<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1996
REGISTRATION NO. 333-4512
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
TV FILME, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4841 98-0160214
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
C/O ITSA-INTERCONTINENTAL
TELECOMUNICACOES LTDA.
SCS, QUADRA 07-BL.A
ED. EXECUTIVE TOWER-SALA 601
70.300-911 BRASILIA-DF
BRAZIL
011-55-61-225-4766
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
SCHULTE ROTH & ZABEL
900 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 758-0404
ATTENTION: MARC WEINGARTEN, ESQ.
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES OF ALL COMMUNICATIONS TO:
MARC WEINGARTEN, ESQ. STEVEN J. GARTNER, ESQ.
SCHULTE ROTH & ZABEL WILLKIE FARR & GALLAGHER
900 THIRD AVENUE ONE CITICORP CENTER
NEW YORK, NEW YORK 10022 153 EAST 53RD STREET
(212) 758-0404 NEW YORK, NEW YORK 10022
(212) 821-8000
---------------
Approximate date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement becomes effective.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
TV FILME, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 501 (B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 ITEM NO. AND
CAPTION LOCATION IN PROSPECTUS
--------------------- ----------------------
<C> <S> <C>
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus... Facing Sheet; Outside Front Cover Page
2. Inside Front Cover and
Outside Back Cover Pages of Inside Front Cover and Outside Back Cover
Prospectus................. Pages
3. Summary Information, Risk
Factors and Ratio of Outside Front Cover Page; Prospectus
Earnings to Fixed Charges.. Summary; Risk Factors
4. Use of Proceeds............. Use of Proceeds
5. Determination of Offering
Price...................... Outside Front Cover Page; Underwriting
6. Dilution.................... Dilution
7. Selling Security Holders.... Not Applicable
8. Plan of Distribution........ Outside Front Cover Page; Underwriting
9. Description of Securities to Outside Front Cover Page; Prospectus
be Registered.............. Summary; Capitalization; Description of
Capital Stock
10. Interests of Named Experts
and Counsel................ Legal Matters; Experts
11. Information with Respect to Outside Front Cover Page; Prospectus
the Registrant............. Summary; Risk Factors; Dividend Policy;
Capitalization; Selected Consolidated
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business; Management;
Certain Transactions; Principal
Stockholders; Description of Capital Stock;
Shares Eligible for Future Sale;
Consolidated Financial Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................ Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
JULY 18, 1996
2,500,000 Shares
[LOGO] TV FILME, INC.
Common Stock
--------
All of the 2,500,000 shares of Common Stock offered hereby are being sold by
TV Filme, Inc. (the "Company"). The Company is a Delaware holding company and
its subsidiaries and all of their operations are located in Brazil. See
"Business" and "Risk Factors."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price of the Common Stock will be between $10.00 and $12.00 per share. See
"Underwriting" for the factors considered in determining the initial public
offering price. The Common Stock of the Company has been approved for quotation
on the Nasdaq National Market under the symbol "PYTV."
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 9.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $ $ $
- --------------------------------------------------------------------------------
Total(3)......................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses of this offering payable by the Company estimated
at $1.0 million.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 375,000 additional shares of Common Stock solely to cover over-
allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares at the Price to Public shown
above. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the
offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1996.
Alex. Brown & Sons
INCORPORATED
Gerard Klauer Mattison & Co., llc
Robert Fleming Inc.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
TV FILME, INC.
- --------
1--There can be no assurance as to the grant of any such licenses or as to the
timing of grants, if any.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
This following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and notes thereto of the
Company (the "Consolidated Financial Statements") appearing elsewhere in this
Prospectus. Unless otherwise indicated, all information in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option and (ii) gives
effect to the Restructuring referred to below. Except as otherwise noted,
financial information has been presented in U.S. dollars throughout this
Prospectus. The Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles in the United States
("United States GAAP") in U.S. dollars. For this purpose, and for purposes of
the presentation of other financial data in this Prospectus, amounts in
Brazilian currency have been remeasured into U.S. dollars in accordance with
the methodology set forth in Statement of Financial Accounting Standards No. 52
("SFAS No. 52"), as it applies to entities operating in highly inflationary
economies.
Unless the context otherwise requires, references to the "Company" (i) mean
for all periods prior to the consummation of this offering TV Filme, Inc.,
ITSA--Intercontinental Telecomunicacoes S.A. ("ITSA"), TV Filme Goiania
Servicos de Telecomunicacoes Ltda. ("TV Filme Goiania"), TV Filme Belem
Servicos de Telecomunicacoes Ltda. ("TV Filme Belem") and TV Filme Servicos de
Telecomunicacoes S.A. ("TV Filme Servicos"), and their predecessors as though
they had been part of the Company for all such periods presented and (ii) mean
as of the consummation of this offering TV Filme, Inc., ITSA, TV Filme Goiania,
TV Filme Belem, TV Filme Brasilia Servicos de Telecomunicacoes Ltda. ("TV Filme
Brasilia") and their predecessors and successors. See "Business--
Restructuring." Unless the context otherwise requires, references to "ITSA" (i)
mean for all periods prior to the consummation of this offering ITSA--
Intercontinental Telecomunicacoes S.A. and (ii) mean as of the consummation of
this offering ITSA--Intercontinental Telecomunicacoes Ltda. Unless the context
otherwise requires, references to "TV Filme Servicos" (i) mean for all periods
prior to the consummation of this offering TV Filme Servicos de
Telecomunicacoes S.A. and (ii) mean as of the consummation of this offering TV
Filme Servicos de Telecomunicacoes Ltda. Certain terms used in this Prospectus
are defined under "Glossary."
Pursuant to the Restructuring, the stockholders of ITSA will exchange their
outstanding equity interests in ITSA for proportionate interests in the Common
Stock of the Company and will exchange their warrants in ITSA for proportionate
warrants in the Company, following which transactions ITSA will be a wholly-
owned subsidiary of the Company. In addition, a majority voting interest in TV
Filme Servicos, the subsidiary of the Company which holds the Company's
wireless cable licenses, will be transferred to a newly-formed Brazilian
entity, substantially all of which will be owned by the stockholders of ITSA
who are Brazilian nationals. See "Business--Restructuring."
THE COMPANY
OVERVIEW
The Company develops, owns and operates subscription television systems in
mid-sized markets in Brazil. The Company has established wireless cable
operating systems in the cities of Brasilia, Goiania and Belem, which together
have a total population of approximately 5,200,000 and encompass approximately
1,215,000 households, an estimated 1,054,000 of which can be served by the
line-of-sight ("LOS") transmission utilized by the Company's wireless cable
systems. The 10-year renewable licenses to operate such systems are granted on
an exclusive basis within a 25 kilometer radius of the Company's transmission
sites, although the Company serves customers beyond this range. Applications
have been made for the
3
<PAGE>
Company to operate wireless cable systems in an additional 19 markets in Brazil
having an aggregate population of approximately 9,000,000 and encompassing
approximately 2,000,000 households, although there can be no assurance as to
the grant of any such licenses or as to the timing thereof. Since 1993, the
Company has experienced substantial subscriber growth, increasing from 135
subscribers at the beginning of 1993 to 47,066 subscribers as of March 31, 1996
and more than 55,000 subscribers as of May 31, 1996. For the first quarter of
1996, average monthly revenue per subscriber was $40.45 and average monthly
churn was less than 1%. For the first quarter of 1996, the Company generated
revenues of $5,852,000, an operating loss of $139,000, a net loss of $459,000
and EBITDA (operating income plus depreciation, amortization and non-cash
compensation) of $959,000. The Company's largest operating system, the Brasilia
System, generated revenues of $3,910,000, operating income of $747,000 and
EBITDA of $1,410,000 during this period.
The Company targets mid-sized markets with demographics, competitive
environments and topographies that it believes offer the Company the
opportunity to become the leading provider of subscription television services
in those markets. Significant portions of the Company's current and targeted
markets are not served by hardwire cable providers. The Company estimates that
the percentage of homes unpassed by traditional hardwire cable as of March 31,
1996 is approximately 70% in each of Brasilia and Goiania. There is no hardwire
cable provider in Belem. Of the approximately 1,215,000 households in Brasilia,
Goiania and Belem, the Company estimates that 985,000 households, or
approximately 80% of such households, are currently unpassed by hardwire cable.
The Brazilian hardwire cable industry and wireless cable industry both began
developing in 1989. As of December 1994, Brazil had an estimated 34,500,000
television households, making it the largest television market in South
America, representing approximately 50% of total South American television
households. The Company believes that as of March 1996, Brazil had
approximately 1,250,000 subscription television subscribers, representing less
than 5% penetration of total television households in Brazil. The Ministry of
Communications of Brazil (the "Ministry of Communications") has forecast that
there will be 16,500,000 subscription television subscribers in Brazil by the
year 2003.
The Company believes that wireless cable technology is well suited to its
current and targeted markets and is an attractive alternative to existing
television choices. Wireless cable transmission provides immediate coverage of
entire markets to locations that are in the unobstructed path of the
transmission tower. Wireless cable service can be deployed at a significantly
lower system capital cost per installed subscriber than alternative
technologies. The Company believes that subscribers to television services in
Brazil are concerned with such features as programming, service, reliability
and price and are generally indifferent to the delivery methodology. See
"Business--Company Overview" and "--Brazilian Subscription Television
Industry."
The Company may in the future offer additional communications services,
although it has no current plan or proposal to do so. See "Business--Company
Overview."
4
<PAGE>
The table below provides information regarding the Company's markets as of
March 31, 1996:
<TABLE>
<CAPTION>
ESTIMATED
TOTAL
HOUSEHOLDS
ESTIMATED ESTIMATED ESTIMATED NUMBER UNPASSED BY
TOTAL TOTAL LOS OF NUMBER OF LAUNCH HARDWIRE
POPULATION HOUSEHOLDS(1) HOUSEHOLDS(2) CHANNELS(3) SUBSCRIBERS DATE CABLE
---------- ------------- ------------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING MARKETS:
Brasilia................ 1,800,000 431,000 401,000 22 32,139 Feb. 1994(4) 70%
Goiania(5).............. 1,600,000 414,000 320,000 21 6,686 Jan. 1995 70%
Belem................... 1,800,000 370,000 333,000 21 8,241 Feb. 1995 100%
--------- --------- --------- ------
Total in Operating
Markets:.............. 5,200,000 1,215,000 1,054,000 47,066 80%
========= ========= ========= ======
19 APPLICATION
MARKETS:(6)............ 9,000,000 2,000,000
========= =========
</TABLE>
- --------
(1) Represents the Company's estimate of the number of total households within
a 25 kilometer radius in the particular signal coverage area (subject to
Note (5)). The Company's exclusive coverage territory is a 25 kilometer
radius in its operating markets. The Company's estimates are based on data
from the 1991 Census conducted by the Brazilian Institute of Geography and
Statistics ("IBGE") as adjusted to reflect total household growth of 3.13%
per year in Brasilia, 2.33% per year in Goiania and 2.65% per year in Belem
based on IBGE data.
(2) Represents the Company's estimate of the number of Estimated Total
Households that can receive an adequate signal from the Company
(eliminating from the Estimated Total Households those homes that the
Company estimates are unable to receive service due to certain physical
characteristics of the particular signal coverage area, such as terrain and
foliage, although some of these households can be served with the aid of
signal repeaters).
(3) Includes six local off-air VHF/UHF channels in Brasilia and five local off-
air VHF/UHF channels in each of Goiania and Belem which are offered to the
Company's subscribers in addition to the subscription channels.
(4) Date when the Brasilia System increased its channel offering from four
channels to eight channels. The Brasilia System began service with one
channel in 1990.
(5) Includes 6,600 Estimated LOS Households of the 66,000 Estimated Total
Households in the City of Anapolis, all of which fall outside the Company's
25 kilometer exclusive coverage territory, but within the Goiania signal
coverage area. See "Business--Regulatory Environment--License Procedures."
(6) Represents markets for which the Company has applied for licenses with the
Ministry of Communications. There can be no assurance as to the grant of
any such licenses or as to the timing of grants, if any.
BACKGROUND
The Company's predecessor was founded in 1989 by members of the Company's
current senior management team. In September 1989, the Company was granted a
license to operate a wireless cable system in Brasilia, the capital of Brazil,
and commenced operations in 1990 with a one channel offering. The Company
raised an aggregate of $16,751,000 through a series of private equity
placements in 1993, 1994, 1995 and 1996 in the respective amounts of
$1,300,000, $5,000,000, $3,300,000 and $7,151,000, to Tevecap S.A. ("Tevecap")
(a subsidiary of Abril S.A., one of Brazil's two largest media companies),
Warburg, Pincus Investors, L.P. ("Warburg, Pincus") and certain other
investors.
With the proceeds from such private placements, the Company expanded its
subscriber base, increased the channel offerings in Brasilia and launched new
wireless cable systems in Goiania and Belem. Licenses to operate the Goiania
and Belem systems were acquired in 1994 from TVA Sistema de Televisao S.A.
("TVA"), a subsidiary of Tevecap, one of the largest subscription television
operators and program suppliers in Brazil, and these systems commenced
operations in early 1995. The Company has exclusive rights to TVA programming
via wireless and hardwire cable in areas where the Company currently operates.
See "Business--Company Background."
OPERATING STRATEGY
The Company's objective is to become a leading provider of subscription
television services in mid-sized markets in Brazil and to become the largest
provider of subscription television services in each of its markets. The
Company believes Brazil offers significant opportunities for subscription
television providers because (i) there is significant demand among television
viewers in Brazil for additional programming choices, (ii) there is limited
competition among subscription television providers and (iii) the penetration
rate for subscription television services is less than 5% of the television
households. As demonstrated by the Company's experience in rapidly growing its
subscriber base, the Company believes it is well
5
<PAGE>
positioned to take advantage of these opportunities. As part of its strategy,
the Company focuses on (i) targeting mid-sized markets for expansion, (ii)
developing TV Filme brand name recognition through exclusive programming, (iii)
increasing penetration of existing markets, (iv) providing superior customer
service, (v) minimizing the rate of subscriber turnover ("churn") and (vi)
implementing a consistent operating model. These elements of the Company's
strategy are discussed below:
Target Mid-sized Markets for Expansion. The Company targets markets with
populations from approximately 100,000 to 2,500,000, and with demographics,
competitive environments and topographies favorable for the Company's
subscription television services. The Company believes that these markets are
currently underserved by subscription television service providers. In addition
to its three operating markets, applications have been made for the Company to
operate wireless cable systems in an additional 19 markets in Brazil
representing a total of approximately 2,000,000 households and an aggregate
population of approximately 9,000,000.
Develop TV Filme Brand Name Recognition through Exclusive Programming. The
Company offers exclusive programming which it believes is superior to that of
its competitors. In its current operating markets, the Company has exclusive
rights to transmit, via wireless and hardwire cable, programming offered by
Tevecap and its subsidiaries which, in turn, are the exclusive providers of
certain channels, including HBO Brazil, ESPN Brazil and Country Music
Television. In addition to such programming, the Company seeks to secure
exclusive television rights to important regional events. For example, the
Company owns the right to broadcast the Goias State Soccer Championship
matches, which the Company offers to its subscribers in Goiania. The Company
emphasizes its exclusive programming in its marketing activities and believes
that its programming line-up, including its local content, gives the Company a
competitive advantage in its markets and enhances the TV Filme brand name.
Increase Penetration of Existing Markets. The Company builds its subscriber
base by (i) extensive marketing tied to regional events such as soccer matches,
(ii) neighborhood promotional events featuring large screen broadcasts of its
channel offerings, (iii) direct mailings, (iv) telemarketing, (v) television
and newspaper advertisements, (vi) prewiring arrangements with residential
housing developers and (vii) other promotional marketing activities, including
referral programs and gifts.
Provide Superior Customer Service. The Company believes that it delivers high
levels of customer service to its subscribers. Customer satisfaction is
emphasized for all employees, including the telemarketing, installation and
customer service teams. The Company's proprietary management information
systems greatly facilitate customer service by providing customer service
representatives immediate access to relevant customer records, including
correspondence history. The Company seeks to install service promptly in a
customer's home or business, and service calls are typically responded to in
less than 48 hours.
Minimize Subscriber Churn. The Company focuses on minimizing churn, and its
average monthly churn rate has been less than 1% for the last two years. The
Company has developed proprietary management information systems which enable
it to provide superior customer service to its clients while monitoring
customer payment patterns. The Company also provides customer service through a
"call-back unit" that attempts to resolve any individual customer concerns. In
addition, the Company identifies and targets areas underserved by hardwire
cable. The Company also charges installation fees ranging from $80 to $250 per
subscriber to discourage subscribers from disconnecting.
Implement Consistent Operating Model. The Company believes that its
implementation of consistent processes supported by proprietary systems, such
as the Company's automated installation scheduling and billing systems,
facilitates the effective development of new markets and rapid subscriber
growth. The Company implements specific marketing plans, conducts employee
training programs and uses a sophisticated intra-company telecommunications
network and proprietary management information systems to implement best
practices across its marketing, customer service, operations and control
functions. See "Business--Operating Strategy."
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered
hereby................. 2,500,000 shares
Common Stock to be
outstanding after this
offering............... 9,791,176 shares(1)
Use of proceeds......... Of the estimated $24,575,000 of net proceeds to be
received by the Company in connection with the sale of
the shares of Common Stock offered hereby, the Company
intends to use approximately $16 million of such net
proceeds to finance the expansion of the Company's
current operating systems, approximately 75% of which
is expected to be used to fund installation costs and
the purchase of decoders and related equipment. The
Company intends to use the remaining net proceeds to
fund working capital needs, including the repayment of
certain short-term borrowings of approximately $2.5
million from Abril S.A. and certain of its affiliates,
and the launching or acquisition of new operating
systems to the extent the Company obtains the right to
operate or acquire such new systems. Such short-term
borrowings, the proceeds of which are used for working
capital purposes, are payable on demand and bear
interest at the Brazilian interbank rate ("CDI") or at
CDI plus 0.8%. On July 15, 1996, the CDI rate was 2.47%
per month. The Company has no pending or probable
acquisitions, and in the event that the Company does
not obtain the right to operate or acquire new systems,
the Company intends to use the remaining net proceeds
to fund working capital needs and for other general
corporate purposes. See "Use of Proceeds."
Nasdaq National Market
symbol................. PYTV
</TABLE>
- --------
(1) Excludes (i) 936,432 shares of Common Stock reserved for issuance upon the
exercise of stock options available for grant under the Company's 1996
Stock Option Plan pursuant to which options to purchase 407,000 shares of
Common Stock shall be granted upon the consummation of this offering,
297,000 of which shall be exercisable at the initial public offering price
and 110,000 of which shall be exercisable at $11.00 per share, and which
generally shall vest 20% per year for five years beginning on the first
anniversary of consummation of this offering and (ii) 794,764 shares of
Common Stock issuable upon the exercise of warrants (the "1996 Warrants"),
all of which are currently exercisable. See "Management--Stock Options--
1996 Stock Option Plan" and "Description of Capital Stock--Warrants."
RISK FACTORS
In addition to the other information contained in this Prospectus, risk
factors should be considered carefully in evaluating an investment in the
Common Stock. The risks of investing in the Common Stock relating to Brazil
generally include the following factors: Economic Uncertainty; Political
Uncertainty; Restrictions on Conversion and Remittances Abroad; and Potential
Unenforceability of Civil Liabilities and Judgments. The risks of investing in
the Common Stock relating to the Company include: Limited Operating History and
Lack of Profitable Operations; Risks Associated with New Markets; Management of
Growth; Government Regulation; Potential Conflicts of Interest; Minority Voting
Position in License Company; Wireless Cable Transmission Issues; Competition;
Dependence on Suppliers; Holding Company Structure and Dependence on
Subsidiaries; Dependence on Key Personnel; Control by Principal Stockholders;
Absence of Public Market; Shares Eligible for Future Sale; Dilution; and
Antitakeover Provisions of the Company's Certificate of Incorporation and By-
laws and the Delaware General Corporation Law. See "Risk Factors."
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA(1)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND MONTHLY REVENUE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- --------------
1993 1994 1995 1995 1996
------- ------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $ 287 $ 2,438 $ 11,404 $1,364 $5,852
Operating costs and expenses:
System operating.................. 196 773 2,957 413 1,583
Selling, general and
administrative................... 558 2,394 8,975 1,589 3,310
Depreciation and amortization..... 43 365 2,049 236 1,098
------- ------- -------- ------ ------
Total operating costs and
expenses........................ 797 3,532 13,981 2,238 5,991
------- ------- -------- ------ ------
Operating income (loss)............ (510) (1,094) (2,577) (874) (139)
Other income (expense)............. (6) 1,612 360 218 (320)
------- ------- -------- ------ ------
Net income (loss).................. $ (516) $ 518 $ (2,217) $ (656) $ (459)
======= ======= ======== ====== ======
Net income (loss) per share (2).... $ (0.10) $ 0.08 $ (0.27) $(0.08) $(0.06)
Shares and share equivalents, in
thousands (2)..................... 5,295 6,885 8,086 8,086 8,086
OTHER DATA:
EBITDA (3)......................... $ (467) $ (729) $ (216) $ (638) $ 959
Number of subscribers at end of
period............................ 1,864 7,641 36,594 11,924 47,066
Average monthly revenue per
subscriber (4).................... $ 30.43 $34.13 $ 40.00 $39.86 $40.45
Average monthly churn rate (5)..... 0.37% 0.62% 0.63% 0.66% 0.62%
Number of operating systems at end
of period......................... 1 1 3 3 3
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED(6)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................... $(2,720) $21,855
Property, plant and equipment, net...................... 22,802 22,802
Total assets............................................ 29,355 53,930
Payables to affiliates--long-term....................... 200 200
Stockholders' equity.................................... 14,587 39,162
</TABLE>
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(1) The Consolidated Financial Data includes (i) TV Filme Servicos on a
historical basis and (ii) ITSA and its subsidiaries since May 1994 and the
predecessor of ITSA on a historical basis, as though they have been a part
of TV Filme, Inc. for all periods presented. See Note 1a to the
Consolidated Financial Statements and "Business--Restructuring."
(2) Net income (loss) per share (after giving effect to the Restructuring) is
calculated using the weighted average number of shares of stock outstanding
during the period together with the number of shares issuable upon the
exercise of options and warrants issued during the twelve months prior to
the filing of this offering. The Company did not use the treasury stock
method in computing the dilutive effect of the 1996 Warrants. See
"Description of Capital Stock--Warrants."
(3) EBITDA is defined as operating income (loss) plus depreciation,
amortization and non-cash compensation. While EBITDA should not be
construed as a substitute for operating income (loss) or a better measure
of liquidity than cash flow from operating activities, which are determined
in accordance with United States GAAP, it is included herein to provide
additional information regarding the ability of the Company to meet its
capital expenditures, working capital requirements and any future debt
service. EBITDA is not necessarily a measure of the Company's ability to
fund its cash needs, because it does not include capital expenditures,
which the Company expects to continue to be significant. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview."
(4) Average monthly revenue per subscriber is calculated by dividing
subscription revenue for the month by the average number of subscribers for
the month.
(5) Churn equals the ratio of disconnected subscribers to average monthly
subscribers. The average monthly churn rate is the average of the churn
rates for each month related to the periods presented.
(6) As adjusted to give effect to this offering, assuming an initial public
offering price of $11.00 per share. See "Use of Proceeds."
TV Filme, Inc. was incorporated in April 1996 in Delaware as a holding
company for ITSA and its operating subsidiaries.
The Company's principal executive offices are at SCS, Quadra 07-Bl.A, Ed.
Executive Tower, Sala 601, 70.300-911 Brasilia-DF, Brazil, and its telephone
number is 011-55-61-225-4766.
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock being offered hereby.
RISK FACTORS RELATING TO BRAZIL GENERALLY
Economic Uncertainty. Brazil has experienced extremely high rates of
inflation for many years. Inflation, as measured by the Getulio Vargas
Foundation's General Index of Market Prices (the "IGPM Index"), was
approximately 458% in 1991, 1,175% in 1992, 2,567% in 1993, 870% in 1994, 15%
in 1995 and 3% in the first three months of 1996. Inflation, government
actions to combat inflation and public speculation about future actions have
had significant negative effects on the Brazilian economy in general and have
also contributed materially to economic uncertainty in Brazil. In periods of
inflation, many of the Company's expenses tend to increase. Generally, in
periods of inflation, a company is able to raise its prices to offset the rise
in its expenses and may set prices for customers without government
regulation. However, under Brazilian law designed to reduce inflation, the
rates which the Company may charge to a particular subscriber may not be
increased until the next 12-month anniversary of his subscription. Thus, the
Company is less able to offset expense increases with revenue increases.
Accordingly, inflation may have a material adverse effect on the Company's
results of operations and financial condition.
Beginning in 1994, the Brazilian government commenced the "Real Plan," an
economic stabilization plan designed to reduce inflation by, among other
things, reducing certain public expenditures, collecting debts owed to the
Brazilian government, increasing tax revenues and continuing the national
program of privatizing certain state-owned enterprises. On July 1, 1994, as
part of the Real Plan, the Brazilian government introduced a new currency, the
Real. There can be no assurance that the Real Plan will continue to be
successful in controlling the level of inflation, that future governmental
actions will not trigger an increase in inflation or that inflation will not
have a material adverse effect on the Company's results of operations and
financial condition.
Brazil's rate of inflation and the government's actions to combat inflation
have also affected the relationship of the value of Brazil's currency to the
value of the U.S. dollar. Historically, Brazil's currency frequently had been
devalued in relation to the U.S. dollar. However, after its introduction, the
Real initially appreciated against the U.S. dollar. In an effort to address
concerns about the possible overvaluation of the Real relative to the U.S.
dollar, and in light of the economic upheaval in Mexico that resulted from the
rapid devaluation of the Mexican peso, the Brazilian government in March 1995
introduced new exchange rate policies which establish a trading band for the
Real against the U.S. dollar. This band has been adjusted frequently, and, as
of March 31, 1996, was between .97 Real and 1.06 Real per U.S. dollar. From
March 31, 1995 to March 31, 1996, the Real declined in value relative to the
U.S. dollar by approximately 10%. There can be no assurance that the Real will
not again be devalued relative to the U.S. dollar, or that the Real will not
fluctuate significantly relative to the U.S. dollar. The Company collects
substantially all of its revenues in Reals, but pays certain of its expenses,
including a significant portion of its equipment costs and a portion of its
programming costs, in U.S. dollars. In addition, equipment purchases currently
are financed by irrevocable letters of credit for up to one year, although
following consummation of this offering the Company may determine not to
utilize such financing. To the extent the Real depreciates at a rate greater
than the rate at which the Company raises prices, the value of the Company's
revenues (as expressed in U.S. dollars) may fall. As the value of the
Company's revenues fall, its ability to fund U.S. dollar-based expenditures
also would decline. The Company does not currently seek to hedge exchange rate
risks in the financial markets or otherwise, as it believes that the costs of
such hedging outweigh the related risks. Accordingly, devaluation of the Real
may have a material adverse effect on the Company's results of operations and
financial condition.
In addition, should any cash dividends and distributions with respect to
shares of Common Stock be made (which dividends and distributions are not
currently contemplated), such payments will be made in
9
<PAGE>
U.S. dollars but will be funded by dividends or other payments from the
Company's subsidiaries operating in Brazil. Consequently, the value of the
Common Stock and the ability of the Company to fund any cash dividends or
distributions may be affected by changes in the value of the Real relative to
the U.S. dollar.
Political Uncertainty. The Brazilian government often changes monetary,
credit, tariff and other policies to influence the course of Brazil's economy.
Such government actions have included wage and price controls as well as other
measures, such as freezing bank accounts, imposing capital controls and
inhibiting imports to and exports from the country. A primary objective of the
Brazilian government in recent years has been to control government spending.
Some progress has been made, but fiscal deficits remain high. Reducing the
deficit is made more difficult by Brazil's Constitution, which requires the
federal government to make substantial funds available to the state
administrations, while limiting the federal government's ability to raise
sufficient funds from taxes. Changes in policy involving, among other things,
tariffs, exchange controls, regulatory policy and taxation, as well as events
such as inflation, devaluation, social instability or other political,
economic or diplomatic developments, could adversely affect the Brazilian
economy and have a material adverse effect on the Company's results of
operations and financial condition.
The Brazilian political environment has been marked by high levels of
uncertainty since Brazil returned to civilian rule in 1985 after twenty years
of military government. The death of a President-elect in 1985 and the
resignation of another President in 1992 in the midst of his impeachment
trial, as well as frequent turnover at and immediately below the cabinet
level, have contributed to delays in the adoption of coherent and sustained
policies to confront the country's economic issues. Mr. Fernando Henrique
Cardoso, Brazil's Finance Minister at the time of the implementation of the
Real Plan, was elected President of Brazil in October 1994 and took office in
January 1995. President Cardoso was elected by a coalition of political
parties, and, as a result, his administration may be required to accept more
compromises than if his party controlled the Brazilian legislature. In
addition, the President is currently ineligible for re-election when his
current term expires in 1998. President Cardoso has supported the Real Plan,
the reduction of inflation, privatization measures and certain free-market
policies. However, many political factions oppose certain of the
administration's policies, and there can be no assurance that any of the
administration's policies, including the Real Plan, will be supported by the
legislature.
Restrictions on Conversion and Remittances Abroad. The Brazilian government
has the authority under current legislation to impose restrictions on the
remittance abroad of foreign capital when a serious deficit in Brazil's
balance of payments occurs, as it did for approximately six months in 1989 and
early 1990, and on the conversion of Reals into foreign currencies. Such
restrictions may hinder or prevent the Company's Brazilian subsidiaries from
purchasing equipment that suppliers require to be paid for in U.S. dollars and
from converting dividends or distributions paid or made by them into U.S.
dollars and remitting U.S. dollars to the Company. Such restrictions could
adversely affect the Company. The Company could be adversely affected by
delays in, or a refusal to grant, any required Brazilian governmental approval
for conversion of Real payments and remittances abroad in respect of such
dividends or distributions.
Potential Unenforceability of Civil Liabilities and Judgments. Certain of
the directors and officers of the Company and certain experts named herein are
non-residents of the United States, and all or a substantial portion of the
assets of such persons are located outside of the United States. The Company's
subsidiaries and substantially all of the Company's assets are located in
Brazil. As a result, it may not be possible for investors to effect service of
process within the United States upon such persons (unless an agent for
service of process is duly appointed by them, in which case service of process
effected under United States laws would be deemed valid by the Brazilian
courts in the case of the confirmation of foreign judgments described below)
or enforce in the United States against such persons or the subsidiaries
judgments obtained in United States courts, including judgments predicated
upon the civil liability provisions of United States Federal securities laws.
The Company has been advised by its Brazilian counsel, Tozzini, Freire,
Teixeira e Silva Advogados, that a judgment of a United States court for civil
liabilities
10
<PAGE>
predicated upon United States Federal securities laws may be enforced in
Brazil against the Company, its directors, its officers and the experts named
herein without reconsideration of the merits, upon confirmation of that
judgment by the Brazilian Federal Supreme Court. That confirmation will occur
if the foreign judgment (i) fulfills all formalities required for its
enforceability under the laws of the United States, (ii) is issued by a
competent court after service of process upon the Company, (iii) is not
subject to appeal, (iv) is authenticated by a Brazilian consular office in the
United States and (v) is not contrary to Brazilian national sovereignty,
public policy or good morals. In addition, the Company has been advised by
such Brazilian counsel that original actions in connection with this
Prospectus and the Registration Statement of which this Prospectus is a part
predicated solely on United States Federal securities laws may be brought in
Brazilian courts. Furthermore, no assurance can be given that the confirmation
process described above can be conducted in a timely manner or that a
Brazilian court would enforce liabilities for violation of United States
Federal securities laws.
RISK FACTORS RELATING TO THE COMPANY
Limited Operating History; Lack of Profitable Operations. The Company's
subsidiaries commenced operations in Brasilia in October 1990, in Goiania in
January 1995 and in Belem in February 1995. Prospective investors, therefore,
have limited historical financial information about the Company upon which to
base an evaluation of the Company's performance and an investment in the
Common Stock offered hereby. Since inception, the Company has sustained
substantial operating losses, due primarily to start-up costs and charges for
depreciation and amortization of capital expenditures to develop its wireless
cable systems and had an accumulated deficit of approximately $2.7 million as
of March 31, 1996. The Company may continue to experience losses as it expands
its existing systems and develops additional systems. There can be no
assurance that the Company will be profitable or will generate positive cash
flow in future years. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
Risks Associated with New Markets. Applications have been made for the
Company to operate wireless cable systems in an additional 19 markets, but
there can be no assurance as to the grant of any such licenses or as to the
timing of grants, if any. The Company also may seek to enter into operating
agreements with subscription television license holders other than TV Filme
Servicos or seek to acquire licenses granted to others, but there can be no
assurance that the Company will be able to enter into any such operating
agreements or consummate any such license acquisitions. Although the cost of
purchasing any given license cannot be substantiated, it is the Company's
belief that the cost of purchasing licenses has increased substantially in
recent years. Based on current market and operating conditions, the Company
estimates that the cost of launching any additional operating system after the
granting of a new license would range from approximately $5.0 million to $8.0
million, including construction of a headend facility, subscriber-related
capital costs and funding initial development costs and operating losses,
depending on factors particular to each such market. The Company's ability to
expand successfully through acquisitions depends on many factors, including
the successful identification and acquisition of such systems and management's
ability to integrate and operate the acquired businesses effectively. The
Company may compete for new system opportunities with other companies that
have significantly greater financial and managerial resources. The Company has
no pending or probable acquisitions and there can be no assurance that the
Company will be successful in launching or acquiring any new subscription
television systems or that the Company will be able to integrate successfully
any acquired systems into its current business and operations. The failure of
the Company to launch or acquire new systems could impede its growth. The
failure of the Company to integrate successfully acquired systems could have a
material adverse effect on the Company's results of operations and financial
condition.
In order to finance further subscriber growth, capital expenditures and
related expenses for additional system development and acquisitions, the
Company may require additional funds in the future. To the extent that any
future financing requirements are satisfied through the issuance of equity
securities, investors may experience significant dilution. Furthermore, the
amount and timing of the Company's
11
<PAGE>
future capital requirements will depend upon a number of factors, many of
which are not within the Company's control, including the grant of new
licenses, programming costs, capital costs, competitive conditions and the
costs of any necessary implementation of technological innovations or
alternative technologies. There can be no assurance that the Company's future
capital requirements will be met or will not increase as a result of future
acquisitions, if any. Failure to obtain any required additional financing
could adversely affect the growth of the Company and, ultimately, could have a
material adverse effect on the Company's results of operations and financial
condition. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Management of Growth. The Company is experiencing rapid growth, which could
place a significant strain on its operational and personnel resources. The
Company's growth will require it to continue to improve its operational and
financial systems and to train, motivate and manage its employees. If
management is unable to manage the Company's growth effectively, or if the
productivity of its employees falls below expectations, it could have a
material adverse effect on the Company's results of operations and financial
condition.
Government Regulation. Wireless cable systems transmit programming by
wireless cable channels, the use of which is subject to licensing and
regulation by the Ministry of Communications.
The Ministry of Communications has proposed new regulations to govern the
granting of licenses and the operation of wireless cable systems in Brazil
(the "Proposed Regulations"), although there can be no assurance as to whether
the Proposed Regulations will be implemented as currently drafted or at all,
or as to the timing thereof. The effect of the Proposed Regulations on the
licenses pursuant to which the Company operates its three operating systems is
uncertain; however, the Company does not believe that the Proposed
Regulations, as currently drafted, will have a material adverse effect on the
Company's results of operations and financial condition. Under the Proposed
Regulations, all licenses will be granted pursuant to a public bidding
process. The Company is unable to predict what impact, if any, such public
bidding will have on its ability to launch and operate new systems because
many of the Company's potential competitors have greater financial resources
than the Company and thus would be in a position to outbid the Company for
additional licenses. Any new regulations could have a material adverse effect
on the subscription television industry as a whole and on the Company in
particular. See "Business--Regulatory Environment."
Potential Conflicts of Interest. Under applicable provisions of Brazilian
law currently in effect, a license to operate a wireless cable system in
Brazil must be controlled by Brazilian nationals or entities controlled by
Brazilian nationals. As a result of this offering, the Company will not be
controlled by Brazilian nationals. TV Filme Servicos, a wholly owned
subsidiary of ITSA, owns the licenses pursuant to which the Company currently
conducts its business, and has made applications for license grants in an
additional 19 markets. To comply with Brazilian law, prior to the consummation
of this offering, the Company will effect the Restructuring pursuant to which
voting control of TV Filme Servicos will be transferred to a newly formed
company which will be controlled by certain existing stockholders of the
Company, some of whom are executive officers and directors of the Company. See
"Business--Restructuring." A potential conflict of interest may be deemed to
exist by reason of the fact that these stockholders, executive officers and
directors have an ownership interest in and voting control of TV Filme
Servicos. The Company will continue to own 49% of the voting securities of TV
Filme Servicos and 83% of the economic interests in TV Filme Servicos. The
Company also will have a representative on the executive management team of TV
Filme Servicos and may prohibit the sale, transfer or impairment of any
license held by TV Filme Servicos. The Company will have the exclusive right
to operate the licenses currently owned by TV Filme Servicos, as well as any
additional licenses that TV Filme Servicos may obtain, pursuant to the terms
of certain agreements to be entered into between the Company and TV Filme
Servicos prior to the consummation of this offering. Any breach by TV Filme
Servicos of any of its material obligations to the Company under any of these
agreements could have a material adverse effect on the Company's results of
operations and financial condition.
12
<PAGE>
Minority Voting Position in License Company. The Company will own 49% of the
voting stock of TV Filme Servicos, which owns the licenses pursuant to which
the Company currently conducts its business and which has made applications
for license grants in an additional 19 markets. As a result of the Company's
minority voting position in TV Filme Servicos, the Company will not be able to
control the operations of TV Filme Servicos and its relationships with ITSA
and the operating subsidiaries of the Company. The Company will enter into an
operating agreement with TV Filme Servicos which is intended to provide the
Company with substantial protections concerning the ability of the Company and
its subsidiaries to operate the licenses held by TV Filme Servicos. See
"Business--Restructuring." Any breach by TV Filme Servicos of any of its
material obligations to the Company under such operating agreement could have
a material adverse effect on the Company's results of operations and financial
condition.
Wireless Cable Transmission Issues. Reception of wireless cable programming
generally requires a direct, unobstructed LOS from the Company's headend to
the subscriber's antenna. Wireless cable service can also be received by use
of signal repeaters. If the LOS is obstructed, the Company may not be able to
supply service to certain potential subscribers or may be required to install
additional signal repeaters. In addition to limitations resulting from
terrain, in limited circumstances extremely adverse weather can damage
transmission and receive-site antennas as well as other transmission
equipment.
Interference from other wireless cable systems can limit the ability of a
wireless cable system to serve any particular point, just as interference from
one television station limits the ability of a viewer to receive another
television station signal broadcasting on the same frequency. Under current
Ministry of Communications regulations, a wireless cable license holder is
generally protected from interference within 25 kilometers, or approximately
15 miles, of the transmission site, and a prospective operator must
demonstrate that its signal will not cause interference to the reception of
other permitted channels. If it is not possible to avoid such interference, it
may be necessary to negotiate interference agreements with the license holders
of the stations. There can be no assurance that the Company will be able to
enter into any such interference agreements on terms acceptable to the
Company.
Competition. TV Filme Servicos is the only entity licensed to operate
wireless cable systems in Brasilia, Goiania and Belem. The Company provides
service via 16 wireless cable channels in each such market and applications
have been made for an additional 15 channels in such markets. There can be no
assurance that the licenses will be so granted or that such licenses will not
be granted to competitors. The Company's principal subscription television
competitor in the city of Brasilia is NET Brasilia, a hardwire cable operator,
which the Company believes had approximately 24,000 subscribers as of March
31, 1996. The Company's principal subscription television competitor in the
city of Goiania is Multicanal, a hardwire cable operator, which the Company
believes had approximately 22,000 subscribers as of March 31, 1996. There
currently is no hardwire cable provider in the city of Belem. In addition to
other wireless cable and hardwire cable operators, wireless cable systems face
or may face competition from several other sources, such as direct-to-home
satellite ("DTH") systems, direct broadcasting satellite ("DBS") systems,
local off-air VHF/UHF channels, home videocassette recorders and out-of-home
theaters. Legislative, regulatory and technological developments may result in
additional and significant competition. Many actual and potential competitors
have greater financial, marketing and other resources than the Company. No
assurance can be given that the Company will be able to compete successfully.
See "Business--Competition."
Dependence on Suppliers. The Company is dependent on certain suppliers of
its programming and equipment. The Company purchases substantially all of its
programming from Tevecap and its subsidiaries pursuant to a contract expiring
in 2004. Although the Company has no reason to believe that such contract will
be canceled or will not be renewed upon its expiration in 2004, if such
contract is canceled or not renewed, the Company will have to seek programming
from other sources. There can be no assurance that other programming will be
available to the Company on acceptable terms or at all or, if so available,
that such programming will be acceptable to the Company's subscribers.
Additionally, there can be no assurance that programming will be available to
the Company in its pending application markets on
13
<PAGE>
acceptable terms. There also can be no assurance that Tevecap's and its
subsidiaries' contracts with their individual program suppliers are or will
remain exclusive, will not be canceled or will be renewed upon expiration.
There can be no assurance that if Tevecap's contracts are canceled or not
renewed, other programming will be available to Tevecap on acceptable terms or
at all. See "Business--Programming."
The Company currently purchases decoders and antennas from a limited number
of sources. The inability to obtain sufficient limited source components as
required, or to develop alternative sources if and as required in the future,
could result in delays or reductions in customer installations which, in turn,
could have a material adverse effect on the results of operations and
financial condition of the Company.
Holding Company Structure and Dependence on Subsidiaries. The Company
conducts its operations through its subsidiaries. Therefore, the primary
internal sources of cash for the Company are its subsidiaries. The Company's
ability to distribute dividends (which are not currently anticipated) will be
dependent upon the earnings of its subsidiaries and the distribution of those
earnings to, or upon loans or other payments of funds by those subsidiaries
to, the Company. The subsidiaries are separate and distinct legal entities and
have no obligation, contingent or otherwise, to pay any amounts owed to
creditors of the Company or to make any funds available therefor, whether by
dividends, loans or other payments. In addition, the payment of dividends and
the making of loans and advances to the Company, if any, by its subsidiaries
(i) may be subject to statutory restrictions, pursuant to which the
subsidiaries may pay dividends only out of retained earnings, or contractual
restrictions, (ii) are dependent upon the earnings of those subsidiaries and
(iii) are subject to various business considerations. See "--Risk Factors
Relating to Brazil Generally--Restrictions on Conversion and Remittances
Abroad" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview."
Dependence on Key Personnel. The success of the Company depends in large
part upon the abilities and continued service of its executive officers and
other key employees and, in particular, of Hermano Studart Lins de
Albuquerque, the Chief Executive Officer and Secretary and Carlos Andre
Studart Lins de Albuquerque, the President, Chief Operating Officer and
Treasurer. There can be no assurance that the Company will be able to retain
the services of such officers and employees. The failure of the Company to
retain the services of Messrs. Lins and other key personnel could have a
material adverse effect on the Company's results of operations and financial
condition. Prior to the consummation of this offering, the Company expects to
enter into employment agreements, containing non-competition and non-
solicitation provisions, with Messrs. Lins. The Company believes that its
future success will depend, in part, on its ability to attract and retain
highly talented managerial personnel. There can be no assurance that it will
be able to attract and retain the personnel it requires on acceptable terms.
See "Management--Executive Officers and Directors" and "--Employment
Agreements."
Control by Principal Stockholders. Upon completion of this offering, the
existing stockholders of the Company will own or control approximately 74.5%
of the Company's outstanding shares of Common Stock (approximately 71.7% if
the Underwriters' over-allotment option is exercised in full) and, if acting
in concert, will be able to continue to elect the Company's Board of Directors
and take other corporate actions requiring stockholder approval, as well as
dictate the direction and policies of the Company. Such concentration of
ownership also could have the effect of delaying, deterring or preventing a
change in control of the Company that might otherwise be beneficial to
stockholders. See "Principal Stockholders" and "Underwriting."
Absence of Public Market. Prior to this offering, there has been no public
market for the Common Stock, and there can be no assurance that an active
trading market will develop or be sustained or that shares of Common Stock can
be resold at or above the initial public offering price after this offering.
The initial public offering price of the Common Stock will be established by
negotiation between the Company and the representatives of the Underwriters
(the "Representatives"). Such price should not, however, be considered
indicative of the actual value of the Common Stock. See "Underwriting." Prices
for the
14
<PAGE>
Common Stock following this offering may be influenced by many factors,
including the depth of the market for the Common Stock, investor perception of
the Company, fluctuations in the Company's operating results and market
conditions relating to Brazil and Latin America generally and conditions in
the subscription television industry in Brazil and the United States. In
addition, announcements concerning regulatory developments in Brazil and the
United States and technological innovations in the subscription television
industry may also affect the market price of the Common Stock. Period to
period fluctuations in financial results and general market conditions could
also have a significant impact on the Company's business and on the market
price of the Common Stock. Future sales of, or announcements of an intention
to sell, substantial amounts of Common Stock by existing stockholders could
also adversely affect the prevailing price of the Common Stock. In addition,
the stock market has experienced extreme price and volume fluctuations from
time to time which may adversely affect the market price of the Common Stock.
See "Description of Capital Stock," "Shares Eligible for Future Sale" and
"Underwriting."
Shares Eligible for Future Sale. Upon completion of this offering, the
Company will have a total of 9,791,176 shares of Common Stock outstanding
(10,166,176 shares, if the Underwriters' over-allotment option is exercised in
full). Of these shares, the 2,500,000 shares offered hereby (2,875,000 shares,
if the Underwriters' over-allotment option is exercised in full) will be
freely transferable by persons other than affiliates of the Company without
restriction or registration under the Securities Act. The remaining shares
will be "restricted securities" as that term is defined by Rule 144 under the
Securities Act and may not be sold other than pursuant to an effective
registration statement under the Securities Act or pursuant to an exemption
from such registration requirement. Following this offering, sales of a
substantial number of shares of Common Stock in the public market under Rule
144 or otherwise, or the perception that such sales could occur, could
adversely affect the prevailing market price of the Common Stock. The Company
has agreed not to issue any securities or file a registration statement under
the Securities Act, subject to certain exceptions, for a period of 180 days
following the date of this Prospectus without the prior written consent of
Alex. Brown & Sons Incorporated. The Company, each of its executive officers
and directors and certain of its securityholders have agreed not to offer,
sell, pledge, contract or grant an option for the sale of or otherwise dispose
of any shares of Common Stock or interest therein for a period of 180 days
following the date of this Prospectus without the prior written consent of
Alex. Brown & Sons Incorporated. In its discretion and at any time without
notice, Alex. Brown & Sons Incorporated may release all or any portion of the
shares subject to lock-up agreements. The Company intends to file a
registration statement on Form S-8 under the Securities Act after the closing
of this offering, covering the sale of shares reserved for issuance under the
1996 Stock Option Plan. As of the closing of this offering, there will be
outstanding options to purchase a total of 407,000 shares of Common Stock and
warrants to purchase a total of 794,764 shares of Common Stock. The Company
has granted to its stockholders registration rights with respect to 7,291,176
shares of Common Stock. The Company has granted to its warrant holders
registration rights with respect to 794,764 shares of Common Stock issuable
upon the exercise of the 1996 Warrants. If the Company were to register any
such shares, the sale of such shares or the announcement of such registration
could have a material adverse effect on the Company's ability to raise
capital. See "Shares Eligible for Future Sale," "Description of Capital
Stock--Warrants," "Description of Capital Stock--Registration Rights" and
"Underwriting."
Dilution. The initial public offering price of the Common Stock will be
substantially higher than the pro forma net tangible book value per share of
Common Stock at March 31, 1996. Investors purchasing shares of Common Stock in
this offering will incur immediate and substantial dilution. See "Dilution."
Antitakeover Provisions of the Company's Certificate of Incorporation and
By-laws and the DGCL. The Company's Certificate of Incorporation (the
"Certificate of Incorporation") and By-laws (the "By-laws") and the Delaware
General Corporation Law (the "DGCL") contain provisions which may have the
effect of delaying, deterring or preventing a future takeover or change in
control of the Company unless such takeover or change in control is approved
by the Company's Board of Directors. Such provisions may also render the
removal of directors and management more difficult. Specifically, the
Certificate of Incorporation and By-laws provide for a classified Board of
Directors serving staggered three-
15
<PAGE>
year terms, restrictions on who may call a special meeting of stockholders, a
prohibition on stockholder action by written consent and certain advance
notice requirements for stockholder nominations of candidates for election to
the Board of Directors and certain other stockholder proposals. In addition,
upon completion of this offering, the Certificate of Incorporation authorizes
the Board of Directors to issue "blank check" preferred stock, without further
action by the stockholders, on such terms and with such rights, preferences
and designations as the Board of Directors may determine. Issuance of such
preferred stock, depending upon the rights, preferences and designations
thereof, may have the effect of delaying, deterring or preventing a change in
control of the Company. While the Company has no present intention to issue
shares of preferred stock, any issuance could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company. The DGCL also contains provisions preventing
certain stockholders from engaging in business combinations with the Company,
subject to certain exceptions. See "Description of Capital Stock."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby are estimated to be approximately $24,575,000,
after deducting estimated underwriting discounts and offering expenses,
assuming an initial public offering price of $11.00 per share.
The Company intends to use approximately $16 million of such net proceeds to
finance the expansion of the Company's current operating systems,
approximately 75% of which is expected to be used to fund installation costs
and the purchase of decoders and related equipment. The Company intends to use
the remaining net proceeds to fund working capital needs, including the
repayment of certain short-term borrowings of approximately $2.5 million from
Abril S.A. and certain of its affiliates, and the launching or acquisition of
new operating systems to the extent the Company obtains the right to operate
or acquire such new systems. Such short-term borrowings, the proceeds of which
are used for working capital purposes, are payable on demand and bear interest
at the CDI rate or at CDI plus 0.8%. On July 15, 1996, the CDI rate was 2.47%
per month. The Company has no pending or probable acquisitions, and in the
event the Company does not obtain the right to operate or acquire new systems,
the Company intends to use the remaining net proceeds to fund working capital
needs and for other general corporate purposes. There can be no assurance that
any of these proceeds will be available to make acquisitions.
Pending application of the net proceeds of this offering as described above,
the Company intends to invest such proceeds in United States government
securities and investment grade, interest-bearing instruments, except for
approximately $2.0 million, which will be invested in Brazilian money market
instruments.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock and does not presently intend to pay cash dividends on the Common Stock
in the foreseeable future. The Company expects that earnings, if any, will be
retained for the growth and development of the Company's business. In
addition, the Company's ability to declare or pay cash dividends is affected
by the ability of the Company's present and future subsidiaries to declare and
pay dividends or otherwise transfer funds to the Company since the Company
conducts its operations entirely through its subsidiaries. See "Risk Factors--
Risk Factors Relating to Brazil Generally--Restrictions on Conversion and
Remittances Abroad."
The Company, as a holding company, depends on the receipt of dividends and
other cash payments from its operating subsidiaries in order to meet the
Company's cash requirements. Such receipts are subject to statutory
restrictions pursuant to which the subsidiaries may pay dividends only out of
retained earnings.
16
<PAGE>
CAPITALIZATION
The following table sets forth the actual and as adjusted cash and cash
equivalents and capitalization of the Company, on an unaudited basis, as of
March 31, 1996. The actual amounts give effect to the Restructuring. In
addition, as adjusted cash and cash equivalents and capitalization gives
effect to the receipt of the estimated net proceeds from the sale of 2,500,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $11.00 per share, as described in "Use of Proceeds." This table
should be read in conjunction with the Consolidated Financial Statements and
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................. $ 24 $24,599
======= =======
Payables to affiliate--long-term.......................... $ 200 $ 200
Stockholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares
authorized;
no shares issued....................................... -- --
Common Stock, $.01 par value; 50,000,000 shares
authorized and 7,291,176 shares issued and outstanding;
9,791,176 shares issued and outstanding, as
adjusted(1)............................................ 73 98
Additional paid-in capital.............................. 17,210 41,760
Accumulated deficit..................................... (2,696) (2,696)
------- -------
Total stockholders' equity............................ 14,587 39,162
------- -------
Total capitalization................................ $14,787 $39,362
======= =======
</TABLE>
- --------
(1) Excludes (i) 936,432 shares of Common Stock reserved for issuance upon the
exercise of stock options available for grant under the Company's 1996
Stock Option Plan pursuant to which options to purchase 407,000 shares of
Common Stock shall be granted upon the consummation of this offering,
297,000 of which shall be exercisable at the initial public offering price
and 110,000 of which shall be exercisable at $11.00 per share, and which
generally shall vest 20% per year for five years beginning on the first
anniversary of consummation of this offering and (ii) 794,764 shares of
Common Stock issuable upon the exercise of the 1996 Warrants, all of which
are currently exercisable at an exercise price of $6.52 per share. See
"Management--Stock Options--1996 Stock Option Plan" and "Description of
Capital Stock--Warrants."
17
<PAGE>
DILUTION
The net tangible book value of the Common Stock (after giving effect to the
Restructuring) at March 31, 1996, was approximately $13,752,000, or $1.89 per
share. Net tangible book value per share represents the total amount of the
Company's stockholders' equity, less intangible assets, divided by 7,291,176
shares of Common Stock outstanding as of March 31, 1996.
Net tangible book value dilution per share represents the difference between
the amount per share paid by purchasers of shares of Common Stock in this
offering and the as adjusted net tangible book value per share of Common Stock
immediately after completion of this offering. After giving effect to the sale
of 2,500,000 shares of Common Stock offered hereby at an assumed offering
price of $11.00 per share and the application of the estimated net proceeds
therefrom, the pro forma net tangible book value at March 31, 1996 would have
been $38,327,000 or $3.91 per share. This represents an immediate increase in
net tangible book value of $2.02 per share to existing stockholders and an
immediate dilution in net tangible book value of $7.09 per share to purchasers
of Common Stock in this offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share...................... $11.00
Net tangible book value per share at March 31, 1996........ $1.89
Increase per share attributable to new investors........... 2.02
-----
As adjusted net tangible book value per share after this of-
fering...................................................... 3.91
------
Net tangible book value dilution per share to new investors.. $ 7.09
======
</TABLE>
The following table sets forth, as of March 31, 1996, the difference between
the existing stockholders and the purchasers of shares in this offering (at an
assumed offering price of $11.00 per share) with respect to the number of
shares of Common Stock purchased from the Company, the total consideration
paid and the average consideration paid per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 7,291,176 74.5% $17,283,000 38.6% $ 2.37
New investors(1)........... 2,500,000 25.5 27,500,000 61.4 11.00
--------- ----- ----------- -----
Total.................... 9,791,176 100.0% $44,783,000 100.0%
========= ===== =========== =====
</TABLE>
The foregoing tables exclude (i) 936,432 shares of Common Stock reserved for
issuance upon the exercise of stock options available for grant under the
Company's 1996 Stock Option Plan pursuant to which options to purchase 407,000
shares of Common Stock shall be granted upon the consummation of this
offering, 297,000 of which shall be exercisable at the initial public offering
price and 110,000 of which shall be exercisable at $11.00 per share, and which
shall generally vest 20% per year for five years beginning on the first
anniversary of consummation of this offering and (ii) 794,764 shares of Common
Stock issuable upon the exercise of the 1996 Warrants, all of which are
currently exercisable at an exercise price of $6.52 per share. See
"Management--Stock Options--1996 Stock Option Plan" and "Description of
Capital Stock--Warrants."
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA(1)
The selected consolidated balance sheet data as of December 31, 1994 and
December 31, 1995 and the selected consolidated statement of operations data
for each of the years ended December 31, 1993, 1994 and 1995 are derived from,
and are qualified by reference to, the Consolidated Financial Statements,
which have been audited by Ernst & Young Auditores Independents S.C.,
independent auditors, and which are included elsewhere in this Prospectus. The
selected consolidated balance sheet data as of December 31, 1991, 1992 and
1993 and as of March 31, 1996, and the selected consolidated statement of
operations data as of and for the years ended December 31, 1991 and 1992 and
the three-month periods ended March 31, 1995 and 1996, are derived from
unaudited financial statements and include all adjustments, consisting of
normal recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. Results of operations for the three months ended March 31, 1996 are
not necessarily indicative of operations for the full year. The Consolidated
Financial Statements have been prepared in accordance with United States GAAP
in U.S. dollars. For this purpose, amounts in Brazilian currency for all
periods presented have been remeasured into U.S. dollars in accordance with
the methodology set forth in SFAS No. 52 as it applies to entities operating
in highly inflationary economies. Pursuant to SFAS No. 52, supplies, property,
plant and equipment, intangibles and deferred installation fees and the
related income statement accounts are remeasured at exchange rates in effect
when the assets were acquired or the liabilities were incurred. All other
assets and liabilities are remeasured at fiscal year end exchange rates, and
all other income and expense items are remeasured at average exchange rates
prevailing during the year. Remeasuring adjustments are included in net income
(loss) for the period. The data presented below should be read in conjunction
with the Consolidated Financial Statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- -------- ---------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AND MONTHLY REVENUE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 35 $ 69 $ 287 $ 2,438 $ 11,404 $ 1,364 $ 5,852
Operating costs and ex-
penses:
System operating....... 9 7 196 773 2,957 413 1,583
Selling, general and
administrative........ 24 38 558 2,394 8,975 1,589 3,310
Depreciation and amor-
tization.............. 8 11 43 365 2,049 236 1,098
--------- --------- --------- -------- ---------- --------- ---------
Total operating costs
and
expenses.............. 41 56 797 3,532 13,981 2,238 5,991
--------- --------- --------- -------- ---------- --------- ---------
Operating income
(loss)................. (6) 13 (510) (1,094) (2,577) (874) (139)
Other income (expense).. -- -- (6) 1,612 360 218 (320)
--------- --------- --------- -------- ---------- --------- ---------
Net income (loss)....... $ (6) $ 13 $ (516) $ 518 $ (2,217) $ (656) $ (459)
========= ========= ========= ======== ========== ========= =========
Net income (loss) per
share(2)............... $ 0.00 $ 0.00 $ (0.10) $ 0.08 $ (0.27) $ (0.08) $ (0.06)
Shares and share
equivalents, in
thousands(2)........... 4,516 4,516 5,295 6,885 8,086 8,086 8,086
OTHER DATA:
EBITDA(3)............... $ 2 $ 24 $ (467) $ (729) $ (216) $ (638) $ 959
Number of subscribers at
end of
period................. 50 135 1,864 7,641 36,594 11,924 47,066
Average monthly revenue
per
subscriber(4).......... $ 30.43 $ 34.13 $ 40.00 $ 39.86 $ 40.45
Average monthly churn
rate(5)................ 0.37% 0.62% 0.63% 0.66% 0.62%
Number of operating sys-
tems at end of period.. 1 1 1 1 3 3 3
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
-------- --------- --------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (defi-
cit)................... $ 7 -- $ 279 $ 3,204 $ (6,230) $ (2,720)
Property, plant and
equipment, net......... 67 $ 86 895 4,182 18,870 22,802
Total assets............ 74 87 1,795 10,008 23,683 29,355
Payables to affiliates--
long-term.............. -- -- -- 600 400 200
Stockholders' equity.... 73 86 982 6,500 7,895 14,587
</TABLE>
- --------
(1) The Consolidated Financial Data includes (i) TV Filme Servicos on a
historical basis and (ii) ITSA and its subsidiaries since May 1994 and the
predecessor of ITSA on a historical basis, as though they have been part
of TV Filme, Inc. for all periods presented. See Note 1a to Consolidated
Financial Statements and "Business--Restructuring."
(2) Net income (loss) per share (after giving effect to the Restructuring) is
calculated using the weighted average number of shares of stock
outstanding during the period together with the number of shares issuable
upon the exercise of options and warrants issued during the twelve months
prior to the filing of this offering. The Company did not use the treasury
stock method in computing the dilutive effect of the 1996 Warrants. See
"Description of Capital Stock--Warrants."
(3) EBITDA is defined as operating income (loss) plus depreciation,
amortization and non-cash compensation. While EBITDA should not be
construed as a substitute for operating income (loss) or a better measure
of liquidity than cash flow from operating activities, which are
determined in accordance with United States GAAP, it is included herein to
provide additional information regarding the ability of the Company to
meet its capital expenditures, working capital requirements and any future
debt service. EBITDA is not necessarily a measure of the Company's ability
to fund its cash needs, because it does not include capital expenditures,
which the Company expects to continue to be significant. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview."
(4) Average monthly revenue per subscriber is calculated by dividing
subscription revenue for the month by the average number of subscribers
for the month.
(5) Churn equals the ratio of disconnected subscribers to average monthly
subscribers. The average monthly churn rate is the average of the churn
rates for each month related to the periods presented.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. The following discussion
should be read in conjunction with the Consolidated Financial Statements
including the notes thereto included elsewhere in this Prospectus. See "Index
to Consolidated Financial Statements."
OVERVIEW
The Company develops, owns and operates subscription television systems in
mid-sized markets in Brazil. The Company has established wireless cable
operating systems in the cities of Brasilia, Goiania and Belem, which together
encompass approximately 1,215,000 households, an estimated 1,054,000 of which
can be served by the LOS transmission utilized by the Company's wireless cable
systems. Applications have been made for the Company to operate wireless cable
systems in an additional 19 markets in Brazil having an aggregate population
of approximately 9,000,000 and encompassing approximately 2,000,000
households. Since the beginning of 1993, the Company has experienced
substantial subscriber growth, increasing from 135 subscribers to 47,066
subscribers as of March 31, 1996 and more than 55,000 subscribers as of May
31, 1996.
Historically, the Company has generated operating losses, which may increase
to the extent that operations of additional systems are commenced or acquired,
although the Company has no pending or probable acquisitions. As the Company
continues to develop systems, positive EBITDA/1/ from more developed systems
is expected to be partially or completely offset by negative EBITDA from less
developed systems and from development costs associated with establishing new
systems. This trend is expected to continue until the Company has a
sufficiently large subscriber base to absorb operating and development costs
of new systems. There can be no assurance that the Company will be able to
achieve or sustain net income in the future. The Company's Brasilia System
became EBITDA positive in the third quarter of 1994, when it had approximately
5,000 subscribers, and generated EBITDA of $1,410,000 and operating income of
$747,000 for the three months ended March 31, 1996.
Each of the Company's systems has required an initial capital investment of
approximately $1,000,000 to $1,500,000 to build and install a transmission
tower, headend facilities and other equipment. These costs are generally
depreciated over ten years. In addition, each new subscriber requires an
average incremental investment of approximately $450, which includes the cost
of a decoder box, installation labor and materials, other equipment and
supplies, marketing and selling costs. The Company capitalizes installation
costs, including installation labor, decoders and other direct costs, and
depreciates these costs over five years. The Company charges new subscribers
installation fees ranging from $80 and $250, depending on factors which
include the subscriber's access to other forms of subscription television and
whether the installation is the first installation in a building. The Company
defers installation fees, net of direct selling expenses, and recognizes these
fees as revenues ratably over a five-year period.
The Company's substantial subscriber growth has resulted from the addition
of subscribers in Brasilia and from the introduction of operating systems in
Goiania and Belem. Television subscription revenues primarily consist of
monthly fees paid by subscribers for the programming package as well as
installation fees recognized for the period. System operating expenses include
programming costs, a portion of costs
- --------
/1EBITDA/is defined as operating income (loss) plus depreciation, amortization
and non-cash compensation. EBITDA is a commonly used measure of performance
in the subscription television industry. While EBITDA should not be
construed as a substitute for operating income (loss) or a better measure of
liquidity than cash flow from operating activities, which are determined in
accordance with United States GAAP, it is included herein to provide
additional information regarding the ability of the Company to meet capital
expenditures, working capital requirements and any future debt service.
EBITDA is not necessarily a measure of the Company's ability to fund its
cash needs because it does not include capital expenditures, which the
Company expects to continue to be significant.
21
<PAGE>
of compensation and benefits for the Company's employees, vehicle rental
costs, transmitter site rentals, repair and maintenance expenditures and
service call costs. Depreciation and amortization expenses consist primarily
of depreciation of decoder boxes, headend facilities and installation costs.
The development of a new system requires significant expenditures, a
substantial portion of which are incurred before the realization of revenues.
These expenditures, together with the associated early operating expenses,
result in negative cash flow until an adequate revenue generating subscriber
base is established. As the subscriber base increases, revenue, as well as
certain costs such as programming costs, generally increase while other costs,
such as tower rental and related maintenance costs, remain constant or
increase at proportionately lower levels. Accordingly, although costs increase
in the aggregate as the subscriber base grows, the average costs per
subscriber generally decrease and operating margins generally increase.
The Company seeks to minimize subscriber churn, which the Company defines as
the total number of customers whose services are terminated during a period as
a percentage of the average number of subscribers for the period. For the year
ended December 31, 1995, the Company's average monthly churn was approximately
0.66%, and for the three months ended March 31, 1996, the Company's average
monthly churn was approximately 0.62%.
The Company, as a holding company, depends on the receipt of dividends and
other cash payments from its operating subsidiaries in order to meet the
Company's cash requirements. Such receipts are subject to statutory
restrictions pursuant to which the subsidiaries may pay dividends only out of
retained earnings.
Although the Company's financial statements are presented pursuant to United
States GAAP in U.S. dollars, the Company's transactions are consummated in
both Reals and U.S. dollars. Inflation and devaluation in Brazil have had, and
may continue to have, substantial effects on the Company's results of
operations and financial condition. The Company does not seek to hedge
currency risks in the financial markets or otherwise. See "--Inflation and
Exchange Rates," "Risk Factors--Risk Factors Relating to Brazil Generally" and
"Brazil--Effects of Inflation and Currency Exchange Fluctuations."
22
<PAGE>
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto and the other financial information
appearing elsewhere in this Prospectus.
Selected Operating Data. The following table sets forth certain expense and
other data derived from the Consolidated Financial Statements as a percentage
of the Company's revenues for each period presented:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- ---------------
1993 1994 1995 1995 1996
-------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Operating costs and expenses:
System operating............ 68.3 31.7 25.9 30.3 27.0
Selling, general and admin-
istrative.................. 194.4 98.2 78.7 116.5 56.6
Depreciation and amortiza-
tion....................... 15.0 15.0 18.0 17.3 18.8
-------- ------- ------- ------ ------
Total operating costs and
expenses................. 277.7 144.9 122.6 164.1 102.4
-------- ------- ------- ------ ------
Operating income (loss)....... (177.7) (44.9) (22.6) (64.1) (2.4)
Other income (expense)........ (2.1) 66.1 3.2 16.0 (5.4)
-------- ------- ------- ------ ------
Net income (loss)............. (179.8)% 21.2% (19.4)% (48.1)% (7.8)%
======== ======= ======= ====== ======
</TABLE>
Revenues. The revenue increase from 1993 to 1994 of $2.2 million was
primarily due to an increase in the number of subscribers in the Brasilia
System, from 1,864 at the end of 1993 to 7,641 at the end of 1994. In
addition, the average monthly revenue per subscriber increased from $30.43 in
1993 to $34.13 in 1994. The increase in revenues from 1994 to 1995 of $9.0
million was primarily due to an increase in the number of subscribers in the
Brasilia System, from 7,641 at the end of 1994 to 25,385 at the end of 1995,
and to the launch of two new operating systems in Goiania and Belem, which had
an aggregate of 11,209 subscribers at the end of 1995. Additionally, aggregate
installation fees recognized increased by $1.4 million from 1994 to 1995. The
average monthly revenue per subscriber increased due to an increase in
subscription fees implemented during 1995. Revenues increased by $4.5 million
from the three months ended March 31, 1995 to the three months ended March 31,
1996, primarily due to an aggregate increase of 35,142 in the number of
subscribers in the Brasilia, Goiania and Belem Systems. The average monthly
revenue per subscriber increased to $40.45 for the three months ended March
31, 1996.
System Operating Expenses. The increase in system operating expenses from
1993 to 1994 of $0.6 million was primarily due to an increase of approximately
$0.3 million in compensation and benefits, primarily to employees in the
customer service and engineering departments, net of capitalized installation
costs, and to an increase in programming expenses of $0.2 million. The
increase in system operating expenses from 1994 to 1995 of $2.2 million was
due to an increase in programming expenses of $1.2 million and to an increase
in compensation and benefits, primarily to employees in the customer service
and engineering departments, net of capitalized installation costs, of $0.5
million. The increase in system operating expenses from the three months ended
March 31, 1995 to the three months ended March 31, 1996 of $1.2 million was
primarily due to an increase in programming expenses of $1.1 million and an
increase in compensation and benefits of $0.1 million, primarily to employees
in the customer service and engineering departments. From 1993 through the
three months ended March 31, 1996, programming expenses were affected by the
increase in the number of subscribers over the period, since programming
expenses are charged on a per subscriber basis, but this increase was
mitigated by decreasing costs per subscriber due to volume discounts.
Additionally, the Company received discounts from list prices on TVA
programming from July 1993 through October 1995 which amounted to $28,000,
$340,000 and $539,000 in 1993, 1994 and 1995, respectively. Such discounts are
not expected to recur.
23
<PAGE>
Selling, General and Administrative Costs. From 1993 to 1994, selling,
general and administrative expenses ("SG&A") increased by $1.8 million,
including an increase in compensation and benefits of $0.8 million, primarily
to employees in the sales department, and an increase in advertising expenses
of $0.2 million. However, from 1993 to 1994, SG&A decreased as a percentage of
revenues from 194.4% to 98.2%. From 1994 to 1995, SG&A increased by $6.6
million, but decreased to 78.7% of 1995 revenues. During 1995, compensation
and benefits increased by $3.6 million, primarily to employees in the sales
department and senior management, advertising increased by $0.5 million and
there was non-cash compensation expense in 1995 of $0.3 million in connection
with a grant of stock options. SG&A increased by $1.7 million from the three
months ended March 31, 1995 to the three months ended March 31, 1996, but as a
percentage of revenues decreased to 56.6%. The Company believes that as
revenues rise, SG&A as a percentage of revenues should generally decrease in
the future. Compensation and benefits increased by $1.0 million, primarily to
employees in the sales department, and advertising increased by $0.2 million
from the three months ended March 31, 1995 to the three months ended March 31,
1996. From 1993 through the three months ended March 31, 1996, compensation
and benefits increases were primarily the result of an increased number of
employees, primarily in the sales department, to service the Company's
expanded subscriber base, including the expansion into the Goiania and Belem
markets, and to a lesser extent, an increase in average wages.
Depreciation and Amortization. Since inception, the Company's direct costs
of obtaining subscribers generally have exceeded installation revenue. These
costs are capitalized and depreciated over a five year period. Depreciation
and amortization expense increased from 1993 to 1994 by $0.3 million due to an
increase in the number of subscribers in the Brasilia System. The increase in
depreciation and amortization expense from 1994 to 1995 of $1.7 million was
primarily due to an increase in the number of subscribers in the Brasilia
System and the launch of two new operating systems in Goiania and Belem. The
increase in depreciation and amortization expense from the three month period
ended March 31, 1995 to the three month period ended March 31, 1996 of $0.9
million was due to increases in the number of subscribers in each of the three
operating systems.
Operating Income (Loss). Operating loss increased from 1993 to 1994 and from
1994 to 1995 primarily due to increases in expenses in connection with the
development of the Company's business, as explained above. For the three month
period ended March 31, 1996, the Company generated an operating loss of $0.1
million. The Company expects to generate operating losses as it expands its
existing systems and develops additional systems.
Other Income (Expense). Interest expense for 1993 and 1994 was
insignificant. Interest expense increased in 1995 as a result of short-term
borrowings from Abril S.A. and certain of its affiliates of approximately $1.7
million incurred by the Company to finance the development and launch of the
Goiania System and the Belem System and to support an increase in the number
of subscribers. Interest income for 1993 was insignificant. Interest income
during 1994 was generated by the short-term investment of the proceeds of a
$5.0 million private placement in 1994. In 1995, interest income was generated
by cash on hand at the beginning of 1995 and the short-term investment of the
proceeds of a $3.3 million private placement in 1995. Interest expense
increased from the three month period ended March 31, 1995 to the three month
period ended March 31, 1996 because the Company entered into a short-term
borrowing arrangement with Abril S.A. and certain of its affiliates in the
first quarter of 1996 at an interest rate of the Brazilian interbank rate plus
0.8%, which ranged from 2.18% to 3.16% per month during such quarter. The
Company does not expect such borrowing arrangements to continue upon
consummation of this offering.
Exchange and translation gains have arisen primarily as a result of short-
term investments denominated in Reals, and to a lesser extent from the
translation of financial statements from Reals to U.S. dollars in accordance
with SFAS 52, with the U.S. dollar as the functional currency. These amounts
can fluctuate significantly as a result of changes in the exchange rate of the
Real relative to the U.S. dollar. Such gain (loss) was insignificant in fiscal
1995. In fiscal 1994, the Company realized a currency gain of
24
<PAGE>
$0.6 million attributable, in part, to implementation of the Real Plan. See
"Risk Factors--Risk Factors Relating to Brazil Generally--Economic
Uncertainty" and "Brazil--Brazilian Economic Environment."
Income Taxes. At December 31, 1995, the Company had $5.2 million of net
operating loss carryforwards, of which approximately $1.3 million were
attributable to TV Filme Servicos. After the Restructuring, the net operating
loss carryforwards of TV Filme Servicos, which will then no longer be a
wholly-owned subsidiary of the Company, will be available only to offset its
own income and will not be available to offset any profits generated by the
Operating Systems. Under Brazilian law, the carryforward period for net
operating losses is unlimited. Use of these losses, however, is limited to 30%
of taxable income in a tax period. The Company has not recorded a tax benefit
for any period. The Company's net deferred tax assets have been entirely
offset by a valuation allowance, and the Company expects to generate operating
losses for the foreseeable future. Effective January 1, 1996, Brazilian
effective tax rates declined from approximately 48% to approximately 30.5%.
Net Income (Loss). As explained above, net loss in the periods presented,
other than 1994, is primarily attributable to the significant expenses
incurred in connection with the development of the Company's business. Net
income in 1994 was due to interest income and exchange gains which were
greater than operating losses.
Quarterly Results. The following table sets forth summary historical
information on a quarterly basis for the Company as a whole and for the
Brasilia System for the respective periods presented below. Summary
information for the Brasilia System is presented because it represents the
Company's largest operation at the time of this offering.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
3/31/94 6/30/94 9/30/94 12/31/94 3/31/95 6/30/95 9/30/95 12/31/95 3/31/96
------- ------- ------- -------- ------- ------- ------- -------- -------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMPANY
Subscribers............. 3,223 4,480 5,796 7,641 11,924 19,009 27,024 36,594 47,066
Revenues................ $ 249 $ 457 $ 732 $1,000 $1,364 $2,149 $3,222 $4,669 $5,852
Operating Income
(Loss)................. $(161) $(176) $(217) $ (540) $ (874) $ (668) $ (523) $ (512) $ (139)
EBITDA.................. $(107) $(109) $(109) $ (404) $ (638) $ (306) $ 388 $ 340 $ 959
Net income.............. $(154) $(131) $ 768 $ 35 $ (656) $ (619) $ (531) $ (411) $ (459)
BRASILIA SYSTEM
Subscribers............. 3,223 4,480 5,796 7,641 10,300 14,357 19,331 25,385 32,139
Revenues................ $ 249 $ 457 $ 732 $1,000 $1,202 $1,614 $2,323 $3,167 $3,910
Operating Income
(Loss)................. $(161) $(146) $ (93) $ (23) $ 105 $ 43 $ 518 $ 411 $ 747
EBITDA.................. $(107) $ (83) $ 12 $ 114 $ 300 $ 307 $ 889 $ 935 $1,410
</TABLE>
The Company's growth has resulted from expansion of the Brasilia System's
subscriber base, the launch of the Goiania System and Belem System in January
1995 and February 1995, respectively, and the expansion of such systems. The
Brasilia System has grown substantially since its full launch and associated
expansion of programming offerings from four to eight channels in February
1994 and the subsequent expansion to 16 channels in November 1994. The
Brasilia System's growth accelerated with the introduction of additional
channels, with its quarterly revenues increasing from approximately $249,000
in the quarter ended March 31, 1994 to approximately $3,910,000 in the quarter
ended March 31, 1996. On August 19, 1995, the Company increased its monthly
subscription fees from approximately $40 to $45. This price increase was
effective for (i) all subscribers who began subscribing for the Company's
services after such date and (ii) all existing subscribers on the next 12-
month anniversary of their respective subscriptions. See "Risk Factors--Risk
Factors Relating to Brazil Generally--Economic Uncertainty" for a discussion
of rate increases within a 12 month period. The Company's relatively fixed
transmission costs, declining marginal costs per subscriber and subscriber
growth were the primary factors causing (i) EBITDA in the Brasilia System to
increase from a negative EBITDA of approximately $107,000 to a positive
25
<PAGE>
EBITDA of approximately $1,410,000 during these same periods and (ii)
operating income (loss) in the Brasilia System to increase from an operating
loss of approximately $161,000 to operating income of approximately $747,000
during these same periods.
LIQUIDITY AND CAPITAL RESOURCES
The subscription television business is a capital intensive business. The
Company made capital expenditures of approximately $3.6 million in 1994, $16.6
million in 1995 and $5.0 million in the three months ended March 31, 1996.
Such expenditures were financed principally through equity offerings. The
Company raised an aggregate of $16,751,000 through a series of private equity
placements in 1993, 1994, 1995 and 1996 in the respective amounts of
$1,300,000, $5,000,000, $3,300,000 and $7,151,000, to Tevecap, Warburg, Pincus
and certain other investors. See "Business--Background." To a lesser extent,
working capital requirements have been met by vendor financing, some of which
has been supported by irrevocable letters of credit guaranteed by Abril S.A.
(the majority shareholder of Tevecap, a shareholder of the Company) and
certain of its affiliates. The Company purchases a majority of its customer
service equipment on terms which require payment within 360 days of shipment,
which financing arrangements are supported by irrevocable letters of credit.
Such vendor financing allows the Company to finance many of its capital needs
and has reduced the Company's need for additional equity or debt capital. The
Company believes that its reliance on vendor financing will be reduced after
consummation of this offering. Working capital requirements have also been met
by borrowings from Abril S.A. and certain of its affiliates. No such
borrowings were outstanding as of March 31, 1996. As of March 31, 1996, $6.4
million was outstanding under letters of credit with maturities ranging from
30 days to 360 days, of which $5.3 million was guaranteed by Abril S.A. and
certain of its affiliates. As of March 31, 1996, the Company had a $2.0
million line of credit with a commercial bank, of which $1.9 million was
available on such date. The Company has since increased this line of credit
facility to $5.0 million. The Company believes that lines of credit,
additional vendor financing and other credit facilities will be available on
terms acceptable to it upon completion of this offering. The Company had
negative working capital at December 31, 1995 and March 31, 1996 in the
amounts of $6,230,000 and $2,720,000, respectively, primarily as a result of
capital expenditures. Net cash provided by operating activities for the years
ended December 31, 1994 and 1995 was $1,817,000 and $8,201,000, respectively.
Net cash provided by operating activities for the three months ended March 31,
1996 declined to $9,000 primarily as a result of increases in accounts
receivable and supplies.
For the last three quarters of 1996, the Company anticipates that its
aggregate capital expenditures in its existing operating markets will be
approximately $16 million, comprised primarily of subscriber installation
equipment. The Company believes that the proceeds of this offering, together
with internally generated funds and vendor financing, will be sufficient to
fund its cash requirements and anticipated capital expenditures in its
existing operating markets for at least the next 12 months. In the longer
term, the Company's liquidity needs are subject to a variety of factors,
including launching or acquiring new systems, increasing existing channel
offerings, implementing alternative technologies and offering additional
communications services. There can be no assurance that the Company will be
able to meet its liquidity needs in the longer term. See "Risk Factors--Risk
Factors Relating to the Company--Risks Associated with New Markets."
In addition to expanding its subscriber base in its existing systems, the
Company is seeking to launch additional systems, and applications have been
made for the Company to operate wireless cable systems in an additional 19
markets. From January 1, 1994 to March 31, 1996, the Company expended
approximately $25 million to construct and operate its three operating
systems. Based on current market and operating conditions, the Company
estimates that the cost of launching any additional operating system after the
granting of a new license would range from approximately $5.0 million to $8.0
million, including construction of a headend facility, subscriber-related
capital costs and funding initial development costs and operating losses,
depending on factors particular to each such market. The Company's operation
of new systems will require substantial amounts of capital for the
construction of
26
<PAGE>
additional transmission and headend facilities, signal repeaters and related
equipment purchases, marketing, the installation of equipment at subscribers'
locations, the development and establishment of administrative and regional
offices, the funding of start-up losses and other working capital
requirements. The Company also from time to time may selectively pursue the
acquisition of additional subscription television systems, although it
currently has no plan or proposal with respect to any acquisitions. In
addition, applications have been made to expand the licenses in Brasilia,
Goiania and Belem by adding 15 additional channels in each market. Finally,
the Company may implement alternative technologies in the future, although it
has no current plan or intention to do so. If such new systems are launched,
acquisitions are consummated, existing channel offerings are increased or
alternative technologies are implemented, substantial additional funds may be
required. The Company intends to fund such future cash requirements through
the issuance of additional debt and/or equity capital, joint ventures or other
arrangements. There can be no assurance that the Company will be able to
obtain such debt or equity capital on satisfactory terms, or at all, to meet
its future financing needs. See "Risk Factors--Risk Factors Relating to the
Company--Risks Associated with New Markets."
INFLATION AND EXCHANGE RATES
Inflation and exchange rate variations have had, and may continue to have,
substantial effects on the Company's results of operations and financial
condition. In periods of inflation, many of the Company's expenses will tend
to increase. Generally, in periods of inflation, a company is able to raise
its prices to offset the rise in its expenses and may set prices for customers
without government regulation. However, under Brazilian law designed to reduce
inflation, the rates which the Company may charge to a particular subscriber
may not be increased until the next 12-month anniversary of his subscription.
Thus, the Company is less able to offset expense increases with revenue
increases. Accordingly, inflation may have a material adverse effect on the
Company's results of operations and financial condition.
Generally, the effects of inflation in Brazil have been offset in part by
devaluation of the Brazilian currency relative to the U.S. dollar. Devaluation
of the Real may also have an adverse effect on the Company. The Company
collects substantially all of its revenues in Reals, but pays certain of its
expenses, including a significant portion of its equipment costs and a portion
of its programming costs, in U.S. dollars. In addition, equipment purchases
currently are financed by irrevocable letters of credit for up to one year,
although following consummation of this offering the Company may determine not
to utilize such financing. To the extent the Real depreciates at a rate
greater than the rate at which the Company raises prices, the value of the
Company's revenues (as expressed in U.S. dollars) may fall. As the value of
the Company's revenues fall, its ability to fund U.S. dollar-based
expenditures also will decline. The Company does not currently seek to hedge
exchange rate risks in the financial markets or otherwise, as it believes that
the costs of such hedging outweigh the related risks. Accordingly, devaluation
of the Real may have a material adverse effect on the Company's results of
operations and financial condition.
27
<PAGE>
BUSINESS
BRAZILIAN SUBSCRIPTION TELEVISION INDUSTRY
The subscription television industry in Brazil began in 1989. In contrast to
the United States, the Brazilian hardwire cable industry and wireless cable
industry began developing concurrently. By March 31, 1996, 103 hardwire cable
licenses and 12 wireless cable licenses had been issued by the Ministry of
Communications. The Company believes that as of March 31, 1996, fewer than 10%
of Brazilian homes were passed by hardwire cable as compared to over 90% in
the United States. As of December 1994, Brazil had an estimated 34,500,000
television households, making it the largest television market in South
America, representing approximately 50% of total South American television
households. The Company believes that as of March 1996, Brazil had
approximately 1,250,000 subscription television subscribers, representing less
than 5% penetration of total television households in Brazil. The Ministry of
Communications has forecast that there will be 16,500,000 subscription
television subscribers in Brazil by the year 2003.
Brazilian households watch an average of 6.5 hours of television per day, as
compared to 6.9 hours watched by the average United States household. Viewing
preferences range from Portuguese language "novelas" (soap operas) to United
States movies and sports. The second language of many Brazilians is English,
and United States culture generally, and United States films, shows and sports
in particular, are popular with Brazilians. The program market for
subscription television is dominated by Brazil's two largest media
conglomerates, Abril S.A. and the Globo Organization. Both groups offer
program packages including a movie channel, a sports channel, a news channel,
United States prime time network shows and cartoons. In general, much of the
Brazilian programming transmitted by subscription television systems, such as
HBO Brazil, ESPN International and MTV Latino, is based on formats found in
the United States. In addition, there are programming packages which include
channels directly from the United States, such as Warner, Sony and
Superstation, as well as packages from Europe and South America.
COMPANY BACKGROUND
The Company's predecessor was founded in 1989 by members of the Company's
senior management team. In September 1989, the Company was granted a license
to operate a wireless cable system in Brasilia, the capital of Brazil, and
commenced operations in 1990 with a one channel offering. The Company raised
an aggregate of $16,751,000 through a series of private equity placements in
1993, 1994, 1995 and 1996 in the respective amounts of $1,300,000, $5,000,000
$3,300,000 and $7,151,000, with Tevecap (a subsidiary of Abril S.A.), Warburg,
Pincus and certain other investors. With the proceeds from the private
placements, the Company expanded its subscriber base, increased the channel
offerings in Brasilia and launched new wireless cable systems in Goiania and
Belem. Licenses to operate the Goiania and Belem Systems were acquired in 1994
from TVA. The Company has exclusive rights to TVA programming via wireless and
hardwire cable in areas where the Company currently operates.
Abril S.A. is Brazil's largest magazine publishing company in terms of
circulation. As of October 1995, it had one of the largest printing and
binding plants in Latin America, was a leading publisher of telephone
directories in Brazil and was one of the largest distributors of magazines in
the country. Abril S.A. also distributes Disney, Touchstone and 20th Century
Fox videotape cassette movies in Brazil, in addition to producing its own
video cassette movies.
TV Filme Servicos is the only entity licensed to operate a wireless cable
system in Brasilia, Goiania and Belem. The Company provides service via 16
wireless cable channels in each such market. The Brasilia System also offers
six local off-air VHF/UHF channels, and the Goiania and Belem Systems offer
five such channels. Additionally, applications have been made for an
additional 15 wireless cable channels in such markets. There can be no
assurance that the licenses will be so granted or that such licenses will not
be granted to competitors. In addition, applications have been made for the
Company to operate licenses in an additional 19 markets in Brazil. There can
be no assurance that the Company will be granted any license expansions or
will be able to operate any new systems through new licenses.
28
<PAGE>
RESTRUCTURING
As of the date hereof, all of the outstanding stock of ITSA is owned by
investors in the United States and Brazil (the "Existing Stockholders"),
including those persons owning proportionately the equity interests listed
under "Principal Stockholders" herein. Such equity interests are currently
held in the form of common and preferred stock, together with warrants, in
ITSA. Prior to consummation of this offering, the Existing Stockholders will
exchange their outstanding shares of common and preferred stock of ITSA for
proportionate interests in the Common Stock of TV Filme, Inc., and will
exchange their warrants in ITSA for proportionate warrants in TV Filme, Inc.
The information set forth in "Principal Stockholders" gives effect to such
exchange. As a result of the foregoing, upon consummation of this offering,
ITSA will be a wholly-owned subsidiary of TV Filme, Inc.
ITSA currently has three wholly-owned subsidiaries: TV Filme Servicos, TV
Filme Goiania and TV Filme Belem. TV Filme Servicos currently owns and
operates the Brasilia System and holds the licenses granted by the Ministry of
Communications to operate the Company's wireless cable systems in Brasilia,
Goiania and Belem. Brazilian law (the "Ownership Law") requires that a
majority of the voting stock of an entity which holds a wireless cable license
must be owned by Brazilians, and in order to comply with such requirement,
prior to consummation of this offering, 51% of the voting stock of TV Filme
Servicos will be transferred to an entity organized in Brazil, which will be
owned by those Existing Stockholders who are Brazilian nationals, namely
Tevecap S.A., Mrs. Maria Nise Lins, Mr. Hermano Lins, Mr. Carlos Andre Lins
and Ms. Maria Veronica Lins. ITSA will retain 49% of the voting stock and 83%
of the economic interests in TV Filme Servicos. In connection with such
transfer, the operating assets of the Brasilia System will be transferred from
TV Filme Servicos to TV Filme Brasilia, which, when formed, will be a wholly-
owned subsidiary of ITSA. TV Filme Servicos will enter in various agreements
with ITSA and its subsidiaries pursuant to which, among other things, TV Filme
Servicos will (i) authorize ITSA's subsidiaries to operate the existing
wireless cable systems on an exclusive basis under its current licenses, (ii)
agree to diligently pursue the pending applications for licenses in an
additional 19 markets and the expansion of the licensed number of channels in
the Company's existing operating systems for the benefit (and at the expense)
of ITSA, (iii) agree to file and diligently pursue additional license
applications in the future at the request (and expense) of ITSA and (iv) agree
to various safeguards for the unimpaired continuation and renewal of the
licenses for the exclusive benefit of ITSA and for compliance with applicable
law. In consideration of the foregoing, ITSA's operating subsidiaries will pay
to TV Filme Servicos a royalty equal to 10% of subscriber installation fees.
To further assure the continuing unimpaired right of ITSA and its subsidiaries
to operate wireless cable systems under licenses granted to TV Filme Servicos,
ITSA will have the rights, among other things, to repurchase the 51% of the
voting stock of TV Filme Servicos to the extent allowed in connection with a
change in the Ownership Law and to veto the sale or transfer of the licenses
by TV Filme Servicos. See "Business--Regulatory Environment" and "Risk
Factors--Risk Factors Relating to the Company--Potential Conflicts of Interest
and "Risk Factors--Risk Factors Relating to the Company--Minority Voting
Position in License Company."
29
<PAGE>
[CHART -- PRIOR TO THE RESTRUCTURING]
[CHART -- AFTER THE RESTRUCTURING]
30
<PAGE>
COMPANY OVERVIEW
The Company develops, owns and operates subscription television systems in
mid-sized markets in Brazil. The Company has established wireless cable
operating systems in the cities of Brasilia, Goiania and Belem, which together
have a total population of approximately 5,200,000 and encompass approximately
1,215,000 households, an estimated 1,054,000 of which can be served by the LOS
transmission utilized by the Company's wireless cable systems. The 10-year
renewable licenses to operate such systems are granted on an exclusive basis
within a 25 kilometer radius of the Company's transmission sites, although the
Company serves customers beyond this range. Applications have been made for
the Company to operate wireless cable systems in an additional 19 markets in
Brazil having an aggregate population of approximately 9,000,000 and
encompassing approximately 2,000,000 households, although there can be no
assurance as to the grant of any such licenses or as to the timing thereof.
Since 1993, the Company has experienced substantial subscriber growth,
increasing from 135 subscribers at the beginning of 1993 to 47,066 subscribers
as of March 31, 1996 and more than 55,000 subscribers as of May 31, 1996. For
the first quarter of 1996, average monthly revenue per subscriber was $40.45
and average monthly churn was less than 1%. For the first quarter of 1996, the
Company generated revenues of $5,852,000, an operating loss of $139,000, a net
loss of $459,000 and EBITDA of $959,000. The Company's largest operating
system, the Brasilia System, generated revenues of $3,910,000, operating
income of $747,000 and EBITDA of $1,410,000 during this period.
The Company targets mid-sized markets with demographics, competitive
environments and topographies that it believes offer the Company the
opportunity to become the leading provider of subscription television services
in those markets. Significant portions of the Company's current and targeted
mid-sized markets are not served by hardwire cable providers. The Company
estimates that the percentage of homes unpassed by traditional hardwire cable
as of March 31, 1996 is approximately 70% in each of Brasilia and Goiania.
There is no hardwire cable provider in Belem. Of the approximately 1,215,000
households in Brasilia, Goiania and Belem, the Company estimates 985,000
households, or approximately 80% of such households, are currently unpassed by
hardwire cable.
The Company believes that wireless cable technology is well suited to its
current and targeted markets and is an attractive alternative to existing
television choices. Wireless cable transmission provides immediate coverage of
entire markets to locations that are in the unobstructed path of the
transmission tower. Wireless cable service can be deployed at a significantly
lower system capital cost per installed subscriber than alternative
technologies. The Company believes that subscribers to television services in
Brazil are concerned with such features as programming, service, reliability
and price and are generally indifferent to the delivery methodology.
The Company may in the future offer additional communications services,
although it has no current plan or proposal to do so. The Company believes
that other communications services, such as Internet access, paging and direct
mail, could be marketed to the Company's subscriber base. Offering such
additional services would be subject to, among other things, the availability
of capital and the employment of appropriate management.
OPERATING STRATEGY
The Company's objective is to become a leading provider of subscription
television services in mid-sized markets in Brazil and to become the largest
provider of subscription television services in each of its markets. The
Company believes Brazil offers significant opportunities for subscription
television providers because (i) there is significant demand among television
viewers in Brazil for additional programming choices, (ii) there is limited
competition among subscription television providers and (iii) the penetration
rate for subscription television services is less than 5% of the television
households. As demonstrated by the Company's experience in rapidly growing its
subscriber base, the Company believes it is well positioned to take advantage
of these opportunities. As part of its strategy, the Company focuses on (i)
targeting mid-sized markets for expansion, (ii) developing TV Filme brand name
recognition through
31
<PAGE>
exclusive programming, (iii) increasing penetration of existing markets, (iv)
providing superior customer service, (v) minimizing the rate of subscriber
turnover ("churn") and (vi) implementing a consistent operating model. These
elements of the Company's strategy are discussed below:
Target Mid-sized Markets for Expansion. The Company targets markets with
populations from approximately 100,000 to 2,500,000, and with demographics,
competitive environments and topographies favorable for the Company's
subscription television services. The Company believes that these markets are
currently underserved by subscription television service providers. In
addition to its three operating markets, applications have been made for the
Company to operate wireless cable systems in an additional 19 markets in
Brazil representing a total of approximately 2,000,000 households and an
aggregate population of approximately 9,000,000.
Develop TV Filme Brand Name Recognition through Exclusive Programming. The
Company offers exclusive programming which it believes is superior to that of
its competitors. In its current operating markets, the Company has exclusive
rights to transmit, via wireless and hardwire cable, programming offered by
Tevecap and its subsidiaries which, in turn, are the exclusive providers of
certain channels, including HBO Brazil, ESPN Brazil and Country Music
Television. In addition to such programming, the Company seeks to secure
exclusive television rights to important regional events. For example, the
Company owns the right to broadcast the Goias State Soccer Championship
matches, which the Company offers to its subscribers in Goiania. The Company
emphasizes its exclusive programming in its marketing activities and believes
that its programming line-up, including its local content, gives the Company a
competitive advantage in its markets and enhances the TV Filme brand name.
Increase Penetration of Existing Markets. The Company builds its subscriber
base by (i) extensive marketing tied to regional events such as soccer
matches, (ii) neighborhood promotional events featuring large screen
broadcasts of its channel offerings, (iii) direct mailings, (iv)
telemarketing, (v) television and newspaper advertisements, (vi) prewiring
arrangements with residential housing developers and (vii) other promotional
marketing activities, including referral programs and gifts.
Provide Superior Customer Service. The Company believes that it delivers
high levels of customer service to its subscribers. Customer satisfaction is
emphasized for all employees, including the telemarketing, installation and
customer service teams. The Company's proprietary management information
systems greatly facilitate customer service by providing customer service
representatives immediate access to relevant customer records, including
correspondence history. The Company seeks to install service promptly in a
customer's home or business, and service calls are typically responded to in
less than 48 hours.
Minimize Subscriber Churn. The Company focuses on minimizing churn, and its
average monthly churn rate has been less than 1% for the last two years. The
Company has developed proprietary management information systems which enable
it to provide superior customer service to its clients while monitoring
customer payment patterns. The Company also provides customer service through
a "call-back unit" that attempts to resolve any individual customer concerns.
In addition, the Company identifies and targets areas underserved by hardwire
cable. The Company also charges installation fees ranging from $80 to $250 per
subscriber to discourage subscribers from disconnecting.
Implement Consistent Operating Model. The Company believes that its
implementation of consistent processes supported by proprietary systems, such
as the Company's automated installation and billing systems, facilitates the
effective development of new markets and rapid subscriber growth. The Company
implements specific marketing plans, conducts employee training programs and
uses a sophisticated intra-company telecommunications network and proprietary
management information systems to implement best practices across its
marketing, customer service, operations and control functions.
32
<PAGE>
OPERATING SYSTEMS AND THE COMPANY'S MARKETS
The table below provides information regarding the Company's markets as of
March 31, 1996:
<TABLE>
<CAPTION>
ESTIMATED
TOTAL
HOUSEHOLDS
ESTIMATED ESTIMATED ESTIMATED NUMBER UNPASSED BY
TOTAL TOTAL LOS OF NUMBER OF LAUNCH HARDWIRE
POPULATION HOUSEHOLDS(1) HOUSEHOLDS(2) CHANNELS(3) SUBSCRIBERS DATE CABLE
---------- ------------- ------------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING MARKETS:
Brasilia................ 1,800,000 431,000 401,000 22 32,139 Feb. 1994(4) 70%
Goiania(5).............. 1,600,000 414,000 320,000 21 6,686 Jan. 1995 70%
Belem................... 1,800,000 370,000 333,000 21 8,241 Feb. 1995 100%
--------- --------- --------- ------
Total in Operating
Markets:.............. 5,200,000 1,215,000 1,054,000 47,066 80%
========= ========= ========= ======
19 APPLICATION
MARKETS:(6)............ 9,000,000 2,000,000
========= =========
</TABLE>
- --------
(1) Represents the Company's estimate of the number of total households within
a 25 kilometer radius in the particular signal coverage area (subject to
Note (5)). The Company's exclusive coverage territory is a 25 kilometer
radius in its operating markets. The Company's estimates are based on data
from the 1991 Census conducted by the Brazilian Institute of Geography and
Statistics ("IBGE") as adjusted to reflect total household growth of 3.13%
per year in Brasilia, 2.33% per year in Goiania and 2.65% per year in
Belem based on IBGE data.
(2) Represents the Company's estimate of the number of Estimated Total
Households that can receive an adequate signal from the Company
(eliminating from the Estimated Total Households those homes that the
Company estimates are unable to receive service due to certain physical
characteristics of the particular signal coverage area, such as terrain
and foliage, although some of these households can be served with the aid
of signal repeaters).
(3) Includes six local off-air VHF/UHF channels in Brasilia and five local
off-air VHF/UHF channels in each of Goiania and Belem which are offered to
the Company's subscribers in addition to the subscription channels.
(4) Date when the Brasilia System increased its channel offering from four
channels to eight channels. The Brasilia System began service with one
channel in 1990.
(5) Includes 6,600 Estimated LOS Households of the 66,000 Estimated Total
Households in the City of Anapolis, all of which fall outside the
Company's 25 kilometer exclusive coverage territory, but within the
Goiania signal coverage area. See "Business--Regulatory Environment--
License Procedures."
(6) Represents markets for which the Company has applied for licenses with the
Ministry of Communications. There can be no assurance as to the grant of
any such licenses or as to the timing of grants, if any.
Operating Systems
Brasilia System. Brasilia, the capital of Brazil, had an estimated
population of approximately 1,800,000 as of March 31, 1996. Brasilia, which is
located in the interior of Brazil, was established in the early 1960's as a
planned city when the capital of Brazil was moved from Rio de Janeiro.
Brasilia's generally flat topography is advantageous for LOS transmission of
wireless cable. In addition, Brasilia's zoning provisions favor LOS
transmission by requiring that in certain areas residential buildings be of a
similar height and located together. The Brasilia System's signal pattern
covers a radius of up to 25 miles, encompassing approximately 431,000
households, of which the Company believes approximately 401,000 can be served
by LOS transmissions. The Brasilia System had approximately 32,000 subscribers
as of March 31, 1996, an increase of over 200% from March 31, 1995,
representing a market penetration of approximately 8%.
The Brasilia System currently offers a 22 channel package, consisting of 16
wireless cable channels and six local off-air VHF/UHF channels, for
approximately $45 per month. The Company is seeking a license expansion from
the Ministry of Communications for 15 additional wireless cable channels,
although there can be no assurance that the Company will be granted such
additional channels. The Brasilia System, launched in 1990 with one channel,
increased to three channels in July 1992, to four channels in September 1992,
to eight channels in February 1994 and to 16 channels in November 1994. The
Brasilia System became EBITDA positive in the third quarter of 1994 when it
had approximately 5,000 subscribers. In addition to monthly subscriber
revenue, the Brasilia system recently began generating advertising revenues.
The Brasilia System transmits at 50 watts of power per channel from a
transmission
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tower which is 300 feet above average terrain. The principal subscription
television competitor in the city of Brasilia is NET Brasilia, a hardwire
cable operator, which the Company believes had approximately 24,000
subscribers as of March 31, 1996.
Goiania System. Goiania is located approximately 100 miles southwest of
Brasilia and, together with the City of Anapolis (which can be reached by the
Company's signal), had a population of approximately 1,600,000 as of March 31,
1996. Goiania is the capital of the state of Goias and, like Brasilia, its
topography is favorable to LOS transmission because the city is relatively
flat. The Company launched service in Goiania in January 1995. The Goiania
signal pattern covers a radius up to 25 miles, encompassing approximately
414,000 households, of which the Company believes approximately 320,000 can be
served by LOS transmissions. The Goiania System had approximately 6,600
subscribers as of March 31, 1996, with a market penetration of approximately
2%.
The Goiania System currently offers a 21 channel package, consisting of 16
wireless cable channels and five local off-air VHF/UHF channels, for
approximately $45 per month. The Company is seeking a license expansion from
the Ministry of Communications for 15 additional wireless cable channels,
although there can be no assurance that the Company will be granted such
additional channels. The Goiania System transmits at 50 watts of power per
channel from a transmission tower which is 350 feet above average terrain. The
principal subscription television competitor in the city of Goiania is
Multicanal, a hardwire cable operator, which the Company believes had
approximately 22,000 subscribers as of March 31, 1996.
Belem System. Belem, with a population of approximately 1,800,000 as of
March 31, 1996, lies at the mouth of the Amazon River and is a major trading
port for the rich natural resources of the Amazon rain forest. The Company
launched service in Belem in February 1995. Although the city is relatively
flat, the increased number of trees block wireless cable transmission more
often than in Brasilia and Goiania and, thus, requires increased utilization
of signal repeaters in Belem. The Belem System reaches the greater Belem area,
including the cities of Mosqueiro, Ananindeua, Icoaraci and Marituba and the
islands of Outeiro and Barcarena. The Belem System's signal pattern covers a
radius of up to 25 miles, encompassing approximately 370,000 households, of
which the Company believes approximately 333,000 can be served by LOS
transmissions. The Belem System had approximately 8,000 subscribers as of
March 31, 1996, with a market penetration of approximately 3%.
The Belem System currently offers a 21 channel package, consisting of 16
wireless cable channels and five local off-air VHF/UHF channels, for
approximately $45 per month. The Company is seeking a license expansion from
the Ministry of Communications for 15 additional wireless cable channels,
although there can be no assurance that the Company will be granted such
additional channels. The Belem System transmits at 50 watts of power per
channel from a transmission tower which is 300 feet above average terrain.
There is no hardwire cable provider in the city of Belem.
Application Markets
Applications have been made for the Company to operate wireless cable
systems in an additional 19 mid-sized markets in Brazil (encompassing an
aggregate population of approximately 9,000,000 and a total of approximately
2,000,000 households). No assurance can be given as to the number of licenses
that will be granted, if any, or as to the timing thereof. See "Risk Factors--
Risk Factors Relating to the Company--Risks Associated with New Markets."
PROGRAMMING
The Company currently purchases programming from Tevecap and its
subsidiaries pursuant to an exclusive license agreement with Tevecap. Upon the
consummation of this offering, the Company will continue to have an exclusive
license to transmit programming available from Tevecap or its subsidiaries
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via wireless and hardwire cable in the Company's current operating markets
pursuant to a new agreement with Tevecap (the "Programming Agreement"). If
Tevecap obtains a license to operate hardwire cable systems in any of the
Company's current operating markets, Tevecap may only develop such hardwire
cable systems in a partnership or joint venture with the Company on mutually
agreeable terms. The Company also has certain rights with respect to (i) TVA
programming in the Company's pending application markets and (ii) marketing
satellite television services in the Company's current operating markets. The
Company has agreed that it shall use 50% of its total channel capacity in its
operating markets where it has a programming license from Tevecap or its
subsidiaries to broadcast TVA programming, with certain exceptions, and the
Company has a right of first refusal to carry any new programming channel that
is offered by Tevecap or its subsidiaries. Tevecap may not charge the Company
an amount greater than the minimum rates charged by Tevecap to other
subscription television operators, nor may such charges exceed comparable
rates for other programming of a similar nature. The terms of the Programming
Agreement terminate on July 20, 2004, with certain limited exceptions with
respect to the Company's application markets.
From time to time, in connection with the aforementioned agreement, the
Company enters into agreements with Tevecap and its subsidiaries regarding
specified channels. The agreements typically have a two year term and
determine the monthly fees which the Company pays for such channels.
The Company also offers selected local programming to supplement its channel
line-up. For example, the Company owns the rights to televise annually through
1998 all of the games of the Goias State Soccer Championship matches, which it
offers to its subscribers in the Goiania market. In addition, the Company
offers certain exclusive sports programming, including ESPN Brazil on which it
offers selected games of the Sao Paulo Soccer Championship and the Rio de
Janeiro Soccer Championship matches. The Company is exploring other local
programming, including local news, cultural events, home shopping and other
sporting events, although there can be no assurance that such programming will
be offered.
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The Company's channel offerings as of March 31, 1996 are as follows:
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION
- ------- -----------
<S> <C>
HBO Brazil.............. Brazilian version of HBO
HBO2.................... HBO Brazil with a time delay
ESPN Brazil............. Brazilian version of ESPN
Eurochannel............. Package of programming from free TV in Europe
Superstation............ Package of programming from ABC, CBS and NBC
CMT..................... Brazilian version of Country Music Television
MTV Brazil.............. Brazilian version of MTV
MTV Latino.............. Spanish language version of MTV
RTPi.................... Radio and Television Portugal, a free broadcast channel
from Portugal
CNN International....... International version of CNN
TNT..................... Brazilian version of TNT
Cartoon Network......... Cartoon Network produced in the United States
Fox..................... Movie channel
Discovery Channel....... Brazilian version of Discovery Channel
ESPN International...... International version of ESPN
Warner.................. Warner channel produced in the United States
Sony.................... Sony channel produced in the United States
Globo................... Local off-air channel
SBT..................... Local off-air channel
Bandeirantes............ Local off-air channel
Record.................. Local off-air channel
Nacional................ Local off-air channel
Manchete................ Local off-air channel
Cultura................. Local off-air channel
</TABLE>
The following channels are expected to be offered by Tevecap and its
subsidiaries in the Brazilian subscription television marketplace in the third
quarter of 1996:
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION
- ------- -----------
<S> <C>
Bravo................... Brazilian version of Bravo
CNBC.................... CNBC plus Brazilian business programming
CNA..................... Brazilian news channel
History................. Brazilian version of the History Channel
</TABLE>
OPERATIONS
Marketing. Prior to commencing operations in a potential new market, the
Company conducts pre-marketing surveys to evaluate the demographics and
terrain of such market. The Company then develops a plan designed to manage
subscriber growth by maintaining a manageable backlog of installations. Such
backlog is maintained at a manageable level by adjusting installation capacity
to correspond with sales
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levels. The amount of time a subscriber waits for the commencement of service
depends on several factors, including whether the subscriber has access to
hardwire cable and whether the subscriber is in a single family home or
multiple dwelling unit. This development plan ensures that the quality of
installations and customer service remains high. In each market, the Company's
marketing staff typically applies the following programs to attract
subscribers: (i) extensive marketing tied to regional events such as soccer
matches, (ii) neighborhood promotional events featuring large screen
broadcasts of its channel offerings, (iii) direct mailings, (iv)
telemarketing, (v) television and newspaper advertisements, (vi) prewiring
arrangements with residential housing developers and (vii) other promotional
marketing activities, including referral programs and promotional gifts.
Installation. The Company's installation package features a standard rooftop
mount linked to a small antenna and related equipment, including a decoder,
located at the subscriber's location. Installations at single-family homes
require an entire installation package, while installations at multiple
dwelling units in which drop lines already have been installed require less
time and, accordingly, are less costly. The Company charges its subscribers an
installation fee ranging from $80 to $250.
Customer Service. The Company believes that delivering high levels of
customer service in installation and maintenance enables it to maintain high
levels of customer satisfaction and to minimize churn. To this end, the
Company (i) schedules installations promptly, (ii) provides a customer service
hotline, (iii) provides quick response repair service and (iv) makes follow-up
calls to new subscribers shortly after installation to ensure customer
satisfaction. The Company seeks to instill a customer service focus in all its
employees through ongoing training and has established an intra-company
electronic mail system to provide a forum for employees to exchange ideas
concerning means to increase customer satisfaction. The Company also has
various employee bonus programs linked to measures of customer satisfaction.
Management Information Systems and Billing. The Company believes that its
proprietary management information systems enable it to deliver superior
customer service, monitor customer payment patterns and facilitate the
efficient management of each of its operating systems. The Company has 10
employees dedicated to the development, enhancement and integration of the
Company's management information systems. The Company believes that its
billing procedures are an integral part of its strategy to maintain high
levels of customer satisfaction and to minimize churn. Subscribers select the
day of the month on which payment for that month's service is due and pay
their bills at a bank through direct transfers, which is the standard payment
method in Brazil. If a customer does not pay his bill within 20 days after the
due date, the customer's service is automatically disconnected and his account
receivable is sent to a collection agency. If he does not pay within another
30 days, the collection agency forwards his name to a private credit agency.
After disconnection of service to a subscriber, a Company installer is sent to
the subscriber's location to recover installed equipment. The Company
corresponds with the subscribers to encourage the payment of delinquent
accounts so as to avoid disconnection.
EMPLOYEES
As of March 31, 1996, the Company had a total of 543 employees, all of whom
are employed by the Company's subsidiaries. All of the Company's employees,
except for Messrs. Hermano Lins, Carlos Andre Lins and Aguirre, are subject to
collective bargaining agreements which expire from September 1996 to December
1996. The collective bargaining agreements are with the Union for the
Employees of Radio and TV Broadcasting Companies. The Company has experienced
no work stoppages. The Company provides its employees with health insurance
(which is not required by law in Brazil) and certain other benefits which it
believes enable it to attract and retain qualified and motivated employees.
The Company believes that its relationships with its employees are good.
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FACILITIES AND EQUIPMENT
Administrative Facilities. A centralized administrative facility is located
in Brasilia to handle training, engineering, computer systems development,
controller services and strategic planning. In addition, the Company has
established regional offices in Brasilia, Goiania and Belem to coordinate
sales, billing, telemarketing, general marketing, customer service and certain
other administrative functions on a regional level. Each facility is connected
to the Company's computer telecommunications network.
Transmission Facilities. The Company's headend and transmitter facilities
are located in leased buildings at the Company's transmission tower sites in
Brasilia, Goiania and Belem. The transmitting antennas generally serve areas
within a 25 mile radius of the respective transmitters. In certain areas
within the Company's markets that are otherwise terrain-blocked, the Company
utilizes low power signal repeaters to enhance signal coverage. Subscriber
premises equipment is comprised of rooftop antennas, decoder boxes and related
equipment. In multiple dwelling units, the Company installs a single rooftop
antenna and connects many subscriber lines to the single antenna, thereby
substantially reducing the Company's capital cost per subscriber. See "Risk
Factors--Risk Factors Relating to Brazil Generally--Economic Uncertainty," and
"Risk Factors--Risk Factors Relating to the Company--Dependence on Suppliers,"
and "--Wireless Cable Transmission Issues."
Digital Technology. The Company currently transmits in analog format. Should
competitive conditions require or if the Company deems such technology to be
cost effective and practical to provide, it may implement digital technology.
COMPETITION
TV Filme Servicos is the only entity licensed to operate a wireless cable
system in Brasilia, Goiania and Belem. The Company provides service via 16
wireless cable channels in each such market and applications have been made
for an additional 15 channels in such markets. There can be no assurance that
the licenses will be so granted or that such licenses will not be granted to
competitors. The Company's principal subscription television competitor in the
city of Brasilia is NET Brasilia, a hardwire cable operator, which the Company
believes had approximately 24,000 subscribers as of March 31, 1996. The
Company's principal subscription television competitor in the city of Goiania
is Multicanal, a hardwire cable operator, which the Company believes had
approximately 22,000 subscribers as of March 31, 1996. There currently is no
hardwire cable provider in the city of Belem.
In addition to other wireless cable and hardwire cable operators, wireless
cable television operators in Brazil face or may face competition from several
other sources, such as DTH systems, DBS, local off-air VHF/UHF channels, home
videocassette recorders and out-of-home theaters. The principal methods of
competition in the subscription television industry are providing desirable
programming, superior customer service, reliability and affordable prices.
Many actual and potential competitors have greater financial, marketing and
other resources than the Company. No assurance can be given that the Company
will be able to compete successfully. See "Risk Factors--Risk Factors Relating
to the Company--Competition," "Business--Brazilian Subscription Television
Industry" and "Business--Operating Systems and the Company's Markets."
REGULATORY ENVIRONMENT
General. The subscription television industry is subject to regulation by
the Ministry of Communications pursuant to the Brazilian Telecommunications
Code of 1962, as amended (the "Telecommunications Code"). The licensing and
operation of wireless cable channels are currently governed by Rule No.
002/94, adopted by Administrative Rule No. 43/94, of the Ministry of
Communications. The Telecommunications Code empowers the Ministry of
Communications, among other things, to issue, revoke, modify and renew
licenses within the spectrum available to wireless cable,
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to approve the assignments and transfer of control of such licenses, to
approve the location of channels that comprise wireless cable systems, to
regulate the kind, configuration and operation of equipment used by wireless
cable systems, and to impose certain other reporting requirements on channel
license holders and wireless cable operators.
Under Rule 002/94, wireless cable or "MMDS" (Multi-Point, Multi-Channel
Distribution Service) is defined as the special service of telecommunication
which uses microwaves to transmit codified signals to be received in pre-
established points on a contractual basis. Any company in which nationals of
Brazil own at least 51% of the voting capital is eligible to be granted a
license to operate an MMDS service. The license is granted for a renewable
period of ten years. The application for renewal of a license must be filed
with the Ministry of Communications during the period from 180 to 120 days
before the end of the license term. To renew the license, the license holder
must (i) meet applicable legal and regulatory requirements, (ii) have complied
with all legal and contractual obligations during the term of such license,
(iii) meet certain technical and financial requirements and (iv) provide
educational and cultural programming.
Each license holder and its affiliates may be granted permission to operate
MMDS systems in different areas of Brazil, provided that no holder may be
granted licenses for (i) more than seven municipalities with a population
exceeding 1,000,000 inhabitants or (ii) more than 21 municipalities with a
population between 300,000 and 1,000,000 inhabitants. Accordingly, if all of
the 19 additional markets for which applications have been made for the
Company to operate wireless cable systems are granted, no more than seven of
the Company's total markets would have populations exceeding 1,000,000
inhabitants and no more than 21 of the Company's total markets would have
populations between 300,000 and 1,000,000 inhabitants. No assurance can be
given as to the number of licenses that will be granted, if any. Prices for
the services may be freely established by the system operator, although the
Ministry of Communications may interfere in the event of abusive pricing. The
Ministry of Communications may impose penalties including fines, suspension or
revocation of the license if the license holder fails to comply with
applicable regulations or becomes legally, technically or financially unable
to provide MMDS service. The Ministry of Communications also may intervene to
the extent operators engage in unfair practices intended to eliminate
competition.
Channels Available for Wireless Cable. The Ministry of Communications grants
licenses and regulates the use of channels by wireless cable operators to
transmit video programming, entertainment services and other information. A
maximum of 31 wireless cable channels (constituting a spectrum bandwidth of
186 MHz) may be authorized for use in a wireless cable market. While licenses
are usually granted for the use of up to 16 channels, depending on technical
feasibility and the existence of competition, the Ministry of Communications
can grant a license for all 31 channels available in one specific area. If the
license is for 16 or more channels, at least two channels must be reserved for
educational and cultural programming. If the license involves less than 16
channels, only one channel must be reserved for educational and cultural
purposes. In each of the Company's operating or targeted markets, up to 31
wireless cable channels are available for wireless cable (in addition to any
local off-air VHF/UHF channels which are offered).
License Procedures. The Ministry of Communications awards licenses to use
MMDS channels based upon applications demonstrating that the applicant is
qualified to hold the license, that the proposed market is viable and that the
operation of the proposed channels will not cause impermissible interference
to other permitted channels. After the Ministry of Communications determines
that an application has met these requirements, it publishes a notice
requesting comments from all parties interested in providing the same services
in the same or a near area. Depending on the comments received, the Ministry
of Communications may decide to open a public bid for the service in that
area, although it has not done so in the past. In the case of a public bid,
applicants would be evaluated based on factors including the applicant's
proposed schedule for implementing service and aspects of the applicant's
community
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<PAGE>
relations, such as involvement of local residents as stockholders of the
applicant, the applicant's commitment to local programming and the extent to
which the applicant provides free programming to local cultural and
educational institutions. Once an MMDS license application is granted by the
Ministry of Communications, the license holder must finalize construction and
begin operations within 12 months, which period may be extended by an
additional 12 months.
In addition to qualifying under the application process described above, a
license holder must also demonstrate that its proposed signal does not violate
interference standards in the area of another wireless cable channel license
holder. The area covered by the services is exclusive to a radius of 25
kilometers, or approximately 15 miles, around the transmission site. If a
license holder's proposed service would cause interference in the area of
another wireless cable channel license holder, the proposed operator would be
required to obtain the consent of such other license holder.
On November 28, 1995, the President of Brazil enacted Decree No. 1719, which
provides that all granting of concessions and licenses for the rendering of
commercial telecommunications services in Brazil shall be made through bidding
procedures. As of March 31, 1996, the Ministry of Communications had not
granted any new licenses for the operation of MMDS systems pursuant to such
Decree.
The Proposed Regulations. In February 1996, the Ministry of Communications
released for public hearing the Proposed Regulations, Rule No. 002/94-REV/95,
which is designed to replace the current regulation governing the licensing
procedure and operation of MMDS systems in Brazil. The Proposed Regulation is
aimed at conforming the procedure adopted by the Ministry of Communications
for the granting of MMDS licenses to the provisions of Decree No. 1719. The
most significant change in the Proposed Regulation from the current
regulations involves the procedure for the granting of licenses. Under the
Proposed Regulation, all licenses will be granted pursuant to a public bidding
process, whereby a number of criteria relating to each applicant will be
reviewed by the Ministry of Communications to enable it to make its choice
among the applicants. Each relevant request for proposals ("RFP") issued by
the Ministry of Communications will have to contain, among others, the
following criteria: (i) price or minimum price for the license, (ii) payment
conditions, (iii) technical characteristics of the system, (iv) the relevant
area for the rendering of the services, (v) term of the license and (vi) other
requirements related to the actual bid process, such as terms for the
submission and judgment of the proposals, documentation and other relevant
information. According to the Proposed Regulation, the following matters shall
be taken into consideration by the Ministry of Communications in evaluating
proposals: (i) participation of local residents as stockholders of the
applicant, (ii) the number of days for the installation of the transmission
system, (iii) the schedule for the implementation of the programs (including
the number of programs available at the start of operations, and one and two
years thereafter), (iv) the time reserved for local programs, (v) the number
of cultural or educational programs, (vi) the number of local community
establishments that will receive cultural and educational programs free of
charge and (vii) the subscription price. These items will be rated according
to certain criteria established in the Proposed Regulation. After the rating
process described above, the licenses will be granted: (i) in the case of
areas with less than 300,000 inhabitants, to the applicant that receives the
highest score, (ii) in the case of areas with more than 300,000 and less than
700,000 inhabitants, to the applicant whose score multiplied by a number based
on the offered price of the license is the highest, and (iii) in the case of
areas with more than 700,000 inhabitants, to the applicant that offers the
highest price for the license. Many of the Company's potential competitors
have greater financial resources than the Company and thus would be in a
position to outbid the Company for additional licenses.
Other Regulations. Wireless cable license holders are subject to regulation
with respect to the construction, marking and lighting of transmission towers
pursuant to the Brazilian Aviation Code and certain local zoning regulations
affecting construction of towers and other facilities. There may also be
restrictions imposed by local authorities. The subscription television
industry also is subject to the
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Brazilian Consumer Code. The Consumer Code entitles the purchasers of goods or
services to certain rights, including the right to discontinue a service and
obtain a refund if the services are deemed to be of low quality or not
rendered adequately. For instance, in case of a suspension of the transmission
for a given period, the subscriber shall be entitled to a discount on the
monthly fees. Rule No. 002/94 and the Proposed Regulation have certain
provisions relating to consumer rights, including a provision for mandatory
discounts in the event of interruption of service. Due to the regulated nature
of the subscription television industry, the adoption of new, or changes to
existing, laws or regulations or the interpretations thereof may impede the
Company's growth and may otherwise have a material adverse effect on the
Company's results of operations and financial condition. See "Risk Factors--
Risk Factors Relating to the Company--Government Regulation."
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings that would have a
material adverse effect on results of operations and financial condition.
PROPERTIES
The Company leases approximately 32,000 square feet of office space for its
corporate headquarters and the Brasilia System in Brasilia under leases that
expire between December 1996 and April 1997. The Company leases additional
office space for the Goiania System and Belem System of approximately 40,000
and 35,000 square feet, respectively. In addition to leased office space, the
Company also owns less than 1,500 square feet of office space in Goiania and
leases space for transmission towers located in Brasilia, Goiania and Belem.
The Company believes that office space and space for transmission towers is
readily available on acceptable terms in the markets where the Company
operates wireless cable systems.
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SUBSCRIPTION TELEVISION INDUSTRY
INTRODUCTION
The subscription television industry began in the late 1940's in the United
States. The subscription television industry did not begin in Brazil until
1989. As of March 31, 1996, the Company estimates that there were
approximately 1,250,000 Brazilian subscription television customers.
TRADITIONAL HARDWIRE CABLE TECHNOLOGY
Traditional hardwire cable systems use coaxial cable to transmit television
signals. Traditional hardwire cable operators receive, at a headend, signals
for programming services, which have been either broadcast or transmitted to
such operators by satellite. A headend consists of signal reception,
encryption, transmission, decryption and related equipment. The signal is then
delivered from the headend to customers via a cable plant. Traditional
hardwire cable systems are susceptible to signal quality problems because
signals can be transmitted via coaxial cable only a relatively short distance
without amplification; each time a television signal passes through an
amplifier, some measure of noise is added. A series or "cascade" of amplifiers
between the headend and a customer leads to progressively greater noise and
for some viewers, a degraded picture. Regular system maintenance is required
due to water ingress, temperature changes and other equipment problems, all of
which may affect the quality of a signal. Hardwire cable companies have begun
installing fiber optic networks, which will substantially reduce the
transmission and reception problems currently experienced by traditional
hardwire cable systems and will expand the channel capacity of their systems.
However, the installation of such networks will require a substantial
investment by hardwire cable operators. In the Company's existing markets, the
Company estimates that approximately 80% of homes are unpassed by hardwire
cable.
WIRELESS CABLE TECHNOLOGY
Wireless cable can provide subscribers the same or superior video television
signal as that provided by traditional hardwire cable. Like a traditional
hardwire cable system, a wireless cable system receives programming at a
headend. Unlike traditional hardwire cable systems, however, the programming
is then retransmitted via microwave transmission from an antenna located on a
tower associated with the headend to a small antenna located at a subscriber's
premises. At the subscriber's premises, the signals are converted to
frequencies that can pass through conventional coaxial cable into a
descrambling converter located on top of a television set. Wireless cable
requires a clear LOS because the microwave frequencies used will not pass
through dense foliage, hills, buildings or other obstructions. Some of these
obstructions can be overcome with the use of signal repeaters which retransmit
an otherwise blocked signal over a limited area. Because wireless cable
systems do not require an extensive cable plant, wireless cable operators can
provide subscribers with a high quality picture with few transmission
disruptions at a significantly lower system capital cost per installed
subscriber than traditional hardwire cable systems.
DIRECT-TO-HOME
DTH satellite television services are available via satellite receivers
which are 7-to-12 foot dishes mounted in the yards of homes to receive
television signals from orbiting satellites. Until the implementation of
encryption, these dishes enabled reception of any and all signals without
payment of fees. Having to purchase decoders and pay for programming has
reduced their popularity, although the Company to some degree competes with
DTH systems in marketing its services. The Company estimates there were
approximately 100,000 DTH subscribers in Brazil as of March 31, 1996.
DIRECT BROADCASTING SATELLITE
DBS involves the transmission of a compressed encoded signal directly from a
satellite to the customer's home. Because the signal is at a higher power
level and frequency than most satellite-transmitted signals, its reception can
be accomplished with an 18-inch dish mounted on a rooftop or in
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the yard. DBS currently cannot, for practical reasons, provide local off-air
VHF/UHF channels as part of its service, although many DBS subscribers receive
such channels via standard over-the-air receive antennas. Both TVA and the
Globo Group have recently begun to advertise alternative DBS services in
Brazil. In the United States, the cost to a DBS subscriber for equipment is
generally substantially higher than such cost to wireless cable subscribers
and the Company expects such costs will be higher in Brazil, as well.
PROGRAMMING
Currently, with the exception of the retransmission of local off-air VHF/UHF
channels, programming is made available to wireless cable operators in
accordance with contracts with program suppliers under which the system
operator generally pays a fee based on the number of subscribers receiving
service each month. Individual program pricing varies from supplier to
supplier. Under Brazilian copyright law, license from the copyright holder
generally must be secured before any video program may be retransmitted.
BRAZIL
GENERALLY
The Federative Republic of Brazil, a nation consisting of 26 States and the
Federal District of Brasilia, is the fifth largest country in the world, with
an area of approximately 3,300,000 square miles. It is the largest country in
South America and occupies nearly 50% of the land mass of South America.
Formerly a Portuguese possession, Brazil became an independent monarchy in
1822, and a republic in 1889. The capital of Brazil is Brasilia and the
official language is Portuguese. With a population estimated at approximately
159,000,000 at December 31, 1995, Brazil is the sixth most populous country in
the world, with a per capita income estimated to be approximately $4,500 at
December 31, 1995. Approximately 77% of the population lives in urban areas
spread along Brazil's coast.
Brazil is located in central and north-eastern South America, and has a long
coastline on the Atlantic Ocean. Brazil is bordered on its north by Colombia,
Venezuela, Guiana, Suriname and French Guiana, on its south by Paraguay,
Argentina and Uruguay, and on its west by Peru and Bolivia. Its climatic
conditions vary from hot and wet in the tropical rain forest of the Amazon
basin to temperate in the savannah grasslands of the central and southern
uplands, which have warm summers and mild winters.
The population is concentrated in the coastal regions and large cities. Over
the past 60 years there has been a marked shift from rural to urban areas,
with the latter accounting for 74% of the total population in 1991, a
significant increase from 46% in 1960. Brazil has 12 cities with over 1
million inhabitants.
Form of Government. Brazil is a federative republic with a representative
form of government. A new constitution was enacted in October 1988 confirming
a presidential form of government with three independent branches: executive,
legislative and judicial. The executive power is vested in the President, who
is elected by direct vote for a term of four years (with the next Presidential
election to be held in October 1998) and is not currently eligible for re-
election. The President has a broad range of powers including the right to
appoint ministers and key executives in selected administrative and political
posts. The legislative branch consists of a bicameral National Congress
composed of the Senate and the Chamber of Deputies. The Senate's 81 Senators
are each elected for staggered eight-year terms, while the Chamber of Deputies
has 513 deputies, each elected for concurrent four-year terms. The judicial
power is headed by the Federal Supreme Court composed of 11 Justices who are
appointed for life by the President. The Federal Supreme Court has ultimate
jurisdiction over decisions rendered by lower federal and state courts on
constitutional matters.
At the state level, the executive power is exercised by governors who are
elected for four-year terms with no eligibility for re-election. The
legislative power is exercised by state deputies who are also elected
43
<PAGE>
for four years. Judicial power at the state level is vested in state courts,
with state Courts of Appeals as the highest state judicial authority. Appeals
of state court judgments may be taken to the Federal Supreme Court when they
involve issues of constitutional law. Otherwise, they may be appealed to the
Superior Court of Justice.
The Federal government has proposed constitutional reforms in an effort to
reduce public sector involvement in the economy and to allow certain
industries, especially those that require extensive capital investment, to
gain access to foreign capital. Pursuant to the proposed amendments, matters
currently within the ambit of constitutional law would be transferred to and
regulated by ordinary law, thereby granting Congress more regulatory control
over the economy.
Recent Political History. The Brazilian military ruled the country from 1964
to 1985. In 1985, a series of political reforms were enacted, including the
reintroduction of direct elections for the President, and the calling of a
Constitutional Assembly to adopt a new Brazilian Constitution. A new
constitution was promulgated in 1988.
In December 1989, Fernando Collor de Mello became the first President to be
elected by popular vote since 1960. In December 1992, following allegations
and a subsequent investigation of charges of corruption involving the
President, President Collor resigned from the Presidency in the midst of his
impeachment trial. Itamar Franco, the Vice President under Collor, then
assumed the Presidency for the balance of the term ending December 31, 1994.
In October 1994, Fernando Henrique Cardoso was elected President for a four-
year term. He assumed the Presidency on January 1, 1995. Mr. Cardoso had
previously served as Minister of Foreign Affairs and in May 1993 had been
appointed Finance Minister, in which capacity he proposed a new program of
macroeconomic policies designed to control Brazilian inflation and to
stabilize the Brazilian currency. That program evolved into the Real Plan. See
"--Brazilian Economic Environment."
Foreign Relations and International Organizations. Brazil maintains
diplomatic relations with almost all countries in the world and trade ties
with many of them. It is a member of the United Nations, the Organization of
American States, the Inter-American Development Bank, the World Bank, the
International Development Association, the International Finance Corporation,
the International Monetary Fund, the General Agreement on Tariffs and Trade,
the World Trade Organization and the Latin American Integration Association.
Brazil is also a member of the South American Common Market ("Mercosul").
Mercosul was established in March 1991, when Argentina, Brazil, Paraguay and
Uruguay signed the Treaty of Asuncion. Chile recently became a member of
Mercosul and Bolivia is negotiating to become a member of Mercosul. The Treaty
and subsequent agreements provide for the gradual economic integration of the
member countries and the reduction of tariff barriers and non-tariff
restrictions on trade. In June 1991, the countries constituting Mercosul
signed an agreement with the United States which laid the foundation for
negotiating a trade agreement with the United States. In addition,
negotiations have begun between Mercosul and the European Union for a free-
trade agreement.
Commerce. Services and industries account for approximately 49% and 37%,
respectively, of Brazilian Gross Domestic Product (the "GDP"). Brazil's
manufacturing sector, the largest in Latin America, is well developed, with
industrial goods accounting for more than 60% of exports. Production is
focused on capital goods, construction materials, chemicals and
petrochemicals, smelting (steel and non-ferrous metals), rubber, motor
vehicles, sugar and wood processing. In the automotive sector, Brazil produced
over 1.6 million vehicles in 1995. Recently, technologically-based industries
have seen rapid growth, particularly in the electronics and information
processing sectors. Traditional industries such as textiles and clothing,
beverages and food processing remain important and continue to account for
approximately 50% of output.
While Brazil remains the world's leading producer and exporter of coffee and
sugar and has important crops including soya, orange juice, tobacco, cocoa and
cotton, agriculture, which currently employs
44
<PAGE>
approximately 30% of the population, accounts for only 12% of GDP. Brazil has
significant mineral resources. Its iron reserves are believed to be equivalent
to one third of the world's total, while its bauxite reserves are the largest
in Latin America. Brazil accounts for approximately 30% of the world's iron
exports. Other major deposits include manganese, coal, zinc, chrome, gold and
tin. In hydrocarbons, the national petroleum products industry supplies
approximately 39% of the domestic market. The state-owned oil company,
Petrobras, maintains control over exploration and extraction and operates the
majority of oil refineries.
The media and communications sector in Brazil has enjoyed rapid growth and
is a focal point of government investment policy. The Ministry of
Communications has indicated that its telecommunications plan for 1996-2003
will require investment of no less than $75 billion across all subsectors
including public telephone service, television, cable and radio operations and
satellite and cellular operations. There are approximately 14.3 million fixed
telephone lines and approximately 1.9 million cellular telephone users in
Brazil. In particular, the Brazilian government has set out specific goals to
expand the telecommunications sector and has issued new rules to encourage
significant private capital participation across all subsectors. In the
broadcasting arena there are over 1,000 radio stations and 127 television
stations.
BRAZILIAN ECONOMIC ENVIRONMENT
Historical Background. From the late 1960's through 1982, Brazil implemented
an import-substitution, high growth development strategy financed in large
part by foreign borrowing. Foreign debt grew at an accelerated pace in
response to the oil shocks of the 1970's and, when international interest
rates rose sharply in 1979-80, the resulting accumulated external debt became
one of Brazil's most pressing problems in the decade that followed. The debt
crisis of the 1980's and high inflation substantially depressed real growth in
the GDP, which averaged 2.3% per year from 1981 to 1989. The public sector's
role in the economy also expanded sharply and significant structural
distortions were introduced through high tariffs and the creation of subsidies
and tax credit incentives. Significant pressures in the money supply to
finance a large and growing fiscal deficit further fueled inflationary
pressures.
Efforts to address these problems during the late 1980's and early 1990's
were largely unsuccessful. High inflation and the recurrent threat of
hyperinflation during this period prompted the Federal government to pursue a
series of stabilization plans, but these plans were undermined by a variety of
factors, including political difficulty in implementing planned fiscal
adjustments and the slowness of institutional reforms. The practice of
inflation indexation in the economy, which made prices downwardly rigid, also
helped to undermine the stabilization measures. Moreover, these attempts at
stabilization relied on mechanisms, such as price and wage freezes and
unilateral modifications of the terms of financial contracts, that were not
supported by fiscal and monetary reform. A problem during this period was that
the public sector ran operational deficits averaging more than 5% of GDP
during the five-year period from 1985-1989, while monetary policy was
compromised by the short-term refinancing of public sector debt. In addition,
the 1988 Constitution reallocated public resources, in particular tax
revenues, from the Federal government to the states and municipalities without
a proportional shift of responsibilities to them, thereby further constraining
the effectiveness of the Federal government's fiscal policy, and also limiting
the ability of the Federal government to dismiss public sector employees.
The Real Plan. In December 1993, the Federal government announced a
stabilization program, known as the Real Plan, aimed at curtailing inflation
and building a foundation for sustained economic growth. The Real Plan was
designed to address persistent deficits in the Federal government's accounts,
expansive credit policies and widespread, backward-looking indexation.
The Real Plan has three stages: the first stage included a fiscal adjustment
proposal for 1994, consisting of a combination of spending cuts and an
increase in tax rates and collections intended to
45
<PAGE>
eliminate a budget deficit originally projected at $22.0 billion. Elements of
the proposal included (i) cuts in current expenditures and investment through
the transfer of some activities from the Federal government to the states and
municipalities, (ii) establishment of the Fundo Social de Emergencia (the
Emergency Social Fund or "ESF"), financed by reductions in constitutionally
mandated transfers of Federal government revenues to the states and
municipalities, to ensure financing of social welfare spending by the Federal
government, (iii) a prohibition on sales of public bonds by the Federal
government, except to refinance existing debt and for certain expenditures and
investments, (iv) new taxes, including a new levy on financial transactions
and (v) recovery of mandatory social security contributions, due to judicial
acknowledgment that such contributions were permissible under the 1988
Constitution.
The centerpiece of the first stage of the Real Plan was the creation of the
ESF by constitutional amendment in 1994. The ESF enabled the Federal
government temporarily to break certain of the constitutionally mandated links
between revenue and expenditure. Pursuant to this amendment, 20% of Federal
government revenues otherwise earmarked for specific purposes were released
and deposited into the ESF to ensure financing of social welfare spending by
the Federal government for 1994 and 1995. In adopting this constitutional
amendment, however, the Federal Congress did not modify the existing
provisions requiring the Federal government to share a significant portion of
its revenues with states and municipalities.
The second stage of the Real Plan, initiated March 1, 1994, began the
process of reform of the Brazilian monetary system. Brazil's long history of
high inflation had led to the continuous and systematic deterioration of the
domestic currency, which no longer served as a store of value and had lost its
utility as a unit of account. Because inflation had reduced dramatically the
information content of prices quoted in local currency, economic agents had
included in their contracts a number of mechanisms for indexation and
denomination of obligations in indexed units of accounts. The process of
rehabilitation of the national currency began with the creation and
dissemination of the URV as a unit of account. The second stage of the Real
Plan was designed to eliminate the indexation of prices to prior inflation and
link indexation to the URV, a unit of account.
The introduction of the URV was premised on the theory that a reference unit
with a nominal value corrected frequently and based on the best estimate of
current inflation would express values more realistically than traditional
indexing methods. The URV, therefore, was calculated daily based on estimates
drawn from three price indices and was designed to track the loss in the
purchasing power of the cruzeiro real, the legal currency at the time.
The third stage of the Real Plan began on July 1, 1994, with the
introduction of the Real as Brazil's currency. All contracts denominated in
URVs were automatically converted into Reals at a conversion rate of one to
one, and the URV, together with the cruzeiro real, ceased to exist. In the
effort to maintain the initial success of the Real Plan, the Federal
government and the Central Bank have taken several additional measures,
including institution of strict control of monetary aggregates through the
regulation of credit and the flow of capital into Brazil, the implementation
of a new exchange rate policy which permits market participants (including the
Central Bank) to set exchange rates for the Real and the implementation of
certain fiscal measures.
Effects of Inflation and Currency Exchange Fluctuations. Brazil had for many
years experienced high and generally unpredictable rates of inflation and
steady devaluation of its currency relative to the U.S. dollar. The following
table sets forth Brazilian inflation as measured by the IGPM Index and the
devaluation of Brazilian currency against the U.S. dollar for the periods
shown:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, THREE MONTHS
------------------------------------ ENDED
1992 1993 1994 1995 MARCH 31, 1996
--------- --------- ------------------------------
<S> <C> <C> <C> <C> <C>
Inflation (IGPM)............... 1,175% 2,567% 870% 15% 3%
Devaluation...................... 1,059% 2,533% 613% 15% 2%
</TABLE>
46
<PAGE>
As a result of the Real Plan, the rate of inflation and the rate of
devaluation have been reduced considerably since July 1, 1994. As measured by
the IGPM Index, the rate of inflation for the second six months of 1994 was
38%, as compared to 763% for the first six months of 1994. For the year ended
December 31, 1995, the rate of inflation was 15%, and in the first three
months of 1996, the rate of inflation was 3%.
On July 1, 1994, the Real was introduced with an exchange rate initially set
at R$1.00 to U.S. $1.00. In March 1995, the Brazilian government introduced
new exchange rate policies which established a trading band for the Real
against the U.S. dollar and, since then, the Real has devalued relative to the
U.S. dollar. The commercial exchange rates for the Real as quoted on Reuters
Screen Page BRBY at the close of market at the end of, and the range of such
exchange rates during, the periods indicated below were as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED DECEMBER
31, 1995
---------------
AT DECEMBER 31, 1995 HIGH LOW
-------------------- ------- -------
<S> <C> <C> <C>
Real equivalent of $1.00................ R$0.973 R$0.973 R$0.834
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1996
---------------
AT MARCH 31, 1996 HIGH LOW
-------------------- ------- -------
<S> <C> <C> <C>
Real equivalent of $1.00................ R$0.988 R$0.988 R$0.973
</TABLE>
For further information regarding the potential material adverse effect on
the Company's results of operations and financial condition from inflation and
devaluation, see "Risk Factors--Risk Factors Relating to Brazil Generally--
Economic Uncertainty" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Inflation and Exchange Rates."
47
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of the date of this
Prospectus with respect to each person who is an executive officer or director
of the Company and the general managers of the three operating systems:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Douglas M. Karp(1)................... Chairman of the Board
Hermano Studart Lins de Albuquerque.. Chief Executive Officer, Secretary and Director
Carlos Andre Studart Lins de
Albuquerque......................... President, Chief Operating Officer, Treasurer and Director
Alvaro J. Aguirre.................... Chief Financial Officer and Director
Gary D. Nusbaum(1)................... Vice President and Director
Jose Augusto Pinto Moreira (1) ...... Director
Adriano Nascimento Barbosa........... General Manager of Brasilia System
Ivan Alexandre Barcellos............. General Manager of Goiania System
Rafael Augusto Colino................ General Manager of Belem System
</TABLE>
- --------
(1) Member of the Compensation Committee and Audit Committee.
DOUGLAS M. KARP has served as Chairman of the Board of TV Filme, Inc. since
its incorporation. Mr. Karp has been a Managing Director of E.M. Warburg,
Pincus & Co., Inc. since May 1991. Prior to joining E. M. Warburg, Pincus &
Co., Inc., Mr. Karp held several positions with Salomon Inc, including
Managing Director from January 1990 to May 1991, Director from January 1989 to
December 1989 and Vice President from October 1986 to December 1988. Mr. Karp
is a director of LCI International, Inc., TresCom International, Inc. and
several privately held companies. Mr. Karp is 41 years old.
HERMANO STUDART LINS DE ALBUQUERQUE, one of the co-founders of the Company,
has served as Chief Executive Officer, Secretary and a director of TV Filme,
Inc. since its incorporation. Mr. Lins received a Master's degree in
Artificial Intelligence from the University of Sussex, England and a Bachelor
of Science degree in Electronic Engineering from the University of Brasilia.
Mr. Lins is a member of the MMDS Regulation Commission, a Brazilian government
advisory board and is a member of the Technical Advisory Board for National
Satellite Publishing Inc. Mr. Lins is 33 years old.
CARLOS ANDRE STUDART LINS DE ALBUQUERQUE, one of the co-founders of the
Company, has served as President, Chief Operating Officer, Treasurer and a
director of TV Filme, Inc. since its incorporation. Mr. Lins received a
Bachelor of Science degree in Physics from the University of Brasilia and a
Bachelor of Science degree in Mathematics from the University of Ceub. Mr.
Lins is 32 years old.
ALVARO J. AGUIRRE has served as Chief Financial Officer and a director of TV
Filme, Inc. since June 1996. Prior to joining TV Filme, Inc., Mr. Aguirre was
a member of the Latin America Corporate Finance Group of Morgan Stanley & Co.,
Inc. from 1994 to 1996 and a securities attorney at the law firm of Sullivan &
Cromwell from 1991 to 1994. Mr. Aguirre is 30 years old.
GARY D. NUSBAUM has served as Vice President and a director of TV Filme,
Inc. since its incorporation. Mr. Nusbaum has been a Vice President of
Warburg, Pincus Ventures, Inc. since January 1995. From September 1989 to
December 1994, Mr. Nusbaum was an associate at Warburg, Pincus Ventures, Inc.
Mr. Nusbaum is a director of TresCom International, Inc. and several privately
held companies. Mr. Nusbaum is 29 years old.
48
<PAGE>
JOSE AUGUSTO PINTO MOREIRA has served as a director of TV Filme, Inc. since
its incorporation. Mr. Moreira has been the Executive Vice-President of
Finance and Administration of Abril S.A. since 1982. Mr. Moreira is a director
of several privately held companies. Mr. Moreira is 52 years old.
ADRIANO NASCIMENTO BARBOSA has served as the General Manager of the Brasilia
System since November 1995. Prior to joining the Company, Mr. Barbosa served
as Commercial Director of Down Tec Engenharia Sameamento e Servicos, Ltda., an
engineering company, from 1993 to 1995 and held several positions with Badius
Engenharia Ltda., an engineering company, from 1988 to 1993, including
Director, Head Office Manager and Information Manager. Mr. Barbosa is 32 years
old.
IVAN ALEXANDRE BARCELLOS has served as the General Manager of the Goiania
System since its inception in late 1994. Prior to joining the Company, Mr.
Barcellos served as National Commercial Manager for Industrias Reunidas Sao
Jorge, a food manufacturing and processing company, from 1985 to 1994. Mr.
Barcellos is 44 years old.
RAFAEL AUGUSTO COLINO has served as the General Manager of the Belem System
since its inception in late 1994. Prior to joining the Company, Mr. Colino
served as Regional Manager of Listel, a subsidiary of Abril S.A. in the
telephone directory printing business, from 1987 to 1994. Mr. Colino is 50
years old.
At present, the Board of Directors of the Company (the "Board of Directors")
is composed of six directors. Prior to the consummation of this offering,
Warburg, Pincus, Tevecap, Mrs. Maria Nise Lins, Mr. Hermano Lins, Mr. Carlos
Andre Lins and Ms. Maria Veronica Lins (with Mrs. Maria Nise Lins, Mr. Hermano
Lins and Mr. Carlos Andre Lins, the "Lins Family") will enter into a
Stockholders Agreement (the "Warburg Stockholders Agreement"), pursuant to
which, among other things, Warburg, Pincus and the Lins family will agree to
vote for (i) two designees of Tevecap to the Board of Directors, as long as
Tevecap and its affiliates own at least 13% of the outstanding shares of
Common Stock of the Company and (ii) one designee of Tevecap to the Board of
Directors, as long as Tevecap and its affiliates own at least 5% of the
outstanding shares of Common Stock of the Company. Jose Augusto Pinto Moreira
is one of Tevecap's designees to the Board of Directors, and the Board of
Directors intends to appoint a second designee of Tevecap to the Board of
Directors upon Tevecap's request. Pursuant to the Warburg Stockholders
Agreement, Warburg, Pincus also will agree to provide Tevecap with certain
rights of first offer in the event Warburg, Pincus proposes to sell shares of
the Common Stock of the Company. See "Principal Stockholders." Following
completion of this offering, the Board of Directors intends to appoint two
additional persons, each of whom will be an independent director, to the Board
of Directors.
The Board of Directors is divided into three classes serving staggered
three-year terms. At each annual meeting of stockholders of the Company,
successors to the class of directors whose term expires at such meeting will
be elected to serve for three-year terms and until their successors are
elected and qualified. Messrs. Hermano Lins and Nusbaum are Class I directors
and their terms expire at the first annual meeting after the date hereof;
Messrs. Karp and Carlos Andre Lins are Class II directors and their terms
expire at the second annual meeting after the date hereof; and Messrs. Moreira
and Aguirre are Class III directors and their terms expire at the third annual
meeting after the date hereof. Executive officers hold office until their
successors are chosen and qualified, subject to earlier removal by the Board
of Directors. Mr. Hermano Lins and Mr. Carlos Andre Lins are brothers. There
are no other family relationships among any of the directors or executive
officers of the Company.
The Board of Directors has established two committees, a Compensation
Committee and an Audit Committee. The Compensation Committee reviews general
policy matters relating to compensation and benefits of employees and officers
of the Company and administers the 1996 Stock Option Plan. The Audit Committee
recommends the firm to be appointed as independent accountants to audit the
Company's financial statements, discusses the scope and results of the audit
with the independent accountants, reviews with management and the independent
accountants the Company's interim and year-end operating results, considers
the adequacy of the internal controls and audit procedures of the Company and
reviews the non-audit services to be performed by the independent accountants.
49
<PAGE>
Following the completion of this offering, independent directors will
receive an annual fee of $10,000, a meeting fee of $1,000 for every board
meeting attended and each committee meeting held separately and a $500 fee for
each board meeting or committee meeting participated in by telephone. All
directors will be reimbursed for out-of-pocket expenses. Under the 1996 Stock
Option Plan, the Company may, from time to time and in the sole discretion of
the Board of Directors, grant options to directors other than members of the
Compensation Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee during 1995. As a result,
Messrs. Karp, Nusbaum, Hermano Lins, Carlos Andre Lins and Moreira
participated in deliberations concerning executive officer compensation. The
Board of Directors will establish a Compensation Committee comprised of
Messrs. Karp, Nusbaum and Moreira prior to the consummation of this offering.
Mr. Karp is a general partner of Warburg, Pincus & Co., a New York general
partnership which is the sole general partner of Warburg, Pincus. Mr. Moreira
is the Executive Vice-President of Finance and Administration of Abril S.A.
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid or accrued
by the Company for services rendered to the Company in all capacities for the
fiscal year ended December 31, 1995 by its Chief Executive Officer and each of
the Company's other executive officers whose total salary and bonus exceeded
$100,000 during the last fiscal year (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
---------------- -------------------------
SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#)
- --------------------------- ---- ------- -------- ---------------------
<S> <C> <C> <C> <C>
Hermano Studart Lins de
Albuquerque 1995 $98,463 $111,500 49,788
Chief Executive Officer
Carlos Andre Studart Lins de
Albuquerque 1995 98,463 111,500 49,788
Chief Financial Officer
</TABLE>
EMPLOYMENT AGREEMENTS
Prior to consummation of this offering, the Company and ITSA will enter into
employment agreements with each of Messrs. Hermano Lins and Carlos Andre Lins,
pursuant to which Mr. Hermano Lins will agree to serve full time as Chief
Executive Officer and Secretary of the Company, Mr. Carlos Andre Lins will
agree to serve full time as President, Chief Operating Officer and Treasurer
of the Company, and each will agree to serve in comparable executive positions
at ITSA. The annual base salary under such agreements for each of Messrs. Lins
will be $125,000. Such salaries are to be reviewed at least annually by the
Board of Directors of the Company and may be increased but may not be
decreased. In addition, each of Messrs. Lins will be eligible to receive an
annual bonus, payable by ITSA, in amounts to be determined by the Board of
Directors of the Company, taking into consideration, among other things, the
financial and operating performance of the Company. Pursuant to each of
Messrs. Lins's employment agreements, if the Company terminates the
executive's employment either without "cause" (as defined therein) or because
of the death of the executive, ITSA is required to pay the executive any
unpaid base salary accrued through the date of termination, plus an amount
equal to an additional 12 months' base salary. Although Brazilian law does not
permit employment agreements of this type to be for a fixed term,
50
<PAGE>
each agreement does include a non-competition provision and a prohibition on
the solicitation of clients and employees.
Prior to consummation of this offering, the Company also will enter into an
employment agreement with Mr. Aguirre, pursuant to which Mr. Aguirre will
agree to serve full time as Chief Financial Officer of the Company until
December 31, 1998, unless earlier terminated in accordance with the terms of
such agreement. The annual base salary under such agreement will be $125,000.
Such salary is to be reviewed at least annually by the Board of Directors of
the Company and may be increased but may not be decreased. In addition, Mr.
Aguirre will be eligible to receive an annual bonus. Such annual bonus will be
$125,000 for the period ending December 31, 1996, with amounts for subsequent
years to be determined by the Board of Directors of the Company, taking into
consideration, among other things, the financial and operating performance of
the Company. Upon executing his employment agreement, Mr. Aguirre is to
receive a one-time bonus of $50,000. Pursuant to Mr. Aguirre's employment
agreement, if the Company terminates Mr. Aguirre's employment because of the
death or disability of Mr. Aguirre, the Company is required to pay Mr. Aguirre
or his estate any unpaid base salary accrued through the date of termination,
plus an amount equal to an additional 12 months' base salary. If the Company
terminates Mr. Aguirre without "cause" (as defined therein), the Company is
required to pay Mr. Aguirre any unpaid base salary accrued through the date of
termination, plus an amount equal to the unpaid base salary for the balance of
the term and the pro rata portion of any agreed annual bonus. The agreement
includes a non-competition provision and a prohibition on the solicitation of
clients and employees.
STOCK OPTIONS
1996 Stock Option Plan
Prior to the consummation of this offering, the Board of Directors will
adopt and the stockholders of the Company will approve the 1996 Stock Option
Plan (the "1996 Stock Option Plan"), which will provide for the grant to
officers, key employees and consultants of the Company of both "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"), and stock options that are
non-qualified for United States Federal income tax purposes. The total number
of shares of Common Stock for which options may be granted pursuant to the
1996 Stock Option Plan will be 936,432, subject to certain adjustments
reflecting changes in the Company's capitalization. In addition, no employee
may receive options for more than 200,000 shares of Common Stock in the
aggregate in any fiscal year. The 1996 Stock Option Plan will be administered
by the Compensation Committee. The Compensation Committee will determine,
among other things, which officers, employees and consultants will receive
options under the plan, the time when options will be granted, the type of
option (incentive stock options or non-qualified stock options, or both) to be
granted, the number of shares subject to each option, the time or times when
the options will become exercisable, and, subject to certain conditions
discussed below, the option price and duration of the options. Members of the
Compensation Committee will not be eligible to receive options under the plan.
The exercise price of incentive stock options will be determined by the
Compensation Committee, but may not be less than the fair market value on the
date of grant and the term of any such option may not exceed ten years from
the date of grant. With respect to any participant in the 1996 Stock Option
Plan who owns stock representing more than 10% of the voting power of the
outstanding capital stock of the Company, the exercise price of any incentive
stock option may not be less than 110% of the fair market value of such shares
on the date of grant and the term of such option may not exceed five years
from the date of grant.
The exercise price of non-qualified stock options will be determined by the
Compensation Committee on the date of grant, but may not be less than the par
value of the Common Stock on the date of grant, and the term of such option
may not exceed ten years from the date of grant.
51
<PAGE>
Payment of the option price may be made by certified or bank cashier's
check, by tender of shares of Common Stock then owned by the optionee or by
any other means acceptable to the Company. Options granted pursuant to the
1996 Stock Option Plan will not be transferable, except by will or the laws of
descent and distribution in the event of death. During an optionee's lifetime,
the option will be exercisable only by the optionee.
The Board of Directors will have the right at any time and from time to time
to amend or modify the 1996 Stock Option Plan, without the consent of the
Company's stockholders or optionees; provided that no such action may
adversely affect options previously granted without the optionee's consent,
and provided further that no such action, without the approval of the
stockholders of the Company, may increase the total number of shares of Common
Stock which may be purchased pursuant to options under the plan, expand the
class of persons eligible to receive grants of options under the plan,
decrease the minimum option price, extend the maximum term of options granted
under the plan or extend the term of the plan. The expiration date of the 1996
Stock Option Plan after which no option may be granted thereunder will be ten
years from the effective date of the Plan.
Concurrently with this offering, the Company intends to grant options to
purchase 407,000 shares under the 1996 Stock Option Plan pursuant to which
options to purchase 297,000 shares of Common Stock will be exercisable at a
price per share equal to the public offering price set forth on the cover page
hereof and options to purchase 110,000 shares of Common Stock will be
exercisable at $11.00 per share. Such options generally will vest and become
exercisable at the rate of 20% per year for five years beginning on the first
anniversary of consummation of this offering.
After the completion of this offering, the Company expects to file with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form S-8 covering the shares of Common Stock underlying options granted
under the 1996 Stock Option Plan.
Option Grants
The following table sets forth certain information regarding options granted
during the fiscal year ended December 31, 1995 by the Company to the Named
Executive Officers, all of which options were exercised immediately upon
issuance.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
------------------------------------------------------- --------------------------
% OF TOTAL
OPTIONS
SECURITIES GRANTED TO EXERCISE OR MARKET
UNDERLYING EMPLOYEES BASE PRICE ON
OPTIONS IN PRICE DATE OF EXPIRATION
NAME GRANTED (#) FISCAL 1995 ($/SHARE) GRANT DATE 0% 5% 10%
---- ----------- ----------- ----------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hermano Studart Lins de
Albuquerque............ 49,788 50% -- (2) $3.13 None $156,015 $254,149 $404,706
Carlos Andre Studart
Lins de Albuquerque.... 49,788 50 -- (2) 3.13 None 156,015 254,149 404,706
</TABLE>
- --------
(1) Options had no expiration date, but calculations assume a 10-year
expiration date in accordance with the 1996 Stock Option Plan.
(2) Nominal.
52
<PAGE>
The following table sets forth certain information concerning each exercise
of stock options during the fiscal year ended December 31, 1995 by the Named
Executive Officers. There were no unexercised stock options held by the Named
Executive Officers at the end of the fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
SHARES AGGREGATE
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED
---- ------------ ---------
<S> <C> <C>
Hermano Studart Lins de Albuquerque................. 49,788 $156,015
Carlos Andre Studart Lins de Albuquerque............ 49,788 156,015
</TABLE>
CERTAIN TRANSACTIONS
The Company has been a party to the following transactions with its
executive officers, directors and five percent stockholders:
In May 1993, the Company issued and sold 1,169,096 shares of Common Stock
(after giving effect to the Restructuring) to Tevecap for a purchase price of
$1,300,000.
In July 1994, the Company effected a recapitalization pursuant to which Mrs.
Maria Nise Lins, Mr. Hermano Lins, Mr. Carlos Andre Lins and Tevecap exchanged
all of their shares of common stock of TV Filme Servicos de Telecomunicacoes
S.A. (the predecessor company to ITSA) on a one-for-one basis for shares of
common stock of ITSA (the predecessor company of TV Filme, Inc.).
In July 1994, the Company issued and sold 2,126,132 shares of Common Stock
(after giving effect to the Restructuring) to Warburg, Pincus for an aggregate
purchase price of $5,000,000.
In August 1995, the Company issued and sold 1,052,924 shares of Common Stock
(after giving effect to the Restructuring) to Warburg, Pincus for an aggregate
purchase price of $3,300,000.
In March 1996, the Company issued and sold 783,700 shares of Common Stock
and warrants to purchase an additional 567,952 shares of Common Stock (after
giving effect to the Restructuring) to Warburg, Pincus for approximately
$5,100,000, and issued and sold 287,664 shares of Common Stock and warrants to
purchase an additional 208,372 shares of Common Stock (after giving effect to
the Restructuring) to Tevecap for approximately $1,875,000. Such warrants are
exercisable at $6.52 per share.
Immediately prior to the consummation of this offering, in connection with
the Restructuring the Company will issue 3,962,756, 1,456,760, 254,472,
254,472 and 1,069,520 shares of Common Stock to Warburg, Pincus, Tevecap, Mr.
Hermano Lins, Mr. Carlos Andre Lins and Mrs. Maria Nise Lins, respectively,
with a value at an assumed initial public offering price of $11.00 per share
of $43,590,316, $16,024,360, $2,799,192, $2,799,192 and $11,764,720,
respectively. Such shares will be issued in exchange for all of their shares
of common stock of ITSA, which have the same value as the shares of Common
Stock to be received in the exchange.
Immediately prior to the consummation of this offering, in connection with
the Restructuring the Company will issue warrants to purchase 567,952 shares
of Common Stock to Warburg, Pincus and warrants to purchase 208,372 shares of
Common Stock to Tevecap in exchange for all of their warrants to purchase
shares of common stock of ITSA.
From time to time during January 1994 to March 1996, Tevecap and certain of
its affiliates made short-term loans to the Company for working capital
purposes. During this period, the maximum amount outstanding pursuant to such
loans was approximately $6,400,000. As of March 31, 1996, the Company
53
<PAGE>
had no outstanding indebtedness to Tevecap or such affiliates. During April
1996, the Company resumed borrowing from Tevecap and its affiliates for
working capital purposes, none of which borrowings will remain outstanding
upon consummation of this offering.
From December 1993 to April 2, 1996, certain members of the Lins family,
including Mr. Hermano Lins, Chief Executive Officer and Secretary of the
Company, Mr. Carlos Andre Lins, the President, Chief Operating Officer and
Treasurer of the Company, their mother Mrs. Maria Nise Lins and several of her
other children, owned in the aggregate 100% of Prava Sistemas de Comunicacoes
Ltda. ("Prava"), which provides wireless cable installation services to
hotels, hospitals and single-family houses, among other services. Messrs. Lins
each owned approximately 7% of Prava and Mrs. Maria Nise Lins owned
approximately 40% of Prava during such period. In the years ended December 31,
1995, 1994 and 1993, respectively, Prava's revenues from the Company were
approximately $260,000, $70,000, and $0 representing, respectively,
approximately 65%, 37% and 0% of Prava's total revenues for such year. On
April 2, 1996, the Lins family sold all of their interests in Prava to
unrelated third parties.
In July 1994, the Company, Tevecap and certain other parties thereto entered
into an agreement pursuant to which Tevecap agreed to provide exclusive
programming to the Company. In June 1996, the Company and Tevecap entered into
the Programing Agreement pursuant to which the terms of the aforementioned
programming arrangement will be amended upon consummation of this offering.
See "Business--Programming." From time to time, in connection with the
aforementioned agreement, the Company enters into agreements with TVA and
certain of its affiliates regarding specified channels. The agreements
typically have a two year term and determine the monthly fees which the
Company pays for such channels. In the years ended December 31, 1995, 1994 and
1993, TVA's and its affiliates' revenues from the Company aggregated
approximately $1.3 million, $0.2 million and $.01 million, respectively, net
of discounts on programming fees, compared to list prices. Such discounts
received by the Company in 1995, 1994 and 1993 were $539,000, $340,000 and
$28,000, respectively.
In late 1994, TV Filme Servicos purchased licenses to operate the Company's
wireless cable systems in Goiania and Belem from an affiliate of TVA for
purchase prices of $400,000 each. The Company believes such prices were below
fair market value. Such purchase prices were payable in equal annual
installments of $100,000 per license, due in February of each of the years
1995, 1996, 1997 and 1998. Such installment payments do not bear interest. As
of March 31, 1996, $400,000 remained outstanding.
Prior to consummation of this offering, the Company will effect the
Restructuring pursuant to which 51% of the voting stock of TV Filme Servicos
and 17% of the economic interests in TV Filme Servicos, the subsidiary of the
Company that holds all three licenses to operate the Company's wireless cable
systems in Brasilia, Goiania and Belem, will be transferred to an entity
organized in Brazil and substantially all of which will be owned by those
Existing Stockholders who are Brazilian nationals, namely Tevecap S.A., Mrs.
Maria Nise Lins, Messrs. Hermano Lins, Carlos Andre Lins and Wallach and Ms.
Maria Veronica Lins. Messrs. Lins are also executive officers and directors of
the Company. The Company will retain 49% of the voting securities of TV Filme
Servicos and 83% of the economic interests in TV Filme Servicos. The Company
will also have a representative on the executive management team of TV Filme
Servicos and prohibitions over any sale or transfer of any current or future
license held by TV Filme Servicos. The Company will enter into various
agreements with TV Filme Servicos which will authorize ITSA's subsidiaries to
operate the existing wireless cable systems under its current licenses and all
other subscription television systems under future licenses. See "Business--
Restructuring."
The Company believes that the above transactions were or are on terms no
less favorable to the Company than could have been obtained in transactions
with independent third parties. All future transactions between the Company
and its officers, directors, principal stockholders or their respective
affiliates, will be on terms no less favorable to the Company than can be
obtained from unaffiliated third parties.
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of June 1, 1996, unless otherwise stated, after
giving effect to the Restructuring and as adjusted to reflect the sale of the
shares of Common Stock offered hereby with respect to (i) each person known by
the Company to be the beneficial owner of more than 5% of the Common Stock,
(ii) each of the Company's directors, (iii) each of the Named Executive
Officers and (iv) all directors and officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL(2)
-----------------
NUMBER BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OF SHARES(2) OFFERING OFFERING
- --------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Warburg, Pincus Investors, L.P.
466 Lexington Avenue
New York, New York 10017(3)(4)................. 4,530,708 57.6% 43.7%
Tevecap S.A.
Rua do Rocio, 313
Suite 101
Sao Paulo, Brazil(5)........................... 1,665,132 22.2 16.7
Maria Nise Studart Lins de Albuquerque.......... 1,069,520 14.7 10.9
Hermano Studart Lins de Albuquerque............. 254,472 3.5 2.6
Carlos Andre Studart Lins de Albuquerque........ 254,472 3.5 2.6
Douglas M. Karp(4)(6)........................... 4,530,708 57.6 43.7
Jose Augusto Pinto Moreira(5)(7)................ 1,665,132 22.2 16.7
Gary D. Nusbaum................................. -- -- --
Alvaro J. Aguirre............................... -- -- --
All executive officers and directors as a group
(6 persons).................................... 6,704,784 83.1 63.4
</TABLE>
- --------
(1) Unless otherwise indicated above, the address for each stockholder
identified above is c/o the Company, SCS, Quadra 07-Bl.A, Ed. Executive
Tower, Sala 601, 70.300-911 Brasilia-DF, Brazil.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of Common
Stock subject to options and warrants held by that person that are
currently exercisable or exercisable within 60 days of June 1, 1996 are
deemed outstanding. Such shares, however, are not deemed outstanding for
the purposes of computing the percentage ownership of any other person.
Except as indicated in the footnotes to this table, each stockholder
named in the table has sole voting and investment power with respect to
the shares set forth opposite such stockholder's name. Beneficial
ownership computations assume no exercise of the Underwriters' over-
allotment option.
(3) The sole general partner of Warburg, Pincus is Warburg, Pincus & Co., a
New York general partnership ("WP"). Lionel I. Pincus is the managing
partner of WP and may be deemed to control it. E.M. Warburg, Pincus &
Company, a New York general partnership ("E.M. Warburg"), manages
Warburg, Pincus. WP has a 20% interest in the profits of Warburg, Pincus
and through its wholly owned subsidiary, E.M. Warburg, Pincus & Co., Inc.
("EMW"), owns 1.13% of the limited partnership interests in Warburg,
Pincus.
(4) Includes 567,952 shares of Common Stock which Warburg, Pincus has the
right to acquire through exercise of a warrant issued by the Company in
March 1996. See "Description of Capital Stock--Warrants."
55
<PAGE>
(5) Includes 208,372 shares of Common Stock which Tevecap has the right to
acquire through exercise of a warrant issued by the Company in March
1996. See "Description of Capital Stock--Warrants."
(6) All of the shares indicated as owned by Mr. Karp are owned directly by
Warburg, Pincus and are included because of Mr. Karp's affiliation with
Warburg, Pincus. Mr. Karp, the Chairman of the Board of the Company, is a
Managing Director of EMW and a general partner of WP and E.M. Warburg. As
such, Mr. Karp may be deemed to have an indirect pecuniary interest,
within the meaning of Rule 16a-1 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), in an indeterminate portion of the
shares of Common Stock beneficially owned by Warburg, Pincus, EMW and WP.
Mr. Karp disclaims "beneficial ownership" of these shares within the
meaning of Rule 13d-3 under the Exchange Act.
(7) All of the shares indicated as owned by Mr. Moreira are owned directly by
Tevecap and are included because of Mr. Moreira's affiliation with
Tevecap. Mr. Moreira disclaims "beneficial ownership" of these shares
within the meaning of Rule 13d-3 under the Exchange Act.
Pursuant to the Warburg Stockholders Agreement, (i) Warburg, Pincus will
grant Tevecap a right of first offer until July 1999 whenever Warburg, Pincus
proposes to sell its shares of Common Stock in a private sale in an amount at
least equal to 20% of the Company's then outstanding shares of Common Stock to
a single purchaser (or group of related purchasers) in one transaction (or a
series of related transactions) and (ii) the Lins Family will be entitled to
certain "tag-along" rights. Pursuant to the Warburg Stockholders Agreement,
Warburg, Pincus also has agreed to vote for up to two Tevecap designees to the
Board of Directors. See "Management--Executive Officers and Directors."
Pursuant to a stockholders agreement between Tevecap and the Lins Family,
the Lins Family will grant Tevecap a right of first offer until July 1999
whenever the Lins Family proposes to sell its shares of Common Stock in a
private sale in an amount at least equal to 5% of the Company's then
outstanding shares of Common Stock to a single purchaser (or group of related
purchasers) in one transaction (or a series of related transactions).
DESCRIPTION OF CAPITAL STOCK
At March 31, 1996, the authorized capital stock of the Company consisted of
50,000,000 shares of Common Stock, $.01 par value, and 1,000,000 shares of
Preferred Stock, $.01 par value. At March 31, 1996, there were 7,291,176
shares of Common Stock outstanding (after giving effect to the Restructuring)
held by eight stockholders. See "Capitalization," "Business--Restructuring"
and "Principal Stockholders."
The following summary description relating to the capital stock does not
purport to be complete. Reference is made to the Certificate of Incorporation
and the By-laws which are filed as exhibits to the Registration Statement of
which this Prospectus is a part for a detailed description of the provisions
thereof summarized below.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share on all
matters on which the holders of Common Stock are entitled to vote and do not
have any cumulative voting rights. This means that the holders of more than
50% of the shares voting for the election of directors can elect all of the
directors if they choose to do so; and, in such event, the holders of the
remaining shares of Common Stock will not be able to elect any person to the
Board of Directors. Subject to the rights of the holders of shares of any
series of preferred stock, holders of Common Stock are entitled to receive
such dividends as may from time to time be declared by the Board of Directors
of the Company out of funds legally available therefor. Holders of shares of
Common Stock have no preemptive, conversion, redemption, subscription or
similar rights. In the event of a liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary, holders of shares of Common
Stock are entitled to share ratably in the assets of the Company which are
legally available for distribution, if any, remaining after the payment or
provision for the payment of all debts and other liabilities of the Company
and the payment and setting aside for payment of any preferential amount due
to the holders of shares of any series of preferred stock. All
56
<PAGE>
outstanding shares of Common Stock are, and all shares of Common Stock offered
hereby when issued will be, upon receipt of payment therefor, validly issued,
fully paid and non assessable.
At present there is no established trading market for the Common Stock. The
Common Stock of the Company has been approved for quotation on the Nasdaq
National Market under the symbol "PYTV."
PREFERRED STOCK
The Board of Directors is authorized to issue from time to time up to an
aggregate of 1,000,000 shares of preferred stock in one or more series and to
fix the rights, designations, preferences, qualifications, limitations and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series, without any
further action by the stockholders of the Company. The issuance of preferred
stock with voting rights could have an adverse affect on the voting power of
holders of Common Stock by increasing the number of outstanding shares having
voting rights. In addition, if the Board of Directors authorizes preferred
stock with conversion rights, the number of shares of Common Stock outstanding
could potentially be increased up to the authorized amount. The issuance of
preferred stock could decrease the amount of earnings and assets available for
distribution to holders of Common Stock. Any such issuance could also have the
effect of delaying, deterring or preventing a change in control of the Company
and may adversely affect the rights of holders of Common Stock. The Board of
Directors has no current plan to issue any shares of preferred stock.
DELAWARE LAW, CHARTER AND BY-LAW PROVISIONS
Section 203 of the DGCL prevents an "interested stockholder" (defined in
Section 203, generally, as a person owning 15% or more of a corporation's
outstanding voting stock) from engaging in a "business combination" (as
defined in Section 203, generally, to include mergers or consolidations
between a Delaware corporation and an "interested stockholder," transactions
with an "interested stockholder" involving the assets or stock of the
corporation or its majority-owned subsidiaries and transactions which increase
an interested stockholder's percentage ownership of stock) with a publicly-
held Delaware corporation for three years following the date such person
became an interested stockholder unless (i) before such person became an
interested stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested
stockholder or approved the business combination, (ii) upon consummation of
the transaction that resulted in the interested stockholder's becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding voting stock held by directors who are also officers of
the corporation and by employee benefit plans that do not provide employees
with the right to determine confidentially whether shares held by the plan
will be voted or tendered in a tender or exchange offer) or (iii) following
the transaction in which such person became an interested stockholder, the
business combination is approved by the board of directors of the corporation
and ratified at a meeting of stockholders by the affirmative vote of the
holders of two-thirds of the outstanding voting stock of the corporation not
owned by the interested stockholder.
The Certificate of Incorporation provides that the Company shall indemnify
any officer or director of the Company or any person who was serving at the
request of the Company as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise to the fullest extent
permitted under and in accordance with the laws of the State of Delaware. The
Certificate of Incorporation also eliminates in certain circumstances the
liability of directors of the Company for monetary damages for breach of their
fiduciary duty as directors. This provision does not eliminate the liability
of a director (i) for breach of the director's duty of loyalty to the Company
or its stockholders; (ii) for acts or omissions by the director not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) for willful or negligent declaration of an unlawful dividend, stock
purchase or redemption; or (iv) for
57
<PAGE>
transactions from which the director derived an improper personal benefit.
Such limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission.
The By-laws require the Company to indemnify any director or officer of the
Company, or any person who is or was serving at the request of the Company as
a director or officer of any other corporation, partnership, joint venture,
trust or other enterprise, to the fullest extent permitted by law. Prior to
the consummation of this offering, the Company expects to obtain officers' and
directors' liability insurance for members of its Board of Directors and
executive officers. In addition to the indemnification provided in the
Certificate of Incorporation and By-laws, the Company expects to enter into
agreements to indemnify its directors and officers.
The Certificate of Incorporation and By-laws include certain provisions
which are intended to enhance the likelihood of continuity and stability in
the composition of the Board of Directors and which may have the effect of
delaying, deterring or preventing a future takeover or change in control of
the Company unless such takeover or change in control is approved by the Board
of Directors. Such provisions may also render the removal of the directors and
management more difficult. The Certificate of Incorporation provides that the
Board of Directors of the Company be divided into three classes serving
staggered three-year terms. The Certificate of Incorporation and By-laws also
include restrictions on who may call a special meeting of stockholders,
provide that stockholders may act only at an annual or special meeting and
provide that stockholders may not act by written consent. The By-laws contain
an advance notice procedure with regard to the nomination, other than by or at
the direction of the Board of Directors, of candidates for election as
directors and with regard to certain matters to be brought before an annual
meeting of stockholders of the Company. In general, notice must be received by
the Company not less than 60 days prior to the meeting and must contain
certain specified information concerning the person to be nominated or the
matter to be brought before the meeting and concerning the stockholder
submitting the proposal.
WARRANTS
In March 1996 in connection with its private equity placement, the Company
granted to Warburg, Pincus, Tevecap, Mr. Pearson and Mr. Wallach the 1996
Warrants to purchase 567,952, 208,372, 9,220, and 9,220 shares of Common
Stock, respectively, at an exercise price of $6.52 per share, all of which are
currently exercisable and will remain outstanding after completion of this
offering.
The exercise price and the number of shares of Common Stock subject to the
1996 Warrants may, under certain circumstances, be subject to adjustment
pursuant to anti-dilution provisions contained therein. In addition, the
warrant holders have certain registration rights with respect to shares of
Common Stock issuable upon exercise of the 1996 Warrants. See "--Registration
Rights."
REGISTRATION RIGHTS
Under the terms of the Registration Rights Agreement to be entered into upon
consummation of this offering, the Company has granted Tevecap, Warburg,
Pincus, the Lins family, Mr. Wallach and Mr. Pearson (the "Rights Holders")
registration rights, covering an aggregate of 7,071,740 shares of Common
Stock. If the Company proposes to register any of its securities under the
Securities Act, the Rights Holders are entitled to notice of such registration
and to include their Registrable Shares (as defined therein) in such
registration, subject to certain limitations. In addition, Warburg, Pincus,
Tevecap or the Lins family may require the Company to register any or all of
their Registrable Shares, provided that the Company will only be required to
effect the following registrations: (i) two (2) such registrations requested
by Warburg, Pincus, (ii) two (2) such registrations requested by Tevecap and
(iii) two (2) such registrations requested by the Lins Family, subject to
certain limitations. Each of the Rights Holders is entitled to notice of such
request for registration and to have all or any portion of their Registrable
Shares included in such registration, subject to certain limitations. All
expenses relating to the filing of such registration
58
<PAGE>
statements, excluding underwriting discounts and selling commissions
attributable to the Registrable Shares and the fees and expenses of such
Rights Holder's own counsel, will be paid by the Company. The Company is
required to use its diligent best efforts to effect such registrations,
subject to certain conditions and limitations.
Under the terms of the 1996 Warrants, if the Company proposes to register
any of its securities under the Securities Act, the holders of the 1996
Warrants are entitled to notice of such registration and to include the shares
underlying the 1996 Warrants in such registration, subject to certain
limitations. All expenses relating to the filing of such registration
statements, excluding underwriting discounts and selling commissions
attributable to the underlying shares and the fees and expenses of such
warrant holder's own counsel, shall be paid by the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services LLC.
TAX CONSIDERATIONS
BRAZILIAN TAX CONSIDERATIONS
The following discussion summarizes the principal Brazilian tax consequences
of the acquisition, ownership and disposition of ITSA's stock by the Company.
It is based on the assumption that the investment by the Company in ITSA's
stock will be registered with the Central Bank of Brazil. The summary is based
on Brazilian laws as currently in effect and, therefore, any change in such
law may affect the consequences described below.
Registered Capital. The amount the Company invests in ITSA's stock must be
registered (the "Registered Capital") with the Central Bank of Brazil to
permit the remittance outside Brazil of foreign currency acquired with
distributions on such stock or amounts realized with respect to dispositions
of such stock. The Central Bank of Brazil officially records the amount of
such investment in a Certificate of Registered Capital.
Capital Contributions; Dividend Distributions; Capital Repatriation. The
Company is permitted to make capital contributions to ITSA without prior
approval by the Central Bank of Brazil. The Company must register a capital
contribution with the Central Bank of Brazil, however, within 30 days after
the date on which the capital contribution is converted into Reals (which
conversion date would normally be the date on which the capital contribution
occurs). Capital contributions made by the Company to ITSA are not subject to
any taxation in Brazil. Conversion into Reals of any capital contribution made
in the form of foreign currency also is not subject to Brazilian tax.
As a general matter, dividends distributed by a Brazilian corporation are
subject to taxation only to the extent such dividends are declared out of
profits generated by the corporation prior to January 1, 1996. ITSA did not
generate any profits before January 1, 1996, so dividends distributed by it
should not be subject to Brazilian tax. A 15% Brazilian capital gains tax
could be imposed, however, with respect to transactions treated as capital
gain repatriations. One type of capital gain repatriation would be a
distribution by ITSA that is derived neither from its profits nor its
Registered Capital. (Accordingly, ITSA can make distributions from its profits
and its Registered Capital without incurring any Brazilian capital gains tax.)
The second type of capital gain repatriation would be the Company's sale of
ITSA stock to a Brazilian resident. In that case, capital gains tax would be
imposed to the extent the amount realized on such sale exceeds the amount of
ITSA's Registered Capital. (Accordingly, sales by the Company of its ITSA
stock to non-residents of Brazil will not be subject to Brazilian capital
gains tax, and sales to Brazilian residents will be subject to such tax only
to the extent the amount realized from the sale exceeds ITSA's Registered
Capital.) Remittance of Registered Capital does not require prior approval by
the Central Bank of Brazil, but prior approval is required for remittance of a
capital gain.
59
<PAGE>
Stamp and Excise Taxes. There are no stamp, transfer, estate, gift or other
similar taxes in Brazil applicable to the ITSA stock.
Tax on Financial Transactions ("IOF"). Recent Brazilian tax changes (Decree
No. 1,815 and Administrative Rule No. 28, both dated as of February 8, 1996)
provide that IOF tax will be levied on certain transactions in which foreign
currency enters Brazil. Under the new rules, IOF tax will not be imposed on
foreign currency used to make equity investments. As a result, contributions
to ITSA's capital (or purchases of ITSA's stock) by the Company will not be
subject to IOF tax. The tax will be imposed, however, on any loan made by the
Company to ITSA that has an average maturity of less than six years. The tax,
which is imposed at one time at the inception of the loan, is imposed at rates
varying from 5% (for loans with average maturities of less than three years)
to 1% (for loans with average maturities of at least five but less than six
years).
UNITED STATES TAX CONSIDERATIONS
United States Tax Considerations for Holders of Common Stock. The following
discussion summarizes the principal United States Federal income tax
consequences of the acquisition, ownership and disposition of Common Stock by
United States Holders (as such term is defined below) that hold such stock as
capital assets. The summary is based on United States law in effect on the
date of this Prospectus. Changes to such law after the date of this prospectus
could affect the tax considerations described herein. In addition, the summary
does not attempt to describe all the tax considerations that may be relevant
to a particular holder. Accordingly, each holder should consult his own tax
adviser concerning the tax consequences of the ownership of Common Stock to
him, including the consequences under state and local tax laws. For purposes
of this summary, the term "United States Holder" means a holder that is (i) a
citizen or resident of the United States, (ii) a corporation organized under
the laws of the United States or any state thereof, or (iii) otherwise subject
to United States Federal income taxation on a net basis with respect to the
Common Stock.
Taxation of Dividends. The Company does not expect to pay dividends. If the
Company's dividend policy changes, however, a United States Holder will
recognize ordinary income for United States Federal income tax purposes in an
amount equal to the amount of any cash or the value of any property
distributed by the Company to the extent that such distribution is paid out of
current or accumulated earnings and profits of the Company. To the extent that
any such distribution exceeds the Company's earnings and profits, it will be
treated as a nontaxable return of capital to the extent of the United States
Holder's basis in his Common Stock and thereafter as capital gain. Dividends
received by United States Holders that are corporations will be eligible for
the dividends-received deduction available to such corporations. Any dividends
paid by the Company will be subject to the information reporting and backup
withholding requirements of the Internal Revenue Code. Backup withholding will
not apply, however, to any United States holder that (i) is a corporation or
other exempt holder or (ii) provides a taxpayer identification number on a
properly completed Internal Revenue Service Form W-9 and certifies that it has
not lost its exemption from backup withholding.
Taxation of Disposition Proceeds. A United States Holder's tax basis in his
Common Stock will generally equal the cost of such stock to such holder,
reduced by the amount of any distributions to such holder that were treated as
non-taxable returns of capital. A United States Holder that is (i) an
individual who owns (directly or through the application of attribution rules)
less than 10 percent of the total combined voting power of all the Company's
voting stock or (ii) a corporation, will recognize capital gain with respect
to any disposition of his or its Common Stock in an amount equal to the
difference between the amount realized on the disposition and such holder's
tax basis in such Common Stock. An individual United States Holder who has
owned 10 percent or more of the voting power of the Company's stock for at
least one year at the time of disposition will be subject to special rules
under which a portion of the proceeds of any dispositions of his shares could
be treated as a dividend for United States Federal income
60
<PAGE>
tax purposes. The portion treated as a dividend would be taxable as ordinary
income rather than capital gain. The portion of the proceeds that would be
treated as a dividend would generally be equal to the earnings and profits of
ITSA attributable (under rules contained in United States Treasury Department
regulations) to the stock held by such holder.
United States Taxation of the Company. The following discussion summarizes
certain United States Federal income tax consequences that result from the
creation of the Company to hold the stock of ITSA. The discussion does not
attempt to address all the tax consequences that may result from the adoption
of the United States holding company structure. Rather, the discussion focuses
on the United States Federal income tax consequences of the structure that are
most significant.
The Company is a United States corporation and is therefore subject to
United States Federal income tax on its income from all sources. The only
asset of the Company (and accordingly its only potential source of income) is
expected to be the stock of ITSA. ITSA does not expect to pay any dividends
and, therefore, the Company should not have any income for United States
Federal income tax purposes unless it is subject to certain United States tax
rules under which it could be required to include amounts in its income
despite the fact that it has not received any actual distributions from ITSA.
It is possible, however, that the Company may own other assets (such as
temporary investment assets) that produce income. The income earned with
respect to any such assets owned by the Company will be subject to United
States Federal income tax.
The Company could be required to include amounts in its income in the
absence of its receipt of any actual distributions from ITSA if ITSA (or one
of its subsidiaries) constitutes a "controlled foreign corporation" (a "CFC"),
a "foreign personal holding company" (a "FPHC") or a "passive foreign
investment company" (a "PFIC") for United States Federal income tax purposes.
If the Company is required to include any amounts in income under the CFC,
FPHC or PFIC rules, it will incur some United States Federal income tax
liability in the year of such inclusion.
To constitute a FPHC, at least 60 percent of a corporation's income must
constitute "foreign personal holding company income" ("FPHCI") in any taxable
year (the "FPHCI Test") and five or fewer United States individuals must own
(directly or indirectly) more than 50 percent of the voting power or value of
the corporation's stock (the "Ownership Test"). FPHCI generally includes
interest, dividends, royalties and other types of "passive" income. For
purposes of the FPHCI Test, dividends received by ITSA from its three
operating subsidiaries generally would be treated as FPHCI only to the extent
the dividends were attributable to FPHCI earned by the subsidiaries. Also,
royalties earned by TV Filme Servicos will constitute FPHCI. For purposes of
the Ownership Test, Warburg, Pincus will generally be treated as an indirect
owner of stock in ITSA and each of its subsidiaries and all such stock owned
will be treated as being owned by a single United States individual.
It is possible that the Ownership Test will be satisfied with respect to
ITSA and its subsidiaries, primarily because the indirect stock interest owned
by Warburg, Pincus in ITSA and its subsidiaries will be treated as owned by a
single U.S. individual. Nevertheless, the Company does not expect that ITSA,
TV Filme Brasilia, TV Filme Goiania or TV Filme Belem will constitute a FPHC
because less than 60 percent of each such entity's income should constitute
FPHCI. There can be no assurance, however, that ITSA or one or more of those
subsidiaries will not become a FPHC in the future. In addition, if the
Ownership Test is satisfied with respect to TV Filme Servicos in any taxable
year, it is expected that TV Filme Servicos would constitute a FPHC for such
year. In that case, a portion of the taxable income of TV Filme Servicos in
such taxable year (after certain adjustments) would be included in the taxable
income of the Company on the last day of such year. Accordingly, the Company
would owe United States Federal income tax with respect to such income to the
extent it is unable to use foreign tax credits to offset such tax. The ability
of the Company to use foreign tax credits to reduce its United States Federal
income tax liability would depend on many factors, including the rate of tax
imposed in Brazil on TV Filme Servicos' income. In any event, however, the
United States Federal taxable income of TV Filme Servicos is not expected to
be material in any taxable year, although no assurance can be given in that
regard.
61
<PAGE>
To constitute a PFIC, either (i) at least 75 percent of a corporation's
income in any taxable year must constitute dividends, interest or other
"passive" income (the "income test") or (ii) at least 50 percent of the
average assets of the corporation (determined by reference to the adjusted tax
basis of the corporation's assets for United States earnings and profits
purposes) during any taxable year must constitute assets that give rise to
"passive" income (the "asset test"). For purposes of the income test, (a) ITSA
will be treated as if it received directly its proportionate share of the
income of each of its subsidiaries and (b) royalties received by TV Filme
Servicos should constitute passive income only to the extent such royalties
are allocable to passive income earned by ITSA's other subsidiaries. For
purposes of the asset test, ITSA will be treated as owning directly all the
assets held by its subsidiaries.
Based on its projections, the Company does not expect that ITSA or any of
its subsidiaries will satisfy either the income or the asset test and,
accordingly, does not expect that ITSA or any subsidiary will constitute a
PFIC. It is conceivable, however, that if the proceeds of this offering are
not deployed to expand existing wireless cable systems or launch or purchase
additional systems in accordance with the Company's plans, ITSA or one of its
subsidiaries could constitute a PFIC for some period of time. If ITSA or the
relevant subsidiary also had earnings and profits (as determined under United
States Federal income tax rules) during such period, the Company could be
subject to United States Federal income tax with respect to such income. (The
Company plans to make a protective election to treat ITSA and each of its
subsidiaries as "qualified electing funds" so that any such income will be
treated as currently included in the Company's United States Federal taxable
income. Making such election should also avoid the application of rules that
would impose additional United States Federal income taxes on the receipt of
distributions from ITSA in the event ITSA or one of its subsidiaries were to
qualify as a PFIC.) In that case, the Company may be able to use foreign tax
credits to reduce its United States Federal income tax liability. Certain
factors that will affect the Company's ability to use foreign tax credits to
reduce its United States Federal income tax liability are described below (in
the discussion regarding ITSA's status as a CFC).
The Company expects that ITSA and each of its subsidiaries will constitute
CFCs. Under the CFC rules, the Company could be required to recognize taxable
income notwithstanding the fact that it has not received any distributions
from ITSA if more than a de minimis amount of income earned by ITSA (or any
subsidiary) during a taxable year is characterized as "subpart F" income under
the Internal Revenue Code and ITSA (or such subsidiary) has earnings and
profits (determined under United States Federal income tax rules) for such
year. "Subpart F" income generally includes passive income and certain income
received from related parties. ITSA does not expect that it or any of its
subsidiaries will recognize significant amounts of "subpart F" income in any
year in which it (or the relevant subsidiary) also has earnings and profits at
any time in the near future. In the longer term, ITSA and its subsidiaries
could recognize "subpart F" income if they are not able to use excess cash
flow to expand existing systems or purchase or develop new systems. If ITSA or
one of its subsidiaries does earn "subpart F" income in excess of the de
minimis threshold in a taxable year in which it also has earnings and profits,
however, the Company will be required to include in its income for United
States Federal income tax purposes an amount equal to the lesser of such
"subpart F" income and the amount of such earnings and profits.
In the event that the Company is required to include amounts in its income
under the CFC rules, the Company expects that it will be able to use foreign
tax credits to reduce its United States Federal income tax liability. The
extent to which the Company is able to reduce its United States Federal tax
liability through the use of foreign tax credits will depend on the level of
Brazilian tax incurred by ITSA and its subsidiaries. In general, the Company's
ability to use foreign tax credits to reduce its United States Federal income
tax liability increases as Brazilian tax rates increase. Under the United
States Federal alternative minimum tax rules, however, the Company will not be
able to completely eliminate its United States Federal income tax liability
regardless of the amount of foreign tax credits available to it. The general
effect of the alternative minimum tax rules is to subject any "subpart F"
income deemed to be received by the Company to tax at an effective tax rate of
two percent.
62
<PAGE>
If the Company is required to include an amount in its United States Federal
taxable income under the CFC rules, it will not be required to include the
same amount in income under the FPHC or PFIC rules. If the Company is required
to include an amount in its income under the FPHC rules (but not the CFC
rules), it will not be required to include the same amount in its income under
the PFIC rules. Otherwise, however, the CFC, FPHC and PFIC rules generally
each operate independently.
If the Company does incur United States Federal income tax liability under
the rules described above, it will require funds to pay such tax. Any
dividends paid by ITSA to fund the payment of such tax generally will not be
subject to any Brazilian withholding tax under current Brazilian law. There
can be no assurance, however, that Brazilian withholding tax will not be
imposed in the future. See "--Brazilian Tax Considerations" above.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
9,791,176 shares of Common Stock (10,166,176 shares, if the Underwriters'
over-allotment option is exercised in full). All of the shares of Common Stock
sold in this offering will be freely transferable as of the date of this
Prospectus by persons other than "affiliates" of the Company without
restriction or further registration under the Securities Act. The remaining
7,291,176 shares of Common Stock to be outstanding (the "Restricted Shares")
are held by officers, directors and other stockholders of the Company. The
Restricted Shares were issued by the Company in reliance on exemptions from
the registration requirements of the Securities Act, are "restricted
securities" within the meaning of Rule 144 under the Securities Act and may
not be sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including an exemption contained in
Rule 144 or Rule 701 under the Securities Act.
Beginning 180 days after the date of this Prospectus, 4,875,536 additional
Restricted Shares will be or will become eligible for sale in the public
market, subject to the provisions of Rule 144 (all of which shares are subject
to the agreements not to sell described below). The officers, directors and
certain stockholders of the Company have agreed not to sell their shares
without the consent of Alex. Brown & Sons Incorporated, subject to certain
limited exceptions, for a period of 180 days from the date of this Prospectus.
The remainder of the shares held by existing stockholders will become eligible
for sale at various times thereafter, subject to the provisions of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including any person who may be deemed an
"affiliate" of the Company, is entitled to sell within any three-month period
a number of restricted securities that does not exceed the greater of 1% of
the then outstanding shares of Common Stock and the average weekly trading
volume in the over-the-counter market during the four calendar weeks preceding
such sale, provided that at least two years have elapsed since such shares
were acquired from the Company and certain manner of sale, notice requirements
and requirements as to the availability of current public information about
the Company are satisfied. Any person who is deemed to be an affiliate of the
Company must comply with the provisions of Rule 144 (other than the two-year
holding period requirement) in order to sell shares of Common Stock which are
not restricted securities (such as shares acquired by affiliates in this
offering).
The Commission has proposed certain amendments to Rule 144 that would reduce
by one year the holding period required for shares subject to Rule 144 to
become eligible for resale in the public markets. This proposal, if adopted,
would accelerate by one year the date on which shares of Common Stock will
become eligible for resale following expiration of the lock-up agreements
described above. No assurance can be given concerning whether or when the
proposal will be adopted by the Commission.
The Company intends to file a registration statement on Form S-8 under the
Securities Act after completion of this offering to register approximately
936,432 shares of Common Stock subject to the 1996 Stock Option Plan. Such
registration statement will automatically become effective upon filing.
63
<PAGE>
Accordingly, shares registered under such registration statement will be
available for sale in the open market, subject to vesting conditions contained
in the agreements pursuant to which they are acquired and, in certain cases,
to the lock-up agreements referred to above. There are no options currently
outstanding under the 1996 Stock Option Plan, and upon consummation of this
offering, options to purchase 407,000 shares of Common Stock will be
outstanding under the 1996 Stock Option Plan, none of which will be
exercisable at such time. In addition, the Existing Stockholders and warrant
holders have registration rights in certain events in respect of the Company's
securities held by them. See "Description of Capital Stock--Warrants" and "--
Registration Rights."
Prior to this offering, there has been no public market for the Common Stock
and no predictions can be made as to the effect, if any, that public sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
the Common Stock in the public market, or the perception that such sales could
occur, could have an adverse impact on the market price.
64
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, Gerard Klauer Mattison & Co., LLC and Robert
Fleming Inc., have severally agreed to purchase from the Company the following
respective numbers of shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Alex. Brown & Sons Incorporated................................
Gerard Klauer Mattison & Co., LLC..............................
Robert Fleming Inc. ...........................................
---------
Total........................................................ 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common Stock to the public at
the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the initial
public offering, the offering price and other selling terms may be changed by
the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to 2,500,000, and the Company
will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of the Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares on
the same terms as those on which the 2,500,000 shares are being offered.
The Company has agreed to indemnify the Underwriters and certain controlling
persons against certain liabilities, including liabilities under the
Securities Act.
The Company and each of its directors and executive officers and all of its
security holders have agreed not to offer, sell or otherwise dispose of any
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Alex. Brown & Sons
Incorporated, except certain limited exceptions including that the Company may
issue, and grant options to purchase, shares of Common Stock under the 1996
Stock Option Plan and may issue shares of Common Stock upon the exercise of
the 1996 Warrants. See "Shares Eligible for Future Sale."
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
65
<PAGE>
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price of the Common
Stock will be determined by negotiations between the Company and the
Representatives of the Underwriters. Among the factors to be considered in
such negotiations are prevailing market conditions, the results of operations
of the Company in recent periods, the market capitalizations and stages of
development of other companies which the Company and the Representatives of
the Underwriters believe to be comparable to the Company, estimates of the
business potential of the Company, the present stage of the Company's
development and other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and certain legal
matters will be passed upon for the Company by Schulte Roth & Zabel, New York,
New York. Certain Brazilian legal matters will be passed upon for the Company
by Tozzini, Freire, Teixeira e Silva Advogados, Sao Paulo, Brazil. Schulte
Roth & Zabel will rely, without independent investigation, upon Tozzini,
Freire, Teixeira e Silva Advogados with respect to all matters of Brazilian
law. Willkie Farr & Gallagher, New York, New York and Barbosa & Mussnich, Rio
de Janeiro, Brazil, have acted as counsel for the Underwriters in connection
with this offering.
EXPERTS
The financial statements of the Company appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young Auditores
Independents S.C., independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and such
financial statements are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which is part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement and the exhibits
and schedules thereto, certain items of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock, reference is hereby made to the
Registration Statement and such exhibits and schedules filed as a part
thereof, which may be inspected, without charge, at the Public Reference
Section of the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its New York Regional Office, Seven World
Trade Center, 13th Floor, New York, New York 10048 and its Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the Commission
upon payment of prescribed fees. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
address of the Commission's Web site is http://www.sec.gov.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by an independent
accounting firm and quarterly reports containing unaudited consolidated
financial information for each of the first three fiscal quarters of each
fiscal year of the Company following the end of such quarter.
66
<PAGE>
GLOSSARY
<TABLE>
<S> <C>
1996 Stock Option Plan................................ as defined on page 51.
1996 Warrants......................................... as defined on page 7.
Asset Test............................................ as defined on page 62.
Average Monthly Churn Rate............................ as defined on page 8.
Average Monthly Revenue per Subscriber................ as defined on page 8.
Board of Directors.................................... as defined on page 49.
By-Laws............................................... as defined on page 15.
CDI................................................... as defined on page 7.
Certificate of Incorporation.......................... as defined on page 15.
CFC................................................... as defined on page 61.
Churn................................................. as defined on page 6.
</TABLE>
Coaxial Cable means cable consisting of a central conductor surrounded by
and insulated from another conductor. It is the standard material used in
traditional cable systems.
<TABLE>
<S> <C>
Commission............................................ as defined on page 52.
Company............................................... as defined on page 1.
Consolidated Financial Statements..................... as defined on page 3.
DGCL.................................................. as defined on page 15.
Direct Broadcast Satellite or DBS..................... as defined on page 42.
Direct-To-Home or DTH................................. as defined on page 42.
EBITDA................................................ as defined on page 8.
Emergency Social Fund or ESF.......................... as defined on page 46.
EMW................................................... as defined on page 55.
E.M. Warburg.......................................... as defined on page 55.
Exchange Act.......................................... as defined on page 56.
Existing Stockholders................................. as defined on page 29.
FPHC.................................................. as defined on page 61.
FPHCI................................................. as defined on page 61.
FPHCI Test............................................ as defined on page 61.
GDP................................................... as defined on page 44.
Hardwire Cable........................................ as defined on page 42.
</TABLE>
Headend means a collection of hardware, typically including satellite
dishes, satellite receivers, modulators, amplifiers and video cassette
playback machines. Signals, when processed, are then combined for
distribution.
Households Passed is the expression in common usage as the measurement of
the size of a cabled area, meaning the total number of premises which have the
current ability to be connected to a hardwire cable system.
<TABLE>
<S> <C>
IBGE................................................. as defined on page 5.
IOF.................................................. as defined on page 60.
IGPM Index........................................... as defined on page 9.
Income Test.......................................... as defined on page 62.
Interested Stockholder............................... as defined on page 57.
Internal Revenue Code................................ as defined on page 51.
ITSA................................................. as defined on page 3.
</TABLE>
Line-of-Sight or LOS Transmission is transmission to antennas that can be
"seen" by the headend transmitter of a wireless cable operator and that are
able to receive a commercially acceptable wireless signal from the
transmission point.
67
<PAGE>
<TABLE>
<S> <C>
Lins Family........................................... as defined on page 49.
</TABLE>
Local Off-Air VHF/UHF Channels mean over-the-air broadcast television
channels that are available to viewers free of charge.
<TABLE>
<S> <C>
Mercosul.............................................. as defined on page 44.
</TABLE>
MHz refers to a unit of frequency equal to one million hertz.
<TABLE>
<S> <C>
Ministry of Communications.......................... as defined on page 4.
MMDS (Multi-point multi-channel distribution serv-
ice)............................................... as defined on page 39.
</TABLE>
Multiple Dwelling Unit means an apartment complex or similar structure which
contains a number of television households.
<TABLE>
<S> <C>
Named Executive Officers.............................. as defined on page 50.
Ownership Law......................................... as defined on page 29.
Ownership Test........................................ as defined on page 61.
</TABLE>
Penetration Rate means the measurement of the take-up of subscription
television services. The penetration rate as of a given date is calculated by
dividing the number of subscribers connected to a system on such a date by the
total number of households passed in such system.
<TABLE>
<S> <C>
PFIC.................................................. as defined on page 61.
Prava................................................. as defined on page 54.
Proposed Regulations.................................. as defined on page 12.
Registered Capital.................................... as defined on page 59.
Representatives....................................... as defined on page 14.
Restricted Shares..................................... as defined on page 63.
Restructuring......................................... as defined on page 29.
RFP................................................... as defined on page 40.
Rights Holders........................................ as defined on page 58.
SFAS No. 52........................................... as defined on page 3.
SG&A.................................................. as defined on page 24.
Telecommunications Code............................... as defined on page 38.
Tevecap............................................... as defined on page 5.
TV Filme Belem........................................ as defined on page 3.
TV Filme Brasilia..................................... as defined on page 3.
TV Filme Goiania...................................... as defined on page 3.
TV Filme Servicos..................................... as defined on page 3.
TVA................................................... as defined on page 5.
TVA programming means programming provided by Tevecap and its subsidiaries.
Underwriters.......................................... as defined on page 65.
United States GAAP.................................... as defined on page 3.
Warburg, Pincus....................................... as defined on page 5.
Wireless Cable........................................ as defined on page 42.
Warburg Stockholders Agreement........................ as defined on page 49.
WP.................................................... as defined on page 55.
</TABLE>
68
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets at December 31, 1994 and 1995................. F-3
Consolidated Statements of Operations for the years ended December 31,
1993, 1994 and 1995...................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31,
1993, 1994 and 1995...................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
Consolidated Balance Sheet at March 31, 1996 (Unaudited).................. F-12
Consolidated Statements of Operations for the three months ended March 31,
1995 and 1996 (Unaudited)................................................ F-13
Consolidated Statement of Changes in Stockholders' Equity for the three
months
ended March 31, 1996 (Unaudited)......................................... F-14
Consolidated Statements of Cash Flows for the three months ended March 31,
1995 and 1996 (Unaudited)................................................ F-15
Notes to Consolidated Financial Statements (Unaudited).................... F-16
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
TV Filme, Inc.
We have audited the accompanying consolidated balance sheets of TV Filme,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for each of the three years ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of TV Filme, Inc. and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the
three years ended December 31, 1995, in conformity with generally accepted
accounting principles in the United States.
Ernst & Young
Auditores Independents S.C.
Sao Paulo, Brazil
January 18, 1996, except as to Note 1, as to
which the date is July , 1996
The foregoing report is in the form that will be signed upon the completion
of the transfer described in Note 1 to the consolidated financial statements.
Sao Paulo, Brazil
May 3, 1996
F-2
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
------- -------
(IN THOUSANDS
OF DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 1,659 $ 43
Accounts receivable, net................................... 505 2,278
Supplies................................................... 652 1,632
Receivables from affiliates................................ 2,111 --
------- -------
Total current assets..................................... 4,927 3,953
Property, plant and equipment, net........................... 4,182 18,870
Intangible assets, net....................................... 899 860
------- -------
Total assets............................................. $10,008 $23,683
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 1,055 $ 7,037
Payroll and other benefits payable......................... 468 1,283
Payables to affiliates--current............................ 200 1,863
------- -------
Total current liabilities................................ 1,723 10,183
Payables to affiliates--long term............................ 600 400
Deferred installation fees................................... 1,185 5,205
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued..............................
Common stock, $.01 par value, 50,000,000 shares authorized,
4,997,240 and 6,193,996 shares issued and outstanding in
1994 and 1995............................................. 50 62
Additional paid-in capital................................. 6,470 10,070
Deficit.................................................... (20) (2,237)
------- -------
Total stockholders' equity............................... 6,500 7,895
------- -------
Total liabilities and stockholders' equity............... $10,008 $23,683
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
------------------------
1993 1994 1995
------ ------- -------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Revenues............................................. $ 287 $ 2,438 $11,404
------ ------- -------
Operating costs and expenses:
System operating--Note 3........................... 196 773 2,957
Selling, general and administrative................ 558 2,394 8,975
Depreciation and amortization...................... 43 365 2,049
------ ------- -------
Total operating costs and expenses............... 797 3,532 13,981
------ ------- -------
Operating loss................................... (510) (1,094) (2,577)
------ ------- -------
Other income (expense):
Interest expense--Note 3........................... (17) (2) (49)
Interest and other income--Note 3.................. 11 932 475
Exchange and translation gains (losses)............ -- 682 (66)
------ ------- -------
Net income (loss).................................... $ (516) $ 518 $(2,217)
====== ======= =======
Net income (loss) per share.......................... $(0.10) $ 0.08 $ (0.27)
====== ======= =======
Shares and share equivalents......................... 5,295 6,885 8,086
====== ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
ADDITIONAL
PAID-IN
SHARES PAR VALUE CAPITAL DEFICIT TOTAL
--------- --------- ---------- ------- -------
(IN THOUSANDS OF DOLLARS, EXCEPT SHARES)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1992................... 1,427,256 $14 $ 94 $ (22) $ 86
Capital contribution.... 112 112
Issuance of Common
Stock.................. 1,169,096 12 1,288 1,300
Net loss for the year... (516) (516)
--------- --- ------- ------- -------
BALANCE AT DECEMBER 31,
1993................... 2,596,352 26 1,494 (538) 982
--------- --- ------- ------- -------
Issuance of Common
Stock.................. 2,126,132 21 4,979 5,000
Exercise of stock op-
tions.................. 274,756 3 (3)
Net income for the
year................... 518 518
--------- --- ------- ------- -------
BALANCE AT DECEMBER 31,
1994................... 4,997,240 50 6,470 (20) 6,500
--------- --- ------- ------- -------
Issuance of Common
Stock.................. 1,052,924 11 3,289 3,300
Non-cash compensation... 312 312
Exercise of stock op-
tions.................. 143,832 1 (1)
Net loss for the year... (2,217) (2,217)
--------- --- ------- ------- -------
BALANCE AT DECEMBER 31,
1995................... 6,193,996 $62 $10,070 $(2,237) $ 7,895
========= === ======= ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
------------------------
1993 1994 1995
----- ------- --------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................... $(516) $ 518 $ (2,217)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization..................... 43 365 2,049
Non-cash compensation............................. -- -- 312
Changes in assets and liabilities:
Increase in accounts receivable................. (60) (445) (1,773)
Increase in supplies............................ (135) (517) (980)
Increase in accounts payable.................... 555 499 5,982
Increase in payroll and other benefits payable.. 65 403 815
Increase in deferred installation fees.......... 191 994 4,020
----- ------- --------
Net cash provided by operating activities........... 143 1,817 8,201
----- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions:
Property, plant and equipment..................... (852) (3,637) (16,621)
Intangible assets................................. -- (914) (77)
----- ------- --------
Net cash used in investing activities............... (852) (4,551) (16,698)
----- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock............................ 1,300 5,000 3,300
Capital contribution................................ 112 -- --
Payables to affiliates.............................. -- 800 1,463
(Increase) decrease in receivables from affiliates.. (685) (1,426) 2,111
----- ------- --------
Net cash provided by financing activities........... 727 4,374 6,874
----- ------- --------
Net increase (decrease) in cash and cash
equivalents........................................ 18 1,640 (1,616)
Cash and cash equivalents at beginning of year...... 1 19 1,659
----- ------- --------
Cash and cash equivalents at end of year............ $ 19 $ 1,659 $ 43
===== ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Company Background
In connection with an initial public offering of its Common Stock (the
"Offering"), TV Filme, Inc. (the "Company") was formed in April 1996 to become
the holding company of and successor to ITSA-- Intercontinental
Telecomunicacoes S.A. and its subsidiaries ("ITSA"). The transfer of ITSA to
the Company will be accounted for in a manner similar to a pooling of
interests. ITSA was formed in May 1994 as a holding company for and successor
to TV Filme Servicos de Telecomunicacoes S.A. ("TVFSA"). The transfer of TVFSA
to ITSA has been accounted for in a manner similar to a pooling of interests.
In connection with the Offering, the Company will enter into a restructuring
(the "Restructuring") pursuant to which all of the preferred stock of ITSA
will be converted into common stock of ITSA, based on the conversion rates at
the date of issuance of the preferred stock. Each share of common stock of
ITSA will then be exchanged for 1,844 shares of Common Stock of the Company.
As all of the preferred stock of ITSA will have been converted and there will
have been no preferred dividends paid or due as a result of the conversion,
all preferred and common stock issuances of the predecessor companies have
been reflected as issuances of Common Stock of the Company. Prior to the
consummation of the Offering and the Restructuring, TVFSA operated the
Company's wireless cable system in Brasilia, and held the licenses to operate
the Company's wireless cable systems in Brasilia, Goiania and Belem. ITSA owns
substantially all of TVFSA, TV Filme Goiania Servicos de Telecomunicacoes
Ltda. ("TV Filme Goiania") and TV Filme Belem Servicos de Telecomunicacoes
Ltda. ("TV Filme Belem"). Pursuant to the Restructuring, (i) 51% of the voting
stock of TVFSA will be transferred to an entity, substantially all of which
will be owned by existing shareholders of ITSA who are Brazilian nationals,
with ITSA retaining 49% of the voting stock and 83% of the economic interests
in TVFSA; (ii) the operating assets of the wireless cable system of Brasilia
will be transferred from TVFSA to TV Filme Brasilia Servicos de
Telecomunicacoes Ltda. ("TV Filme Brasilia"), which, when formed, will be
substantially owned by ITSA; and (iii) TVFSA will enter into various
agreements with ITSA and its subsidiaries pursuant to which, among other
things, TVFSA will authorize ITSA to operate the existing wireless cable
systems under its current licenses. Subsequent to the Restructuring and the
Offering, the Company will own 100% of ITSA, which will hold 49% of the voting
stock and 83% of the economic interests of TVFSA and 100% of TV Filme
Brasilia, TV Filme Goiania and TV Filme Belem.
Accordingly, the consolidated financial statements of the Company include
(i) TVFSA on a historical basis from inception through May 1994 and (ii) ITSA
and its subsidiaries on a historical basis since May 1994 as though they have
been part of the Company for all periods presented. All significant
intercompany transactions and balances have been eliminated in consolidation.
The Company develops, owns and operates subscription television systems in
mid-sized markets in Brazil. The Company has established wireless cable
operating systems in the cities of Brasilia, Goiania and Belem. Applications
have been made for the Company to operate systems in an additional 19 markets
in Brazil. Although the economic situation in Brazil has improved since July
1994, when the government introduced the Real Plan, a return to high levels of
inflation and currency fluctuations could adversely affect the Company's
operations.
b. Method of Presentation
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the United States
in U. S. dollars. Amounts in Brazilian currency have been remeasured into U.
S. dollars in accordance with the methodology set forth in Statement of
Financial Accounting Standards No. 52 as it applies to entities operating in
highly inflationary
F-7
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
economies. Supplies, property, plant and equipment, intangibles and deferred
installation fees and the related income statement accounts are remeasured at
exchange rates in effect when the assets were acquired or the liabilities were
incurred. All other assets and liabilities are remeasured at year end exchange
rates, and all other income and expense items are remeasured at average
exchange rates prevailing during the year. Remeasurement adjustments are
included in exchange and translation gains (losses).
c. Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
d. Supplies
Supplies are recorded at the lower of cost or market.
e. Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company capitalizes
materials, subcontractor costs, labor and overhead incurred associated with
initial subscriber installations. The Company continues to depreciate the full
installation cost subsequent to any subscriber disconnections.
Depreciation is computed on the straight-line basis using estimated useful
lives ranging from 5 to 10 years for buildings and leasehold improvements, 5
years for machinery and equipment, furniture and fixtures and installation
costs.
f. Intangible Assets
Intangible assets are comprised primarily of subscription television
licenses, which are amortized on a straight-line basis over a period of 10
years. Accumulated amortization at December 31, 1994 and 1995 was $15,000 and
$131,000, respectively.
g. Revenue Recognition
Revenues from subscribers are recognized in the period service is rendered.
Installation fees are recognized as revenue to the extent of direct selling
costs incurred, with the remainder deferred and amortized to income over a
five year period.
h. Allowance for Doubtful Accounts
The Company had an allowance for doubtful accounts of $16,000 and $315,000
at December 31, 1994 and 1995, respectively. There were no charges to the
allowance during 1994 and 1995.
i. Stock Options
The Company accounts for stock options granted to employees in accordance
with the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees." In 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation." SFAS 123 provides for
an alternative to APB 25 and is effective for fiscal years beginning after
December 15, 1995. The Company expects to continue to account for stock
options granted to employees in accordance with the provisions of APB 25.
Accordingly, SFAS 123 is not expected to have any material impact on the
results of operations or the financial position of the Company.
F-8
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
j. Interest Expense
Interest expense approximates the amount of cash interest paid.
k. Net income (loss) per share
Net income (loss) per share is calculated using the weighted average number
of shares of stock outstanding during the period together with the number of
shares issuable upon the exercise of options and warrants issued during the
twelve months prior to the filing of the Offering. The Company has not used
the treasury stock method in computing the dilutive effect of the warrants.
l. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
------ -------
(IN THOUSANDS
OF DOLLARS)
<S> <C> <C>
Building and leasehold improvements............................ $ 152 $ 597
Machinery and equipment........................................ 2,581 10,288
Furniture and fixtures......................................... 120 308
Installation costs............................................. 1,667 9,948
------ -------
4,520 21,141
Accumulated depreciation....................................... (338) (2,271)
------ -------
$4,182 $18,870
====== =======
</TABLE>
Depreciation expense of $43,000, $350,000, and $1,933,000 is included in the
statements of operations for the years ended December 31, 1993, 1994 and 1995,
respectively.
3. RELATED PARTY TRANSACTIONS
Substantially all programming is supplied by a subsidiary of Tevecap S.A.
("Tevecap"), a stockholder of the Company, pursuant to a programming contract.
Amounts paid to such affiliate in 1993, 1994 and 1995 were $13,000, $178,000
and $1,334,000, respectively, net of discounts on programming fees compared to
list prices. Such discounts were received from August 1993 through October
1995, and in 1993, 1994 and 1995 were $28,000, $340,000 and $539,000,
respectively. Such discounts are not expected to continue.
Receivables from Tevecap and Abril S.A. ("Abril"), the majority stockholder
of Tevecap, bear interest at the Brazilian interbank rate ("CDI") then in
effect or at CDI plus 0.8%. The rate in effect during the periods ranged from
3.64% to 4.16% per month during 1994 and 3.48% to 4.27% per month during 1995.
Interest income from such affiliates was $599,000 and $433,000 in 1994 and
1995, respectively.
In 1994, the Company purchased two licenses to operate wireless cable
systems from Abril for $400,000 each, payable in four equal annual
installments, which do not bear interest. Included in payables to affiliates
at December 31, 1994 and 1995 is $800,000 and $600,000, respectively, related
to this purchase. Other payables to Abril (and its affiliates) bear interest
at the CDI plus 0.8%, which ranged from 3.33% to 4.66% per month. Interest
expense to Abril (and its affiliates) was $50,000 in 1995.
F-9
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company purchases equipment and supplies from vendors under irrevocable
letters of credit. Total issued and outstanding letters of credit at December
31, 1994 and 1995 were $966,000 and $6,683,000. Abril and a subsidiary of
Tevecap guarantee such obligations from time to time. At December 31, 1994 and
1995, issued and outstanding letters of credit secured by affiliates were
$590,000 and $4,155,000, respectively. The maturity date of such letters of
credit range from 30 days to 360 days.
4. STOCKHOLDERS' EQUITY
At December 31, 1995, 704,408 shares of Common Stock were non-voting. In
connection with the Restructuring, non-voting shares will be converted into
voting shares.
Between January and April 1993, certain shareholders made capital
contributions to the Company in an aggregate amount of $112,000.
In May 1993, the Company issued and sold 1,169,096 shares of Common Stock to
Tevecap for a purchase price of $1,300,000.
In July 1994, the Company issued and sold 2,126,132 shares of Common Stock
to Warburg, Pincus Investors, L.P. for a purchase price of $5,000,000.
In August 1995, the Company issued and sold 1,052,924 shares of Common Stock
to Warburg, Pincus Investors, L.P. for purchase price of $3,300,000.
In 1994 and 1995, the Company issued options to purchase 125,392 and 99,576
shares of Common Stock, respectively, to officers of the Company. All options
were vested at the date of grant. The fair value of the stock at the date of
the 1995 grant was deemed to be $312,000 and, therefore, a charge for non-cash
compensation of $312,000 was recorded in 1995 and included in selling, general
and administrative expenses. All options were exercised in the year of grant.
As a finders' fee in connection with the equity offerings in 1994 and 1995,
the Company granted options to purchase 193,620 shares of Common Stock to two
advisers at a nominal exercise price. In 1994 and 1995, such options for
149,364 and 44,256 shares, respectively, were exercised.
5. INCOME TAXES
The reasons for the difference between total tax expense (benefit) and the
amount computed by applying the effective Brazilian tax rate to income before
income taxes are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Income taxes (benefit) at effective Brazilian
rate.......................................... $ (248) $ 249 $ (1,064)
Effect of monetary adjustments under Brazilian
tax law....................................... (709) 765
Nondeductible compensation expense............. 150
Effect of change in tax rate................... 267
Other.......................................... 198
Increase (decrease) in valuation allowance .... 248 460 (316)
-------- ------- ----------
Tax expense (benefit).......................... -- -- --
======== ======= ==========
</TABLE>
The Company has not recognized any future income tax benefit for its net
operating loss carryforwards in excess of net deferred tax liabilities as it
is not assured that it will be able to realize a benefit for such losses in
the future. The net operating loss carryforwards amounted to $5,232,000 at
December 31, 1995. Under Brazilian law, net operating losses may be carried
forward for an unlimited period of time. Use of these losses, however, is
restricted to 30% of taxable income of a period.
F-10
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The approximate effect
of temporary differences as of December 31, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN THOUSANDS
OF DOLLARS)
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards........................... $ 501 $1,596
Deferred installation fees................................. 538 1,526
Other...................................................... 343 309
------ ------
1,382 3,431
Valuation allowance........................................ (729) (413)
------ ------
$ 653 $3,018
====== ======
Deferred tax liabilities
Fixed assets............................................... $ 653 $2,670
Other...................................................... -- 348
------ ------
$ 653 $3,018
====== ======
</TABLE>
Effective January 1, 1996, the effective Brazilian tax rate declined from
48% to 30.5%. This has been reflected in the deferred tax assets and
liabilities at December 31, 1995.
6. COMMITMENTS
The Company leases office space and vehicles and has entered into various
transmission tower rental agreements. Rent expense amounted to approximately
$19,000, $128,000 and $472,000 for the years ended December 31, 1993, 1994,
and 1995, respectively. A substantial number of these rental agreements are
renewed on a continuous basis. The Company also has entered into various
contracts to secure programming. These agreements are readjusted periodically.
Lease commitments at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.............................. $1,497,000
1997.............................. $1,320,000
1998.............................. $ 362,000
1999.............................. $ 3,000
</TABLE>
At December 31, 1995, payables to affiliates include $600,000 related to the
purchase by the Company of two licenses to operate wireless cable systems (see
Note 3). Payments for such licenses of $200,000 are required in each of 1996,
1997 and 1998.
F-11
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1996
-------------
(IN THOUSANDS
OF DOLLARS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 24
Accounts receivable, net....................................... 2,959
Supplies....................................................... 2,424
Receivables from affiliates.................................... 311
-------
Total current assets......................................... 5,718
Property, plant and equipment, net............................... 22,802
Intangible assets, net........................................... 835
-------
Total assets................................................. $29,355
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 7,009
Payroll and other benefits payable............................. 1,229
Payables to affiliates--current................................ 200
-------
Total current liabilities.................................... 8,438
Payables to affiliates--long term................................ 200
Deferred installation fees....................................... 6,130
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
no shares issued..............................................
Common stock, $.01 par value, 50,000,000 shares authorized,
7,291,176 shares issued and outstanding....................... 73
Additional paid-in capital..................................... 17,210
Deficit........................................................ (2,696)
-------
Total stockholders' equity................................... 14,587
-------
Total liabilities and stockholders' equity................... $29,355
=======
</TABLE>
See accompanying notes.
F-12
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
31,
--------------
1995 1996
------ ------
(IN
THOUSANDS,
EXCEPT PER
SHARE DATA)
<S> <C> <C>
Revenues....................................................... $1,364 $5,852
------ ------
Operating costs and expenses:
System operating--Note 2..................................... 413 1,583
Selling, general and administrative.......................... 1,589 3,310
Depreciation and amortization................................ 236 1,098
------ ------
Total operating costs and expenses......................... 2,238 5,991
------ ------
Operating loss............................................. (874) (139)
------ ------
Other income (expense):
Interest expense--Note 2..................................... -- (374)
Interest and other income--Note 2............................ 247 10
Exchange and translation gains (losses)...................... (29) 44
------ ------
Net loss....................................................... $ (656) $ (459)
====== ======
Net loss per share............................................. $(0.08) $(0.06)
====== ======
Shares and share equivalents................................... 8,086 8,086
====== ======
</TABLE>
See accompanying notes.
F-13
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
ADDITIONAL
PAID-IN
SHARES PAR VALUE CAPITAL DEFICIT TOTAL
--------- --------- ---------- ------- -------
(IN THOUSANDS OF DOLLARS, EXCEPT SHARES)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1995........................ 6,193,996 $62 $10,070 $(2,237) $ 7,895
Issuance of Common Stock and
warrants.................... 1,097,180 11 7,140 7,151
Net loss for the period...... (459) (459)
--------- --- ------- ------- -------
BALANCE AT MARCH 31, 1996.... 7,291,176 $73 $17,210 $(2,696) $14,587
========= === ======= ======= =======
</TABLE>
See accompanying notes.
F-14
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
1995 1996
------- -------
(IN THOUSANDS
OF DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $ (656) $ (459)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 236 1,098
Changes in assets and liabilities:
Increase in accounts receivable......................... (37) (681)
Increase in supplies.................................... (105) (792)
Increase (decrease) in accounts payable................. 269 (28)
Increase (decrease) in payroll and other benefits
payable................................................ 252 (54)
Increase in deferred installation fees.................. 689 925
------- -------
Net cash provided by operating activities................... 648 9
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions:
Property, plant and equipment............................. (2,655) (4,980)
Intangible assets......................................... 6 (25)
------- -------
Net cash used in investing activities....................... (2,649) (5,005)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock and warrants....................... -- 7,151
Payables to affiliates...................................... (200) (1,863)
Decrease (increase) in receivables from affiliates.......... 727 (311)
------- -------
Net cash provided by financing activities................... 527 4,977
------- -------
Net decrease in cash and cash equivalents................... (1,474) (19)
Cash and cash equivalents at beginning of year.............. 1,659 43
------- -------
Cash and cash equivalents at end of the period.............. $ 185 $ 24
======= =======
</TABLE>
See accompanying notes.
F-15
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Company Background
In connection with an initial public offering of its Common Stock (the
"Offering"), TV Filme, Inc. (the "Company") was formed in April 1996 to become
the holding company of and successor to ITSA-- Intercontinental
Telecomunicacoes S.A. and its subsidiaries ("ITSA"). The transfer of ITSA to
the Company will be accounted for in a manner similar to a pooling of
interests. ITSA was formed in May 1994 as a holding company for and successor
to TV Filme Servicos de Telecomunicacoes S.A. ("TVFSA"). The transfer of TVFSA
to ITSA has been accounted for in a manner similar to a pooling of interests.
In connection with the Offering, the Company will enter into a Restructuring
(the "Restructuring") pursuant to which all of the preferred stock of ITSA
will be converted into common stock of ITSA, based on the conversion rates at
the date of issuance of the preferred stock. Each share of common stock of
ITSA will then be exchanged for 1,844 shares of Common Stock of the Company.
As all of the Preferred Stock of ITSA will have been converted and there will
have been no preferred dividends paid or due as a result of the conversion,
all preferred and common stock issuances of the predecessor companies have
been reflected as issuances of Common Stock of the Company. Prior to the
consummation of the Offering and the Restructuring, TVFSA operated the
Company's wireless cable system in Brasilia, and held the licenses to operate
the Company's wireless cable systems in Brasilia, Goiania and Belem. ITSA owns
substantially all of TVFSA, TV Filme Goiania Servicos de Telecomunicacoes
Ltda. ("TV Filme Goiania") and TV Filme Belem Servicos de Telecomunicacoes
Ltda. ("TV Filme Belem"). Pursuant to the Restructuring, (i) 51% of the voting
stock of TVFSA will be transferred to an entity, substantially all of which
will be owned by existing shareholders of ITSA who are Brazilian nationals,
with ITSA retaining 49% of the voting stock and 83% of the economic interests
in TVFSA; (ii) the operating assets of the wireless cable system of Brasilia
will be transferred from TVFSA to TV Filme Brasilia Servicos de
Telecomunicacoes Ltda. ("TV Filme Brasilia"), which, when formed, will be
substantially owned by ITSA; and (iii) TVFSA will enter into various
agreements with ITSA and its subsidiaries pursuant to which, among other
things, TVFSA will authorize ITSA to operate the existing wireless cable
systems under its current licenses. Subsequent to the Restructuring and the
Offering, the Company will own 100% of ITSA, which will hold 49% of the voting
stock and 83% of the economic interests of TVFSA and 100% of TV Filme
Brasilia, TV Filme Goiania and TV Filme Belem.
Accordingly, the consolidated financial statements of the Company include
(i) TVFSA on a historical basis from inception through May 1994 and (ii) ITSA
and its subsidiaries on a historical basis since May 1994 as though they have
been part of the Company for all periods presented. All significant
intercompany transactions and balances have been eliminated in consolidation.
The Company develops, owns and operates subscription television systems in
mid-sized markets in Brazil. The Company has established wireless cable
operating systems in the cities of Brasilia, Goiania and Belem. Applications
have been made for the Company to operate systems in an additional 19 markets
in Brazil.
b. Method of Presentation
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the United States
in U. S. dollars. Amounts in Brazilian currency have been remeasured into U.
S. dollars in accordance with the methodology set forth in Statement of
Financial Accounting Standards No. 52 as it applies to entities operating in
highly inflationary
F-16
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
economies. Supplies, property, plant and equipment, intangibles and deferred
installation fees and the related income statement accounts are remeasured at
exchange rates in effect when the assets were acquired or the liabilities were
incurred. All other assets and liabilities are remeasured at year end exchange
rates, and all other income and expense items are remeasured at average
exchange rates prevailing during the year. Remeasurement adjustments are
included in exchange and translation gains (losses).
In management's opinion, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the first three months are not necessarily
indicative of the results that may be expected for a full year.
c. Net income (loss) per share
Net income (loss) per share is calculated using the weighted average number
of shares of stock outstanding during the period together with the number of
shares issuable upon the exercise of options and warrants issued during the
twelve months prior to the filing of the Offering. The Company has not used
the treasury stock method in computing the dilutive effect of the warrants.
2. RELATED PARTY TRANSACTIONS
Substantially all programming is supplied by a subsidiary of Tevecap S.A.
("Tevecap"), a stockholder of the Company, pursuant to a programming contract.
Amounts paid to such affiliate for the three months ended March 31, 1995 and
1996 were $116,000 and $1,200,000, respectively.
Receivables from Tevecap and Abril S.A. ("Abril"), the majority shareholder
of Tevecap, bear interest at the Brazilian interbank rate ("CDI") then in
effect or at CDI plus 0.8%. The rate in effect during the periods ranged from
3.24% to 4.41% per month during 1995. Interest income from such affiliates was
$220,000 for the three months ended March 31, 1995.
Included in payables to affiliates at March 31, 1996 is $400,000 payable to
Abril which does not bear interest. Payments on this payable are required at
the rate of $200,000 per year. Other payables to Tevecap bear interest at the
CDI plus 0.8%, which ranged from 2.18% to 3.16% per month during 1996.
Interest expense to Tevecap was $374,000 for the three months ended March 31,
1996.
The Company purchases equipment and supplies from vendors under irrevocable
letters of credit. Abril and a subsidiary of Tevecap guarantee such
obligations from time to time. Total issued and outstanding letters of credit
at March 31, 1996 were $6,384,000. At March 31, 1996, issued and outstanding
letters of credit secured by affiliates were $5,295,000. The maturity date of
such letters of credit range from 30 days to 360 days.
3. STOCKHOLDERS' EQUITY
In March 1996, the Company issued and sold (i) 783,700 shares of Common
Stock and warrants to purchase an additional 567,952 shares of Common Stock to
Warburg, Pincus Investors, L.P. for approximately $5,100,000, (ii) 287,664
shares of Common Stock and warrants to purchase an additional 208,372 shares
of Common Stock to Tevecap for approximately $1,875,000 and (iii) 25,816
shares of Common Stock and warrants to purchase an additional 18,440 shares of
Common Stock to two other shareholders of the Company for approximately
$176,000. The warrants have an exercise price of $6.52 per share.
F-17
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
4. SUBSEQUENT EVENT
In connection with the Offering, the Board of Directors of the Company will
adopt and the stockholders of the Company will approve the 1996 Stock Option
Plan (the "Plan"). The Plan provides for the grant of stock options to
officers, key employees, consultants and directors of the Company. The Plan
will be administered by the Compensation Committee and the total number of
shares of Common Stock for which options may be granted pursuant to the Plan
will be 936,432, subject to certain adjustments reflecting changes in the
Company's capitalization. Options to purchase 407,000 shares of Common Stock
shall be granted upon the consummation of the Offering, 297,000 of which shall
be exercisable at the initial public offering price and 110,000 of which shall
be exercisable at $11.00 per share, and which generally shall vest 20% per
year for five years beginning on the first anniversary of consummation of the
Offering.
F-18
<PAGE>
[Page containing logos of selected providers of
programming carried by the Company]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 28
Subscription Television Industry......................................... 42
Brazil................................................................... 43
Management............................................................... 48
Certain Transactions..................................................... 53
Principal Stockholders................................................... 55
Description of Capital Stock............................................. 56
Tax Considerations....................................................... 59
Shares Eligible for Future Sale.......................................... 63
Underwriting............................................................. 65
Legal Matters............................................................ 66
Experts.................................................................. 66
Additional Information................................................... 66
Glossary................................................................. 67
Index to Consolidated Financial Statements............................... F-1
</TABLE>
-----------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTIC-
IPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,500,000 Shares
[LOGO]
Common Stock
-----------
PROSPECTUS
-----------
Alex. Brown & Sons
INCORPORATED
Gerard Klauer Mattison & Co., llc
Robert Fleming Inc.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized list of the estimated expenses to be incurred
in connection with this offering of the securities being offered hereunder
other than underwriting discounts and commissions. All of these expenses will
be borne by the Company.
<TABLE>
<S> <C>
SEC registration fee............................................. $11,896.55
NASD filing fee.................................................. $ 3,950.00
NASDAQ National Market System listing fee........................ $41,977.94
Blue sky fees and expenses....................................... $ 6,500.00
Printing and engraving expenses.................................. $ *
Legal fees and expenses.......................................... $ *
Accounting fees and expenses..................................... $ *
Transfer agent and registrar fees................................ $ *
Miscellaneous fees and expenses.................................. $ *
----------
Total.......................................................... $ *
==========
</TABLE>
- --------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law
(the "DGCL"), Article VII of the Certificate of Incorporation filed as an
exhibit to this Registration Statement eliminates in certain circumstances the
liability of directors of the Company for monetary damages for breach of their
fiduciary duty as directors. This provision does not eliminate the liability
of a director (i) for breach of the director's duty of loyalty to the Company
or its stockholders; (ii) for acts or omissions by the director not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) for willful or negligent declaration of an unlawful dividend, stock
purchase or redemption; or (iv) for transactions from which the director
derived an improper personal benefit. Such limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative (other than an action by or
in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust, or other
enterprise, against expenses (including attorneys' fees), judgments, fines,
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests
II-1
<PAGE>
of the corporation except that no indemnification may be made in respect of
any claim, issue, or matter as to which such person shall have been adjudged
to be liable to the corporation, unless and only to the extent that the Court
of Chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director,
officer, employee, or agent of a corporation has been successful in the
defense of any action, suit, or proceeding referred to in subsections (a) and
(b) or in the defense of any claim, issue, or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith; that indemnification
provided for by Section 145 of the DGCL shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and empowers the
corporation to purchase and maintain insurance on behalf of any person acting
in any of the capacities set forth in the second preceding paragraph against
any liability asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not the corporation would have
the power to indemnify him against such liabilities under Section 145 of the
DGCL.
The By-laws filed as an exhibit to this Registration Statement require the
Company, under certain circumstances, to indemnify any person who is, was or
has agreed to become a director or officer against expenses, liability and
loss actually and reasonably incurred by him. The By-laws of the Company also
provide that expenses incurred in connection with a civil, criminal,
administrative or investigative action, suit or proceeding, or threat thereof,
shall be paid by the Company in advance of the final disposition of such
action, suit or proceeding upon receipt of any undertaking by or on behalf of
the director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Company as
authorized in the By-laws.
The Company will indemnify its officers and directors pursuant to the
Indemnification Agreements it expects to enter into with each such officer and
director against any and all expenses, losses, claims, damages and liabilities
incurred by each such officer and director for or as a result of actions taken
or not taken while each such officer or director was acting in his or her
capacity as a director or officer of the Company, a form of which is filed as
an exhibit to this Registration Statement.
In addition, the Registrant currently expects to obtain directors' and
officers' reimbursements and liability insurance which insures against
liabilities that directors and officers of the Registrant may incur in such
capacities. The risks covered by such policies do not exclude liabilities
under the Securities Act. Pursuant to the Form of Underwriting Agreement filed
as an exhibit to this Registration Statement, the Underwriters will agree,
subject to certain conditions, to indemnify the Registrant, its directors,
certain of its officers and persons who control the Registrant within the
meaning of the Securities Act against certain liabilities, including those
arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1993, the Company has issued and sold the following
securities:
1. In May 1993, the Company issued and sold 1,169,096 shares of Common Stock
(after giving effect to the Restructuring) to Tevecap for a purchase
price of approximately $1,300,000 in cash.
2. In July 1994, the Company effected a recapitalization pursuant to which
Mrs. Maria Nise Lins, Mr. Hermano Lins, Mr. Carlos Andre Lins and Tevecap
exchanged all of their shares of common stock of TV Filme Servicos de
Telecomunicacoes S.A. (the predecessor company to ITSA) on a one-for-one
basis for shares of common stock of ITSA (the predecessor company of TV
Filme, Inc.).
3. In July 1994, the Company issued and sold 2,126,132 shares of Common Stock
(after giving effect to the Restructuring) to Warburg, Pincus for an
aggregate purchase price of $5,000,000 in cash.
II-2
<PAGE>
4. In July 1994, the Company granted to each of Messrs. Lins options to
purchase 62,696 shares of its Common Stock (after giving effect to the
Restructuring) at a nominal exercise price, which they each exercised
immediately.
5. In July 1994, the Company granted to Mr. Wallach and Mr. Pearson options
to purchase a total of 153,052 shares of its Common Stock (after giving
effect to the Restructuring) at a nominal exercise price, which they each
exercised immediately. Mr. Wallach purchased 77,448 of such shares and Mr.
Pearson purchased 75,604 of such shares.
6. In August 1995, the Company issued and sold 1,052,924 shares of Common
Stock (after giving effect to the Restructuring) to Warburg, Pincus for an
aggregate purchase price of $3,300,000 in cash.
7. In August 1995, the Company granted to each of Messrs. Lins options to
purchase 49,788 shares of Common Stock (after giving effect to the
Restructuring) at a nominal exercise price, which they each exercised
immediately.
8. In August 1995, the Company granted to each of Mr. Wallach and Mr. Pearson
options to purchase 20,284 shares of Common Stock (after giving effect to
the Restructuring) at a nominal exercise price, which they each exercised
immediately.
9. In March 1996, the Company issued and sold a total of 1,097,180 shares of
Common Stock (after giving effect to the Restructuring) for an aggregate
purchase price of approximately $7,151,000 in cash and granted warrants to
purchase an additional 794,764 shares of Common Stock (after giving effect
to the Restructuring). Of these shares, 783,700 were purchased by Warburg,
Pincus (which received a warrant to purchase an additional 567,952
shares), 287,664 were purchased by Tevecap (which received a warrant to
purchase an additional 208,372 shares), 12,908 were purchased by Mr.
Wallach (who received a warrant to purchase an additional 9,220 shares)
and 12,908 were purchased by Mr. Pearson (who received a warrant to
purchase an additional 9,220 shares). Such warrants are exercisable at
$6.52 per share.
10. Immediately prior to the consummation of this offering, in connection with
the Restructuring the Company will issue a total of 7,291,176 shares of
Common Stock in exchange for 3,954 shares of common stock of ITSA. Of
these shares, 3,962,756 will be received by Warburg, Pincus, 1,456,760
will be received by Tevecap, 254,472 will be received by Mr. Hermano Lins,
254,472 will be received by Mr. Carlos Andre Lins, 1,069,520 will be
received by Mrs. Maria Nise Lins, 73,760 will be received by Ms. Maria
Veronica Lins, 110,640 will be received by Mr. Pearson and 108,796 will be
received by Mr. Wallach.
11. Immediately prior to the consummation of this offering, in connection with
the Restructuring the Company will issue warrants to purchase a total of
794,764 shares of Common Stock in exchange for warrants to purchase a
total of 431 shares of common stock of ITSA. Of these, warrants to
purchase 567,952 shares will be received by Warburg Pincus, warrants to
purchase 208,372 shares will be received by Tevecap, warrants to purchase
9,220 shares will be received by Mr. Wallach and warrants to purchase
9,220 shares will be received by Mr. Pearson.
Except as set forth above, neither the Company nor ITSA has made any offers
or sales of its securities since January 1, 1993.
There were no underwriters employed in connection with any of the
transactions set forth above.
The transactions described above in paragraphs 1, 2, 4, 5, 7, 8 and 9 (other
than with respect to sales to Warburg, Pincus) were not subject to
registration requirements pursuant to United States securities laws because
the offers and sales took place in Brazil and were therefore not subject to
United States jurisdiction.
The transactions described above in paragraphs 3, 6, 9 (with respect to
sales to Warburg, Pincus), 10 and 11 were effected in reliance upon the
exemption from the registration requirements provided by Section 4(2) of the
Securities Act on the basis that such transactions did not involve any public
offering.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
*3.1 Certificate of Incorporation of the Registrant
*3.2 By-Laws of the Registrant
4 Specimen of Certificate of Common Stock of the Registrant
5 Opinion of Schulte Roth & Zabel (including the consent of such firm)
regarding the legality of the securities being offered
10.1 Form of 1996 Stock Option Plan
10.2 Form of Stock Option Agreement
10.3 Form of Registration Rights Agreement to be entered into by and among
Warburg, Pincus, Tevecap, Mrs. Maria Nise Lins, Mr. Hermano Lins, Mr.
Carlos Andre Lins, Ms. Maria Veronica Lins, Mr. Wallach, Mr. Pearson
and the Registrant
10.4 Form of Employment Agreement to be entered into by and among the
Registrant, ITSA and Mr. Hermano Lins (exhibits hereto are
incorporated by reference to Exhibits 10.1, 10.2 and 10.10)
10.5 Form of Employment Agreement to be entered into by and among the
Registrant, ITSA and Mr. Carlos Andre Lins (exhibits hereto are
incorporated by reference to Exhibits 10.1, 10.2 and 10.10)
10.6 Form of Employment Agreement to be entered into by and between the
Registrant and Mr. Aguirre (exhibits hereto are incorporated by
reference to Exhibits 10.1, 10.2 and 10.10)
10.7 Form of Warrant Agreements to be entered into by and between the
Registrant and certain investors parties thereto
10.8 Programming Agreement by and between the Registrant and Tevecap
10.9 Form of Master Operating Agreement to be entered into by and between
ITSA and TV Filme Servicos de Telecomunicacoes Ltda.
10.10 Form of Indemnification Agreements between the Registrant and the
directors and officers parties thereto
11 Statement Regarding Computation of Per Share Earnings (Loss)
21 Subsidiaries of the Registrant
23.1 Consent of Schulte Roth & Zabel (included as part of Exhibit 5 hereto)
23.2 Consent of Tozzini, Freire, Teixeira e Silva Advogados
23.3 Consent of Ernst & Young Auditores Independents S.C., independent
auditors
24 Power of Attorney
</TABLE>
- --------
*Previously filed.
(b) Supplemental Financial Statement Schedules:
The Supplemental Financial Statement Schedules have been intentionally
omitted because they are either not required or the information has been
included in the Notes to the Consolidated Financial Statements included as
part of this Registration Statement.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
1. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities
(other than payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of such Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
2. The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(b) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and this offering of such securities at that time will
be deemed to be the initial bona fide offering thereof.
(c) It will provide to the Underwriters at the closing specified in
the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit
prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York, State of New York, on July 18, 1996.
TV FILME, INC.
/s/ Douglas M. Karp
By: _________________________________
Name: Douglas M. Karp Title:
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Douglas M. Karp Chairman of the
- ------------------------------------- Board and Director July 18, 1996
Douglas M. Karp
* Chief Executive
- ------------------------------------- Officer, Secretary July 18, 1996
Hermano Studart Lins de Albuquerque and Director
* President, Chief
- ------------------------------------- Operating Officer, July 18, 1996
Carlos Andre Studart Lins de Treasurer and
Albuquerque Director
* Director
- ------------------------------------- July 18, 1996
Gary D. Nusbaum
* Chief Financial
- ------------------------------------- Officer (Principal July 18, 1996
Alvaro J. Aguirre Financial and
Accounting Officer)
and Director
* Director July 18, 1996
- -------------------------------------
Jose Augusto Pinto Moreira
/s/ Douglas M. Karp
*By: ________________________________
Name: Douglas M. Karp
Title: Attorney-in-Fact
S-1
<PAGE>
INDEX TO EXHIBITS
(ITEM 16(A))
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
------- ----------------------- ------
<C> <S> <C>
1.1 Form of Underwriting Agreement...............................
*3.1 Certificate of Incorporation of the Registrant...............
*3.2 By-Laws of the Registrant....................................
4 Specimen of Certificate of Common Stock of the Registrant....
5 Opinion of Schulte Roth & Zabel (including the consent of
such firm) regarding the legality of the securities being
offered.....................................................
10.1 Form of 1996 Stock Option Plan...............................
10.2 Form of Stock Option Agreement...............................
10.3 Form of Registration Rights Agreement to be entered into by
and among Warburg, Pincus, Tevecap, Mrs. Maria Nise Lins,
Mr. Hermano Lins, Mr. Carlos Andre Lins, Ms. Maria Veronica
Lins, Mr. Wallach, Mr. Pearson and the Registrant...........
10.4 Form of Employment Agreement to be entered into by and among
the Registrant, ITSA and Mr. Hermano Lins (exhibits hereto
are incorporated by reference to Exhibits 10.1, 10.2 and
10.10)......................................................
10.5 Form of Employment Agreement to be entered into by and among
the Registrant, ITSA and Mr. Carlos Andre Lins (exhibits
hereto are incorporated by reference to Exhibits 10.1, 10.2
and 10.10)..................................................
10.6 Form of Employment Agreement to be entered into by and
between the Registrant and Mr. Aguirre (exhibits hereto are
incorporated by reference to Exhibits 10.1, 10.2 and
10.10)......................................................
10.7 Form of Warrant Agreements to be entered into by and between
the Registrant and certain investors parties thereto........
10.8 Programming Agreement by and between the Registrant and
Tevecap.....................................................
10.9 Form of Master Operating Agreement to be entered into by and
between ITSA and TV Filme Servicos de Telecomunicacoes
Ltda. ......................................................
10.10 Form of Indemnification Agreements between the Registrant and
the directors and officers parties thereto..................
11 Statement Regarding Computation of Per Share Earnings
(Loss)......................................................
21 Subsidiaries of the Registrant...............................
23.1 Consent of Schulte Roth & Zabel (included as part of Exhibit
5 hereto)...................................................
23.2 Consent of Tozzini, Freire, Teixeira e Silva Advogados.......
23.3 Consent of Ernst & Young Auditores Independents S.C.,
independent auditors........................................
24 Power of Attorney............................................
</TABLE>
- --------
*Previously filed.
<PAGE>
EXHIBIT 1.1
2,500,000 Shares
TV Filme, Inc.
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
----------------------
July __, 1996
Alex. Brown & Sons Incorporated
Gerard Klauer Mattison & Co., LLC
Robert Fleming Inc.
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
TV Filme, Inc., a Delaware corporation (the "Company"), proposes to sell to
the several underwriters (the "Underwriters") named in Schedule I hereto for
whom you are acting as representatives (the "Representatives") an aggregate of
2,500,000 shares of the Company's Common Stock, $.01 par value (the "Firm
Shares"), all of which shares will be sold by the Company. The respective
amounts of the Firm Shares to be so purchased by the several Underwriters are
set forth opposite their names in Schedule I hereto. The Company also proposes
to sell at the Underwriters' option an aggregate of up to 375,000 additional
shares of the Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company: (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
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if you elect to exercise the over-allotment option in whole or in part for
the accounts of the several Underwriters. The Firm Shares and the Option Shares
(to the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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(a) The Company represents and warrants to each of the Underwriters as
follows:
(i) A registration statement on Form S-1 (File No. 333-4512) with
respect to the Shares has been prepared by the Company in conformity in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder and has been filed with the Commission. Copies of such
registration statement, including any amendments thereto, the preliminary
prospectuses (prepared in conformity in all material respects with the
requirements of the Rules and Regulations) contained therein and the
exhibits, financial statements and schedules, as finally amended and revised,
have heretofore been delivered by the Company to you. Such registration
statement, together with any registration statement filed by the Company
pursuant to Rule 462 (b) of the Act, herein referred to as the "Registration
Statement," which shall be deemed to include all information omitted
therefrom in reliance upon Rule 430A and contained in the Prospectus referred
to below, has become effective under the Act and no post-effective amendment
to the Registration Statement has been filed as of the date of this
Agreement. "Prospectus" means (a) the form of prospectus first filed with
the Commission pursuant to Rule 424(b) or (b) the last preliminary prospectus
included in the Registration Statement filed prior to the time it becomes
effective or filed pursuant to Rule 424(a) under the Act that is delivered by
the Company to the Underwriters for delivery to purchasers of the Shares,
together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary
prospectus included in the Registration Statement prior to the time it
becomes effective is herein referred to as a "Preliminary Prospectus."
(ii) Any reference herein to the Prospectus shall be deemed to include
any supplements or amendments thereto filed with the Commission after the
date of filing of the Prospectus under Rules 424(b) or 430A, and prior to the
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termination of the offering of the Shares by the Underwriters.
(iii) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement and enter into and
perform its obligations under this Agreement. Each of Filme Sub, Inc., a
Delaware corporation (the "U.S. Subsidiary") and the Brazilian subsidiaries
of the Company listed on Exhibit A hereto (the "Brazilian Subsidiaries", and
together with the U.S. Subsidiary, the "Subsidiaries") has been duly
organized and is validly existing as a limited liability company or a
corporation, as the case may be, in good standing under the laws of the
jurisdiction of its organization, with corporate power and authority to own
or lease its properties and conduct its business as described in the
Registration Statement. The Subsidiaries are the only subsidiaries, direct
or indirect, of the Company. The Company and each of the Subsidiaries are
duly qualified to transact business in all jurisdictions in which the conduct
of their business requires such qualification, except where the failure to be
so qualified would not in the aggregate be reasonably expected to have a
material adverse effect on the business, financial condition, assets, results
of operations or prospects of the Company and the Subsidiaries taken as a
whole (a "Material Adverse Effect"). The outstanding shares of capital stock
or quotas, as the case may be, of each of the Subsidiaries have been duly
authorized and validly issued, are fully paid and non-assessable, to the
extent applicable, and except as set forth in the Registration Statement are
owned by the Company or another Subsidiary free and clear of all liens,
encumbrances and equities and claims; and no options, warrants or other
rights to purchase, agreements or other obligations to issue or other rights
to convert any obligations into shares of capital stock or ownership
interests in the Subsidiaries are outstanding.
(iv) The outstanding shares of Common Stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable; the
Shares to be issued and sold by the Company have been duly authorized and
when issued and paid for as contemplated herein will be validly issued, fully
paid and non-assessable; and no preemptive rights of stockholders exist with
respect to any of the Shares or the issue and sale thereof. Neither the
filing of the Registration Statement nor the offering or sale of the Shares
as contemplated by this Agreement gives rise to any rights, other than those
which have been waived or satisfied, for or relating to the registration of
any shares of Common Stock.
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(v) The information set forth under the caption "Capitalization" in the
Prospectus is true and correct. All of the Shares conform in all material
respects to the description thereof contained in the Registration Statement.
The form of certificates for the Shares conforms to the corporate law of the
State of Delaware.
(vi) The Commission has not issued an order preventing or suspending the
use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and will
conform, to the requirements of the Act and the Rules and Regulations. As of
its effective date, the Registration Statement did not contain, and as
amended or supplemented, if applicable, will not contain, any untrue
statement of a material fact; and did not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus did not contain, and as
amended or supplemented, if applicable, will not contain, any untrue
statement of material fact; and did not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no
representations or warranties as to any information contained in or omitted
from the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives, specifically for use in the preparation thereof.
(vii) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly, in all material respects, the
consolidated financial position and the results of operations and cash flows
of the Company and the consolidated Subsidiaries, at the indicated dates and
for the indicated periods. Such financial statements and related schedules
have been prepared in accordance with generally accepted principles of
accounting in the United States ("GAAP"), consistently applied throughout the
periods involved, except as disclosed therein, and all adjustments necessary
for a fair presentation of results for such periods have been made. The
summary financial and statistical operating data included in the Registration
Statement presents fairly, in all material respects, the information shown
therein and such data has been compiled on a basis consistent with the
financial statements presented therein.
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(viii) Ernst & Young Auditores Independents S.C., who have certified
certain of the financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants within the meaning
of the Act and the Rules and Regulations.
(ix) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the
Subsidiaries before any court or administrative agency or otherwise which, if
determined adversely to the Company or any of its Subsidiaries, would (a) be
reasonably expected to have a Material Adverse Effect or (b) prevent the
consummation of the transactions contemplated hereby, except as set forth in
the Registration Statement.
(x) The Company and the Subsidiaries have good and marketable title to
all of the properties and assets reflected in the financial statements (or as
described in the Registration Statement as being owned by them) hereinabove
described, free and clear of all liens, mortgages, pledges, charges or
encumbrances of any kind ("Liens") except those reflected in such financial
statements (or as described in the Registration Statement) or which are not
material in amount. The Company and the Subsidiaries occupy their leased
properties under valid and binding leases (conforming in all material
respects to the description thereof set forth in the Registration Statement),
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and general principles of equity.
(xi) The Company and the Subsidiaries have filed all Federal, State,
local and foreign income tax returns which have been required to be filed
,other than those which the failure to have filed would not be reasonably
expected to have a Material Adverse Effect, and have paid all taxes indicated
by said returns and all assessments received by them or any of them to the
extent that such taxes have become due and are not being contested in good
faith. All material tax liabilities have been adequately provided for in the
financial statements of the Company.
(xii) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there has
not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company and its Subsidiaries taken as a
whole, whether or not occurring in the ordinary course of business, and there
has
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not been any material transaction entered into or any material transaction
that is probable of being entered into by the Company or the Subsidiaries
other than transactions in the ordinary course of business and changes,
developments and transactions described in the Registration Statement, as it
may be amended or supplemented. The Company and the Subsidiaries have no
material contingent obligations which are not disclosed in the Company's
financial statements which are included in the Registration Statement.
(xiii) Neither the Company nor any of the Subsidiaries is or with the
giving of notice or lapse of time or both, would be, in violation of or in
default under its organizational documents or under any agreement, lease,
contract, indenture or other instrument or obligation to which it is a party
or by which it, or any of its properties, is bound, except for such
violations or defaults that would not in the aggregate be reasonably expected
to have a Material Adverse Effect. The execution and delivery of this
Agreement and the consummation of the transactions herein contemplated and
the fulfillment of the terms hereof will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust or other agreement or instrument to
which the Company or any Subsidiary is a party, or of the Certificate of
Incorporation or By-Laws of the Company or any order, rule or regulation
applicable to the Company or any Subsidiary, of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction, except in any such case for conflicts, breaches or defaults
that would not in the aggregate be reasonably expected to have a Material
Adverse Effect.
(xiv) This Agreement has been duly authorized, executed and delivered
by the Company.
(xv) Each approval, consent, order, authorization, designation,
declaration or filing (collectively, "Consents") by or with any regulatory,
administrative or other governmental body necessary in connection with the
execution and delivery by the Company of this Agreement and the consummation
of the transactions herein contemplated (except such additional steps as may
be required by the Commission, the National Association of Securities
Dealers, Inc. (the "NASD") or such additional steps as may be necessary to
qualify the Shares for public offering by the Underwriters under state
securities or Blue Sky laws or international securities laws) has been
obtained or made and is in full force and effect, except where the failure to
obtain or make any such Consent or the failure of any such Consent to be in
full force and effect, would not in the aggregate be reasonably expected to
have a Material Adverse Effect.
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(xvi) The Company and each of the Subsidiaries holds all material
licenses, certificates and permits from governmental authorities which are
necessary to the conduct of their businesses as described in the Registration
Statement. Neither the Company nor any of the Subsidiaries is aware of, or
has received any notice of, infringement of, or of conflict or claimed
conflict with, any patents, patent rights, trade names, trademarks or
copyrights, which infringement or conflict would be reasonably expected to
have a Material Adverse Effect. The Company knows of no infringement by
others of patents, patent rights, trade names, trademarks or copyrights owned
by or licensed to the Company, which infringement would be reasonably
expected to have a Material Adverse Effect.
(xvii) Neither the Company, nor to the Company's best knowledge, any
of its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of
the price of the shares of Common Stock to facilitate the sale or resale of
the Shares. The Company acknowledges that the Underwriters may engage in
passive market making transactions in the Shares on the Nasdaq National
Market in accordance with Rule 10b-6A under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(xviii) Neither the Company nor any Subsidiary is an "investment
company" within the meaning of such term under the Investment Company Act of
1940, as amended, and the rules and regulations of the Commission thereunder
(the "1940 Act").
(xix) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain accountability
for assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(xx) The Company and each of its Subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the
conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar industries.
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(xxi) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA)
for which the Company would have any liability; the Company has not incurred
and does not expect to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such
qualification.
(xxii) Neither the Company nor any Subsidiary (nor any officer,
director, employee, agent of the Company or any Subsidiary) has, directly or
indirectly, made or authorized any payment, contribution or gift of money,
property, or services, (i) as a kickback or bribe to any person or (ii) to
any political organization, or the holder or any aspirant to any elective or
appointive public office except for personal political contributions not
involving the direct or indirect use of funds of the Company or any
Subsidiary.
(xxiii) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-
198, An Act Relating to Disclosure of doing Business with Cuba, and the
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Company further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's
business with Cuba or with any person or affiliate located in Cuba changes in
any material way, the Company will provide the Department notice of such
business or change, as appropriate, in a form acceptable to the Department.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
-----------------------------------------
(a) On the basis of the representations, warranties and covenants herein
contained, and subject to the conditions herein set forth, the Company agrees to
sell to the Underwriters and each Underwriter agrees, severally and not jointly,
to purchase, at a price of $ [net price] per share, the number of Firm Shares
set forth opposite the name of each Underwriter in Schedule I
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hereof, subject to adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made in New
York Clearing House funds by certified or bank cashier's checks drawn to the
order of the Company for the shares to be sold by it against delivery of
certificates therefor to the Representatives for the several accounts of the
Underwriters. Such payment and delivery are to be made at the offices of Alex.
Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland, at
10:00 a.m., Baltimore time, on the third business day after the date of this
Agreement or at such other time and date not later than five business days
thereafter as you and the Company shall agree upon, such time and date being
herein referred to as the "Closing Date." (As used herein, "business day" means
a day on which the New York Stock Exchange is open for trading and on which
banks in New York are open for business and not permitted by law or executive
order to be closed.) The certificates for the Firm Shares will be delivered in
such denominations and in such registrations as the Representatives request in
writing not later than the second full business day prior to the Closing Date,
and will be made available for inspection by the Representatives at least one
business day prior to the Closing Date.
(c) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase the Option
Shares at the price per share as set forth in the first paragraph of this
Section 2. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company setting forth the
number of Option Shares as to which the several Underwriters are exercising the
option, the names and denominations in which the Option Shares are to be
registered and the time and date at which such certificates are to be delivered.
The time and date at which certificates for Option Shares are to be delivered
shall be determined by the Representatives but shall not be earlier than three
nor later than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option is three
or more days before the Closing Date, the notice of exercise shall set the
Closing Date as the Option Closing Date. The number of Option Shares to be
purchased by each Underwriter shall be in the same proportion to the total
number of Option Shares being purchased as the number of Firm Shares being
purchased by such Underwriter bears to the total number of Firm Shares being
purchased, adjusted by you in such manner as to avoid fractional shares. The
option with respect to the Option Shares granted
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hereunder may be exercised only to cover over-allotments in the sale of the Firm
Shares by the Underwriters. You, as Representatives of the several Underwriters,
may cancel such option at any time prior to its expiration by giving written
notice of such cancellation to the Company. To the extent, if any, that the
option is exercised, payment for the Option Shares shall be made on the Option
Closing Date in New York Clearing House funds by certified or bank cashier's
check drawn to the order of the Company against delivery of certificates
therefor at the offices of Alex. Brown & Sons Incorporated, 135 East Baltimore
Street, Baltimore, Maryland.
3. OFFERING BY THE UNDERWRITERS.
----------------------------
It is understood that the several Underwriters are to make a public offering
of the Firm Shares as soon as the Representatives deem it advisable to do so.
The Firm Shares are to be initially offered to the public at the initial public
offering price set forth in the Prospectus. The Representatives may from time
to time thereafter change the public offering price and other selling terms. To
the extent, if at all, that any Option Shares are purchased pursuant to Section
2 hereof, the Underwriters will offer them to the public on the foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with a Master
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY.
------------------------
(a) The Company covenants and agrees with the several Underwriters
that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A
of the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a
form approved by the Representatives containing information previously
omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A of the Rules and Regulations; (B) not file any
amendment to the Registration Statement or supplement to the Prospectus of
which the Representatives shall not previously have been advised and
furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance in all material respects
with the Rules and Regulations and (C) file on a timely basis all reports and
any definitive proxy or information statements required to be filed by the
Company with the Commission subsequent to the date of the Prospectus and
prior to the
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termination of the offering of the Shares by the Underwriters.
(ii) The Company will advise the Representatives promptly (A) after it
shall have received notice thereof of the time when any post-effective
amendment to the Registration Statement shall have become effective, (B) of
receipt of any comments from the Commission, (C) of any request of the
Commission for amendment of the Registration Statement or for supplement to
the Prospectus or for any additional information, and (D) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution or
threatened institution of any proceedings for that purpose. The Company will
use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in
writing and will make such applications, file such documents, and furnish
such information as may be reasonably required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or to file
a general consent to service of process in any jurisdiction where it is not
now so qualified or required to file such a consent. The Company will, from
time to time, prepare and file such statements, reports, and other documents,
as are or may be required to continue such qualifications in effect for so
long a period as the Representatives may reasonably request for distribution
of the Shares.
(iv) The Company will deliver to the Representatives, from time to time,
or upon the order of the Representatives, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company will
deliver to, or upon the order of, the Representatives during the period when
delivery of a Prospectus is required under the Act, as many copies of the
Prospectus in final form, or as thereafter amended or supplemented, as the
Representatives may reasonably request. The Company will deliver to the
Representatives at or before the Closing Date, three signed copies of the
Registration Statement and all amendments thereto including all exhibits
filed therewith, and will deliver to the Representatives such number of
copies of the Registration Statement (including such number of copies of the
exhibits filed therewith that may reasonably be requested), and of all
amendments thereto, as the Representatives may reasonably request.
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(v) The Company will comply with the Act and the Rules and Regulations,
and the Exchange Act, and the rules and regulations of the Commission
thereunder, so as to permit the completion of the distribution of the Shares
as contemplated in this Agreement and the Prospectus. If during the period
in which a prospectus is required by law to be delivered by an Underwriter or
dealer, any event shall occur as a result of which, in the judgment of the
Company or in the reasonable opinion of the Underwriters, it becomes
necessary to amend the Registration Statement or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
existing at the time the Prospectus is delivered to a purchaser, not
misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(vi) The Company will make generally available to its security holders,
as soon as it is practicable to do so, but in any event not later than 15
months after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a period
of at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the
requirements of Section 11(a) of the Act (including, at the option of the
Company, Rule 158 of the Rules and Regulations, in which case this Section
4(a)(vi)shall not be construed to require the Company to file any report
referred to in Rule 158 prior to the time at which such report is otherwise
due) and will advise you in writing when such statement has been so made
available.
(vii) The Company will, for a period of five years from the Closing
Date, deliver to the Representatives copies of annual reports and copies of
all other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant to the Act or
the Exchange Act that relate to the Common Stock of the Company. The Company
will deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and
Regulations, which are not consolidated in the Company's financial
statements.
(viii) Except pursuant to the Company's Stock Option Plan or the lock
up Agreements (as defined below), no offering, sale, short sale or other
disposition of any shares
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of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of
Common Stock (or agreement for such) will be made for a period of 180 days
after the date of this Agreement, directly or indirectly, by the Company
otherwise than hereunder or with the prior written consent of Alex. Brown &
Sons Incorporated.
(ix) The Company will use its best efforts to list, subject to notice of
issuance, the Shares on the Nasdaq National Market.
(x) The Company has caused each officer and director and shareholder of
the Company to furnish to you, on or prior to the date of this Agreement, a
letter or letters, in form and substance satisfactory to the Representatives,
pursuant to which each such person shall agree not to offer, sell, sell short
or otherwise dispose of any shares of Common Stock of the Company or other
capital stock of the Company, or any other securities convertible,
exchangeable or exercisable for shares of Common Stock or derivative of
shares of Common Stock owned by such person or request the registration for
the offer or sale of any of the foregoing (or as to which such person has the
right to direct the disposition of) for a period of 180 days after the date
of this Agreement, directly or indirectly, except with the prior written
consent of Alex. Brown & Sons Incorporated or as otherwise stated therein
("Lockup Agreements").
(xi) The Company shall apply the net proceeds of its sale of the Shares
as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the
Act.
(xii) The Company shall not invest, or otherwise use, the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company or any of the Subsidiaries to register as an investment
company under the 1940 Act.
(xiii) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which
may be the same person or entity) for the Common Stock.
(xiv) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably
be expected to constitute, the stabilization or manipulation of the price of
any securities of the Company.
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5. COSTS AND EXPENSES.
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The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company the cost
of printing and delivering to, or as requested by, the Underwriters copies of
the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation
Letter, the Listing Application, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees and
expenses (including reasonable legal fees and disbursements) incident to
securing any required review by the NASD of the terms of the sale of the Shares;
the Listing Fee of the Nasdaq National Market; and the expenses, including the
reasonable fees and disbursements of counsel for the Underwriters, incurred in
connection with the qualification of the Shares under state securities or Blue
Sky laws. The Company agrees to pay all costs and expenses of the Underwriters,
including reasonable the fees and disbursements of counsel for the Underwriters,
incident to the offer and sale of directed shares of the Common Stock by the
Underwriters to employees and persons having business relationships with the
Company and its Subsidiaries. The Company shall not, however, be required to
pay for any of the Underwriters' expenses (other than those related to
qualification under NASD regulations and state securities or Blue Sky laws)
except that, if this Agreement shall not be consummated because the conditions
in Section 6 hereof are not satisfied, or because this Agreement is terminated
by the Representatives pursuant to Section 11 hereof, or by reason of any
failure, refusal or inability on the part of the Company to perform any
undertaking or satisfy any condition of this Agreement or to comply with any of
the terms hereof on their part to be performed, unless such failure to satisfy
said condition or to comply with said terms be due to the default or omission of
any Underwriter, then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including reasonable fees and disbursements
of counsel, reasonably incurred in connection with investigating, marketing and
proposing to market the Shares or in contemplation of performing their
obligations hereunder; but the Company shall not in any event be liable to any
of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
---------------------------------------------
The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of
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the representations and warranties of the Company contained herein, and to the
performance by the Company of their covenants and obligations hereunder and to
the following additional conditions:
(a) All post-effective amendments to the Registration Statement shall have
become effective and any and all filings required by Rule 424 and Rule 430A of
the Rules and Regulations shall have been made, and any request of the
Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the Option
Closing Date, as the case may be, the opinion of Schulte Roth & Zabel, special
counsel for the Company, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters to the effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement and enter into and
perform its obligations under this Agreement; the Company is duly qualified
to transact business in all United States jurisdictions in which the conduct
of its business requires such qualification, or in which the failure to
qualify would have a Material Adverse Effect. The U.S. Subsidiary has been
duly organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware, with corporate power and authority
to own or lease its properties and conduct its business as described in the
Registration Statement and enter into and perform its obligations under this
Agreement; the U.S. Subsidiary is duly qualified to transact business in all
United States jurisdictions in which the conduct of its business requires
such qualification, or in which the failure to qualify would have a Material
Adverse Effect.
(ii) The Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus; the authorized
shares of the Company's Common Stock have been duly authorized; the
outstanding shares of
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the Company's Common Stock have been duly authorized and validly issued and
are fully paid and non-assessable; all of the Shares conform to the
description thereof contained in the Prospectus; the certificates for the
Shares, assuming they are in the form filed with the Commission, comply with
the Delaware General Corporation law; the shares of Common Stock to be sold
by the Company pursuant to this Agreement have been duly authorized and will
be validly issued, fully paid and non-assessable when issued and paid for as
contemplated by this Agreement; and no preemptive rights of stockholders
exist with respect to any of the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the Registration
Statement, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock or
any securities convertible or exchangeable into or evidencing the right to
purchase or subscribe for any shares of such stock; and except as described
in the Registration Statement, to the knowledge of such counsel, no holder of
any securities of the Company or any other person has the right, contractual
or otherwise, which has not been satisfied or effectively waived, to cause
the Company to sell or otherwise issue to them, or to permit them to
underwrite the sale of, any of the Shares or the right to have any Common
Stock or other securities of the Company included in the Registration
Statement or the right, as a result of the filing of the Registration
Statement, to require registration under the Act of any shares of Common
Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the Act and,
to the best of the knowledge of such counsel, no stop order proceedings with
respect thereto have been instituted or are pending or threatened under the
Act.
(v) The Registration Statement, the Prospectus and each amendment or
supplement thereto comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial
statements and related schedules therein).
(vi) The statements under the captions "Management," "Certain
Transactions," "Principal and Selling Stockholders," "Description of Capital
Stock," "Tax Considerations--United States Tax Considerations," and "Shares
Eligible for Future Sale" in the Prospectus, insofar as such statements
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<PAGE>
constitute a summary of documents referred to therein or matters of law,
fairly summarize in all material respects the information called for with
respect to such documents and matters.
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described
in the Registration Statement or the Prospectus which are not so filed or
described as required, and such contracts and documents as are summarized in
the Registration Statement or the Prospectus are fairly summarized in all
material respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company except as set forth in
the Prospectus.
(ix) The execution and delivery of this Agreement and the consummation
of the transactions herein contemplated do not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default under,
the Certificate of Incorporation or By-Laws of the Company, or any material
agreement or instrument known to such counsel to which the Company is a party
or by which the Company may be bound.
(x) This Agreement has been duly authorized, executed and delivered by
the Company.
(xi) No Consent by any regulatory, administrative or other governmental
body in the United States is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the Nasdaq National Market,
the NASD or as required by state securities and Blue Sky laws as to which
such counsel need express no opinion) except such as have been obtained or
made, specifying the same or except where the failure to obtain or make any
such Consent or the failure of any such Consent to be in full force and
effect, would not in the aggregate be reasonably expected to have a Material
Adverse Effect.
(xii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
In rendering such opinions Schulte Roth & Zabel may rely as to matters
governed by the laws of the Federative Republic of Brazil on Brazilian counsel,
provided that in each case Schulte Roth & Zabel shall state that they believe
that they and the Underwriters are justified in relying on such Brazilian
counsel.
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<PAGE>
In addition to the matters set forth above, such opinions shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, at the
time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements and schedules therein). With respect to such statement, Schulte Roth
& Zabel may state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.
(c) The Representatives shall have received on the Closing Date or the Option
Closing Date, as the case may be, the opinion of Tozzini, Freire, Teixeira e
Silva Advogados, Brazilian counsel for the Company, dated the Closing Date or
the Option Closing Date, as the case may be, addressed to the Underwriters (and
stating that it may be relied upon by counsel to the Underwriters) to the effect
that:
(i) Each of the Brazilian Subsidiaries has been duly organized and is
validly existing as a limited liability company in good standing under the
laws of the jurisdiction of its incorporation, with corporate power and
authority to own or lease its properties and conduct its business as
described in the Registration Statement; each of the Brazilian Subsidiaries
is duly qualified to transact business in all jurisdictions in which the
conduct of their business requires such qualification, or in which the
failure to qualify would have a materially adverse effect upon the business
of the Company and the Subsidiaries taken as a whole; the outstanding quotas
of each of the Brazilian Subsidiaries have been duly authorized and validly
issued and are fully paid and non-assessable and, except as set forth in the
Prospectus, are owned by the Company or a Subsidiary; and, to the best of
such counsel's knowledge, the outstanding quotas of each of the Brazilian
Subsidiaries is owned free and clear of all Liens, and no options, warrants
or other rights to purchase, agreements or other obligations to issue or
other rights to convert any obligations into any shares of capital stock or
of ownership interests in the Brazilian Subsidiaries are outstanding.
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<PAGE>
(ii) The statements under the captions "Risk Factors--Risk Factors
Relating to Brazil Generally--Potential Unenforceability of Civil Liabilities
and Judgments," "Risk Factors--Risk Factors Relating to the Company--
Government Regulation," "Business--Restructuring," "Business--Regulatory
Environment," "Certain Transactions" and "Tax Considerations-Brazilian Tax
Considerations" in the Prospectus, insofar as such statements constitute a
summary of documents referred to therein or matters of law, fairly summarize
in all material respects the information called for with respect to such
documents and matters.
(iii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described
in the Registration Statement or the Prospectus which are no so filed or
described as required, and such contracts and documents as are summarized in
the Registration Statement or the Prospectus are fairly summarized in all
material respects.
(iv) Such counsel knows of no material legal or governmental proceedings
pending or threatened against any of the Brazilian Subsidiaries except as set
forth in the Prospectus.
(v) The execution and delivery of this Agreement and the consummation of
the transactions herein contemplated do not and will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a
default under, any material agreement or instrument known to such counsel to
which any of the Subsidiaries is a party or by which any of the Subsidiaries
may be bound.
(vi) All consents, approvals, authorizations, licenses, registrations,
declarations and filings by or with any regulatory, administrative or other
governmental body of Brazil (including, without limitation, the Ministry of
Communications of Brazil) (collectively, "Brazilian Consents") required in
connection with the execution and delivery of this Agreement and the
consummation of the transactions herein contemplated have been obtained,
except where the failure to obtain or make any such Brazilian Consent, or the
failure of any such Brazilian Consent to be in full force and effect, would
not in the aggregate be reasonably expected to have a Material Adverse
Effect. The descriptions in the Registration Statement or Prospectus of
Brazilian statutes, laws, ordinances, rules and regulations governing the
Subsidiaries and their businesses, including, without limitation, any
proposed amendments or additions to any such statutes, laws, ordinances,
rules or regulations, are accurate in all material respects and fairly
present the information required to be shown therein. No Subsidiary has
received any notice of or has reason to believe that any
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<PAGE>
governmental agency (including, without limitation, the Ministry of
Communications of Brazil) is considering enacting, amending or repealing any
such statutes, laws, ordinances, rules or regulations required to be
described in the Registration Statement or Prospectus that are not so
described as required.
(vii) All agreements with holders of licenses of the Ministry of
Communications of Brazil for wireless cable channels (or such Brazilian
Subsidiary's use of such channels), as described in the Registration
Statement and Prospectus, are valid and binding and no default on the part of
such Subsidiary has occurred or is continuing thereunder, except for defaults
that would not in the aggregate be reasonably expected to have a Material
Adverse Effect.
In rendering such opinions, Tozzini, Freire, Teixeira e Silva Advogados may
rely as to matters governed by the laws of jurisdictions other than Brazil on
counsel in such jurisdictions, provided that in each case Tozzini, Freire,
Teixeira e Silva Advogados shall state that they believe that they and the
Underwriters are justified in relying on such other counsel. In addition to the
matters set forth above, such opinions shall also include a statement to the
effect that nothing has come to the attention of such counsel which leads them
to believe that (i) the Registration Statement, at the time it became effective
under the Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements, in the light of
the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements and schedules therein).
With respect to such statement, Tozzini, Freire, Teixeira e Silva Advogodos may
state that their belief is based upon the procedures set forth therein, but is
without independent check and verification.
(d) The Representatives shall have received from counsel for the
Underwriters, opinions dated the Closing Date or the Option Closing Date, as the
case may be, substantially to the effect specified in subparagraphs (ii), (iii),
(iv), (ix) and (xi) of Paragraph (b) of this Section 6, and that the Company is
a duly organized and validly existing corporation under the laws of the State of
Delaware. In rendering such opinions counsel for the Underwriters may rely as
to all matters governed by the laws of the Federative Republic of Brazil on the
opinions of counsel
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<PAGE>
referred to in Paragraph (c) of this Section 6. In addition to the matters set
forth above, such opinions shall also include a statement to the effect that
nothing has come to the attention of such counsel which leads them to believe
that (i) the Registration Statement, or any amendment thereto, as of the time it
became effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date
or the Option Closing Date, as the case may be, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements contained
therein, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements and schedules therein). With respect to such statement, such counsel
may state that their belief is based upon the procedures set forth therein, but
is without independent check and verification.
(e) The Representatives shall have received at or prior to the Closing Date
from Willkie Farr & Gallagher a memorandum or summary, in form and substance
satisfactory to the Representatives, with respect to the qualification for
offering and sale by the Underwriters of the Shares under the State securities
or Blue Sky laws of such jurisdictions as the Representatives may reasonably
have designated to the Company.
(f) You shall have received, on each of the date hereof, the Closing Date and
the Option Closing Date, as the case may be, a letter dated the date hereof, the
Closing Date or the Option Closing Date, as the case may be, in form and
substance satisfactory to you, a letter from Ernst & Young Auditores
Independents S.C., confirming that they are independent public accountants
within the meaning of the Act and the applicable published Rules and Regulations
thereunder, and stating that in their opinion the financial statements and
schedules examined by them and included in the Registration Statement comply in
form in all material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations; and containing such other
statements and information as is ordinarily included in accountants' "comfort
letters" to Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration Statement
and Prospectus.
(g) The Representatives shall have received on the Closing Date or the Option
Closing Date, as the case may be, a certificate or certificates of the Chief
Executive Officer and the Chief Financial Officer of the Company to the effect
that, as
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of the Closing Date or the Option Closing Date, as the case may be, each of them
severally represents as follows:
(i) The Registration Statement has become effective under the Act and no
stop order suspending the effectiveness of the Registration Statement has
been issued, and no proceedings for such purpose have been taken or are, to
his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained in
Section 1 hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules 424 or
430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and the
Prospectus and, in his opinion, as of the effective date of the Registration
Statement, such Registration Statement and Prospectus did not include any
untrue statement of material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading, and since the effective date of the Registration Statement, no
event has occurred which is required to have been set forth in a supplement
to or an amendment of the Prospectus which has not been so set forth in such
supplement or amendment; and
(v) Since the respective dates as of which information is given in the
Registration Statement, as it may be amended or supplemented, there has not
been any Material Adverse Effect or any development which would be reasonably
expected to result in a Material Adverse Effect, whether or not arising in
the ordinary course of business.
(h) The Company shall have furnished to the Representatives such further
certificates and documents confirming the representations and warranties,
covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(i) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on the Nasdaq National Market.
(j) The Lockup Agreements described in Section 4(a)(x) shall be in full
force and effect.
The opinions and certificates mentioned in this Agreement shall be deemed to
be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to counsel for the
Underwriters.
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If any of the conditions hereinabove provided for in this Section 6 shall not
have been fulfilled when and as required by this Agreement to be fulfilled, the
obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
--------------------------------------------
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION AND CONTRIBUTION.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of the
Act, against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and will reimburse each Underwriter and
each such controlling person upon demand for any legal or other expenses
actually and reasonably incurred by such Underwriter or such controlling person
in connection with investigating or defending any such loss, claim, damage or
liability, action or proceeding or in responding to a subpoena or governmental
inquiry related to the offering of the Shares, whether or not such Underwriter
or controlling person is a party to any action or proceeding; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the
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Representatives specifically for use in the preparation thereof; and
provided further that the foregoing indemnity agreement with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages or liabilities
purchased Shares, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such losses, claims, damages or liabilities. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding or in responding to a subpoena or governmental inquiry related to the
offering of the Shares; provided, however, that each Underwriter will be liable
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to this Section 8, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the
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"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party and shall pay as incurred the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified party shall
have the right to retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying party shall pay as incurred (or within 30 days of
presentation) the reasonable fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel, (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them or (iii) the indemnifying party shall have
failed to assume the defense and employ counsel reasonably acceptable to the
indemnified party within a reasonable period of time after notice of
commencement of the action. It is understood that the indemnifying party shall
not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated in
writing by the Representatives in the case of parties indemnified pursuant to
Section 8(a) and by the Company in the case of parties indemnified pursuant to
Section 8(b). The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent (which consent shall not be
unreasonably withheld) but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. In addition, the indemnifying party will not, without
the prior written consent of the indemnified party (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding)
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unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action
or proceeding.
(d) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under Section 8(a) or (b)
above in respect of any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law then each indemnifying party shall contribute to such amount paid
or payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 8(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) no
-26-
<PAGE>
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are actually incurred.
The indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers or any person
controlling any of the foregoing, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
8.
9. DEFAULT BY UNDERWRITERS.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may
be, any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting
-27-
<PAGE>
Underwriter or Underwriters failed to purchase. If during such 36 hours you, as
such Representatives, shall not have procured such other Underwriters, or any
others, to purchase the Firm Shares or Option Shares, as the case may be, agreed
to be purchased by the defaulting Underwriter or Underwriters, then (a) if the
aggregate number of shares with respect to which such default shall occur does
not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the other Underwriters shall be obligated, severally, in proportion to
the respective numbers of Firm Shares or Option Shares, as the case may be,
which they are obligated to purchase hereunder, to purchase the Firm Shares or
Option Shares, as the case may be, which such defaulting Underwriter or
Underwriters failed to purchase, or (b) if the aggregate number of shares of
Firm Shares or Option Shares, as the case may be, with respect to which such
default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case
may be, covered hereby, the Company or you as the Representatives of the
Underwriters will have the right, by written notice given within the next 36-
hour period to the parties to this Agreement, to terminate this Agreement
without liability on the part of the non-defaulting Underwriters or of the
Company except to the extent provided in Section 8 hereof. In the event of a
default by any Underwriter or Underwriters, as set forth in this Section 9, the
Closing Date or Option Closing Date, as the case may be, may be postponed for
such period, not exceeding seven days, as you, as Representatives, may determine
in order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 9 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
10. NOTICES.
-------
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202, Attention:
Jeffrey Amling; with a copy to Willkie Farr & Gallagher, One Citicorp Center,
153 East 53rd Street, New York, New York 10022, Attention: Steven J. Gartner,
Esq.; if to the Company, to TV Filme, Inc., SCS, Quadra 07-Bl.A, Ed. Executive
Tower, Sala 601, 70.300-911 Brasilia-DF, Brazil, Attention: Hermano Studart Lins
de Albuquerque, Chief Executive Officer, with a copy to Schulte Roth & Zabel,
900 Third Avenue, New York, New York 10022, Attention: Marc Weingarten, Esq.
11. TERMINATION.
-----------
-28-
<PAGE>
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any Material Adverse Effect, whether
or not arising in the ordinary course of business, (ii) any outbreak or
escalation of hostilities or declaration of war or national emergency or other
national or international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, escalation, declaration, emergency,
calamity, crisis or change on the financial markets of the United States would,
in your reasonable judgment, make it impracticable to market the Shares or to
enforce contracts for the sale of the Shares, or (iii) suspension of trading in
securities generally on any of The New York Stock Exchange, the American Stock
Exchange or the NASDAQ National Market or limitation on prices (other than
limitations on hours or numbers of days of trading) for securities thereon, (iv)
the enactment, publication, decree or other promulgation of any statute,
regulation, rule or order of any court or other governmental authority which in
your opinion materially and adversely affects or may materially and adversely
affect the business or operations of the Company, (v) declaration of a banking
moratorium by United States or New York State authorities or (vi) the taking of
any action by any governmental body or agency in respect of its monetary or
fiscal affairs which in your reasonable opinion has a material adverse effect on
the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
Any termination pursuant to any of subparagraph (ii) through (vi) of
Section 11(b) shall be without liability of any party to any other party.
12. SUCCESSORS.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
-29-
<PAGE>
13. INFORMATION PROVIDED BY UNDERWRITERS.
------------------------------------
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.
14. MISCELLANEOUS.
-------------
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
-30-
<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
TV FILME, INC.
By ____________________________
Chief Executive Officer
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of the
date first above written.
ALEX. BROWN & SONS INCORPORATED
GERARD KLAUER MATTISON & CO., LLC
ROBERT FLEMING INC.
As Representatives of the several
Underwriters listed on Schedule I
By: ALEX. BROWN & SONS INCORPORATED
By ____________________________
Authorized Officer
-31-
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
Alex. Brown & Sons Incorporated
Gerard Klauer Mattison & Co., LLC
Robert Fleming Inc.
____________
Total 2,500,000
------------
<PAGE>
EXHIBIT A
BRAZILIAN SUBSIDIARIES OF THE COMPANY
ITSA-Intercontinental Telecommunicacoes Ltda., a Brazilian limited liability
company
[TV Filme Servicos], a Brazilian limited liability company
TV Filme Brasilia Servicos de Telecommunicacoes Ltda., a Brazilian limited
liability company
TV Filme Goiania Servicos de Telecommunicacoes Ltda., a Brazilian limited
liability company
TV Filme Belem Servicos de Telecommunicacoes Ltda., a Brazilian limited
liability company
<PAGE>
EXHIBIT 4
[GRAPHIC OF TV FILME, INC. BANKNOTE CERTIFICATE]
<PAGE>
TV FILME, INC.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT --___Custodian___
TEN ENT -- as tenants by the entirelies (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act______________
in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received,_____________________________ does hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------------
- -----------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------ Shares
of the capital stock represented by the within Certificate, and does hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________________________
Signature:
------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature Guaranteed
By: ___________________________________________________________________________
The signature(s) must be guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee Medallion Program), pursuant
to S.E.C. Rule 17Ad-15.
<PAGE>
EXHIBIT 5
SCHULTE ROTH & ZABEL
900 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 756-2540
July 17, 1996
TV Filme, Inc.
c/o ITSA--Intercontinental Telecomunicacoes Ltda.
SCS, Quadra 07-Bl.A
Ed. Executive Tower
Sala 601
70.300-911 Brasilia-DF
Brazil
Ladies and Gentlemen:
We have acted as special counsel for TV Filme, Inc., a Delaware corporation
(the "Company"), in connection with the preparation of the Registration
Statement on Form S-1, as amended (the "Registration Statement"), filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), relating to 2,875,000 shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), which
shares are to be sold by the Company to the underwriters named in the
Registration Statement (the "Underwriters") pursuant to an underwriting
agreement (the "Underwriting Agreement"), the form of which will be filed as an
exhibit to the Registration Statement. Capitalized terms used but not defined
herein shall have the meaning set forth in the Registration Statement.
As special counsel to the Company, in connection with this opinion, we have
examined and relied upon such records, documents, certificates and other
instruments as in our judgment are necessary or appropriate to form the basis
for the opinions set forth herein. In our examinations, we have assumed the
genuineness of all signatures, the legal capacity of natural persons signing or
delivering any instrument, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as certified or photostatic copies and the authenticity of the originals of such
latter documents.
<PAGE>
TV Filme, Inc.
July 17, 1996
Page 2
Based upon the foregoing, we are of the opinion that the shares of Common
Stock to be issued and sold by the Company pursuant to the Underwriting
Agreement will, when issued in accordance with the terms of the Underwriting
Agreement and against payment therefor as set forth therein, be validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm appearing under the
heading "Legal Matters" in the Prospectus. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act or the General Rules and Regulations of
the Commission thereunder.
Very truly yours,
/s/ Schulte Roth & Zabel
<PAGE>
EXHIBIT 10.1
TV FILME, INC.
FORM OF STOCK OPTION PLAN
-------------------------
ARTICLE I
PURPOSE
-------
This TV Filme, Inc. Stock Option Plan (the "Plan") is intended as an
incentive and to encourage stock ownership by officers, key employees and
consultants of TV Filme, Inc. (the "Company") to provide them with a more direct
stake in the Company's future welfare and to encourage them to continue to
provide services to the Company.
The term "Company," when used in the Plan with reference to eligibility
and employment, shall include the Company and its subsidiaries. The word
"subsidiary," when used in the Plan, shall mean any subsidiary of the Company
within the meaning of Section 424(f) of the Internal Revenue Code of 1986, as
amended (the "Code").
It is intended that certain options granted under the Plan will qualify
as "incentive stock options" under Section 422 of the Code.
ARTICLE II
ADMINISTRATION
--------------
The Plan shall be administered by the Company's Compensation Committee
(the "Committee") appointed by the Board of Directors of the Company (the
"Board") that shall consist of not less than three members, each of whom must be
a "Disinterested Person" within the meaning of the rules promulgated under
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Subject to the provisions of the Plan, the Committee shall have sole
authority, in its absolute discretion: (a) to determine which of the eligible
officers, employees and consultants of the Company shall be granted options; (b)
to authorize the granting of both incentive stock options and nonstatutory stock
options; (c) to determine the times when options shall be granted and the number
of shares to be optioned and the times when options shall be repurchased and the
number of options to be repurchased; (d) to determine the option price of the
shares subject to each option, which price shall not be less than the minimum
specified in ARTICLE V (or ARTICLE VII, if applicable); (e) to determine the
time or times when each option becomes exercisable, the duration of the exercise
period and any other restrictions on the exercise of options issued hereunder
(subject to the provisions of ARTICLE VI and, if applicable, ARTICLE VII); (f)
to prescribe the form or forms of the option agreements under the Plan (which
forms shall be consistent with the terms of the Plan but need not be identical);
(g) to adopt, amend and rescind such rules and regulations as, in its opinion,
may be
<PAGE>
advisable in the administration of the Plan; and (h) to construe and interpret
the Plan, the rules and regulations and the option agreements under the Plan and
to make all other determinations deemed necessary or advisable for the
administration of the Plan. All decisions, determinations and interpretations of
the Committee shall be final and binding on all optionees.
ARTICLE III
COMMON STOCK
------------
The stock to be optioned under the Plan shall be authorized shares of
Common Stock, par value $.01 per share, of the Company (the "Common Stock").
Under the Plan, the total number of shares of Common Stock which may be issued
pursuant to options granted hereunder shall not exceed, in the aggregate,
936,432 shares, except as such number of shares shall be adjusted in accordance
with the provisions of ARTICLE X hereof. The Company shall at all times reserve
a sufficient number of shares of Common Stock for issuance pursuant to the Plan
and any stock option agreements issued pursuant to the Plan.
The number of shares of Common Stock available for grant of options under
the Plan shall be decreased by the sum of the number of shares with respect to
which options have been issued and are then outstanding, and the number of
shares issued upon exercise of options, under the Plan. In the event that any
outstanding option under the Plan for any reason expires, is terminated or is
cancelled prior to the end of the period during which options may be granted,
the shares of Common Stock called for by the unexercised portion of such option
may again be subject to an option grant under the Plan.
ARTICLE IV
ELIGIBILITY OF PARTICIPANTS
---------------------------
Subject to ARTICLE VII, in the case of incentive stock options, officers
and key employees of the Company (excluding any person who is a member of the
Committee) shall be eligible to receive options under the Plan. Options which
are not incentive stock options may be granted to officers, key employees and
consultants (excluding any person who is a member of the Committee); provided,
however that no employee may receive Options to purchase more than 200,000
shares of Common Stock in the aggregate in any fiscal year of the Company. For
purposes of this Plan, an "employee" shall mean any person, including officers
of the Company, employed by the Company or any subsidiary of the Company.
Neither service as a director nor the payment of a director's fee by the Company
shall be sufficient to constitute a person an "employee" of the Company.
ARTICLE V
OPTION PRICE
------------
In the case of each incentive stock option granted under the Plan,
subject to ARTICLE VII, the option price shall be at least equal to the greater
of (i) the fair market value of the
<PAGE>
Common Stock at the time the option was granted or (ii) the par value of the
Common Stock. The fair market value shall be deemed for all purposes of the Plan
to be the mean between the highest and lowest sale prices reported as having
occurred on any national securities exchange (an "Exchange") on which the
Company's Common Stock may be listed and traded on the last business day prior
to the date the option is granted, or, if there is no such sale on that date,
then on the last preceding date of which such a sale was reported. If the
Company's Common Stock is not listed on any Exchange but the Common Stock is
quoted in the National Market System of the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") on a last sale basis, then the
fair market value of the Common Stock shall be deemed to be the mean between the
high and low price reported on the last business day prior to the date the
option is granted, or, if there is no such sale on that date, then on the last
preceding date on which a sale was reported. If the Common Stock is not quoted
in the National Market System of NASDAQ on a last sale basis, but the Common
Stock is otherwise quoted on NASDAQ, then the fair market value of the Common
Stock shall be deemed to be the mean between the high and low bid prices on
NASDAQ for the Common Stock on the last business day prior to the date the
option is granted. If the Common Stock is not listed on an Exchange or quoted on
NASDAQ, then the fair market value of the Common Stock shall mean the amount
determined by the Board to be the fair market value based upon a good faith
attempt to value the Common Stock accurately and computed in accordance with
applicable regulations of the Internal Revenue Service. In no event shall the
option price be less than the par value per share of Common Stock on the date an
option is granted.
In the case of each nonstatutory stock option granted under the Plan, the
option price shall be such price as may be determined by the Committee in its
sole discretion, provided that the option price shall be at least equal to the
par value of the Common Stock.
ARTICLE VI
EXERCISE AND TERMS OF OPTIONS
-----------------------------
If an option is exercisable in installments, installments or portions
thereof which are exercisable and not exercised shall remain exercisable.
Any other provision of the Plan to the contrary notwithstanding, but
subject to ARTICLE VII in the case of incentive stock options, no option shall
be exercised after the date ten years from the date of grant of such option (the
"Termination Date").
ARTICLE VII
SPECIAL PROVISIONS APPLICABLE
TO INCENTIVE STOCK OPTIONS ONLY
-------------------------------
To the extent the aggregate fair market value (determined as of the time
the option is granted) of the Common Stock with respect to which any incentive
stock options granted under the Plan may be exercisable for the first time by
the optionee in any calendar year (under the Plan or any other stock option plan
of the Company), exceeds $100,000, such options shall not be
<PAGE>
considered incentive stock options, but shall be considered nonstatutory stock
options for purposes of the Code. This Article VII shall be applied by taking
options into account in the order in which they were granted.
No incentive stock option may be granted to an individual who, at the
time the option is granted, owns directly, or indirectly within the meaning of
Section 424(d) of the Code, stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or of any parent or
subsidiary thereof, unless such option (i) has an option price of at least 110
percent of the fair market value of the Common Stock on the date of the grant of
such option; and (ii) cannot be exercised more than five years after the date it
is granted.
Each optionee who receives an incentive stock option must agree to notify
the Company in writing immediately after the optionee makes a disqualifying
disposition of any Common Stock acquired pursuant to the exercise of an
incentive stock option. A disqualifying disposition is any disposition
(including any sale) of such Common Stock before the later of (a) two years
after the date the optionee was granted the incentive stock option or (b) one
year after the date the optionee acquired Common Stock by exercising the
incentive stock option.
ARTICLE VIII
PAYMENT FOR SHARES
------------------
Payment for shares of Common Stock purchased under an option granted
hereunder shall be made in full upon exercise of the option, by certified or
bank cashier's check payable to the order of the Company or by any other means
(including without limitation tender of shares of Common Stock then owned by the
optionee) acceptable to the Company. The Common Stock purchased shall thereupon
be promptly delivered; provided, however, that the Company may, in its
discretion, require that an optionee pay to the Company, at the time of
exercise, such amount as the Company deems necessary to satisfy its obligation,
if any, to withhold Federal, state or local income or other taxes incurred by
reason of the exercise or the transfer of shares thereupon.
ARTICLE IX
NON-TRANSFERABILITY OF OPTION RIGHTS
------------------------------------
No option shall be transferable except by will or the laws of descent and
distribution. During the lifetime of the optionee, the option shall be
exercisable only by him.
ARTICLE X
ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC.
---------------------------------------------
The aggregate number of shares of Common Stock which may be purchased
pursuant to options granted hereunder, the number of shares of Common Stock
covered by each outstanding option and the price per share of each such option
shall be appropriately adjusted for any increase or decrease in the number of
outstanding shares of stock resulting from a stock split, reverse
<PAGE>
stock split or other subdivision or consolidation of shares of Common Stock or
for other capital adjustments or payments of stock dividends or distributions or
other increases or decreases in the outstanding shares of Common Stock without
receipt of consideration by the Company. Any adjustment shall be conclusively
determined by the Committee.
In the event of any change in the outstanding shares of Common Stock by
reason of any recapitalization, merger, consolidation, spin-off, combination or
exchange of shares or other corporate change, or any distributions to common
shareholders other than cash dividends, the Committee shall make such
substitution or adjustment, if any, as it deems to be equitable, as to the
number or kind of shares of Common Stock or other securities issued or reserved
for issuance pursuant to the Plan, and the number or kind of shares of Common
Stock or other securities covered by outstanding options, and the option price
thereof. In instances where another corporation or other business entity is
being acquired by the Company, and the Company has assumed outstanding employee
option grants and/or the obligation to make future or potential grants under a
prior existing plan of the acquired entity, similar adjustments are permitted at
the discretion of the Committee. The Committee shall notify optionees of any
intended sale of all or substantially all of the Company's assets within a
reasonable time prior to such sale.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined by the Committee in its sole discretion. Any
such adjustment may provide for the elimination of any fractional share which
might otherwise become subject to an option.
ARTICLE XI
NO OBLIGATION TO EXERCISE OPTION
--------------------------------
Granting of an option shall impose no obligation on the recipient to
exercise such option.
<PAGE>
ARTICLE XII
USE OF PROCEEDS
---------------
The proceeds received from the sale of Common Stock pursuant to the Plan
shall be used for general corporate purposes.
ARTICLE XIII
RIGHTS AS A COMMON STOCKHOLDER
------------------------------
An optionee or a transferee of an option shall no rights as a stockholder
with respect to any share covered by his option until he shall have become the
holder of record of such share, and he shall not be entitled to any dividends or
distributions or other rights in respect of such share for which the record date
is prior to the date on which he shall have become the holder of record thereof.
ARTICLE XIV
EMPLOYMENT RIGHTS
-----------------
Nothing in the Plan or in any option granted hereunder shall confer on
any optionee any right to continue in the employ of the Company or any of its
subsidiaries, or to interfere in any way with the right of the Company or any of
its subsidiaries to terminate the optionee's employment at any time.
ARTICLE XV
COMPLIANCE WITH THE LAW
-----------------------
The Company is relieved from any liability for the nonissuance or non-
transfer or any delay in issuance or transfer of any shares of Common Stock
subject to options under the Plan which results from the inability of the
Company to obtain or any delay in obtaining, from any regulatory body having
jurisdiction, all requisite authority to issue or transfer shares of Common
Stock of the Company either upon exercise of options under the Plan or upon a
request for transfer of shares of Common Stock issued as a result of such
exercise if counsel for the Company deems such authority necessary for lawful
issuance or transfer of any such shares. Appropriate legends may be placed on
the stock certificates evidencing shares issued upon exercise of options to
reflect such transfer restrictions.
Each option granted under the Plan is subject to the requirement that if
at any time the Committee determines, in its discretion, that the listing,
quotation, registration or qualification of shares of Common Stock issuable upon
exercise of options is required by any securities exchange, automated quotation
service or under any state or Federal law, or that the consent or approval of
any governmental regulatory body is necessary or desirable as a condition of, or
in connection with, the grant of options or the issuance of shares of Common
Stock, no shares of Common Stock shall be issued, in whole or in part, unless
such listing, registration, qualification,
<PAGE>
consent or approval has been effected or obtained free of any conditions or with
such conditions as are acceptable to the Committee.
ARTICLE XVI
EFFECTIVE DATE AND EXPIRATION DATE OF PLAN
------------------------------------------
The Plan was effective as of __________ ___, 1996, the date of adoption
of the Plan by the Company's Board of Directors and approval by the stockholders
of the Company in a manner which complies with both Rule 16b-3 under the
Exchange Act and Section 422(b)(1) of the Code and the Treasury Regulations
thereunder. The expiration date of the Plan, after which no option may be
granted hereunder, shall be ________ ____, 2006.
ARTICLE XVII
AMENDMENT OR DISCONTINUANCE OF PLAN
-----------------------------------
The Board may, without the consent of the Company's stockholders or
optionees under the Plan, at any time, terminate the Plan entirely and at any
time or from time to time amend or modify the Plan, provided that no such action
shall adversely affect options theretofore granted hereunder without the
optionee's consent, and provided further that no such action by the Board,
without approval of the stockholders, may: (a) increase the total number of
shares of Common Stock which may be purchased pursuant to options granted under
the Plan, except as contemplated in ARTICLE X; (b) expand the class of officers,
employees or consultants eligible to receive options under the Plan; (c)
decrease the minimum option price; (d) extend the maximum term of options
granted hereunder; or (e) extend the term of the Plan.
ARTICLE XVIII
MISCELLANEOUS
-------------
(a) Options shall be evidenced by option agreements (which need not be
identical) in such forms as the Committee may from time to time approve. Such
agreements shall conform to the terms and conditions of the Plan and may provide
that the grant of any option under the Plan and Common Stock acquired pursuant
to the Plan shall also be subject to such other conditions (whether or not
applicable to the option or Common Stock received by any other optionee) as the
Committee determines appropriate, including, without limitation, provisions to
assist the optionee in financing the purchase of Common Stock through the
exercise of options, provisions for the forfeiture of, or restrictions on,
resale or other disposition of shares under the Plan, and provisions to comply
with Federal and state securities laws and Federal, state and local income tax
withholding requirements.
(b) If the Committee shall find that any person to whom any amount is
payable under the Plan is unable to care for his affairs because of illness or
accident, or is a minor, or has died, then any payment due to such person or his
estate (unless a prior claim therefor has been made by a duly appointed legal
representative), may, if the Committee so directs the Company, be paid
<PAGE>
to his spouse, child, relative, an institution maintaining or having custody of
such person, or any other person deemed by the Committee to be a proper
recipient on behalf of such person otherwise entitled to payment. Any such
payment shall be a complete discharge of the liability of the Committee and the
Company therefor.
(c) No member of the Committee shall be personally liable by reason of
any contract or other instrument executed by such member or on his behalf in his
capacity as a member of the Committee nor for any mistake of judgment made in
good faith, and the Company shall indemnify and hold harmless each member of the
Committee and each other employee, officer or director of the Company to whom
any duty or power relating to the administration or interpretation of the Plan
may be allocated or delegated, against any cost or expense (including counsel
fees) or liability (including any sum paid in settlement of a claim) arising out
of any act or omission to act in connection with the Plan unless arising out of
such person's own fraud or bad faith; provided, however, that approval of the
Company's Board of Directors shall be required for the payment of any amount in
settlement of a claim against any such person. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Certificate of
Incorporation or By-Laws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.
(d) The Plan shall be governed by and construed in accordance with the
internal laws of the State of Delaware without reference to the principles of
conflicts of law thereof.
(e) No provision of the Plan shall require the Company, for the purpose
of satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made or otherwise
to segregate any assets, nor shall the Company maintain separate bank accounts,
books, records or other evidence of the existence of a segregated or separately
maintained or administered fund for such purposes.
(f) Each member of the Committee and each member of the Company's Board
of Directors shall be fully justified in relying, acting or failing to act, and
shall not be liable for having so relied, acted or failed to act in good faith,
upon any report made by the independent public accountant of the Company and
upon any other information furnished in connection with the Plan by any person
or persons other than such member.
(g) Except as otherwise specifically provided in the relevant plan
document, no payment under the Plan shall be taken into account in determining
any benefits under any pension, retirement, profit-sharing, group insurance or
other benefit plan of the Company.
<PAGE>
(h) The expenses of administering the Plan shall be borne by the Company.
(i) Masculine pronouns and other words of masculine gender shall refer to
both men and women.
As adopted by the Board of Directors of
TV Filme, Inc. as of __________ ___, 1996
<PAGE>
EXHIBIT 10.2
TV FILME, INC.
FORM OF STOCK OPTION AGREEMENT
------------------------------
AGREEMENT, dated as of ________ __, 1996, by and between TV Filme, Inc., a
Delaware corporation (the "Company") and the undersigned optionee (the
"Optionee").
1. Grant of Options. The Company hereby grants to the Optionee options
----------------
(the "Options") to purchase _______ shares (the "Shares") of the Common Stock,
$.01 par value (the "Common Stock"), of TV Filme, Inc. at an exercise price per
share of U.S. $_________ (the "Exercise Price").
This Option is/is not an incentive stock option ("ISO"). If
designated as ISOs, the Options are intended to qualify as "incentive stock
options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). To the extent any Option issued pursuant to this
Agreement does not qualify as an ISO under the Code, such Option shall be
considered a nonstatutory stock option ("NSO") under the Code.
2. Exercise of Options. The Options shall be exercisable during their
-------------------
term in accordance with the terms and conditions set forth below:
(a) Right to Exercise.
-----------------
(i) Vesting Schedule. Subject to Optionee's continued employment
----------------
and the terms of this Agreement, Options to purchase Shares shall become vested
and fully exercisable as to 20% of such Shares on the first anniversary of the
date of grant (the "Grant Date") and shall become vested and fully exercisable
as to an additional 20% of such Shares on each anniversary of such Grant Date,
such that the Options are fully exercisable five (5) years after the Grant Date.
(ii) The Options may not be exercised for a fraction of a share.
(iii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Options shall be governed
by Section 5 below.
(iv) In no event may any Option be exercised after the tenth
anniversary (or, in the case of an ISO granted to an Optionee who, at the time
of grant, owns Common Stock representing more than 10% of the combined voting
power of all classes of stock of the Company, the fifth anniversary) of the date
hereof (the "Term Expiration Date").
(v) As used in this Agreement, the following terms shall have the
meanings ascribed to them below:
<PAGE>
"Committee" means the Compensation Committee that administers the
---------
Stock Option Plan (as defined herein).
"Stock Option Plan" means the TV Filme, Inc. Stock Option Plan, as the
-----------------
same may be amended from time to time in accordance with its terms.
(vi) To the extent the aggregate fair market value (determined as
of the time the Options are granted) of Shares with respect to which Options are
exercised for the first time by Optionee during any calendar year exceeds the
maximum amount permitted by the Code for treatment as ISOs, such Options shall
be treated as NSOs for purposes of the Code. This rule shall be applied by
taking into account Options in the order in which they were granted. Options
that are treated as NSOs shall otherwise be subject to all the provisions of
this Agreement to the extent applicable.
(b) Procedure for Exercise. The Options shall be exercisable by
----------------------
written notice (in the form attached hereto as Exhibit A) which shall state the
election to exercise Options, the method of exercise, the number of Shares in
respect of which Options are being exercised, and such representations and
agreements as to the Optionee's investment intent with respect to such shares of
Common Stock as may be required by the Company. Such written notice shall be
signed by the Optionee and shall be delivered in person or by certified mail to
the Secretary of the Company. The written notice shall be accompanied by
payment of the Exercise Price. Options shall be deemed to be exercised upon
receipt by the Company of such written notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of Options unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange or automated quotation service upon
which the Shares may then be listed or quoted.
3. Method of Payment.
-----------------
(a) Payment of the Exercise Price for the number of shares for which
Options are being exercised shall be made:
(i) in cash or by check;
(ii) by tender to the Company of shares of unencumbered Common
Stock having a fair market value, as determined by the
Company's Board of Directors, at least equal to the
Exercise Price; or
(iii) a combination of the foregoing.
(b) Notwithstanding the foregoing, Options may not be exercised by
tender to the Company of shares of the Common Stock to the extent such tender of
stock would constitute
-2-
<PAGE>
a violation of the provisions of any law, regulation and/or agreement
restricting the redemption of the Common Stock or if in the opinion of counsel
to the Company, such tender of stock might impair the ability of purchasers of
stock from the Company from taking full advantage of the provisions of Section
1202 of the Code relating to capital gains treatment of stock issued by the
Company. Unless otherwise provided by the Committee, an Option may not be
exercised by tender to the Company of shares of the Common Stock unless such
shares either have been owned by the Optionee for at least six (6) months or
were not acquired, directly or indirectly, from the Company.
4. Restrictions on Exercise. Options may not be exercised if the issuance
------------------------
of the Shares upon such exercise would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of an Option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.
5. Termination of Relationship.
---------------------------
(a) General Rule. If the services of an Optionee are terminated for
------------
any reason other than death, Disability or Cause (each as hereinafter defined),
an Option shall be exercisable by the Optionee at any time prior to the
expiration date of the Option or within thirty (30) days after the date of such
termination, whichever is earlier, but only to the extent the Optionee had the
right to exercise such Option on the date of termination. The Option shall not
be affected by any change of employment as long as the Optionee continues to be
employed by either the Company or a subsidiary of the Company.
(b) Disability. In the event of the Disability of an Optionee, the
----------
Options which are held by such Optionee on the date of such Disability, whether
or not otherwise exercisable on such date, shall be exercisable at any time
until the expiration date of the Option; provided, however, that any ISO of such
recipient shall no longer be treated as an ISO unless exercised within three
months of the date of such Disability (or within one year in the case of an
employee who is "disabled" within the meaning of Section 22(e)(3) of the Code).
"Disability" shall mean any termination of employment with the Company
or a subsidiary because of a long-term or total disability, as determined by the
Committee in its sole discretion. The decision of the Committee shall be final
and conclusive.
(c) Death. In the event of the death of an Optionee while an employee
-----
of the Company or any subsidiary, Options which are held by such Optionee at the
date of death, whether or not otherwise exercisable on the date of death, shall
be exercisable by the beneficiary designated by the Optionee for such purpose
(the "Designated Beneficiary"), or if no Designated Beneficiary shall be
appointed or if the Designated Beneficiary shall predecease the Optionee, by the
Optionee's personal representatives, heirs or legatees, at any time within one
year from the date of death (but in no event beyond the Term Expiration Date),
at which time such Options shall terminate; provided, however, that any ISO
shall no longer be treated as an ISO unless exercised within three months of the
date of the Optionee's death.
-3-
<PAGE>
In the event of the death of an Optionee following a termination of
employment due to Disability, if such death occurs before the Options are
exercised, the Options which are held by such Optionee on the date of
termination of employment, whether or not otherwise exercisable on such date,
shall be exercisable by such Optionee's Designated Beneficiary, or if no
Designated Beneficiary shall be appointed or if the Designated Beneficiary shall
predecease the Optionee, by the Optionee's personal representatives, heirs or
legatees, to the same extent such Options were exercisable by the Optionee
following such termination of employment.
(d) Cause. The Committee may, in its sole discretion, cause any
-----
Option to be forfeited upon an Optionee's termination of employment if the
Optionee was terminated for one (or more) of the following reasons ("Cause"):
(i) the Optionee's conviction, or plea of guilty or nolo contendere to the
commission of a felony, (ii) the Optionee's commission of any fraud,
misappropriation or misconduct which causes demonstrable injury to the Company
or a subsidiary, (iii) an act of dishonesty by the employee resulting or
intended to result, directly or indirectly, in gain or personal enrichment at
the expense of the Company or a subsidiary, (iv) any breach of the Optionee's
fiduciary duties to the Company as an employee or officer, or (v) any other
serious violation of a Company policy. It shall be within the sole discretion
of the Committee to determine whether the employee's termination was for one of
the foregoing reasons, and the decision of the Committee shall be final and
conclusive.
(e) Leave of Absence. In the case of an Optionee on an approved leave
----------------
of absence, the Options of such employee shall be unaffected unless such leave
is longer than 13 weeks. The date of exercisability of any Options which are
unexercisable at the beginning of an approved leave of absence lasting longer
than 13 weeks shall be postponed for a period equal to the length of such leave
of absence. Notwithstanding the foregoing, the Committee may, in its sole
discretion, waive in writing any such postponement of the date of exercisability
of any Options due to a leave of absence.
(f) Company. For purposes of this Section 5, "Company" shall mean TV
--------
Filme, Inc. and any of its subsidiaries (as defined in the Stock Option Plan).
6. Adjustments Upon Changes in Capitalization or Merger.
----------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Stock Option Plan but as to which no
Options have yet been granted or which have been returned to the Stock Option
Plan upon cancellation or expiration of an Option, as well as the price per
share of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
-4-
<PAGE>
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to the
Options.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least 15 days prior to such proposed action. To the extent not previously
exercised, all Options will terminate immediately prior to the consummation of
such proposed action.
(c) Merger. In the event of a merger of the Company with or into
------
another corporation, the Options shall be assumed or an equivalent option shall
be substituted by such successor corporation or a parent or subsidiary of such
successor corporation. For the purposes of this paragraph, the Options shall be
considered assumed if, following the merger, the Options confer the right to
purchase, for each Share subject to a vested Option immediately prior to the
merger, the consideration (whether stock, cash, or other securities or property)
received in the merger by holders of Common Stock for each share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if such
consideration received in the merger was not solely common stock of the
successor corporation or its parent, the Committee may, with the consent of the
successor corporation and the participant, provide for the consideration to be
received upon the exercise of Options, for each Share subject to such Options,
to be solely common stock of the successor corporation or its parent equal in
fair market value to the per share consideration received by holders of Common
Stock in the merger.
7. Non-Transferability of Options. Options may not be transferred in any
------------------------------
manner other than by will or by the laws of descent or distribution and may be
exercised during the lifetime of Optionee only by him/her. The terms of this
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
8. Term of Options. The Options may be exercised only on or prior to the
---------------
Term Expiration Date and may be exercised during such term only in accordance
with terms and conditions of this Agreement.
9. Receipt of Stock Option Plan. Optionee acknowledges that he has
----------------------------
received, read and understood the provisions of the Stock Option Plan pursuant
to which this Agreement was issued, and agrees to be bound by its terms and
conditions.
10. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Committee (or if no Committee is then in existence, to the Company's Board of
Directors), which shall review such dispute at its
-5-
<PAGE>
next regular meeting. The resolution of such a dispute by the Committee (or the
Board) shall be final and binding on the Company and on Optionee.
11. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery, upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, or by telecopy, receipt of which has been confirmed, addressed to the
other party at its address as shown below beneath its signature, or to such
other address as such party may designate in writing from time to time to the
other party.
12. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further actions as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
13. Entire Agreement; Governing Law; Severability. The Stock Option Plan
---------------------------------------------
and Exercise Notice are incorporated herein by reference. This Agreement, the
Stock Option Plan and the Exercise Notice constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the subject matter hereof, and shall be
governed by and construed in accordance with the laws of the State of Delaware,
excluding that body of law pertaining to conflicts of law. Should any provision
of this Agreement be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain effective and
shall remain enforceable.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first above written.
OPTIONEE TV FILME, INC.
_____________________________ By:___________________________
Signature Title:
_____________________________
Name
Address: Address:
- ------- -------
_____________________________ c/o ITSA-Intercontinental
_____________________________ Telecomunicacoes Ltda.
_____________________________ SCS - Quadra 7 - Bloco A
_____________________________ Ed. Executive Tower - Sala 601
_____________________________ 70.300-911 Brasilia/DF BRAZIL
Telecopy No.:________________ Telecopy No.: 011-55-61-323-5660
-7-
<PAGE>
EXHIBIT A
---------
EXERCISE NOTICE
TV Filme, Inc.
c/o ITSA-Intercontinental Telecomunicacoes Ltda.
SCS, Quadra 07-Bl.A
Ed. Executive Tower
Sala 601
70.300-911 Brasilia-DF
Brazil
Attention: Secretary
1. Exercise of Option. Effective as of today, _____________________, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
__________ shares of Common Stock (the "Shares") of TV Filme, Inc. (the
"Company") under and pursuant to the Company's Stock Option Plan (the "Stock
Option Plan"), and the Stock Option Agreement by and between the Company and the
Optionee dated ______________ __, 1996 (the "Option Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Stock Option Plan and the Option Agreement and
agrees to abide by and be bound by their terms and conditions. Optionee
represents that Optionee is purchasing the Shares for Optionee's own account for
investment and not with a view to, or for sale in connection with, a
distribution of any of such Shares. References herein to this "Agreement"
include this Exercise Notice, the Stock Option Plan and the Option Agreement,
all of which are incorporated herein by reference as provided in Section 11
hereof.
3. Compliance with Securities Laws. The exercise of any rights to
-------------------------------
purchase any Shares is expressly conditioned upon compliance with the Securities
Act of 1933, as amended, all applicable securities laws and all applicable
requirements of any stock exchange, automated quotation service or over the
counter market on which the Company's Common Stock may be listed or traded at
the time of exercise and transfer. Optionee agrees to cooperate with the
Company to ensure compliance with such laws.
4. Rights as Shareholder. Subject to the terms and conditions of this
---------------------
Agreement, Optionee shall have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Optionee delivers full
payment of the Exercise Price until such time as Optionee disposes of the
Shares.
5. Tax Consultation. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection
<PAGE>
with the purchase or disposition of the Shares and that Optionee is not relying
on the Company for any tax advice.
6. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
7. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
committee thereof that administers the Stock Option Plan (or if no such
committee is then in existence, to the Company's Board of Directors), which
shall review such dispute at its next regular meeting. The resolution of such a
dispute by the committee (or the Board) shall be final and binding on the
Company and on Optionee.
8. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery, upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, or by telecopy receipt of which has been confirmed, addressed to the
other party at its address as shown below beneath its signature, or to such
other address as such party may designate in writing from time to time to the
other party.
9. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further actions as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
10. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
full Exercise Price for the Shares. Optionee hereby elects to pay the full
Exercise Price, subject to Section 3(b) of the Option Agreement (check the
appropriate box):
[_] in cash or by check;
[_] by tender to the Company of shares of the unencumbered
Common Stock;
[_] by a combination of the foregoing.
<PAGE>
11. Entire Agreement; Governing Law; Severability. The Stock Option Plan
---------------------------------------------
and Option Agreement are incorporated herein by reference. This Exercise Notice,
the Stock Option Plan and the Option Agreement constitute the entire agreement
of the parties and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof, and shall be governed by and construed in accordance with the laws of
the State of Delaware, excluding that body of law pertaining to conflicts of
law. Should any provision of this Agreement be determined by a court of law to
be illegal or unenforceable, the other provisions shall nevertheless remain
effective and shall remain enforceable.
Submitted by: Accepted by:
OPTIONEE: TV FILME, INC.
______________________________ By:___________________________
Signature Title:
_____________________________
Print Name
Address: Address:
- ------- -------
_____________________________ c/o ITSA-Intercontinental
_____________________________ Telecomunicacoes Ltda.
_____________________________ SCS - Quadra 7 - Bl. A
_____________________________ Ed. Executive Tower - Sala 601
_____________________________ 70.300-911 Brasilia/DF BRAZIL
Telecopy No.:________________ Telecopy No.: 011-55-61-323-5660
<PAGE>
EXHIBIT 10.3
TV FILME, INC.
FORM OF REGISTRATION RIGHTS AGREEMENT
-------------------------------------
Registration Rights Agreement (the "Agreement") dated as of _________
__, 1996, among Warburg, Pincus Investors, L.P. ("Warburg"), Tevecap S.A.
("Tevecap"), Maria Nise Studart Lins de Albuquerque ("Maria Nise Lins"), Hermano
Studart Lins de Albuquerque ("Hermano Lins"), Carlos Andre Studart Lins de
Albuquerque ("Carlos Andre Lins"), Maria Veronica Studart Lins de Albuquerque
("Maria Veronica Lins," and with Maria Nise Lins, Hermano Lins and Carlos Andre
Lins, the "Lins Family"), Donald Deely Pearson and Joseph Wallach (each
hereinafter referred to individually as a "Stockholder" and collectively as the
"Stockholders"), and TV Filme, Inc., a Delaware corporation (the "Company").
R E C I T A L S
Concurrently herewith, the Company is contemplating an Initial Public
Offering (as such term, and other capitalized terms used and not otherwise
defined herein are defined in Section 3 hereof).
Accordingly, in consideration of the mutual covenants and agreements
contained in this Agreement, the parties agree as follows:
1. REGISTRATION RIGHTS
-------------------
(a) Requested Registration.
----------------------
(i) If the Company shall at any time receive from Warburg,
Tevecap and/or the Lins Family (the "Requesting Stockholder(s)") a written
request that the Company effect a registration with respect to all or a part of
the Registrable Shares owned by such Requesting Stockholder(s), and such
Requesting Stockholder(s) owns any amount of shares of Common Stock of the
Company at such time, the Company shall:
(A) within 5 days of receipt of the written request from
such Requesting Stockholder(s), give written notice of the proposed registration
to all other holders of Registrable Shares (the "Holders"); and
(B) as soon as practicable, use its diligent best efforts
to effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Act) as may be so requested and as
would permit or facilitate the sale and
<PAGE>
distribution of all or such portion of such Registrable Shares as are specified
in such request, together with all or such portion of the Registrable Shares of
any Holder or Holders joining in such request as are specified in a written
request received by the Company within 10 business days after written notice
from the Company is given pursuant to Section 1(a)(i)(A) above; provided that
--------
the Company shall not be obligated to effect, or take any action to effect, any
such registration pursuant to this Section 1(a) other than the following
registrations (each, a "Required Registration"): (i) two (2) such registrations
requested by Warburg; (ii) two (2) such registrations requested by Tevecap; and
(iii) two (2) such registrations requested by the Lins Family.
The registration statement filed pursuant to the request of the
Requesting Stockholder(s) may, subject to the provisions of Section 1(a)(ii)
below, include other securities of the Company which are held by officers or
directors of the Company, or which are held by Persons who, by virtue of
agreements with the Company, are entitled to include their securities in any
such registration (the "Other Stockholders"), but the Company shall have no
absolute right to include any of its securities in any such registration.
(ii) If the Requesting Stockholder(s) intend to distribute
the Registrable Shares covered by their request by means of an underwriting,
such Requesting Stockholder(s) shall so advise the Company as a part of their
request made pursuant to Section 1(a).
If officers or directors of the Company holding Common Stock of the
Company shall request inclusion in any registration pursuant to Section 1(a), or
if the Other Stockholders request such inclusion, the Holders shall offer to
include the securities of such officers, directors and Other Stockholders in the
underwriting and may condition such offer on their acceptance of the further
applicable provisions of this Section 1. The Holders whose shares are to be
included in such registration and the Company shall (together with all officers,
directors and Other Stockholders proposing to distribute their securities
through such underwriting) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters selected for
such underwriting by the Requesting Stockholder(s) owning a majority of the
Registrable Shares to be included in such Registration Statement and reasonably
acceptable to the Company. Notwithstanding any other provision of this Section
1(a), if the representative of the underwriter or underwriters advises the
Holders in writing that marketing factors require a limitation on the number of
shares to be underwritten, the securities of the Company held by officers or
directors of the Company and the securities held by Other Stockholders shall be
excluded from such registration to the extent so required by such limitation.
If, after the exclusion of such shares further reductions are still required,
the number of shares included in the registration by each Holder (subject to the
second succeeding sentence) shall be reduced on a pro rata basis (based on the
number of shares requested by such Holder to be included in such registration),
by such minimum number of shares as is necessary to comply with such request.
If, after the exclusion of such shares further reductions are still required,
the number of shares
2
<PAGE>
included in the registration by each Requesting Stockholder shall be reduced on
a pro rata basis (based on the number of shares requested by such Requesting
Stockholder(s) to be included in such registration), by such minimum number of
shares as is necessary to comply with such request (the "Requesting Stockholder
Reduction"). To the extent Warburg, Tevecap or the Lins Family are not the
Requesting Stockholder, they may elect to be treated as such upon written notice
to the Company for purposes of the preceding sentence by electing to treat the
registration hereunder as a Required Registration (subject to the limitations in
Section 1(a)(i)(B)). No Registrable Shares or any other securities excluded from
the underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. If any officer, director or Other Stockholder who
has requested inclusion in such registration as provided above disapproves of
the terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the underwriter and the Requesting
Stockholder(s). The securities so withdrawn shall also be withdrawn from
registration. If the underwriter has not limited the number of Registrable
Shares or other securities to be underwritten, the Company may include its
securities for its own account in such registration if the representative so
agrees and if the number of Registrable Shares and other securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited.
(iii) Notwithstanding the foregoing, if the Company shall
furnish to the Requesting Stockholder(s) a certificate signed by the President
or Chief Executive Officer of the Company stating that in the good faith
judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, then the Company shall have the right to defer such
filing for a period of not more than 120 days after receipt of the request of
the Requesting Stockholder(s), provided, however, that the Company may not
-------- -------
utilize this right more than once in any 12 month period.
(b) Piggyback Registration.
----------------------
(i) Whenever the Company proposes to file a Registration
Statement and at any time thereafter and from time to time, it will, prior to
such filing, give written notice to each Stockholder of its intention to do so
and, upon the written request of any Stockholder given within five days after
the Company provides such notice (which request shall state the intended method
of disposition of the Registrable Shares), the Company shall use its diligent
best efforts to cause all Registrable Shares which the Company has been
requested by each Stockholder to register to be registered under the Act to the
extent necessary to permit their sale or other disposition in accordance with
the intended methods of distribution specified in the request of each
Stockholder; provided that the Company shall have the right to postpone or
withdraw any registration effected pursuant to this Section 1(b) without
obligation to any Stockholder.
3
<PAGE>
(ii) In connection with any offering under this Section 1(b)
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such underwriting unless the Stockholder accepts the terms
of the underwriting as agreed upon between the Company and the underwriters
selected by it, and then only in such quantity as will not, in the sole
discretion of the underwriters, jeopardize the success of the offering by the
Company. If in the sole discretion of the representative of the underwriter or
underwriters the registration of all, or part of, the Registrable Shares which
the Stockholder has requested to be included would adversely affect such public
offering, then the Company shall be required to include in the underwriting only
that number of Registrable Shares, if any, which the representative believes may
be sold without causing such adverse effect. If the number of Registrable Shares
to be included in the underwriting in accordance with the foregoing is less than
the total number of shares which the Stockholder has requested to be included,
then, except as described below, the Stockholder shall participate in the
underwriting pro rata based on the number of shares requested by such
Stockholder to be included in such registration (or in any other proportion as
agreed upon by all holders of the Common Stock entitled to registration) and if
a Stockholder would thus be entitled to include more shares than the Stockholder
requested to be registered, the excess shall be allocated among other requesting
holders pro rata based upon their total ownership of Registrable Shares.
(c) Registration Procedures. If and when the Company is required
-----------------------
by the provisions of this Agreement to seek to effect the registration of any of
the Registrable Shares under the Act, the Company shall:
(i) file with the Commission a Registration Statement with
respect to such Registrable Shares and use its diligent best efforts to cause
that Registration Statement to become and remain effective;
(ii) prepare and file with the Commission any amendments and
supplements to the Registration Statement and the prospectus included in the
Registration Statement as may be necessary to keep the Registration Statement
effective for a period of up to 120 days from the effective date;
(iii) furnish to the Stockholder such reasonable number of
copies of the prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as the Stockholder may
reasonably request in order to facilitate the public sale or disposition of the
Registrable Shares owned by the Stockholder; and
(iv) use its diligent best efforts to register or qualify the
Registrable Shares covered by the Registration Statement under the securities or
Blue Sky laws of such states as the Stockholders shall reasonably request, and
do any and all other acts and things that may be necessary or desirable to
enable the Stockholders to consummate the public sale or other disposition in
such jurisdictions of the Registrable Shares owned by the Stockholders;
provided, however, that the Company shall not be
- -------- -------
4
<PAGE>
required in connection with this Section 1(c) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction nor register or qualify the securities in any state which as a
condition to such registration or qualification would impose restrictions or
other conditions on the Company or any of its officers, directors or
shareholders (including with respect to any shares held by such persons or
entities) unless such restrictions or other conditions are approved by the party
adversely affected.
If the Company has delivered preliminary or final prospectuses to the
Stockholder and after having done so the prospectus is amended to comply with
the requirements of the Act, the Company shall promptly notify the Stockholder
and, if requested, the Stockholder shall immediately cease making offers of
Registrable Shares and return all prospectuses to the Company. The Company
shall promptly provide the Stockholder with revised prospectuses to permit the
Stockholder to resume making offers of the Registrable Shares.
(d) Allocation of Expenses. The Company will pay all Registration
----------------------
Expenses of all registrations under this Agreement. For purposes of this Section
1, the term "Registration Expenses" shall mean all expenses incurred by the
Company in complying with this Section 1, including, without limitation, all
registration and filing fees, exchange listing fees, printing expenses, fees and
disbursements of counsel for the Company, state Blue Sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration, but excluding underwriting discounts and selling commissions
attributable to the Registrable Shares and the fees and expenses of the
Stockholder's own counsel and accountants, which shall be borne by the
Stockholder.
(e) Indemnification. In the event of any registration of any of
---------------
the Registrable Shares under the Act, pursuant to this Agreement, the Company
will indemnify and hold harmless the Stockholder against any losses, claims,
damages or liabilities, joint or several, to which the Stockholder may become
subject under the Act, the Exchange Act, state securities laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement of any material
fact contained in any Registration Statement under which such Registrable Shares
were registered under the Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or supplement to such
Registration Statement, or arise out of or are based upon the omission to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse the
Stockholder for any legal or any other expenses reasonably incurred by the
Stockholder in connection with investigating and defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
-------- -------
liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon any untrue statement or
omission made in such Registration Statement, preliminary prospectus or
prospectus, or any such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
the Stockholder
5
<PAGE>
specifically for use in the preparation thereof, or as a result of the failure
of the Stockholder, or any agent of the Stockholder, to deliver any amendments
and supplements to any Registration Statement and the prospectus included in any
such Registration Statement.
In the event of any registration of any of the Registrable Shares
under the Act pursuant to this Agreement, the Stockholder will indemnify and
hold harmless the Company, each of its directors and officers and each person,
if any, who controls the Company within the meaning of the Act or the Exchange
Act, against any losses, claims, damages or liabilities, joint or several, to
which the Company, such directors and officers, or controlling person may become
subject under the Act, the Exchange Act, state securities laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement of a material fact
contained in any Registration Statement under which such Registrable Shares were
registered under the Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or supplement to the
Registration Statement, or arise out of or are based upon any omission to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, if the statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company by the Stockholder, or any agent thereof, specifically for use in
connection with the preparation of such Registration Statement, prospectus,
amendment or supplement, and the Stockholder will reimburse the Company, each of
its directors and officers, and each controlling person, severally and not
jointly, for any legal or other expenses reasonably incurred by the Company,
each director and officer, and each controlling person in connection with
investigating and defending any such loss, claim, damage, liability or action.
Each party entitled to indemnification under this Section 1(e) (the
"Indemnified Party") shall give notice to the Party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld or delayed); and, provided, further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 1, except when material
prejudice to the Indemnifying Party shall have resulted from the failure to give
such notice. The Indemnified Party may participate in such defense at such
party's expense. No Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof, the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation.
6
<PAGE>
(f) Contribution. In order to provide for just and equitable
------------
contribution in circumstances under which the indemnity contemplated by Section
1(e) of this Agreement is for any reason not available, the parties required to
indemnify by the terms thereof shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity agreement incurred by the Company, any seller of Registrable
Securities and one or more of the underwriters, except to the extent that
contribution is not permitted under Section 11(f) of the Act. In determining
the amounts which the respective parties shall contribute, there shall be
considered the relative benefits received by each party from the offering of the
Registrable Securities (taking into account the portion of the proceeds of the
offering realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was asserted,
the opportunity to correct and prevent any statement or omission and any other
equitable considerations appropriate under the circumstances. The Company and
each Person selling securities agree with each other that no seller of
Registrable Securities shall be required to contribute any amount in excess of
the amount such seller would have been required to pay to an indemnified party
if the indemnity under Section 1(e) of this Agreement were available. The
Company and each such seller agree with each other and the underwriters of the
Registrable Securities, if requested by such underwriters, that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation (even if the underwriters were treated as one entity for such
purpose) or for the underwriters' portion of such contribution to exceed the
percentage that the underwriting discount bears to the initial public offering
price of the Registrable Securities. For purposes of this Section (f), each
Person, if any, who controls an underwriter within the meaning of Section 15 of
the Act shall have the same rights to contribution as such underwriter, and each
director and each officer of the Company who signed the registration statement,
and each Person, if any, who controls the Company or a seller of Registrable
Securities within the meaning of Section 15 of the Act shall have the same
rights to contribution as the Company or a seller of Registrable Securities, as
the case may be.
(g) Rule 144. The Company covenants that it will file the reports
--------
required to be filed by it under the Act and the Exchange Act and the rules and
regulations adopted by the Commission thereunder, and it will take such further
action as the Stockholders may reasonably request, all to the extent required
from time to time to enable the Stockholders to sell shares of Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (ii) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any Stockholder, the
Company shall provide a written statement as to whether it has complied with
such requirements.
(h) Information by Stockholder. The Stockholder shall promptly
--------------------------
furnish to the Company such information regarding the Stockholder and the
distribution proposed by the Stockholder as the Company may request in writing
and as
7
<PAGE>
shall be required in connection with any registration, qualification or
compliance referred to in this Section 1.
(i) "Stand-Off" Agreement. The Stockholder, if requested by the
---------------------
Company and/or an underwriter of Common Stock or other securities of the
Company, shall agree not to sell or otherwise transfer or dispose of any
Registrable Shares or other securities of the Company held by the Stockholder
for a specified period of time (not to exceed 90 days, unless requested by such
Underwriter, in which case such specified period of time shall not exceed 180
days), before or after the effective date of a Registration Statement; provided,
however, that the Stockholder shall not be required to refrain from selling a
larger percentage of the Registrable Shares than the similarly determined
percentage of any other person whose shares are included in the Registration
Statement; and provided, further that the foregoing shall not in any way be
-------- -------
construed to limit or otherwise negatively affect the piggyback registration
rights granted to any Stockholder pursuant to Section 1(b) of this Agreement or
the "tag-along" rights granted to the Lins Family pursuant to Section 3 of that
certain Stockholders Agreement, dated as of the date hereof, among Warburg,
Tevecap and the Lins Family. Such agreement shall be in writing in a form
satisfactory to the Company and such underwriter. The Company may impose stop
transfer instructions with respect to the Registrable Shares or other securities
subject to the foregoing restriction until the end of the stand-off period.
2. INFORMATION AS TO COMPANY AND RELATED COVENANTS.
-----------------------------------------------
(a) Inspection. From and after the date hereof, the Company will
----------
permit each Stockholder, its nominee, assignee or its representative, so long as
such Stockholder continues to hold at least five percent (5%) of the outstanding
shares of Common Stock (for the purposes of this Section 2(a) the Lins Family
shall be considered to be one Stockholder), to visit and inspect any of the
properties of the Company, to examine all its books of account, records, reports
and other papers not contractually required of the Company to be confidential or
secret, to make copies and extracts therefrom, and to discuss its affairs,
finances and accounts with its officers, directors, key employees and
independent public accountants or any of them (and by this provision the Company
authorizes said accountants to discuss with said Stockholder, its nominee,
assign and representatives the finances and affairs of the Company and its
Subsidiaries), all at such reasonable times and as often as may be reasonably
requested, provided that the business of the Company is not unreasonably
interfered with.
(b) Confidentiality. The information and other material furnished
---------------
under or in connection with this Agreement (whether furnished before or after
the date hereof) constitutes or contains confidential business, financial or
other information of the Company or its Subsidiaries, and each Stockholder
covenants for
8
<PAGE>
itself and its directors, officers, partners and stockholders that it will use
due care to prevent its respective officers, directors, employees, counsel,
accountants and other authorized representatives from using or disclosing such
information in any manner materially detrimental to the Company; provided,
--------
however, that the Stockholder may disclose or deliver any information or other
- -------
material disclosed to or received by the Stockholder should such disclosure or
delivery be required by law or legal process.
3. INTERPRETATION OF THIS AGREEMENT.
--------------------------------
(a) Terms Defined. As used in this Agreement, the following
-------------
terms have the respective meaning set forth below:
"Act": means the Securities Act of 1933, as amended, or any
---
similar federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
"Affiliate": means any person or entity, directly or indirectly,
---------
controlling, controlled by or under common control with such person or entity.
"Commission": means the Securities and Exchange Commission, or
----------
any other federal agency at the time administering the Act.
"Common Stock": means the shares of common stock, par value $.01
------------
per share, of the Company.
"Exchange Act": means the Securities Exchange Act of 1934, as
------------
amended, or any similar federal statute, and the rules and regulations of the
Commission issued under the Exchange Act, as they each may, from time to time,
be in effect.
"Initial Public Offering": occurs the date on which the Company
-----------------------
completes an initial underwritten public offering of shares of its Common Stock
pursuant to an effective Registration Statement.
"Person": means an individual, partnership, joint-stock company,
------
corporation, trust or unincorporated organization, and a government or agency or
political subdivision thereof.
"Registration Expenses": means the expenses described in Section
---------------------
1(d).
"Registrable Shares": means (A) shares of Common Stock issued to
------------------
the Stockholders, (B) any additional shares of Common Stock acquired by the
Stockholders, (C) any shares of Common Stock subject to vested options or
warrants held by the Stockholders, and (D) any capital stock of the Company
issued as a dividend or other distribution with respect to, or in exchange for
or in replacement of, the shares of Common Stock referred to in clauses (A), (B)
or (C) above (other than shares owned by Requesting Stockholder(s) that would be
exempt at such
9
<PAGE>
time from the registration requirements of the Act, whether pursuant to the
provisions of Rule 144 under the Act or otherwise).
"Registration Statement": means a registration statement filed by
----------------------
the Company with the Commission under the Act for a public offering and sale of
securities of the Company (other than any registration statement on Form S-4 or
Form S-8, or their successors, or any other form for a limited purpose, or any
registration statement covering only securities proposed to be issued in
exchange for securities or assets of another company or entity).
"Subsidiary": means a corporation of which the Company owns,
----------
directly or indirectly, more than fifty percent (50%) of the voting stock.
(b) Accounting Principles. Where the character or amount of any
---------------------
asset or amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other accounting computation
is required to be made for the purposes of this Agreement, this shall be done in
accordance with U.S. generally accepted accounting principles at the time in
effect, to the extent applicable, except where such principles are inconsistent
with the requirements of this Agreement.
(c) Directly or Indirectly. Where any provision in this
----------------------
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person.
(d) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
its conflict of laws rules.
(e) Jurisdiction and Venue. Any suit, action or proceeding
----------------------
against any party to this Agreement arising out of or relating to this Agreement
or any transaction contemplated hereby may only be brought in any Federal or
State court located in the State of Delaware, and each such party hereby submits
to the exclusive jurisdiction of such courts for the purpose of any such suit,
action or proceeding. To the extent that service of process by mail is permitted
by applicable law, each such party irrevocably consents to the service of
process in any such suit, action or proceeding in such courts by the mailing of
such process by registered or certified mail, postage prepaid, at its address
for notices provided for below. Each such party irrevocably agrees not to assert
any objection which it may ever have to the laying of venue of any such suit,
action or proceeding in any Federal or State court located in the State of
Delaware, and any claim that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum. Each party to this
Agreement agrees not to bring any action, suit or proceeding against any other
party arising out of or relating to this Agreement or any transaction
contemplated hereby except in a Federal or State court in the State of Delaware.
10
<PAGE>
(f) Section Headings. The headings of the sections and
----------------
subsections of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part thereof.
4. MISCELLANEOUS.
-------------
(a) Effective Date. This Agreement shall be effective
--------------
automatically upon consummation of the Initial Public Offering.
(b) Notices.
-------
(i) All communications under this Agreement shall be in
writing and shall be delivered by hand delivery, mailed by overnight courier or
by registered or certified mail, postage prepaid, or by facsimile transmission:
(A) if to any of the Stockholders, at the address of
such Stockholder as set forth opposite their signature hereto, or at such other
address as the Stockholder may have furnished the Company in writing; and
(B) if to the Company, at c/o ITSA-Inter continental
Telecomunicacoes Ltda., SCS, Quadra 07-B1.A, Ed. Executive Tower-Sala 601,
70.300-911 Brasilia-DF, Brazil, telecopy number 011-55-61-323-5660 marked for
the attention of the President of the Company, or at such other address as it
may have furnished in writing to each of the Stockholders.
(ii) Any notice so addressed shall be deemed to be given: if
delivered by hand, on the date of such delivery by independent courier; if
mailed by registered or certified mail, on the third business day after the date
of such mailing; and if by facsimile transmission, upon confirmation of receipt.
(c) Expenses and Taxes. The Company will pay, and save each
------------------
Stockholder harmless from any and all liabilities (including interest and
penalties) with respect to, or resulting from any delay or failure in paying,
stamp and other taxes (other than income taxes), if any, which may be payable or
determined to be payable on the execution and delivery of this Agreement.
(d) Reproduction of Documents. This Agreement and all documents
-------------------------
relating thereto, including, without limitation, (i) consents, waivers and
modifications which may hereafter be executed, (ii) documents received by each
Stockholder pursuant hereto and (iii) financial statements, certificates and
other information previously or hereafter furnished to each Stockholder, may be
reproduced by each Stockholder by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and each Stockholder
may destroy any original document so reproduced. All parties hereto agree and
stipulate that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not
11
<PAGE>
such reproduction was made by each Stockholder in the regular course of
business) and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence.
(e) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the heirs, legal representatives, successors and
assigns of each of the parties. Each Stockholder may assign all or any portion
of its rights herein to any purchaser or other acquiror of some or all of the
capital stock of the Company purchased by it; provided, however, that the
-------- -------
Company is furnished within a reasonable time of its request, such information
as it shall reasonably request relating to such assignees.
(f) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
(g) Amendment and Waiver. This Agreement may be amended, and the
--------------------
observance of any term of this Agreement may be waived, with (and only with) the
written consent of the Company and holders of a majority of the shares held by
the Stockholders; provided that any amendment which adversely affects the rights
--------
of any Stockholder shall be binding on such Stockholder only if such Stockholder
consents in writing to such amendment.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first above written.
<TABLE>
<CAPTION>
<S> <C>
TV FILME, INC.
By _______________________________________
Name:
Title:
Address for Warburg, Pincus WARBURG, PINCUS INVESTORS, L.P.
Investors, L.P.:
466 Lexington Avenue By: Warburg, Pincus & Co., Inc.,
New York, New York 10017 its general partner
Telecopy No.: 212-878-9351
Attention: Douglas M. Karp By:_______________________________________
Name:
Title:
Address for Tevecap S.A.:
Televisao Abril TEVECAP S.A.
Rua Do Rocio 313
Sao Paulo, SP 04552-904, Brazil By:_______________________________________
Attention: Lues Carlos Baliero, Name:
General Counsel Title:
By:_______________________________________
Name:
Title:
Address for Maria Nise Studart Lins,
Hermano Lins, Carlos Andre Lins and __________________________________________
Maria Veronica Lins: Maria Nise Studart Lins de Albuquerque
c/o TV Filme, Inc.
SCS Quadra 07-B1.A __________________________________________
Ed. Executive Tower, Sala 601 Hermano Studart Lins de Albuquerque
70.300-911 Brasilia-DF, Brazil
Attention: Hermano Studart Lins de __________________________________________
Albuquerque Carlos Andre Studart Lins de Albuquerque
__________________________________________
Address for Donald Deely Pearson: Maria Veronica Studart Lins de Albuquerque
c/o IVP
Rua Bandeira Paulista, 600 __________________________________________
Conj. 64 Sao Paulo SP 04532-001 Donald Deely Pearson
Brazil
__________________________________________
Address for Joseph Wallach: Joseph Wallach
218 N. Bentley
BelAire, CA 90049
</TABLE>
<PAGE>
EXHIBIT 10.4
TV FILME, INC.
FORM OF EMPLOYMENT AGREEMENT
----------------------------
AGREEMENT, dated as of ____________ __, 1996, by and among TV Filme,
Inc., a Delaware corporation ("TV Filme"), ITSA-Intercontinental
Telecomunicacoes Ltda., a Brazilian limitada and subsidiary of TV Filme ("ITSA")
(each of TV Filme and ITSA individually, an "Employer," and together, the
"Employers"), and Hermano Studart Lins de Albuquerque ("Executive").
RECITALS
--------
WHEREAS, Employers, directly and through their Affiliates (as defined
below), are engaged in the subscription television business; and
WHEREAS, TV Filme is contemplating an initial public offering (the
"Initial Public Offering") of shares of its common stock, par value U.S. $.01
per share; and
WHEREAS, effective upon consummation of the Initial Public Offering,
Employers desire to employ Executive, and Executive desires to be employed by
Employers, on the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, the parties agree as follows:
1. Employment and Duties. Employers hereby employ Executive and
---------------------
Executive hereby accepts employment as Chief Executive Officer and Secretary of
TV Filme, and in comparable executive positions at ITSA and, if Employers so
elect, as an executive officer or director of any company in which either or
both Employees holds a majority interest (each such company, together with TV
Filme Servicos de Telecomunicacoes Ltda., being hereinafter referred to
collectively as the "Subsidiaries"). Executive agrees to serve without
additional remuneration in such capacities for the Subsidiaries, with
responsibilities and authority commensurate with the nature of Executive's
responsibility and authority with Employers as the Board of Directors of TV
Filme (the "Board of Directors") may from time to time request, subject to
appropriate authorization by the Affiliates involved and any limitations under
applicable law. Executive shall perform such duties and have such powers and
authority as the Board of Directors shall determine, commensurate with
Executive's position as an executive officer of TV Filme and ITSA, as the case
may be. Executive's services for each of TV Filme and ITSA shall be rendered at
ITSA's principal place of business in Brazil (so long as such principal place of
business is in a location where ITSA is then conducting subscription television
operations), subject to reasonable travel requirements. Executive's failure to
discharge an order or perform a function because Executive reasonably and in
good faith believes such would violate a law or regulation or be dishonest shall
not be deemed a breach by him of his obligations or duties hereunder.
<PAGE>
2. Services and Exclusivity of Services.
------------------------------------
2.1 So long as this Agreement shall continue in effect, Executive
shall devote his full business time and energy to the business, affairs and
interests of Employers and their Subsidiaries and matters related thereto and
shall faithfully and diligently endeavor to promote such business, affairs and
interests.
2.2. Executive may serve as a director or in any other capacity of
any business enterprise, including an enterprise whose activities may involve or
relate to the business of Employers and their Subsidiaries, provided that such
service is expressly approved by the Board of Directors. Executive may make and
manage personal business investments of his choice (provided such investments
are in businesses which do not compete with Employers and their Subsidiaries or
such investments satisfy the standards set forth in the proviso to Section
5.2.1(i) and, in either case, do not require any services on the part of
Executive in the affairs of the companies in which such investments are made)
and may serve in any capacity with any civic, educational or charitable
organization, or any governmental entity or trade association, without seeking
or obtaining approval by the Board of Directors, provided such activities and
service do not materially interfere or conflict with the performance of his
duties hereunder.
3. Compensation, Expenses and Other Benefits.
-----------------------------------------
3.1. Base Salary. Executive shall receive a base salary at a monthly
-----------
rate of U.S. $9,377.34 (U.S. $125,000.00 on an annual basis) (the "Base
Salary"). The Base Salary shall be paid in substantially equal installments
consistent with ITSA's normal payroll schedule, but in no event less frequently
than bi-weekly, subject to any applicable withholding and other taxes. The Base
Salary shall be payable by ITSA in Reals at a rate equal to the U.S. dollar/Real
exchange rate in effect at the time of payment. Executive's Base Salary shall
be reviewed at least annually by the Board of Directors and may be increased but
may not be decreased.
3.2. Bonus. In addition to the Base Salary, Executive shall also be
-----
eligible to receive an annual bonus (the "Bonus"), payable by ITSA in Reals
(calculated in a fashion consistent with paragraph 3.1), in an amount to be
determined in the sole and absolute discretion of the Board of Directors, taking
into consideration, among other things, the financial and operating performance
of TV Filme. The Board of Directors may, in its sole and absolute discretion,
award additional bonuses to Executive on other bases as it deems appropriate
from time to time.
3.3. Stock Options. Executive shall receive, on the date on which
-------------
this Agreement becomes effective, options (the "Options") to purchase 110,000
shares of common stock, par value U.S. $.01 per share, of TV Filme, in
accordance with the terms of the TV Filme, Inc. Stock Option Plan ("Stock Option
Plan") and the Stock Option Agreement, to be entered into by and between
Executive and TV Filme (the "Stock Option Agreement") concurrently with this
Agreement. A form of each of the Stock Option Plan and the Stock Option
Agreement is attached hereto as EXHIBIT A and EXHIBIT B, respectively.
--------- ---------
-2-
<PAGE>
3.4. Expenses. ITSA shall promptly reimburse Executive for all
--------
reasonable expenses incurred by him in connection with the performance of his
services under this Agreement upon presentation of appropriate documentation in
accordance with ITSA's and its Subsidiaries' customary procedures and policies
applicable to its and their senior executives.
3.5. Life Insurance; Disability. TV Filme, Inc. shall obtain (i) a
--------------------------
life insurance policy on the life of Executive in the face amount of $1,000,000,
naming Executive or his designee as the beneficiary, and (ii) a disability
policy covering Executive in the event he becomes disabled, in a monthly amount
equal to 60% of Executive's then-current Base Salary, naming Executive as the
beneficiary thereof.
3.6. Other Benefits. Executive shall be eligible to participate in
--------------
any accident or health plans and any other employee benefit plans (other than
any stock option, life insurance, disability or similar plans) that may from
time to time be provided by TV Filme or ITSA to its executive personnel.
3.7. Vacation. Executive shall be entitled to reasonable vacations,
--------
the timing and duration thereof to be determined by mutual agreement between
Executive and the Board of Directors and shall be entitled to paid holidays
consistent with Employers' practices.
4. Termination.
-----------
4.1. Termination.
-----------
4.1.1. TV Filme may, in its sole and absolute discretion, subject to
the provisions of Section 4.2 hereof and applicable law, terminate Executive's
employment hereunder at any time, with or without "Cause," upon notice of such
termination to Executive.
4.1.2. As used in this Agreement, the following terms shall
have the meaning ascribed to them below:
(i) "Cause" shall have the meaning assigned thereto under the laws of
Brazil.
(ii) "Termination Without Cause" shall mean any termination of
employment of Executive (i) by the Board of Directors for reasons
other than "Cause" or the death of Executive, (ii) by Executive
following the willful and material breach by Employers of their
obligations under Section 1 of this Agreement, which breach is not
cured within 30 days of notice of such breach to the Board of
Directors, or (iii) at the election of the Executive, within 30 days
following a "Change of Control" of TV Filme. For purposes of this
Agreement, a "Change of Control" shall mean the acquisition of more
than 50% of the voting stock of TV Filme by an entity other than a
Stockholder or an Affiliate of such Stockholder, as such terms are
defined in the Stockholders Agreement entered into by and among TV
Filme, Executive and the other parties thereto and dated as of the
date hereof.
-3-
<PAGE>
4.2. Rights upon Termination.
-----------------------
4.2.1. Upon any termination of this Agreement for Cause, TV Filme
shall cause ITSA to pay to Executive, within 10 days following such termination,
any unpaid Base Salary through the date of termination specified in the
termination notice and shall reimburse Executive for reasonable business
expenses incurred prior to the date of termination, subject to the provisions of
Section 3.4 hereof.
4.2.2. Upon termination of this Agreement upon a Termination Without
Cause or because of the death of Executive, TV Filme shall cause ITSA to pay to
Executive (or to his estate, in the case of death) any unpaid Base Salary
through the date of termination specified in the termination notice. In
addition, with respect to a Termination Without Cause, TV Filme shall cause ITSA
to pay to Executive an additional amount equal to an additional 12-months' Base
Salary (the "Severance Payment"). TV Filme shall also cause ITSA to reimburse
Executive for reasonable business expenses incurred prior to the date of
termination, subject to the provisions of Section 3.4 hereof. TV Filme shall
cause ITSA to pay all such amounts in a lump sum within 10 days following such
termination, provided that, at ITSA's option, the Severance Payment may be made
in equal monthly installments over the 12-month period subsequent to the date of
termination specified in the termination notice. If ITSA elects to make such
Severance Payment in equal monthly installments, and if Executive accepts other
employment or engages in his own business during such 12-month period, Executive
shall forthwith notify the Board of Directors, and ITSA shall be entitled to set
off from amounts due Executive under this Section 4.2.2 an amount equal to half
of the amounts paid to Executive in respect of such other employment or business
activity during such 12-month period.
4.2.3. Upon any termination provided for in this Agreement, the
Options granted Executive shall be treated in the manner set forth in the Stock
Option Agreement.
4.2.4. Except as provided herein, Employer shall have no further
liability to Executive under this Agreement in respect of any termination of
this Agreement.
5. Confidentiality and Non-Competition.
-----------------------------------
5.1. Confidentiality. Executive agrees that he will not make use of,
---------------
divulge or otherwise disclose, directly or indirectly, any trade secret or other
confidential information concerning the business, operations, practices, or
financial condition of Employers or any of their Subsidiaries ("Confidential
Information"), which he may have learned as a result of his employment by
Employers or as a stockholder, officer or director of Employers or any of their
Subsidiaries, except to the extent such use or disclosure is (a) necessary to
the performance of this Agreement, (b) required by applicable law, (c)
authorized by Employers or their Subsidiaries, or (d) information which is in
the public domain through no unlawful act of Executive or which Executive
lawfully acquires subsequent to termination of his employment with Employers
from any person not subject to a confidentiality obligation to Employers or
their Subsidiaries. Executive acknowledges and recognizes that the Confidential
Information is essential to the unique nature of Employers' business and for
that reason, all such materials and
-4-
<PAGE>
information shall at all times remain the exclusive property of Employers. Upon
the termination of this Agreement, the physical embodiment of all such
Confidential Information furnished and supplied to Executive during the time of
Executive's employment by Employers shall be returned by Executive to Employers.
Executive, in the event of such termination, will not at any time impart to
anyone or use any such Confidential Information. The provisions of this Section
5.1 shall survive the expiration, suspension or termination, for any reason, of
this Agreement.
5.2. Non-Competition.
---------------
5.2.1. Executive agrees that he shall not, during the Restricted
Period (as defined below), without the prior written consent of the Board of
Directors:
(i) directly or indirectly (whether as a sole proprietor, partner,
venturer, stockholder, director, officer, employee, or in any other capacity as
principal or agent or through any person, corporation, partnership, entity or
employee acting as nominee or agent) conduct or engage in or be interested in or
associated with any person, firm, association, syndicate, partnership, company,
corporation, or other entity which conducts or engages in the subscription
television business in any geographic areas in which Employers or any of their
Subsidiaries are then so engaged in business or propose to engage in business in
accordance with their then-current strategic plans, nor shall Executive
interfere with, disrupt or attempt to disrupt the relationship, contractual or
otherwise, between Employers or any of their Subsidiaries, on the one hand, and
any customer, supplier, lessor, lessee or employee of Employers or any of their
Subsidiaries, on the other hand; provided, however, that this Section 5.2.1(i)
shall not prohibit Executive from owning beneficially or of record not more than
5% of the outstanding equity securities of any entity whose equity securities
are registered under the Securities Act of 1933, as amended, or are listed for
trading on any United States or foreign stock exchange; or
(ii) solicit, induce or attempt to induce any employee of Employers or
any of their Subsidiaries to terminate his or her employment relationship in
order to enter into employment with any business which shall be in competition
with any business conducted by Employers or any of their Subsidiaries between
the date hereof and the end of the Restricted Period.
5.2.2. As used in this Agreement, the term "Restricted Period" shall
mean the period beginning on the Effective Date of this Agreement and ending on
(a) the second anniversary of the date this Agreement is terminated, if this
Agreement is terminated by the Board or Directors for Cause or in the event of a
voluntary termination by Executive of his employment which does not constitute a
Termination Without Cause, or (b) the first anniversary of the date this
Agreement is terminated, in the event a Termination Without Cause occurs.
5.2.3. It is the desire and intent of the parties that the provisions
of this Section 5 shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular portion of this Section 5 shall be
adjudicated to be invalid or unenforceable, this Section 5 shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid
-5-
<PAGE>
or unenforceable, such deletion to apply only with respect to the operation of
this paragraph in the particular jurisdiction in which such adjudication is
made.
5.2.4. If there is a breach or threatened breach of the provisions of
Sections 5.1 or 5.2 of this Agreement, Employers shall be entitled to an
injunction restraining Executive from such breach. Nothing herein shall be
construed as prohibiting Employers from pursuing any other remedies for such
breach or threatened breach.
6. Insurance. Either TV Filme, ITSA or both may, at their election and
---------
for their benefit, insure executive against accidental loss or death, and
Executive shall submit to such physical examination and supply such information
as may be reasonably required in connection therewith.
7. Effective Date. This Agreement shall be effective automatically
--------------
upon consummation of the Initial Public Offering.
8. Indemnification. TV Filme shall indemnify Executive, in his
---------------
capacity as an executive officer and/or director of TV Filme to the fullest
extent permissible under the laws of the State of Delaware, and shall obtain
directors' and officers' reimbursements and liability insurance in connection
therewith. In addition, TV Filme and Executive shall enter into an
Indemnification Agreement (the "Indemnification Agreement"), a form of which is
attached hereto as Exhibit C.
9. Miscellaneous. This Agreement together with the Stock Option Plan,
-------------
the Stock Option Agreement and the Indemnification Agreement: (a) constitute the
entire agreement of the parties with respect to its subject matter and
supersedes all previous agreements or understandings, whether oral or written;
(b) may not be amended or modified except by a written instrument signed by all
the parties; (c) are binding upon and will inure to the benefit of the parties
and their respective successors, transferees, personal representatives, heirs,
beneficiaries and permitted assigns; (d) may be executed in duplicate originals;
and (e) shall be governed by and interpreted in accordance with the laws of
Brazil, without regard to its conflict of laws rules.
10. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand delivery by independent courier service, or by facsimile
transmission, addressed as follows:
If to Executive: c/o TV Filme, Inc.
c/o ITSA-Intercontinental
Telecomunicacoes Ltda.
SCS, Quadra 07-Bl.A
Ed. Executive Tower
Sala 601
70.300-911 Brasilia-DF
Brazil
Attention: Hermano Studart Lins de
Albuquerque
-6-
<PAGE>
If to Employers: TV Filme, Inc.
ITSA-Intercontinental Telecomunicacoes Ltda.
c/o Warburg, Pincus Investors, L.P.
466 Lexington Avenue
10th Floor
New York, New York 10017
Attention: Douglas M. Karp
Chairman of the Board of TV Filme, Inc.
or to such other address as any party hereto may from time to time give notice
of to the other parties in the aforesaid manner. Any notice delivered in the
manner set forth in this Section 8 shall be deemed as of the date of delivery in
the case of hand delivery, and upon confirmation of receipt in the case of
facsimile transmission.
11. Waiver. The failure of any party to exercise any right or remedy
------
under this Agreement shall not constitute a waiver of such right or remedy, and
the waiver of any violation or breach of this Agreement by a party shall not
constitute a waiver of any prior or subsequent violation or breach. No waiver
under this Agreement shall be valid unless in writing and executed by the
waiving party.
12. Severability. If any provision of this Agreement is determined by a
------------
court or other governmental authority to be invalid, illegal or unenforceable,
such invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision of this Agreement. Further,
the provision that is determined to be invalid, illegal or unenforceable shall
be reformed and construed to the extent permitted by law so that it will be
valid, legal and enforceable to the maximum extent possible.
13. Headings. The headings used in this Agreement are included for the
--------
convenience of the parties for reference purposes only and are not to be used in
construing or interpreting this Agreement.
14. No Third Party Beneficiaries. Except as provided herein, this
----------------------------
Agreement shall not be deemed to confer in favor of any third parties any rights
whatsoever as a third-party beneficiary.
15. Successor and Assigns. This Agreement is personal in its nature and
---------------------
none of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder (except for an
assignment or transfer by an Employer to a successor as contemplated by the
following proviso); provided, however, that the provisions hereof shall inure to
-------- -------
the benefit of, and be binding upon and enforceable by, any successor of an
Employer, whether by merger, consolidation, transfer of all or substantially all
of the assets of such Employer, or otherwise, and upon Executive, his heirs,
executors, administrators and legal representatives.
-7-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
TV FILME, INC.
By: _____________________________________
Name:
Title:
ITSA-INTERCONTINENTAL
TELECOMUNICACOES LTDA.
By: _____________________________________
Name:
Title:
EXECUTIVE
_________________________________________
Hermano Studart Lins de Albuquerque
-8-
<PAGE>
EXHIBIT 10.5
TV FILME, INC.
FORM OF EMPLOYMENT AGREEMENT
----------------------------
AGREEMENT, dated as of ____________ __, 1996, by and among TV Filme,
Inc., a Delaware corporation ("TV Filme"), ITSA-Intercontinental
Telecomunicacoes Ltda., a Brazilian limitada and subsidiary of TV Filme ("ITSA")
(each of TV Filme and ITSA individually, an "Employer," and together, the
"Employers"), and Carlos Andre Studart Lins de Albuquerque ("Executive").
RECITALS
--------
WHEREAS, Employers, directly and through their Affiliates (as defined
below), are engaged in the subscription television business; and
WHEREAS, TV Filme is contemplating an initial public offering (the
"Initial Public Offering") of shares of its common stock, par value U.S. $.01
per share; and
WHEREAS, effective upon consummation of the Initial Public Offering,
Employers desire to employ Executive, and Executive desires to be employed by
Employers, on the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, the parties agree as follows:
1. Employment and Duties. Employers hereby employ Executive and
---------------------
Executive hereby accepts employment as President, Chief Operating Officer and
Treasurer of TV Filme, and in comparable executive positions at ITSA and, if
Employers so elect, as an executive officer or director of any company in which
either or both Employees holds a majority interest (each such company, together
with TV Filme Servicos de Telecomunicacoes Ltda., being hereinafter referred to
collectively as the "Subsidiaries"). Executive agrees to serve without
additional remuneration in such capacities for the Subsidiaries, with
responsibilities and authority commensurate with the nature of Executive's
responsibility and authority with Employers as the Board of Directors of TV
Filme (the "Board of Directors") may from time to time request, subject to
appropriate authorization by the Affiliates involved and any limitations under
applicable law. Executive shall perform such duties and have such powers and
authority as the Board of Directors shall determine, commensurate with
Executive's position as an executive officer of TV Filme and ITSA, as the case
may be. Executive's services for each of TV Filme and ITSA shall be rendered at
ITSA's principal place of business in Brazil (so long as such principal place of
business is in a location where ITSA is then conducting subscription television
operations), subject to reasonable travel requirements. Executive's failure to
discharge an order or perform a function because Executive reasonably and in
good faith believes such would violate a law or regulation or be dishonest shall
not be deemed a breach by him of his obligations or duties hereunder.
<PAGE>
2. Services and Exclusivity of Services.
------------------------------------
2.1 So long as this Agreement shall continue in effect, Executive shall
devote his full business time and energy to the business, affairs and interests
of Employers and their Subsidiaries and matters related thereto and shall
faithfully and diligently endeavor to promote such business, affairs and
interests.
2.2. Executive may serve as a director or in any other capacity of any
business enterprise, including an enterprise whose activities may involve or
relate to the business of Employers and their Subsidiaries, provided that such
service is expressly approved by the Board of Directors. Executive may make and
manage personal business investments of his choice (provided such investments
are in businesses which do not compete with Employers and their Subsidiaries or
such investments satisfy the standards set forth in the proviso to Section
5.2.1(i) and, in either case, do not require any services on the part of
Executive in the affairs of the companies in which such investments are made)
and may serve in any capacity with any civic, educational or charitable
organization, or any governmental entity or trade association, without seeking
or obtaining approval by the Board of Directors, provided such activities and
service do not materially interfere or conflict with the performance of his
duties hereunder.
3. Compensation, Expenses and Other Benefits.
-----------------------------------------
3.1. Base Salary. Executive shall receive a base salary at a monthly
-----------
rate of U.S. $9,377.34 (U.S. $125,000.00 on an annual basis) (the "Base
Salary"). The Base Salary shall be paid in substantially equal installments
consistent with ITSA's normal payroll schedule, but in no event less frequently
than bi-weekly, subject to any applicable withholding and other taxes. The Base
Salary shall be payable by ITSA in Reals at a rate equal to the U.S. dollar/Real
exchange rate in effect at the time of payment. Executive's Base Salary shall be
reviewed at least annually by the Board of Directors and may be increased but
may not be decreased.
3.2. Bonus. In addition to the Base Salary, Executive shall also be
-----
eligible to receive an annual bonus (the "Bonus"), payable by ITSA in Reals
(calculated in a fashion consistent with paragraph 3.1), in an amount to be
determined in the sole and absolute discretion of the Board of Directors, taking
into consideration, among other things, the financial and operating performance
of TV Filme. The Board of Directors may, in its sole and absolute discretion,
award additional bonuses to Executive on other bases as it deems appropriate
from time to time.
3.3. Stock Options. Executive shall receive, on the date on which this
-------------
Agreement becomes effective, options (the "Options") to purchase 110,000 shares
of common stock, par value U.S. $.01 per share, of TV Filme, in accordance with
the terms of the TV Filme, Inc. Stock Option Plan ("Stock Option Plan") and the
Stock Option Agreement, to be entered into by and between Executive and TV Filme
(the "Stock Option Agreement") concurrently with this Agreement. A form of each
of the Stock Option Plan and the Stock Option Agreement is attached hereto as
EXHIBIT A and EXHIBIT B, respectively.
- --------- ---------
-2-
<PAGE>
3.4. Expenses. ITSA shall promptly reimburse Executive for all
--------
reasonable expenses incurred by him in connection with the performance of his
services under this Agreement upon presentation of appropriate documentation in
accordance with ITSA's and its Subsidiaries' customary procedures and policies
applicable to its and their senior executives.
3.5. Life Insurance; Disability. TV Filme, Inc. shall obtain (i) a
--------------------------
life insurance policy on the life of Executive in the face amount of $1,000,000,
naming Executive or his designee as the beneficiary, and (ii) a disability
policy covering Executive in the event he becomes disabled, in a monthly amount
equal to 60% of Executive's then-current Base Salary, naming Executive as the
beneficiary thereof.
3.6. Other Benefits. Executive shall be eligible to participate in any
--------------
accident or health plans and any other employee benefit plans (other than any
stock option, life insurance, disability or similar plans) that may from time to
time be provided by TV Filme or ITSA to its executive personnel.
3.7. Vacation. Executive shall be entitled to reasonable vacations, the
--------
timing and duration thereof to be determined by mutual agreement between
Executive and the Board of Directors and shall be entitled to paid holidays
consistent with Employers' practices.
4. Termination.
-----------
4.1. Termination.
-----------
4.1.1. TV Filme may, in its sole and absolute discretion, subject
to the provisions of Section 4.2 hereof and applicable law, terminate
Executive's employment hereunder at any time, with or without "Cause," upon
notice of such termination to Executive.
4.1.2. As used in this Agreement, the following terms shall have
the meaning ascribed to them below:
(i) "Cause" shall have the meaning assigned thereto under the laws
of Brazil.
(ii) "Termination Without Cause" shall mean any termination of
employment of Executive (i) by the Board of Directors for reasons
other than "Cause" or the death of Executive, (ii) by Executive
following the willful and material breach by Employers of their
obligations under Section 1 of this Agreement, which breach is not
cured within 30 days of notice of such breach to the Board of
Directors, or (iii) at the election of the Executive, within 30 days
following a "Change of Control" of TV Filme. For purposes of this
Agreement, a "Change of Control" shall mean the acquisition of more
than 50% of the voting stock of TV Filme by an entity other than a
Stockholder or an Affiliate of such Stockholder, as such terms are
defined in the Stockholders Agreement entered into by and among TV
Filme, Executive and the other parties thereto and dated as of the
date hereof.
-3-
<PAGE>
4.2. Rights upon Termination.
-----------------------
4.2.1. Upon any termination of this Agreement for Cause, TV Filme
shall cause ITSA to pay to Executive, within 10 days following such termination,
any unpaid Base Salary through the date of termination specified in the
termination notice and shall reimburse Executive for reasonable business
expenses incurred prior to the date of termination, subject to the provisions of
Section 3.4 hereof.
4.2.2. Upon termination of this Agreement upon a Termination
Without Cause or because of the death of Executive, TV Filme shall cause ITSA to
pay to Executive (or to his estate, in the case of death) any unpaid Base Salary
through the date of termination specified in the termination notice. In
addition, with respect to a Termination Without Cause, TV Filme shall cause ITSA
to pay to Executive an additional amount equal to an additional 12-months' Base
Salary (the "Severance Payment"). TV Filme shall also cause ITSA to reimburse
Executive for reasonable business expenses incurred prior to the date of
termination, subject to the provisions of Section 3.4 hereof. TV Filme shall
cause ITSA to pay all such amounts in a lump sum within 10 days following such
termination, provided that, at ITSA's option, the Severance Payment may be made
in equal monthly installments over the 12-month period subsequent to the date of
termination specified in the termination notice. If ITSA elects to make such
Severance Payment in equal monthly installments, and if Executive accepts other
employment or engages in his own business during such 12-month period, Executive
shall forthwith notify the Board of Directors, and ITSA shall be entitled to set
off from amounts due Executive under this Section 4.2.2 an amount equal to half
of the amounts paid to Executive in respect of such other employment or business
activity during such 12-month period.
4.2.3. Upon any termination provided for in this Agreement, the
Options granted Executive shall be treated in the manner set forth in the Stock
Option Agreement.
4.2.4. Except as provided herein, Employer shall have no further
liability to Executive under this Agreement in respect of any termination of
this Agreement.
5. Confidentiality and Non-Competition.
-----------------------------------
5.1. Confidentiality. Executive agrees that he will not make use of,
---------------
divulge or otherwise disclose, directly or indirectly, any trade secret or other
confidential information concerning the business, operations, practices, or
financial condition of Employers or any of their Subsidiaries ("Confidential
Information"), which he may have learned as a result of his employment by
Employers or as a stockholder, officer or director of Employers or any of their
Subsidiaries, except to the extent such use or disclosure is (a) necessary to
the performance of this Agreement, (b) required by applicable law, (c)
authorized by Employers or their Subsidiaries, or (d) information which is in
the public domain through no unlawful act of Executive or which Executive
lawfully acquires subsequent to termination of his employment with Employers
from any person not subject to a confidentiality obligation to Employers or
their Subsidiaries. Executive acknowledges and recognizes that the Confidential
Information is essential to the unique nature of Employers' business and for
that reason, all such materials and
-4-
<PAGE>
information shall at all times remain the exclusive property of Employers. Upon
the termination of this Agreement, the physical embodiment of all such
Confidential Information furnished and supplied to Executive during the time of
Executive's employment by Employers shall be returned by Executive to Employers.
Executive, in the event of such termination, will not at any time impart to
anyone or use any such Confidential Information. The provisions of this Section
5.1 shall survive the expiration, suspension or termination, for any reason, of
this Agreement.
5.2. Non-Competition.
---------------
5.2.1. Executive agrees that he shall not, during the Restricted
Period (as defined below), without the prior written consent of the Board of
Directors:
(i) directly or indirectly (whether as a sole proprietor, partner,
venturer, stockholder, director, officer, employee, or in any other capacity as
principal or agent or through any person, corporation, partnership, entity or
employee acting as nominee or agent) conduct or engage in or be interested in or
associated with any person, firm, association, syndicate, partnership, company,
corporation, or other entity which conducts or engages in the subscription
television business in any geographic areas in which Employers or any of their
Subsidiaries are then so engaged in business or propose to engage in business in
accordance with their then-current strategic plans, nor shall Executive
interfere with, disrupt or attempt to disrupt the relationship, contractual or
otherwise, between Employers or any of their Subsidiaries, on the one hand, and
any customer, supplier, lessor, lessee or employee of Employers or any of their
Subsidiaries, on the other hand; provided, however, that this Section 5.2.1(i)
shall not prohibit Executive from owning beneficially or of record not more than
5% of the outstanding equity securities of any entity whose equity securities
are registered under the Securities Act of 1933, as amended, or are listed for
trading on any United States or foreign stock exchange; or
(ii) solicit, induce or attempt to induce any employee of
Employers or any of their Subsidiaries to terminate his or her employment
relationship in order to enter into employment with any business which shall be
in competition with any business conducted by Employers or any of their
Subsidiaries between the date hereof and the end of the Restricted Period.
5.2.2. As used in this Agreement, the term "Restricted Period"
shall mean the period beginning on the Effective Date of this Agreement and
ending on (a) the second anniversary of the date this Agreement is terminated,
if this Agreement is terminated by the Board or Directors for Cause or in the
event of a voluntary termination by Executive of his employment which does not
constitute a Termination Without Cause, or (b) the first anniversary of the date
this Agreement is terminated, in the event a Termination Without Cause occurs.
5.2.3. It is the desire and intent of the parties that the
provisions of this Section 5 shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular portion of this Section 5
shall be adjudicated to be invalid or unenforceable, this Section 5 shall be
deemed amended to delete therefrom the portion thus adjudicated to be invalid
-5-
<PAGE>
or unenforceable, such deletion to apply only with respect to the operation of
this paragraph in the particular jurisdiction in which such adjudication is
made.
5.2.4. If there is a breach or threatened breach of the provisions
of Sections 5.1 or 5.2 of this Agreement, Employers shall be entitled to an
injunction restraining Executive from such breach. Nothing herein shall be
construed as prohibiting Employers from pursuing any other remedies for such
breach or threatened breach.
6. Insurance. Either TV Filme, ITSA or both may, at their election and
---------
for their benefit, insure Executive against accidential loss or death, and
Executive shall submit to such physical examination and supply such information
as may be reasonably required in connection therewith.
7. Effective Date. This Agreement shall be effective automatically upon
--------------
consummation of the Initial Public Offering.
8. Indemnification. TV Filme shall indemnify Executive, in his capacity
---------------
as an executive officer and/or director of TV Filme to the fullest extent
permissible under the laws of the State of Delaware, and shall obtain directors'
and officers' reimbursements and liability insurance in connection therewith. In
addition, TV Filme and Executive shall enter into an Indemnification Agreement
(the "Indemnification Agreement"), a form of which is attached hereto as
Exhibit C.
- ---------
9. Miscellaneous. This Agreement together with the Stock Option Plan,
-------------
the Stock Option Agreement and the Indemnification Agreement: (a) constitute the
entire agreement of the parties with respect to its subject matter and
supersedes all previous agreements or understandings, whether oral or written;
(b) may not be amended or modified except by a written instrument signed by all
the parties; (c) are binding upon and will inure to the benefit of the parties
and their respective successors, transferees, personal representatives, heirs,
beneficiaries and permitted assigns; (d) may be executed in duplicate originals;
and (e) shall be governed by and interpreted in accordance with the laws of
Brazil, without regard to its conflict of laws rules.
10. Notices. Any notice required or permitted to be given under this
-------
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand delivery by independent courier service, or by facsimile
transmission, addressed as follows:
If to Executive: c/o TV Filme, Inc.
c/o ITSA-Intercontinental
Telecomunicacoes Ltda.
SCS, Quadra 07-B1.A
Ed. Executive Tower
Sala 601
70.300-911 Brasilia-DF
Brazil
Attention: Carlos Andre' Studart Lins de Albuquerque
-6-
<PAGE>
If to Employers: TV Filme, Inc.
ITSA-Intercontinental Telecomunicacoes Ltda.
c/o Warburg, Pincus Investors, L.P.
466 Lexington Avenue
10th Floor
New York, New York 10017
Attention: Douglas M. Karp
Chairman of the Board of TV Filme, Inc.
or to such other address as any party hereto may from time to time give notice
of to the other parties in the aforesaid manner. Any notice delivered in the
manner set forth in this Section 8 shall be deemed as of the date of delivery in
the case of hand delivery, and upon confirmation of receipt in the case of
facsimile transmission.
11. Waiver. The failure of any party to exercise any right or remedy
------
under this Agreement shall not constitute a waiver of such right or remedy, and
the waiver of any violation or breach of this Agreement by a party shall not
constitute a waiver of any prior or subsequent violation or breach. No waiver
under this Agreement shall be valid unless in writing and executed by the
waiving party.
12. Severability. If any provision of this Agreement is determined by a
------------
court or other governmental authority to be invalid, illegal or unenforceable,
such invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision of this Agreement. Further,
the provision that is determined to be invalid, illegal or unenforceable shall
be reformed and construed to the extent permitted by law so that it will be
valid, legal and enforceable to the maximum extent possible.
13. Headings. The headings used in this Agreement are included for the
--------
convenience of the parties for reference purposes only and are not to be used in
construing or interpreting this Agreement.
14. No Third Party Beneficiaries. Except as provided herein, this
----------------------------
Agreement shall not be deemed to confer in favor of any third parties any rights
whatsoever as a third-party beneficiary.
15. Successor and Assigns. This Agreement is personal in its nature and
---------------------
none of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder (except for an
assignment or transfer by an Employer to a successor as contemplated by the
following proviso); provided, however, that the provisions hereof shall inure to
-------- -------
the benefit of, and be binding upon and enforceable by, any successor of an
Employer, whether by merger, consolidation, transfer of all or substantially all
of the assets of such Employer, or otherwise, and upon Executive, his heirs,
executors, administrators and legal representatives.
-7-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
TV FILME, INC.
By:-------------------------
Name:
Title:
ITSA-INTERCONTINENTAL
TELECOMUNICACOES LTDA.
By:-------------------------
Name:
Title:
EXECUTIVE
----------------------------------------
Carlos Andre Studart Lins de Albuquerque
-8-
<PAGE>
EXHIBIT 10.6
TV FILME, INC.
FORM OF EMPLOYMENT AGREEMENT
----------------------------
AGREEMENT, dated as of ___________, 1996, between TV Filme, Inc., a
Delaware corporation ("Employer"), and Alvaro J. Aguirre ("Executive").
RECITALS
--------
Employer, directly and through its Affiliates (as defined below), is
engaged in the subscription television business. Employer desires to employ
Executive, and Executive desires to be employed by Employer, on the terms and
conditions set forth in this Agreement.
ACCORDINGLY, in consideration of the mutual covenants and agreements
contained in this Agreement, the parties agree as follows:
1. Employment and Duties. Employer hereby employs Executive and
---------------------
Executive hereby accepts employment as Chief Financial Officer of Employer and,
if Employer so elects, as an executive officer of any of the direct or indirect
subsidiaries or affiliates of Employer (such direct or indirect subsidiaries or
affiliates, the "Affiliates"). Executive agrees to serve without additional
remuneration in such capacities for the Affiliates, with responsibilities and
authority commensurate with the nature of Executive's responsibility and
authority with Employer as the Board of Directors of Employer (the "Board of
Directors") may from time to time request, subject to appropriate authorization
by the Affiliates involved and any limitations under applicable law. Executive
shall perform such duties and have such powers and authority as the Board of
Directors shall determine, commensurate with Executive's position as an
executive officer of Employer. Executive's services shall be rendered at
Employer's principal place of business in Brazil, subject to reasonable travel
requirements.
2. Services and Exclusivity of Services.
------------------------------------
2.1 So long as this Agreement shall continue in effect,
Executive shall devote his full business time and energy to the business,
affairs and interests of Employer and its Affiliates and matters related thereto
and shall faithfully and diligently endeavor to promote such business, affairs
and interests.
2.2. Executive may make and manage personal business
investments of his choice (provided such investments are in businesses which do
not compete with Employer and its Affiliates or such investments satisfy the
standards set forth in Section 5.2 and, in either case, do not require any
services on the part of Executive in the affairs of the companies in which such
investments are made) and may serve in any capacity with any civic, educational
or charitable organization, or any governmental entity or trade association,
without seeking or obtaining approval by the Board of Directors of Employer,
provided such activities and service do not materially interfere or conflict
with the performance of his duties hereunder.
<PAGE>
3. Compensation, Expenses, Board Membership and Other Benefits.
-----------------------------------------------------------
3.1. Base Salary. During the Term (as defined in Section
-----------
4.1), Executive shall receive a base salary at an annual rate of U.S. $125,000
per annum (the "Base Salary"), payable in U.S. dollars. The Base Salary shall be
paid in substantially equal installments consistent with Employer's normal
payroll schedule, but in no event less frequently than bi-weekly, subject to any
applicable withholding and other taxes including deductions described in Section
3.6. Executive's Base Salary shall be reviewed at least annually by the Board of
Directors and may be increased but may not be decreased.
3.2. Bonus. In addition to the Base Salary, Executive
-----
shall also be eligible to receive an annual bonus (the "Bonus") in December of
each year payable in U.S. dollars in an amount to be determined in the sole and
absolute discretion of the Board of Directors of Employer, without participation
from Executive, taking into consideration, among other things, the financial and
operating performance of Employer. Such Bonus shall not be based upon any prior
Bonus. The Bonus payable for the period commencing on the date hereof and ending
December 31, 1996 shall be U.S. $125,000. The Board of Directors may, in its
sole and absolute discretion, award additional bonuses to Executive on any other
basis as it deems appropriate from time to time. Any such Bonus or additional
bonuses shall be payable in U.S. dollars.
In addition to the foregoing, Executive shall be entitled to
receive a one-time bonus (the "Signing Bonus") in the amount of U.S. $50,000,
payable upon execution of this Agreement.
3.3. Stock Options. Executive shall receive, on the
Effective Date (as defined herein), options (the "Options") to purchase 110,000
shares of common stock, par value U.S. $.01 per share (the "Common Stock"), of
Employer at an exercise price of $11.00 per share (after giving effect to the
Restructuring as described in the Prospectus forming a part of the Registration
Statement on Form S-1, Registration No. 333-4512), in accordance with the terms
of the TV Filme, Inc. Stock Option Plan and the Stock Option Agreement to be
entered into by and between Executive and Employer (the "Stock Option
Agreement"), forms of which are attached hereto as EXHIBIT A and EXHIBIT B,
--------- ---------
respectively.
3.4. Expenses. Employer shall promptly reimburse
--------
Executive for all reasonable expenses incurred by him in connection with the
performance of his services under this Agreement upon presentation of
appropriate documentation in accordance with Employer's and its Affiliates'
customary procedures and policies applicable to its and their senior executives,
including but not limited to the following:
(i) Relocation Expenses. Employer will pay the following
-------------------
relocation expenses incurred by Executive:
(A) health status assessments for Executive and his
spouse and any necessary vaccinations and inoculations prior to departing
from the U.S.;
-2-
<PAGE>
(B) expenses for obtaining the necessary passport, work
permit and visa;
(C) reasonable moving-related expenses incurred by
Executive in connection with his relocation to Brazil; and
(D) upon the termination of Executive's employment
hereunder, all reasonable moving-related expenses incurred by Executive in
connection with his repatriation to the United States and any costs
incurred by Executive in connection with an early termination of the lease
for Executive's primary residence in Brazil; provided, however, that
Employer shall not be required to pay such expenses or costs if Executive
is terminated for Cause (as defined herein);
(ii) Travel Expenses to U.S. Employer will reimburse
-----------------------
Executive for travel expenses incurred by Executive in connection with at least
an aggregate of 12 business and personal trips to the United States per year;
and
(iii) Telephone Expenses. Employer will reimburse
------------------
Executive for personal telephone expenses incurred by Executive in amounts to be
agreed upon by the parties.
3.5. Foreign Housing Allowance. Executive shall be
-------------------------
entitled to reimbursement from Employer of costs of rental housing equal to
$1,500 per month throughout the Term (as defined herein).
3.6. Tax Equalization Policy. As long as Executive is a
-----------------------
resident of Brazil, a hypothetical tax will be deducted from the Salary. The
hypothetical federal income tax at the Executive's initial Base Salary of
$125,000 will be approximately U.S. $32,000 or approximately U.S. $2,700 per
month, and will be adjusted from time to time based on prevailing tax rates. The
Bonus and Signing Bonus will be taxed at the time of payment. For the Term, the
accounting firm of Ernst & Young or such other firm of independent accountants
as shall be reasonably acceptable to Executive and Employer (the "Accountants")
will prepare and assist Executive in filing his foreign and United States income
tax returns and will provide Employer with a statement of the tax liability on
Company-earned income, which will then be paid by Employer. Upon completion of
such returns, a tax equalization statement will be prepared by the Accountants
to compute Executive's stay-at-home tax. The stay-at-home tax is equivalent to
the income tax that would have been incurred on United States income assuming a
Florida domicile (exclusive of expatriate-related premiums, allowances, foreign
income tax exclusions, moving, relocation, etc.). If the stay-at-home tax is
less than the total of the actual income tax incurred and the hypothetical tax
withheld, the difference will be reimbursed to Executive by Employer. The fees
and expenses of the Accountants shall be borne by Employer.
3.7. Automobile. Employer will provide Executive with use
----------
of an automobile in Brazil. Required costs for maintenance, insurance and fees
for the automobile
-3-
<PAGE>
shall be paid by Employer. Executive will be responsible for normal operating
expenses, including fuel and oil.
3.8. Life Insurance; Disability. Employer shall obtain
--------------------------
(i) a life insurance policy on the life of Executive in the face amount equal to
$1,000,000 (the "Life Insurance Benefit") naming Executive or his designee as
the beneficiary and (ii) a disability policy covering Executive in the event he
becomes disabled, in a monthly amount equal to 60% of Executive's then-current
monthly Base Salary (the "Disability Benefit") naming Executive as the
beneficiary.
3.9. Member of the Board of Directors of Employer.
--------------------------------------------
Employer shall nominate for election Executive to the Board of Directors
throughout the Term. Upon termination of Executive's employment with Employer
for any reason, Executive shall promptly resign as a member of the Board of
Directors of Employer and all other officer and director positions held by him
of Employer and the Affiliates.
3.10. Other Benefits. Executive shall be eligible to
---------------
participate in any Brazilian accident or health plans and any other employee
benefit plans (other than any life insurance, disability, stock option or
similar plans) ("Employee Benefit Plans") that may from time to time be provided
by Employer to its executive personnel. In addition, Executive shall be entitled
to participate in U.S. Employee Benefit Plans as customarily offered by
comparable U.S. companies. Executive's spouse and children also shall be
entitled to participate in such U.S. Employee Benefit Plans.
4. Term and Termination.
--------------------
4.1. Term. The term of Executive's employment hereunder
----
(the "Term") shall commence on the date hereof (the "Effective Date") and shall
end on December 31, 1998, unless earlier terminated as hereinafter set forth.
4.2. Definitions. As used in this Agreement, the
-----------
following terms shall have the meaning ascribed to them below:
(i) "Cause" shall mean (A) a determination by the Board
of Directors, as to which Executive shall be given notice, that
Executive has ceased materially to perform his duties hereunder (other
than as a result of his incapacity due to physical or mental illness
or injury), which failure amounts to an intentional and extended
neglect of his duties hereunder, (B) Executive's having been convicted
of a felony, (C) fraud, embezzlement or misappropriation of funds of
Employer by Executive or (D) a willful and material breach by
Executive of his obligations hereunder, which breach is not cured
within 30 days after notice of same is given to Executive by Employer.
(ii) "Disabled" or "Disability" shall mean the physical or
mental incapacity of, or injury to, Executive such that he is unable
to perform the services required of
-4-
<PAGE>
him hereunder and such inability to perform continues for a period in
excess of six months and is continuing at the time notice is given.
(iii) "Termination Without Cause" shall mean any termination of
employment of Executive (i) by Employer for reasons other than for
Cause or upon the death or Disability of Executive or (ii) by
Executive following the willful and material breach by Employer of its
obligations under Section 1 of this Agreement, which breach is not
cured within 30 days of notice of such breach to the Board of
Directors.
4.3. Rights upon Termination.
-----------------------
4.3.1. Upon any termination of this Agreement for Cause or
upon the voluntary termination by Executive of his employment which does not
constitute a Termination without Cause, Employer shall pay to Executive, within
10 days following such termination, any unpaid Base Salary through the date of
termination and shall reimburse Executive for reasonable business expenses
incurred prior to the date of termination, subject to the provisions of Section
3.4 hereof.
4.3.2. Upon termination of this Agreement because of the
death or Disability of Executive, Employer shall pay to Executive or Executive's
estate, any unpaid Base Salary accrued through the date of termination, plus an
additional amount equal to an additional 12 months' Base Salary to extent such
Base Salary exceeds the Life Insurance Benefit or the Disability Benefit, as the
case may be (the "Severance Payment"), and shall reimburse Executive (or his
estate) for reasonable business expenses incurred prior to the date of
termination, subject to the provisions of Section 3.4 hereof. Employer shall pay
such amounts within 10 days following such termination, provided, that, at
Employer's option, the Severance Payment may be made in equal monthly
installments over the 12 month period subsequent to the date of termination
specified in the termination notice.
4.3.3. Upon a Termination Without Cause, Employer shall pay
to Executive any unpaid Base Salary accrued through the date of termination,
plus an additional amount (the "Additional Payment") equal to (i) the unpaid
Base Salary for the balance of the Term and (ii) the pro rata portion of his
annual Bonus for the year in which the Termination Without Cause occurs based on
the prior year's Bonus. In addition, Employer shall reimburse Executive for
reasonable business expenses incurred prior to the date of termination, subject
to the provisions of Section 3.4 hereof. Employer shall pay such amounts within
10 days following such termination; provided, that, the Additional Payment shall
be made in equal monthly installments over the balance of the Term (the "Term
Balance"). If Executive accepts other employment or engages in his own business
("Other Employment") during the Term Balance, Executive shall forthwith notify
Employer, and Employer shall be entitled to set off from half of the amounts due
Executive under this Section 4.3.3 the amounts paid to Executive in respect of
such Other Employment.
-5-
<PAGE>
4.3.4. Upon any termination provided for in this Agreement,
the Options granted Executive shall be treated in the manner set forth in the
Stock Option Agreement.
4.3.5. Except as provided herein, Employer shall have no
further liability to Executive under this Agreement in respect of any
termination of this Agreement.
5. Confidentiality and Non-Competition.
-----------------------------------
5.1 Confidentiality. Executive agrees that he will not
---------------
make use of, divulge or otherwise disclose, directly or indirectly, any trade
secret or other confidential information concerning the business, operations,
practices or financial condition of Employer or any of its Affiliates
("Confidential Information"), which he may have learned as a result of his
employment by Employer during the Term or as a stockholder, officer or director
of Employer or any of its Affiliates, except to the extent such use or
disclosure is (a) necessary to the performance of this Agreement and in
furtherance of the best interests of Employer and its Affiliates, (b) required
by applicable law, (c) authorized by Employer or its Affiliates or (d) is of
information which is in the public domain through no unlawful act of Executive
or which Executive lawfully acquires subsequent to termination of his employment
with Employer from any person not subject to a confidentiality obligation to
Employer or its Affiliates. Executive acknowledges and recognizes that the
Confidential Information is essential to the unique nature of Employer's
business and for that reason, all such materials and information shall at all
times remain the exclusive property of Employer. Upon the termination of this
Agreement, all such Confidential Information furnished and supplied to Executive
during the Term shall be returned by Executive to Employer. Executive, in the
event of such termination, will not at any time impart to anyone or use any such
Confidential Information. The provisions of this Section 5.1 shall survive the
expiration, suspension or termination, for any reason, of this Agreement.
5.2. Non-Competition.
---------------
5.2.1. Executive agrees that he shall not, during
the Restricted Period (as defined below), without the prior written consent of
Employer:
(i) directly or indirectly (whether as a sole
proprietor, partner, venturer, stockholder, director, officer, employee or in
any other capacity as principal or agent or through any person, corporation,
partnership, entity or employee acting as nominee or agent) conduct or engage in
or be interested in or associated with any person, firm, association, syndicate,
partnership, company, corporation or other entity which conducts or engages in
the subscription television business in any geographic areas in which Employer
or any of its Affiliates is then so engaged in business or proposes to engage in
business in accordance with its then-current business plan, nor shall Executive
interfere with, disrupt or attempt to disrupt the relationship, contractual or
otherwise, between Employer or any of its Affiliates, on the one hand, and any
customer, supplier, lessor, lessee or employee of Employer or any of its
Affiliates, on the other hand; provided, however, that this Section 5.2.1(i)
shall not prohibit Executive from owning beneficially or of record not more than
5% of the outstanding equity securities of any
-6-
<PAGE>
entity whose equity securities are registered under the Securities Act of 1933,
as amended, or are listed for trading on any United States or foreign stock
exchange; or
(ii) solicit, induce or attempt to induce any
employee of Employer or any of its Affiliates to terminate his or her employment
relationship in order to enter into employment with any business which shall be
in competition with any business conducted by Employer or any of its Affiliates
during the Restricted Period (as defined herein).
5.2.2. As used in this Agreement, the term
"Restricted Period" shall mean the period beginning on the Effective Date and
ending on (a) the second anniversary of the date this Agreement is terminated in
the event of a voluntary termination by Executive of his employment which does
not constitute a Termination Without Cause or (b) the first anniversary of the
date this Agreement is terminated in the event a Termination Without Cause
occurs or if this Agreement is terminated by Employer for Cause.
5.2.3. It is the desire and intent of the parties
that the provisions of this Section 5 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular portion of this
Section 5 shall be adjudicated to be invalid or unenforceable, this Section 5
shall be deemed amended to delete therefrom the portion thus adjudicated to be
invalid or unenforceable, such deletion to apply only with respect to the
operation of this paragraph in the particular jurisdiction in which such
adjudication is made.
6. Injunctive Relief. If there is a breach or threatened breach
-----------------
of the provisions of Section 5 of this Agreement, Employer shall be entitled to
an injunction restraining Executive from such breach. Nothing herein shall be
construed as prohibiting Employer from pursuing any other remedies for such
breach or threatened breach.
7. Insurance. Employer may, at its election and for its
---------
benefit, insure Employee against accidental loss or death and Executive shall
submit to such physical examination and supply such information as may be
reasonably required in connection therewith.
8. Miscellaneous. This Agreement (a) constitutes the entire
-------------
agreement of the parties with respect to its subject matter and supersedes all
previous agreements or understandings, whether oral or written; (b) may not be
amended or modified except by a written instrument signed by all the parties
hereto; (c) is binding upon and will inure to the benefit of the parties and
their respective successors, transferees, personal representatives, heirs,
beneficiaries and permitted assigns; (d) may be executed in duplicate originals
and (e) shall be governed by and interpreted in accordance with the laws of the
State of Delaware, without regard to its conflict of laws rules.
-7-
<PAGE>
9. Notices. Any notice required or permitted to be given under
-------
this Agreement shall be in writing and shall be deemed to have been given when
delivered by hand delivery by independent courier service or by facsimile
transmission, addressed as follows:
If to Executive: TV Filme, Inc.
c/o ITSA-Intercontinental Telecomunicacoes Ltda.
SCS, Quadra 07-Bl.A
Ed. Executive Tower, Sala 601
70.300-911 Brasilia-DF, Brazil
Attention: Alvaro J. Aguirre, Chief Financial
Officer
If to Employer: TV Filme, Inc.
c/o ITSA-Intercontinental Telecomunicacoes Ltda.
SCS, Quadra 07-Bl.A
Ed. Executive Tower, Sala 601
70.300-911 Brasilia-DF, Brazil
Attention: Hermano Studart Lins de Albuquerque,
Chief Executive Officer
or to such other address as either party hereto may from time to time give
notice of to the other in the aforesaid manner. Any notice delivered in the
manner set forth in this Section 9 shall be deemed as of the date of delivery in
the case of hand delivery and upon confirmation of receipt in the case of
facsimile transmission.
10. Indemnification. Employer shall indemnify Executive, in his
---------------
capacity as an executive officer or director of Employer to the full extent
permissible under the laws of the State of Delaware, and shall obtain directors'
and officers' reimbursements and liability insurance in connection therewith.
In addition, Employer and Executive shall enter into an Indemnification
Agreement, a form of which is attached hereto as EXHIBIT C.
---------
11. Waiver. The failure of any party to exercise any right or
------
remedy under this Agreement shall not constitute a waiver of such right or
remedy, and the waiver of any violation or breach of this Agreement by a party
shall not constitute a waiver of any prior or subsequent violation or breach. No
waiver under this Agreement shall be valid unless in writing and executed by the
waiving party.
12. Severability. If any provision of this Agreement is
------------
determined by a court or other governmental authority to be invalid, illegal or
unenforceable, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement. Further, the provision that is determined to be invalid, illegal or
unenforceable shall be reformed and construed to the extent permitted by law so
that it will be valid, legal and enforceable to the maximum extent possible.
-8-
<PAGE>
13. Headings. The headings used in this Agreement are included
--------
for the convenience of the parties for reference purposes only and are not to be
used in construing or interpreting this Agreement.
14. No Third Party Beneficiaries. Except as provided herein,
----------------------------
this Agreement shall not be deemed to confer in favor of any third parties any
rights whatsoever as a third-party beneficiary.
15. Successor and Assigns. This Agreement is personal in its
---------------------
nature and neither of the parties hereto shall, without the consent of the
other, assign or transfer this Agreement or any rights or obligations hereunder;
provided, however, that the provisions hereof shall inure to the benefit of, and
be binding upon and enforceable by, any successor of Employer, whether by
merger, consolidation, transfer of all or substantially all of the assets of
Employer, or otherwise, and upon Executive, his heirs, executors, administrators
and legal representatives.
-9-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
EMPLOYER:
TV FILME, INC.
By:__________________________
Name:
Title:
EXECUTIVE:
_____________________________
Alvaro J. Aguirre
<PAGE>
EXHIBIT 10.7
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES REPRESENTED HEREBY UNDER THE ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
No. _______ Warrant to Purchase _________ Shares of
Common Stock (subject to adjustment)
FORM OF WARRANT TO PURCHASE COMMON STOCK
OF
TV FILME, INC.
VOID AFTER SEPTEMBER 28, 1997
This certifies that, for value received, _______________, or
registered assigns ("Holder") is entitled, subject to the terms set forth below,
to purchase from TV Filme, Inc. (the "Company"), a Delaware corporation,
________ shares of Common Stock, $0.01 par value, of the Company (the "Common
Stock") as constituted on the date of consummation of the initial public
offering of shares of Common Stock (the "Warrant Issue Date"), upon surrender
hereof, at the principal office of the Company referred to herein, with the
subscription form attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States or otherwise as hereinafter
provided, at the Exercise Price as set forth in Section 2 hereof. The number
and Exercise Price of such shares of Common Stock are subject to adjustment as
provided herein. The term "Warrant" as used herein shall include this Warrant,
which is one of a series of warrants issued for the Common Stock of the Company,
and any warrants delivered in substitution or exchange therefor as provided
herein. This Warrant is issued in connection with the reorganization of ITSA-
Intercontinental Telecomunicacoes S.A. ("ITSA"), as a wholly-owned subsidiary of
the Company, in substitution for the option granted to the Holder on March 28,
1996, pursuant to the Second Addendum to the Investment Agreement of such date
by and among the shareholders of ITSA and certain other parties
1. Term of Warrant. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Warrant Issue Date and ending at 5:00 p.m., Eastern standard
time, on September 28, 1997, and shall be void thereafter.
2. Exercise Price. The Exercise Price at which this Warrant may be
exercised shall be $6.52 per share of Common Stock, as adjusted from time to
time pursuant to Section 11 hereof.
<PAGE>
3. Exercise of Warrant.
(a) Payment of Exercise Price. The purchase rights represented by
this Warrant are exercisable by the Holder in whole or in part, but not for less
than 100 shares at a time (or such lesser number of shares which may then
constitute the maximum number purchasable; such number being subject to
adjustment as provided in Section 11 hereof), at any time, or from time to time,
during the term hereof as described in Section 1 above, by the surrender of this
Warrant and the Notice of Exercise attached hereto, duly completed and executed
on behalf of the Holder, at the office of the Company (or such other office or
agency of the Company as it may designate by notice in writing to the Holder at
the address of the Holder appearing on the books of the Company) upon payment
(i) in cash or by certified or bank check or other check acceptable to the
Company, (ii) by cancellation by the Holder of indebtedness of the Company to
the Holder, or (iii) by a combination of (i) and (ii), of the purchase price of
the shares to be purchased.
(b) Issuance of Shares. This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to receive the
shares of Common Stock issuable upon such exercise shall be treated for all
purposes as the holder of record of such shares as of the close of business on
such date. As promptly as practicable on or after such date and in any event
within ten (10) days thereafter, the Company at its expense shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of shares issuable upon such exercise. In the event
that this Warrant is exercised in part, the Company at its expense will execute
and deliver a new Warrant of like tenor exercisable for the number of shares for
which this Warrant may then be exercised.
(c) Net Issue Exercise. Notwithstanding any provisions herein to the
contrary, if the fair market value (as defined below) of one share of Common
Stock is greater than the Exercise Price (at the date of calculation as set
forth below), in lieu of exercising this Warrant for cash, the Holder may elect
to receive shares equal to the value (as determined below) of this Warrant, or
the portion thereof being canceled, by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Notice of
Exercise, in which event the Company shall issue to the Holder a number of
shares of Common Stock computed using the following formula:
Y(A-B)
X= -------
A
Where X = the number of shares of Common Stock to be
issued to the Holder
Y = the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised,
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<PAGE>
under the portion of the Warrant being
canceled (at the date of such calculation)
A = the fair market value of one share of the
Common Stock (at the date of such
calculation)
B = the Exercise Price (as adjusted to the date of
such calculation)
For purposes of the above calculation, "fair market value" of one share of
Common Stock shall be determined by the Company's Board of Directors in good
faith; provided, however, that (i) where no public market exists for the Common
Stock at the time of such exercise, the Holder may request a valuation of the
Common Stock to be performed by an independent valuation firm selected by the
Holder, at the sole cost and expense of the Holder, which valuation shall be
binding upon the Holder and the Company in determining "fair market value," and
(ii) where a public market exists for the Common Stock at the time of such
exercise, the "fair market value" per share shall be the average of the closing
bid and asked prices of the Common Stock quoted in the Over-The-Counter-Market
Summary or the last reported sale price of the Common Stock or the closing price
quoted on the Nasdaq National Market System or on any exchange on which the
Common Stock is listed, whichever is applicable, as published in The Wall Street
Journal for the five (5) trading days prior to the date of determination of fair
market value. Notwithstanding the foregoing, in the event the Warrant is
exercised in connection with the Company's initial public offering of Common
Stock, the "fair market value" per share shall be the per share offering price
to the public in the Company's initial public offering.
(d) Taxes. The Company will pay all documentary stamp taxes, if
any, attributable to the initial issuance of Common Stock or other securities
issuable upon the exercise of this Warrant; provided, however, that the Company
shall not be required to pay any tax or taxes that may be payable in respect of
any transfer involved in the issuance or delivery of any certificate for such
Common Stock or other securities.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the fair market value
(as defined in Section 3(c) hereof) of such share, less the Exercise Price,
multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new Warrant of like tenor and amount.
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<PAGE>
6. Rights of Stockholders. Subject to Sections 9 and 11 of this
Warrant, the Holder shall not be entitled to vote or receive dividends or be
deemed the holder of Common Stock or any other securities of the Company that
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the Holder, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value, or change of stock to no par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have been
exercised as provided herein.
7. Transfer of Warrant.
(a) Warrant Register. The Company will maintain a register (the
"Warrant Register") containing the names, addresses and telecopier numbers of
the Holder or Holders. Any Holder of this Warrant or any portion thereof may
change its address as shown on the Warrant Register by written notice to the
Company requesting such a change. Except as otherwise expressly provided
herein, any notice or written communication required or permitted to be given to
the Holder may be delivered or given by certified or registered mail, return
receipt requested, to such Holder as shown on the Warrant Register and at the
address shown on the Warrant Register, or by telecopier, at the telecopier
number shown on the Warrant Register. Until this Warrant is transferred on the
Warrant Register of the Company, the Company may treat the Holder as shown on
the Warrant Register as the absolute owner of this Warrant for all purposes,
notwithstanding any notice to the contrary.
(b) Warrant Agent. The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section 7(a) above, issuing the Common Stock or other securities then
issuable upon the exercise of this Warrant, exchanging this Warrant, replacing
this Warrant or any or all of the foregoing. Thereafter, any such registration,
issuance, exchange or replacement, as the case may be, shall be made at the
office of such agent.
(c) Transferability and Negotiability of Warrant. This Warrant may
not be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee (including delivery of investment representation letters and legal
opinions reasonably satisfactory to the Company, if such are requested by the
Company). Subject to the provisions of this Warrant with respect to compliance
with the Act, title to this Warrant may be transferred by endorsement (by the
Holder executing this Assignment Form attached hereto) and delivery in the same
manner as negotiable instruments transferable by endorsement and delivery.
(d) Exchange of Warrant Upon a Transfer. On surrender of this Warrant
for exchange, properly endorsed on the Assignment Form and subject to the
provisions of this Warrant with respect to compliance with the Act, and with the
limitations on assignments
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<PAGE>
and transfers contained in this Section 7, the Company at its expense shall
issue to or on the order of the Holder a new warrant or warrants of like tenor,
in the name of the Holder or as the Holders (on payment by the Holder of any
applicable transfer taxes) may direct, for the number of shares issuable upon
the exercise hereof.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the shares of Common Stock to be issued upon exercise
hereof are being acquired solely for the Holder's own account and not as a
nominee for any other party, and that the Holder will not offer, sell or
otherwise dispose of this Warrant or any shares of Common Stock to be issued
upon exercise hereof except under circumstances that will not result in a
violation of the Act or any state securities laws. Upon exercise of this
Warrant, the Holder shall, if requested by the Company, confirm in writing, in a
form satisfactory to the Company, that the shares of Common Stock so purchased
are being acquired solely for the Holder's own account and not as a nominee for
any other party, and not with a view toward distribution or resale except under
circumstances that will not result in a violation of the Act or any state
securities laws.
(ii) All shares of Common Stock issued upon exercise hereof shall be
stamped or imprinted with a legend in substantially the following form (in
addition to any legend required by state securities law):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
8. Reservation of Stock. The Company covenants that during the term
this Warrant is exercisable, the Company will reserve from its authorized and
unissued shares of Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant and, from time to
time, will take all steps necessary to amend its Certificate of Incorporation
(the "Certificate") to provide sufficient reserves of shares of Common Stock
issuable upon exercise of this Warrant. The Company further covenants that all
shares that may be issued upon the exercise of rights represented by this
Warrant, upon exercise of the rights represented by this Warrant and payment of
the Exercise Price, all as set forth herein will be free from all taxes, liens
and charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously or otherwise specified herein). The
Company agrees that its issuance of this Warrant shall constitute full authority
to its officers who
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<PAGE>
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
9. Notices.
(a) Notice of Adjustments to Exercise Price. Whenever the Exercise
Price or number of shares purchasable hereunder shall be adjusted pursuant to
Section 11 hereof, the Company shall issue a certificate signed by its Chief
Financial Officer setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the Exercise Price and number of shares purchasable
hereunder after giving effect to such adjustment, and shall cause a copy of such
certificate to be mailed by first class mail, postage prepaid, to the Holder at
the last address of the Holder as shown on the Warrant Register and to be
telecopied to the Holder at the last telecopier number of the Holder as shown on
the Warrant Register. At the Holder's option, the Company shall confirm the
adjustment noted on the certificate by causing such adjustment to be computed by
an independent certified public accountant at the expense of the Company.
(b) Notice of Certain Events. The Company shall give notice to the
Holder of the events specified in Section 11(f) in accordance therewith.
(c) Deemed Date of Receipt. All such notices, advices and
communications shall be deemed to have been received (i) in the case of personal
delivery, on the date of such delivery, (ii) in the case of mailing, on the
third business day following the date of such mailing, and (iii) in the case of
telecopier transmission, upon confirmation of receipt.
10. Amendments; Waivers.
(a) Amendments. This Warrant may not be amended except in
writing executed by the Company and the Holder.
(b) Waivers. No waivers of, or exceptions to, any term, condition or
provision of this Warrant, in any one or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such term, condition or
provision.
11. Anti-Dilution Provisions and Other Adjustments. In order to
prevent dilution of the rights granted hereunder, the Exercise Price shall be
subject to adjustment from time to time in accordance with this Section 11.
Upon each adjustment of the Exercise Price pursuant to this Section 11, whether
upward or downward, the Holder shall thereafter be entitled to acquire upon
exercise, at the Exercise Price resulting from such adjustment, the number of
shares of the Company's Common Stock obtainable by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
the Company's Common Stock acquirable immediately prior to such adjustment and
dividing the product thereof by the Exercise Price resulting from such
adjustment.
(a) Adjustment for Issue or Sale of Common Stock at Less than Exercise
Price. Except as provided in Section 11(b) or 11(e) below, if and whenever on
or after
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<PAGE>
the date of issuance hereof the Company shall issue or sell, or shall in
accordance with Sections 11(a)(1) through (9) be deemed to have issued or sold,
any shares of its Common Stock for a consideration per share less than the
Exercise Price in effect immediately prior to the time of such issue or sale,
then forthwith upon such issue or sale (the "Triggering Transaction"), the
Exercise Price shall, subject to subsections (1) through (9) of this Section
11(a), be reduced to the Exercise Price (calculated to the nearest cent)
determined by dividing:
(i) an amount equal to the sum of (x) the product derived by
multiplying the Number of Common Shares Deemed Outstanding
immediately prior to such Triggering Transaction by the Exercise
Price then in effect, plus (y) the consideration, if any,
received by the Company upon consummation of such Triggering
Transaction, by
(ii) an amount equal to the sum of (x) the Number of Common
Shares Deemed Outstanding immediately prior to such Triggering
Transaction plus (y) the number of shares of Common Stock issued
(or deemed to be issued in accordance with Sections 11(a)(1)
through (9)) in connection with the Triggering Transaction.
For purposes of this Section 11, the term "Number of Common Shares
Deemed Outstanding" at any given time shall mean the sum of (i) the number of
shares of the Company's Common Stock outstanding at such time plus (ii) the
number of shares of the Company's Common Stock deemed to be outstanding under
Sections 11(a)(1) through (9) at such time.
For purposes of determining the adjusted Exercise Price under this
Section 11(a), the following subsections (1) through (9) shall be applicable:
(1) In case the Company at any time shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase or any options for the purchase of,
Common Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being herein
called "Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities"), whether or
not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the price per
share for which the Common Stock is issuable upon exercise, conversion
or exchange (determined by dividing (x) the total amount, if any,
received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise of
all such Options, plus, in the case of such Options which relate to
Convertible
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<PAGE>
Securities, the minimum aggregate amount of additional consideration,
if any, payable upon the issue or sale of such Convertible Securities
and upon the conversion or exchange thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities)
shall be less than the Exercise Price in effect immediately prior to
the time of the granting of such Option, then the total maximum amount
of Common Stock issuable upon the exercise of such Options, or, in the
case of Options for Convertible Securities, upon the conversion or
exchange of such Convertible Securities, shall (as of the date of
granting of such Options) be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. No adjustment
of the Exercise Price shall be made upon the actual issue of such
shares of Common Stock or such Convertible Securities upon exercise of
such Options, except as otherwise provide in subsection (3) below).
(2) In case the Company at any time shall in any manner issue (whether
directly or by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (x) the total amount received or
receivable by the Company as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (y) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the Exercise Price in
effect immediately prior to the time of such issue or sale, then the
total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall (as of
the date of the issue or sale of such Convertible Securities) be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share. No adjustment of the Exercise Price
shall be made upon the actual issue of such Common Stock upon exercise
of the rights to exchange or convert under such Convertible
Securities, except as otherwise provided in subsection (3) below.
(3) If the purchase price provided for in any Options referred to in
subsection (1), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred
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<PAGE>
to in subsection (1) or (2), or the rate at which any Convertible
Securities referred to in subsection (1) or (2) are convertible into
or exchangeable for Common Stock shall change at any time (other than
under or by reason of provisions designed to protect against dilution
of the type set forth in Section 11(a) or 11(c)), the Exercise Price
in effect at the time of such change shall forthwith be readjusted to
the Exercise Price which would have been in effect at such time had
such Options or Convertible Securities still outstanding provided for
such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or
sold. If the purchase price provided for in any Option referred to in
subsection (1) or the rate at which any Convertible Securities
referred to in subsection (1) or (2) are convertible into or
exchangeable for Common Stock, shall be reduced at any time under or
by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Stock upon
the exercise of any such Option or upon conversion or exchange of any
such Convertible Security, the Exercise Price then in effect hereunder
shall forthwith be adjusted to such respective amount as would have
been obtained had such Option or Convertible Security never been
issued as to such Common Stock and had adjustments been made upon the
issuance of the shares of Common Stock delivered as aforesaid, but
only if as a result of such adjustment the Exercise Price then in
effect hereunder is hereby reduced.
(4) On the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, the Exercise Price
then in effect hereunder shall forthwith be increased to the Exercise
Price which would have been in effect at the time of such expiration
or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or
termination, never been issued.
(5) In case any Options shall be issued in connection with the issue
or sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated
to such Options by the parties thereto, such Options shall be deemed
to have been issued without consideration.
(6) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor shall be deemed to
be the amount received by the Company
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<PAGE>
therefor. In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration as determined in
good faith by the Board of Directors of the Company. In case any
shares of Common Stock, Options or Convertible Securities shall be
issued in connection with any merger in which the Company is the
surviving corporation, the amount of consideration thereof shall be
deemed to be the fair value of such portion of the net assets and
business of the non-surviving corporation as shall be attributed by
the Board of Directors of the Company in good faith to such Common
Stock, Options or Convertible Securities, as the case may be.
(7) The number of shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the account of the
Company and the disposition of any shares so owned or held shall be
considered an issue or sale of Common Stock for the purpose of this
Section 11(a).
(8) In case the Company shall declare a dividend or make any other
distribution upon the stock of the Company payable in Common Stock,
Options or Convertible Securities, then in such case any Common Stock,
Options or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have been
issued or sold without consideration.
(9) For purposes of this Section 11(a), in case the Company shall take
a record of the holders of its Common Stock for the purpose of
entitling them (x) to receive a dividend or other distribution payable
in Common Stock, Options or Convertible Securities, or (y) to
subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(b) Dividends Not Paid out of Earnings or Earned Surplus. In the
event that the Company shall declare a dividend upon the Common Stock (other
than a dividend payable in Common Stock covered by Section 11(a)(8)) payable
otherwise than out of earnings or earned surplus, determined in accordance with
generally accepted accounting principles, including the making of appropriate
deductions for minority interests, if any, in subsidiaries (herein referred to
as "Liquidating Dividends"), then as soon as possible after the exercise of this
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<PAGE>
Warrant, the Company shall pay to the person exercising such Warrant an amount
equal to the aggregate value at the time of such exercise of all Liquidating
Dividends (including but not limited to the Common Stock which would have been
issued at the time of such earlier exercise and all other securities which would
have been issued with respect to such Common Stock by reason of stock splits,
stock dividends, mergers or reorganizations, or for any other reason). For the
purposes of this Section 11(b), a dividend other than in cash shall be
considered payable out of earnings or earned surplus only to the extent that
such earnings or earned surplus are charged an amount equal to the fair value of
such dividend as determined in good faith by the Board of Directors of the
Company.
(c) Subdivisions and Combinations. In the case the Company shall at
any time subdivide (rather than by means of a dividend payable in Common Stock
covered by Section 11(a)(8)), its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be appropriately reduced, and, conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased.
(d) Reorganization, Reclassification, Consolidation, Merger or Sale of
Assets. If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of the Company's assets to
another corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities, cash or other property with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the holder of this Warrant shall have
the right to acquire and receive upon exercise of this Warrant such shares of
stock, securities, cash or other property issuable or payable (as part of the
reorganization, reclassification, consolidation, merger or sale) with respect to
or in exchange for such number of outstanding shares of the Company's Common
Stock as would have been received upon exercise of this Warrant at the Exercise
Price then in effect. The Company will not effect any such consolidation,
merger or sale, unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing such assets shall assume by written
instrument mailed or delivered to the Holder at the last address of the Holder
as shown on the Warrant Register, the obligation to deliver to the Holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to purchase. If a purchase, tender or
exchange offer is made to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock of the Company, the Company shall not effect
any consolidation, merger or sale with the person having made such offer or with
any Affiliate of such person, unless prior to the consummation of such
consolidation, merger or sale the Holder shall have been given a reasonable
opportunity to then elect to receive upon the exercise of this Warrant the
stock, securities or assets, as the case may be, then issuable with respect to
the Common Stock in accordance with such offer. For purposes hereof, the term
"Affiliate" with respect to any given person shall mean any person controlling,
controlled by or under common control with the given person.
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<PAGE>
(e) No Adjustment for Exercise of Certain Options, Warrants, Etc. The
provisions of this Section 11 shall not apply to any Common Stock issued,
issuable or deemed outstanding under Sections 11(a)(1) through (9): (i) to any
person pursuant to any stock option, stock purchase or similar plan or
arrangement for the benefit of employees, consultants or directors of the
Company or its subsidiaries in any amount approved by the Board of Directors, or
(ii) pursuant to options, warrants and conversion rights in existence on the
date of issuance of this Warrant.
(f) Notices of Certain Events. In the event that:
(1) the Company shall declare any cash dividend upon its
Common Stock, or
(2) the Company shall declare any dividend upon its Common
Stock payable in capital stock or make any special dividend or
other distribution to the holders of its Common Stock, or
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any
class or other rights, or
(4) there shall be any capital reorganization or
reclassification of the capital stock of the Company, including
any subdivision or combination of its outstanding shares of
Common Stock, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another
corporation, or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in connection with such event, the Company shall give to the Holder:
(i) at least ten days prior written notice of the date on
which the books of the Company shall close or a record
shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote
in respect of any such reorganization,
reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up; and
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<PAGE>
(ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least ten
days prior written notice of the date when the same
shall take place.
Such notice in accordance with the foregoing clause (i) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto, and such notice in
accordance with the foregoing clause (ii) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Each such written notice shall be given by
first class mail, postage prepaid, addressed to the Holder at the last address
of the Holder as shown on the Warrant Register, or telecopied to the Holder at
the last telecopier number of the Holder as shown on the Warrant Register.
(g) Grant, Issue or Sale of Options, Convertible Securities or Rights.
If at any time or from time to time on or after the date of issuance hereof, the
Company shall grant, issue or sell any Options, Convertible Securities or rights
to purchase property (the "Purchase Rights") pro rata to the record holders of
any class of Common Stock of the Company and such grants, issuances or sales do
not result in any adjustment of the Exercise Price under Section 11(a) hereof
(other than by reason of the fact that the issuance of such shares was at an
Exercise Price equal to or greater than the current Exercise Price), then the
Holder shall be entitled to acquire (within fifteen days after the later to
occur of the initial exercise date of such Purchase Rights or receipt by the
Holder of the notice concerning Purchase Rights to which the Holder shall be
entitled under Section 11(f)) and upon the terms applicable to such Purchase
Rights either:
(i) the aggregate Purchase Rights which the Holder could have
acquired if it had held the number of shares of Common Stock
acquirable upon exercise of this Warrant immediately before
the grant, issuance or sale of such Purchase Rights;
provided that if any Purchase Rights were distributed to
holders of Common Stock without the payment of additional
consideration by such holders, corresponding Purchase Rights
shall be distributed to the exercising Holder as soon as
possible after such exercise and it shall not be necessary
for the exercising Holder specifically to request delivery
of such rights; or
(ii) in the event that any such Purchase Rights shall have
expired or shall expire prior to the end of said
-13-
<PAGE>
fifteen day period, the number of shares of Common Stock or
the amount of property which such holder could have acquired
upon such exercise at the time or times at which the Company
granted, issued or sold such expired Purchase Rights.
(h) Adjustment by Board of Directors. If any event occurs as to
which, in the opinion of the Board of Directors of the Company, the provisions
of this Section 11 are not strictly applicable, or if strictly applicable would
not fairly protect the rights of the Holder in accordance with the essential
intent and principles of such provisions, then the Board of Directors shall make
an adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such rights as aforesaid, but
in no event shall any adjustment have the effect of increasing the Exercise
Price as otherwise determined pursuant to any of the provisions of this Section
11, except in the case of a combination of shares of a type contemplated in
Section 11(c) and then in no event to an amount greater than the Exercise Price
as adjusted pursuant to Section 11(c).
(i) No Dilution or Impairment. The Company will not, by amendment of
its Certificate or bylaws or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance or any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate in order to protect the rights of the Holder against
dilution or other impairment.
12. Registration Rights. If the Holder of this Warrant is a party to
that certain Registration Rights Agreement dated as of the date hereof (the
"Registration Rights Agreement"), such Holder shall be entitled to include any
shares of Common Stock received upon exercise of this Warrant (the "Warrant
Exercise Shares") with such Holder's Registrable Shares (as such term is defined
in the Registration Rights Agreement), and such Holder shall be entitled to the
same registration rights with respect to such Warrant Exercise Shares as such
Holder has with respect to such Holder's Registrable Shares pursuant to Section
1 of the Registration Rights Agreement, on the same terms and conditions as
those set forth in Section 1 of the Registration Rights Agreement. The
provisions of Section 1 of the Registration Rights Agreement are hereby
incorporated by reference and made a part of this Agreement.
13. Miscellaneous.
(a) Governing Law. This Warrant shall be governed by and construed
and enforced in accordance with the internal laws of the State of Delaware
(without reference to any principles of conflicts of laws).
(b) Binding Effect. The provisions of this Warrant shall be
binding upon the Company and its successors and assigns.
-14-
<PAGE>
(c) Remedies. In the event of a breach by the Company of this
Warrant, the Holder shall be entitled to injunctive relief and specific
performance of its rights under this Warrant, in addition to all of its rights
granted by law, including, without limitation, recovery of damages. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach of this Warrant by the Company and hereby waives
the defense in any action for injunctive relief or specific performance that a
remedy at law would be adequate.
-15-
<PAGE>
(d) Headings. The headings in this Warrant are for purposes of
convenience in reference only and shall not be deemed to constitute a part
hereof.
IN WITNESS WHEREOF, the undersigned have caused this Warrant to
be executed as of the ____ day of ________, 1996.
HOLDER TV FILME, INC.
By:_________________________ By:_______________________
Name: Name:
Title: Title:
<PAGE>
NOTICE OF EXERCISE
(To be executed only upon exercise of Warrant)
To TV Filme, Inc.:
(1) The undersigned hereby elects to exercise the attached Warrant with
respect to _____ shares of Common Stock of TV Filme, Inc. pursuant to the terms
of the attached Warrant and (please check one of the following):
____ (a) tenders herewith payment of the purchase price for such
number of shares in full; or
____ (b) elects to receive shares equal to the value of the
Warrant with respect to such number of shares pursuant to
Section 3(c) thereof, in lieu of making payment of the
purchase price.
(2) In exercising the Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock to be issued are being acquired
solely for the account of the undersigned and not as a nominee for any other
party, and that the undersigned will not sell, offer for sale, pledge,
hypothecate or otherwise dispose of any such shares of Common Stock, except
under circumstances that will not result in a violation of the Securities Act of
1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
---------------------------------------
(Name)
---------------------------------------
(Street Address)
---------------------------------------
(City, State, Zip Code)
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
---------------------------------------
(Name)
Dated: ________________ By: __________________________________________
(Signature of Registered Owner)
-17-
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of the attached
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under such Warrant, with respect to the number of
shares of Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint as Attorney
________________________ to make such transfer on the books of TV Filme, Inc.,
maintained for the purpose, with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that the Assignee will not sell, offer for sale, pledge,
hypothecate or otherwise dispose of the Warrant or any shares of Common Stock to
be issued upon exercise except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended, or any state securities
laws. Further, the Assignee has acknowledged that upon exercise of the Warrant,
the Assignee shall, if requested by the Company, confirm in writing in a form
satisfactory to the Company, that the shares of stock so purchased are not being
acquired with a view toward distribution or resale, except under circumstances
that will not result in a violation of the Securities Act of 1933, as amended,
or any state securities laws.
------------------------------------
(Signature of Registered Owner)
Dated: ----------- ------------------------------------
(Name of Registered Owner)
-18-
<PAGE>
EXHIBIT 10.8
PROGRAMMING LICENSE AGREEMENT
-----------------------------
THIS PROGRAMMING LICENSE AGREEMENT, dated as of June 27, 1996 (as hereafter
amended or modified from time to time, this "Agreement"), between TEVECAP S.A.,
a Brazilian corporation ("Tevecap"), and TV FILME, INC., a Delaware corporation
("TVF").
In consideration of the mutual covenants contained herein, the parties
hereto hereby agree as follows:
1. Television Programming License in the Existing Markets
------------------------------------------------------
(a) Tevecap hereby grants to TVF an exclusive license to transmit
programming available from Tevecap or its subsidiaries (hereafter
referred to collectively as "TVA Programming") by means of multi-
point, microwave distribution service ("MMDS") in the Brazilian
cities of Brasilia, Goiania and Belem (referred to herein
collectively as the "Existing Markets"), in which TVF has
established MMDS systems, and Tevecap hereby agrees that, so long
as this Agreement is effective, it will not compete with TVF in
MMDS in the Existing Markets.
(b) Regardless of whether TVF obtains licenses to operate hardwire
cable systems (collectively referred to herein as "cable") in any
of the Existing Markets after the date hereof, Tevecap hereby
agrees that it will not grant to any third party a license to
transmit TVA Programming by means of cable in the Existing
Markets. In the event that Tevacap obtains a license to own and
operate a cable system in any of the Existing Markets, Tevecap
hereby agrees that it will only develop such a cable system in an
Existing Market in a partnership or joint venture with TVF. The
terms of such partnership or joint venture shall be mutually
agreeable to both Tevecap and TVF.
2. Television Programming License in the Potential Markets
-------------------------------------------------------
(a) Tevecap hereby agrees that it will grant a non-exclusive
programming license to TVF for the transmission of TVA
Programming in each of the 19 markets in Brazil where TVF has
filed applications with the Brazilian Ministry of Communications
to obtain licenses to operate MMDS systems (collectively, the
"Potential Markets") in which TVF obtains a license to operate an
MMDS or cable system, subject to the provisions of paragraph (b)
below.
(b) To the extent that Tevecap has, prior to the date hereof, entered
into any contractual or other binding arrangements with third
parties in any
<PAGE>
Potential Markets which grant exclusivity to such parties with
respect to TVA Programming, Tevecap hereby agrees that it will
use its best efforts to renegotiate any such arrangements so that
(i) no third party enjoys exclusivity in respect of TVA
Programming in any Potential Market, and (ii) Tevecap can grant a
non-exclusive programming license to TVF in accordance with the
terms of paragraph (a) above or an exclusive programming license
to TVF in accordance with the terms of paragraph (c) below.
(c) In the event that:
(i) TVF obtains a license to operate an MMDS or cable system in
any Potential Market; and
(ii) TVF and Tevecap are able to successfully negotiate a joint
venture, partnership or other shared ownership interest in
such license or system (the capital requirements of which
will be funded by the parties thereto pro rata in relation
to their ownership interest) for the purpose of developing
such MMDS or cable system, on terms that are mutually
acceptable to both TVF and Tevecap (or, alternatively,
Tevecap informs TVF that it has no interest in participating
with TVF in any such license or system),
then Tevecap hereby agrees that it will grant to such joint
venture or partnership, or to TVF, as the case may be, an
exclusive programming license to transmit TVA Programming by
means of MMDS and cable, subject, however, to the provisions of
paragraph (b) above.
(d) In the event TVF obtains an exclusive programming license from
Tevecap to transmit TVA Programming by means of MMDS and cable in
any Potential Market, TVF agrees that it will, upon the request
of Tevecap, consent to the grant of a license for the
transmission of TVA Programming to a third party that has
obtained a cable or MMDS license in such Potential Market (a "New
Licensee"), provided that TVF and such New Licensee reach
--------
agreement, on terms mutually acceptable to both parties,
concerning the equity or other participation by TVF in such New
Licensee (or a subsidiary or affiliate thereof).
(e) In addition to the foregoing provisions of this Section 2,
Tevecap hereby agrees with TVF that it will not, from and after
the date hereof, enter into, or agree to enter into, any
additional contractual or other binding arrangements with third
parties in any Potential Markets with respect to TVA Programming
without first notifying, and obtaining the written approval of,
TVF with respect to any such arrangements, which approval will
not be unreasonably withheld if the existence of such additional
arrangement will give Tevecap an overall strategic benefit in
improving
-2-
<PAGE>
Tevecap's overall presence in the market and such additional
arrangement will not involve any harm to TVF, whether in an
Existing or Potential Market.
3. Services Related to Direct-to-Home Satellite Systems ("DTH")
------------------------------------------------------------
With regard to DTH, in both Ku-band and C-band transmission
frequencies, so long as TVF has obtained a license to operate an MMDS or
cable system in any relevant market, the parties hereto agree as follows:
(a) Existing Markets
----------------
With regard to C-band transmission in the Existing Markets,
Tevecap and TVF hereby agree to enter into a non-exclusive marketing
agreement, the terms and conditions of which will be negotiated in
good faith by the parties, recognizing that Tevecap cannot grant to
TVF any rights that conflict with or contravene existing arrangements
that Tevacap has with third parties. With regard to Ku-band
transmission of TVA Programming in Existing Markets, Tevecap will use
its best efforts to work together with TVF with a view towards
providing TVF with a non-exclusive sales and marketing arrangement, in
such markets, to the extent that existing arrangements so permit.
(b) Potential Markets
-----------------
In Potential Markets, in relation to Ku-band or C-band, the
parties agree to work together to reach a mutually satisfactory
arrangement that accommodates the interests of both parties, and any
restrictions to which Tevecap is subject.
4. The Terms of Tevecap's License of TVA Programming in Favor of TVF
-----------------------------------------------------------------
The following terms and conditions shall apply to each programming
license granted by Tevecap to TVF hereunder with respect to TVA
Programming:
(a) The parties hereto hereby agree that TVF will use 50% of TVF's
total channel capacity to broadcast TVA Programming, provided
that:
(i) in TVF's reasonable opinion, the quality of TVA Programming
remains compatible with the taste and standards of TVF's
subscribers;
(ii) Tevecap continues to own, directly or indirectly, at least
10% (ten percent) of the common stock of TVF;
(iii) Tevecap continues to be a subsidiary of Abril S.A.
-3-
<PAGE>
(b) Tevecap's programming charges to TVF in Existing and Potential
Markets will not exceed:
(i) the minimum rates charged by Tevecap to other operators,
(ii) comparable rates for other programming of a similar nature,
it being understood that such rates may change from time to time,
but at all times the provisions of clauses (i) and (ii) above
will be operative with respect to such rates.
(c) To the extent that TVA Programming licensed to TVF hereunder
includes programs that are acquired by Tevecap subject to
restrictions, then to the extent TVF accepts such programming, it
will abide by such restrictions, provided that such restrictions
are imposed by Tevecap on all other licensees of such programs.
(d) The parties hereto acknowledge and agree that certain programs
and/or channels presently included in (and to be developed by
Tevecap in the future for inclusion in) TVA Programming are (or
will be ) identified as TVA-exclusive programs or channels
(hereinafter referred to collectively as "TVA Proprietary
Programming"). TVF hereby agrees that, to the extent that TVF
broadcasts any TVA Proprietary Programming in any Existing or
Potential Market, TVF will not broadcast in any such market any
programming acquired by TVF from Globo that is identified as a
Globo-exclusive program and is directly competitive with such TVA
Proprietary Programming.
(e) (i) If TVF has available channel capacity and does not exercise
its
right to carry a particular Tevecap channel, then Tevecap
may offer that channel to other pay television operators in
the area, at a price not more favorable than the price
offered to TVF.
(ii) If all of TVF's channels are carrying programming and
Tevecap offers a new channel, then if in TVF's opinion, it
is reasonably likely that TVF will have new channel capacity
in the near future, TVF may advise Tevecap that it will
exercise its right to carry the new channel on an exclusive
basis, when the new channel capacity is available.
(f) In the event that
(i) TVF does not exercise its right to carry TVA Programming,
and
(ii) Tevecap expects to license such programming to a competitor
of TVF,
-4-
<PAGE>
then Tevecap shall, at least sixty days prior to the license of
TVA Programming by Tevecap to a competitor of TVF, advise TVF of
its intention to sell such programming to such competitor.
(g) Under no circumstances will TVF or any of its subsidiaries be
required to carry TVA Programming exclusively.
5. Term
----
The parties hereto agree that the terms of this Agreement shall be
effective upon the consummation of the initial public offering of common
stock of TVF and shall terminate on July 20, 2004; provided, however, that
-------- -------
with regard to Potential Markets, the provisions of Section 4(b) above
shall be effective for five years from the date hereof, and such provision
shall thereafter be subject to renewal on terms and conditions mutually
acceptable to the parties.
6. Headings
--------
Section headings used in this Agreement are for convenience of
reference only and shall not affect the construction of this Agreement.
7. Notices
-------
All notices and other communications required or permitted to be given
or made hereunder shall be in writing and shall be personally delivered or
sent by registered or certified mail, postage prepaid, return receipt
requested, or by telecopier, and shall be deemed to be given on the date
such writing is delivered or sent in accordance with the provisions of this
Section 7. Unless otherwise specified in a notice sent or delivered in
accordance with the foregoing provisions, notices and other communications
in writing shall be given or made upon the intended recipient at its
address (or to its respective telecopier number) indicated on the signature
page hereof.
8. Entire Agreement
----------------
This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior
arrangements or understandings with respect thereto. This Agreement
supersedes in all respects Section 11 of the Investment Agreement dated
July 20, 1994 as thereafter amended and modified, among TVF, Tevecap and
the other parties thereto.
9. Binding Effect; Assignment
--------------------------
This Agreement shall be binding upon, and inure to the benefit of,
Tevecap and TVF, and each of their respective successors, assigns,
subsidiaries and affiliates; provided, however, that neither Tevecap nor
-------- -------
TVF may assign its rights hereunder or in
-5-
<PAGE>
connection herewith or any interest herein without the prior written
consent of the other party hereto.
10. Counterparts
------------
This Agreement may be executed in counterparts, both of which shall be
considered one and the same agreement and each of which shall be deemed an
original.
11. Governing Law; Submission to Jurisdiction
-----------------------------------------
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without regard to principles of
conflicts of law.
(b) Any suit, action or proceeding against any party to this Agreement
arising out of or relating to this Agreement or any transaction
contemplated hereby may only be brought in any Federal or State court
located in the Borough of Manhattan, The City of New York, and each such
party hereby submits to the exclusive jurisdiction of such courts for the
purpose of any such suit, action or proceeding. Tevecap hereby appoints
Peter V. Darrow, Esq. Mayer Brown & Platt, 1675 Broadway, Suite 1900, New
York, New York 10019, and TVF hereby appoints Burton Lehman, Schulte Roth &
Zabel, 900 Third Avenue, New York, New York 10022, as its agent for service
of process in any such suit, action or proceeding. Each such party
irrevocably agrees not to assert any objection which it may ever have to
the laying of venue of any such suit, action or proceeding in any Federal
or State court located in the Borough of Manhattan, the City of New York,
and any claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum.
-6-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Programming
License Agreement to be executed by its duly authorized officer as of the day
and year first above written.
TEVECAP S.A.
By: /s/ Jose Augusto Pinto Moreira
------------------------------------
Name: Jose Augusto Pinto Moreira
Title: Director
By: /s/ Angelo Silvio Rossi
------------------------------------
Name: Angelo Silvio Rossi
Title: Commercial Director
Address for Notices:
-------------------
Tevecap S.A.
Ruo do Rocio, 313
O4552-904 Sao Paulo
SP Brazil
Telecopier No.: 011-55-11-821-8770
Attention: Claudio Dascal
President and CEO
with a copy to:
--------------
Jose Augusto Moreira
Executive Vice President
Abril S.A.
Avenida Otaviano Alves de Lima, 4400
CEP 02909-900 Sao Paulo
SP Brazil
Telecopier No.: 011-55-11-877-1840
TV FILME, INC.
By: /s/ Alvaro J. Aguirre
------------------------------------
Name: Alvaro J. Aguirre
Title: Chief Financial Officer
<PAGE>
Address for Notices
-------------------
TV Filme, Inc.
c/o ITSA-Intercontinental Telecomunicacoes Ltda.
SCS, Quadra 07-B1.A
Ed. Executive Tower
Sala 601
70.300-911 Brasilia-DF
Brazil
Telecopier No.: 011-55-61-323-5660
Attention: Hermano Studart Lins de Albuquerque
Chief Executive Officer
<PAGE>
EXHIBIT 10.9
FORM OF
MASTER OPERATING AGREEMENT
--------------------------
Master Operating Agreement (this "Agreement") dated _____________ ___,
1996, between ITSA--INTERCONTINENTAL TELECOMUNICACOES LTDA., a Brazilian
Limitada ("ITSA") and TV FILME SERVICOS DE TELECOMUNICACOES LTDA., a Brazilian
Limitada ("LicenseCo").
W I T N E S S E T H
WHEREAS, ITSA has, directly and through its affiliates, extensive
experience in designing, owning, constructing, marketing, operating and managing
subscription wireless cable operating systems ("Wireless Systems");
WHEREAS, LicenseCo holds a license from the Brazilian Ministry of
Telecommunications (the "Ministry") for the operation of a 16-channel Wireless
System in each of the Brazilian cities of Brasilia, Goiania and Belem (the
"Existing Licenses"), and heretofore also has owned and operated the Wireless
System in Brasilia;
WHEREAS, LicenseCo heretofore has been a wholly-owned subsidiary of
ITSA, and concurrently herewith (i) LicenseCo is being recapitalized as a result
of which 51% of its voting common stock will be owned by TVTEL Ltda., a
Brazilian Limitada, and all of its remaining equity interest will continue to be
owned by ITSA, and (ii) all of the operating assets and rights (other than the
Existing License for Brasilia) relating to the Brasilia System are being
transferred from LicenseCo to TV Filme Brasilia Servicos de Telecomunicacoes
Ltda., a newly-formed wholly-owned subsidiary of ITSA ("TV Filme Brasilia");
<PAGE>
WHEREAS, the parties desire that TV Filme Brasilia, TV Filme Goiania
Servicos de Telecomunicacoes Ltda., a wholly-owned subsidiary of ITSA ("TV Filme
Goiania") and TV Filme Belem Servicos de Telecomunicacoes Ltda., a wholly-owned
subsidiary of ITSA ("TV Filme Belem" and, together with TV Filme Goiania and TV
Filme Brasilia, the "Operating Subsidiaries") continue to operate the Brasilia,
Goiania and Belem Wireless Systems (the "Current Systems") pursuant to a grant
of exclusive right under the Existing Licenses from LicenseCo, as provided
herein;
WHEREAS, LicenseCo has filed with the Ministry (i) applications to
expand the Existing Licenses from 16 to 31 channels and (ii) applications for
the grant of licenses in 19 new markets (collectively, the "Pending License
Applications"), and the parties desire that the grant of any of the Pending
License Applications be for the exclusive benefit of ITSA and its affiliates on
the terms herein provided;
WHEREAS, ITSA in the future may desire to operate Wireless Systems in
additional markets and to have LicenseCo seek to obtain licenses from the
Ministry for such additional markets (the "Future License Applications" and,
together with the Pending License Applications, the "License Applications") for
the exclusive benefit of ITSA and its affiliates on the terms herein provided;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, undertakings, covenants and conditions set forth herein, the parties
hereto do hereby agree as follows:
2
<PAGE>
1. GRANT OF RIGHTS
---------------
1.1 Existing License. LicenseCo hereby grants to each of TV Filme
----------------
Brasilia, TV Filme Goiania and TV Filme Belem for the term of this Agreement, on
an exclusive basis, all rights to operate Wireless Systems in Brasilia, Goiania
and Belem, respectively, to the fullest extent permitted under the Existing
Licenses, including any expansion, renewal or modification thereof on the terms
set forth herein.
1.2 License Applications. Upon any grant of the Pending License
--------------------
Applications or Future License Applications, LicenseCo shall grant, pursuant to
a License Grant in substantially the form of EXHIBIT A hereto, to ITSA or such
---------
affiliate thereof as ITSA may designate for the term of this Agreement, on an
exclusive basis, all rights to operate the related Wireless Systems to the
fullest extent permitted under such license grants, including any expansion,
renewal or modification thereof, on the terms set forth herein.
1.3 Rights Granted. Without limitation of the foregoing, the rights
--------------
granted and to be granted to ITSA and its affiliates pursuant to Sections 1.1
and Section 1.2 shall include the right to design and construct (with respect to
new markets), operate, maintain, purchase goods and services for, administer,
market, and provide programming for the market areas related to the applicable
licenses, and ITSA agrees to take such actions in accordance with standards
reasonably acceptable in the industry.
2. COVENANTS OF LICENSECO
----------------------
2.1 Obtaining Licenses from the Ministry. LicenseCo shall use its best
------------------------------------
efforts, at ITSA's expense, to obtain the grant from the Ministry at the
earliest practicable date of the Pending License Applications and of any Future
License Applications which ITSA may from
3
<PAGE>
time to time request. LicenseCo shall make such modifications to the Pending
License Applications, and shall file Future License Applications in such form,
as ITSA may request. LicenseCo shall keep such representative or representatives
as ITSA may from time to time designate fully involved in and informed of the
license application process, including providing immediate notification of any
matters which may have a bearing on the grant, denial or modification of such
licenses, providing copies of any correspondence to LicenseCo from the Ministry,
obtaining the approval of such representative(s) for any filings or other
communications from LicenseCo to the Ministry, and advising such
representative(s) of any meetings or conferences to be held between LicenseCo
and the Ministry and providing such representative(s) with the opportunity to
participate in such meetings or conferences.
2.2 Acquiring Licenses from Third Parties. In the event that ITSA
-------------------------------------
acquires a Wireless System from a third party, or desires that a wireless
license granted to a third party be transferred to LicenseCo in order for ITSA
to construct and/or operate the related Wireless System, at ITSA's expense
LicenseCo shall make appropriate application to the Ministry as requested by
ITSA and, upon approval of the Ministry, accept assignment of and hold such
licenses for the exclusive and perpetual benefit of ITSA and its affiliates on
the same terms as provided in this Agreement with respect to Existing Licenses
and Pending and Future License Applications which may be granted.
2.3 Maintenance of Licenses. LicenseCo at all times shall use its best
-----------------------
efforts, at ITSA's expense, to obtain and maintain in full force and effect any
licenses contemplated by this Agreement (the "Licenses") and shall timely file
and prosecute all necessary applications for renewal and, when requested by
ITSA, for expansion, modification or otherwise (all after review
4
<PAGE>
and approval by ITSA and at ITSA's expense). LicenseCo shall not assign,
transfer, sell, trade, dispose or otherwise encumber the Licenses.
2.4 Compliance with Law. LicenseCo shall at all times comply with all
-------------------
laws applicable to the holding of Licenses, including timely making all
necessary filings (after review and approval by ITSA and at ITSA's expense) with
the Ministry, assuring that the stock ownership of LicenseCo continues to comply
with applicable law, and conducting itself in a manner so as to preclude any
suspension or nonrenewal of a License or any fine, censure or administrative
proceeding with respect thereto.
2.5 Repeaters. LicenseCo specifically authorizes ITSA to secure such
---------
licenses as may be required by the Ministry from time to time for ITSA to
utilize low power signal repeaters to expand the number of its subscribers. ITSA
shall pay all costs, including legal, engineering, equipment, construction,
installation and other expenses associated with obtaining and maintaining such
authorization and constructing, operating, and maintaining the authorized
facilities.
2.6 Further Efforts. LicenseCo shall, at ITSA's expense and direction,
---------------
file and diligently prosecute such petitions to deny or other protests against
applications of third parties for licenses as may be requested by ITSA.
LicenseCo shall make available to ITSA relevant research, findings and
strategies as to future wireless cable television technology developments of
which LicenseCo becomes aware.
2.7 Prosecution of Applications and Amendments. In the event any person
------------------------------------------
petitions the Ministry to deny or otherwise challenge any License held or
License Application filed pursuant to this Agreement, or in the event the
Ministry grants any License Application and any
5
<PAGE>
person petitions for review or reconsideration of such grant before the Ministry
or seeks judicial review of such grant, then LicenseCo shall use its best
efforts, at the direction and expense of ITSA, to oppose such petition or
challenge before the Ministry or defend such grant by the Ministry. Should the
Ministry deny any License Application filed by LicenseCo hereunder, ITSA shall
utilize its best efforts, as directed by ITSA and at ITSA's expense, to secure
reconsideration or review of such denial and, should such denial become a final
order, shall utilize its best efforts as directed by ITSA, at ITSA's expense, to
take such actions with respect to the related License or License Application in
order to meet ITSA's legitimate business needs and to satisfy the objections of
the Ministry.
2.8 Litigation. When LicenseCo is a necessary party, LicenseCo shall
----------
join, at ITSA's expense, in any litigation or other proceeding brought by or
against ITSA relating to ITSA's Wireless Systems or the related Licenses,
including to prevent any unauthorized individual or entity from receiving
signals transmitted by ITSA or from transmitting signals which would interfere
with ITSA's signals or which could be received within ITSA's market areas.
2.9 Control. Notwithstanding anything herein to the contrary, LicenseCo
-------
will retain total control over and responsibility for the Licenses as is
required by the Ministry's rules. To that end, ITSA will provide LicenseCo
access to all transmission equipment and data necessary for LicenseCo to carry
out such responsibility.
2.10 Sole Business. LicenseCo shall not engage in any business other
-------------
than applying for, holding and maintaining Licenses for the benefit of ITSA and
its affiliates as contemplated hereby.
6
<PAGE>
3. COVENANTS OF ITSA
-----------------
3.1 License Applications. All License Applications filed hereunder
--------------------
shall be prepared at the direction and expense of ITSA, which shall provide all
necessary information with respect to its capabilities and plans for operation
of the related Wireless System.
3.2 Operation of Wireless Systems. ITSA or its affiliates, as the case
-----------------------------
may be, shall operate all Wireless Systems under grant from LicenseCo hereunder
in compliance with all applicable law, and to conduct such operations in a
manner so as to preclude any suspension or nonrenewal of a License or any fine,
censure or administrative proceeding with respect thereto. Without limitation of
the foregoing, ITSA will use it best efforts, directly or through its affiliates
and at its or their expense, to construct new Wireless Systems in a timely
fashion as required under applicable law and the related License Application in
the case of new markets.
4. ROYALTIES; EXPENSES
-------------------
4.1 Royalties. In consideration for the grant of rights under any
---------
License hereunder by LicenseCo, the affiliate of ITSA which operates the related
Wireless Systems shall pay to LicenseCo a royalty equal to 10% of subscriber
installation fees received by such operating entity during the term of grant
(the "Royalty"). The Royalty shall be paid, in Reals, once per year within 30
days following receipt by ITSA of its audited financial statements for each
year, but not later than April 30 in any year. The Royalty shall be calculated
in accordance with the calculation of subscriber installation fees as set forth
in such financial statements, a copy of which shall be furnished to LicenseCo.
4.2 Expenses. LicenseCo shall obtain the prior written approval of ITSA
--------
for the incurrence of any expenses of LicenseCo to be borne by ITSA hereunder in
an individual amount
7
<PAGE>
greater than $10,000, or in an aggregate amount exceeding $25,000 during any
fiscal quarter, and shall not retain any third party whose fees or expenses are
to be borne by ITSA without its prior written consent. Where possible, ITSA
shall pay such expenses directly, and shall do so in a timely fashion. Where
LicenseCo directly pays expenses for which ITSA is responsible under this
Agreement, ITSA shall reimburse LicenseCo within 10 business days of receiving
an invoice for such expenses (which shall be furnished not less frequently than
quarterly), accompanied by such supporting documentation as ITSA shall
reasonably request.
5. REPRESENTATIONS
---------------
5.1 Representations of each of the Parties. Each of the parties
--------------------------------------
represents and warrants to the other the following, with respect to facts and
issues relating to it:
(a) Each party has all necessary power and authority to execute and
deliver this Agreement, to perform its obligations under this Agreement and to
consummate the transactions contemplated hereby.
(b) The execution, delivery and performance of this Agreement by such
party and the consummation by such party of the transactions contemplated hereby
have been duly authorized by the Board of Directors (or other similar governing
body) of such party and no other proceedings on the part of such party are
necessary to authorize this Agreement and the consummation by such party of such
transactions. This Agreement has been validly executed and delivered by such
party and, assuming the due authorization, execution and delivery hereof by the
other party hereto, constitutes a legal, valid and binding obligation of such
party, enforceable against such party in accordance with its terms.
8
<PAGE>
5.2 Representations of LicenseCo.
----------------------------
(a) Existing Licenses. The Existing Licenses consist of the licenses
-----------------
described on Schedule 5.2(a) attached hereto. The Existing Licenses are in full
force and effect, are owned by LicenseCo free and clear of any lien, claim,
charge or encumbrance of any kind ("Liens"), and there are not pending or
threatened any actions or proceedings of the Ministry or any other person which
could adversely affect in any way the ownership of the Existing Licenses by
LicenseCo, the suspension or renewal thereof, or the grant of authority to the
Operating Companies to operate the Existing Systems pursuant thereto as
contemplated hereby.
(b) Pending License Applications. LicenseCo has filed with the Ministry
----------------------------
the Pending License Applications listed on Schedule 5.2(b) attached hereto. Each
of the Pending License Applications is pending before the Ministry, and
LicenseCo is not aware of any information (including from the Ministry) that
would lead it to believe that it is not qualified for the grant of any of the
Pending License Application nor that any Pending License Application will not be
granted to LicenseCo (although there can be no assurance that any Pending
License Applications will be granted to LicenseCo).
6. BREACH. Further to the provisions of Section 8.12 hereof,
------
LicenseCo's sole remedy for breach, or alleged or threatened breach, of this
Agreement by ITSA shall be to seek appropriate damages from and other
appropriate relief against ITSA in legal proceedings, but in no event shall it
be entitled to terminate this Agreement or the grant of rights under Licenses
hereunder.
7. TERM. This Agreement shall become effective on the date hereof and
----
shall remain valid for the period in which the licenses held by LicenseCo remain
valid, which term
9
<PAGE>
shall be renewed for the term of any relevant renewals thereof upon the written
consent of the parties which shall not be unreasonably withheld.
8. MISCELLANEOUS.
-------------
8.1 Assignment. LicenseCo may not assign its rights, obligations or
----------
interests under this Agreement to any person or entity whatsoever. A change in
control of 50% or more of LicenseCo's voting equity shall constitute an
assignment hereunder.
8.2 Benefit. This Agreement shall inure to the benefit of and shall be
-------
binding upon the parties hereto and their respective permitted successors and
assigns. Nothing in this Agreement, expressed or implied, is intended to or
shall:
(a) confer on any person other than the parties hereto or their
respective permitted successors or assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement; or
(b) constitute a partnership or joint venture between the parties.
8.3 Confidentiality. All information exchanged by the parties or
---------------
acquired by them in connection with their performance under this Agreement shall
be kept confidential unless (i) the information is in the public domain, or (ii)
was lawfully acquired by the other party prior to the negotiation of this
Agreement, or (iii) is obtained lawfully through third parties not breaching an
obligation or trust.
8.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10
<PAGE>
8.5 Not Agents. No party is, nor shall any party hold itself out to be,
----------
vested with any power or right to contractually bind, or act on behalf of any
other as its contracting broker, agent or otherwise for committing, selling,
conveying or transferring any of the other party's assets or property,
contracting for or in the name of the other party, or making any contractually
binding representations as to the other party which shall be deemed
representations contractually binding upon such party.
8.6 Entire Agreement. This Agreement (including the Exhibits and
----------------
Schedules hereto) state the entire agreement between the parties with respect to
the subject matter hereof and supersedes all pre-existing oral or written
agreements or commitments with respect thereto.
8.7 Further Action. From time to time after the date of execution, the
--------------
parties shall use their best efforts to take such further action and execute
such further documents, assurances and certificates as either party may
reasonably request of the other (and at ITSA's expense in the case of LicenseCo)
in order to effectuate the purpose of this Agreement. In addition, each party
agrees that it will not take any action which would adversely affect the rights
granted by it to the other party hereunder.
8.8 Governing Law. This Agreement shall be governed by, and construed
-------------
and enforced in accordance with, the laws of Brazil.
8.9 Headings. The headings herein are inserted for convenience only and
--------
shall not constitute a part hereof.
8.10 Notices. Any notices and documentation given under this Agreement
-------
shall be in writing and shall be deemed given when personally delivered, or upon
confirmation of receipt of notice by fax, to the other party at the following
address:
11
<PAGE>
If to ITSA:
SCS - Quadra 7 - Bloco A
Ed. Educational Tower - Sala 601
Brasilia/DF 70300-911
Brazil
Attention: Carlos Andre Studart Lins de Albuquerque
Fax: 011-55-61-323-5660
If to LicenseCo:
SCS - Quadra 7 - Bloco A
Ed. Educational Tower - Sala 601
Brasilia/DF 70300-911
Brazil
Attention: Hermano Studart Lins de Albuquerque
Fax: 011-55-61-323-5660
8.11 Reformation. If the Brazilian government, the Ministry, or any
-----------
other governmental authority should amend or clarify the law, rules, regulations
or policies, or if any court should interpret any law, rule, regulation or
policy in a manner that would materially adversely affect the rights or
obligations of the parties obligations under this Agreement, then the parties
hereto shall promptly negotiate using their best efforts and in good faith to
reform and amend this Agreement, so as to effectuate as nearly as reasonably
possible the intention of the parties expressed in this Agreement. No party
shall take any action that contributes to such amendment, clarification or
interpretation without the prior written consent of the other party. Only in the
event the parties are unable to reach agreement with respect to the appropriate
action to be taken shall the offending provision(s) be stricken from this
Agreement and the remainder of the Agreement shall be enforced to the greatest
extent permitted by law.
8.12 Specific Performance. The parties acknowledge and agree that the
--------------------
rights reserved to each of them hereunder are of a special, unique, unusual and
extraordinary character, which
12
<PAGE>
gives them a particular value, the loss of which cannot be adequately or
reasonably compensated for in damages in an action at law, and the breach by
either of the parties of any of the provisions hereof will cause the other
parties irreparable injury and damage. In order to secure the performance of the
obligations set forth herein, each of the parties shall have the right to claim
in Court the specific performance of the obligations contained in this Agreement
or any portion hereof, pursuant to the applicable provisions of the Brazilian
Civil Procedure Code, including, without limitation, Articles, 461, 632, 639 et
--
al. Neither this provision nor any exercise by any party of rights to equitable
- --
relief or specific performance herein granted shall constitute a waiver of any
other rights which it may have to damages or otherwise.
8.13 Amendments; Waiver. Any amendment or modification hereto shall not
------------------
be binding upon the parties unless in writing signed by both parties. The
express or implied waiver by either party of any breach of any representation or
warranty or any failure to fulfill any condition, covenant or other obligation
or liability under this Agreement shall not constitute a waiver of any other
representation or warranty or of any other failure in the future or in the past
by the other party to fulfill such representation, warranty, condition,
covenant, obligation or liability hereunder.
13
<PAGE>
IN WITNESS WHEREOF, the parties, by their duly authorized signatories,
have executed this Agreement on the date and year first above written together
with the two (2) witnesses named below.
ITSA--INTERCONTINENTAL
TELECOMUNICACOES LTDA.
By:____________________________________
Name:
Title:
TV FILME SERVICOS DE
TELECOMUNICACOES LTDA.
By:____________________________________
Name:
Title:
Witnesses:
- ---------
1. __________________________
2. __________________________
14
<PAGE>
EXHIBIT A
---------
FORM OF LICENSE GRANT
---------------------
Pursuant to the terms of the Master Operating Agreement (the "Master
Operating Agreement") dated _____________ ___, 1996, between ITSA-
Intercontinental Telecomunicacoes Ltda. and TV Filme Servicos de
Telecomunicacoes Ltda. ("LicenseCo"), LicenseCo hereby grants to [NAME OF
LICENSE GRANTEE], on an exclusive basis, all rights to operate the Wireless
System (as such term is defined in the Master Operating Agreement) in [NAME OF
CITY] pursuant to the license owned by LicenseCo to operate a Wireless System in
such location, to the fullest extent permitted under such license, including any
expansion, renewal or modification thereof. The terms and conditions of the
grant, including royalties to be paid therefor, shall be as set forth in the
Master Operating Agreement.
Dated as of _____________
TV FILME SERVICOS DE
TELECOMUNICACOES LTDA.
By:____________________________________
Name:
Title:
[NAME OF LICENSE GRANTEE]
By:____________________________________
Name:
Title:
<PAGE>
SCHEDULE 5.2(a)
---------------
LicenseCo owns three permits for the operation of Multi-point Multi-channel
Distribution Service ("MMDS") services, as described below:
(a) Brasilia: On September 19, 1990, LicenseCo was granted a permit for the
--------
provision of CFTV service (closed television circuit) in the City of
Brasilia.
Before the regulatory rules for MMDS services were issued by the Ministry
of Communications, the then current permissionaires of MMDS were granted a
CFTV license.
Administrative Act 43, of February 10, 1994 issued by the Ministry of
Communications adopted Rule No. 002/94 (basic MMDS rule) and automatically
transformed all CFTV licenses listed therein into MMDS permits. The
permissionaires whose licenses had been so transformed were then required
to comply with certain obligations in order to adapt their operations and
equipment to the requirements of the MMDS service.
On February 27, 1996, Ministry Act No. 008 authorized the installation of
MMDS stations in the City of Brasilia and determined that within the
following 12 months, all the CFTV permissionaires would be required to
install MMDS required equipment and request a visit from representatives of
the Ministry of Communications in order to obtain a new operating license.
On February 27, 1996, such Ministry Act was published in the Brazilian
Official Gazette. On March 20, 1996 LicenseCo sent a letter to the Ministry
of Communications requesting a visit from representatives of the Ministry
of Communications in order to obtain the operating license.
(b) Belem: On December 22, 1994, Ministry Act No. 1163 approved the transfer
-----
to LicenseCo of the permit granted on October 21, 1988 to TVA Brasil
Radioenlaces through Ministry Act No. 209, for the provision of MMDS in the
City of Belem.
(c) Goiania: On December 22, 1994, Ministry Act No. 1164 approved the transfer
-------
to LicenseCo of the permit granted on September 29, 1988 to TVA Brasil
Radioenlaces through Ministry Act No. 097, for the provision of MMDS in the
City of Goiania.
<PAGE>
SCHEDULE 5.2(b)
---------------
The cities listed below are those where LicenseCo has applied for MMDS permits:
<TABLE>
<CAPTION>
City State Process No.
---- ----- -----------
<S> <C> <C>
1. Teresina PI 53000.001689/94
2. Natal RN 53000.001690/94
3. Fortaleza CE 53000.001691/94
4. Cuiaba MT 53000.001692/94
5. Aracaju SE 53000.001693/94
6. Campo Grande MS 53000.001694/94
7. Parnaiba PI 53000.001695/94
8. Joao Pessoa PB 53000.001696/94
9. Rio Verde GO 53000.001697/94
10. Mossoro RN 53000.001698/94
11. Sobral CE 53000.001699/94
12. Dourados MS 53000.001700/94
13. Aparecida de Goiania GO 53000.001701/94
14. Campina Grande PB 53000.001702/94
15. Imperatriz MA 53000.001703/94
16. Juazeiro do Norte CE 53000.001704/94
17. Anapolis GO 53000.001705/94
18. Maceio AL 53000.001707/94
19. Divinopolis MG 53000.001773/94
</TABLE>
<PAGE>
EXHIBIT 10.10
TV FILME, INC.
FORM OF INDEMNIFICATION AGREEMENT
---------------------------------
INDEMNIFICATION AGREEMENT, dated as of ___________________, 1996, by
and between TV FILME, INC., a Delaware corporation (the "COMPANY"), and the
director and/or officer of the Company whose name appears on the signature page
of this Agreement (the "INDEMNITEE").
WHEREAS, TV Filme is contemplating an initial public offering (the
"Initial Public Offering") of shares of its common stock, $.01 par value; and
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors, officers, or in similar capacities
unless they are provided with reasonable protection through insurance and
indemnification against risks of claims and actions against them arising out of
their service to and activities on behalf of the corporations; and
WHEREAS, the current impracticability of obtaining adequate insurance
and the uncertainties related to indemnification have increased the difficulty
of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company (the "BOARD") has
determined that the ability to attract and retain such persons is in the best
interests of the Company's stockholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company to
oblige itself contractually to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance of the
indemnification contemplated by the Company's Certificate of Incorporation and
rights granted under the Certificate of Incorporation and any resolutions
adopted pursuant thereto, and shall not be deemed to be a substitute therefor
nor to diminish or abrogate any rights of Indemnitee thereunder; and
WHEREAS, Indemnitee is willing to serve, continue to serve, and to
take on additional service for or on behalf of the Company on the condition that
Indemnitee be so indemnified.
<PAGE>
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. Definitions. For purposes of this Agreement:
-----------
(a) "CORPORATE STATUS" means the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Company or any majority
owned subsidiary or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which such person is or was serving at
the request of the Company.
(b) "DISINTERESTED DIRECTOR" means a director of the Company who is
not or was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
(c) "EXPENSES" means all reasonable attorneys' fees and costs,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, settling, investigating, or being or preparing to be a
witness in a Proceeding.
(d) "INDEPENDENT COUNSEL" means a law firm or a member of a law firm
that is experienced in matters of corporate law and securities liability-related
litigation and neither is presently nor in the past five years has been retained
to represent: (i) the Company or Indemnitee in any matter material to either
such party or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "INDEPENDENT
COUNSEL" shall not include any firm or person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or Indemnitee in an action to
determine Indemnitee's right to indemnification under this Agreement. All fees
and expenses of the Independent Counsel incurred in connection with acting
pursuant to this Agreement shall be borne by the Company.
(e) "PROCEEDING" means any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative; PROVIDED,
--------
HOWEVER, that the term "PROCEEDING" shall include any action instituted by an
- -------
Indemnitee (other than an action to enforce indemnification rights under this
Agreement) only if such action is authorized by the Board of Directors.
2. Services by Indemnitee. Indemnitee agrees to begin or continue to
----------------------
serve the Company or other corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise affiliated with the Company (all of
which are collectively referred to as an "AFFILIATE") as a director or officer.
Notwithstanding anything contained herein, this Agreement shall not create a
contract of employment between the Company and Indemnitee and the termination of
Indemnitee's relationship with the Company or an Affiliate by either party
hereto shall not be restricted by this Agreement.
2
<PAGE>
3. Indemnification. The Company shall indemnify, and advance
---------------
Expenses to, Indemnitee to the fullest extent permitted by applicable law in
effect on the date hereof or as such laws may from time to time hereafter be
amended to increase the scope of such permitted indemnification. Without
diminishing the scope of the indemnification provided by this Section 3, the
rights of indemnification of Indemnitee provided hereunder shall include, but
shall not be limited to, the rights set forth in other sections of this
Agreement.
4. Action or Proceeding Other Than an Action by or in the Right of
---------------------------------------------------------------
the Company. Indemnitee shall be entitled to the indemnification rights
- -----------
provided in this Section 4 if, by reason of his or her Corporate Status,
Indemnitee is, or is threatened to be made, a party to any pending, completed or
threatened Proceeding, other than a Proceeding by or in the right of the
Company. Pursuant to this Section 4, Indemnitee shall be indemnified against
Expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by Indemnitee or on Indemnitee's behalf in connection
with any such Proceeding, if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal Proceeding, had no reasonable
cause to believe his conduct was unlawful.
5. Proceedings by or in the Right of the Company. Indemnitee shall
---------------------------------------------
be entitled to the indemnification rights provided in this Section 5 if, by
reason of his or her Corporate Status, Indemnitee is, or is threatened to be
made, a party to any pending, completed or threatened Proceeding brought by or
in the right of the Company to procure a judgment in its favor. Pursuant to
this Section 5, Indemnitee shall be indemnified against Expenses, judgments,
penalties, fines and amounts paid in settlement incurred by Indemnitee or on
Indemnitee's behalf in connection with any such proceeding if Indemnitee acted
in good faith and in a manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company. Notwithstanding the foregoing
provisions of this Section 5, no such indemnification against such Expenses,
judgments, penalties, fines and amounts paid in settlement shall be made in
respect of any claim, issue or matter in any such Proceeding as to which
Indemnitee shall have been adjudged to be liable for misconduct of his duty to
the Company; PROVIDED, HOWEVER, that in such event such indemnification shall
-------- -------
nevertheless be made by the Company to the extent that the court in which such
action or suit was brought (or any other court of competent jurisdiction) shall
determine equitable under the circumstances.
6. Indemnification for Costs, Charges and Expenses of Party Who is
---------------------------------------------------------------
Wholly or Partly Successful. Notwithstanding any other provisions of this
- ---------------------------
Agreement, to the extent that Indemnitee is, by reason of his or her Corporate
Status, a party to and is successful, on the merits or otherwise, in any
Proceeding, Indemnitee shall be indemnified against all Expenses actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in connection
therewith. If Indemnitee is not wholly successful in such Proceeding but is
successful, on the merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee, to the maximum extent permitted by law, against all Expenses
actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection with each successfully resolved claim, issue or matter. For purposes
of this Section 6
3
<PAGE>
and without limiting the foregoing, the termination of any such claim, issue or
matter in any such Proceeding by dismissal, with or without prejudice, shall be
deemed to be a successful resolution as to such claim, issue or matter.
7. Indemnification for Expenses of a Witness. Notwithstanding any
-----------------------------------------
other provisions of this Agreement, to the extent that Indemnitee is, by reason
of his or her Corporate Status, a witness in any proceeding, Indemnitee shall be
indemnified by the Company against all Expenses actually and reasonably incurred
by Indemnitee or on Indemnitee's behalf in connection therewith.
8. Advancement of Expenses. All Expenses incurred by or on behalf of
-----------------------
Indemnitee in connection with any Proceeding shall be paid by the Company within
twenty days after the receipt by the Company of a statement or statements from
Indemnitee requesting from time to time such advance or advances, whether prior
to or after the final disposition of such Proceeding. Indemnitee's entitlement
to such advancement of Expenses shall include those incurred in connection with
any Proceeding by Indemnitee seeking an adjudication or award in arbitration
pursuant to this Agreement. Such statement or statements shall reasonably
evidence the Expenses incurred by Indemnitee in connection therewith and shall
include or be preceded or accompanied by a written undertaking by or on behalf
of Indemnitee, in form and substance reasonably acceptable to the Company, to
repay any Expenses advanced if it shall ultimately be determined that Indemnitee
is not entitled to be indemnified against such Expenses pursuant to the terms of
this Agreement.
9. Procedure for Determination of Entitlement to Indemnification.
-------------------------------------------------------------
(a) To obtain indemnification under this Agreement in connection with
any Proceeding, Indemnitee shall submit a written request for indemnification to
the Company. Such request shall include documentation and information which is
reasonably available to Indemnitee and is reasonably necessary for the Company
to determine whether and to what extent Indemnity is entitled to
indemnification. Determination of Indemnitee's entitlement to indemnification
shall be made not later than 30 days after receipt by the Company of
Indemnitee's written request for indemnification. The Secretary of the Company
shall, promptly upon receipt of Indemnitee's request for indemnification, advise
the Board that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
Section 9(a) hereof, a determination, if required by applicable law, with
respect to Indemnitee's entitlement thereto shall be made in such case: (i) (A)
by the Board by a majority vote of a quorum consisting of Disinterested
Directors, or (B) if a quorum of the Board consisting of Disinterested Directors
is not obtainable, or even if such quorum is obtainable, if such quorum of
Disinterested Directors so directs, either (x) by Independent Counsel in a
written opinion to the Board, a copy of which shall be delivered to Indemnitee,
or (y) by the stockholders of the Company, as determined by such quorum of
Disinterested Directors, or a quorum of the Board, as the case may be, or (ii)
as provided in Section 10(b) of this Agreement. If it is so determined that
Indemnitee is entitled to indemnification, payment to Indemnitee shall be made
within 20 days
4
<PAGE>
after such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) If required, Independent Counsel shall be selected by the Board,
and the Company shall give written notice to Indemnitee advising him or her of
the identity of Independent Counsel so selected. Indemnitee may, within seven
days after such written notice of selection shall have been given, deliver to
the Company a written objection to such selection. Such objection may be
asserted only on the grounds that Independent Counsel so selected does not meet
the requirements of "INDEPENDENT COUNSEL" as defined in Section 1 of this
Agreement and the objection shall set forth with particularity the factual basis
of such assertion. If such written objection is made, Independent Counsel so
selected may not serve as Independent Counsel unless and until a court has
determined that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 9(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition a court of competent
jurisdiction for resolution of any objection which shall have been made by the
Company or Indemnitee to the other's selection of Independent Counsel and/or for
the appointment as Independent Counsel of a person selected by such court or by
such other person as such court shall designate, and the person with respect to
whom an objection is so resolved or the person so appointed shall act as
Independent Counsel under Section 9(b) hereof. The Company shall pay any and
all reasonable fees and expenses incurred by such Independent Counsel in
connection with its actions pursuant to this Agreement, and the Company shall
pay all reasonable fees and expenses incident to the procedures of this Section
9(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement date or any judicial proceeding or
arbitration pursuant to Section 11(a)(iii) of this Agreement, Independent
Counsel shall be discharged and relieved of any further responsibility in such
capacity (subject to the applicable standards of professional conduct then
prevailing).
5
<PAGE>
10. Presumption and Effects of Certain Proceedings.
----------------------------------------------
(a) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 9(a) of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection with the making by
any person, persons or entity of any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under
Section 9 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within 60 days after receipt
by the Company of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) prohibition of such indemnification under
applicable law; PROVIDED, HOWEVER, that such 60-day period may be extended for a
-------- -------
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith require(s) such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and PROVIDED, FURTHER, that
-------- -------
the foregoing provisions of this Section 10(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 9(b) of this Agreement and if (A) within 15
days after receipt by the Company of the request for such determination the
Board has resolved to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within 75 days after such
receipt and such determination is made thereat, or (B) a special meeting of
stockholders is called within 15 days after such receipt for the purpose of
making such determination, such meeting is held for such purpose within 60 days
after having been so called and such determination is made thereat, or (ii) if
the determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 9(b) of this Agreement.
11. Remedies in Cases of Determination not to Indemnify or to Advance
-----------------------------------------------------------------
Expenses.
- --------
(a) In the event that (i) a determination is made pursuant to Section
9 of this Agreement, (ii) advances are not made pursuant to Section 8 hereof in
a timely fashion, or (iii) the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 9(b) of this Agreement
and such determination shall not have been made and delivered in a written
opinion within 90 days after receipt by the Company of the request for
indemnification, (iv) payment of indemnification is not made pursuant to Section
7 of this Agreement within 10 days after receipt by the Company of a written
request therefor, or (v) payment of indemnification is not made within 10 days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made
6
<PAGE>
pursuant to Section 9 or 10 of this Agreement, Indemnitee shall be entitled to
an adjudication in a court of competent jurisdiction, of his or her entitlement
to such indemnification or advancement of Expenses. Alternatively, Indemnitee,
at his or her option, may seek an award in arbitration to be conducted by a
single arbitrator in the State of Delaware. Indemnitee shall commence such
proceeding seeking an adjudication or an award in arbitration within 180 days
following the date on which Indemnitee first has the right to commence such
proceeding pursuant to this Section 11(a). The Company shall not oppose
Indemnitee's right to seek any such adjudication or award in arbitration.
(b) In the event a determination has been made in accordance with the
procedures set forth in Section 9 hereof, in whole or in part, that Indemnitee
is not entitled to indemnification, any such judicial proceeding or arbitration
shall be made de novo and Indemnitee shall not be prejudiced by reason of that
-- ----
adverse prior determination.
(c) If a determination is made or deemed to have been made pursuant to
Section 9 and 10 hereof that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to this Section 11, absent (i) a
misrepresentation of a material fact by Indemnitee or an omission of a material
fact necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a final judicial
determination that all or any part of such indemnification is expressly
prohibited by law.
(d) In the event that Indemnitee, pursuant to this Section 11, seeks a
judicial adjudication of, or an award in arbitration to enforce, his or her
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the kinds described in the definition
of Expenses) actually and reasonably incurred by Indemnitee in such judicial
adjudication or arbitration, but only if Indemnitee prevails therein. If it
shall be determined in such judicial adjudication or arbitration that Indemnitee
is entitled to receive part but not all of the indemnification or advancement of
expenses sought, the expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately prorated.
12. Non-Exclusivity.
---------------
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, a certificate of incorporation or By-Laws of the Company, any agreement, a
vote of stockholders or a resolution of directors, or otherwise. No amendment,
alteration, rescission or replacement of this Agreement or any provision hereof
shall be effective as to Indemnitee with respect to any action taken or omitted
by such Indemnitee in Indemnitee's Corporate Status prior to such amendment,
alteration, rescission or replacement, except to the extent expressly provided
therein.
7
<PAGE>
(b) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
13. Effective Date. This Agreement shall be effective automatically
--------------
upon consummation of the Initial Public Offering.
14. Duration of Agreement. This Agreement shall apply to any claim
---------------------
asserted and any Expenses incurred in connection with any claim asserted on or
after the effective date of this Agreement and shall continue until and
terminate upon the later of: (a) 10 years after Indemnitee has ceased to occupy
any of the positions or have any of the relationships described in Sections 3, 4
or 5 of this Agreement; or (b) the final termination of all pending or
threatened Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of Expenses hereunder and any Proceedings
commenced by Indemnitee pursuant to Section 11 hereof (but only in respect of
such Proceedings). This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of Indemnitee and
Indemnitee's spouse, assigns, heirs, devises, executors, administrators or other
legal representatives.
15. Severability. Should any part, term or condition hereof be
------------
declared illegal or unenforceable or in conflict with any other law, the
validity of the remaining portions or provisions of this Agreement shall not be
affected thereby, and the illegal or unenforceable portions of the Agreement
shall be and hereby are redrafted to conform with applicable law, while leaving
the remaining portions of this Agreement intact.
16. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
17. Headings. Section headings are for convenience only and do not
--------
control or affect meaning or interpretation of any terms or provisions of this
Agreement.
18. Modification and Waiver. No supplement, modification or
-----------------------
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto.
19. Notice by Indemnitee. Indemnitee agrees promptly to notify the
--------------------
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
8
<PAGE>
20. No Duplicative Payment. The Company shall not be liable under
----------------------
this Agreement to make any payment of amounts otherwise indemnifiable hereunder
if and to the extent that Indemnitee has otherwise actually received such
payment under any insurance policy, contract, agreement or otherwise.
21. Nondisclosure of Payments. Except as expressly required by
-------------------------
Federal securities laws or Delaware corporation law, neither party shall
disclose any payments under this Agreement unless prior approval of the other
party is obtained. Any payments to the Indemnitee that must be disclosed shall,
unless otherwise required by law, be described only in Company proxy or
information statements relating to special and/or annual meetings of the
Company's stockholders, and the Company shall afford the Indemnitee the
reasonable opportunity to review all such disclosures and, if requested, to
explain in such statement any mitigating circumstances regarding the events
reported.
22. Indemnification of Indemnitee's Estate. Notwithstanding any
--------------------------------------
other provision of this Agreement, and regardless whether indemnification of an
Indemnitee would be permitted and/or required under this Agreement, if
Indemnitee is deceased, the Company shall indemnify and hold harmless
Indemnitee's estate, spouse, heirs, administrators, personal representatives and
executors (collectively, the "INDEMNITEE'S ESTATE") against, and the Company
shall assume, any and all claims, damages, Expenses, judgments, penalties, fines
and amounts paid in settlement actually incurred by the Indemnitee or the
Indemnitee's Estate in connection with the investigation, defense, settlement or
appeal of any action contemplated by this Agreement. Indemnification of the
Indemnitee's Estate pursuant to this Section 22 shall be mandatory and not
require a determination or any other finding that Indemnitee's conduct satisfied
a particular standard of conduct.
23. Notices. All notices, requests, demands and other communications
-------
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed
in any general or branch office of the United States Postal Service, enclosed in
a registered or certified postpaid envelope, or sent by Federal Express or other
similar overnight courier service, addressed to the address of the parties
stated below or to such changed address as such party may have fixed by notice
or, if given by telecopier, when such telecopy is transmitted and the
appropriate answerback is received.
(a) If to Indemnitee, to the address appearing on the signature page
hereof.
9
<PAGE>
(b) If to the Company to:
TV Filme, Inc.
c/o ITSA-Intercontinental Telecomunicacoes Ltda.
SCS, Quadra 07-B1.A
Ed. Executive Tower
Sala 601
70.300-911 Brasilia-DF
Brazil
Attention: Douglas M. Karp, Chairman of the Board
24. Governing Law. The parties agree that this Agreement shall be
-------------
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
25. Entire Agreement. This Agreement constitutes the entire
----------------
understanding between the parties and supersedes all proposals, commitments,
writings, negotiations and understandings, oral and written, and all other
communications between the parties relating to the subject matter of this
Agreement. This Agreement may not be amended or otherwise modified except in
writing duly executed by all of the parties. A waiver by any party of any
breach or violation of this Agreement shall not be deemed or construed as a
waiver of any subsequent breach or violation thereof.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
TV FILME, INC.
By: ______________________________________
Name:
Title:
INDEMNITEE
__________________________________________
Signature
__________________________________________
Print Name
__________________________________________
Address
__________________________________________
City and State
__________________________________________
Telecopier Number
<PAGE>
EXHIBIT 11
TV FILME, INC.
Calculation of Net Income (Loss) Per Share
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------- ----------------------------
1993 1994 1995 1995 1996
---------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Weighted Average Shares Outstanding 2,206,653 3,796,796 4,997,240 4,997,240 6,193,996
Shares and Warrants Issued during 12 months
prior to filing of Initial Public Offering 3,088,700 3,088,700 3,088,700 3,088,700 1,891,944
---------- --------- ---------- ------------- --------------
TOTAL SHARES 5,295,353 6,885,496 8,085,940 8,085,940 8,085,940
========== ========= ========= ============= ==============
NET INCOME (LOSS) (in thousands) ($516) $518 ($2,217) ($656) ($459)
========== ========= ========= ============= ==============
NET INCOME (LOSS) PER SHARE ($0.10) $0.08 ($0.27) ($0.08) ($0.06)
========== ========= ========= ============= ==============
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
---------------------------
ITSA-Intercontinental Telecomunicacoes Ltda., a Brazilian limited liability
company
Filme Sub, Inc., a Delaware corporation
TV Filme Servicos de Telecomunicacoes Ltda., a Brazilian limited liability
company
TV Filme Brasilia Servicos de Telecomunicacoes Ltda., a Brazilian limited
liability company
TV Filme Goiania Servicos de Telecomunicacoes Ltda., a Brazilian limited
liability company
TV Filme Belem Servicos de Telecomunicacoes Ltda., a Brazilian limited
liability company
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF TOZZINI, FREIRE, TEIXEIRA E. SILVA ADVOGADOS]
July 17, 1996.
TV Filme, Inc.
SCS, Quadra 07 - Bl. A
Ed. Executive Tower - Sala 601
70.300-911 Brasilia - DF
Brazil
Ladies and Gentlemen,
We hereby consent to the reference to this firm appearing under the heading
"Risk Factors Risk Factors Relating to Brazil Generally - Potential
Unenforceability of Civil Liabilities and Judgements" and "Legal Matters" in the
Prospectus. In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of the General Rules and Regulations of the Commission thereunder.
Very truly yours,
/s/ Jose Emilio Nunes Pinto
TOZZINI, FREIRE, TEIXEIRA E. SILVA ADVOGADOS
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the heading "Selected
Consolidated Financial Data" and under the caption "Experts" and to our report
dated January 18, 1996 (except Note 1, as to which the date is July _______,
1996), in the Registration Statement (Form S-1 No. 333-4512) and related
Prospectus of TV Filme, Inc. for the registration of 2,875,000 shares of its
Common Stock.
Ernst & Young
Auditores Independents S.C.
Sao Paulo, Brazil
The foregoing consent is in the form that will be signed upon the completion of
the transfer described in Note 1 to the consolidated financial statements.
/s/ Ernst & Young
Auditores Independents S.C.
Sao Paulo, Brazil
July 17, 1996
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
of
JOSE AUGUSTO PINTO MOREIRA
KNOW ALL MEN BY THESE PRESENTS that the individual whose signature
appears below hereby constitutes and appoints Douglas M. Karp and Gary D.
Nusbaum and each of them, his true and lawful attorneys-in-fact and agents with
full power of substitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all pre- or post-effective amendments to a
Registration Statement on Form S-1 for the registration of common stock of the
Company, Commission File No. 333-4512 (the "Registration Statement"), any
subsequent Registration Statement for the same offering which may be filed under
Rule 462(b) (a "Rule 462(b) Registration Statement") and any and all pre- or
post-effective amendments thereto, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
which they, or any of them, may deem necessary or advisable to be done in
connection with the Registration Statement or any Rule 462(b) Registration
Statement, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or any substitute or substitutes for any or all of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the
16th day of JuLY, 1996
/s/ Jose Augusto Pinto Moreira
------------------------------
Jose Augusto Pinto Moreira
