in Brazil to the TEF Wireless
Properties which both Groups declare to be aware of, and any other financial or
administrative services which the CFO may find necessary or advisable in the future.

 

SECTION 8.         NON-COMPETITION AND BUSINESS
OPPORTUNITIES

 

8.1          Non-compete

 

Except as otherwise
expressly provided for herein or in the Subscription Agreement, each Group
shall, as long as any of its members is a shareholder of the Company, refrain
from engaging, directly or indirectly through any Affiliate (other than the
Company), in any project in the Wireless Business in competition with the
Company.

 

8.2          Wireless Business
Opportunities

 

Each Group shall and
shall procure that any of their Affiliates shall promptly, fairly and fully
disclose and offer to the Company all potential acquisitions within the scope
of the Wireless Business which come to their attention, provided that if
the Board of Directors rejects a proposal for the acquisition of an Interest in
a New Acquisition the provisions of Section 1.6.2 of the Subscription
Agreement shall apply.

 

SECTION 9.         INTERESTS IN NEW ACQUISITIONS
AND FURTHER INTERESTS IN WIRELESS PROPERTIES

 

9.1          Acquisition of
Interests in New Acquisitions and Further Interests

 

The acquisition (and
transfer to the Company) of Interests in New Acquisitions and Further Interests
in Wireless Properties shall be done in accordance with the provisions of Section 1.6
of the Subscription Agreement.

 

43

 

SECTION 10.       CONFIDENTIALITY

 

10.1        Confidential
Information

 

Each Party acknowledges
that, pursuant to this Agreement and the Subscription Agreement, it may have
access to certain information (including, without limitation, financial information
and the information contained in this Agreement and the Subscription Agreement)
made available by, and concerning the business, operations and prospects of,
any of the other Parties (a “Disclosing
Party”) which is either confidential or proprietary in nature
(each “Confidential Information”).  Each Party acknowledges and agrees that all
Confidential Information, is the property of the Disclosing Party and
constitutes valuable, special and unique assets of the business of such Party.

 

10.2        Use and Disclosure

 

(a)           Each
of the Parties (a “Receiving Party”) agrees in relation to any Confidential
Information of any other Party: (i) to use such Confidential Information solely
for the purposes contemplated in this Agreement and the Subscription Agreement,
and in facilitating the business objectives of the Company; and (ii) to keep
such information confidential and to disclose it only to officers, employees,
consultants and professional advisers and in case of a Third Party Sale as
referred to in Section 5.4 to such Third Party who (A) have a need to know
(and only to the extent that each has a need to know); (B) are aware that
the Confidential Information should be kept confidential; (C) are aware of the
undertakings in relation to such information in terms of this Agreement;
(D) have been directed by the Receiving Party to keep the Confidential
Information confidential; and (E) in case of a Third Party Sale as referred to
in Section 5.4, has executed a confidentiality agreement on terms and
conditions not less favourable than as set out in this Agreement in favour of
the Parties.

 

10.3        Duties of the Receiving
Party

 

(a)           Each
Receiving Party shall (i) establish and maintain reasonable security measures
to safeguard Confidential Information from access or use not authorised by this
Agreement; (ii) keep the Confidential Information under its control; (iii) use
reasonable best efforts to comply with any reasonable direction issued by the
owner from time to time regarding the enforcement of confidentiality requirements
including, without limitation, commencing and conducting, enforcement
proceedings; and (iv) on ceasing to be one of the Parties (A) continue to keep
confidential the Confidential Information received while a Party; and (B) at
each owner’s option, return to that owner or destroy and certify the
destruction of that owner’s Confidential Information.

 

(b)           Each
Receiving Party shall further, in relation to such Confidential Information (i)
at its own cost and expense use reasonable efforts to ensure, at all times,
that each Person to whom it discloses such Confidential Information complies
with the confidentiality obligations set out in this Agreement; (ii) at its own
cost and expense immediately notify the owner of any suspected or actual
unauthorised use, copying or disclosure of Confidential Information of that
owner of which the notifying Party becomes aware; and

 

44

 

(iii) provide such assistance
as may reasonably be requested by any owner of Confidential Information (at
such owner’s sole cost, unless the Receiving Party is in breach of its
confidentiality obligations under this Agreement) in connection with any
proceedings that the owner may initiate against any recipient or third party
for the unauthorised use, copying or disclosure of such Confidential
Information of said owner.

 

10.4        Exclusions

 

The foregoing obligations
of confidentiality shall not apply to, nor restrict the use of data or
Confidential Information which: (i) was already in the rightful possession or
control of the recipient at the time of disclosure and not subject to an
obligation of confidentiality on such party, and of which the recipient has
evidence so to prove; (ii) the recipient thereafter develops independently and
has evidence of such development; (iii) was received from a third party who was
entitled to disclosure; (iv) was necessary financial and/or other information
provided by the Party to prospective financiers and/or investors but only if
such information was given subject to the execution of the appropriate
confidentiality agreement(s) with the receiving party(ies); (v) was or became
known or available to the public or to the trade without fault of the
recipient, except that, even in such instance, the recipient shall not disclose
any correlation between such Confidential Information or techniques and any
such unrestricted information; (vi) is required to be disclosed under law or
rules applicable to the Party or as a result of a court order not subject to
appeal, provided  that insofar as possible the recipient gives the
Disclosing Party prior written notice of such disclosure so that the Disclosing
Party may intervene in the proceedings to protect the confidential nature of
the Confidential Information.

 

SECTION 11.       TERMINATION

 

11.1        Termination

 

This Agreement shall
terminate:

 

(i)            at
any time by mutual written agreement among the Parties,

 

(ii)           automatically,
upon completion of the liquidation of the Company, or

 

(iii)          automatically,
as a result of only one of the two Groups holding Company Shares, provided
that if one of the Shareholders transfers to a third party its interest in
the Company and an Assignment Agreement is executed in accordance with Section 5.4(i)
above, (A) such Assignment Agreement shall govern the relationship between the
shareholders of the Company and (B) the representations, warranties and
covenants set out in Sections 4, 5, 6, 8 and 9 of the Subscription Agreement,
shall apply with the following exceptions:

 

(x)            the
Transferring Party will be liable, indemnify and hold harmless the Non-Transferring
Party from and against all Damages asserted against or incurred, directly or
indirectly through the Company or the Subsidiaries, by the Non-Transferring
Party as a result of or arising out of any Breach; and

 

45

 

(y)           the
representations, warranties and covenants set out in Sections 4, 5, 6, 8 and 9
of the Subscription Agreement will be considered to have been made and given to
the Company and the Non-Transferring Party will be liable, indemnify and hold
harmless the Company from and against all Damages asserted against or incurred
by the Company as a result of or arising out of any Breach.

 

Unless terminated in accordance with (i), (ii), or
(iii) above, this Agreement shall be in force, valid and binding for the period
of 25 (twenty five) years calculated from the date of the execution
hereof.  In the event no Shareholder
informs the others, by written notice, of its decision not to extend the period
of this Agreement, such notice to be delivered at least 1 (one) year in
advance, this Agreement shall be extended for an additional period of 25
(twenty five) years and thereafter, subject to the same notice provision,
subsequent periods of 5 (five) years at a time.

 

11.2        Survival of Obligations
and Liabilities

 

Any termination of this
Agreement, as aforesaid, shall not relieve any Shareholder of any obligations
and liabilities accrued prior to the date of termination, and the provisions of
Section 10 shall survive for an indefinite period of time and claims under
such Section 10 may be brought at any time irrespective of the termination
of this Agreement for any reason whatsoever.

 

SECTION 12.       COVENANTS, REPRESENTATIONS AND
WARRANTIES, REGISTRATION

 

12.1        Covenants, Representations
and Warranties of the Shareholders and the Company

 

In addition to the
representations, warranties and covenants made under the Subscription
Agreement, each of the Shareholders hereby covenants, represents and warrants
to the other Parties that:

 

(A)          It
has full power and authority to enter into this Agreement and any agreement or
instrument referred to or contemplated by this Agreement and to carry out and
perform all of its obligations and duties hereunder.

 

(B)           It
has duly obtained all corporate and regulatory authorizations necessary for the
execution and performance of this Agreement and any agreement or instrument
referred to or contemplated by this Agreement and such execution and
performance and the consummation of the transaction contemplated therein
(i) will not conflict with or result in a breach of any covenants or
agreements contained in any indenture, agreement or other instrument whatsoever
to which it is a party or by which it is bound and (ii) does not contravene any
applicable laws.

 

(C)           This
Agreement has been duly executed by it and is valid, binding and enforceable
against it in accordance with the terms of this Agreement.

 

46

 

12.2        Survival of Covenants,
Representations and Warranties

 

Each of the Shareholders
acknowledges and agrees that its covenants, representations and warranties
shall survive for as long as this Agreement is in effect and shall be deemed to
have been repeated in full on the date of any Contribution as though made on
and as of such date.

 

12.3        Shareholders’ Register

 

The Shareholders and the
Company shall procure that the name of each Person owning any Company Shares
shall forthwith be entered in the shareholders’ register of the Company
together with the number of Company Shares held by such Person from time to
time.

 

12.4        Consent by the Company

 

The Company hereby
declares to have knowledge of and to consent to and to be bound by the terms
and conditions of this Agreement and the attachments to this Agreement.  The Company undertakes to file and keep one of
the counterparts of this Agreement and its attachments filed at its registered
office in the Netherlands.

 

SECTION 13.       GOVERNING LAW AND SETTLEMENT OF
DISPUTES

 

13.1        Governing Law

 

This Agreement, and any
question related to it or to its performance or consequences of any breach of
it, shall be governed by and construed in accordance with the laws of the
Netherlands.

 

13.2        Arbitration

 

(a)           If
any dispute arises in relation to this Agreement (and which shall not be
submitted to the Wise Persons Procedure in accordance with Section 4.2 of
this Agreement), then at the request of any Party the dispute shall be
submitted for final decision by arbitration to be conducted in Amsterdam, the
Netherlands under the Rules of Arbitration of the International Chamber of
Commerce.  Without prejudice of the site
of the arbitration being Amsterdam, the Netherlands and that the award must be
issued in that town, hearings and other activities during the arbitration
proceeding may be held elsewhere.

 

(b)           There
shall be 3 (three) arbitrators, with each Group appointing 1 (one) arbitrator,
who shall accept its appointment within 15 (fifteen) days, and who collectively
will select a third arbitrator as chairman within 15 (fifteen) days from the
acceptance of their appointments.  If the
two appointed arbitrators do not agree on the selection of the third
arbitrator, the third arbitrator shall be appointed by the International
Chamber of Commerce.  The International
Chamber of Commerce will also appoint the arbitrator for one Group if such
Group fails to appoint the arbitrator within 30 (thirty) days of the written
notification to such Group by the other Group of the beginning of the
arbitration proceeding.  The language to
be used in the arbitration proceedings shall be English.

 

47

 

(c)           The
Parties shall submit irrevocably to the decision of the arbitration tribunal,
giving their consent to comply with such decision and waive any other jurisdiction
which could apply.  The arbitration
tribunal shall apply the laws of the Netherlands.  The fees shall be paid by the losing party
and shall include any reasonable expenses including without limitation
attorneys fees and any expenses related with the proceeding.

 

(d)           Consistent
with the expedited nature of arbitration, each Party shall, upon the written
request of the other Parties, promptly provide the other with copies of
documents relevant to any issue of the claim or counterclaim, save to the extent
that such documents are subject to confidentiality restrictions imposed on the
first mentioned Party by a third party, or are subject to first mentioned Party’s
attorney-client privilege.  Any dispute
regarding discovery, or the relevance or scope thereof, shall be determined by
the arbitrators, which determination shall be conclusive.

 

(e)           The
Parties shall make their agents and employees available upon reasonable notice
at reasonable times at the place of arbitration without the necessity of
subpoenas or other court orders.  The
arbitrators shall issue subpoenas to compel the attendance of, and the
production of documents by, third parties witnesses at depositions or at the
hearing.

 

(f)            Information
obtained by either Group or the Company during the arbitration shall be kept
confidential and shall not be used except in connection with the arbitration
proceeding, and at the conclusion of the proceeding, the documents disclosed
shall be returned to the other Group.

 

(g)           Any
award in an arbitration initiated under this Section may include monetary
damages as well as any remedy or any specific performance of the obligations
set forth herein.

 

(h)           No
details of any arbitration award pursuant to this Section 13 shall made
public by any Party or the arbitration tribunal, and the arbitration award
shall be subject to the provisions of Section 10 above.

 

SECTION 14.       COMMUNICATIONS

 

14.1        Communications

 

For purposes of this
Agreement the Shareholders irrevocably establish the following special
domiciles, where all notices, consents, requests, instruments, approvals and
other communications provided for herein shall be in writing and shall be
deemed validly given when delivered personally or sent by fax, certified mail,
return receipt requested, postage prepaid, to the addresses below or at such
other addresses as the Shareholders shall provide by written notice as herein
provided:

 

If to Telefónica
Móviles:

 

Attn:
Mr Antonio Hornedo Muguiro

General
Counsel

Goya
24

Madrid,
Spain

 

48

 

Tel: +
(34) 91 42 34 054

Fax: +
(34) 91 42 34 016

E-mail:
hornedo_a@telefonicamoviles.com

 

If to Portugal
Telecom:

 

Attn:

Av.
Fontes Pereira de Melo, 40, 11o andar

Lisbon,
Portugal

Tel:

Fax:

E-mail:

 

If to PT
Móveis:

Attn:

Av. 5
de Outubro, 208, 4o andar

Lisbon,
Portugal

Tel:

Fax:

E-mail:

 

If to
the Company:

 

Attn:
General Manager

Strawinskylaan
3105

1077
ZX Amsterdam

The
Netherlands

 

SECTION 15.       MISCELLANEOUS PROVISIONS

 

15.1        Entire Agreement

 

This Agreement (which
includes the Annexes hereto), and the other documents and agreements delivered
in connection with this Agreement and the Subscription Agreement contain the
entire agreement among the Shareholders with respect to the transactions
contemplated herein and therein and supersede all other prior arrangements made
by any of them with respect thereto, including the Joint Venture Agreement,
except for the following provisions contemplated in the Joint Venture
Agreement: (i) the provision named as “Other Considerations”, and (ii) the last
paragraph of the provision named “HoldCo Ownership”, both of which shall remain
in full force and effect.  No
representation or warranty is made by any Party hereto with respect to the
subject matter hereof and of the Subscription Agreement, other than as expressly
set forth in any of the aforementioned documents.

 

49

 

15.2        Modification and
Amendment; Indexation

 

(a)           Subject
to Section 15.2(b), this Agreement cannot be orally changed, amended or
terminated, and no provision or requirement hereof may be orally waived.  Any change, amendment or (save as otherwise
expressly provided) termination shall only be by agreement, in writing, signed
by the Parties and any waiver shall only be effective if made in writing and signed
by the Party waiving its rights.

 

(b)           Where
reference to the amounts referred to in Sections 4.2(f) and 15.7(a), such
amounts shall be increased (or decreased) on 1 January of each year by the
average of the official general inflation index applicable in the Euro Zone on
said date, the first such increase (or decrease) to take place on 1 January 2004.

 

15.3        Waiver

 

Failure or delay on the
part of any Party hereto to exercise a right, power or privilege under this
Agreement and the Annexes hereto shall not operate as a waiver thereof, nor
shall any single or partial exercise of a right, power of privilege preclude
any other future exercise thereof.

 

15.4        Survival of Provisions

 

If any term or other
provision of this Agreement shall become invalid, illegal or incapable of being
enforced by any rule of law, or public policy, all other provisions of this
Agreement shall nevertheless remain in full force and effect.  Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the Parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the Parties as closely as possible to the extent legally
permissible.

 

15.5        Exclusive Benefit of
the Parties and the Company

 

This Agreement is solely
and exclusive for the benefit of the Parties and their respective successors
and permitted assigns, and this Agreement shall not otherwise be deemed to
confer upon or give any third shareholder or any third party any remedy, claim,
liability, cause of action or other right.

 

15.6        Bona Fide

 

The Parties acknowledge
that bona fide compliance with
this Agreement requires, in addition to the fulfilment of the specific
undertakings and obligations expressly provided for herein, that all the
Parties act in good faith and diligently in executing other actions and
decisions, and refraining from carrying out other actions or decisions, as may
be necessary or convenient for a fair, complete, prompt and adequate
implementation of all the effects that reasonably follow from (a) the common
will and purposes of the Parties in consideration of which they enter into this
Agreement, and (b) the terms used by the Parties to describe their rights and
obligations hereunder.  The Parties
expressly undertake to proceed as appropriate for the bona fide compliance with this Agreement.

 

50

 

15.7        Penalty and Delay
Interest

 

(a)           The
Shareholders agree that any significant breach by any Shareholder of any
material obligation expressly provided for herein which does not have a
specific remedy (other than damages and/or specific performance) pursuant to
this Agreement and which is not remedied within 10 (ten) Business Days after
the receipt by the defaulting Shareholder of a written notice by the other
Shareholder stating such breach, shall place the defaulting Shareholder under
the obligation to pay the other Shareholder a penalty of [***] in addition to a
full indemnification to the non-defaulting Shareholder for the damage and the
loss of profit suffered as a consequence of such breach by the other
Shareholder.

 

(b)           In
case of breach of a payment obligation, the Shareholder in breach of its
obligations shall pay the non-defaulting Shareholder a delay interest payment
calculated at the reference interest rate applied from time to time by the ECB
to the financial institutions having access to the credit facilities of the
ECB, for overnight financing in Euro, increased by 2 (two) percentage points.  The delay interest will accrue on a daily
basis and shall be paid on the last business day of each calendar month; if not
paid, the accrued interest will be added to, and capitalized to become part of
the amount then due but unpaid, and will accrue additional delay interest thereinafter.

 

15.8        Counterparts

 

This Agreement will be
executed in 5 (five) counterparts, each of which shall be deemed an original
and all of which together shall constitute and be considered one and the same
Agreement.

 

15.9        Language

 

This Agreement shall be
executed in the English language.

 

15.10      Period of Time

 

When calculating the
period of time within which or following which any act is to be done or step
taken pursuant to this Agreement, the date which is the reference date in
calculating such period shall be excluded. 
If the last day of such period is not a Business Day, the period in
question shall end on the next Business Day.

 

15.11      General Interpretation

 

In this Agreement, unless
otherwise expressly stated:

 

(a)           The
words “herein”, “hereof” and “hereunder” and other similar words for reference
purposes refer to this Agreement as a whole and not to any particular Sections
or other subdivision.

 

(b)           The
headings contained in this Agreement are for convenience and reference purposes
only and shall not affect in any way the meaning or construction of this 

 

51

 

Agreement
and are not intended to interpret, define or limit the scope, extent or intent
of this Agreement or any provision hereof.

 

(c)           Any
reference to a statute includes the regulations made pursuant thereto, all
amendments made to such statute or regulations and in force from time to time
and any statute or regulations that may be passed which have the effect of
supplementing or superseding such statute or regulation.

 

15.12      No Partnership

 

Nothing contained in this
Agreement shall be deemed to constitute either Group, the partner of the other,
nor to constitute either Group, the agent or legal representative of the other
nor to create any fiduciary relationship between the Groups.  It is not the intention of the Shareholders
to create nor shall this Agreement be construed to create any commercial or
other partnership.  Neither Shareholder
shall have any authority to act for or to assume any obligation or
responsibility on behalf of the other Shareholders except as otherwise
expressly provided herein.  The rights,
duties, obligations and liabilities of the Shareholders shall be several and
not joint or collective.  Each
Shareholder shall indemnify, defend and hold harmless each of the other
Shareholders, its directors, officers, employees, agents and attorneys from and
against any and all losses, claims, damages and liabilities arising out of any
act or any assumption of liability by the indemnifying Shareholder or any of
its directors, officers, employees, agents and attorneys done or undertaken on
behalf of the other Shareholder, except pursuant to the authority expressly
granted herein or as otherwise agreed in writing among the Shareholders.

 

15.13      Severability

 

Whenever possible, each
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Agreement is held to be prohibited by or invalid under applicable law, such
provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or this
Agreement.

 

15.14      Taxes and Expenses

 

Except as otherwise
provided in this Agreement or the Subscription Agreement, Taxes and expenses
accrued or incurred in connection with this Agreement and its fulfilment will
be paid by the Shareholder legally bound to pay the relevant tax or having
incurred the relevant expense, provided that any such Tax or expense which
is due or incurred by any of the Subsidiaries shall be paid by such
Subsidiaries.

 

15.15      IPO

 

In the event of an IPO in
respect of any Company Shares, the Parties shall in good faith negotiate
appropriate amendments to this Agreement.

 

52

 

15.16      Public Announcements

 

(a)           From
the date hereof, except as otherwise mutually agreed in writing by the Groups,
no Group shall issue any report, statement or press release or otherwise make
any public statements with respect to this Agreement and the transactions
contemplated hereby, except as may be required by law or in connection with any
applicable obligations of a publicly-held, exchange-listed company, in which
case the language of any such report, statement or press release shall be
mutually agreed to by the Groups.

 

(b)           With
respect to public communications relating to the Company, the following
principles shall apply:

 

(i)            The
Company will not [***] the financial community and [***] Investor Relations (“IR”)
team.

 

(ii)           The
Groups will coordinate and communicate any announcement concerning the Company
through their respective IR teams and Press Relations (“PR”)
teams.

 

(iii)          The
Officers will not have regular contacts with investors or analysts.  Potential meetings of the Officers with
investors and analysts will be agreed among the Groups and always [***].  The contacts with the media must be known in
advance and approved by the Groups.

 

(iv)          In
order to have [***] of the Company, the IR teams of the Groups will elaborate
the “equity story” of the Company that will be continuously updated.  This presentation, jointly with a “questions
& answers” document, that will be also updated regularly, will be the base
for any communication regarding the Company. 
In order to have the most updated information on the performance of the
Company, the Groups will maintain a direct and regular contact with the Chief
Financial Officer of the Company or with a member of his team, nominated by the
Chief Financial Officer.  This contact
could be done through a monthly conference call.

 

(v)           All
the press releases, presentations or other type of communications on the
Company will be always agreed in writing among the Groups.  The Groups will send to each other the draft
of any material communication of their respective Group mentioning the Company
(press releases, public announcements, quarterly reports, annual reports, 20-F...).  The draft will be sent by each Group to the
other Group at least 2 (two) working days prior to the announcement of the
release.  However in the event of an
annual report, 20-F, prospectus, etc., the draft will be sent by each Group to
the other Group at least 5 (five) working days prior to the announcement of the
release.

 

(vi)          All
the institutional information and official press releases must be submitted by
the PR team of the Company to the PR teams of the Groups at least 2 (two)
Business Days prior to the announcement for their eventual correction of the
same, and for their prior approval.  All
institutional and financial information regarding or referring to the Company
in the form of official communiqués (press

 

53

 

releases), presentations or
rationales which the Company (or the Groups) are obliged to use, must be
explicitly approved by the Groups.

 

(vii)         The
IR and PR departments of the Subsidiaries [***] the Company and will [***].

 

(viii)        The
Groups will decide on the single format and content of future quarterly results
releases of the Subsidiaries.

 

15.17      Joint and Several

 

The members of a Group
shall be jointly and severally liable for the obligations under this Agreement
of the Group of which it is a member. 
Each member of a Group shall be entitled to the rights under this
Agreement of the Group of which they are a member.

 

SECTION 16.       DEFINITIONS

 

16.1        Definitions

 

In this Agreement the
following capitalised terms shall have the respective meanings ascribed
thereto:

 

“Additional Capital
Contribution” means any capital contribution to the Company, including
contributions made (i) in cash or (ii) in kind in the form of Liquid Assets (if
accepted by the other Group), Interests in New Acquisitions or any Further
Interest in a Wireless Property (as the case may be), (to be) transferred by
any of the Groups after the Balance Closing, in such a manner as set forth in
this Agreement and the Subscription Agreement.

 

“Additional Closing”
means the date on which any Additional Capital Contribution is transferred to
the Company.

 

“Affiliate” means,
when used with reference to a specified Person, any other Person that directly
or indirectly Controls or is Controlled by or is under common Control with the
specified Person.

 

“Agreement” means
this Shareholders Agreement and any and all Exhibits and amendments hereto and
thereto from time to time.

 

“ANATEL” means the
Agência Nacional de Telecomunicações,
or any substitute agency, department or regulatory body of the
telecommunications industry in Brazil.

 

“Annual Budget”
has the meaning as defined in Section 7.4 of this Agreement.

 

“Articles of
Association” means the articles of association of the Company, as amended
from time to time.

 

“Balance Capital
Contributions” means (a) those Interests held by each of the PT Group and
the TEF Group in the Wireless Properties and Global Telecom (as specified in
Exhibit IV to the Subscription Agreement) and not transferred to the Company at
the Initial Closing; and (b), when applicable, the corresponding amount of cash
referred to in Section 3.1.1(b) of the

 

54

 

Subscription Agreement,
to be transferred to the Company by the Groups in accordance with Section 3
of the Subscription Agreement, and “Balance Capital Contribution” means
any one of them.

 

“Balance Closing”
has the meaning set forth in Section 3.1.1(a) of the Subscription
Agreement.

 

“Board of Directors”
means the managing board (“raad van bestuur”)
of the Company from time to time.

 

“Brazil” has the
meaning set forth in the preamble of this Agreement.

 

“Breach” has the
meaning set forth in Section 8.1 of the Subscription Agreement.

 

“Business Day”
means a day other than a Saturday, Sunday or statutory holiday in Sao Paulo,
Rio de Janeiro, Madrid, Lisbon or Amsterdam.

 

“Business Plan”
means a description in reasonable detail of the operations to be conducted and
objectives to be accomplished by the Company for a year or any longer period.

 

“Call Right” has
the meaning set forth in Section 1.6.1(a) of the Subscription Agreement.

 

“CEO” has the
meaning set forth in Section 2.8.(a) of this Agreement.

 

“Cellular Chairmen
Deadlock” has the meaning set forth in Section 4.1(a) of this
Agreement.

 

“Cellular Chairmen
Deadlock Event” has the meaning set forth in Section 4.1(b) of this
Agreement.

 

“Cellular Chairmen
Issue” has the meaning set forth in Section 4.2(f) of this Agreement.

 

“CFO” has the
meaning set forth in Section 2.8(a) of this Agreement.

 

“Chairman” has the
meaning set forth in Section 2.3(a) of this Agreement.

 

“Change of Control”
means any event or a series of events the result of which is that:

 

(a)           a
percentage of 15% (fifteen percent) or more in the total voting rights in (A)
Telefónica is directly or indirectly reached by another telecom operator which
is not acting in concert with Portugal Telecom, or (B) Portugal Telecom is directly
or indirectly reached by another telecom operator which is not acting in
concert with Telefónica; or

 

(b)           (i)            a
corporate transaction is effected by any of Telefónica or Portugal Telecom
(each in this case a “Target”) by virtue of which a number of shares is
issued such that the voting share capital of such Target is at least doubled at
the time of the approval of such transaction; and

 

(ii)           as a
consequence of such transaction there is a change in the majority of the board
members of such Target; or

 

55

 

(c)           in
case of any member of a Group or any Affiliate of any of such members (other
than Telefónica and Portugal Telecom, but including TEM and PT Móveis) which
directly or indirectly owns an Interest in the Company, a majority of the
voting rights in any such Affiliate is directly or indirectly transferred to
another telecom operator, and there is a change of the majority of the members
of the respective board of directors.

 

“Closings” means
the Initial Closing, the Balance Closing and the Additional Closings, and “Closing”
means any one of them.

 

“CNMV” means
Comisión Nacional del Mercado de Valores of Spain.

 

“Company” has the
meaning set forth in the preamble of this Agreement.

 

“Company Growth Principles”
means the principles set out in Sections 1.2(a), 1.2(b) and 1.2(c) of this
Agreement.

 

“Company Shares”
means all issued shares in the share capital of the Company, whether or not of
a specific class, and “Company Share” means any one such share.

 

“Company Shares
Exchange Ratio” has the meaning set forth in Section 1.5(b)(v)(B) of
the Subscription Agreement.

 

“Confidential
Information” has the meaning set forth in Section 10.1 of this
Agreement.

 

“Conflicted Person”
has the meaning set forth in Section 2.1(b)(i) of this Agreement.

 

“Consensus Rule”
has the meaning set forth in Section 3.5(a)(i) of this Agreement.

 

“Contributions”
means the Initial Capital Contributions, the Balance Capital Contributions and
the Additional Capital Contributions and “Contribution” means any one of them.

 

“Contribution
Valuations” has the meaning set forth in Section 1.5(b)(v)(A)of the
Subscription Agreement.

 

“Control”, “Controlled”
or “Controlling” in provisions other than those concerning “Change of
Control”, means the possession, directly or indirectly, of (i) at least 51%
(fifty-one percent) of the voting stock, and (ii) the power to direct or cause
the direction of the management and policies of, a Person or other entity
whether by means of voting rights, contracts or otherwise.

 

“COO” has the
meaning set forth in Section 2.8(a) of this Agreement.

 

“Cost of Carrying”
means:

 

(a)           in
respect of Section 3.1.2(i)(C) of the Subscription Agreement and Sections
6.2(b) and 6.3(a)(ii) of this Agreement, the financial cost, determined at the
corresponding Additional Closing, when applicable, that the Company would have
paid to raise financing to fund the value of the Contribution having caused the
dilution, as determined in the Contribution Valuation, under applicable market
financial terms and conditions,

 

56

 

unsecured and
without the support of any of the TEF Group or the PT Group.  The Cost of Carrying shall be calculated for
the period from the date of the transfer to the Company by the relevant Group
of the Contribution that caused the dilution until the Additional Closing
removing such dilution;

 

(b)           in
respect of Section 1.5(b)(v)(A) of the Subscription Agreement, the
financial cost, determined at the corresponding Additional Closing, that the
Company would have paid to raise financing to fund the value of the
corresponding Interest in a New Acquisition, as determined in the Finalised
Initial Valuation, under applicable market financial terms and conditions,
unsecured and without the support of any of the TEF Group or the PT Group.  The Cost of Carrying shall be calculated for
the period from the Acquisition Date until the Additional Closing at which such
Interest in a New Acquisition is transferred to the Company; and

 

(c)           in
respect of Section 6.4(h) of this Agreement, the financial cost,
determined at the date of the sale and purchase of the relevant portion of the
PT Group Company Shares, that TEM would have paid to raise financing to fund
the value of the corresponding portion of the purchase price for the PT Group
Company Shares.

 

“CVM” means the
Brazilian Comissão de Valores Mobiliários.

 

“Damages” or “Damage”
mean, with respect to any Person, any direct or indirect damage (including
consequential damage), loss, out of pocket expense, whether or not as a result
of, or in relation to, a third party claim, including, without limitation, all
interest, penalties, reasonable attorneys’ fees, all amounts paid or incurred
in connection with any action, demand, proceeding, investigation or claim by
any third party (including, without limitation, any Governmental Authority),
Taxes, fines or other losses as a result of, or in relation to, any Breach.

 

“Deadlock Resolution
Procedure” has the meaning set forth in Section 4.1(a) of this Agreement.

 

“Diluted Interest”
has the meaning set forth in Section 6.1 of this Agreement.

 

“Dilution Event Above
40%” has the meaning set forth in Section 6.2 of this Agreement.

 

“Dilution Event Below
40%” has the meaning set forth in Section 6.3 of this Agreement.

 

“Directors” mean
the persons who are from time to time, in accordance with this Agreement,
members of the Board of Directors and “Director” means any one of them.

 

“Disclosing Party”
has the meaning as set forth in Section 10.1 of this Agreement.

 

“ECB” means the
European Central Bank.

 

“Euro” or “€”
means the European lawful currency.

 

“Finalised Initial
Valuations” has the meaning set forth in Section 1.5(b)(ii) or Section 1.5(b)(iii)
of the Subscription Agreement (as the case may be).

 

57

 

“Financing” has
the meaning set forth in Section 7.2(c)(A) of this Agreement.

 

“First Choice
Investment Banks” and “First Choice Investment Bank” have the
meaning set forth in Section 1.4(a) of the Subscription Agreement.

 

“Further Interest in
Wireless Properties” means all new Interests in Wireless Properties, which
Interests do not form part, directly or indirectly, of the Initial Capital
Contributions or the Balance Capital Contributions, and which are directly or
indirectly acquired by any of the Groups or by both Groups after the date
hereof, (including, but not limited to, any new shares issued in capital
increases and shares acquired from third parties), and “Further Interest in
a Wireless Property” means any one of them.

 

“Further Parties”
means in respect of a Group, those wholly owned subsidiaries of such Group
which are used as intermediate holding companies for the transfer to the
Company of any Interest in any Wireless Property or New Acquisition as a
Contribution against an issuance of Company Shares to such wholly owned
subsidiaries, provided that such wholly owned subsidiaries execute this
Agreement and the Subscription Agreement and “Further Party” means any
one of them.

 

“GAAP” has the
meaning set forth in Section 7.3 of this Agreement.

 

“General Share Premium
Reserve” has the meaning set forth in Section 1.1(b) of this
Agreement.

 

“Global Telecom”
means the New Acquisition Global Telecom, S.A.

 

“Global Telecom
Interest” has the meaning set forth in Section 1.6.1(a) of the
Subscription Agreement.

 

“Governmental
Authority” means (a) the government of Brazil, Spain, Portugal, the
Netherlands, and any state, municipality or subdivision or quasi-governmental
authority of any of the same, including but not limited to courts, tribunals,
departments, commissions, boards, bureaux, agencies and other
instrumentalities; and (b) any foreign (as to Brazil) sovereign entity and any
political subdivision, quasi-governmental authority, or instrumentality of any
of the same.

 

“Group CEO’s” has
the meaning set forth in Section 4.1(a)(B) of this Agreement.

 

“Group Chairmen”
has the meaning set forth in Section 4.1(a)(B) of this Agreement.

 

“Groups” means the
TEF Group and the PT Group and “Group” means any one of them.

 

“IAS” has the
meaning set forth in Section 7.3 of this Agreement.

 

“Independent Valuation”
means an independent valuation of (i) Interests in Wireless Properties, (ii)
Interests in New Acquisitions, (iii) the Company and/or (iv) other items, (as
may be required in this Agreement or the Subscription Agreement), to be
conducted by each of the First Choice Investment Banks and, when applicable,
the Third Investment Bank and to be prepared in the form of an Initial
Valuations report, Finalised Initial Valuations report, Contribution Valuations
report, and/or a report on the Company Shares Exchange Ratio (as the case may
be), and/or as

 

58

 

otherwise may be required
in the given circumstances, such independent valuation to be conducted in
accordance with Sections 1.4 and 1.5 of the Subscription Agreement and by
applying the Independent Valuation Principles and such other guidelines and
criteria set forth in Exhibits I and II to the Subscription Agreement.

 

“Independent Valuation
Principles” means such valuation techniques to be used by the Investment
Banks and the Third Investment Bank in performing the Independent Valuations,
customary in transactions of this type, including, without limitation (a)
discounted cash flows, (b) publicly available terms of transactions involving
companies comparable to the business of the Parties and the consideration paid
in such transactions, and (c) to the extent publicly available, multiples on
comparable companies.

 

“Initial Capital
Contributions” means the Interests held in Wireless Properties and Global
Telecom, to be agreed to by the Groups in terms of Section 2.1(b) of the
Subscription Agreement, to be transferred to the Company by each of the Groups
in accordance with Section 2 of the Subscription Agreement.

 

“Initial Closing”
means the date on which the transfer to the Company of Initial Capital
Contributions is completed, as set forth in Section 2.1 of the
Subscription Agreement.

 

“Initial Valuations”
has the meaning set forth in Section 1.5(b)(i)(A) of the Subscription
Agreement.

 

“Interest” means a
direct or indirect (as the case may be) ownership interest of the PT Group
and/or the TEF Group (as the case may be) in the equity securities, whether
voting or non-voting, of the relevant Person.

 

“Investment Bank”
means each of those reputable internationally recognised investment banks,
selected from time to time as First Choice Investment Banks or as a Third
Investment Bank in terms of Section 1.4 or Section 1.5 of the
Subscription Agreement (as the case may be), whose Mandate Letters remain
effective.

 

“Joint Venture
Agreement” has the meaning set forth in the preamble of this Agreement.

 

“Just Cause” means
(a) the wilful and substantial failure by the Officer or Director, as
applicable, after notice thereof, to perform his duties and responsibilities to
the Company; (b) disloyalty, gross negligence, wilful misconduct, dishonesty or
breach of fiduciary duty to the Company; (c) the commission of an act of
embezzlement or fraud; (d) the deliberate disregard of the rules or policies of
the Company which results in a material direct or indirect loss, damage or
injury, monetarily or otherwise, to the Company; or (e) the plea of guilty to,
or conviction for, the commission of a felony by the Officer or Director, as
applicable, in any jurisdiction.

 

“Liquid Assets”
means any equity security or bond or interest-bearing security or any other
security listed on an OECD stock exchange or organized securities market to the
extent that the foregoing is expressly accepted, as to the eligibility of such
securities as well as to the value to be allocated thereto, by the Group other
than the Group transferring the relevant Contribution to the Company.

 

59

 

“Liquidation” has
the meaning set forth in Section 4.3 of this Agreement.

 

“Locked-up Price”
has the meaning set forth in Section 6.2(b) of this Agreement.

 

“Mandate Letters”
has the meaning set forth in Section 1.4(c) of the Subscription Agreement
and “Mandate Letter” means any one of them.

 

“New Acquisition”
means each legal Person which owns or beneficially holds property, rights and
other assets (including, but not limited to, licenses, concessions or
spectrum), that:

 

(a)           are
primarily used in the operation of a Wireless Business, and

 

(b)           do
not qualify as a Wireless Property,

 

which are (to be)
acquired by either one or both of the Groups or by the Company, including,
without limitation, [***].

 

“Non-Transferring
Party” has the meaning set forth in Section 5.1 of this Agreement.

 

“Offered Shares”
has the meaning set forth in Section 5.1 of this Agreement.

 

“Officers” mean
those individuals who, from time to time, are granted written proxies, to be
deposited with the relevant trade registry, to represent the Company in the
conduct of its day to day business, and “Officer” means any one of them.

 

“Parties” means
TEM, Portugal Telecom, PT Móveis, the Company and the Further Parties, and “Party”
means any one of them.

 

“Permitted Transferee”
means, in the case of a Group, any Affiliate of said Group.

 

“Person” means any
individual, company, corporation, partnership, joint venture, association,
joint stock corporation, trust, unincorporated organisation or Government
Authority.

 

“Portugal” has the
meaning set forth in the preamble of this Agreement.

 

“Portugal Telecom”
has the meaning set forth in the preamble of this Agreement.

 

“PT Group” means
Portugal Telecom, PT Móveis, the Further Parties in the PT Group and any
Permitted Transferee in relation to any of the former, if applicable, in
accordance with Section 5.2 of this Agreement.

 

“PT Group Put” has
the meaning set forth in Section 6.4 of this Agreement.

 

“PT Móveis” has
the meaning set forth in the preamble of this Agreement.

 

“PT Wireless
Properties” means the current Interests in all the Wireless Properties,
directly or indirectly held by the PT Group and which are listed in Exhibit I
to this Agreement, together with any Further Interest in a Wireless Property
acquired by the PT Group as set forth in Section 1.6.4 of the Subscription
Agreement.

 

60

 

“Put” has the
meaning set forth in Section 5.6 of this Agreement.

 

“Receiving Party”
has the meaning set forth in Section 10.2(a) of this Agreement.

 

“Reduced Shareholder”
has the meaning set forth in Section 6.1 of this Agreement.

 

“Right of First
Refusal” shall have the meaning set forth in Section 5.1 of this
Agreement.

 

“SCLV” means the
Servicio de Compensación y Liquidación de Valores, S.A.

 

“Shareholders”
means TEM, Portugal Telecom, PT Móveis, the Further Parties and any Permitted
Transferee in relation to any of the former, if applicable, in accordance with Section 5.2
of this Agreement, and “Shareholder” means any of them.

 

“Shareholders Meeting”
means a meeting of the shareholders of the Company held in accordance with the
Articles of Association, this Agreement and the Subscription Agreement.

 

“Spain” has the
meaning set forth in the preamble of this Agreement.

 

“Subscription
Agreement” has the meaning set forth in the preamble of this Agreement.

 

“Subsidiary” means
(a) any Person which is under the direct or indirect Control of the Company,
(b) any Wireless Property or New Acquisition in which the Company directly or
indirectly holds an Interest, (c) each Person in any chain of Persons holding
the aforesaid Interest in such Wireless Property or New Acquisition, and (d)
any Person which is under the direct or indirect Control of the aforesaid
Wireless Property or New Acquisition, including, without limitation, the
sub-holding companies and the operating companies that own cellular or wireless
licenses within Brazil, listed by each of the TEF Group and the PT Group in
Exhibit IV to the Subscription Agreement.

 

“Synergies” has
the meaning set forth in Section 1.3(b) of this Agreement.

 

“Tag-Along Right”
has the meaning set forth in Section 5.1 of this Agreement.

 

“Tax” or “Taxes”
mean all taxes, levies, charges or fees, including income, corporation, advance
corporation, gross receipts, transfer, excise, property, sales, use, value-added,
license, payroll, pay-as-you-earn, withholding, social security and franchise
or other governmental taxes or charges, imposed by the Netherlands, Brazil,
Spain or Portugal, or any state, county, local or foreign government, and such
term shall include any interest, penalties or additions to tax attributable to
such taxes.

 

[***].

 

“TEF Group” means
TEM, the Further Parties in the TEF Group and any Permitted Transferee in
relation to any of the former, if applicable, in accordance with Section 5.2
of this Agreement.

 

“TEF Wireless
Properties” means all the current Interests in Wireless Properties,
directly or indirectly held by the TEF Group and which are listed in Exhibit IV
to the Subscription

 

61

 

Agreement, together with
(a) any Further Interest in a Wireless Property acquired by the TEF Group as
set forth in Section 1.6.4 of this Agreement, and (b) the shares of Telesp
Celular Participações, S.A. that the TEF Group will acquire in accordance with Section 1.8
of the Subscription Agreement.

 

“Telefónica” means
Telefónica S.A., a corporation duly organized, existing and established in
accordance with the laws of Spain, with head offices at c/ Gran Via, 28,
Madrid, Spain.

 

[***]

 

“TEM” has the
meaning set forth in the preamble of this Agreement.

 

“Third Investment Bank”
has the meaning set forth in Section 1.5(b)(iii) of the Subscription
Agreement.

 

“Third Party”
means any prospective purchaser or transferee (other than a Shareholder or a
Permitted Transferee) of Company Shares, or pre-emptive rights to Company
Shares, in a bona fide, arm’s length transaction.

 

“Transfer” means
any sale, assignment, transfer (including without limitation by means of a
merger, consolidation, amalgamation, spinoff and liquidation) or other form of
disposition, whether voluntary or involuntary.

 

“Transferring Party”
has the meaning set forth in Section 5.1 of this Agreement.

 

“Vice-Chairman”
has the meaning set forth in Section 2.3(a) of this Agreement.

 

“Wireless Business”
means wireless and mobile telephone operations currently or hereafter conducted
by any Person in Brazil.

 

“Wireless Properties”
means the TEF Wireless Properties and the PT Wireless Properties and “Wireless
Property” means any one of them.

 

“Wise Persons” has
the meaning set forth in Section 4.2(a) of this Agreement.

 

IN
WITNESS WHEREOF, the Parties have duly executed this
Agreement as of the day and year first above written.

 

	
   

  	
  TELEFÓNICA
  MÓVILES, S.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  

 

62

 

	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  

 

63

 

	
   

  	
  PORTUGAL
  TELECOM, SGPS, S.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  PT
  MÓVEIS, SGPS, S.A.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  

 

 

	
   

  	
  BRASILCEL
  B.V.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  

 

64Exhibit 4.4

 

Any text removed pursuant to Portugal Telecom, SGPS, S.A.’s confidential treatment request has
been separately filed

with the U.S. Securities and Exchange Commission and is marked “[***]” herein.

 

 

SUBSCRIPTION
AGREEMENT

 

Dated as of
October 17, 2002

 

By and among

 

TELEFÓNICA
MÓVILES, S.A.,

 

PORTUGAL
TELECOM, SGPS, S.A.,

 

PT MÓVEIS,
SGPS, S.A.,

 

and

 

BRASILCEL B.V.

 

In relation to

 

BRASILCEL
B.V.

 

 

THIS AGREEMENT is
made as of October 17, 2002 by and among:

 

TELEFÓNICA
MÓVILES, S.A., a corporation duly organised, existing and
established in accordance with the laws of the Kingdom of Spain, (“Spain”), with head offices at Goya 24,
Madrid, Spain, represented herein in accordance with its bylaws (“TEM”);

 

PORTUGAL
TELECOM, SGPS, S.A., a corporation duly organised, existing
and established in accordance with the laws of Portugal (“Portugal”), with head offices at Av.
Fontes Pereira de Melo, 40, 11o andar, Lisbon, Portugal, represented herein in
accordance with its bylaws (“Portugal
Telecom”);

 

PT
MÓVEIS, SGPS, S.A., a corporation duly organised, existing
and established in accordance with the laws of Portugal, with head offices at
Av. 5 de Outubro, 208, 4o andar, Lisbon, Portugal, represented herein in
accordance with its bylaws (“PT Móveis”);

 

and

 

BRASILCEL
B.V., a private limited liability company incorporated in
accordance with the laws of the Netherlands, with corporate seat in Amsterdam
and having its address at Strawinskylaan 3105, 1077 ZX, Amsterdam, the
Netherlands, represented herein in accordance with its Articles of Association
(the “Company”).

 

Capitalised terms
used herein shall have the meaning ascribed to them in Section 16 hereto,
elsewhere in this Agreement or if not defined herein, in the Shareholders
Agreement (as defined below) unless otherwise provided for in the Shareholders
Agreement. For the avoidance of doubt, in the event of any conflict between
capitalised terms used and defined in this Agreement and capitalised terms
defined in the Shareholders Agreement, then for purposes of this Agreement, the
definitions in this Agreement shall prevail. 
Where any term is used in this Agreement, but defined in the
Shareholders Agreement, the termination of the latter agreement shall not
affect such definition.

 

2

 

RECITALS:

 

(A)          WHEREAS Portugal
Telecom, PT Móveis, Telefónica and TEM, among others, have entered into a
certain Joint Venture Agreement dated as of January 23, 2001 (the “Joint Venture Agreement”), by means of
which they confirmed their objective to build the leading wireless and mobile
telephone venture in Brazil, and to create shareholder value, as a result of
expected synergies, enhanced markets positioning and improved valuation by the
financial markets, by gathering their interests in Wireless Properties and New
Acquisitions in one sole company;

 

(B)           WHEREAS, in accordance
with the terms of the Joint Venture Agreement, the PT Group and the TEF Group
have agreed to utilise the Company to effect the Contributions and to take any
and all actions necessary to create a joint venture relationship for the
operation, ownership and management of their respective Wireless Properties and
New Acquisitions, through the Company;

 

(C)           WHEREAS, each of TEM,
Portugal Telecom, PT Móveis and Further Parties shall subscribe for all of the
Company Shares in consideration for contributing ownership interests in
Wireless Properties and New Acquisitions plus, when applicable, cash and other
Liquid Assets in accordance with the terms and conditions set forth in this
Agreement and in the Shareholders Agreement;

 

(D)          WHEREAS, in preparation
for the implementation of the joint venture contemplated in the Joint Venture
Agreement, the PT Group and the TEF Group shall, prior to the Initial Closing,
agree the value of their respective Initial Capital Contributions and shall,
prior to the Balance Closing, agree the value of their respective Balance
Capital Contributions, pursuant to which Contributions, the Groups will have
equal economic and voting ownership of the share capital of the Company
immediately after the Balance Closing and further agree that, in certain
circumstances as described herein, Independent Valuations of, among others,
their respective Additional Capital Contributions and of the Company will be
conducted;

 

(E)           WHEREAS, the Parties
have agreed to enter into this Agreement and a certain shareholders agreement
of even date hereof (the “Shareholders
Agreement”) to set forth the terms and conditions under which
each of the TEF Group and the PT Group (i) will transfer to the Company its
Contributions relating to Wireless Properties and New Acquisitions and, (ii)
until the transfer to the Company of all its Contributions relating to a
Wireless Property or New Acquisition, will, to the extent relevant and legally
permissible, operate, own and manage such Wireless Property or New Acquisition
for the benefit of the joint venture created pursuant to the Joint Venture
Agreement;

 

NOW, THEREFORE, the Parties agree as follows:

 

3

 

SECTION 1:            CERTAIN OBLIGATIONS CONCERNING
THE COMPANY, THE WIRELESS PROPERTIES AND NEW ACQUISITIONS

 

1.1       Shareholders
Agreement, Conversion of the Company and Corporate Documents

 

(a)        The
Parties shall on the date hereof duly sign the Shareholders Agreement.

 

(b)        As
soon as possible after the date hereof, but by no later than the Initial
Closing, the Shareholders shall exercise their voting rights and the Parties
shall co-operate and take such other action as is necessary to procure the
amendment of the Articles of Association in order to change the corporate
nature of the Company from a private company with limited liability (besloten vennootschap) to a limited
liability company (naamloze vennootschap)
under the laws of the Netherlands.

 

(c)        The
TEF Group and the PT Group further agree to procure that the Company
establishes a general share premium reserve for the benefit of all Shareholders
in proportion to their shareholding interest in the Company at any time (the “General Share Premium Reserve”).

 

(d)        The
Parties shall further take such actions under applicable Netherlands law as may
be necessary to ensure that the organisational documents of the Company,
including the Articles of Association, at all times conform in all respects with
Netherlands law and any other applicable laws and regulations and executed in
such a manner so as to permit the Company to fully comply with the Company
Growth Principles, as such principles are set forth in the Shareholders
Agreement.

 

(e)        The
Parties agree that the transfer to the Company of the relevant Contributions
may be made through Further Parties, each Group undertaking to procure that the
relevant Further Party execute this Agreement and the Shareholders Agreement at
the time of transferring the relevant Contributions to the Company.

 

1.2       Contribution
of Wireless Properties and New Acquisitions

 

Subject to the
provisions of this Agreement and the Shareholders Agreement, each of the
Parties confirms its objective to build the leading wireless and mobile
telephone venture in Brazil by operating solely through the Company and
otherwise to take, or refrain from taking, any actions in such a manner to
permit the Company to fully comply with the Company Growth Principles, and to
cause each of the TEF Group and PT Group to act in the same manner.  Accordingly, the TEF Group and the PT Group
shall transfer to the Company all their Interests in Wireless Properties and
any New Acquisitions made by either Group or jointly by both Groups (as the
case may be) as set forth in the Shareholders Agreement and in this Agreement.

 

1.3       50%
- 50% Joint Venture, Shareholders Agreement

 

It is the
intention of the Groups that each Group shall subscribe for and hold at all
times 50% (fifty percent) of the economic and voting interests in the Company
in exchange for

 

4

 

the transfer
to the Company of their respective Contributions.  The Parties acknowledge that the 50% - 50%
shareholding in the Company may not be achieved at all times for several
reasons.  This Agreement and the
Shareholders Agreement regulate the investments of the Groups in the Company
and in Wireless Businesses, the rights and obligations as parties to the joint
venture and vis-à-vis the
Company, and other related matters.

 

1.4       Selection
of Investment Banks

 

(a)        The
TEF Group and the PT Group have jointly retained [***] and [***], as the first
choice of Investment Banks to conduct the Independent Valuations required
pursuant this Agreement or the Shareholders Agreement (each a “First Choice Investment Bank” and
collectively the “First Choice Investment
Banks).  For purposes of
this Section it shall be considered that [***] has been appointed by the TEF
Group and that [***] has been appointed by the PT Group.

 

(b)        Save
as otherwise provided in Section 1.5(b)(iv)(A) below, the selection of any
investment banks different from the First Choice Investment Banks, either as a
result of any conflict of interest, or default, or at the request of the TEF
Group or the PT Group, shall be made pursuant to the provisions of this Section
1.4(b).

 

In the event
that an Independent Valuation is required under this Agreement or the
Shareholders Agreement, the proposing Group shall deliver to the other Group
and to the Company a notice requesting an Independent Valuation (“Independent Valuation Notice”) which
may contain its intention to substitute one or both of the First Choice
Investment Banks.  Should any of the
First Choice Investment Banks be requested to be replaced, the following will
apply:

 

(i)         If
the Group delivering the Independent Valuation Notice has shown its intention
to substitute (x) both First Choice Investment Banks or (y) the First Choice
Investment Bank appointed by it, it shall include in the Independent Valuation
Notice a list of three international investment banks from which the other
Group shall appoint a replacement Investment Bank (the “First
Group List”).

 

(ii)        If
the Independent Valuation Notice contains the intention of the delivering Group
to substitute (x) both First Choice Investment Banks or (y) the First Choice
Investment Bank appointed by the receiving Group, such receiving Group shall
deliver, within 5 (five) Business Days from the receipt of the Independent
Valuation Notice, a list of three international investment banks from which the
other Group shall appoint a replacement Investment Bank (the “Second Group List”).

 

(iii)       In
any other event, even if the Independent Valuation Notice does not contain the
intention of the delivering Group to substitute any or both of the First Choice
Investment Banks, the receiving Group, within 5 (five) Business Days from the
receipt of the Independent Valuation Notice, may submit a Second Group List (if
it desires to substitute its First Choice Investment Bank) and/or require the
other Group to submit a First Group List (if it desires to substitute the First
Choice Investment Bank of the other Group); provided that, in this
latter case, within the following 5

 

5

 

(five) Business Days, the Group delivering
the Independent Valuation Notice shall submit to the other Group the First
Group List.

 

(iv)       The
First Group List and the Second Group List shall exclude any investment bank
which, (x) owns, or at any time after the date hereof will have owned, a
significant direct or indirect interest in the capital or (y) has, or at any
time after the date hereof will have had, one or more representatives in the
board of directors of any of the Groups or in the board of directors of, any of
the Wireless Properties or New Acquisitions of the Group providing such list.

 

(v)        Failure
by one of the Groups to timely send the First Group List or the Second Group
List shall be deemed (x) as an acceptance of any of the names contained in the
list provided by the non-defaulting Group and an implied authorisation for the
non-defaulting Group to select any of such names to be an Investment Bank for
the purposes hereunder, or (y) if no list has been delivered by the
non-defaulting Group, as an authorisation for such non-defaulting Group to
elect any internationally recognised investment bank as the First Choice
Investment Bank of the defaulting Group.

 

(vi)       The
Group receiving the First Group List or the Second Group List shall select one
name to be its choice of Investment Bank. 
Such selection shall be binding on the other Group and shall be made and
notified to the other Group and the Company no later than 5 (five) Business
Days after the receipt of the First or the Second Group List (as the case may
be).  The Investment Bank chosen by one
Group within the list provided by the other Group shall be considered, from
time to time, the First Choice Investment Bank appointed by this latter Group.

 

(vii)      Failure
by a Group to timely select an Investment Bank from the First or the Second
Group List, as applicable, shall be deemed as an acceptance of any of the
investment banks contained therein and an implied authorisation for the other
Group to select any of such investment banks to be an Investment Bank for the
purposes hereunder.  The Investment Bank
shall be considered the First Choice Investment Bank appointed by the
defaulting Group.

 

(c)        No
later than 15 (fifteen) Business Days from the later of the date of (i) the
receipt of the Independent Valuation Notice, or (ii) if applicable, the
selection of the later First Choice Investment Bank selected in accordance with
Section 1.4(b) above, the Company shall take any and all actions as may be
required to complete the retaining by the Company of the First Choice
Investment Banks, including obtaining the necessary corporate approvals,
executing the relevant mandate letters (the “Mandate
Letters”) and issuing letters of instruction from time to time,
and shall otherwise correspond with the First Choice Investment Banks (the PT
Group and the TEF Group undertaking not to correspond with the Investment
Banks).  The Groups shall procure that
the Company complies with its foregoing obligations.

 

(d)        If
the Company fails to execute the relevant Mandate Letters, then such Mandate
Letters shall be executed and all other correspondence shall be undertaken:

 

6

 

(i)         in
the case of an Independent Valuation in terms of Section 1.6.1(d)(ii)(D) below,
by a Party in the TEF Group;

 

(ii)        in
the case of the acquisition of the relevant Interest in a New Acquisition
pursuant to Section 1.6.2 below, by a Party in the Group which nominated the
Directors that voted in favour of the acquisition;

 

(iii)       in
the case of the acquisition of a Further Interest in a Wireless Property
pursuant to Section 1.6.4(e)(i) below, by a Party in the Lead Group;

 

(iv)       in
the case of an Independent Valuation in terms of Section 7.2 below, by a Party
in the Group exercising the right to gradually buy;

 

(v)        in
the case of an Independent Valuation in terms of Section 7.3(a) below, by a
Party in the Non-Defaulting Group;

 

(vi)       in
the case of an Independent Valuation required in terms of Section 4.3(c) of the
Shareholders Agreement, by a Party in either Group;

 

(vii)      in
the case of an Independent Valuation required in terms of Section 5.6 of the
Shareholders Agreement, by a Party in the Group exercising the Put; and

 

(viii)     in
the case of an Independent Valuation required in terms of Section 6.4 of the
Shareholders Agreement, by a Party in the PT Group,

 

(in each such
case, the other Group and the Company undertaking not to correspond with the
First Choice Investment Banks), provided that, in the event that the
Directors, nominated by the Group which has the authority pursuant to the
foregoing to execute the relevant Mandate Letters, in any way prevented the
execution by the Company of the relevant Mandate Letters, then a Party in such
Group shall not have the authority to execute the relevant Mandate Letters and
the relevant Mandate Letters shall then be executed by a Party in the other
Group.

 

(e)        Each
Mandate Letter shall contain, inter alia, (i) details of the fees to be paid to
the First Choice Investment Bank, which in any case should be according to
market practice (ii) a requirement for the First Choice Investment Bank to
commence each required Independent Valuation as soon as possible thereafter,
but in any event within 45 (forty-five) days from the date of the Mandate
Letter, to complete such Initial Valuation, as defined below, (iii) an
indication to follow the Independent Valuation Principles and the guidelines
and criteria set forth in Exhibit I hereto, (iv) a financial adjustment
methodology to calculate the Contribution Valuations as set forth in Exhibit II,
and (v) in respect of an Independent Valuation of an Interest in a New
Acquisition, the requirement to conduct a due diligence review (legal, tax and
accounting) to be made by independent experts engaged in conjunction with the
other selected First Choice Investment Bank, the cost of which shall be
included in the fees to be paid to the First Choice Investment Banks.

 

7

 

(f)         The
fees charged by the First Choice Investment Banks for conducting Independent
Valuations shall be paid by the Party executing the Mandate Letters, provided
that:

 

(i)         if
the Company has not executed the relevant Mandate Letters, then in the case of
an Independent Valuation required in terms of Section 1.6.2 below, Section
1.6.4(e)(i) below, or Section 4.3(c) of the Shareholders Agreement (as the case
may be), the Company shall forthwith reimburse such Party for such fees;

 

(ii)        if
the Company has executed the relevant Mandate Letters, then in the case of an
Independent Valuation required in terms of Section 7.2 below, each Group shall
forthwith reimburse the Company for the fees paid to its First Choice
Investment Bank, and if a Party in one of the Groups has executed the relevant
Mandate Letters, the other Group shall reimburse the relevant Party in the
firstmentioned Group for the fees paid to the other Group ́s First Choice
Investment Bank;

 

(iii)       in
the case of an Independent Valuation in terms of Section 7.3(a), if a Party in
the Non-Defaulting Group has executed the relevant Mandate Letters, then the
Defaulting Group shall reimburse the relevant Party in the Non-Defaulting
Group, and if the Company has executed the relevant Mandate Letters, the
Defaulting Group shall reimburse the Company;

 

(iv)       in
the case of an Independent Valuation required in terms of Section 5.6 of the
Shareholders Agreement, if the Target Shareholder has not executed the relevant
Mandate Letters, the Target Shareholder shall forthwith reimburse the Party
which executed the Mandate Letters; and

 

(v)        in
the case of an Independent Valuation required in terms of Section 6.4 of the
Shareholders Agreement, if a Party in the PT Group has not executed the
relevant Mandate Letters, the PT Group shall forthwith reimburse the Party
which executed the Mandate Letters.

 

(g)        If
applicable, the fees charged by the Third Investment Banks for conducting
Independent Valuations, shall be shared by the Groups equally.

 

1.5       Independent
Valuation

 

(a)        The
Initial Valuations, the Finalised Initial Valuations, the Contribution
Valuations and the Company Shares Exchange Ratio as defined below, prepared by
the Investment Banks, and, when applicable, by the Third Investment Bank, shall
be evidenced by a written report to be delivered to the Groups and the Company.  The Initial Valuations shall be expressed in
US Dollars and thereafter shall be converted into Euro by using the average
exchange rate for the 10 (ten) day trading period prior to the date of such
valuations.  The reference exchange rate
will be the official fixing for USD/EUR published by the ECB in the Reuters
Screen ECB37, or any other Reuters screen that in the future may substitute it
for the relevant fixing rate.

 

8

 

(b)        When
an Independent Valuation of a Further Interest in a Wireless Property or an
Interest in a New Acquisition (as the case may be) is required under this
Agreement or the Shareholders Agreement in order to transfer such relevant
Interest to the Company as a Contribution, the following specific rules will
apply:

 

(i)         (A)       The
acquiring Group will have the option to require the Independent Valuations to
be conducted before or immediately after the date of the signing of a binding
agreement for the acquisition of the Interest in a New Acquisition or of the
Further Interest in a Wireless Property (the “Acquisition
Date”).  The acquiring
Group shall send the Independent Valuation Notice to the other Group and the
Company as set forth in Section 1.4 above to initiate the process of such
Independent Valuation. The Investment Banks shall determine the (X) equity
value of such Further Interest in a Wireless Property or of such Interest in a
New Acquisition (as the case may be), and (Y) equity value of the Company as if
(x) the Balance Capital Contributions had already been transferred to the
Company and (y) such relevant Interest had not yet been transferred to the
Company, (such valuations collectively referred to as the “Initial
Valuations”).

 

(B)       In
the case of an Independent Valuation of an Interest to be acquired in a New Acquisition,
the Initial Valuations shall reflect the adjustments (if any) arising as a
result of the due diligence conducted by the independent experts according to
the relevant Mandate Letters.

 

(C)       In
the event that the Initial Valuations have been requested before the
Acquisition Date, they shall be required to be delivered and reflect the
corresponding values at a date within the 4 (four) months before such
Acquisition Date, provided that if:

 

(X)          the
Initial Valuation reflects the value of the relevant Interest in a New
Acquisition (or in a Further Interest in a Wireless Property which is acquired
other than through a tender offer or a capital increase) at a date which is
more than (1) one month prior to the Acquisition Date; or

 

(Y)           the
Initial Valuation reflects the value of the relevant Interest in a New
Acquisition (or in a Further Interest in a Wireless Property which is acquired
other than through a tender offer or a capital increase) at a date which is 1
(one) month, or less, prior to the Acquisition Date, and the average of the
Fixing R$ / € exchange rate (calculated as the result of multiplying the
exchange rate USD / R$ PTAX Ask fixed by the Brazilian Central Bank (ticker
Bloomberg:  BZFXPTAX Index), by the
exchange rate € / USD fixed by the ECB (Reuters Screen ECB37) on the applicable
date) during the 10 (ten) days period prior to each of (x) the reference date
used for the Initial Valuation and (y) the Acquisition Date, differ by 20%
(twenty percent) or more of the lower of them,

 

9

 

then the exchange rate
projections of the Initial Valuation of the relevant Interest in a New
Acquisition (or in a Further Interest in a Wireless Property which is acquired
other than through a tender offer or a capital increase) shall be adjusted, if
necessary, at the Acquisition Date in order to reflect the average of the
Fixing R$ / € exchange rate during the ten days period prior to the Acquisition
Date.

 

(D)       In
the event that the Initial Valuations have been requested after the Acquisition
Date, they shall be required to reflect the corresponding values at the
Acquisition Date.

 

(ii)        Should
one Investment Bank’s (A) Initial Valuation of the Interest in a New
Acquisition or the Further Interest in a Wireless Property (as the case may
be), and/or (B) Initial Valuation of the Company, differ by (x) €100 million
(one hundred million Euro) or less, or (y) 10 (ten) percentage points or less,
of the applicable lowest of the Initial Valuations, the difference will be
halved and the result respectively added to the lower of the relevant Initial
Valuation and deducted from the higher of the relevant Initial Valuation (such
Initial Valuations after, if applicable, the aforesaid adjustment, referred to
as the “Finalised Initial Valuations”);

 

(iii)       Should
one Investment Bank’s (A) Initial Valuation of the Interest in a New
Acquisition or the Further Interest in a Wireless Property (as the case may
be), and/or (B) Initial Valuation of the Company, differ by more than (x) €100
million (one hundred million Euro) or (y) 10 (ten) percentage points of the
applicable lowest of the Initial Valuations, the TEF Group and the PT Group
shall jointly retain the services of a third investment bank (“Third Investment Bank”) to conduct
an Independent Valuation of the relevant Interest and/or the Company (as the
case may be) and to determine the applicable Initial Valuation(s) (in each case
the “Finalised Initial Valuation” and
collectively the “Finalised Initial
Valuations”) within the range determined by the Investment Banks
in their respective Initial Valuations. 
As soon as possible, but in any event within 15 (fifteen) days after
delivery of a Mandate Letter, the Finalised Initial Valuation shall be provided
by the Third Investment Bank.

 

(iv)       The
Third Investment Bank shall be selected in accordance with to the following
rules:

 

(A)       The
Third Investment Bank shall be appointed by mutual agreement between the
Groups, which Groups shall jointly sign the relevant Mandate Letter, or,
failing the Groups reaching such an agreement within 15 (fifteen) days
following receipt of the relevant Initial Valuations, any of the Groups shall
cause the Investment Banks to appoint the Third Investment Bank and sign the
relevant Mandate Letter (such Mandate Letter to be issued in accordance with
this Section 1.5(b)(iv) with substantially the same the terms and conditions of
the relevant Mandate Letters issued to the First Choice Investment Banks), and
should the Investment Banks fail to make such appointment within 15 (fifteen)

 

10

 

days following written request by any of the
Groups, the Groups shall refer the selection of such Third Investment Bank to
arbitration in terms of Section 10.2 of this Agreement.  Any selection by either the Investment Banks
or the arbitrators shall be final and binding on the Groups.

 

If, either as a result of a
conflict of interest, default or otherwise, or by mutual agreement between both
Groups, the Third Investment Bank appointed in terms of this Section
1.5(b)(iv)(A) is prevented from acting as the Third Investment Bank for the
purposes of this Section 1.5, a replacement Third Investment Bank shall be
appointed mutatis mutandis in
accordance with this Section 1.5(b)(iv)(A).

 

(B)       In
performing its own Independent Valuation as required under this Section 1.5,
the Third Investment Bank shall abide by the same Independent Valuation
Principles and other relevant provisions of this Section 1.5 concerning the
performance of the Independent Valuation.

 

(v)        As
soon as possible, but in any event within 15 (fifteen) days after delivery of a
letter of instruction, the two Investment Banks, acting jointly, shall:

 

(A)       adjust
the Finalised Initial Valuations at the time of transfer to the Company of such
Further Interest in a Wireless Property or Interest in a New Acquisition (as
the case may be), (x) using the financial adjustment methodology described in
Exhibit II hereto and (y) in the case of an acquisition of an Interest in a New
Acquisition, taking into account the applicable representations, warranties and
indemnities received in respect of such Interest, provided that the
Finalised Initial Valuation of the Interest in a New Acquisition shall also be
accrued with the Cost of Carrying (such adjusted and/or accrued Finalised
Initial Valuations referred to as the “Contribution Valuations”);
and

 

(B)       determine
the applicable number of Company Shares to be issued against the relevant
Contribution using the following formula: r/(s/t), where “r” is the
Contribution Valuation of such Further Interest in a Wireless Property or
Interest in a New Acquisition (as the case may be), “s” is the Contribution
Valuation of the Company and “t” is the number of Company Shares issued and
outstanding on the date of the Contribution Valuation (the “Company Shares Exchange Ratio”).

 

(c)        In
any other event, (other than an Independent Valuation in respect of a Further
Interest in a Wireless Property or of an Interest in a New Acquisition in order
to transfer them to the Company as Contributions) when an Independent Valuation
is required under this Agreement or the Shareholders Agreement, the rules
contained in this Section 1.5 shall apply mutatis mutandis.

 

11

 

1.6       New
Acquisitions and Further Interests in Wireless Properties

 

1.6.1    Global
Telecom

 

(a)        It
is recorded that the PT Group through Telesp Celular Participações, S.A., (i)
has already acquired an Interest, and (ii) has the right to acquire the
remainder of the ownership interests in the New Acquisition, Global Telecom
(the total ownership of Global Telecom, as described in Exhibit IV, referred to
as the “Global Telecom Interest”). The
Parties agree that the TEF Group shall have a call right to purchase from the
PT Group up to 50% (fifty percent) of the Global Telecom Interest at the
Acquisition Price paid therefor by the PT Group in terms of the GT Acquisition
Agreement (the “Call Right”),
the Call Right being exercisable (in whole or in part and on one or more
occasions) until the transfer in full to the Company of the Global Telecom
Interest, provided that:

 

(i)         the
Call Right shall be enforceable in respect of the Global Telecom Interest to
the extent not yet transferred to the Company and, subject to Section 1.6.1(b)
below, also in case of (A) Liquidation of the Company (pursuant to Section 4.3
of the Shareholders Agreement), (B) exercise of the Put in case of Change of
Control (pursuant to Section 5.6 of the Shareholders Agreement), (C) exercise
of the PT Group Put (pursuant to Section 6.4 of the Shareholders Agreement) and
(D) termination of this Agreement or the Shareholders Agreement, for reasons
other than the default of the TEF Group, (pursuant to Section 7 below or
Section 11 of the Shareholders Agreement); and

 

(ii)        the
provisions set forth in Section 1.6.1(a)(i) above shall be applicable without
prejudice to the rights of the Parties pursuant to this Agreement and the
Shareholders Agreement in respect of that part of the Global Telecom Interest
that has already been transferred to the Company.

 

(b)        In
the circumstances referred to in Section 1.6.1(a)(i)(A), (B), (C), and (D)
above, other than in the event of termination set forth in Sections 7.2 and 7.3
below, the Call Right shall be exercisable until the expiration of a period of
2 (two) months from the time when both Groups acknowledge that the relevant
event has occurred or, if no such acknowledgement has been issued in writing by
both parties, from the time when the occurrence of the relevant event has been
declared in a final decision pursuant to the relevant dispute resolution
procedure set out in this Agreement or the Shareholders Agreement.

 

(c)        After
the TEF Group has given notice of its intention to exercise the Call Right, the
transfer of the relevant portion of the Global Telecom Interest shall be
consummated as soon as permissible under regulatory provisions.

 

(d)        (i)          The
Parties agree that (A) the Call Right and (B) any other right of the TEF Group
with respect to the Global Telecom Interest already transferred to the Company,
shall be exercisable over up to 50% (fifty percent) of the Global Telecom
Interest (the PT Group to procure that Telesp Celular Participações, S.A. and
each company in the chain of companies holding said Interest abides by this
Agreement so as to enable the PT Group to fulfil its obligation hereunder to
the TEF Group).

 

12

 

(ii)        If:

 

(A)       the
PT Group for any reason (other than as a result of the failure by the TEF Group
to timely comply with its obligations set forth in this Section 1.6) fails to
cause Telesp Celular Participações, S.A. to deliver the relevant portion of the
Global Telecom Interest, (x) in the case where payment for the acquisition
thereof is to be made in cash and/or existing TEF shares and/or existing TEM
shares, within 2 (two) months after the TEF Group has given notice of its
intention to exercise the Call Right, or (y) in the case where payment for the
acquisition of the Global Telecom Interest is to be made using new TEF shares
and/or new TEM shares, on the date on which such new shares are tendered for
delivery, or

 

(B)       delivery
of the relevant portion of the Global Telecom Interest is prevented due to
legal or regulatory restrictions,

 

then the Call Right may be exercised against the PT Group, at the
option of the TEF Group, over such percentage in the share capital of Telesp
Celular Participações, S.A. as the value of the relevant portion of the Global
Telecom Interest represents in the value of Telesp Celular Participações, S.A.,
provided that, if shares of Telesp Celular Participações, S.A. were to
be delivered, then:

 

(C)       the
equity participation subject to the rights of the TEF Group shall comprise
voting and non-voting shares in the same proportionality as the PT Group holds
in each class of shares in Telesp Celular Participações, S.A.; and

 

(D)       (x)
the value of the relevant portion of the Global Telecom Interest shall be the Acquisition
Price paid therefor by the PT Group in terms of the GT Acquisition Agreement,
and (y) the value of Telesp Celular Participações, S.A. shall be defined
pursuant to an Independent Valuation (which shall include, as valuation of
Global Telecom, the Acquisition Price of the Global Telecom Interest in terms
of the GT Acquisition Agreement) as regulated in this Agreement at the time of
the exercise of the Call Right and other rights by the other Group.  Both values shall be compared for determining
the percentage which the value of the relevant portion of the Global Telecom
Interest represents in the value of Telesp Celular Participações, S.A.

 

(e)        The
TEF Group may elect to pay the consideration for the acquisition of the
Interests in Global Telecom (or in Telesp Celular Participações, S.A., as the
case may be) in cash, TEM shares, TEF shares or a combination thereof.  In the event of payment in TEM and/or TEF
shares, the relevant provisions of Section 6.4 of the Shareholders Agreement
shall apply.

 

(f)         In
the event of exercise by the TEF Group of the Call Right: (i) the Interests in
Global Telecom (or in Telesp Celular Participações, S.A., as the case may be)
shall be transferred to the TEF Group freely tradable, free of any liens,
rights in favour of third parties and other encumbrances, and (ii) the PT Group
shall give to the TEF Group (x) to the extent

 

13

 

that same relate to the Interests in Global
Telecom transferred to the PT Group, the same representations, warranties and
indemnities which it received under the GT Acquisition Agreement (the foregoing
to apply except in the case where shares in Telesp Celular Participações, S.A.
are received by the TEF Group in terms of Section 1.6.1(d) above), and (y) to
the extent that same relate to Global Telecom (or Telesp Celular Participações,
S.A., as the case may be), the same representations and warranties referred to
in Section 5 of this Agreement.

 

1.6.2    New
Acquisitions pursuant Section 8.2 of the Shareholders Agreement

 

(a)        It
is hereby further agreed that the acquisition after the date hereof of any and
all Interests in a New Acquisition shall be negotiated and carried out by the
Company.  Without detracting from the
foregoing, if, notwithstanding Section 8.2 of the Shareholders Agreement, the
Company, acting through its Board of Directors, after reviewing the
corresponding proposal for the acquisition of an Interest in a New Acquisition,
which shall include a price range (the “Price Range”),
fails for any reason attributable to it to acquire the relevant business
opportunity, the Group which nominated the Directors who affirmatively voted on
such proposal shall have the right, but not the obligation, to acquire the
business opportunity as the acquisition of an Interest in a New Acquisition.

 

(b)        If
the Group which nominated the Directors who voted in favour of the acquisition
decides to acquire such Interest in a New Acquisition, an Independent Valuation
shall be required as set forth in Sections 1.4 and 1.5 above.

 

(c)        If
such Group negotiates an acquisition price lower than the Price Range, it must
submit such new proposal to the Company and if the Board of Directors does not
approve such proposal, said Group will have the right, but not the obligation,
to acquire the relevant Interest in the New Acquisition.

 

(d)        Immediately
after the acquisition of the Interest in the New Acquisition by a Group in
accordance with this Section 1.6.2, such Group will start an arbitration
procedure in terms of Section 10.2 below in order to determine if the relevant
Interest in the New Acquisition is within the Company Growth Principles (as set
out in Section 1.2(a) and (b) of the Shareholders Agreement) and, if so
determined, the Parties undertake to procure the transfer of the Interest in
the New Acquisition to the Company.  In
the event that the decision of the arbitration tribunal states that the
relevant Interest in the New Acquisition is not within the Company Growth
Principles as set forth in Section 1.2(a) and (b) of the Shareholders
Agreement, such Interest will not be transferred to the Company and the
acquiring Group may continue holding such Interest subject to Section 8.1 of
the Shareholders Agreement.

 

(e)        For
accounting purposes, the value of such Interest in the New Acquisition will be
determined in accordance with the Generally Accepted Accounting Principles as
in force under Netherlands law (“GAAP”)
until the moment that the International Accounting Standards (“IAS”) may be applied under
Netherlands law, in which case the IAS will be applied, all as effective as at
the corresponding Additional Closing.

 

14

 

1.6.3    Common
Conditions to the New Acquisitions and Wireless Properties

 

(a)        The
Parties agree that (i) New Acquisitions and Wireless Properties shall not be
required to be kept and maintained as separate legal entities, and (ii) New
Acquisitions and Wireless Properties may merge, consolidate or amalgamate,
either between them or with any other Person, before or after the transfer to
the Company of the Interest acquired in the New Acquisition or Wireless
Property, (as the case may be), provided that, prior to any of the same
occurring and as a condition precedent thereto, the Board of Directors shall
approve such action in accordance with Section 2.6(a)(Y)(ii) of the
Shareholders Agreement and the Shareholders, after a non-binding proposal
submitted by the Board of Directors, shall be required to agree in each
specific case on the appropriate adjustments to be made (x) to the division of
assets on Liquidation of the Company in terms of Section 4.3 of the
Shareholders Agreement and (y) to the Put in Section 5.6 of the Shareholders
Agreement).

 

(b)        In
any case, (i) the operational control of the New Acquisitions shall be kept
with the Group that acquired the acquisition of the Interest in the New
Acquisition until the thus acquired Interest is fully transferred to the
Company, and (ii) the operational control of the Wireless Properties shall be
kept with the Group Controlling the relevant Wireless Properties until the
Balance Closing.

 

1.6.4    Further
Interests in the Wireless Properties

 

(a)        The
acquisition of any Further Interest in a Wireless Property, shall, after the
Balance Closing, be carried out only by the Company and neither Group shall
(have the right to) acquire any Further Interest in a Wireless Property.

 

(b)        The
Parties record that until the Balance Closing, each Group (the “Lead Group”) shall have the right,
but not the obligation, to acquire, directly or indirectly, any Further
Interest in any of its Wireless Properties, provided that the Lead Group
shall offer the other Group (the “Other Group”)
the right to acquire 50% (fifty percent) of the Further Interest in a Wireless
Property proposed to be acquired, at the Acquisition Price to be paid by the
Lead Group for said portion of the Further Interest in a Wireless Property (the
“Further Interest Acquisition Price”).
The portion of the Further Interest in a Wireless Property acquired by the
Other Group will be considered as a Wireless Property of such Other Group.  The obligation to offer the other Group the
possibility of acquiring 50% of the Further Interest in a Wireless Property
shall not apply in the event of the acquisition of a Further Interest in a Wireless
Property through a capital increase in which no new assets are contributed to
the relevant Wireless Property.

 

(c)        Before
the consummation by either Group of the acquisition of any Further Interest in
a Wireless Property, the Lead Group shall give written notice to the Other
Group (i) informing it about the Further Interest Acquisition Price and all
other relevant terms and conditions of the transaction, and (ii) requesting the
Other Group to indicate whether it wishes to acquire the 50% (fifty percent)
Interest referred to in Section 1.6.4(b) above on the aforesaid terms and
conditions.  The Other Group shall have
15 (fifteen) days after the receipt of the aforesaid notice, to inform in
writing the Lead Group of its decision. 
In the

 

15

 

absence of any response within the
aforementioned period, the Other Group shall be deemed to have decided not to
execute such transaction.

 

(d)        If
the Other Group decides to execute such transaction on the terms and conditions
referred to in Section 1.6.4(c)(i) above, both Groups shall use their best
efforts to agree if the Other Group will participate as a co-acquirer in the
relevant acquisition agreement and/or other relevant documents relating to the
acquisition of the Further Interest, or will acquire the relevant Interest from
the Lead Group.

 

(e)        If
the other Group decides not to acquire the 50% (fifty percent) of the Further
Interest in a Wireless Property, or if the Groups fail to agree as set out in
Section 1.6.4(d) above, the Lead Group shall have the right, but not the
obligation, to acquire the Further Interest in a Wireless Property, as well as,
if such acquisition is finally performed, the obligation to then transfer it to
the Company.  In any event, the Parties
undertake to take all the necessary actions to transfer to the Company such
Further Interest in a Wireless Property. 
Such transfer shall be performed in accordance with the following
provisions:

 

(i)         Each
Further Interest in a Wireless Property acquired under this Section 1.6.4
shall, subject to the conditions set forth herein, be transferred to the
Company as an Additional Capital Contribution as soon as possible after the
Balance Closing, at the Company Shares Exchange Ratio determined in accordance with
the provisions of Section 1.5 above. 
Accordingly, the Lead Group shall request the Independent Valuation set
forth in Sections 1.4 and 1.5 above by sending an Independent Valuation Notice
to the other Group, provided that, if the Further Interest in a Wireless
Property is acquired in terms of a capital increase (other than capital
increases against reserves, capitalization of “agios”,
or by any other means which does not imply contribution of new assets to the
relevant Wireless Property) or a tender offer, the Acquisition Price of such
Further Interest in a Wireless Property will serve as the Finalised Initial
Valuation of such Further Interest, converted into a Euro amount, calculated
using the average of the Fixing R$ / € exchange rates applicable on each of the
days from the commencement date to the last day, both days inclusive, of (x)
the subscription period relating to the aforementioned capital increase or (y)
the tender offer period (as the case may be). 
Such Fixing exchange rate will be the result of multiplying the exchange
rate USD / R$ PTAX Ask fixed by the Brazilian Central Bank (ticker Bloomberg:
BZFXPTAX Index), by the exchange rate € / USD fixed by the ECB (Reuters Screen
ECB37) on the applicable date.  In the
event of the acquisition of a Further Interest in a Wireless Property through a
capital increase against reserves, capitalization of “agios”,
or by any other means which does not imply contribution of new assets to the
relevant Wireless Property, the provisions of Sections 3.1.1(b) or 3.1.1(c)
above (as the case may be), shall apply.

 

(ii)        In
the event that the Further Interest in a Wireless Property is acquired in terms
of a capital increase by the Wireless Property and the Company decides not to
exercise its pre-emptive rights, the Company, to the extent legally
permissible, will transfer to the Lead Group such pre-emptive rights, provided
that, after such capital increase is effected, the percentage shareholding
of the Company and the acquiring Group in the

 

16

 

relevant Wireless Property must, in the
aggregate, not decrease and, accordingly, the Lead Group shall be obliged to
exercise so many of the pre-emption rights as is necessary to ensure that the
aggregate percentage shareholding of said Group and the Company in the relevant
Wireless Property does not decrease.

 

(iii)       For
accounting purposes, the value of such Further Interest will be determined in
accordance with the GAAP until the moment that the IAS may be applied under
Netherlands law, in which case the IAS will be applied, all as effective as at
the Additional Closing.

 

(f)         Each
of the PT Group and TEF Group expressly agree that all action taken by them in
exercising their rights and performing their obligations under this Section
1.6.4, shall be done in compliance with all applicable laws of Portugal, Spain,
Brazil, the U.S.A. and The Netherlands, and any other laws or regulations that
may be applicable.

 

1.7       Tax
Optimisation of the Contributions

 

(a)        The
Parties agree that it is in their best interest that all Contributions provided
for herein be transferred by each of them to the Company in the most tax
efficient manner vis-à-vis the
Company and the Party transferring any such Contribution.  The Parties will use their best efforts to
agree upon the most tax efficient manner for such transfer.  In the event the Parties do not agree on such
most tax efficient manner within a reasonable period of time, the Party that
transfers a Contribution to the Company in a manner which is not considered the
most tax efficient manner vis-à-vis
the Company, shall promptly reimburse the Company for any amounts of any taxes
and related costs payable and incurred by the Company as a result of such tax
inefficient transfer.  Accordingly, any
capital tax or other similar tax or duty which is levied on the Company as a
result of Contributions transferred to the Company (whether against further
issuance of Company Shares or as informal capital contributions or otherwise),
shall be reimbursed to the Company by the Party transferring the Contribution.

 

(b)        Furthermore,
the Parties agree that the Articles of Association will include a clause in
terms of which “the Company will promote, among other activities, the
exportation of goods and services from the parent companies to the wireless
companies in Brazil”.

 

1.8       Acquisition
of shares of Telesp Celular Participações, S.A.

 

(a)        In
order to maintain the 50%-50% spirit set forth in Section 1.3 above, the TEF
Group will acquire from the PT Group and the PT Group will transfer to the TEF
Group certain shares of Telesp Celular Participações, S.A. in accordance with
the Share Purchase Agreement attached as Exhibit III (the “TCP
Shares”), issued in terms of the capital increases approved by
the general meeting of shareholders of such company on June 25, 2002, as
ratified by the board of directors on September 6, 2002, which will be
transferred to the Company at the Balance Closing.

 

17

 

(b)        Such
acquisition of TCP Shares will be made on the terms and conditions defined in
the Share Purchase Agreement attached as Exhibit III, and once such acquisition
is made, the TCP Shares will be considered as a TEF Wireless Property.

 

SECTION 2:            INITIAL CAPITAL CONTRIBUTIONS

 

2.1       Initial
Capital Contributions and Initial Closing: Subscription, Issuance and Payment
of the Company Shares

 

Subject to the
conditions set forth herein and as early as possible during the fourth quarter
of 2002, each of the TEF Group and the PT Group shall transfer to the Company
its Initial Capital Contributions against the issuance of a number of Company
Shares, (the “Initial Closing”).  The PT Group and the TEF Group agree with
each other that:

 

(a)        each
Group shall transfer its Initial Capital Contributions to the Company at the
same time;

 

(b)        each
Group’s Initial Capital Contributions, the value of each Group’s Initial
Capital Contributions, and the number of Company Shares to be issued to each
Group in respect of such Contributions shall be agreed between the TEF Group
and the PT Group by no later than the Initial Closing, which agreement shall be
evidenced by a written document signed by the Groups at the Initial Closing, provided
that it is agreed that any TCP Shares acquired by the TEF Group pursuant to
Section 1.8 above shall not form part of the TEF Group’s Initial Capital
Contributions; and

 

(c)        if
the aggregate value of such Initial Capital Contributions exceeds the aggregate
nominal value of the Company Shares issued in respect of the transfer of said
Initial Capital Contributions, the difference shall be credited to the General
Share Premium Reserve.

 

2.2       Initial
Closing: Conditions Precedent

 

The respective
obligation of each Group to consummate the transactions contemplated herein to
occur at the Initial Closing is subject to the satisfaction or waiver, at or
prior to the Initial Closing, of the following conditions:

 

(a)        no
statute, rule or regulation shall have been enacted, entered, promulgated or
enforced by any court or Governmental Authority which prohibits or restricts
the consummation of the transactions contemplated hereby;

 

(b)        there
shall not be in effect any judgement, order, injunction or decree of any court
of competent jurisdiction or Governmental Authority enjoining the consummation
of the transactions contemplated hereby;

 

(c)        there
shall not be any suit, action, investigation, inquiry or other proceeding
instituted, pending or threatened by any Governmental Authority which seeks to
enjoin or otherwise prevent consummation of the transactions contemplated
hereby;

 

(d)        each
consent, authorisation and approval of any Person or any Governmental Authority
(other than CADE, but including the European Union antitrust

 

18

 

commission) or required under applicable law
shall have been obtained or the applicable requirement to obtain such consent,
authorisation or approval shall have been waived;

 

(e)        the
TEF Group and the PT Group, as applicable, shall have performed in all material
respects its obligations under this Agreement required to be performed by it at
or prior to the Initial Closing, provided that a Breach shall be deemed
not to be non-performance for purposes of this Section 2.2(e); and

 

(f)         the
other Group and the Company shall have executed and delivered any and all
documents and shall have taken any and all actions as may be required for the
timely completion of the transfer to the Company of the Initial Capital
Contributions;

 

provided that
the conditions precedent set out in Sections 2.2(a), 2.2(b), 2.2(c) and 2.2(d)
may only be waived by both Groups, and the conditions precedent set out in
Sections 2.2(e) and 2.2(f) may only be waived by the non-defaulting Group.

 

2.3       Initial
Closing: Deliveries

 

At the Initial
Closing, the Parties shall take, or cause to be taken, the following actions:

 

(a)        each
relevant member of the TEF Group and each relevant member of the PT Group shall
transfer to the Company its Initial Capital Contributions;

 

(b)        the
relevant member of the TEF Group and the relevant member of the PT Group shall
sign a notarial deed of issuance pursuant to which the relevant Company Shares
are issued to such relevant member of the TEF Group and such relevant member of
the PT Group;

 

(c)        the
shareholders’ register of the Company shall be duly updated to reflect the
number of Company Shares held by each Group;

 

(d)        the
delivery of letters or other documents evidencing the waiver of any applicable
rights of first refusal which otherwise could be exercised by any Person in
connection with the transfer, to the Company, of the Initial Capital
Contributions; and

 

(e)        the
relevant member of the TEF Group and the relevant member of the PT Group and
the Company shall take all other actions and execute all other documents,
certificates and requests as may reasonably be required for the timely completion
of transfer to the Company of the Initial Capital Contributions.

 

2.4       Obtaining
of the regulatory approvals for the Balance Closing before the Initial Closing

 

The Parties
agree that, in the event that the relevant regulatory approvals for the Balance
Closing are obtained before the Initial Closing takes place, an Initial Closing
shall not take place and the Parties shall, as soon as practicable after such
regulatory approvals are

 

19

 

obtained,
transfer to the Company their Balance Capital Contributions, provided that in
this specific case the respective Balance Capital Contributions of each Group
shall comprise those Interests held by each of the PT Group and the TEF Group
in the Wireless Properties and Global Telecom (as specified in Exhibit IV
hereto) and (when applicable) the corresponding amount of cash referred to in
Section 3.1.1(b)below.  Such transfer to
the Company of the Balance Capital Contributions shall be performed in
accordance with Section 3 below.

 

SECTION 3:            BALANCE CAPITAL CONTRIBUTIONS
AND ADDITIONAL CAPITAL CONTRIBUTIONS

 

3.1.1    Balance
Capital Contributions: Subscription, Issuance and Payment of Additional Company
Shares

 

(a)        Subject
to the conditions set forth herein, as soon as possible after the relevant
regulatory restrictions have been removed, each of the TEF Group and the PT
Group shall transfer to the Company its Balance Capital Contributions, against
the issuance of a number of Company Shares (the “Balance
Closing”).  The PT Group
and the TEF Group agree with each other that:

 

(i)         each
Group shall transfer its Balance Capital Contributions to the Company at the
same time;

 

(ii)        the
value of each Group’s Balance Capital Contributions and the number of Company
Shares to be issued to each Group in respect of such Contributions shall be
agreed between the TEF Group and the PT Group by no later than the Balance
Closing, which agreement shall be evidenced by a written document signed by the
Groups at the Balance Closing, provided that upon the transfer of the
Balance Capital Contributions to the Company each Group shall hold the same
number of Company Shares; and

 

(iii)       if
the aggregate value of such Balance Capital Contributions exceeds the aggregate
nominal value of the Company Shares issued in respect of the transfer to the
Company of said Balance Capital Contributions, the difference shall be credited
to the General Share Premium Reserve.

 

(b)        In
the event that between the date hereof and the Balance Closing any acquisition
of Further Interest in a Wireless Property occurs through capital increases in
any of the TEF Wireless Properties or PT Wireless Properties without giving
rise to an increase in the number of shares to be transferred directly by the
relevant Group to the Company in accordance with Exhibit IV of this Agreement
(including but not limited to capital increases without issuance of new
shares), the other Group, as applicable, shall contribute to the Company in
Euro, at the Balance Closing, the amount paid or incurred, directly or
indirectly, in such capital increase by the relevant Group,if any, such Euro
amount to be calculated using the average of the Fixing R$ / € exchange rates
applicable on each of the days from the commencement date to the last day, both
days inclusive, of the subscription period relating to the aforementioned
capital increase.  Such Fixing exchange
rate will be

 

20

 

the result of multiplying the exchange rate
USD / R$ PTAX Ask fixed by the Brazilian Central Bank (ticker Bloomberg:
BZFXPTAX Index), by the exchange rate € / USD fixed by the ECB (Reuters Screen
ECB37) on the applicable date.  For the
avoidance of doubt, capital increases by means of capitalization of “agios” or against reserves, will not give
rise to the obligation of the other Group to transfer any amount in cash to the
Company.

 

(c)        In
the event that between the date hereof and the Balance Closing any acquisition
of Further Interest in a Wireless Property occurs through a capital increase in
any of the TEF Wireless Properties or PT Wireless Properties, by any mean which
does not imply contributions of new assets to the relevant Wireless Property
(including but not limited to capitalization of “agios” or capital increases against reserves), but that does
give rise to an increase in the number of shares to be transferred directly to
the Company in accordance with Exhibit IV of this Agreement, such Further
Interest in a Wireless Property shall be transferred to the Company at the
Balance Closing together with the Balance Capital Contributions, and the other
Group shall not contribute any amount in cash to the Company as a consequence
of the transfer to the Company of such Further Interest in a Wireless Property.

 

3.1.2    Additional
Capital Contributions and Additional Closings: Subscription, Issuance and
Payment of Additional Company Shares

 

Subject to the
conditions set forth in this Agreement, as soon as possible, after the Balance
Closing, each of the PT Group and/or the TEF Group (as the case may be from
time to time) shall transfer to the Company its Additional Capital
Contributions, against the issuance of further Company Shares.  The PT Group and the TEF Group agree with
each other that:

 

(i)         each
Group shall transfer to the Company:

 

(A)       the
Interests of the transferring Group in all New Acquisitions;

 

(B)       all
Further Interests in Wireless Properties held by the transferring Groupand not
transferred to the Company at the Balance Closing;

 

(C)       in
the case of a make-up Contribution by a Reduced Shareholder as referred to in
Sections 6.1, 6.2 and 6.3 of the Shareholders Agreement, an amount of cash in
Euro and/or (if accepted by the other Group) Liquid Assets equivalent to the
value of (that portion of) the Contribution having caused the dilution, as determined
in the Contribution Valuation, accrued with the Cost of Carrying (when
applicable) as set forth in Sections 6.1, 6.2 and 6.3 of the Shareholders
Agreement; and

 

(ii)        unless
otherwise agreed in writing by the TEF Group and the PT Group in respect of the
Additional Capital Contribution:

 

(A)       other
than in the case of a make-up Contribution by a Reduced Shareholder as referred
to in Sections 6.1, 6.2 and 6.3 of the Shareholders Agreement, the

 

21

 

number of Company Shares to be issued against
the transfer to the Company of the Additional Capital Contribution shall be
determined using the Company Shares Exchange Ratio.  If the accounting value of the aforesaid Contribution
as defined in Sections 1.6.2(e) and 1.6.4(e)(iii) above (as the case may be)
exceeds the aggregate nominal value of the Company Shares issued as defined
above, the difference shall be credited to the General Share Premium Reserve;
and

 

(B)       in
the case of a make-up Contribution by a Reduced Shareholder as referred to in
Sections 6.1, 6.2 and 6.3 of the Shareholders Agreement, the transferring Group
shall be issued with so many Company Shares as corresponds to the number of
Company Shares issued in respect of (that portion of) the Additional Capital
Contribution having caused the dilution. 
If the amount of cash plus, if applicable, Liquid Assets of the make-up
Contribution, exceeds the aggregate nominal value of the Company Shares issued
as defined above, the difference shall be credited to the General Share Premium
Reserve.

 

3.2       Balance
Closing and Additional Closings: Conditions Precedent

 

The respective
obligation of each Group to transfer to the Company the Balance Capital
Contributions and any of the Additional Capital Contributions contemplated
hereby is subject to the satisfaction or waiver, at or prior to the respective
Balance Closing or Additional Closing, of the following conditions:

 

(a)        no
statute, rule or regulation shall have been enacted, entered, promulgated or
enforced by any court or Governmental Authority which prohibits or restricts
the transfer of  the relevant
Contribution;

 

(b)        there
shall not be in effect any judgement, order, injunction or decree of any court
of competent jurisdiction or Governmental Authority enjoining the transfer of
the relevant Contribution;

 

(c)        there
shall not be any suit, action, investigation, inquiry or other proceeding
instituted, pending or threatened by any Governmental Authority which seeks to
enjoin or otherwise prevent transfer of the relevant Contribution;

 

(d)        each
consent, authorisation and approval of any Person or any Governmental Authority
(other than CADE) or the European Union antitrust commission or required under
applicable law for each Group to make the relevant Contribution, including, but
not limited to, ANATEL ́s prior written consent for the transfer of the voting
control of the Wireless Properties and/or the New Acquisitions to the Company,
shall have been obtained or, when applicable, the  requirement to obtain such consent,
authorisation or approval shall have been waived;

 

(e)        each
of the TEF Group and the PT Group, as applicable, shall have performed in all
material respects its obligations under this Agreement required to be performed
by it at or prior to the date of Balance Closing or Additional Closing (as the
case may be),

 

22

 

provided that a
Breach, shall be deemed not to be non-performance for purposes of this Section
3.2(e);

 

(f)         the
other Group and the Company shall have executed and delivered any and all other
documents and shall have taken any and all other actions as may reasonably be
required for the timely completion of the transfer of the relevant
Contribution;

 

provided that
the conditions precedent set out in Sections 3.2(a), 3.2(b), 3.2(c) and 3.2(d)
may only be waived by both Groups, and the conditions precedent set out in
Sections 3.2(e) and 3.2(f) may only be waived by the non-defaulting Group.

 

3.3       Balance
Closing and Additional Closings; Deliveries

 

At the Balance
Closing and each Additional Closing, the Parties shall take, or cause to be
taken, the following actions:

 

(a)        each
relevant member of the TEF Group and/or (as the case may be), each relevant
member of the PT Group shall transfer to the Company its Balance Capital
Contributions or relevant Additional Capital Contribution (as the case may be),
and, if such Additional Capital Contribution is cash, in immediately available
funds;

 

(b)        the
relevant member of the TEF Group and/or (as the case may be), the relevant
member of the PT Group shall sign a notarial deed of issuance in terms of which
a number of Company Shares are issued to such relevant member of the TEF Group
and/or such relevant member of the PT Group (as the case may be);

 

(c)        the
shareholders’ register of the Company shall be duly updated to reflect the
number of Company Shares held by each Group;

 

(d)        the
delivery of letters or other documents evidencing the waiver or the
non-exercise of any applicable rights of first refusal which otherwise could be
exercised by any Person in connection with the transfer, to the Company, of the
relevant Contribution contemplated hereunder; and

 

(e)        the
relevant member of the TEF Group and/or (as the case may be), the relevant
member of the PT Group and the Company shall take all other actions and execute
other documents, certificates and requests as may reasonably be required for
the timely completion of the transfer to the Company of the relevant
Contribution.

 

SECTION 4:            REPRESENTATIONS AND WARRANTIES
BY THE TEF GROUP

 

In consideration for the PT Group entering into this Agreement and
consummating the transactions hereunder, the TEF Group represents and warrants
to the PT Group that the representations and warranties as set out in this
Section 4, which representations and warranties are supplemented by the
disclosure schedules attached hereto as Exhibit V, (the “TEF Group Disclosure Schedule”), are,
individually and jointly, true and not misleading, provided that, save
as otherwise required by the context of the relevant representation or
warranty, the representations and warranties:

 

23

 

(a)        are
made and given as at the date of this Agreement; and

 

(b)        shall:

 

(i)         in
respect of the representations and warranties contained in Sections 4.2, 4.4,
4.7, and 4.17 below, be deemed to be repeated, on the Initial Closing, on the
Balance Closing and on each applicable Additional Closing, as being
individually and jointly true and not misleading as at the Initial Closing, as
at the Balance Closing, and as at the applicable Additional Closing (as the
case may be);

 

(ii)        in
respect of the representations and warranties not referred to in Section
4(b)(i) above, be deemed to be repeated, on the Initial Closing, on the Balance
Closing and on each applicable Additional Closing, as being individually and
jointly true and not misleading as at the date of this Agreement, with respect
to all the Interests in the TEF Covered Assets being transferred by the TEF
Group to the Company on the Initial Closing, the Balance Closing, or the
applicable Additional Closing (as the case may be);

 

Accordingly, the TEF Group hereby represents and warrants to the PT
Group as follows:

 

4.1       Organisation

 

Each of the
TEF Covered Assets listed in Exhibit VIII 
is and, on the date of the Initial Closing and, if it is the case, on
the date of each other Closing relating to an Interest in such TEF Covered
Assets, will be a corporation or a company, as the case may be, duly organised,
validly existing under the laws of their respective country of incorporation
and has and will have all requisite corporate and other power and corporate
authority to own, lease and operate its properties and to carry on its
operations as now being conducted.  TEM
has  made available to Portugal Telecom
and PT Móveis in Section 4.1 of the TEF Group Disclosure Schedule complete and
correct copies of the bylaws and the shareholders agreements of each of the TEF
Covered Assets as currently in effect. 
The rights and obligations set forth in such shareholders agreements
are, on the date hereof, (a) the valid and binding rights and obligations of
each of the parties thereto enforceable against each of such parties in
accordance with their terms, and no party thereto is in default thereunder; and
(b) duly annotated in TEF Covered Assets corporate books and records, except
for Section 4.1 of the TEF Group Disclosure Schedule.

 

4.2       Authorisation

 

Each member of
the TEF Group is a corporation duly organised, validly existing under the laws
of its country of incorporation.  Each
member of the TEF Group has the legal right, capacity and corporate power and
authority to execute and deliver this Agreement and the Shareholders Agreement
and consummate the transactions contemplated hereby and thereby.  The execution and delivery of this Agreement
and the Shareholders Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorised by the
board of directors of each of the members of the TEF Group, and no other
corporate proceedings on the part of same are necessary to authorise the

 

24

 

execution,
delivery and performance of this Agreement, the Shareholders Agreement or the
consummation of the transactions contemplated hereby and thereby.  This Agreement and the Shareholders Agreement
have been duly executed and delivered by each of the members of the TEF Group
and constitute, and each of the other agreements, documents and instruments to
be executed and delivered by each of the members of the TEF Group pursuant
hereto and thereto, when executed and delivered, will constitute, valid and
binding obligations of each of the members of the TEF Group, enforceable
against each of the members of the TEF Group in accordance with its terms,
except that such enforcement may be subject to any applicable bankruptcy,
insolvency, moratorium or similar law.

 

4.3       Capital
Stock

 

Set forth on
Section 4.3 of the Disclosure Schedule is the number of all common shares and preferred
shares representing the entire capital stock of each of the TEF Covered Assets,
all of which were validly issued and fully paid, and the name of each
shareholder therein who is the owner of record or beneficial owner of not less
than 5% of the total capital stock of each of the TEF Covered Assets.  Except as set forth in Section 4.3 of the TEF
Group Disclosure Schedule, there are no outstanding securities of, or any
securities or other obligations convertible into, exchangeable for, or carrying
the right to acquire, or otherwise conferring rights in, equity securities of
the TEF Covered Assets, nor are there any subscriptions, warrants, options,
rights or other arrangements or commitments (other than this Agreement) which
could obligate the TEF Covered Assets to issue, or the TEF Group to sell all or
a portion of the Interests in the TEF Covered Assets, nor is any of the TEF
Covered Assets committed to issue any such security, warrants, options, rights
or enter into such arrangements or commitments.

 

4.4       Ownership
of the Capital Stock

 

The TEF Group
will, as of the Initial Closing, the Balance Closing and any Additional
Closings, be the record and beneficial owner of, and will have good and
marketable title to all of the Interests in the TEF Covered Assets intended to
be transferred to the Company at any such Closing, free and clear of all liens,
claims, title defects, charges, restrictions, rights of first refusal, options,
security interests, mortgages, pledges, debts, demands or other encumbrances (“Liens”).

 

4.5       Ownership
and Good Title of Assets

 

The TEF
Covered Assets are and will be on the date of the Initial Closing and on the
date Interests in such TEF Covered Assets are transferred by the TEF Group to
the Company at the Balance Closing and at any Additional Closing, the sole
owners of any and all of each of their relevant Assets, which have before, on,
or will have after, the Closings, good and marketable title, free and clear of
all Liens, except as set forth in Section 4.5 of the TEF Disclosure Schedule,
or otherwise where the failure to have such title or rights would not be
reasonably expected to have a Material Adverse Effect.

 

25

 

4.6       Condition
and Sufficiency of Assets

 

All of the
relevant Assets of the TEF Covered Assets are and will be on the date of the
Initial Closing and on the date Interests in such TEF Covered Assets are
transferred to the Company at the Balance Closing and at any Additional
Closing, structurally sound, are and will be in good operating condition and
repair, and are and will be adequate for the uses to which they are being put,
and none of such Assets are or will be in need of maintenance and repairs that
are material in nature or cost and that are out of the ordinary course of
business.  The Assets of the TEF Covered
Assets are and will be sufficient for the continued conduct of the their
businesses after each of the Closings, in substantially the same manner as
conducted prior to the respective Closing.

 

4.7       Consents
and Approvals; No Violations

 

Except as set
forth in Section 4.7 of the TEF Group Disclosure Schedule with respect to items
(b) and (c) below, neither the execution and delivery of this Agreement and the
Shareholders Agreement, nor the consummation by the TEF Group of the
transactions contemplated hereby or thereby will (a) conflict with or result in
any breach of any provision of the bylaws of the members of the TEF Group; (b)
require any filing with, or the obtaining of any permit, authorisation, consent
or approval of, any governmental or regulatory authority whether within or
outside Brazil, Spain, or Portugal; (c) violate, conflict with or result in a
default (or any event which, with notice or lapse of time or both, would
constitute a default) under, or give rise to any right of termination,
cancellation or acceleration under, any of the terms, conditions or provisions
of any note, mortgage, other evidence of indebtedness, guarantee, license,
agreement (including, but not limited to, shareholders’ agreements regarding
the shares of TEF Covered Assets), lease or other contract or instrument or
obligation to which the TEF Covered Assets or any of the members of the TEF
Group is a party or by which the TEF Covered Assets, any of the members of the
TEF Group or any of their assets may be bound; (d) result in the creation of
any Lien of any kind upon the TEF Covered Assets or any property or assets of
any of the TEF Covered Assets, or any member of the TEF Group, under any debt,
obligation, contract, agreement or commitment to which it is a party or by
which it is bound; or (e) violate any order, injunction, decree, statute, rule
or regulation applicable to the TEF Covered Assets or any member of the TEF
Group, excluding from the foregoing clauses (b), (c), (d) and (e) such
requirements, conflicts, defaults, rights, security interests, claims, Liens,
charges, other encumbrances or violations which could not reasonably be
expected to have a Material Adverse Effect and could not be reasonably expected
to adversely affect the ability of each of the TEF Covered Assets, or the TEF
Group to consummate the transactions contemplated by this Agreement free and
clear of Liens.

 

4.8       Financial
Statements

 

Attached in
Section 4.8 of the Disclosure Schedule are copies of the audited consolidated
financial statements as of and for the year ended December 31, 2001 and copies
of the reviewed, consolidated financial statements as of the period ended June
30, 2002 with respect to each of the TEF Covered Assets (the financial statements
referred to above and the accompanying notes thereto are referred to herein
collectively as the “TEF Group

 

26

 

Financial
Statements”). 
Except as stated otherwise in the TEF Group Financial Statements or in
Section 4.8 of the TEF Group Disclosure Schedule, such TEF Group Financial
Statements (a) fairly present, in all material respects, the financial position
of the TEF Covered Assets as of the respective dates thereof, all in accordance
with Brazilian GAAP consistently applied throughout the period indicated; and
(b) are correct and complete in all material respects and are consistent with
the books and records of the TEF Covered Assets.

 

4.9       Absence
of Undisclosed Liabilities

 

Except (a) for
liabilities and obligations (i) incurred in the ordinary course of business
consistent with past practices since the date of the TEF Group Financial
Statements or (ii) which are duly reflected, or reserved against, in the TEF
Group Financial Statements and (b) as otherwise disclosed herein or in Section
4.9 of the TEF Group Disclosure Schedule, none of the TEF Covered Assets has
incurred any liabilities or obligations (whether direct, indirect, accrued or
contingent).

 

4.10     Absence
of Material Adverse and Other Changes

 

Except as set
forth in Section 4.10 of the TEF Group Disclosure Schedule, since December 31,
2001, the business of TEF Covered Assets has been conducted in the ordinary
course consistent with past practices and there has not been any change in the
business, results of operations or financial condition of any of the TEF
Covered Assets as described in the TEF Group Financial Statements, which could
be reasonably be expected to have a Material Adverse Effect.

 

4.11     Intellectual
Property

 

Section 4.11
of the TEF Group Disclosure Schedule sets forth a complete and accurate list of
the relevant trademarks, trade names, service marks, service names, internet
domain names, software, mark registrations, logos, assumed names, copyrights
and copyright registrations, patents and all applications therefor which TEF
Covered Aseets own or have the right to used in the operation of the TEF
Covered Assets Wireless Business as currently conducted (collectively,  the “TEF
Group Intellectual Property”). 
Except as set forth in Section 4.11 of the TEF Group Disclosure
Schedule:,

 

(a)        there
are no pending or, to the Knowledge of each of the members of the TEF Group,
threatened proceedings or litigation or other adverse claims by any person
relating to the use by the TEF Covered Assets of any TEF Group Intellectual
Property.

 

(b)        TEF
Covered Assets owns, free and clear of Liens, all TEF Group Intellectual
Property Rights owned by TEF Group and has a valid and enforceable right to use
all of TEF Group Intellectual Property used by TEF Covered Assets;

 

(c)        the
conduct of the business by TEF Covered Assets as currently conducted does not
infringe upon any rights with respect to intellectual property owned or
controlled by any third party;

 

27

 

(d)        none
of the TEF Group Intellectual Property used by TEF Covered Assets that are
material to the operation of their respective businesses has been adjudged
invalid or unenforceable in whole or part;

 

(e)        the
execution, delivery and performance by TEF Group of this Agreement, and the
consummation of the transactions contemplated hereby, will not result in the
loss or impairment of, or give rise to any right of any third party to
terminate, any of TEF Covered Assets rights to own any of its TEF Group Intellectual
Property, nor require the consent of any Governmental Authority or third party
in respect of any such TEF Group Intellectual Property; and

 

(f)         the
material software owned or purported to be owned by TEF Covered Assets, was
either (A) developed by employees of TEF Covered Assets within the scope of
their employment; (B) developed by independent contractors who have assigned
their rights to TEF Covered Assets pursuant to written agreements; or (C)
otherwise acquired by TEF Covered Assets from a third party.

 

4.12     Litigation

 

Except as set
forth in Section 4.12 of the TEF Group Disclosure Schedule, there is no claim,
action, suit, proceeding or governmental, administrative, arbitration or
regulatory proceeding or investigation pending or, to the Knowledge of  the members of the TEF Group, threatened
against or affecting each of the TEF Covered Assets, or their respective
business, properties or assets by or before any court, governmental or
regulatory authority or by any third party which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect and
in excess of R$ 100,000 (one hundred thousand Brazilian Reais) or the
equivalent in other currencies in respect to claims of labour nature or in
excess of R$ 500,000 (five hundred Brazilian Reais) or the equivalent in other
currencies in respect to claims of any other nature.

 

4.13     Compliance
with Applicable Law

 

Each of the
TEF Covered Assets is in compliance with all applicable laws, ordinances, rules
and regulations of any Governmental Authority applicable tothe TEF Group, the
TEF Covered Assets, respectively, and their respective operations, except for
violations, if any, which could not reasonably be expected to have a Material
Adverse Effect.  Except as set forth in
Section 4.13 of the TEF Group Disclosure Schedule, each of the TEF Covered
Assets has all material permits, licenses, approvals and authorisations of all
Governmental Authorities necessary to conduct its business as presently
conducted except for those permits, licenses, approvals and authorisations
which could not reasonably be expected to have a Material Adverse Effect.

 

4.14     Material
Contracts and Arrangements

 

Except as set
forth in Section 4.14 of the TEF Group Disclosure Schedule, as of the date
hereof:

 

28

 

(a)        none
of the TEF Covered Assets is a party to or bound by any written (i) employment
agreement; (ii) indenture, mortgage, note, loan, financing, instalment
obligation, agreement or other instrument relating to the borrowing of money by
it, or the guarantee by it of any obligation for the borrowing of money; or
(iii) other agreement, including without limitation, purchase orders, or any
enforceable oral agreement, which individually involves the receipt or payment
after the date hereof of more than R$ 1,000,000 (one million Brazilian Reais)
or the equivalent in other currencies on an annual basis or R$ 1,000,000 (one
million Brazilian Reais) or the equivalent in other currencies over the remaining
term thereof.  All such agreements are
valid, binding and enforceable in accordance with their terms and neither the
relevant Wireless Property nor, to the Knowledge of Wireless Property, any
other party thereto is in default under any of the aforesaid agreements, other
than such defaults, if any, which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect;

 

(b)        There
are no existing contracts material to the business of any of the TEF Covered
Assets to which any member or Affiliate of the TEF Group is a party;

 

(c)        No
TEF Covered Asset is party to any contract material to the business of the TEF
Covered Asset, with any of its current or former employees, directors, officers
or consultants or any Person connected (as defined by applicable law in the
relevant jurisdiction) with any of such Persons, or in which any such Person is
interested (whether directly or indirectly), other than on normal commercial
terms in the ordinary course of business;

 

(d)        all
material contracts and agreements have all necessary corporate authorisation
for their execution, delivery and performance by TEF Covered Assets, in
accordance with their by-laws and applicable legislation; and

 

(e)        all
material contracts and agreements entered into by the TEF Covered Assets with
their Affiliates and any entity of the TEF Group represent arm’s length
transactions, being such term interpreted as a transaction in good faith
negotiated on fair market value basis by unrelated parties acting with independent
interests in the ordinary course of business;

 

4.15     Labour
Matters

 

Except as set
forth in Section 4.15 of the TEF Group Disclosure Schedule, none of the TEF
Covered Assets is and, on the date of the Initial Closing and on the date
Interests in such TEF Covered Assets are transferred to the Company at any
Additional Closing, will be a party to any collective bargaining agreement with
any labour union, confederation or association, stock option plans, profit
sharing, pension, deferred compensation, bonus, severance, halth, welfare, life
insurance and other fringe benefit and there are no discussions, negotiations,
demands or proposals that are pending or have been conducted or made with or by
any labour union, confederation or association and there are not pending
against any of the TEF Covered Assets any general labour disputes, strikes or
work stoppages.

 

29

 

4.16     Taxes

 

(a)        Except
as set forth in Section 4.16 of the TEF Group Disclosure Schedule, each of the
TEF Covered Assets has and, on the date of the Initial Closing and on the date
such TEF Covered Assets are transferred to the Company at any Additional
Closing, shall have (a) timely filed or caused to be filed on a timely basis
with the appropriate taxing authorities all material Tax Returns required to be
filed by or with respect to each of the TEF Covered Assets, and (b) paid or
made adequate provision for the payment of all Taxes shown to be due on such
Tax Returns except such Taxes, if any, being contested in good faith and as to
which adequate reserves have been provided. 
Such Tax Returns are and will be true, correct and complete in all
material respects;

 

(b)        Except
as set forth in Section 4.16 of the TEF Group Disclosure Schedule:

 

(i)         there
are and, on the date of the Initial Closing and on the date Interests in such
TEF Covered Assets are transferred to the Company at any Additional Closing,
there shall be no Liens for Taxes with respect to the assets of the Company and
no material claims with respect to Taxes are being asserted by any taxing
authority in writing, which individually would have a Material Adverse Effect
on the business or other assets of each of the TEF Covered Assets except for
statutory Liens for current taxes not yet delinquent;

 

(ii)        none
of the Tax Returns of each of the TEF Covered Assets is currently being and, on
the date of the Initial Closing and on the date Interests in such TEF Covered
Assets are transferred to the Company at any Additional Closing, shall be audited
or examined by any taxing authority;

 

(iii)       there
is and on the date of the Initial Closing and on the date Interests in such TEF
Covered Assets are transferred to the Company at any Additional Closing, there
shall be no material unpaid tax deficiency, determination or assessment
currently outstanding against any of the TEF Covered Assets; and

 

(iv)       there
are, and on the date of the Initial Closing and on the date Interests in such
TEF Covered Assets are transferred to the Company at any Additional Closing,
there shall be no outstanding agreements or waivers extending the statute of
limitations relating to the payment of Taxes of any of the TEF Covered Assets
for taxable periods for which the periods of the applicable statutes of
limitations have not expired.

 

4.17     Certain
Fees

 

Except for the
engagement of Salomon Smith Barney, none of the members of the TEF Group or any
of their respective Affiliates has employed any financial advisor or finder or
incurred any liability for any financial advisory or finders’ fees in
connection with this Agreement or the transactions contemplated hereby.

 

30

 

4.18     Representations
and Warranties for Subsidiaries

 

All the
representations and warranties made by the TEF Group with respect to the TEF
Covered Assets shall also be deemed to have been made with respect to the
Subsidiaries of each of the TEF Covered Assets, if any.

 

SECTION 5:            REPRESENTATIONS AND WARRANTIES
BY THE  PT GROUP

 

In consideration for the TEF Group entering into this Agreement and
consummating the transactions hereunder, the PT Group represents and warrants
to the TEF Group that the representations and warranties as set out in this
Section 5, which representations and warranties are supplemented by the
disclosure schedules attached hereto as Exhibit VI (the “PT Group Disclosure Schedule”), are,
individually and jointly, true and not misleading, provided that, save
as otherwise required by the context of the relevant representation or
warranty, the representations and warranties:

 

(a)        are
made and given as at the date of this Agreement; and

 

(b)        shall:

 

(i)         in
respect of the representations and warranties contained in Sections 5.2, 5.4,
5.7, and 5.17 below, be deemed to be repeated, on the Initial Closing, on the
Balance Closing and on each applicable Additional Closing, as being
individually and jointly true and not misleading as at the Initial Closing, as
at the Balance Closing, and as at the applicable Additional Closing (as the
case may be);

 

(ii)        in
respect of the representations and warranties not referred to in Section
5(b)(i) above, be deemed to be repeated, on the Initial Closing, on the Balance
Closing and on each applicable Additional Closing, as being individually and
jointly true and not misleading as at the date of this Agreement, with respect
to all the Interests in the PT Covered Assets being transferred by the PT Group
to the Company on the Initial Closing, the Balance Closing, or the applicable
Additional Closing (as the case may be),

 

provided that where a representation or warranty
(other than the representations and warranties referred to in Section 5(b)(i)
above) relates to Global Telecom, a Breach in respect of the representations
and warranties contained in this Section 5, for purposes of this Section 5 and
Section 8, shall only be considered to exist if the circumstance or fact giving
rise to such breach arose or occurred after the date of acquisition by the PT
Group of an Interest in Global Telecom under the “Share Sale and Purchase Agreement” dated January 13, 2001
(the “GT Acquisition Agreement”);

 

Accordingly, the PT Group hereby represents and warrants to the TEF
Group as follows:

 

5.1       Organisation

 

Each of the PT
Covered Assets listed in Exhibit VII is and, on the date of the Initial Closing
and, if it is the case, on the date of each other Closing relating to an
Interest in

 

31

 

such Wireless
Property or Global Telecom, will be a corporation or a company, as the case may
be, duly organised, validly existing under the laws of their respective country
of incorporation and has and will have all requisite corporate and other power
and corporate authority to own, lease and operate its properties and to carry
on its operations as now being conducted. 
Each of Portugal Telecom and PT Móveis has heretofore made available to
TEM in Section 4.1 of the PT Group Disclosure Schedule complete and correct
copies of the bylaws and the shareholders agreements of each of the PT Covered
Assets as currently in effect.  The
rights and obligations set forth in such shareholders agreements are, on the
date hereof, (a) the valid and binding rights and obligations of each of the
parties thereto enforceable against each of such parties in accordance with
their terms, and no party thereto is in default thereunder; and (b) duly
annotated in PT Covered Assets corporate books and records.

 

5.2       Authorisation

 

Each member of
the PT Group is a corporation duly organised, validly existing under the laws
of its country of incorporation.  Each
member of the PT Group has the legal right, capacity and corporate power and
authority to execute and deliver this Agreement and the Shareholders Agreement
and consummate the transactions contemplated hereby and thereby.  The execution and delivery of this Agreement
and the Shareholders Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorised by the
board of directors of each of the members of the PT Group, and no other
corporate proceedings on the part of each of the members of the PT Group are
necessary to authorise the execution, delivery and performance of this
Agreement, the Shareholders Agreement or the consummation of the transactions
contemplated hereby and thereby.  This
Agreement and the Shareholders Agreement have been duly executed and delivered
by each of the members of the PT Group and constitute, and each of the other
agreements, documents and instruments to be executed and delivered by each of
the members of the PT Group pursuant hereto and thereto, when executed and
delivered, will constitute, valid and binding obligations of each of the members
of the PT Group, enforceable against each of the members of the PT Group in
accordance with its terms, except that such enforcement may be subject to any
applicable bankruptcy, insolvency, moratorium or similar law.

 

5.3       Capital
Stock

 

Set forth on
Section 5.3 of the Disclosure Schedule is the number of all common shares and
preferred shares representing the entire capital stock of each of the PT
Covered Assets, all of which were validly issued and fully paid, and the name
of each shareholder therein who is the owner of record or beneficial owner of
not less than 5% of the total capital stock of each of the PT Covered
Assets.  Except as set forth in Section
5.3 of the PT Group Disclosure Schedule, there are no outstanding securities
of, or any securities or other obligations convertible into, exchangeable for,
or carrying the right to acquire, or otherwise conferring rights in, equity
securities of the PT Covered Assets, nor are there any subscriptions, warrants,
options, rights or other arrangements or commitments (other than this
Agreement) which could obligate the PT Covered Assets to issue, or the PT Group
to sell all or a portion of the Interests in the PT Covered Assets, nor is any
of the PT Covered 

 

32

 

Assets
committed to issue any such security, warrants, options, rights or enter into
such arrangements or commitments.

 

5.4       Ownership
of the Capital Stock

 

The PT Group
will, as of the Initial Closing, the Balance Closing and any Additional
Closings, be the record and beneficial owner of, and will have good and
marketable title to all of the Interests in the PT Covered Assets intended to
be transferred to the Company at any such Closing, free and clear of all liens,
claims, title defects, charges, restrictions, rights of first refusal, options,
security interests, mortgages, pledges, debts, demands or other encumbrances (“Liens”).

 

5.5       Ownership and Good Title of Assets

 

The PT Covered
Assets are and will be on the date of the Initial Closing and on the date
Interests in such PT Covered Assets are transferred by the PT Group to the
Company at the Balance Closing and at any Additional Closing, the sole owners
of any and all of each of their relevant Assets, which have before, on, or will
have after, the Closings, good and marketable title, free and clear of all
Liens, except as set forth in Section 5.5 of the PT Disclosure Schedule, or
otherwise where the failure to have such title or rights would not be
reasonably expected to have a Material Adverse Effect.

 

5.6       Condition
and Sufficiency of Assets

 

All of the
relevant Assets of the PT Covered Assets are and will be on the date of the
Initial Closing and on the date Interests in such PT Covered Assets are
transferred to the Company at the Balance Closing and at any Additional
Closing, structurally sound, are and will be in good operating condition and
repair, and are and will be adequate for the uses to which they are being put,
and none of such Assets are or will be in need of maintenance and repairs that
are material in nature or cost and that are out of the ordinary course of
business.  The Assets of the PT Covered
Assets are and will be sufficient for the continued conduct of the their
businesses after each of the Closings, in substantially the same manner as conducted
prior to the respective Closing.

 

5.7       Consents and Approvals; No
Violations

 

Except as set
forth in Section 5.7 of the PT Group Disclosure Schedule with respect to items
(b) and (c) below, neither the execution and delivery of this Agreement and the
Shareholders Agreement, nor the consummation by the PT Group of the
transactions contemplated hereby or thereby will (a) conflict with or result in
any breach of any provision of the bylaws ofthe members of the PT Group; (b)
require any filing with, or the obtaining of any permit, authorisation, consent
or approval of, any governmental or regulatory authority whether within or
outside Brazil, Spain, or Portugal; (c) violate, conflict with or result in a
default (or any event which, with notice or lapse of time or both, would
constitute a default) under, or give rise to any right of termination,
cancellation or acceleration under, any of the terms, conditions or provisions
of any note, mortgage, other evidence of indebtedness, guarantee, license,
agreement (including, but not limited to,

 

33

 

shareholders’
agreements regarding the shares of PT Covered Assets), lease or other contract
or instrument or obligation to which the PT Covered Assets or any of the members
of the PT Group is a party or by which the PT Covered Assets or any equity
interests in the PT Covered Assets, any of the members of the PT Group or any
of their assets may be bound; (d) result in the creation of any Lien of any
kind upon the PT Covered Assets or any property or assets of  any of the PT Covered Assets, or any member
of the PT Group, under any debt, obligation, contract, agreement or commitment
to which it is a party or by which it is bound; or (e) violate any order,
injunction, decree, statute, rule or regulation applicable to the PT Covered
Assets, or any member of the PT Group, excluding from the foregoing clauses
(b), (c), (d) and (e) such requirements, conflicts, defaults, rights, security
interests, claims, Liens, charges, other encumbrances or violations which could
not reasonably be expected to have a Material Adverse Effect and could not be
reasonably expected to adversely affect the ability of each of the PT Covered
Assets, or the TEF Group to consummate the transactions contemplated by this
Agreement free and clear of Liens.

 

5.8       Financial Statements

 

Attached in
Section 5.8 of the Disclosure Schedule are copies of the audited consolidated
financial statements as of and for the year ended December 31, 2001, and copies
of the reviewed, consolidated financial statements as of the period ended June
30, 2002 with respect to each of the PT Covered Assets (the financial
statements referred to above and the accompanying notes thereto are referred to
herein collectively as the “PT Group Financial
Statements”).  Except as
stated otherwise in the PT Group Financial Statements or in Section 5.8 of the
PT Group Disclosure Schedule, such PT Group Financial Statements (a) fairly
present, in all material respects, the financial position of the PT Covered
Assets as of the respective dates thereof, all in accordance with Brazilian
GAAP consistently applied throughout the period indicated; and (b) are correct
and complete in all material respects and are consistent with the books and
records of the PT Covered Assets.

 

5.9       Absence of Undisclosed Liabilities

 

Except (a) for
liabilities and obligations (i) incurred in the ordinary course of business
consistent with past practices since the date of the PT Group Financial
Statements or (ii) which are duly reflected, or reserved against, in the PT
Group Financial Statements and (b) as otherwise disclosed herein or in Section
5.9 of the PT Group Disclosure Schedule, none of the PT Covered Assets has
incurred any liabilities or obligations (whether direct, indirect, accrued or
contingent).

 

5.10     Absence of Material Adverse and Other Changes

 

Except as set
forth in Section 5.10 of the PT Group Disclosure Schedule, since December 31,
2001, the business of PT Covered Assets has been conducted in the ordinary course
consistent with past practices and there has not been any change in the
business, results of operations or financial condition of any of the PT Covered
Assets as described in the PT Group Financial Statements, which could be
reasonably be expected to have a Material Adverse Effect.

 

34

 

5.11     Intellectual Property

 

Section 5.11
of the PT Group Disclosure Schedule sets for the a complete and accurate list
of the relevant trademarks, trade names, service marks, service names, internet
domain names, software, mark registrations, logos, assumed names, copyrights
and copyright registrations, patents and all applications therefor which PT
Covered Assets own or have the right to used in the operation of the PT Covered
Assets Wireless Business as currently conducted (collectively, the “PT Group Intellectual Property”).  Except as set forth in Section 5.11 of the PT
Group Disclosure Schedule:

 

(a)        there
are no pending or, to the Knowledge of each of the members of the PT Group,
threatened proceedings or litigation or other adverse claims by any person
relating to the use by the PT Covered Assets of any PT Group Intellectual
Property;

 

(b)        PT
Covered Assets owns, free and clear of Liens, all PT Group Intellectual Property
Rights owned by PT Group and has a valid and enforceable right to use all of PT
Group Intellectual Property used by PT Covered Assets;

 

(c)        the
conduct of the business by PT Covered Assets as currently conducted does not
infringe upon any rights with respect to intellectual property owned or
controlled by any third party;

 

(d)        none
of the PT Group Intellectual Property used by PT Covered Assets that are
material to the operation of their respective businesses has been adjudged
invalid or unenforceable in whole or part;

 

(e)        the
execution, delivery and performance by PT Group of this Agreement, and the
consummation of the transactions contemplated hereby, will not result in the
loss or impairment of, or give rise to any right of any third party to
terminate, any of PT Covered Assets rights to own any of its PT Group
Intellectual Property, nor require the consent of any Governmental Authority or
third party in respect of any such PT Group Intellectual Property; and

 

(f)         the
material software owned or purported to be owned by PT Covered Assets, was
either (A) developed by employees of PT Covered Assets within the scope of
their employment; (B) developed by independent contractors who have assigned
their rights to PT Covered Assets pursuant to written agreements; or (C)
otherwise acquired by PT Covered Assets from a third party.

 

5.12     Litigation

 

Except as set
forth in Section 5.12 of the PT Group Disclosure Schedule, there is no claim,
action, suit, proceeding or governmental, administrative, arbitration or regulatory
proceeding or investigation pending or, to the Knowledge of the members of the
PT Group, threatened against or affecting each of the PT Covered Assets, or
their respective business, properties or assets by or before any court,
governmental or regulatory authority or by any third party which, individually
or in the aggregate, could reasonably be expected

 

35

 

to have a
Material Adverse Effect and in excess of R$ 100,000 (one hundred thousand
Brazilian Reais) or the equivalent in other currencies in respect to claims of
labour nature or in excess of R$ 500,000 (five hundred Brazilian Reais) or the
equivalent in other currencies in respect to claims of any other nature.

 

5.13     Compliance with Applicable Law

 

Each of the PT
Covered Assets, is in compliance with all applicable laws, ordinances, rules
and regulations of any Governmental Authority applicable to the PT Group, the
PT Covered Assets, respectively, and their respective operations, except for
violations, if any, which could not reasonably be expected to have a Material
Adverse Effect.  Except as set forth in
Section 5.13 of the PT Group Disclosure Schedule, each of the PT Covered Assets
has all permits, licenses, approvals and authorisations of all Governmental
Authorities necessary to conduct its business as presently conducted except for
those permits, licenses, approvals and authorisations which could not
reasonably be expected to have a Material Adverse Effect.

 

5.14     Material Contracts and Arrangements

 

Except as set
forth in Section 5.14 of the PT Group Disclosure Schedule, as of the date
hereof:

 

(a)        none
of the PT Covered Assets is a party to or bound by any written (a) employment
agreement; (b) indenture, mortgage, note, financing, loan, instalment
obligation, agreement or other instrument relating to the borrowing of money by
it, or the guarantee by it of any obligation for the borrowing of money; or (c)
other agreement, including without limitation, purchase orders, or any
enforceable oral agreement, which individually involves the receipt or payment
after the date hereof of more than R$ 1,000,000 (one million Brazilian Reais)
or the equivalent in other currencies on an annual basis or R$ 1,000,000 (one
million Brazilian Reais) or the equivalent in other currencies over the
remaining term thereof.  All such
agreements are valid, binding and enforceable in accordance with their terms
and neither the relevant Wireless Property nor, to the Knowledge of Wireless
Property, any other party thereto is in default under any of the aforesaid
agreements, other than such defaults, if any, which could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect

 

(b)        There
are no existing contracts material to the business of any of the PT Covered
Assets to which any member or Affiliate of the PT Group is a party; and

 

(c)        No
PT Covered Assets is party to any contract material to the business of the PT
Covered Asset, with any of its current or former employees, directors, officers
or consultants or any Person connected (as defined by applicable law in the
relevant jurisdiction) with any of such Persons, or in which any such Person is
interested (whether directly or indirectly), other than on normal commercial
terms in the ordinary course of business;

 

36

 

(d)        all
material contracts and agreements have all necessary corporate authorisation
for their execution, delivery and performance by PT Covered Assets, in
accordance with their by-laws and applicable legislation; and

 

(e)        all
material contracts and agreements entered into by the PT Covered Assets with
their Affiliates and any entity of the PT Group represent arm’s length
transactions, being such term interpreted as a transaction in good faith
negotiated on fair market value basis by unrelated parties acting with
independent interests in the ordinary course of business.

 

5.15     Labour Matters

 

Except as set
forth in Section 5.15 of the PT Group Disclosure Schedule, none of the PT
Covered Assets is and, on the date of the Initial Closing and on the date
Interests in such PT Covered Assets are transferred to the Company at any
Additional Closing, will be a party to any collective bargaining agreement with
any labour union, confederation or association, stock option plans, profit
sharing, pension, deferred compensation, bonus, severance, health, welfare,
life insurance and other fringe benefit and there are no discussions,
negotiations, demands or proposals that are pending or have been conducted or
made with or by any labour union, confederation or association and there are
not pending against any of the PT Covered Assets any general labour disputes,
strikes or work stoppages.

 

5.16     Taxes

 

(a)        Except
as set forth in Section 5.16 of the PT Group Disclosure Schedule, each of the
PT Covered Assets has and, on the date of the Initial Closing and on the date
such PT Covered Assets are transferred to the Company at any Additional
Closing, shall have (a) timely filed or caused to be filed on a timely basis
with the appropriate taxing authorities all material Tax Returns required to be
filed by or with respect to each of the PT Covered Assets, and (b) paid or made
adequate provision for the payment of all Taxes shown to be due on such Tax
Returns except such Taxes, if any, being contested in good faith and as to
which adequate reserves have been provided. 
Such Tax Returns are and will be true, correct and complete in all
material respects;

 

(b)        Except
as set forth in Section 5.16 of the PT Group Disclosure Schedule:

 

(i)         there
are and, on the date of the Initial Closing and on the date Interests in such
PT Covered Assets are transferred to the Company at any Additional Closing,
there shall be no Liens for Taxes with respect to the assets of the Company and
no material claims with respect to Taxes are being asserted by any taxing
authority in writing, which individually would have a Material Adverse Effect
on the business or other assets of each of the PT Covered Assets except for
statutory Liens for current taxes not yet delinquent;

 

(ii)        none
of the Tax Returns of each of the PT Covered Assets is currently being and, on
the date of the Initial Closing and on the date Interests in such PT Covered
Assets are transferred to the Company at any Additional Closing, shall be
audited or examined by any taxing authority;

 

37

 

(iii)       there
is and on the date of the Initial Closing and on the date Interests in such PT
Covered Assets are transferred to the Company at any Additional Closing, there
shall be no material unpaid tax deficiency, determination or assessment
currently outstanding against any of the PT Covered Assets; and

 

(iv)       there
are, and on the date of the Initial Closing and on the date Interests in such
PT Covered Assets are transferred to the Company at any Additional Closing,
there shall be no outstanding agreements or waivers extending the statute of
limitations relating to the payment of Taxes of any of the PT Covered Assets
for taxable periods for which the periods of the applicable statutes of
limitations have not expired.

 

5.17     Certain Fees

 

Except for the
engagement of JP Morgan Securities Inc., none of the members of the PT Group or
any of their respective Affiliates has employed any financial advisor or finder
or incurred any liability for any financial advisory or finders’ fees in
connection with this Agreement or the transactions contemplated hereby.

 

5.18     Representations and Warranties for Subsidiaries

 

All the
representations and warranties made by the PT Group with respect to the PT
Covered Assets shall also be deemed to have been made with respect to the
Subsidiaries of each of the PT Covered Assets, if any.

 

SECTION 6:            COVENANTS

 

6.1       Conduct of Business

 

Each of the
TEF Group and the PT Group agrees that, (i) in respect of TEF Covered Assets
and PT Covered Assets, respectively, during the period from the date of this
Agreement to the Balance Closing, and (ii) in respect of a New Acquisition,
from the date on which the TEF Group or the PT Group (as the case may be)
acquires, directly or indirectly (other than through the Company) an Interest
in the New Acquisition, to the date of transfer to the Company of the entire
such Interest, except as otherwise contemplated by this Agreement or consented
to by the other Group in writing:

 

(a)        Each
of the TEF Group and the PT Group shall use its best efforts to cause its
Covered Assets, or New Acquisition (as the case may be), to conduct its
business operations in the ordinary course consistent with past practice;

 

(b)        Unless
previously and expressly agreed in writing by the Parties in each specific
event, each of TEF Group and the PT Group shall cause its Covered Assets or New
Acquisition or subsidiary thereof (as the case may be), not to:

 

38

 

(i)         sell,
dispose of or acquire any material properties, assets or rights (including,
without limitation, leaseholds), except in the ordinary course of business, or
to merge, consolidate or amalgamate any of the Covered Assets or New
Acquisitions or their subsidiaries, either between them, or with any other
Person;

 

(ii)        make
any loans, advances (other than advances in the ordinary course of business) or
capital contributions to, or investments in, any other Person;

 

(iii)       terminate
or materially amend any of its material contracts, leases or licenses, except
in the ordinary course of business;

 

(iv)       enter
into any new material agreement other than customer contracts or renewals of
existing agreements in the ordinary course of business;

 

(v)        enter
into any employment agreement with any person or increase in any manner the
compensation of any of the officers or other employees of its Covered Assets or
New Acquisition or subsidiary thereof (as the case may be), except for such
increases as are granted in the ordinary course of business in accordance with
its customary practices (which shall include normal periodic performance
reviews and related compensation and benefit increases);

 

(vi)       adopt,
grant, extend or increase the rate or terms of any bonus, insurance, pension or
other employee benefit plan, payment or arrangement made to, for or with any
officers or employees of its Covered Assets or New Acquisition or subsidiary
thereof (as the case may be), except increases required by any applicable law,
rule or regulation (which shall include normal periodic performance reviews and
related compensation and benefit insurance);

 

(vii)      decrease
its capital stock or declare, set aside or pay any dividend or other
distribution (whether in cash, assets, stock or a combination thereof) in
respect of any of its capital stock or profit reserves (other than dividend
payments made due to the applicable requirements according to the applicable
Brazilian laws and by-laws of those of its Covered Assets or New Acquisition or
subsidiary thereof (as the case may be), which have as minority shareholders or
preferred shareholders Persons which are not part of either Group, provided
that 50% (fifty percent) of the difference between the aggregate amount of
any such dividend payments which are received by members of the PT Group in
Euros and the aggregate amount of any such dividend payments which are received
by members of the TEF Group in Euros, shall be paid to the other Group at the
Balance Closing by the Group having received the highest of such aggregate
amount of dividends);

 

(viii)     pledge
or otherwise encumber any of the Interests held in any of their subsidiaries;

 

39

 

(ix)       make
any change in any of its present accounting methods and practices, except as
required by changes in generally accepted accounting principles; or

 

(x)        make
any commitment or engage in any negotiations to take any actions referred to in
Sections 6.1(b)(i) through (ix) above.

 

(c)        Unless
previously and expressly agreed in writing by the Parties in each specific
event, each of the TEF Group and the PT Group shall not sell or otherwise
dispose of or pledge or otherwise encumber, any of the Interests held in any of
their Covered Assets or New Acquisitions, or make any commitment or engage in
any negotiations to do any of the foregoing.

 

6.2       Access
to Information

 

Subject to the
full compliance with the confidentiality obligations of Section 13 below,
(i) in respect of the TEF Covered Assets and PT Covered Assets,
respectively, between the date of this Agreement and the Balance Closing, and
(ii) in respect of a New Acquisition, between the date on which the TEF Group
or the PT Group (as the case may be) acquires, directly or indirectly (other
than through the Company) an Interest in the New Acquisition, and the date of
transfer to the Company of the entire such Interest, upon written request by
one Group delivered to the other Group, each of the TEF Group or the PT Group
shall, or shall cause the relevant TEF Covered Assets and PT Covered Assets, or
New Acquisition (as the case may be), to:

 

(a)        give  the requesting Group (the “Requesting Group”) and its
authorised representatives reasonable access to all books, records, offices and
other facilities and properties of the TEF Covered Assets and PT Covered
Assets, or the New Acquisition (as the case may be);

 

(b)        permit
the Requesting Group to make such inspections thereof as the Requesting Group
may reasonably request; and

 

(c)        furnish
the Requesting Group with such financial and operating data and other
information with respect to the business and properties of the Wireless
Properties or the New Acquisition (as the case may be), as the Requesting Group
may from time to time reasonably request.

 

6.3       Consents

 

(a)        Each
of the TEF Group and the PT Group and the Company shall, co-operate and use all
commercially reasonable efforts to make all filings and obtain all licenses,
permits, consents, approvals, authorisations, qualifications and orders of
Governmental Authorities and other third parties necessary to consummate the
transactions contemplated by this Agreement, including, without limitation, (i)
the obtaining of any such necessary consent from any lender or Governmental
Authority, including without limitation the European Commission on antitrust
matters, and (ii) the filing by the 
Company of the transaction with CADE and the ANATEL (provided that
no Party shall have any liability whatsoever hereunder arising from the failure
of ANATEL or CADE to approve the transactions

 

40

 

contemplated herein, except to the extent
that such failure is attributable to the failure by such Party to submit to
ANATEL or to CADE, in timely fashion, the information necessary and required
pursuant to current Brazilian telecommunications and antitrust laws and
regulations).

 

(b)        All
fees and expenses incurred in connection with obtaining such approvals shall be
shared equally between the Groups, except that each of the Groups shall be
solely responsible for any claims, costs, fines, fees or similar expenses which
arise as a direct result of and are solely attributable to any action or
omission on the part of such Group.

 

(c)        With
respect to any required consent or approval not obtained prior to the relevant
Closing, the Groups shall, and shall cause the Company, the TEF Covered Assets
and PT Covered Assets or the New Acquisition (as the case may be), to use
commercially reasonable efforts to obtain any such consent or approval after
such Closing until such consent or approval has been obtained.

 

(d)        Each
of the TEF Group and the PT Group expressly undertakes to obtain all relevant
authorisations, approvals and waivers of any rights of Third Parties and
minority shareholders of TEF Covered Assets and PT Covered Assets, as the case
may be, (including but not limited to rights of first refusal by virtue of the
TEF Covered Assets and PT Covered Assets by-laws and shareholders agreements in
force) which may be required to consummate the transactions contemplated by
this Agreement prior to the relevant Closing.

 

6.4       Best
Efforts to Consummate Transactions

 

Each of the
TEF Group and the PT Group shall co-operate and use all commercially reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the transactions contemplated by this Agreement and
the Shareholders Agreement.

 

6.5       Public Announcements

 

From the date
hereof, except as otherwise mutually agreed in writing by the Parties, no Party
shall issue any report, statement or press release or otherwise make any public
statements with respect to this Agreement or the Shareholders Agreement and the
transactions contemplated hereby, except as may be required by law or in
connection with any applicable obligations of a publicly-held, exchange-listed
company, in which case the language of any such report, statement or press
release shall be mutually agreed to by the Parties.

 

6.6       Acquisitions

 

With regard to
an acquisition of an Interest in a New Acquisition made by a Group pursuant to
Section 1.6.2 above:

 

41

 

(a)        such
Group shall:

 

(i)         use
reasonable efforts to procure that any representations and warranties which it
receives in respect of the Interests acquired in such New Acquisition are no
less favourable than substantially similar representations and warranties,
subject to reasonable disclosure, as contained in Section 4 or 5 (as the case
may be); and

 

(ii)        procure
that any rights under such representations and warranties are assigned to the
Company if allowed by the applicable laws and regulations and, if not possible,
that all benefits under any claims and rights to make claims pursuant to such
representations and warranties, are transferred to the Company; and

 

(b)        substantially
similar representations and warranties, to those contained in Section 4 or 5
(as the case may be), supplemented by a disclosure schedule reasonably
acceptable to the other Group, shall be made and given at the Additional
Closing at which an Interest in the New Acquisition is transferred by the
acquiring Group to the Company relating to the period from the date of
acquisition by such Group of the Interest in said New Acquisition to the date
of such Additional Closing.

 

6.7       Financing

 

Each of the
TEF Group and PT Group further agree that:

 

(a)        it
shall use its reasonable efforts to prevent any early repayment obligations or
any other adverse consequences in respect of any third party debt, financing,
bonds, debentures, loans, credits or any other kind of indebtedness (“Financing”) being triggered as a
result of the execution of and performance by the Parties in terms of this
Agreement and the Shareholders Agreement;

 

(b)        No
early repayment obligations or any other adverse consequences in respect of any
inter-company Financing (to any of its Covered Assets or vice versa, or of any
of its Covered Assets to another of its Covered Asset), whether or not the
creditor ́s rights under such Financing are assigned or otherwise transferred to
a third party, shall be triggered as a result of the execution of and
performance by the Parties in terms of this Agreement and the Shareholders
Agreement; and

 

(c)        No
agreement entered into after the date hereof in respect of any Financing of the
Company or any of the Subsidiaries, shall include a provision that performance
by the parties in terms of this Agreement and the Shareholders Agreement
(including without limitation the transfer to the Company of the Balance
Capital Contributions) shall be a breach of such agreement or trigger an early
repayment obligation or any other adverse consequences in respect of any
Financing of the Company or any of the Subsidiaries.

 

6.8       Global Telecom contract; representations and
warranties

 

(a)        Portugal
Telecom shall, and shall procure that Telesp Celular Participações, S.A. shall,
fully comply with the contract “Promessa Irrevogável de Compra e Venda de
Ações”,

 

42

 

dated 13 January 2001 and more particularly
undertakes that either Telesp Celular Participações, S.A. or itself acquires
all the shares in Global Telecom in order to become the owner of the Global
Telecom Interest.

 

(b)        Portugal
Telecom shall, and shall procure that Telesp Celular Participações, S.A. shall,
during the period from the date of this Agreement to the Balance Closing, duly
and fully exercise the rights which any member of the PT Group may have in
respect of representations, warranties and indemnities received in respect of
all Interests acquired by the PT Group in Global Telecom under the GT
Acquisition Agreement.

 

6.9       Transactions related to financing and derivative
operations of the Covered Assets

 

(a)        Both
Groups agree that all the transactions related to financing and derivative
operations of their Covered Assets (including but not limited to unwinding,
transfers, local financing) performed after March 31, 2002 until the Balance
Closing and not included in the information provided during the due diligence
process performed as of such date, will be disclosed to the other Group as soon
as practicable after the date hereof (or after the execution of such
transaction) and will be audited quarterly by the auditors of such other
Group’s auditor in Brazil.

 

(b)        The
audit report regarding such transactions shall be submitted to two independent
banks nominated mutatis mutandis
in accordance with Section 1.4(b) of the Subscription Agreement.  If such independent banks conclude that: (i)
one of the Groups or any of its Covered Assets performed such transactions not
on an arms-length basis; or (ii) one of the Groups has extracted value from its
Covered Assets; or (iii) one of the Groups or any of its Covered Assets left
unhedged foreign currency debt during any period; they shall determine the loss
in the relevant Covered Asset(s) arising as a consequence of such transactions
and the amount which the relevant Group shall pay as compensation to the other
Group in cash immediately after such amount is determined.

 

SECTION 7:            TERMINATION OF AGREEMENT

 

7.1       Termination

 

This Agreement
may be terminated:

 

(a)        upon
termination of the Shareholders Agreement for any reason other than the events
set forth in Section 7.1(b), (c) and (d) below;

 

(b)        by
the TEF Group or the PT Group, if any court or other Governmental Authority
shall have issued an order, decree, judgement or ruling or taken any other
action which enjoins, restrains or otherwise prohibits the consummation of the
Balance Closing on or before December 31, 2005, provided that, in such
event, the provisions of Section 7.2 shall apply;

 

(c)        by
the TEF Group, if the PT Group fails to comply with the provisions of this
Agreement, or fails to make any Contribution hereunder, or otherwise takes any
action or fails to take any action, and the result of the foregoing is that:

 

43

 

(i)         the
Balance Closing is not consummated by December 31, 2005, and the PT Group fails
to remedy such breach within 30 (thirty) days of receipt of a notice from the
TEF Group calling upon the PT Group to remedy such breach; or

 

(ii)        the
consummation of the Initial Closing or Balance Closing (as the case may be),
would be impossible (if the breach were to persist) and the PT Group fails to
remedy such breach within 30 (thirty) days of receipt of a notice from the TEF
Group calling upon the PT Group to remedy such breach,

 

in each of
which events the provisions of Section 7.3 shall apply; or

 

(d)        by
the PT Group, if the TEF Group fails to comply with the provisions of this
Agreement, or fails to make any Contribution hereunder, or otherwise takes any
action or fails to take any action, and the result of the foregoing is that:

 

(i)         the
Balance Closing is not consummated by December 31, 2005, and the TEF Group
fails to remedy such breach within 30 (thirty) days of receipt of a notice from
the PT Group calling upon the TEF Group to remedy such breach; or

 

(ii)        the
consummation of the Initial Closing or Balance Closing (as the case may be),
would be impossible (if the breach were to persist) and the TEF Group fails to
remedy such breach within 30 (thirty) days of receipt of a notice from the PT
Group calling upon the TEF Group to remedy such breach,

 

in each of
which events the provisions of Section 7.3 shall apply.

 

7.2       Effects of Termination due to the Events set forth
in Sections 7.1(b)

 

In the case of occurrence of an event set forth in Section 7.1(b)
hereto:

 

(a)        the
Parties shall procure that the Company shall be immediately liquidated pursuant
to the provisions of Section 4.3 of the Shareholders Agreement if the Interest
in any Wireless Property or New Acquisition has been totally or partially
transferred to the Company; and

 

(b)        if
the Interests held by any of the Groups in the Wireless Properties referred to
in Exhibit IV hereto, have not been fully transferred to the Company, each of
the Groups shall have the right to gradually buy from the other Group or from
the Company, and the obligation to sell and transfer within the 6 (six) months
following receipt of notice from the other Group making the request to buy, the
maximum percentage allowed by regulatory authorities from time to time, up to
25% (twenty-five percent) of the respective voting ownership of the PT Group
and the TEF Group in Selected Wireless Properties based on an Independent
Valuation, as well as to appoint the corresponding representatives in each
board of directors, as long as such appointment does not violate regulatory
provisions, provided that if such transfer is subject to the prior (i)
fulfilment of legal or regulatory requirements, and/or (ii) approval by any
regulatory agency (including, without limitation, ANATEL, CVM or any other
Governmental Authority with jurisdiction over the Company and the
Subsidiaries), the time period during which such transfer may be consummated
shall be

 

44

 

extended until the expiration of 15 (fifteen)
Business Days after all such requirements have been fulfilled and/or such
approvals have been received.  This
transaction shall be carried out in the most efficient manner for tax
purposes.  The notice referred above
shall be sent within 2 (two) months from the earlier event determining the
possibility of exercising the cross-selling right.  Termination of this Agreement pursuant to
this Section 7.2 shall not affect the right to exercise the Call Right provided
for in Section 1.6.1 hereof, which may be exercised by the TEF Group during the
2 (two) month period set forth in this Section 7.2(b).

 

7.3       Effects
of Termination due to Breach of Sections 7.1(c) or (d)

 

(a)        In
the case of occurrence of an event set forth in Section 7.1(c) or (d) above,
(i) the Parties shall procure that the Company shall be immediately liquidated
pursuant to the provisions of Section 4.3 of the Shareholders Agreement if any
Interest in any Wireless Property or New Acquisition has been totally or
partially transferred to the Company, and (ii) if the Interests held by any of
the Groups in the Wireless Properties referred to in Exhibit IV hereto, have
not been fully transferred to the Company, the non-defaulting Group under the
relevant section (the “Non-Defaulting Group”)
shall have the right to acquire from the defaulting Group under such section (the
“Defaulting Group”) an interest
equal to 35% (thirty-five percent) of the voting ownership in the Selected
Wireless Properties of such Defaulting Group (the “Penalty
Shares”) at a price equal to (A) the value of such interest in
the Wireless Properties as determined by an Independent Valuation to be
conducted pursuant to Sections 1.4 and 1.5 above, minus (B) a 20% (twenty
percent) discount on such value.

 

(b)        The
exercise of the call right on the Selected Wireless Properties created under
this Section 7.3 shall be made upon notice sent by the Non-Defaulting Group to
the Defaulting Group indicating the breach or the action that triggered the
termination of this Agreement as set forth in Section 7.1(c) and (d) (such
breach or action referred as a “Triggering Event”).  Upon receipt of such notice, the Defaulting
Group shall, or cause its Affiliates to, take all actions as may be required by
law or this Agreement to sell and transfer to the Non-Defaulting Group the
Penalty Shares no later than 15 (fifteen) days following the date the value
resulting from the Independent Valuation is received, provided that if
such transfer is subject to the prior (i) fulfilment of legal or regulatory
requirements, and/or (ii) approval by any regulatory agency (including, without
limitation, ANATEL, CVM or any other Governmental Authority with jurisdiction
over the Company and the Subsidiaries), the time period during which such
transfer may be consummated shall be extended until the expiration of 15
(fifteen) Business Days after all such requirements have been fulfilled and/or
such approvals have been received.

 

(c)        The
call right created hereunder may be exercised within 6 (six) months after (x)
the Non-Defaulting Group becomes aware of the Triggering Event, or (y), if the
existence of the Triggering Event is disputed, the date on which the
arbitration process set forth in Section 10 below determines the existence of
such Triggering Event.  In any case, if
the Non-Defaulting Group is the TEF Group it shall remain entitled to the Call
Right provided for in Section 1.6.1 hereof during the same period stated in
this Section 7.3(c).

 

45

 

(d)        Except
with respect to the Liquidation of the Company, which, in such case, will not
occur, the provisions of this Section 7.3 shall also apply if a Change of
Control occurs before the Balance Closing, and the Group not suffering the
Change of Control does not reach an agreement with the new controlling operator
on the management and strategic plan for the Company, in addition to the
provisions of Section 5.6 of the Shareholders Agreement.

 

(e)        The
call right on Selected Wireless Properties provided for herein may be exercised
by the Non-Defaulting Group, fully or partially, gradually as permitted by
applicable regulations. The Non-Defaulting Group may also exercise the call
right directly or indirectly, or transfer such right to a non-telecom operator
third party to partially or totally exercise the call right.  The identity of the non-telecom operator
third party must be approved by the Defaulting Group, which approval shall not
be unreasonably withheld.

 

SECTION 8:            INDEMNIFICATION; SURVIVAL OF
REPRESENTATIONS; LIMITATIONS; PROCEDURE

 

8.1       Agreement
to Indemnify

 

(a)        Each
Group (the “Indemnitor”) shall be liable
to and shall indemnify and hold harmless the other Group (the “Indemnitee”) from and against all
Damages suffered by the Indemnitee as a result of, or in relation to:

 

(i)         any
representation or warranty, given by it to the other Group in terms of this
Agreement, being, individually or jointly, untrue or misleading; or

 

(ii)        a
breach of any covenant, obligation or undertaking in this Agreement by any
Party in the Indemnitor ́s Group,

 

(a “Breach”), provided that, the
Parties agree that:

 

(x)        Damages
suffered by (A) any of the Covered Assets (B) the Company, and (C) directors,
officers, employees, Affiliates, controlling persons, agents, representatives,
successors and subsidiaries of the Indemnitee, shall, for the purposes of this
Section, be deemed to be suffered by the Indemnitee; and

 

(y)        all
indemnifications for Damages suffered by an Indemnitee, shall, at the option of
the Indemnitee, be paid:

 

(A)       to
such Indemnitee in proportion to the percentage Interest held in the Company by
the Indemnitee; or

 

(B)       to
the Company or relevant Covered Asset (provided that it does not cause Tax
disadvantages to the Company or such Covered Asset), but then without regard to
the percentage Interest held in the Company by the Indemnitee.

 

(b)        Liability
for a Breach shall exist irrespective if, at the time of the Breach, a Group
knew, or should, or could have known that such a Breach existed or could arise,
whether or not such Knowledge was obtained from the due diligence review
initiated by it or otherwise.

 

46

 

(c)        In
the event that, in the period between the date of execution of this Agreement
and the Balance Closing, an Indemnitee becomes aware of a Breach in relation to
a Covered Asset, the liability of an Indemnitor to pay Damages shall be
calculated as if all the Interests in the corresponding Covered Asset had been
transferred to the Company, provided that such Damages shall be due and
payable to the Indemnitees (i) at the Initial Closing, in respect of Damages
suffered prior to the Initial Closing, in proportion to the Interests held by
the Company in such Covered Asset upon the Initial Closing, (ii) at the Balance
Closing, in respect of Damages suffered prior to the Balance Closing, in
proportion to the Interests transferred to the Company in such Covered Asset at
the Balance Closing and (iii) if applicable, in respect of Damages suffered
prior to the Additional Closing, at the relevant Additional Closing in
proportion to the Interests transferred to the Company in such Covered Asset at
such Additional Closing.

 

(d)        Damages
shall be payable in Euro and shall be increased with the interest rate applied
from time to time by the ECB to the financial institutions having access to the
credit facilities of the ECB for overnight financing in Euro, calculated from
the date on which the Damages have arisen until the date of payment of such
Damages.

 

(e)        For
the avoidance of doubt, Damages caused by facts or circumstances having
occurred prior to the date of this Agreement, shall be subject to
indemnification under this Section 8, even if they arise or become known by the
Indemnitee after the date of this Agreement.

 

(f)         Damages
caused by facts or circumstances having commenced prior to the date of this
Agreement and continuing thereafter, shall only be subject to indemnification
under this Section 8 for that portion of the Damages caused before the date of
this Agreement.

 

(g)        For
the avoidance of doubt, a Breach by a Party shall be deemed to be a Breach by
the Group to which such Party belongs.

 

(h)        For
the avoidance of doubt, Damages suffered by a Party shall be deemed to be
Damages suffered by the Group to which such Party belongs.

 

8.2       Survival of Representations, Warranties and
Covenants

 

(a)        The
right to claim Damages for a Breach shall survive until the earlier of:

 

(i)         expiry
of a period of 25 (twenty-five) years from date hereof;

 

(ii)        expiry
of the maximum period under the applicable statute of limitations; and

 

(iii)       the
termination, or the assignment of this Agreement in accordance with Section
5.4(i) of the Shareholders Agreement, provided that:

 

(X)       if
this Agreement terminates or is assigned (in which event the provisions set
forth in Section 11.1(iii) of the Shareholders Agreement shall apply) prior to
the Balance Closing having occurred or within 2 (two) years from the Balance
Closing, then the right to make any such claim:

 

47

 

(x)        which
is based upon a third party claim, shall survive for the maximum period under
the applicable statute of limitations; and

 

(y)        which
is not based upon a third party claim, shall survive for 2 (two) years after
termination, or assignment, of this Agreement; and

 

(Y)       if
this Agreement terminates or is assigned (in which event the provisions set
forth in Section 11.1(iii) of the Shareholders Agreement shall apply), after
expiry of a period of 2 (two) years after the Balance Closing, then the right
to make any such claim shall only survive if the claim is based on a third
party claim and then for the maximum period under the applicable statute of
limitations.

 

(b)        The
right to claim indemnification for damages for a breach of a representation or
a warranty or of a covenant received from a third party and transferred by the
acquiring Group to the Company regarding a New Acquisition (in accordance with
Section 6.7 above) shall survive for the period agreed with such third party.

 

(c)        The
right to claim indemnification for Damages regarding a New Acquisition (in
accordance with Section 6.6 above) will survive as set forth in Section 8.2(a),
provided that the reference to the Balance Closing shall be understood
to be made to the Additional Closing at which the relevant New Acquisition is
fully contributed to the Company.

 

(d)        The
expiry of the survival periods set forth in this Section 8.2 shall be without
prejudice to any accrued rights, claims and liabilities of the Parties in
existence at the time of such expiry.

 

8.3       Limitation to the Obligation to Indemnify

 

Neither Group
shall be liable to the other Group in respect of any individual claim for
Damages relating to the same Breach, where the liability, agreed or determined,
in respect of such claim is equal to or less than the equivalent of Euro
1,000,000 (one million Euro). A Group shall be liable to the other Group in
respect of each claim for which the liability, agreed or determined, is equal
to or less than the equivalent of Euro 1,000,000 (one million Euro) if the
aggregate liability for all such claims exceeds the amount of Euro 10,000,000
(ten million Euro), provided that:

 

(a)        Damages
relating to Taxes are not subject to any of the limitations set out in this
Section 8.3;

 

(b)        in
the case of Damages based on a Breach relating to a Covered Asset or a New
Acquisition, no regard shall be had to the fact that the other Group holds a
direct or indirect interest in such Covered Asset or New Acquisition; and

 

(c)        the
net amount (after deducting any related taxes, costs and expenses) received by
the Company and any of the Covered Assets from a third party (or insurers,
including insurance companies) as a result of the same matter giving rise to
the Damages, shall be taken into account in calculating the liability of the
Indemnitor hereunder.

 

48

 

8.4       Indemnification
Procedure

 

(a)        When
any Indemnitee is entitled to indemnification under the provisions of this
Section 8, it shall notify the Indemnitor promptly in writing of any Breach as
to which the Indemnitee may request indemnification hereunder; provided that
any failure by an Indemnitee to notify the Indemnitor shall not relieve the
Indemnitor from its indemnification obligations hereunder and shall not relieve
the Indemnitor from any other obligation that the Indemnitor may have hereunder
or otherwise, except to the extent that the Indemnitor is materially prejudiced
by such failure.

 

(b)        When
applicable, immediately upon the receipt of the notice of a Breach, the
Indemnitor shall assume the defence or the responsibility for the settlement of
any action or proceeding by a third party involving a Covered Asset or a New
Acquisition that is the subject of a claim for indemnification hereunder.  The involved Covered Asset or a New
Acquisition shall be entitled (but not obliged) to participate in any
negotiations or proceedings to settle or otherwise eliminate any claim.  The Indemnified Party and the Company shall
be kept fully informed at all times of the defence and the development of the
claim.  If the Indemnitor fails to
effectively assume the defence, settlement or negotiation and to appoint
counsel to take charge of any such defence, settlement or negotiation of any
action or proceeding, the Indemnitee may, on behalf of the involved Covered
Asset or a New Acquisition, engage counsel to defend, settle or otherwise
dispose of such action or proceeding; provided that the Indemnified
Party shall not settle or compromise any such action, proceeding or claim
without the consent of the Indemnitor (which consent shall not be unreasonably
withheld or delayed).  All costs and fees
due in connection with the defence, settlement or negotiation of any action or
proceeding as set forth in this Section 8.4(b) shall be borne by the
Indemnitor.

 

(c)        If
indemnification for a Breach in relation to a claim by a third party is
requested, the Indemnitor, its agents and representatives shall have access to
the premises, books and records of the Indemnitee, its Affiliates and the
Covered Assets or New Acquisitions (as the case may be), to the extent
reasonably necessary to assist the Indemnitor in defending or settling any
action, proceeding or claim; provided that said access shall be utilised
in such manner as not to interfere unreasonably with the operation or the
business of the Indemnitee, its Affiliates and the Covered Assets or New
Acquisitions (as the case may be). 
Except as reasonably necessary to assist the Indemnitor in defending or
settling such action, proceeding or claim, the Indemnified Party shall not be
required to disclose any information with respect to itself or any of its
Affiliates, and the Indemnified Party shall not be required to participate in
the defence of any claim to be indemnified hereunder (except as otherwise set
forth herein), unless otherwise lawfully required or reasonably necessary in the
defence of any third party claim to be indemnified hereunder.

 

SECTION 9:            BONA FIDE AND PENALTY

 

9.1       Bona fide

 

The Parties
acknowledge that bona fide
compliance with this Agreement requires, in addition to the fulfillment of the
specific undertakings and obligations expressly provided

 

49

 

for herein,
that all the Parties act in good faith and diligently in executing other
actions and decisions, and refrain from carrying out other actions or
decisions, as may be necessary or convenient for a fair, complete, prompt and
adequate implementation of all the effects that reasonably follow from (a) the
common will and purposes of the Parties in consideration of which they enter
into this Agreement, and (b) the terms used by the Parties to describe their
rights and obligations hereunder.  The
Parties expressly undertake to proceed as appropriate for the bona fide compliance with this Agreement.

 

9.2       Penalty
and Delay Interest

 

(a)        The
PT Group and the TEF Group agree with each other that the substantial breach of
any material obligation of a Group expressly provided for herein which does not
have a specific remedy (other than damages and/or specific performance)
pursuant to this Agreement, shall place the defaulting Group under the
obligation to pay the other Group a penalty of [***] in addition to a full
indemnification to the non-defaulting Group for the damage and the loss of
profit suffered as a consequence of such default by the other Group.

 

(b)        In
case of default of a payment obligation, the Group in breach of its obligations
shall pay the non-defaulting Group a delay interest payment calculated at the
reference interest rate applied from time to time by the ECB to the financial
institutions having access to the credit facilities of the ECB, for overnight
financing in Euros, increased by 2 (two) percentage points.  The delay interest shall be accrued on a
daily basis and shall be paid on the last business day of each calendar month,
and if not paid, the accrued interest shall be added to, and capitalized to
become part of the amount then due but unpaid, and shall accrue additional
delay interest thereinafter.

 

SECTION 10:          APPLICABLE LAW AND SETTLEMENT OF DISPUTES

 

10.1     Governing Law

 

This
Agreement, and any question related to it or to its performance or consequences
of any breach of it, shall be governed by and construed in accordance with the
laws of the Netherlands.

 

10.2     Arbitration

 

(a)        If
any dispute arises in relation to this Agreement, then at the request of any
Party the dispute shall be submitted for final decision by arbitration to be
conducted in Amsterdam, the Netherlands, under the Rules of Arbitration of the
International Chamber of Commerce. Without prejudice to the site of the
arbitration being Amsterdam, the Netherlands and that the award must be issued
in that town, hearings and other activities during the arbitration proceeding
may be held elsewhere.

 

(b)        There
shall be 3 (three) arbitrators, with each Group appointing 1 (one) arbitrator,
who shall accept its appointment within 15 (fifteen) days, and who collectively
shall select a third arbitrator as chairman within 15 (fifteen) days from the
acceptance of their appointments.  If the
two appointed arbitrators do not agree on the selection of the third

 

50

 

arbitrator, the third arbitrator shall be
appointed by the International Chamber of Commerce.  The International Chamber of Commerce shall
also appoint the arbitrator for one Group if such Group fails to appoint the
arbitrator within 30 (thirty) days of the written notification to such Group by
the other Group of the beginning of the arbitration proceeding.  The language to be used in the arbitration
proceedings shall be English.

 

(c)        The
Parties submit irrevocably to the decision of the arbitration tribunal, giving
their consent to comply with such decision and waive any other jurisdiction
that could apply.  The arbitration
tribunal shall apply the laws of the Netherlands.  The fees shall be paid by the losing party
and shall include any reasonable expenses including without limitation
attorneys’ fees and any expenses related with the proceeding.

 

(d)        Consistent
with the expedient nature of arbitration, each Party shall, upon the written
request of the other Parties, promptly provide the other with copies of
documents relevant to any issue of the claim or counterclaim, save to the
extent that such documents are subject to confidentiality restrictions imposed
on the first mentioned Party by a third party, or are subject to first
mentioned Party’s attorney-client privilege. 
Any dispute regarding discovery, or the relevance or scope thereof,
shall be determined by the arbitrators, which determination shall be conclusive.

 

(e)        The
Parties shall make their agents and employees available upon reasonable notice
at reasonable times at the place of arbitration without the necessity of
subpoenas or other court orders.  The
arbitrators shall issue subpoenas to compel the attendance of, and the
production of documents by, third parties witnesses at depositions or at the
hearing.

 

(f)         Information
obtained by either Group or the Company during the arbitration shall be kept
confidential and shall not be used except in connection with the arbitration
proceeding, and at the conclusion of the proceeding, the documents disclosed
shall be returned to the other Group.

 

(g)        Any
award in arbitration initiated under this Section may include monetary damages
as well as specific performance of the obligations set forth herein.

 

(h)        No
details of any arbitration award pursuant to this Section 10 shall made public
by any Party or the arbitration tribunal, and the arbitration award shall be
subject to the provisions of Section 13 below.

 

SECTION 11:          NOTICES

 

11.1     All
notices, requests, permissions, consents, waivers, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
signed by the respective persons giving them and delivered by hand, or
deposited in the mail (registered, return receipt requested), properly
addressed and postage prepaid, as follows:

 

51

 

If to TEM:

Attn: Mr
Antonio Hornedo Muguiro

General Counsel

Goya 24

Madrid, Spain

Tel: + (34) 91 42 34 054

Fax: + (34) 91 42 34 016

E-mail: hornedo_a@telefonicamoviles.com

 

If to Portugal
Telecom:

 

Attn: Av.
Fontes Pereira de Melo, 40, 11o andar

Lisbon, Portugal

Tel:

Fax:

E-mail:

 

If to PT
Móveis:

 

Attn:

Av. 5 de Outubro, 208, 4o andar

Lisbon, Portugal

Tel:

Fax:

E-mail:

 

If to the
Company:

 

Attn: General
Manager

Attn: General Manager

Strawinskylaan 3105

1077 ZX Amsterdam

The Netherlands

 

11.2     Such
names and addresses may be changed by written notice delivered by each such
Persons.

 

SECTION 12:          ASSIGNMENT; ENTIRE AGREEMENT; JOINT AND SEVERAL

 

12.1     Assignment

 

Except with
the express written consent of all the Parties hereto or as expressly provided
under the Shareholders Agreement, this Agreement shall not be assignable or
otherwise transferred in whole or in part. 
This Agreement shall inure to the benefit of and be binding upon the
Parties and their respective successors and permitted assigns.  Nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies
under or by reason of this Agreement.

 

52

 

12.2     Entire
Agreement

 

This Agreement
(which includes the Exhibits and the Disclosure Schedules hereto), and the
other documents and agreements delivered in connection with this Agreement and
the Shareholders Agreement contain the entire agreement among the Groups with
respect to the transactions contemplated herein and therein and supersede all
other prior arrangements made by any of them with respect thereto, including
the Joint Venture Agreement, except for the following provisions contemplated
in the Joint Venture Agreement: (i) the provision named as “Other
Considerations”, and (ii) the last paragraph of the provision named “HoldCo
Ownership”, both of  which shall remain
in full force and effect.  No representation
or warranty is made by any Party hereto with respect to the subject matter
hereof and of the Shareholders Agreement, other than as expressly set forth in
any of the aforementioned documents.

 

12.3     Joint
and Several

 

The members of
a Group shall be jointly and severally liable for the obligations under this
Agreement of the Group of which they are members.  Each member of a Group shall be entitled to
the rights under this Agreement of the Group of which it is a member.

 

12.4     Modification
and Amendment; Indexation

 

(a)        Subject
to Section 12.4(b) below, this Agreement cannot be orally changed, amended or
terminated, and no provision or requirement hereof may be orally waived.  Any change, amendment or (save as otherwise
expressly provided) termination shall only be by agreement, in writing, signed
by the Parties and any waiver shall only be effective if made in writing and
signed by the Party waiving its rights.

 

(b)        Where
reference to the amounts referred to in Sections 1.5(b)(ii), 1.5(b)(iii), and
9.2(a), such amounts shall be increased (or decreased) on 1 January of each
year by the average of the official general inflation index applicable in the
Euro Zone on said date, the first such increase (or decrease) to take place on
1 January 2004.

 

SECTION 13:          CONFIDENTIALITY

 

13.1     Confidential
Information

 

Each Party
acknowledges that, pursuant to this Agreement and the Shareholders Agreement,
it may have access to certain information (including, without limitation,
financial information and the information contained in this Agreement and the
Shareholders Agreement) made available by, and concerning the business,
operations and prospects of, any of the other Parties (a “Disclosing Party”) which is either
confidential or proprietary in nature (each “Confidential Information”).  Each Party acknowledges and agrees that all
Confidential Information, is the property of the Disclosing Party and
constitutes valuable, special and unique assets of the business of such Party.

 

53

 

13.2     Use
and Disclosure

 

Each Party
(the “Receiving Party”)
agrees in relation to any Confidential Information of any other Party: (i) to
use such Confidential Information solely for the purposes contemplated in this
Agreement and the Shareholders Agreement, and in facilitating the business
objectives of the Company; (ii) to keep such information confidential and to
disclose it only to officers, employees, consultants and professional advisers
and in the case of a Third Party Sale as referred to in Section 5.4 of the
Shareholders Agreement, to such Third Party, who (A) have a need to know (and
only to the extent that each has a need to know); (B) are aware that the
Confidential Information should be kept confidential; (C) are aware of the Receiving
Party’s undertakings in relation to such information in terms of this
Agreement; (D) have been directed by the Receiving Party to keep the
Confidential Information confidential; and (E) in the case of a Third Party
Sale as referred to in Section 5.4 of the Shareholders Agreement, has executed
a confidentiality agreement on terms and conditions not less favourable than
those set out in this Agreement in favour of the Parties.

 

13.3     Duties of Receiving Party

 

(a)        The
Receiving Party shall (i) establish and maintain reasonable security measures
to safeguard Confidential Information from access or use not authorised by this
Agreement; (ii) keep the Confidential Information under its control; (iii) use
reasonable best efforts to comply with any reasonable direction issued by the
owner from time to time regarding the enforcement of confidentiality
requirements including, without limitation, commencing and conducting,
enforcement proceedings; and (iv) on ceasing to be one of the Parties (A)
continue to keep confidential the Confidential Information received while a
Party; and (B) at each owner’s option, return to that owner or destroy and
certify the destruction of that owner’s Confidential Information.

 

(b)        The
Receiving Party shall further, in relation to such Confidential Information (i)
at its own cost and expense use reasonable efforts to ensure, at all times,
that each Person to whom it discloses such Confidential Information complies
with the confidentiality obligations set out in this Agreement; (ii) at its own
cost and expense immediately notify the owner of any suspected or actual
unauthorised use, copying or disclosure of Confidential Information of that
owner of which the notifying Party becomes aware; and (iii) provide such
assistance as may reasonably be requested by any owner of Confidential
Information (at such owner’s sole cost, unless the Receiving Party is in breach
of its confidentiality obligations under this Agreement) in connection with any
proceedings that the owner may initiate against any recipient or third party
for the unauthorised use, copying or disclosure of such Confidential
Information of said owner.

 

13.4     Exclusions

 

The foregoing
obligations of confidentiality shall not apply to, nor restrict the use of data
or Confidential Information which: (i) was already in the rightful possession
or control of the recipient at the time of disclosure and not subject to an
obligation of confidentiality on such party, and of which the recipient has
evidence so to prove; (ii) the recipient thereafter develops independently and
has evidence of such development; (iii) was received from a 

 

54

 

third party
who was entitled to disclosure; (iv) was necessary financial and/or other
information provided by the Party to prospective financiers and/or investors
but only if such information was given subject to the execution of the
appropriate confidentiality agreement(s) with the receiving party(ies); (v) was
or became known or available to the public or to the trade without fault of the
recipient, except that, even in such instance, the recipient shall not disclose
any correlation between such Confidential Information or techniques and any
such unrestricted information; (vi) is required to be disclosed under law or
rules applicable to the Party or as a result of a court order not subject to
appeal, provided insofar as possible the recipient gives the Disclosing Party
prior notice of such disclosure so that the Disclosing Party may intervene in
the proceedings to protect the confidential nature of the Confidential
Information.

 

13.5     Survival
of Certain Obligations

 

The provisions
of Section 13 shall survive for an indefinite period of time and claims
thereunder may be brought at any time irrespective of the termination of this
Agreement for any reason whatsoever.

 

SECTION 14:          SEVERABILITY

 

Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or this Agreement.

 

SECTION 15:          LANGUAGE

 

This Agreement shall be executed in the English language.

 

SECTION 16:          DEFINITIONS

 

Unless a different meaning clearly appears from the context herein or
unless otherwise defined in this Agreement, the capitalised terms used
throughout this Agreement shall have the meanings set forth in this Section 16.

 

“Acquisition Date” has the meaning set forth in Section
1.5(b)(i)(A) of this Agreement.

 

“Acquisition Price” means, in each case, the price effectively
paid or incurred for the acquisition of the relevant Interest in the relevant
New Acquisition or the Further Interest in a Wireless Property (as the case may
be), by the Group making such acquisition.

 

“Additional Capital Contribution” means any capital contribution
to the Company, including contributions made (i) in cash or (ii) in kind in the
form of Liquid Assets (if accepted by the other Group), Interests in New
Acquisitions or any Further Interest in a Wireless Property (as the case may
be), (to be) transferred by any of the Groups after the Balance Closing, in such
a manner as set forth in this Agreement and the Shareholders Agreement.

 

55

 

“Additional Closing” means the date on which any Additional
Capital Contribution is transferred to the Company.

 

“Affiliate” means, when used with reference to a specified
Person, any other Person that directly or indirectly Controls or is Controlled
by or is under common Control with the specified Person.

 

“Agreement” means this Subscription Agreement and any and all
Exhibits, Disclosure Schedules and amendments hereto and thereto from time to
time.

 

“ANATEL” means the Agência
Nacional de Telecomunicações, or any substitute agency, department
or regulatory body of the telecommunications industry in Brazil.

 

“Articles of Association” means the articles of association of
the Company, as amended from time to time.

 

“Asset” or “Assets” mean all property, rights and other
assets held, leased or owned, beneficially or not, by any of the Wireless
Properties or New Acquisitions (as the case may be), and used in the operation
of their respective Wireless Businesses, including, without limitation, fixed
assets, chattels, office equipment, furniture, other office supplies, accounts
receivables, credits, early payments, cash and other short and long-term
assets, whether tangible or intangible.

 

“Balance Capital Contributions” means (a) those Interests held
by each of the PT Group and the TEF Group in the Wireless Properties and Global
Telecom (as specified in Exhibit IV to this Agreement) and not transferred to
the Company at the Initial Closing; and (b), when applicable, the corresponding
amount of cash referred to in Section 3.1.1(b) of this Agreement, to be
transferred to the Company by the Groups in accordance with Section 3 of this
Agreement, and “Balance Capital Contribution” means any one of them.

 

“Balance Closing” has the meaning set forth in Section 3.1.1(a)
of this Agreement.

 

“Board of Directors” means the managing board (“raad van bestuur”) of the Company from
time to time.

 

“Brazil” has the meaning set forth in the preamble of this
Agreement.

 

“Breach” has the meaning set forth in Section 8.1 of this
Agreement.

 

“Business Day” means a day other than a Saturday, Sunday or
statutory holiday in Sao Paulo, Rio de Janeiro, Madrid, Lisbon or Amsterdam.

 

“CADE” means the Conselho
Administrativo de Defesa Econômica.

 

“Call Right” has the meaning set forth in Section 1.6.1(a) of
this Agreement.

 

“Change of Control” means any event or a series of events the
result of which is that:

 

(a)        a
percentage of 15% (fifteen percent) or more in the total voting rights in (A)
Telefónica is directly or indirectly reached by another telecom operator which
is not acting in concert 

 

56

 

with Portugal Telecom, or (B) Portugal
Telecom is directly or indirectly reached by another telecom operator which is
not acting in concert with Telefónica; or

 

(b)        (i)         a
corporate transaction is effected by any of Telefónica or Portugal Telecom
(each in this case a “Target”) by virtue of which a number of shares is
issued such that the voting share capital of such Target is at least doubled at
the time of the approval of  such
transaction; and

 

(ii)        as
a consequence of such transaction there is a change in the majority of the
board members of such Target; or

 

(c)        in
case of any member of a Group or any Affiliate of any of such members (other
than Telefónica and Portugal Telecom, but including TEM and PT Móveis) which
directly or indirectly owns an Interest in the Company, a majority of the
voting rights in any such Affiliate is directly or indirectly transferred to
another telecom operator, and there is a change of the majority of the members
of the respective board of directors.

 

“Closings” means the Initial Closing, the Balance Closing and
the Additional Closings, and “Closing” means any one of them.

 

“CNMV” means Comisión Nacional del Mercado de Valores of Spain.

 

“Company” has the meaning set forth in the preamble of this
Agreement.

 

“Company Growth Principles” means the principles set out in
Sections 1.2(a), 1.2(b) and 1.2(c) of the Shareholders Agreement.

 

“Company Shares” means all issued shares in the share capital of
the Company, whether or not of a specific class, and “Company Share”
means any one such share.

 

“Company Shares Exchange Ratio” has the meaning set forth in
Section 1.5(b)(v)(B) of this Agreement.

 

“Confidential Information” has the meaning set forth in Section
13.1 of this Agreement.

 

“Contributions” means the Initial Capital Contributions, the
Balance Capital Contributions and the Additional Capital Contributions and “Contribution”
means any one of them.

 

“Contribution Valuations” has the meaning set forth in Section
1.5(b)(v)(A) of this Agreement.

 

“Control”, “Controlled” or “Controlling” in
provisions other than those concerning “Change of Control”, means the
possession, directly or indirectly, of (i) at least 51% (fifty-one percent) of
the voting stock, and (ii) the power to direct or cause the direction of the
management and policies of, a Person or other entity whether by means of voting
rights, contracts or otherwise.

 

“Cost of Carrying” means:

 

57

 

(a)        in respect of Section
3.1.2(i)(C) of this Agreement and Sections 6.2(b) and 6.3(a)(ii) of the
Shareholders Agreement, the financial cost, determined at the corresponding
Additional Closing, when applicable, that the Company would have paid to raise
financing to fund the value of the Contribution having caused the dilution, as
determined in the Contribution Valuation, under applicable market financial
terms and conditions, unsecured and without the support of any of the TEF Group
or the PT Group.  The Cost of Carrying
shall be calculated for the period from the date of the transfer to the Company
by the relevant Group of the Contribution that caused the dilution until the
Additional Closing removing such dilution;

 

(b)        in respect of Section
1.5(b)(v)(A) of this Agreement, the financial cost, determined at the
corresponding Additional Closing, that the Company would have paid to raise
financing to fund the value of the corresponding Interest in a New Acquisition,
as determined in the Finalised Initial Valuation, under applicable market
financial terms and conditions, unsecured and without the support of any of the
TEF Group or the PT Group.  The Cost of
Carrying shall be calculated for the period from the Acquisition Date until the
Additional Closing at which such Interest in a New Acquisition is transferred
to the Company; and

 

(c)        in respect of Section
6.4(h) of the Shareholders Agreement, the financial cost, determined at the
date of the sale and purchase of the relevant portion of the PT Group Company
Shares, that TEM would have paid to raise financing to fund the value of the
corresponding portion of the purchase price for the PT Group Company Shares.

 

“Covered Assets” means the PT Covered Assets and/or TEF Covered
Assets (as the case may be).

 

“CVM” means the Brazilian Comissão de Valores Mobiliários.

 

“Damages” or “Damage” mean, with respect to any Person,
any direct or indirect damage (including consequential damage), loss,
out-of-pocket expense, whether or not as a result of, or in relation to, a
third party claim, including, without limitation, all interest, penalties,
reasonable attorneys’ fees, all amounts paid or incurred in connection with any
action, demand, proceeding, investigation or claim by any third party
(including, without limitation, any Governmental Authority), Taxes, fines or
other losses as a result of, or in relation to, any Breach.

 

“Defaulting Group” has the meaning set forth in Section 7.3(a)
of this Agreement.

 

“Directors” mean the persons who are from time to time, in
accordance with the Shareholders Agreement, members of the Board of Directors
and “Director” means any one of them.

 

“Disclosing Party” has the meaning as set forth in Section 13.1
of this Agreement.

 

“ECB” means the European Central Bank.

 

“Euro” or “€” means the European lawful currency.

 

“Finalised Initial Valuations” has the meaning set forth in
Section 1.5(b)(ii) or Section 1.5(b)(iii) of this Agreement (as the case may
be).

 

58

 

“Financing” has the meaning set forth in Section 6.7(a) of this
Agreement.

 

“Financing Party” has the meaning as set forth in Section 6.7(a)
of this Agreement.

 

“First Choice Investment Banks” and “First Choice Investment
Bank” have the meaning set forth in Section 1.4(a) of this Agreement.

 

“First Group List” has the meaning set forth in Section
1.4(b)(i) of this Agreement.

 

“Further Interest Acquisition Price” has the meaning as set
forth in Section 1.6.4(b) of this Agreement.

 

“Further Interest in Wireless Properties” means all new
Interests in Wireless Properties, which Interests do not form part, directly or
indirectly, of the Initial Capital Contributions or the Balance Capital
Contributions, and which are directly or indirectly acquired by any of the
Groups or by both Groups after the date hereof, (including, but not limited to,
any new shares issued in capital increases and shares acquired from third
parties), and “Further Interest in a Wireless Property” means any one of
them.

 

“Further Parties” means 
in respect of a Group, those wholly owned subsidiaries of such Group
which are used as intermediate holding companies for the transfer to the
Company of any Interest in any Wireless Property or New Acquisition as a
Contribution against an issuance of Company Shares to such wholly owned
subsidiaries, provided that such wholly owned subsidiaries execute this
Agreement and the Shareholders Agreement and “Further Party” means any
one of them.

 

“GAAP” has the meaning set forth in Section 1.6.2 of this
Agreement.

 

“General Share Premium Reserve” has the meaning set forth in
Section 1.1(c) of this Agreement.

 

“Global Telecom” means the New Acquisition Global Telecom, S.A.

 

“Global Telecom Interest” has the meaning set forth in Section
1.6.1(a) of this Agreement.

 

“Governmental Authority” means (a) the government of Brazil,
Spain, Portugal, the Netherlands, and any state, municipality or subdivision or
quasi-governmental authority of any of the same, including but not limited to
courts, tribunals, departments, commissions, boards, bureaux, agencies and
other instrumentalities; and (b) any foreign (as to Brazil) sovereign entity
and any political subdivision, quasi-governmental authority, or instrumentality
of any of the same.

 

“Groups” means the TEF Group and the PT Group and “Group”
means any one of them.

 

“GT Acquisition Agreement” has the meaning set forth in Section
5(a)(ii) of this Agreement, a copy of which agreement is attached to this
Agreement as Exhibit IX.

 

“IAS” has the meaning set forth in Section 1.6.2 of this
Agreement.

 

“Indemnitee” has the meaning set forth in Section 8.1 of this
Agreement.

 

59

 

“Indemnitor” has the meaning set forth in Section 8.1 of this
Agreement.

 

“Independent Valuation” means an independent valuation of (i)
Interests in Wireless Properties, (ii) Interests in New Acquisitions, (iii) the
Company and/or (iv) other items, (as may be required in this Agreement or the
Shareholders Agreement), to be conducted by each of the First Choice Investment
Banks and, when applicable, the Third Investment Bank and to be prepared in the
form of an Initial Valuations report, Finalised Initial Valuations report,
Contribution Valuations report, and/or a report on the Company Shares Exchange
Ratio (as the case may be), and/or as otherwise may be required in the given
circumstances, such independent valuation to be conducted in accordance with
Sections 1.4 and 1.5 of this Agreement and by applying the Independent
Valuation Principles and such other guidelines and criteria set forth in
Exhibits I and II to this Agreement.

 

“Independent Valuation Notice” has the meaning set forth in
Section 1.4(b) of this Agreement.

 

“Independent Valuation Principles” means such valuation
techniques to be used by the Investment Banks and the Third Investment Bank in
performing the Independent Valuations, customary in transactions of this type,
including, without limitation (a) discounted cash flows, (b) publicly available
terms of transactions involving companies comparable to the business of the Parties
and the consideration paid in such transactions, and (c) to the extent publicly
available, multiples on comparable companies.

 

“Initial Capital Contributions” means the Interests held in
Wireless Properties and Global Telecom, to be agreed to by the Groups in terms
of Section 2.1(b) of this Agreement, to be transferred to the Company by each
of the Groups in accordance with Section 2 of this Agreement.

 

“Initial Closing” means the date on which the transfer to the
Company of Initial Capital Contributions is completed, as set forth in Section
2.1 of this Agreement.

 

“Initial Valuations” has the meaning set forth in Section
1.5(b)(i)(A) of this Agreement.

 

“Interest” means a direct or indirect (as the case may be)
ownership interest of the PT Group and/or the TEF Group (as the case may be) in
the equity securities, whether voting or non-voting, of the relevant Person.

 

“Investment Bank” means each of those reputable internationally
recognised investment banks, selected from time to time as First Choice Investment
Banks or as a Third Investment Bank in terms of Section 1.4 or Section 1.5 of
this Agreement (as the case may be), whose Mandate Letters remain effective.

 

“Joint Venture Agreement” has the meaning set forth in the
preamble of this Agreement.

 

“Knowledge” means, in respect of the relevant Person and the
relevant matter, the actual knowledge of such matter, or the actual knowledge
of such matter that would have been obtained by, such Person or any of its
executive officers, directors or individuals occupying corresponding positions,
after due inquiry as would cause a reasonably prudent person to make due
inquiry in

 

60

 

respect of such matter and such reasonably prudent person would, after
such due inquiry, gain such knowledge about such matter.

 

“Lead Group” has the meaning set forth in Section 1.6.4(b) of
this Agreement.

 

“Liens” has the meaning set forth in Section 4.4 or Section 5.4
of this Agreement (as the case may be).

 

“Liquid Assets” means any equity security or bond or
interest-bearing security or any other security listed on an OECD stock
exchange or organized securities market to the extent that the foregoing is
expressly accepted, as to the eligibility of such securities as well as to the value
to be allocated thereto, by the Group other than the Group transferring the
relevant Contribution to the Company.

 

“Liquidation” has the meaning set forth in Section 4.3 of the
Shareholders Agreement.

 

“Mandate Letters” has the meaning set forth in Section 1.4(c) of
this Agreement and “Mandate Letter” means any one of them.

 

“Material Adverse Effect” means any adverse effect on the
business, financial condition, Assets, results of operations (other than
actions arising from each Party’s mere participation in the transactions
contemplated in this Agreement or the Shareholders Agreement, or actions taken
in accordance with this Agreement or the Shareholders Agreement) of each of the
(a) TEF Group, (b) PT Group, (c) Company, or (d) TEF Group, PT Group and Company,
taken as a whole, involving an amount or liability equal to or in excess of
€1,000,000 million (one million Euro).

 

“New Acquisition” means each legal Person which owns or
beneficially holds property, rights and other assets (including, but not limited
to, licenses, concessions or spectrum), that:

 

(a)        are primarily used in the
operation of a Wireless Business, and

 

(b)        do not qualify as a
Wireless Property,

 

which are (to be) acquired by either one or both of the Groups or by
the Company, including, without limitation, [***].

 

“Non-Defaulting Group” has the meaning set forth in Section
7.3(a) of this Agreement.

 

“Other Group” has the meaning set forth in Section 1.6.4(b) of
this Agreement.

 

“Parties” means TEM, Portugal Telecom, PT Móveis, the Company
and the Further Parties, and “Party” means any one of them.

 

“Penalty Shares” has the meaning set forth in Section 7.3(a) of
this Agreement.

 

“Permitted Transferee” means, in the case of a Group, any
Affiliate of said Group.

 

61

 

“Person” means any individual, company, corporation,
partnership, joint venture, association, joint stock corporation, trust,
unincorporated organisation or Government Authority.

 

“Portugal” has the meaning set forth in the preamble of this
Agreement.

 

“Portugal Telecom” has the meaning set forth in the preamble of
this Agreement.

 

“Price Range” has the meaning set forth in Section 1.6.2(a) of
this Agreement.

 

“PT Covered Assets” means the companies set forth in Exhibit VII
to this Agreement and any of their respective subsidiaries from time to time.

 

“PT Group” means Portugal Telecom, PT Móveis, the Further
Parties in the PT Group and any Permitted Transferee in relation to any of the
former, if applicable, in accordance with Section 5.2 of the Shareholders
Agreement.

 

“PT Group Disclosure Schedule” means the disclosure schedules
attached to this Agreement as Exhibit VI.

 

“PT Group Financial Statements” has the meaning set forth in
Section 5.8 of this Agreement.

 

“PT Group Intellectual Property” has the meaning set forth in
Section 5.11 of this Agreement.

 

“PT Group Put” has the meaning set forth in Section 6.4 of the
Shareholders Agreement.

 

“PT Móveis” has the meaning set forth in the preamble of this
Agreement.

 

“PT Wireless Properties” means the current Interests in all the
Wireless Properties, directly or indirectly held by the PT Group and which are
listed in Exhibit IV to this Agreement, 
together with any Further Interest in a Wireless Property acquired by
the PT Group as set forth in Section 1.6.4 of this Agreement.

 

“Put” has the meaning set forth in Section 5.6 of the
Shareholders Agreement.

 

“Reais”, “Brazilian Reais” and “R$” mean the
lawful currency of Brazil from time to time.

 

“Receiving Party” has the meaning set forth in Section 13.2 of
this Agreement.

 

“Reduced Shareholder” has the meaning set forth in Section 6.1
of the Shareholders Agreement.

 

“Requesting Group” has the meaning set forth in Section 6.2(a)
of this Agreement.

 

“SCLV” means the Servicio de Compensación y Liquidación de
Valores, S.A.

 

“Second Group List” has the meaning set forth in Section
1.4(b)(ii) of this Agreement.

 

“Selected Wireless Properties” means (a) with respect to the TEF
Group, Tele Sudeste Celular Participações S.A. and its successors or assignees
of its business or any portion thereof, and (b)

 

62

 

with respect to the PT Group, Telesp Celular Participações S.A. and its
successors or assignees of its business or any portion thereof.

 

“Shareholders” means TEM, Portugal Telecom, PT Móveis, the
Further Parties and any Permitted Transferee in relation to any of the former,
if applicable, in accordance with Section 5.2 of the Shareholders Agreement,
and “Shareholder” means any of them.

 

“Shareholders Agreement” has the meaning set forth in the
preamble of this Agreement.

 

“Spain” has the meaning set forth in the preamble of this
Agreement.

 

“Tax” or “Taxes” mean all taxes, levies, charges or fees,
including income, corporation, advance corporation, gross receipts, transfer,
excise, property, sales, use, value-added, license, payroll, pay-as-you-earn,
withholding, social security and franchise or other governmental taxes or
charges, imposed by the Netherlands, Brazil, Spain or Portugal, or any state, county,
local or foreign government, and such term shall include any interest,
penalties or additions to tax attributable to such taxes.

 

“Tax Returns” means any reports, returns or statements required
to be supplied to a taxing authority in connection with Taxes.

 

[***]

 

“TCP Shares” has the meaning set forth in Section 1.8 of this
Agreement.

 

“TEF Covered Assets” means the companies set forth in Exhibit
VIII to this Agreement and any of their respective subsidiaries from time to
time.

 

“TEF Group” means TEM, the Further Parties in the TEF Group and
any Permitted Transferee in relation to any of the former, if applicable, in
accordance with Section 5.2 of the Shareholders Agreement.

 

“TEF Group Disclosure Schedule” means the disclosure schedules
attached to this Agreement as Exhibit V.

 

“TEF Group Financial Statements” has the meaning set forth in
Section 4.8 of this Agreement.

 

“TEF Group Intellectual Property” has the meaning set forth in
Section 4.11 of this Agreement.

 

“TEF Wireless Properties” means all the current Interests in
Wireless Properties, directly or indirectly held by the TEF Group and which are
listed in Exhibit IV to this Subscription Agreement, together with (a) any
Further Interest in a Wireless Property acquired by the TEF Group as set forth
in Section 1.6.4 of this Agreement, and (b) the shares of Telesp Celular
Participações, S.A. that the TEF Group will acquire in accordance with Section
1.8 of this Agreement.

 

“Telefónica” means Telefónica S.A., a corporation duly
organized, existing and established in accordance with the laws of Spain, with
head offices at c/ Gran Via, 28, Madrid, Spain.

 

63

 

[***]

 

“TEM” has the meaning set forth in the preamble of this
Agreement.

 

“Third Investment Bank” has the meaning set forth in Section
1.5(b)(iii) of this Agreement.

 

“Third Party” means any prospective purchaser or transferee
(other than a Shareholder or a Permitted Transferee) of Company Shares, or
pre-emptive rights to Company Shares, in a bona fide, arm ́s length transaction.

 

“Triggering Event” has the meaning in Section 7.3 of this
Agreement.

 

“US Dollars”, or “USD” mean the lawful currency of the
United States of America from time to time.

 

“Wireless Business” means wireless and mobile telephone operations
currently or hereafter conducted by any Person in Brazil.

 

“Wireless Properties” means the TEF Wireless Properties and the
PT Wireless Properties and “Wireless Property” means any one of them.

 

64

 

IN WITNESS WHEREOF, the Parties have duly executed this Agreement in 10
counterparts as of the date first above written.

 

	
  SIGNED by [                                  ]

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SIGNED by [                                  ]

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SIGNED by [                                  ]

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  on behalf
  of:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  TELEFÓNICA MÓVILES, S.A.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SIGNED by [                                  ]

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  on behalf
  of:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PORTUGAL TELECOM, SGPS, S.A.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SIGNED by [                                  ]

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  on behalf
  of:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PT MÓVEIS, SGPS, S.A.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SIGNED by [                                  ]

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  on behalf
  of:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  BRASILCEL B.V.

  	
   

  	
   

  

 

65

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00077-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00077-of-00352.parquet"}]]