Non-Competition Agreement

EXECUTION COPY


NON-COMPETITION AGREEMENT


THIS NON-COMPETITION AGREEMENT (the "Agreement"), dated as of March 2, 1999 among Telecomunicaciones de Puerto Rico, Inc. (the "Corporation"), a Puerto Rico corporation, GTE Holdings (Puerto Rico) LLC, a limited liability company organized under the Laws of Delaware ("Purchaser"), GTE Corporation, a New York corporation ("GTE"), GTE International Telecommunications Incorporated, a Delaware corporation and sole shareholder of Purchaser ("Strategic Purchaser"), Popular, Inc. (together with Purchaser, GTE, and Strategic Purchaser the "Purchaser Group"), and Puerto Rico Telephone Authority ("PRTA"), a public corporation and government instrumentality of the Commonwealth of Puerto Rico ("Puerto Rico"), and the Government Development Bank for Puerto Rico ("GDB").


WITNESSETH


WHEREAS, Strategic Purchaser, Purchaser, Puerto Rico Telephone Company, Inc., a Puerto Rico corporation ("PRTC"), and PRTA have entered into an Amended and Restated Stock Purchase Agreement, dated as of July 21, 1998 (as amended from time to time, the "Purchase Agreement"); and


WHEREAS, members of the Purchaser Group and PRTA have substantial knowledge and expertise in the telecommunications industry and with respect to the Corporation and its


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subsidiaries and the Strategic Purchaser will obtain ongoing knowledge of the Corporation and its subsidiaries in connection with the performance of its obligations under the Management Agreement, dated as of the date hereof, among the Corporation, PRTC and Strategic Purchaser (the "Management Agreement"); and


WHEREAS, as a condition to Closing, the Purchase Agreement requires the parties hereto to enter into this Agreement.


NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the parties agree as follows:


1. Definitions.


1.1 General. Unless otherwise defined herein, each capitalized term used herein and not otherwise defined shall have the meaning set forth in the Purchase Agreement.


1.2 "Affiliate" means, as to any Person (i) an entity at least a majority of the voting capital stock of which is owned directly or indirectly by such Person, (ii) an entity that directly or indirectly owns at least a majority of the voting capital stock of such Person, and (iii) an entity a majority of the voting capital stock of which is directly or indirectly owned by an entity of the type described in clause (ii) above.


2. Non-Compete; Non-Disclosure.


2.1 Restricted Activity. For the purposes of this Agreement, "Restricted Activity" means the development, acquisition, construction, management, ownership or operation of


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wireline or wireless telecommunications, data transmission or Internet related systems and businesses, and all service businesses directly related thereto, including the application for the development and acquisition of licenses, permits and authorizations as are necessary or appropriate for any of the foregoing, and which systems and businesses are primarily for service in or from Puerto Rico.


2.2 Covenant Not to Compete.


(a) Each member of the Purchaser Group (other than Popular, Inc. in the case of Section 2.2(a)(i)), GDB and PRTA (each a "Restricted Party") agree that they shall not:


(i) Until the earlier to occur of the following: (x) the date when PRTA and any other Puerto Rico Entity ceases to continue to own or control, in the aggregate, at least 5% of the shares of capital stock of the Corporation, and (y) the later of (A) seven years and (B) one year after a sale of Shares by any Puerto Rico Entity in a public offering of Shares on behalf of any Puerto Rico Entity by the Corporation (the "Non-Competition Expiration Date"), engage, directly or indirectly, including without limitation through any Affiliate (other than the Corporation and its subsidiaries), in any manner (including, without limitation, as a shareholder, owner, investor, partner, joint venturer, independent contractor, consultant or advisor, or in any other capacity as principal or


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agent), in any Restricted Activity. Notwithstanding the above, the foregoing covenant shall not be deemed to prohibit (i) any member of the Purchaser Group and its Affiliates on the one hand and PRTA and its Affiliates on the other hand from acquiring as an investment not more than two percent (2%), in the aggregate, of the capital stock of a corporation engaged, directly or indirectly, in a Restricted Activity, whose stock is traded on a national securities exchange or over-the-counter; (ii) activities of GTE or its subsidiaries, divisions and Affiliates described on Schedule 1; (iii) activities of Puerto Rico Entities of the nature conducted on the date hereof (including ownership of interests in Telecomunicaciones Ultramarinas de Puerto Rico, Inc. and TLD) other than the provision of local telephone service or intra-island, national or international long distance telecommunication service, which activities are ancillary to the primary function of such entities; and private network services and activities among the Puerto Rico Entities; (iv) ownership of Shares of the Corporation; (v) the provision of services or technology to the Corporation and its subsidiaries pursuant to the Management Agreement, the U.S. Management Agreement, the Technology Transfer Agreement or similar agreements; or (vi) exercising any of its rights or complying with any of its obligations under the Shareholders Agreement or the Option Agreement; provided, however, that the


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foregoing shall not prohibit the provision of local telephone service or intra-island, national or international long distance service by TLD or the ownership of interests therein for so long as the Puerto Rico Entities do not increase their investment therein or control the management of TLD;


(ii) At any time prior to 180 days after consummation of the initial public offering or widely disseminated private placement by the Puerto Rico Entities or the Corporation of Shares, call upon or otherwise solicit any Person who is, at that time, a director, officer or key employee of the Corporation or its subsidiaries for the purpose or with the intent of enticing or otherwise influencing such employee away from or out of the employ of the Corporation or its subsidiaries other than by solicitations in newspapers or media made available to the general public.


(b) During the period specified in Section 4.10(b), (i) Popular, Inc. will comply with the requirements of the Bank Holding Company Act of 1956 restricting the non-banking activities of bank holding companies and shall comply with any restrictions imposed in respect of its investments or activities by applicable law, and (ii) in no event will Popular, Inc. make an investment in the equity of a company (other than the Corporation) engaged in providing substantial telecommunications services in Puerto Rico, except for investments of not more than


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2% of the equity of companies whose stock is traded on a national securities exchange or over the counter, or control the management of any business (other than the Corporation) with substantial telecommunications operations in Puerto Rico.


(c) It is agreed by the parties that the foregoing covenants in this Section 2 impose a reasonable restraint on each of the parties hereto in light of the activities and business of the Corporation and/or its Affiliates on the date of the execution of this Agreement.


2.3 International and National Long Distance. Certain of the parties and TLD have entered into an Agreement and Release dated August 1, 1998 (the "Related Agreements"), with respect to the mutual waiver of non-competition covenants.


2.4 Subsequent Acquisitions. The parties agree that the acquisition by a party or any of its Affiliates of an interest in any Person that would cause such party to be in breach of Section 2.2 will not be a breach if (i) such breach is waived by Purchaser and PRTA or (ii) immediately upon the consummation of such acquisition such party or Affiliate provides the Corporation with a written offer to sell the portion of the acquired Person relating to the Restricted Activity to the Corporation for the same price as the party or Affiliate paid for such competing business (including any cost of funds for acquiring such competing business). If the


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Corporation, acting through the disinterested directors of the Board of Directors of the Corporation, does not accept such offer within 120 days of receiving the offer and if the Corporation has not arranged the financing thereof within 180 days of receiving the offer, the acquiring party or its Affiliate shall, except as provided in the following subsection, (A) promptly and in any event within one year after the consummation of the acquisition of such competing business dispose of such competing business to an unaffiliated third party and (B) during the time prior to the consummation of such sale, not act in any way that would be materially detrimental to the Corporation, such as sharing any confidential information of the Corporation or promote, conduct business or make investments in such competing business in a manner which would materially strengthen, improve or expand the competing activities of such competing business.


2.5 Confidentiality.


(a) (i) All non-public documentation and information of the Purchaser Group (the "GTE Information") made available to the Corporation by the Purchaser Group in the course of performing their obligations under, or in connection with entering into, the Purchase Agreement and the documents to be entered into in connection therewith, shall be treated as strictly confidential by the Corporation, PRTA, their respective


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Affiliates and their personnel and any other Person who may have access to such GTE Information, and such GTE Information shall not be disclosed to third parties without Strategic Purchaser's express written consent.


(ii) All non-public documentation and information of the Corporation, PRTA and their respective subsidiaries (the "Company Information") obtained by the Purchaser Group in the course of their performing their obligations under, or in connection with entering into, the Purchase Agreement shall be treated as strictly confidential by the Purchaser Group, their respective Affiliates and their personnel and any other Person who has had access to such Company Information through the Corporation, and such Company Information shall not be disclosed to third parties without the Corporation's and PRTA's express written consent, and all such Company Information shall continue to be owned by the Corporation; and


(b) In the event that any party or an Affiliate of any party is requested pursuant ...