<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 4, 1997
REGISTRATION NO. 333-21057
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
TV FILME, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4841 98-0160214
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
C/O ITSA-INTERCONTINENTAL TELECOMUNICACOES, LTDA.
SCS, QUADRA 07-B1.A
ED. EXECUTIVE TOWER
SALA 601
70.300-911 BRASILIA-DF
BRAZIL
011-55-61-314-9908
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
------------------------------
ALVARO J. AGUIRRE
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
011-55-61-314-9908
(Name, Address, Including Zip Code,
and Telephone
Number, Including Area Code, of Agent
For Service)
COPIES OF ALL COMMUNICATIONS TO:
JOHN T. CAPETTA, ESQ.
KELLEY DRYE & WARREN LLP
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CONNECTICUT 06901
(203) 324-1400
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the registration statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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 THE 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 ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
S-K CAPTION IN OR
ITEM NUMBER ITEM DESCRIPTION OF ITEM PART OF PROSPECTUS
- ----------- ------------ ---------------------------------------- ----------------------------------------
<C> <C> <S> <C> <C>
1. (Item 501) Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Forepart of Registration Statement;
Outside Front Cover Page of Prospectus
2. (Item 502) Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus;
Additional Information
3. (Item 503) Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information.......... Prospectus Summary; Risk Factors;
Selected Consolidated Financial Data
4. (Item 202) Terms of the Transaction................ Outside Front Cover Page of Prospectus;
Prospectus Summary; Description of
Exchange Notes
5. -- Pro Forma Financial Information......... Inapplicable
6. -- Material Contacts with the Company Being
Acquired................................ Inapplicable
7. (Item 507) Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters...................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Plan of Distribution
8. (Item 509) Interests of Named Experts and
Counsel................................. Inapplicable
9. (Item 510) Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Inapplicable
10. -- Information With Respect to S-3
Registrants............................. Inapplicable
11. -- Incorporation of Certain Information by
Reference............................... Inapplicable
12. (Items 101, Information With Respect to S-2 or S-3
301, 302, Registrants............................. Inapplicable
303 304)
13. (Items 101, Incorporation of Certain Information by
301, 302, Reference............................... Inapplicable
303, 304)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
S-K CAPTION IN OR
ITEM NUMBER ITEM DESCRIPTION OF ITEM PART OF PROSPECTUS
- ----------- ------------ ---------------------------------------- ----------------------------------------
<C> <C> <S> <C> <C>
14. Information With Respect to Registrants
Other Than S-3 or S-2 Registrants
(a) (Item 101) Description of Business................. Prospectus Summary; Risk Factors; The
Company; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business; Certain
Transactions
(b) (Item 102) Description of Property................. Business
(c) (Item 103) Legal Proceedings....................... Business
(d) (Item 201) Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters..................... Inapplicable
(f) (Item 301) Selected Financial Data................. Prospectus Summary; Selected
Consolidated Financial Data
(g) (Item 302) Supplementary Financial Information..... Inapplicable
(h) (Item 303) Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
(i) (Item 304) Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.............................. Inapplicable
15. -- Information With Respect to S-3
Companies............................... Inapplicable
16. -- Information With Respect to S-2 or S-3
Companies............................... Inapplicable
17. (Items 201, Information With Respect to Companies
301, 302, Other Than S-2 or S-3 Companies......... Inapplicable
303, 304)
18. (Items 401, Information if Proxies, Consents or
402, 404) Authorizations Are to be Solicited...... Inapplicable
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited,
or in an Exchange Offer
(a) (Item 401) Directors, Executive Officers,
Promoters, and Control Persons.......... Risk Factors; Management; Certain
Transactions; Principal Stockholders
(b) (Item 402) Executive Compensation.................. Management
(c) (Item 404) Certain Relationships and Related
Transactions............................ Management; Certain Transactions
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 4, 1997
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.
<PAGE>
PROSPECTUS
TV FILME, INC.
OFFER TO EXCHANGE $140,000,000 OF ITS 12 7/8% SENIOR NOTES
DUE 2004 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR $140,000,000
OF ITS OUTSTANDING 12 7/8% SENIOR NOTES DUE 2004
The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New York
City time, on , , 1997 (as such date may be extended, the
"Expiration Date").
TV Filme, Inc. ("TV Filme") hereby offers (the "Exchange Offer"), upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying letter of transmittal (the "Letter of Transmittal"), to exchange
$1,000 principal amount of its 12 7/8% Senior Notes due 2004 (the "Exchange
Notes") for each $1,000 principal amount of its outstanding 12 7/8% Senior Notes
due 2004 (the "Old Notes") (the Old Notes and the Exchange Notes are sometimes
collectively referred to herein as the "Notes") held by Eligible Holders. As of
the date of this Prospectus, $140.0 million aggregate principal amount of Old
Notes is outstanding. See "The Exchange Offer." For purposes of the Exchange
Offer, "Eligible Holder" shall mean the registered owner of any Old Notes that
remain Transfer Restricted Securities (as defined below) as reflected on the
records of IBJ Schroder Bank & Trust Company, as registrar for the Old Notes (in
such capacity, the "Registrar"), or any person whose Old Notes are held of
record by the Depository (as defined herein) of the Old Notes. For purposes of
the Exchange Offer, "Transfer Restricted Securities" means each Old Note until
(i) the date on which such Old Note has been exchanged by a person other than a
broker-dealer for an Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of an Old Note for an Exchange
Note, the date on which such Exchange Note is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of this
Prospectus, (iii) the date on which such Old Note has been effectively
registered under the Securities Act of 1933, as amended (the "Securities Act")
and disposed of in accordance with a Shelf Registration Statement (as defined
herein) or (iv) the dates on which the Old Note is distributed to the public
pursuant to Rule 144 under the Securities Act.
TV Filme will accept for exchange any and all Old Notes that are validly
tendered prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being tendered for exchange. However, the
Exchange Offer is subject to certain customary conditions, which may be waived
by TV Filme. TV Filme reserves the right to amend, terminate or extend the
Exchange Offer at any time prior to the Expiration Date upon the occurrence of
any such condition. The Old Notes may be tendered only in multiples of $1,000.
See "The Exchange Offer."
(CONTINUED ON NEXT PAGE)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 18 HEREIN FOR A DISCUSSION OF CERTAIN
RISKS THAT SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS IN EVALUATING THE EXCHANGE
OFFER.
------------------------
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.
------------------------
The date of this Prospectus is , 1997.
<PAGE>
The Old Notes were issued in a transaction (the "Offering") pursuant to
which TV Filme issued an aggregate of $140.0 million principal amount of the Old
Notes to Bear, Stearns & Co. Inc., BT Securities Corporation, J.P. Morgan
Securities Inc. and Alex. Brown & Sons Incorporated (collectively, the "Initial
Purchasers") on December 20, 1996 (the "Closing Date") pursuant to a Purchase
Agreement, dated December 16, 1996 (the "Purchase Agreement"), between TV Filme
and the Initial Purchasers. The offer and sale of the Old Notes was not required
to be registered under the Securities Act in reliance upon the exemption
provided by Section 4(2) of the Securities Act. The Initial Purchasers
subsequently resold the Old Notes in reliance on Rule 144A under the Securities
Act and certain other available exemptions under the Securities Act. In
connection with the Offering, TV Filme and the Initial Purchasers also entered
into a Registration Rights Agreement, dated as of December 20, 1996 (the
"Registration Rights Agreement"), pursuant to which TV Filme granted certain
registration rights for the benefit of the holders of the Old Notes. The
Exchange Offer is intended to satisfy certain of TV Filme's obligations under
the Registration Rights Agreement with respect to the Old Notes. See "The
Exchange Offer -- Purpose and Effect."
The Old Notes were, and the Exchange Notes will be, issued under the
Indenture, dated as of December 20, 1996 (the "Indenture"), between TV Filme and
IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"). The terms of the
Exchange Notes are identical in all material respects (including principal
amount, interest rates and maturity) to the terms of the Old Notes for which
they may be exchanged in the Exchange Offer, except that (i) the Exchange Notes
are fully transferable by the holders thereof (other than as provided herein),
and are not subject to any covenant regarding registration under the Securities
Act, (ii) holders of Exchange Notes will not be entitled to liquidated damages
in an amount equal to $.05 per week per $1,000 principal amount of Old Notes (up
to a maximum amount of liquidated damages of $.20 per week per $1,000 principal
amount of Old Notes) otherwise payable under the terms of the Registration
Rights Agreement in respect of the Old Notes constituting Transfer Restricted
Securities held by such holders during any period in which a Registration
Default (as defined herein) is continuing (the "Liquidated Damages") and (iii)
holders of Exchange Notes will not be entitled to certain rights under the
Registration Rights Agreement intended for the holders of unregistered
securities, except in limited circumstances. The Exchange Offer shall be deemed
consummated upon the delivery by TV Filme to the Registrar of Exchange Notes in
the same aggregate principal amount as the aggregate principal amount of Old
Notes that are validly tendered by holders thereof pursuant to the Exchange
Offer. See "The Exchange Offer -- Terms of the Exchange Offer," The "Exchange
Offer -- Procedures for Tendering Old Notes" and "Description of Exchange
Notes."
The Exchange Notes will accrue interest at the rate of 12 7/8% per annum and
will be payable semi-annually in arrears on June 15 and December 15 of each
year, commencing on June 15, 1997. At the closing of the Offering, the proceeds
of the Offering were loaned by TV Filme to its wholly-owned subsidiary
ITSA-Intercontinental Telecomunicacoes Ltda. ("ITSA"), which loan is evidenced
by an intercompany note (the "Intercompany Note"). The obligations of ITSA under
the Intercompany Note are jointly and severally guaranteed on an unsecured basis
by current subsidiaries of ITSA and will be jointly and severally guaranteed on
an unsecured basis by certain future subsidiaries of ITSA. The Intercompany Note
has been pledged by TV Filme as security for payment of principal and interest
under the Notes. The Intercompany Note is being held by the Trustee under the
Note Pledge Agreement (as defined herein) pending payment in full of principal
and interest under the Notes. ITSA used a portion of the proceeds loaned to it
to purchase a portfolio of Government Securities (as defined herein) (the
"Pledged Securities"), scheduled interest and principal payments on which is in
an amount sufficient to provide for payment in full when due of the first four
scheduled interest payments on the Notes (approximately $33.5 million). The
Pledged Securities have been pledged as security for repayment of principal and
interest on the Notes. The Pledge Securities are being held by the Trustee under
the Pledge Agreement (as defined herein) pending disbursement. See "Description
of Exchange Notes -- Security."
The Exchange Notes will mature on December 15, 2004. TV Filme will not be
required to make any mandatory redemption or sinking fund payments with respect
to the Exchange Notes. The Exchange Notes
2
<PAGE>
will be redeemable, at the option of TV Filme, in whole or in part, at any time
on or after December 15, 2000, at the redemption prices set forth herein, plus
accrued and unpaid interest, if any, thereon to the applicable redemption date.
Notwithstanding the foregoing, on or prior to December 15, 1999, TV Filme may,
at its option, redeem from time to time up to 35% in aggregate principal amount
of the Notes at a redemption price of 112 7/8% of the principal amount thereof,
plus accrued and unpaid interest thereon to the redemption date, with the net
proceeds of a Public Equity Offering (as defined herein); provided that no less
than 65% of the aggregate principal amount of the Notes initially issued remains
outstanding immediately after the occurrence of such redemption, which
redemption shall occur within 30 days after consummation of such Public Equity
Offering. See "Description of Exchange Notes -- Optional Redemption."
In the event of a Change of Control (as defined herein), TV Filme will be
required to make an offer to purchase all or any part (equal to $1,000 or an
integral multiple thereof) of each holder's Notes, at an offer price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon to the date of repurchase. See "Description of Exchange Notes
- -- Repurchase at the Option of Holders -- Change of Control."
The Exchange Notes will be senior obligations of TV Filme, will rank PARI
PASSU in right of payment with all existing and future senior Indebtedness (as
defined herein) of TV Filme and will rank senior in right of payment to any
subordinated Indebtedness of TV Filme. The Exchange Notes will be effectively
subordinated, however, to all Indebtedness and other liabilities (including
payables) of TV Filme's subsidiaries. As of December 31, 1996, the aggregate
amount of outstanding liabilities (including payables) of TV Filme's
subsidiaries, on a consolidated basis, but excluding the Intercompany Note and
the Subsidiary Guarantees (as defined herein), was approximately $16.5 million.
The Indenture limits the ability of TV Filme and its subsidiaries to incur
additional Indebtedness. See "Description of Exchange Notes -- Certain Covenants
- -- Incurrence of Indebtedness and Issuance of Disqualified Stock."
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, TV Filme believes that Exchange Notes issued pursuant to the Exchange
Offer to an Eligible Holder in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by such Eligible Holder, other than as set
forth below, without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the Eligible Holder is not an
affiliate of TV Filme within the meaning of Rule 405 under the Securities Act,
is acquiring the Exchange Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Eligible Holders wishing
to accept the Exchange Offer must represent to TV Filme, as required by the
Registration Rights Agreement, that such conditions have been met. Each
broker-dealer that acquired Old Notes directly from TV Filme and that receives
Exchange Notes for its own account pursuant to the Exchange Offer must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any secondary resale transaction (unless an exemption from
registration is otherwise available). See "The Exchange Offer -- Resales of the
Exchange Notes." Each broker-dealer that receives Exchange Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making or other trading activities must, in
connection with any resale of such Exchange Notes, comply with the prospectus
delivery requirements of the Securities Act and must acknowledge that it will
deliver a prospectus in connection with any such resale. TV Filme has agreed
that, for a period of twelve months after the date of this Prospectus, it will
make this Prospectus, as amended or supplemented, available for use by any
broker-dealer in connection with resales of Exchange Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making or other trading activities.
There has previously been only a limited secondary market, and no public
market, for the Old Notes. The Old Notes are eligible for trading in the Private
Offering, Resales and Trading through Automatic
3
<PAGE>
Linkages ("PORTAL") market. There is no established trading market for the
Exchange Notes. TV Filme does not currently intend to apply for listing of the
Exchange Notes on any securities exchange or any automated quotation system.
Accordingly, there can be no assurance as to the development of any market for
or the liquidity of any market that may develop for the Exchange Notes, the
ability of the holders of the Exchange Notes to sell their Exchange Notes or the
price at which such holders would be able to sell their Exchange Notes. If such
a trading market were to develop, the Exchange Notes could trade at prices that
may be higher or lower than the initial market values depending on many factors,
including prevailing interest rates, the Company's (as defined herein) results
of operations, the market for similar securities and general macroeconomic and
market conditions in Brazil. Depending on such factors, the Exchange Notes may
trade at a discount from their face value. See "Risk Factors -- Risk Factors
Relating to the Company and the Exchange Offer -- Absence of Public Market for
the Exchange Notes."
TV Filme will not receive any proceeds from this Exchange Offer. Pursuant to
the Registration Rights Agreement, TV Filme will bear all expenses incident to
TV Filme's consummation of the Exchange Offer and compliance with the
Registration Rights Agreement. See "The Exchange Offer -- Solicitation of
Tenders, Fees and Expenses."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL TV FILME ACCEPT SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
4
<PAGE>
DISCLOSURE OF FORWARD LOOKING INFORMATION
Certain statements contained in this Prospectus in "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," including statements regarding the
intent, belief or current expectations of TV Filme or its officers with respect
to (i) TV Filme's expansion and financing plans, (ii) trends affecting TV
Filme's financial conditions or results of operations, (iii) the impact of
competition and regulatory reform, (iv) the start-up of certain operations and
(v) other statements contained herein regarding matters that are not historical
facts, are "forward-looking" statements within the meaning of Section 27A of the
Securites Act and Section 21E of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Holders of Old Notes are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those expressed or implied by such forward-looking statements. Factors that
could cause actual results to differ materially from those expressed or implied
by such forward-looking statements include, but are not limited to, the factors
set forth in "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
AVAILABLE INFORMATION
TV Filme has filed with the Commission a Registration Statement on Form S-4
(together with all amendments, exhibits, schedules and supplements thereto, the
"Registration Statement") under the Securities Act with respect to the Exchange
Notes offered by this Prospectus. This Prospectus, which constitutes a part of
the Registration Statement, does not contain all the information set forth in
the Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Each statement made in this Prospectus referring to a
document filed as an exhibit or schedule to the Registration Statement is not
necessarily complete and is qualified in its entirety by reference to the
exhibit or schedule for a complete statement of its terms and conditions. TV
Filme is subject to the informational and reporting requirements of the Exchange
Act and in accordance therewith files reports, proxy and information statements
and other information with the Commission. Such reports, statements and other
information filed by TV Filme with the Commission in accordance with the
Exchange Act may be inspected, without charge, at the Public Reference Section
of the Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, Suite 1300, New York, New York 10048 and at its Chicago
Regional Office at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of all or any portion of such materials may
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 upon payment of the 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. TV Filme's common stock, $.01 par value per share (the
"Common Stock") is traded on the Nasdaq National Market, and such reports, proxy
and information statements and other information also can be inspected at the
office of NASDAQ Operations, 1735 K Street, N.W., Washington, D.C. 20006. For so
long as the Old Notes remain Transfer Restricted Securities, TV Filme has agreed
to make available, upon request, to any holder and any prospective purchaser of
Old Notes the information required pursuant to Rule 144A(d)(4) under the
Securities Act during any period in which TV Filme is not subject to Section 13
or 15(d) of the Exchange Act.
5
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF THE
COMPANY (AS DEFINED BELOW) (THE "CONSOLIDATED FINANCIAL STATEMENTS") APPEARING
ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED, FINANCIAL INFORMATION
HAS BEEN PRESENTED IN U.S. DOLLARS. THE CONSOLIDATED FINANCIAL STATEMENTS HAVE
BEEN PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE
UNITED STATES ("U.S. GAAP") IN U.S. DOLLARS. SEE NOTE 1B TO THE CONSOLIDATED
FINANCIAL STATEMENTS.
UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCE TO (I) "TV FILME" MEANS TV
FILME, INC., (II) "ITSA" MEANS ITSA-INTERCONTINENTAL TELECOMUNICACOES LTDA., AND
(III) THE "COMPANY" MEANS TV FILME, ITS CONSOLIDATED SUBSIDIARIES, WHICH INCLUDE
ITSA, TV FILME GOIANIA SERVICOS DE TELECOMUNICACOES LTDA. ("TV FILME GOIANIA"),
TV FILME BELEM SERVICOS DE TELECOMUNICACOES LTDA. ("TV FILME BELEM"), TV FILME
BRASILIA SERVICOS DE TELECOMUNICACOES LTDA. ("TV FILME BRASILIA") AND THEIR
PREDECESSORS AND SUCCESSORS. REFERENCES TO THE "COMPANY" ALSO INCLUDE TV FILME
SERVICOS DE TELECOMUNICACOES LTDA. ("TV FILME SERVICOS"), A COMPANY IN WHICH THE
COMPANY HAS A 49% VOTING INTEREST AND AN 83% EQUITY INTEREST. SEE "ANNEX
A--GLOSSARY" FOR THE DEFINITION OF CERTAIN TECHNICAL TERMS USED IN THIS
PROSPECTUS.
UNLESS OTHERWISE INDICATED, REFERENCES TO THE NUMBER OF THE COMPANY'S
SUBSCRIBERS ARE BASED ON COMPANY DATA AS OF DECEMBER 31, 1996. DATA CONCERNING
TOTAL MULTI-POINT, MULTI-CHANNEL DISTRIBUTION SYSTEMS ("MMDS"), CABLE, C-BAND OR
KU-BAND SUBSCRIBERS AND PENETRATION RATES OF THE COMPANY'S COMPETITORS ARE
COMPILED FROM ESTIMATES MADE BY THE COMPANY AND PUBLIC STATEMENTS OF OTHER
BRAZILIAN PAY TELEVISION PROVIDERS. ALTHOUGH THE COMPANY BELIEVES SUCH ESTIMATES
ARE REASONABLE, NO ASSURANCE CAN BE MADE AS TO THEIR ACCURACY.
THE COMPANY
OVERVIEW
The Company develops, owns and operates pay television systems in mid-sized
markets in Brazil. The Company is the sole provider of MMDS in the cities of
Brasilia, Goiania and Belem. Together, these cities have a total population of
approximately 5.7 million and encompass approximately 1.3 million households, an
estimated 1.1 million of which can be served by the Company's line-of-sight
("LOS") transmission. Since the beginning of 1994, the Company's subscriber base
has grown substantially, increasing from 1,864 subscribers to 79,176 subscribers
as of December 31, 1996. In addition to continuing to grow its existing systems,
the Company is seeking to expand its operations through joint ventures or
acquisitions of both existing pay television systems and new pay television
licenses.
TV Filme is a publicly-traded holding company organized in 1996 under the
laws of the State of Delaware (NNM: "PYTV"). Its largest stockholders include
Tevecap S.A. ("Tevecap"), one of the leading pay television operators in Brazil
and one of the country's largest pay television programming distributors;
Warburg, Pincus Investors, L.P. ("Warburg, Pincus"); and certain members of
management and their family. The Company has exclusive rights in its current
operating markets to transmit, via MMDS 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 MTV Brazil. Tevecap is a
subsidiary of Abril S.A. ("Abril"), one of Brazil's two largest media companies.
See "Business--Programming."
The Company believes that a number of factors, such as the Company's strong
operating model (including high monthly revenue per subscriber), the relatively
undeveloped nature of the pay television industry in Brazil and the attractive
economics of the deployment of MMDS, create favorable opportunities for the
Company to position itself as a leading provider of pay television services in
its markets. Two of the Company's three systems currently generate positive
EBITDA (as defined herein) on a system basis and were able to reach breakeven
system EBITDA relatively soon after full launch. The Brasilia System had its
full launch in February 1994 and generated positive system EBITDA in the third
quarter of 1994, with approximately 6,000 subscribers. Similarly, the Belem
System launched operations in February 1995 and generated positive system EBITDA
in the fourth quarter of 1995, with approximately 5,000 subscribers. For the
year ended December 31, 1996, the Company reported total EBITDA of approximately
$5.3
6
<PAGE>
million on revenues of approximately $31.4 million. For the same period, average
monthly revenue per subscriber was $39.63.
Brazil is the largest television market in South America with an estimated
34.5 million television households which, as of December 31, 1995, viewed on
average more than 6.5 hours of television per day, as compared to an average of
6.8 hours per day in the United States. The pay television industry in Brazil
began in 1989 with the commencement of UHF service in Sao Paulo. As of December
31, 1996, the Company believes that there were approximately 1.6 million pay
television subscribers, representing approximately 4.7% of Brazilian television
households. By comparison, the Company believes that as of December 31, 1996
approximately 51.1% of television households in Argentina, 12.6% of television
households in Mexico and 69.2% of television households in the United States
subscribed to pay television. The Ministry of Communications of Brazil (the
"Ministry of Communications") has estimated that Brazil will have approximately
16 million pay television subscribers by the year 2003.
The Company primarily targets mid-sized markets with demographics,
competitive environments and topographies that it believes offer the Company the
opportunity to become the leading provider of pay television services in those
markets. The Company believes that mid-sized markets in Brazil are currently
underpenetrated by existing pay television providers. There is only one hardwire
cable provider in each of Brasilia and Goiania and no hardwire cable provider in
Belem. Of the approximately 1.3 million households in Brasilia, Goiania and
Belem, the Company estimates that approximately 70% of such households, are
currently unpassed by hardwire cable. The Company believes that significant
portions of the Company's targeted markets are also underserved by hardwire
cable providers due, in part, to the high costs associated with deploying a
hardwire cable plant in these mid-sized markets. Consequently, the Company
believes that competition in these markets may initially be limited.
The Company has filed applications for licenses to operate wireless cable
systems in an additional 27 markets in Brazil which have an aggregate population
of approximately 12.5 million and encompass approximately 2.7 million
households. An estimated 2.2 million of such households can be served by LOS
transmission. As a result of certain developments concerning the granting of new
concessions and licenses for the rendering of commercial telecommunications
services in Brazil, in the absence of further governmental action, the process
of granting new concessions and licenses for MMDS services is uncertain. There
can be no assurance as to the grant of any such concessions and licenses and the
timing of any such grants generally. See "Risk Factors--Risk Factors Relating to
the Company and the Exchange Offer--Risks Associated with New Markets and Growth
Strategy," "Risk Factors--Risk Factors Relating to the Company and the Exchange
Offer--Government Regulation" and "Business--Regulatory Environment-- License
Procedures."
Until September 9, 1996, licenses were granted for renewable periods of 10
years; under the Revised MMDS Rule (as defined herein), licenses would be
awarded for renewable 15-year periods. However, there can be no assurance as to
the applicability of the Revised MMDS Rule. Under the Revised MMDS Rule, MMDS
licenses have a coverage area of up to a 50 kilometer radius from transmission
sites and permit transmission of up to 31 wireless cable channels. The Company
has requested and received approval to increase channel transmission in its
existing markets to 31 wireless cable channels from its current 16 wireless
cable channels and to extend the coverage area in these markets beyond the
existing 25 kilometer range.
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 service can be deployed more rapidly than
most alternative technologies and provides immediate coverage of entire markets,
enabling service to be delivered to all potential subscribers 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 hardwire cable because (i) the headend for a wireless cable system has a
relatively low cost, (ii) capital expenditures for wireless cable systems are
only required at the headend facility and in connection with installation of
subscriber reception equipment and (iii) incremental investment is only
7
<PAGE>
undertaken in response to customer demand with the addition of each new
subscriber. 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 method of delivery. See "Business--
Brazilian Pay Television Industry" and "Business--Company Overview."
The table below provides information regarding the Company's markets as of
December 31, 1996:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED NUMBER FULL
TOTAL TOTAL LOS OF LAUNCH
POPULATION HOUSEHOLDS(1) HOUSEHOLDS(2) CHANNELS(3) DATE
------------ ------------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING MARKETS:
Brasilia......................................... 2,000,000 472,000 417,102 37 Feb. 1994 (4)
Belem............................................ 1,900,000 398,000 345,000 36 Feb. 1995
Goiania.......................................... 1,800,000 444,000 331,000 36 Jan. 1995
------------ ------------- -------------
Total in Operating Markets....................... 5,700,000 1,314,000 1,093,102
------------ ------------- -------------
------------ ------------- -------------
APPLICATION MARKETS(5):.......................... 12,500,000 2,700,000 2,200,000
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
- ------------------------
(1) Represents the Company's estimate of the number of total households within
the greater metropolitan areas of Brasilia, Belem and Goiania. See
"Business--Regulatory Environment--License Procedures." 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, 2.65% per year in Belem and
2.33% per year in Goiania.
(2) Represents the Company's estimate of the number of Estimated LOS Households
within a 35 kilometer radius in Brasilia and a 30 kilometer radius in each
of Belem and Goiania that can receive an adequate signal from the Company
(eliminating 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 and 15
wireless cable channels which were recently granted to the Company but over
which the Company is not currently transmitting programming.
(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) Represents the 27 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 concessions and licenses and the timing of any such grants
generally. See "Business-- Strategy" and "Business--Regulatory
Environment--License Procedures."
BACKGROUND
The predecessor of TV Filme was founded in 1989 by certain members of the
Company's current senior management team. In September 1989, the Company was
granted a license to operate a wireless cable television system in Brasilia, the
capital of Brazil, and commenced operations in 1990 with a one channel offering.
From 1993 through 1996, the Company raised an aggregate of approximately $16.8
million through a series of private equity placements to Tevecap and Warburg,
Pincus. TV Filme completed an initial public offering of 2.875 million shares of
its Common Stock at an offering price of $10.00 per share, in August 1996 (the
"Initial Public Offering"). With proceeds from these financings, the Company
increased the channel offerings in Brasilia, launched new wireless cable
television systems in Goiania and Belem, and expanded its subscriber base.
Licenses to operate the Goiania and Belem systems were acquired in 1994 from TVA
Sistema de Televisao S.A. ("TVA Sistema"), a subsidiary of Tevecap, and these
systems commenced operations in early 1995. See "The Company."
8
<PAGE>
STRATEGY
The Company's objective is to become a leading provider of pay television
services in mid-sized markets in Brazil and generally to become the largest
provider of pay television services in each of its markets. The Company believes
Brazil offers substantial growth opportunities for pay television providers
because there is significant demand among television viewers for additional
programming choices and the penetration rate for pay television services is
currently less than 5% of Brazil's total television households. As demonstrated
by the rapid growth in the Company's subscriber base, the Company believes it is
well positioned to take advantage of these opportunities. The principal elements
of the Company's operating strategy are: (i) increasing penetration of existing
markets, (ii) targeting mid-sized markets for expansion, (iii) developing TV
Filme brand name recognition through exclusive programming, (iv) providing
superior customer service, (v) providing value-added services and (vi)
implementing a consistent operating model. These elements of the Company's
strategy are discussed below. See "Business--Strategy."
INCREASING PENETRATION OF EXISTING MARKETS. The Company seeks to increase
its penetration of existing markets through (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, (vii) other
marketing activities, including referral programs and promotional gifts, and
(viii) adding households to the Company's service area by installing signal
repeaters.
TARGETING MID-SIZED MARKETS FOR EXPANSION. The Company primarily targets
markets with populations from approximately 100,000 to 2.5 million with
demographics, competitive environments and topographies favorable for
implementation of the Company's pay television services. The Company believes
that these markets are currently underpenetrated by pay television service
providers. The Company intends to pursue development of additional markets by
(i) obtaining new pay television licenses offered by the Brazilian government,
(ii) acquiring or investing in existing pay television operations or (iii)
acquiring or co-developing newly issued pay television licenses from or with
third parties. The Company has filed applications for licenses to operate
wireless cable systems in an additional 27 markets in Brazil which have an
aggregate population of approximately 12.5 million and encompass approximately
2.7 million households. In the second half of 1996, the Brazilian government
announced its intention to auction MMDS licenses in 15 of its state capitals.
The Company has filed applications in 14 of these 15 markets. As a result of
certain developments concerning the granting of new concessions and licenses for
the rendering of commercial telecommunications services in Brazil, in the
absence of further governmental action, the process of granting new concessions
and licenses for MMDS services is uncertain. There can be no assurance as to the
grant of any such concessions and licenses and the timing of any such grants
generally. See "Risk Factors--Risk Factors Relating to the Company and the
Exchange Offer--Risks Associated with New Markets and Growth Strategy," "Risk
Factors--Risk Factors Relating to the Company and the Exchange Offer--Government
Regulation" and "Business--Regulatory Environment--License Procedures."
In addition, the Company is engaged, on a preliminary basis, in evaluations,
discussions and other activities relating to the possible acquisition of, or
investment in, existing pay television providers or holders of MMDS licenses.
Because of the preliminary nature of such acquisition-related activities, there
can be no assurance as to whether or when any such transaction will be
consummated or as to the terms thereof.
DEVELOPING TV FILME BRAND NAME RECOGNITION THROUGH EXCLUSIVE
PROGRAMMING. The Company believes that the exclusive programming it offers is
superior to that of its hardwire competitors. In its current operating markets,
the Company has the exclusive right to transmit, via MMDS 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
MTV Brazil. In addition to such programming, the Company seeks to secure
exclusive television rights to important regional events. For example, the
9
<PAGE>
Company owns the right to televise annually through 1998 all of the games of the
Goias State Soccer Championship matches, which the Company offers to its
subscribers in the Goiania market and the rights to televise annually through
1999 all of the games of the Belem State Soccer Championship, which the Company
will offer to its subscribers in the Belem market. The Company emphasizes its
exclusive programming in attracting new and maintaining existing subscribers 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. The Company intends to develop additional original programming such as
local news and sports channels, to strengthen further the Company's brand name
and appeal.
PROVIDING SUPERIOR CUSTOMER SERVICE. The Company believes that it delivers
high levels of customer service to its subscribers. Customer satisfaction is
emphasized with 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 36 hours.
PROVIDING VALUE-ADDED SERVICES. The Company intends to provide value-added
services, such as Internet access, other media and/or communications services
and co-branded discount and credit cards. The Company believes that by providing
such services to its existing and potential subscribers, it can generate
additional revenue, attract new subscribers and increase ties to its subscriber
base, thereby increasing customer retention rates.
IMPLEMENTING A 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 targeted marketing plans, conducts employee
training programs and uses a sophisticated intra-company telecommunications
network and proprietary management information systems to maximize the
efficiency of its marketing, customer service, operations and control functions.
See "Business--Strategy."
The Company's principal executive offices are located at c/o
ITSA-Intercontinental Telecomunicacoes Ltda., SCS, Quadra 07-Bl.A, Ed. Executive
Tower, Sala 601, 70.300-911 Brasilia-DF, Brazil, and its telephone number is
011-55-61-314-9908.
ISSUANCE OF THE OLD NOTES
The outstanding $140.0 million principal amount of Old Notes were sold by TV
Filme to the Initial Purchasers on the Closing Date pursuant to the Purchase
Agreement. The Initial Purchasers subsequently resold the Old Notes in reliance
on Rule 144A under the Securities Act and certain other available exemptions
under the Securities Act. In connection with the Offering, TV Filme also entered
into the Registration Rights Agreement, pursuant to which TV Filme granted
certain registration rights for the benefit of the holders of the Old Notes.
Under the terms of the Registration Rights Agreement, TV Filme agreed, for the
benefit of the holders of the Old Notes, that it would, at its own cost, (i)
file on or prior to February 18, 1997 a registration statement (the "Exchange
Offer Registration Statement") with the Commission with respect to a registered
offer to exchange the Old Notes for Exchange Notes, which Exchange Notes will
have terms substantially identical to the Old Notes, (ii) use its best efforts
to have the Exchange Offer Registration Statement declared effective by the
Commission under the Securities Act on or prior to April 19, 1997 and (iii)
commence the Exchange Offer and use its best efforts to issue on or prior to 30
business days after the date on which the Exchange Offer Registration Statement
is declared effective by the Commission, Exchange Notes in exchange for all Old
Notes tendered prior thereto in the Exchange Offer, unless the Exchange Offer
would not be permitted by applicable law or Commission policy. If (i) TV Filme
is not required to file the Exchange Offer Registration Statement or permitted
to
10
<PAGE>
commence or accept tenders pursuant to the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or (ii) any holder
of Transfer Restricted Securities notifies TV Filme within 20 business days
after the consummation of the Exchange Offer that (a) it is prohibited by law or
Commission policy from participating in the Exchange Offer or (b) that it may
not resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales or
(c) that it is a broker-dealer and owns Old Notes acquired directly from TV
Filme or an affiliate of TV Filme, TV Filme has agreed to file, at its cost,
with the Commission a shelf registration statement (the "Shelf Registration
Statement"), to cover resales of the Old Notes who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. If TV Filme defaults with respect to its obligations
under the Registration Rights Agreement, TV Filme will be obligated to pay
Liquidated Damages in an amount equal to $.05 per week per $1,000 principal
amount of Old Notes outstanding (up to a maximum amount of Liquidated Damages of
$.20 per week per $1,000 principal amount of Old Notes). See "Description of
Exchange Notes--Registration Rights; Liquidated Damages." The Exchange Offer is
intended to satisfy certain of TV Filme's obligations under the Registration
Rights Agreement with respect to the Old Notes. See "The Exchange Offer--Purpose
and Effect."
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer.................. TV Filme is offering, upon the terms and subject to
the conditions set forth herein and in the
accompanying Letter of Transmittal, to exchange
$1,000 in principal amount of the Exchange Notes for
each $1,000 in principal amount of the outstanding
Old Notes. The terms of the Exchange Notes are
identical in all material respects (including
principal amount, interest rates and maturity) to the
terms of the Old Notes for which they may be
exchanged in the Exchange Offer, except that (i) the
Exchange Notes are fully transferable by the holders
thereof (other than as provided herein), and are not
subject to any covenant regarding registration under
the Securities Act, (ii) holders of Exchange Notes
will not be entitled to Liquidated Damages and (iii)
holders of the Exchange Notes will not be entitled to
certain rights under the Registration Rights
Agreement intended for the holders of unregistered
securities, except in limited circumstances. As of
the date of this Prospectus, $140.0 million aggregate
principal amount of Old Notes is outstanding, the
maximum amount authorized by the Indenture for all
Notes. See "The Exchange Offer -- Terms of the
Exchange Offer."
Expiration Date..................... The Exchange Offer will expire at 5:00 p.m., New York
City time, on , , 1997 unless
extended by TV Filme in its sole discretion (the
"Expiration Date"). See "The Exchange Offer --
Expiration Date; Extensions; Amendments."
Conditions of the Exchange Offer.... The Exchange Offer is subject to certain customary
conditions, which may be waived by TV Filme. TV Filme
reserves the right to amend, terminate or extend the
Exchange Offer at any time prior to the Expiration
Date upon the occurrence of any such condition. See
"The Exchange Offer -- Conditions of the Exchange
Offer."
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Interest Payments................... Interest on the Exchange Notes shall accrue from the
last Interest Payment Date (June 15 or December 15)
on which interest was paid on the Old Notes so
surrendered or, if no interest has been paid on the
Old Notes, from December 20, 1996. See "The Exchange
Offer--Accrued Interest on the Old Notes."
Procedures for Tendering Old
Notes............................. Unless a tender of Old Notes is effected pursuant to
the procedures for book-entry transfer as provided
herein, each Eligible Holder desiring to accept the
Exchange Offer must complete and sign the Letter of
Transmittal, have the signature thereon guaranteed if
required by the Letter of Transmittal, and mail or
deliver the Letter of Transmittal, together with the
Old Notes or a Notice of Guaranteed Delivery (as
defined in the Letter of Transmittal) and any other
required documents (such as evidence of authority to
act, if the Letter of Transmittal is signed by
someone acting in a fiduciary or representative
capacity), to the Exchange Agent (as defined below)
at the address set forth under "The Exchange
Offer--The Exchange Agent; Assistance" prior to 5:00
p.m., New York City time, on the Expiration Date. Any
Beneficial Owner (as defined herein) of Old Notes
whose Old Notes are registered in the name of a
nominee, such as a broker, dealer, commercial bank or
trust company and who wishes to tender Old Notes in
the Exchange Offer should contact such registered
holder promptly and instruct such registered holder
to promptly tender on such Beneficial Owner's behalf.
See "The Exchange Offer--Procedures for Tendering Old
Notes." By tendering Old Notes for exchange, each
registered holder will represent to TV Filme that,
among other things, (i) neither the Eligible Holder
nor any Beneficial Owner is an "affiliate" of TV
Filme within the meaning of Rule 405 under the
Securities Act, (ii) any Exchange Notes to be
received by the Eligible Holder or any Beneficial
Owner are being acquired in the ordinary course of
business, (iii) neither the Eligible Holder nor any
Beneficial Owner has an arrangement or understanding
with any person to participate in the distribution of
the Exchange Notes and (iv) if the Eligible Holder or
Beneficial Owner, as applicable, is a broker-dealer
that acquired Old Notes for its own account as a
result of market-making or other trading activities,
such Eligible Holder or Beneficial Owner must comply
with the prospectus delivery requirements of the
Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such
person and must agree that it will deliver a
prospectus in connection with any such resale.
Guaranteed Delivery Procedures...... Eligible Holders of Old Notes who wish to tender
their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver
their Old Notes or any other documents required by
the Letter of Transmittal to the Exchange Agent prior
to the Expiration Date (or complete the procedure for
book-entry transfer on a timely basis), may tender
their Old Notes according to the guaranteed delivery
procedures set forth in the Letter of Transmittal.
See "The
</TABLE>
12
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<TABLE>
<S> <C>
Exchange Offer--Procedures for Tendering Old Notes--
Guaranteed Delivery Procedures."
Acceptance of Old Notes and Delivery
of Exchange Notes................. Upon satisfaction or waiver of all conditions of the
Exchange Offer, TV Filme will accept any and all Old
Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued pursuant
to the Exchange Offer will be delivered promptly
after acceptance of the Old Notes. See "The Exchange
Offer--Acceptance of Old Notes for Exchange; Delivery
of Exchange Notes."
Withdrawal Rights................... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer--Withdrawal
Rights."
Tax Considerations.................. Generally, the exchange of Old Notes for Exchange
Notes will not be a taxable event for federal income
tax purposes. See "Tax Considerations."
Effect on Holders of Old Notes...... As a result of the making of, and upon acceptance for
exchange of all validly tendered Old Notes pursuant
to the terms of, the Exchange Offer, TV Filme will
have fulfilled certain of its obligations under the
Registration Rights Agreement and, accordingly, there
will be no increase in the interest rate on such Old
Notes pursuant to the terms of the Registration
Rights Agreement, and the holders of such Old Notes
will have no further registration or other rights
under the Registration Rights Agreement, except in
limited circumstances. See "The Exchange Offer."
Holders of Old Notes who do not tender their Old
Notes in the Exchange Offer will continue to hold
such Old Notes and will be entitled to all the rights
and limitations applicable thereto under the
Indenture except for any such rights under the
Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a
result of the making of, and the acceptance for
exchange of all validly tendered Old Notes pursuant
to, the Exchange Offer. All untendered Old Notes will
continue to be subject to the restrictions on
transfer provided for in the Old Notes and in the
Indenture. To the extent that Old Notes are tendered
and accepted in the Exchange Offer, the trading
market for untendered Old Notes could be adversely
affected.
The Exchange Agent.................. IBJ Schroder Bank & Trust Company is serving as
exchange agent (in such capacity, the "Exchange
Agent"). The address and telephone number of the
Exchange Agent are set forth under "The Exchange
Offer--The Exchange Agent; Assistance."
Fees and Expenses................... All expenses incident to TV Filme's consummation of
the Exchange Offer and compliance with the
Registration Rights Agreement will be borne by TV
Filme. TV Filme will also pay certain transfer taxes
applicable to the Exchange Offer. See "The Exchange
Offer--Fees and Expenses."
Use of Proceeds..................... There will be no cash proceeds to TV Filme from the
exchange of Old Notes for Exchange Notes pursuant to
the
</TABLE>
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<TABLE>
<S> <C>
Exchange Offer. See "Use of Proceeds" and "Plan of
Distribution."
Resales of the Exchange Notes....... Based on interpretations by the staff of the
Commission set forth in no-action letters issued to
third parties, TV Filme believes that Exchange Notes
issued pursuant to the Exchange Offer to an Eligible
Holder in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by such
Eligible Holder (other than (i) a broker-dealer who
purchased the Old Notes directly from TV Filme for
resale pursuant to Rule 144A under the Securities Act
or any other available exemption under the Securities
Act or (ii) a person that is an affiliate of TV Filme
within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act,
provided that the Eligible Holder is acquiring the
Exchange Notes in the ordinary course of business and
is not participating, and has no arrangement or
understanding with any person to participate, in a
distribution of the Exchange Notes. Each
broker-dealer that receives Exchange Notes for its
own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result
of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
See "The Exchange Offer--Resales of the Exchange
Notes" and "Plan of Distribution."
Consequence of Failure to
Exchange.......................... Holders of Old Notes who do not exchange their Old
Notes for Exchange Notes pursuant to the Exchange
Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the
legend thereon as a consequence of the offer or sale
of the Old Notes pursuant to an exemption from, or in
a transaction not subject to, the registration
requirements of the Securities Act and applicable
state securities laws. In general, the Old Notes may
not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from,
or in a transaction not subject to, the Securities
Act and applicable states securities laws. TV Filme
does not currently anticipate that it will register
the Old Notes under the Securities Act. See "The
Exchange Offer--Consequence of Failure to Exchange."
</TABLE>
For additional information regarding the Exchange Offer, see "The Exchange
Offer."
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<PAGE>
TERMS OF THE EXCHANGE NOTES
The Exchange Offer applies to $140.0 million of Old Notes. The terms of the
Exchange Notes are identical in all material respects (including principal
amount, interest rates and maturity) to the terms of the Old Notes for which
they may be exchanged pursuant to the Exchange Offer, except that (i) the
Exchange Notes are fully transferable by the holders thereof (other than as
provided herein), and are not subject to any covenant regarding registration
under the Securities Act, (ii) holders of Exchange Notes will not be entitled to
Liquidated Damages and (iii) holders of the Exchange Notes will not be entitled
to certain rights under the Registration Rights Agreement intended for the
holders of unregistered securities, except in limited circumstances. The
Exchange Notes will evidence the same debt as the Old Notes and, except as set
forth in the immediately preceding sentence, will be entitled to the benefits of
the Indenture, under which both the Old Notes were, and the Exchange Notes will
be, issued. See "Description of Exchange Notes."
<TABLE>
<S> <C>
Securities Offered.................. $140.0 million aggregate principal amount of 12 7/8%
Senior Notes due 2004.
Maturity............................ December 15, 2004.
Interest............................ The Exchange Notes will bear interest at the rate of
12 7/8% per annum, payable semi-annually in arrears
on June 15 and December 15 of each year, commencing
on June 15, 1997.
Ranking............................. The Exchange Notes will be senior obligations of TV
Filme, will rank PARI PASSU in right of payment with
all existing and future senior Indebtedness of TV
Filme and will rank senior in right of payment to any
subordinated Indebtedness of TV Filme. The Exchange
Notes will be effectively subordinated, however, to
all Indebtedness and other liabilities (including
payables) of TV Filme's subsidiaries. As of December
31, 1996, the aggregate amount of outstanding
liabilities (including payables) of TV Filme's
subsidiaries, on a consolidated basis, but excluding
the Intercompany Note and the Subsidiary Guarantees,
was approximately $16.5 million.
Security............................ In accordance with the terms of the Indenture, on the
Closing Date the proceeds of the Offering were loaned
by TV Filme to ITSA, which loan is evidenced by the
Intercompany Note. The obligations of ITSA under the
Intercompany Note are jointly and severally
guaranteed on an unsecured basis by each of TV Filme
Brasilia, TV Filme Goiania, TV Filme Belem, and will
be jointly and severally guaranteed on an unsecured
basis by certain future subsidiaries of ITSA. The
Intercompany Note has been pledged by TV Filme as
security for repayment of principal and interest
under the Notes. The Intercompany Note is being held
by the Trustee under the Note Pledge Agreement (as
defined herein) pending payment in full of principal
and interest under the Notes. See "Description of
Exchange Notes--Security."
Of the $140.0 million loaned to ITSA, approximately
$33.5 million was used to purchase the Pledged
Securities, scheduled interest and principal payments
on which is in an
</TABLE>
15
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<TABLE>
<S> <C>
amount sufficient to provide for payment in full when
due of the first four scheduled interest payments on
the Notes. The Pledged Securities have been pledged
as security for repayment of principal and interest
on the Notes under the Pledge Agreement. The Pledged
Securities are being held by the Trustee under the
Pledge Agreement pending disbursement. See
"Description of Exchange Notes-- Security."
Optional Redemption................. The Exchange Notes will be redeemable, at the option
of TV Filme, in whole or in part, at any time on or
after December 15, 2000 at the redemption prices set
forth herein, plus accrued and unpaid interest
thereon to the applicable redemption date.
Notwithstanding the foregoing, on or prior to
December 15, 1999, TV Filme may, at its option,
redeem from time to time up to 35% in aggregate
principal amount of the Notes at a redemption price
of 112 7/8% of the principal amount thereof, plus
accrued and unpaid interest thereon to the redemption
date, with the net proceeds of a Public Equity
Offering; provided that no less than 65% of the
aggregate principal amount of the Notes initially
issued remains outstanding immediately after the
occurrence of such redemption, which redemption shall
occur within 30 days after consummation of such
Public Equity Offering. See "Description of Exchange
Notes--Optional Redemption."
Change of Control................... In the event of a Change of Control, TV Filme will be
required to make an offer to purchase all or any part
(equal to $1,000 or an integral multiple thereof) of
each holder's Notes, at an offer price in cash equal
to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest, thereon, to the
date of repurchase. See "Description of Exchange
Notes--Repurchase at the Option of Holders-- Change
of Control."
Certain Covenants................... The Indenture contains certain covenants that, among
other things, limit the ability of the Company to
incur additional Indebtedness, issue preferred stock,
pay dividends or make other distributions, repurchase
equity interests or subordinated Indebtedness, engage
in sale and leaseback transactions, create certain
liens, enter into certain transactions with
affiliates, sell assets, conduct certain lines of
business, issue or sell equity or enter into certain
mergers and consolidations. See "Description of
Exchange Notes-- Certain Covenants."
For additional information regarding the Exchange Notes, see "Description of Exchange
Notes."
</TABLE>
16
<PAGE>
RISK FACTORS
Holders of Old Notes should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors" before tendering Old Notes in exchange
for the Exchange Notes.
SUMMARY CONSOLIDATED FINANCIAL DATA(1)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OTHER OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................................................. $2,438 $ 11,404 $ 31,388
Operating costs and expenses:
System operating.................................................................... 773 2,957 9,593
Selling, general and administrative................................................. 2,394 8,975 16,737
Depreciation and amortization....................................................... 365 2,049 5,921
--------- --------- ---------
Total operating costs and expenses................................................ 3,532 13,981 32,251
--------- --------- ---------
Operating loss........................................................................ (1,094) (2,577) (863)
Other income (expense)................................................................ 1,612 360 (1,147)
--------- --------- ---------
Net income (loss)..................................................................... $518 $ (2,217) $ (2,010)
--------- --------- ---------
--------- --------- ---------
Net income (loss) per share(2)........................................................ $ 0.08 $ (0.27) $ (0.22)
Weighted average number of common stock and common stock equivalents outstanding(2)... 6,885 8,086 9,256
OTHER FINANCIAL DATA:
EBITDA (3)............................................................................ $(729) $(216) $5,330
Capital expenditures.................................................................. 3,637 16,621 25,225
OTHER OPERATING DATA:
Number of subscribers at end of year (4).............................................. 7,641 36,594 79,176
Average monthly revenue per
subscriber (5)...................................................................... $ 34.13 $ 40.00 $ 39.63
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1996
-----------------
<S> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Working capital (6)............................................................................................ $ 123,263
Pledged securities (7)......................................................................................... 33,512
Property, plant and equipment, net............................................................................. 38,333
Total assets................................................................................................... 202,929
Total long-term debt........................................................................................... 140,200
Stockholders' equity........................................................................................... 37,748
</TABLE>
- ----------------------------------
(1) The Summary 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 had been part of
TV Filme for all periods presented. See Note 1a to the Consolidated
Financial Statements.
(2) Net income (loss) per share (after giving effect to the Reorganization (as
defined below) is calculated using the weighted average number of shares of
stock outstanding during this period together with the number of shares
issuable upon the exercise of options and warrants issued during the twelve
months prior to the Offering.
(3) EBITDA is defined as operating income (loss) plus depreciation, amortization
and non-cash charges. EBITDA is a commonly used measure of performance in
the pay 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, each of which is determined in
accordance with U.S. 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, however, 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) See "Business--Operating Systems and the Company's Markets."
(5) Average monthly revenue per subscriber is calculated by dividing
subscription revenue for the month by the average number of subscribers for
the month.
(6) Working capital includes current portion of pledged securities.
(7) The pledged securities were purchased as collateral for the Notes. See Note
6 to the Consolidated Financial Statements.
17
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, HOLDERS OF OLD
NOTES SHOULD REVIEW CAREFULLY THE FOLLOWING RISK FACTORS BEFORE TENDERING THEIR
OLD NOTES IN THE EXCHANGE OFFER. FOR ADDITIONAL INFORMATION CONCERNING BRAZIL
AND CERTAIN MATTERS DISCUSSED BELOW, SEE "ANNEX B--THE FEDERATIVE REPUBLIC OF
BRAZIL."
RISK FACTORS RELATING TO THE COMPANY AND THE EXCHANGE OFFER
CONSEQUENCE OF FAILURE TO EXCHANGE. Holders of Old Notes who do not
exchange their Old Notes for Exchange Notes pursuant to the Exchange Offer will
continue to be subject to the restrictions on transfer of such Old Notes as set
forth in the legend thereon as a consequence of offer and sale of the Old Notes
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Old Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. TV Filme
does not currently anticipate that it will register the Old Notes under the
Securities Act. Exchange Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold or otherwise transferred by
holders thereof (other than any such holder which is an affiliate of TV Filme
within the meaning of Rule 405 under the Securities Act and other than any
broker-dealer who purchased Old Notes directly from TV Filme for resale pursuant
to Rule 144A under the Securities Act or any other available exemption under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such Exchange
Notes. Each broker-dealer that acquired Old Notes for its own account as a
result of market making or other trading activities and that receives Exchange
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that, by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. TV Filme has
agreed that, for a period of twelve months after the date of this Prospectus, it
will make this Prospectus, as amended and supplemented, available to any
broker-dealer who receives Exchange Notes in the Exchange Offer for use in
connection with any such resale. See "Plan of Distribution." However, to comply
with the securities laws of certain jurisdictions, if applicable, the Exchange
Notes may not be offered or sold unless they have been registered or qualified
for sale in such jurisdictions or an exemption from registration or
qualification is available and is complied with. To the extent that Old Notes
are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Old Notes will be adversely affected.
NECESSITY TO COMPLY WITH EXCHANGE OFFER PROCEDURES. To participate in the
Exchange Offer, and to avoid restrictions on transfer of the Old Notes, holders
of Old Notes must transmit a properly completed Letter of Transmittal, including
all other documents required by such Letter of Transmittal, to the Exchange
Agent at one of the addresses set forth under "The Exchange Offer--the Exchange
Agent; Assistance" on or prior to the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal or (ii) a timely confirmation of a book-entry
transfer of such Old Notes, if such procedure is available, into the Exchange
Agent's account at The Depository Trust Company, New York, New York ("DTC"), who
is acting as depository (the "Depository") for book-entry Notes, pursuant to the
procedures for book-entry transfer described herein, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder must comply with
the guaranteed delivery procedures described herein. See "The Exchange Offer."
18
<PAGE>
SUBSTANTIAL INDEBTEDNESS AND DEBT SERVICE. TV Filme has indebtedness that
is substantial in relation to its stockholders' equity. As of December 31, 1996,
TV Filme and its subsidiaries had an aggregate of approximately $143.4 million
of indebtedness outstanding (including short-term indebtedness), including the
Old Notes, stockholders' equity of $37.7 million and a debt-to-equity ratio of
3.8 to 1.0. The Indenture permits the Company to incur additional indebtedness
under certain conditions, and the Company expects to incur additional
indebtedness as so permitted. See "Description of Exchange Notes--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock."
After giving effect to the Offering, the interest expense of TV Filme and
its subsidiaries for the year ended December 31, 1996 would have been $19.2
million. For the year ended December 31, 1996, TV Filme and its subsidiaries
would have had insufficient earnings to cover fixed charges of $17.2 million.
Accordingly, it will be necessary for the Company's financial cash flow from
operating activities to improve significantly in order for the debt service
obligations under the Notes to be met. The ability of the Company to improve its
financial results will depend upon economic, financial, competitive, regulatory
and other factors beyond its control. There can be no assurance that the Company
will generate sufficient cash flow from operations in the future to service the
Notes, to fund adequately the Company's operations and to allow the Company to
make necessary capital expenditures.
The Indenture imposes significant operating and financial restrictions on
the Company. Such restrictions affect, and in many respects significantly limit
or prohibit, among other things, the ability of the Company to incur additional
indebtedness and pay dividends, subject to certain qualifications and
exceptions. These restrictions, in combination with the leveraged nature of TV
Filme, could limit the ability of the Company to effect future financings or
otherwise may restrict the Company's activities.
The Company's leverage could have important consequences to the holders of
the Exchange Notes, including the following: (i) the Company's ability to obtain
additional financing for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired in the future; (ii)
a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Company for other purposes; (iii) the
Company's leverage may hinder its ability to adjust rapidly to changing market
conditions; and (iv) the leverage could make the Company more vulnerable in the
event of a downturn in general economic conditions or its business. The long
term growth of the Company depends, in part, on its ability to expand by the
development or acquisition of new operating systems and, therefore, an inability
to finance such development or acquisitions through borrowed funds could have a
material adverse effect on the Company's operations.
EXCHANGE CONTROL REGULATIONS. The Brazilian Government currently restricts
the ability of Brazilian or foreign persons or entities to convert Brazilian
currency into U.S. dollars or other currencies other than in connection with
certain authorized transactions. Accordingly, the purchase of U.S. dollars at
the Commercial Market Rate (as defined herein) by ITSA for purposes of
permitting ITSA to make scheduled principal and interest payments to TV Filme on
the Intercompany Note, which in turn will be used by TV Filme to make scheduled
interest and principal payments on the Notes, requires approval of the Brazilian
Central Bank (the "Central Bank"). The Company applied for and has obtained such
approval from the Central Bank. The principal amount, interest rate and interest
payment dates under the Intercompany Note are the same as those under the Notes.
Further approval from the Central Bank will be needed for (i) the payment of
principal of, premium, if any, and interest on the Intercompany Note upon its
acceleration, or for certain late payments on the Intercompany Note (E.G.,
payments made 181 days or more after a scheduled payment date); and (ii)
payments of any judgment obtained against ITSA or any Guarantor (as defined
herein) in a court in Brazil under the Intercompany Note, the Note Pledge
Agreement or any Subsidiary Guarantee (as defined herein). In addition, in order
for TV Filme to exercise its call option, ITSA must exercise its call option
under the Intercompany Note. Any such exercise by ITSA of its call option must
be approved by the Central Bank. See "Description of Exchange
Notes--Security--Pledged
19
<PAGE>
Intercompany Note." There can be no assurance that such consents from the
Central Bank for the foregoing payment will be obtained.
HOLDING COMPANY STRUCTURE; DEPENDENCE ON SUBSIDIARIES FOR REPAYMENT OF
NOTES. The Old Notes are, and the Exchange Notes will be, a direct obligation
of TV Filme. TV Filme conducts its operations through, and substantially all of
TV Filme's assets are owned by, TV Filme's direct and indirect subsidiaries (to
which it expects to loan all of the net proceeds from the Offering). Because TV
Filme is a holding company, its ability to meet its obligations in respect of
the Notes will be primarily dependent upon the ability of ITSA to pay principal
and interest on the Intercompany Note which will in turn depend upon the
performance of ITSA's subsidiaries and distributions, loans or other payments of
funds by such subsidiaries to ITSA. The subsidiaries are separate and distinct
legal entities and, while they have jointly and severally guaranteed ITSA's
obligations under the Intercompany Note, neither ITSA nor its subsidiaries has
any obligations, contingent or otherwise, to pay any amounts due under the
Notes, to meet TV Filme's obligations to other creditors or to make any funds
available therefor, whether by dividends, loans or other payments. In addition,
the payment of dividends from such subsidiaries to ITSA and the payment of any
interest on or the repayment of any principal of any loans or advances made by
TV Filme to ITSA (i) may be subject to statutory or contractual restriction,
(ii) are contingent upon the earnings of such subsidiaries and (iii) are subject
to various business considerations. Although TV Filme believes that
distributions and dividends from ITSA's subsidiaries will be sufficient to pay
interest on the Intercompany Note, which in turn will be used by TV Filme to pay
interest on the Notes, as well as to meet ITSA's other obligations, there can be
no assurance they will be sufficient. In addition, applicable Brazilian law
limits the amount of dividends which may be paid by ITSA's subsidiaries to the
extent they do not have profits available for distribution. Other statutory and
general law obligations affect the ability of ITSA's subsidiaries to declare
dividends or the ability of ITSA and ITSA's subsidiaries to make payments to TV
Filme and ITSA, respectively, on account of intercompany loans.
The Intercompany Note and the Subsidiary Guarantees are unsecured
obligations of ITSA and the Guarantors, respectively. Persons seeking to enforce
payments under the Intercompany Note or the Subsidiary Guarantees will only have
the rights of general unsecured creditors of ITSA and any Guarantor with respect
to the Intercompany Note and the Subsidiary Guarantees, as the case may be, and,
as a result, the benefits which might be realized in connection with the
enforcement of such obligations may be limited.
LIMITED OPERATING HISTORY; LACK OF PROFITABLE OPERATIONS; MANAGEMENT OF
GROWTH. The Company 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 whether to
exchange Old Notes for Exchange Notes). 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 a deficit of approximately $4.2 million as of
December 31, 1996. The Company expects to experience net 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. 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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
NEED FOR ADDITIONAL FINANCING FOR GROWTH. The growth of the Company's
business requires substantial investment on a continuing basis to finance (i)
capital expenditures and expenses related to subscriber
20
<PAGE>
growth and system development, (ii) the acquisition of new pay television
licenses and operations and (iii) net losses. There can be no assurance that the
Company will be able to obtain additional debt and equity capital on
satisfactory terms, or at all, to meet its future financing needs. Furthermore,
the Indenture restricts the amount of additional Indebtedness the Company may
incur, subject to certain qualifications and exceptions. 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.
RISKS ASSOCIATED WITH NEW MARKETS AND GROWTH STRATEGY. Applications have
been made for the Company to operate wireless cable systems in an additional 27
markets in Brazil. As a result of the issuance by the Brazilian Federal Supreme
Court of a preliminary injunction with respect to regulations relating to the
granting of new concessions and licenses for the rendering of commercial
telecommunications services in Brazil and Presidential Decree No. 2087 issued by
the President of Brazil on December 4, 1996 (the "Presidential Decree"), which
decree revokes such regulations, the process of granting new concessions and
licenses for MMDS is uncertain. Until such time as further government action is
taken to provide for the regulation of the granting of new concessions and
licenses for MMDS services, there can be no assurance as to the grant of any
such concessions and licenses and the timing of any such grants generally. The
Company also may seek to enter into operating agreements with pay 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.
The Company believes that the cost of purchasing or acquiring licenses has
increased substantially in recent years and will continue to increase, due to
increased competition. Similarly, the cost of operating wireless cable systems
has increased due to competition. Based on current market and operating
conditions, the Company estimates that the cost of launching and deploying any
additional wireless cable operating system after the granting of a new license
could be up to approximately $12.0 million, including construction of a headend
facility, subscriber-related capital costs and funding initial development and
marketing costs and operating losses, depending on factors particular to each
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. There can be no assurance that the Company will be successful in
obtaining new licenses or launching or acquiring any new pay 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 obtain
new licenses or launch or acquire new pay television 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. See "--Government Regulation" and "Business--Regulatory
Environment--License Procedures."
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. The amount and timing of the
Company's 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 "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
COMPETITION. Through its affiliate, TV Filme Servicos, the Company is the
only entity licensed to operate wireless cable systems in Brasilia, Goiania and
Belem. The Company's principal pay television
21
<PAGE>
competitor in the city of Brasilia is NET Brasilia, and in the city of Goiania
is Multicanal, both of which are hardwire cable operators. There currently is no
hardwire or other wireless cable provider in the city of Belem. In addition to
other wireless cable and hardwire cable operators, wireless cable operators in
Brazil 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. Competition in the pay
television industry is based upon program offerings, customer service,
reliability and pricing. 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."
GOVERNMENT REGULATION. The Company's business activities are regulated by
the Ministry of Communications. Such regulation relates to, among other things,
licensing, local access to MMDS systems, commercial advertising and foreign
investment in MMDS systems. Changes in the regulation of the Company's business
activities, including decisions by regulators affecting the Company's operations
(such as the granting or renewal of licenses or decisions as to the subscription
rates the Company may charge its customers) or changes in interpretations of
existing regulations by courts or regulators, could adversely affect the
Company. The Company's MMDS licenses may not be transferred without regulatory
approval. On December 4, 1996, in response to a preliminary injunction granted
by the Brazilian Federal Supreme Court suspending the effectiveness of
Presidential Decree No. 1719, the President of Brazil signed the Presidential
Decree which revoked Decree No. 1719. The effect of the revocation is that the
process for granting new concessions and licenses for MMDS services is
uncertain. Until such time as further governmental action is taken to provide
for the granting of concessions and licenses for MMDS services, there can be no
assurance as to the grant of any such concessions and licenses and the timing of
any such grants generally. Any new regulations could have a material adverse
effect on the pay television industry, as a whole, and on the Company, in
particular. See "Business--Regulatory Environment--License Procedures."
MINORITY VOTING POSITION IN LICENSE COMPANY; 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. TV Filme
Servicos owns the licenses pursuant to which the Company currently conducts its
business and has made applications for license grants in 27 additional markets.
A potential conflict of interest may be deemed to exist because certain existing
stockholders of the Company, some of whom are executive officers and directors
of the Company, have an ownership interest in, and voting control of, TV Filme
Servicos.
TV Filme indirectly owns 49% of the voting securities and 83% of the equity
interests in TV Filme Servicos. As a result of the minority voting position in
TV Filme Servicos, TV Filme will not be able to control the operations of TV
Filme Servicos or its relationships with TV Filme and its subsidiaries. However,
TV Filme has 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 and has entered into operating and other agreements with TV
Filme Servicos which provide TV Filme and its subsidiaries with substantial
protections concerning their ability to operate the licenses held by TV Filme
Servicos, including 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. Any breach by TV Filme Servicos of any of its material obligations
to TV Filme and its subsidiaries under any of these agreements 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
22
<PAGE>
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 may limit the ability of a
wireless cable system to serve a 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 regulations of
the Ministry of Communications, a wireless cable license holder is generally
protected from interference within a range of up to 50 kilometers of the
transmission site, and a prospective operator must demonstrate that its signal
will not interfere with the reception of other licensed 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.
DEPENDENCE ON SUPPLIERS. The Company is dependent on certain suppliers of
its programming and equipment. The Company currently purchases substantially all
of its programming from Tevecap and its subsidiaries pursuant to an exclusive
license to transmit programming available from Tevecap and its subsidiaries via
wireless and hardwire cable in the Company's current operating markets (the
"Programming Agreement"). The terms of the Programming Agreement terminate in
July 2004. Although the Company has no reason to believe that such agreement
will be canceled or will not be renewed upon its expiration, if such agreement
is canceled or not renewed, the Company will have to seek programming from other
sources. In addition, 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 application markets on acceptable terms, although Tevecap has agreed to
provide programming on a non-exclusive basis in most of such application markets
pursuant to the Programming Agreement. 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 components as required from such
sources, 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.
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 of TV Filme, and Carlos Andre Studart
Lins de Albuquerque, the President, Chief Operating Officer and Treasurer of TV
Filme. 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.
TV Filme has entered 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 "Management--Employment
Agreements."
ABSENCE OF A PUBLIC MARKET FOR THE EXCHANGE NOTES. The Old Notes have been
designated eligible for trading in the PORTAL Market. There is no established
trading market for the Exchange Notes. TV Filme does not currently intend to
apply for listing of the Exchange Notes on any securities exchange or on any
automated quotation system. Accordingly, there can be no assurance as to the
development of any market for, or the liquidity of, any market that may develop
for the Exchange Notes, the ability of the holders of
23
<PAGE>
the Exchange Notes to sell their Exchange Notes or the price at which such
holders would be able to sell their Exchange Notes. If such a market were to
develop, the Exchange Notes could trade at prices that may be higher or lower
than the initial market values depending on many factors, including prevailing
interest rates, the Company's operating results, the market for similar
securities and general macroeconomic and market conditions in Brazil. TV Filme
has been advised by the Initial Purchasers that they currently intend to make a
market in the Exchange Notes. However, the Initial Purchasers are not obligated
to do so and any market-making activities with respect to the Exchange Notes may
be discontinued at any time without notice.
FRAUDULENT CONVEYANCE CONSIDERATIONS. The Company has been advised by its
Brazilian counsel, Tozzini, Freire, Teixeira e Silva Advogados, that, to the
extent that the Subsidiary Guarantees of the Intercompany Note given by the
Guarantors are valid and enforceable in accordance with the laws of the State of
New York and the United States, the laws of Brazil do not prevent such
Subsidiary Guarantees from being valid, binding and enforceable against the
Guarantors in accordance with their terms, provided that the Subsidiary
Guarantees do not contain any provisions deemed to be against public policy,
good morals and national sovereignty. In the event U.S. Federal and state
fraudulent conveyance or similar laws were applied to the issuance of a
Subsidiary Guarantee, if any Guarantor, at the time it incurs such Subsidiary
Guarantee, (a)(i) was or is insolvent or rendered insolvent by reason of such
incurrence, (ii) was or is engaged in a business or transaction for which the
assets remaining with such Guarantor constituted unreasonably small capital or
(iii) intended or intends to incur, or believed or believes that it would incur,
debts beyond its ability to pay such debts as they mature and (b) received or
receives less than reasonably equivalent value or fair consideration, the
obligations of such Guarantor under its Subsidiary Guarantee could be avoided,
or claims in respect of such Subsidiary Guarantee could be subordinated to all
other debts of such Guarantor. Among other things, a legal challenge of a
Subsidiary Guarantee on fraudulent conveyance grounds may focus on the benefits,
if any, realized by such Guarantor as a result of the issuance by ITSA of the
Intercompany Note. If any Subsidiary Guarantee were held to be a fraudulent
conveyance or unenforceable for any other reason, the holder of the Intercompany
Note would cease to have any claim in respect of the Guarantor issuing such
Subsidiary Guarantee and would be solely creditors of ITSA and any other
Guarantors whose Subsidiary Guarantees were not avoided or held unenforceable.
There can be no assurance that, after providing for all prior claims, there
would be sufficient assets to satisfy claims of the holder of the Intercompany
Note relating to any avoided portion of a Subsidiary Guarantee.
RISK FACTORS RELATING TO BRAZIL
GENERAL. Social, economic or political instability, among other
developments in Brazil, could adversely affect the financial condition and
results of operations of the Company, the ability of the Company to repay the
Notes and the market value and liquidity of the Notes. In the past, Brazil has
suffered from high levels of inflation, low real growth rates and political
uncertainty. Brazil is generally considered by investors to be an "emerging
market" and thus political, economic, social or other developments in other such
markets may adversely affect the market value and liquidity of the Notes. For
example, in December 1994, the Mexican government sharply devalued the Mexican
PESO, resulting in an economic crisis in Mexico. The Mexican PESO crisis
adversely affected the market value and liquidity of securities issued by
companies in many of the "emerging markets," including Brazil. There can be no
assurance that events in other such markets will not adversely affect the market
value and liquidity of the Notes.
ECONOMIC UNCERTAINTY; EFFECTS OF EXCHANGE RATE FLUCTUATIONS. 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 9% in 1996. Inflation, government actions to
combat inflation and public speculation about future actions have had
significant negative effects on the Brazilian economy in general
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and have also contributed materially to economic uncertainty in Brazil. 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 its prices 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 anniversary of the subscriber's initial subscription date. 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 privatization of 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 established a trading band for the
REAL against the U.S. dollar. This band has been adjusted frequently, and, as of
April 3, 1997, was between 1.05 REAIS and 1.14 REAIS per U.S. dollar. From
September 30, 1995 to April 3, 1997, the REAL declined in value relative to the
U.S. dollar by approximately 11%. 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.
Substantially all of the Company's revenues are denominated in REAIS. A
substantial portion of the Company's indebtedness, including the Old Notes (and
the Exchange Notes upon their issuance) is and may be expected to continue to
be, denominated in U.S. dollars. In addition, certain of the Company's operating
expenses, including a significant portion of its equipment costs and a portion
of its programming costs, are denominated in U.S. dollars. Any devaluation of
the Brazilian currency relative to any foreign currency in which debt or other
obligations of the Company are denominated could result in a foreign exchange
loss with respect to such indebtedness or obligations, if such devaluation were
in excess of inflation and the rate at which the Company raises prices. Any
devaluation could also force the Company to seek additional financing although
the Company's ability to obtain such financing may be impaired by such event. As
a result, the relationship of Brazil's currency to the value of the U.S. dollar
and other currencies, and the rates of devaluation of Brazil's currency relative
to the prevailing rates of inflation, may adversely affect the Company's
financial condition and reported results of operations, as well as its ability
to meet its debt service obligations (including payment of principal of,
premium, if any, and interest on the Notes) and operating expenses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Inflation and Exchange Rates." Moreover, if the Company cannot
increase its prices to match the rate of inflation, even if the rate of
inflation matches the rate of devaluation, the Company's ability to meet its
debt service obligations and operating expenses may be impaired.
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. As a result, the Company may experience economic
loss with respect to its investments and fluctuations in its reported results of
operations solely as a result of currency rate fluctuations, which may have a
material adverse effect on the Company's financial condition.
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FOREIGN EXCHANGE CONTROLS AND EXCHANGE RATES. There are two legal foreign
exchange markets in Brazil: the commercial rate exchange market (the "Commercial
Market") and the floating rate exchange market (the "Floating Market"). Prior to
the implementation of the Real Plan, the Commercial Market Rate and the Floating
Market Rate differed significantly. There can be no assurance that there will
not be significant differences between such rates in the future. See "Exchange
Rate Data."
RESTRICTIONS ON CONVERSION AND U.S. REMITTANCES ABROAD. The Brazilian
Government has the authority under current legislation to impose restrictions on
the remittance abroad of capital when a serious deficit in Brazil's balance of
payments is seriously threatened or occurs, as it did for approximately six
months in 1989 and early 1990, and on the conversion of REAIS into foreign
currencies. Such restrictions may hinder or prevent the Company's Brazilian
subsidiaries from purchasing equipment required to be paid for in U.S. dollars
and from converting dividends or distributions or scheduled interest and
principal payments under the Intercompany Note into U.S. dollars and remitting
U.S. dollars to TV Filme and from making payment on judgments obtained in a
court in Brazil. Such restrictions could adversely affect the Company. The
Company could also 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, distributions, interest and
principal payments.
There can be no assurance that the Brazilian Government will not in the
future impose more restrictive foreign exchange regulations that would have the
effect of eliminating or restricting the Company's or any of its subsidiaries
access to foreign currency that would be required to meet its foreign currency
obligations, including its obligations under the Notes, the Intercompany Note or
Subsidiary Guarantee, as the case may be. The likelihood of the imposition of
such restrictions by the Brazilian Government may be affected by, among other
factors, the extent of Brazil's foreign currency reserves, the availability of
foreign currency in the foreign exchange markets on the date a payment is due,
the size of Brazil's debt service burden relative to the economy as a whole, and
Brazil's policy toward the International Monetary Fund and political constraints
to which Brazil may be subject.
POLITICAL UNCERTAINTY. Historically, the Brazilian Government has often
changed 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 and exports. 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
Brazilian Government to make substantial funds available to the state
administrations, while limiting the Brazilian 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 20 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 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
26
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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.
POTENTIAL UNENFORCEABILITY OF CIVIL LIABILITIES AND JUDGMENTS. Certain of
the directors and officers of TV Filme and certain experts named herein are
non-residents of the U.S., and all or a substantial portion of the assets of
such persons are located outside of the U.S. TV Filme'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 U.S.
upon such persons (unless an agent for service of process is duly appointed by
them, in which case service of process effected under U.S. laws would be deemed
valid by the Brazilian courts in the case of the confirmation of foreign
judgments described below) or enforce in the U.S. against such persons or the
subsidiaries judgments obtained in U.S. courts, including judgments predicated
upon the civil liability provisions of U.S. Federal securities laws. Each of TV
Filme, ITSA and the Subsidiary Guarantors has appointed the Corporation Service
Company, New York, New York, as its agent for service of process with respect to
any action brought against it in any federal or state court in the State of New
York arising from the Intercompany Note or the Subsidiary Guarantees,
respectively. The Company has been advised by its Brazilian counsel, Tozzini,
Freire, Teixeira e Silva Advogados, that a judgment of a U.S. court for civil
liabilities predicated upon U.S. 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 U.S., (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 U.S. and is accompanied by a sworn
translation and (v) is not contrary to Brazilian national sovereignty, public
policy or good morals (as set forth in Brazilian law). In addition, the Company
has been advised by such Brazilian counsel that original actions in connection
with this Prospectus predicated solely on U.S. Federal securities laws may be
brought in Brazilian courts and that Brazilian courts may enforce liabilities in
such actions against the Company and its officers and directors. Plaintiffs will
be required to post a bond in Brazil prior to commencing any such action to
cover legal fees and court expenses. Furthermore, no assurance can be given that
the confirmation process described above may be conducted in a timely manner or
that a Brazilian court would enforce liabilities for violation of U.S. Federal
securities laws. Any judgment obtained against the Company in a court in Brazil
under the Notes, the Indenture, the Intercompany Note or the Subsidiary
Guarantees will be expressed in the Brazilian currency equivalent of the U.S.
dollar judgment amount.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were originally issued and sold by TV Filme to the Initial
Purchasers on December 20, 1996, pursuant to the Purchase Agreement. The offer
and sale of the Old Notes was not required to be registered under the Securities
Act in reliance upon the exemption provided by Section 4(2) of the Securities
Act. The Initial Purchasers subsequently resold the Old Notes in reliance on
Rule 144A under the Securities Act and certain other available exemptions under
the Securities Act. In connection with the Offering, TV Filme also entered into
the Registration Rights Agreement, pursuant to which TV Filme granted certain
registration rights for the benefit of the holders of the Old Notes. Under the
terms of the Registration Rights Agreement, TV Filme agreed, for the benefit of
the holders of the Old Notes, that it would, at its own cost, file, on or prior
to February 18, 1997, the Exchange Offer Registration Statement with the
Commission with respect to a registered offer to exchange the Old Notes for
Exchange Notes, which Exchange Notes will have terms substantially identical to
the Old Notes, (ii) use its best efforts to have the Exchange Offer Registration
Statement declared effective by the Commission under the Securities Act on or
prior to April 19, 1997, (iii) commence the Exchange Offer and use its best
efforts to issue on or prior to 30 business days after the date on which the
Exchange Offer Registration Statement is declared effective by the Commission,
Exchange Notes in exchange for all Old Notes tendered prior thereto in the
Exchange Offer, unless the Exchange Offer would not be permitted by applicable
law or Commission policy. If (i) TV Filme is not required to file the Exchange
Offer Registration Statement or permitted to commence or accept tenders pursuant
to the Exchange Offer because the Exchange Offer is not permitted by applicable
law or Commission policy or (ii) any holder of Transfer Restricted Securities
notifies TV Filme within 20 business days after the consummation of the Exchange
Offer that (a) it is prohibited by law or Commission policy from participating
in the Exchange Offer or (b) that it may not resell the Exchange Notes acquired
by it in the Exchange Offer to the public without delivering a prospectus and
the prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (c) that it is a broker-dealer and
owns Old Notes acquired directly from TV Filme or an affiliate of TV Filme, TV
Filme has agreed to file the Shelf Registration Statement and use all reasonable
efforts to have the Shelf Registration Statement declared effective and kept
effective until December 20, 1999. The purpose of this Exchange Offer is to
fulfill certain of TV Filme's obligations under the Registration Rights
Agreement.
TERMS OF THE EXCHANGE OFFER
TV Filme is offering, upon the terms and subject to the conditions set forth
herein and in the accompanying Letter of Transmittal, to exchange $1,000 in
principal amount of the Exchange Notes for each $1,000 in principal amount of
the outstanding Old Notes. TV Filme will accept for exchange any and all Old
Notes that are validly tendered on or prior to 5:00 p.m., New York City time, on
the Expiration Date. Tenders of the Old Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain customary
conditions, which may be waived by TV Filme. TV Filme reserves the right to
amend, terminate or extend the Exchange Offer at any time prior to the
Expiration Date upon the occurrence of such conditions. The terms of the
Exchange Notes are identical in all material respects (including principal
amount, interest rate and maturity) to the terms of the Old Notes for which they
may be exchanged in the Exchange Offer, except that (i) the Exchange Notes are
freely transferable by the holders thereof (other than as provided herein), and
are not subject to any covenant regarding registration under the Securities Act,
(ii) holders of Exchange Notes will not be entitled to Liquidated Damages and
(iii) holders of Exchange Notes will not be entitled to certain rights under the
Registration Rights Agreement intended for holders of unregistered securities,
except in limited circumstances. See "--Conditions of the Exchange Offer."
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Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, Eligible Holders may tender less than the aggregate principal amount
represented by the Old Notes held by them, provided that they appropriately
indicate this fact on the Letter of Transmittal accompanying the tendered Old
Notes (or so indicate pursuant to the procedures for book-entry transfer).
As of the date of this Prospectus, $140.0 million aggregate principal amount
of Old Notes is outstanding, the maximum amount authorized by the Indenture for
all Notes. Solely for reasons of administration (and for no other purpose), TV
Filme has fixed the close of business on , 1997, as the record date
(the "Record Date") for purposes of determining the persons to whom this
Prospectus and the Letter of Transmittal will be mailed initially. Only an
Eligible Holder of the Old Notes (or such Eligible Holder's legal representative
or attorney-in-fact) may participate in the Exchange Offer. There will be no
fixed record date for determining Eligible Holders of the Old Notes entitled to
participate in the Exchange Offer. TV Filme believes that, as of the date of
this Prospectus, no such Eligible Holder is an affiliate of TV Filme within the
meaning of Rule 405 under the Securities Act.
TV Filme shall be deemed to have accepted validly tendered Old Notes when,
as and if TV Filme has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering Eligible Holders
of Old Notes and for the purposes of receiving the Exchange Notes from TV Filme.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Eligible Holder thereof as promptly as
practicable after the Expiration Date.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be , 1997 at 5:00 p.m., New York City
time, unless TV Filme, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date shall be the latest date and time to which the
Exchange Offer is extended.
In order to extend the Exchange Offer, TV Filme will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Such notice and
public announcement shall set forth the new Expiration Date of the Exchange
Offer.
TV Filme reserves the right, in its sole discretion, (i) to delay accepting
any Old Notes, (ii) to extend the Exchange Offer, (iii) if any of the conditions
set forth below under "--Conditions of the Exchange Offer" shall not have been
satisfied, to terminate the Exchange Offer by giving oral or written notice of
such delay, extension, or termination to the Exchange Agent and (iv) to amend
the terms of the Exchange Offer in any manner. If the Exchange Offer is amended
in a manner determined by TV Filme to constitute a material change, TV Filme
will, in accordance with applicable law, file a post-effective amendment to the
registration statement (a "Post-effective Amendment") and resolicit the
registered holders of the Old Notes. If TV Filme files a Post-effective
Amendment, it will notify the Exchange Agent of an extension of the Exchange
Offer by oral or written notice, and will make a public announcement thereof,
each prior to 9:00 a.m., New York City time, on the next business day after the
effectiveness of such Post-effective Amendment. Such notice and public
announcement shall set forth the new Expiration Date, which new Expiration Date
shall be no less than five days after the then applicable Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, TV Filme will not be required to issue Exchange Notes in
respect of any properly tendered Old Notes not
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previously accepted and may terminate the Exchange Offer, or, at its option,
modify or otherwise amend the Exchange Offer, if any of the following events
occur:
(a) any law, rule or regulation or applicable interpretations of the
staff of the Commission which, in the good faith determination of TV Filme,
do not permit TV Filme to effect the Exchange Offer; or
(b) there shall occur a change in the current interpretation by the
staff of the Commission which permits the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes to be offered for resale,
resold or otherwise transferred by holders thereof (other than any such
holder that is an affiliate of TV Filme within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in the
distribution of such Exchange Notes; or
(c) there shall have occurred (i) any general suspension of or general
limitation or prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of TV Filme to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of war, armed hostilities or
other similar international calamity directly or indirectly involving the
United States, or, in the case of any of the foregoing existing at the time
of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(d) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of TV Filme that is or may be adverse to TV Filme, or TV Filme
shall have become aware of facts that have or may have adverse significance
with respect to the value of the Old Notes or the Exchange Notes;
which, in the reasonable judgment of TV Filme in any case, and regardless of the
circumstances (including any action by TV Filme) giving rise to any such
condition, makes it inadvisable to proceed with the Exchange Offer and/or with
such acceptance for exchange or with such exchange.
TV Filme expressly reserves the right to terminate the Exchange Offer and
not accept for exchange any Old Notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by TV Filme of properly tendered Old Notes). In addition, TV Filme
may amend the Exchange Offer at any time prior to the Expiration Date if any of
the conditions set forth above occur. Moreover, regardless of whether any of
such conditions has occurred, TV Filme may amend the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to holders of the Old
Notes.
The foregoing conditions are for the sole benefit of TV Filme and may be
waived by TV Filme, in whole or in part, in the reasonable judgment of TV Filme.
Any determination made by TV Filme concerning an event, development or
circumstance described or referred to above will be final and binding on all
parties.
TV Filme is not aware of the existence of any of the foregoing events.
ACCRUED INTEREST ON THE OLD NOTES
Interest on the Exchange Notes shall accrue from the last Interest Payment
Date (June 15 or December 15) on which interest was paid on the Old Notes so
surrendered or, if no interest has been paid on the Old Notes, from December 20,
1996. See "Description of Exchange Notes--Principal, Maturity and Interest."
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PROCEDURES FOR TENDERING OLD NOTES
The tender of an Eligible Holder's Old Notes as set forth below and the
acceptance thereof by TV Filme will constitute a binding agreement between the
tendering Eligible Holder and TV Filme upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, an Eligible Holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit such Old
Notes, together with a properly completed and duly executed Letter of
Transmittal, including all other documents required by such Letter of
Transmittal, to the Exchange Agent at the address set forth under "--The
Exchange Agent; Assistance" prior to 5:00 p.m., New York City time, on the
Expiration Date. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE ELIGIBLE HOLDER.
IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT
IS RECOMMENDED THAT THE ELIGIBLE HOLDER USE AN OVERNIGHT OR HAND DELIVERY
SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Old Notes who has
not completed either the box entitled "Special Exchange Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal or (ii) by
an Eligible Institution (as defined). In the event that a signature on a Letter
of Transmittal or a notice of withdrawal, as the case may be, is required to be
guaranteed, such guarantee must be by a firm which is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or otherwise be an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (collectively, "Eligible
Institutions"). If the Letter of Transmittal is signed by a person other than
the registered holder of the Old Notes, the Old Notes surrendered for exchange
must either (i) be endorsed by the registered holder, with the signature thereon
guaranteed by an Eligible Institution or (ii) be accompanied by a bond power, in
satisfactory form as determined by TV Filme in its sole discretion, duly
executed by the registered holder, with the signature thereon guaranteed by an
Eligible Institution. The term "registered holder" as used herein with respect
to the Old Notes means any person in whose name the Old Notes are registered on
the books of the Registrar.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by TV Filme in its sole discretion, which determination shall be
final and binding. TV Filme reserves the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes TV Filme's
acceptance of which might, in the judgment of TV Filme or its counsel, be
unlawful. TV Filme also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by TV Filme
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as TV Filme shall determine. TV Filme will use
reasonable efforts to give notification of defects or irregularities with
respect to tenders of Old Notes for exchange but shall not incur any liability
for failure to give such notification. Tenders of the Old Notes will not be
deemed to have been made until such irregularities have been cured or waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by
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TV Filme, proper evidence satisfactory to TV Filme, in its sole discretion, of
such person's authority to so act must be submitted.
Any beneficial owner of Old Notes (a "Beneficial Owner") whose Old Notes are
registered in the name of a nominee, such as a broker, dealer, commercial bank
or trust company and who wishes to tender Old Notes in the Exchange Offer should
contact such registered holder promptly and instruct such registered holder to
promptly tender on such Beneficial Owner's behalf. If such Beneficial Owner
wishes to tender directly, such Beneficial Owner must, prior to completing and
executing the Letter of Transmittal and tendering Old Notes, make appropriate
arrangements to register ownership of the Old Notes in such Beneficial Owner's
name. Beneficial Owners should be aware that the transfer of registered
ownership may take considerable time.
By tendering Old Notes for exchange, each registered holder will represent
to TV Filme that, among other things (i) the Exchange Notes to be acquired in
connection with the Exchange Offer by the Eligible Holder and each Beneficial
Owner of the Old Notes are being acquired by the Eligible Holder and each
Beneficial Owner in the ordinary course of business of the Eligible Holder and
each Beneficial Owner, (ii) the Eligible Holder and each Beneficial Owner are
not participating, do not intend to participate, and have no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes, (iii) the Eligible Holder and each Beneficial Owner acknowledge
and agree that any person participating in the Exchange Offer for the purpose of
distributing the Exchange Notes must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction of the Exchange Notes acquired by such person and cannot rely
on the position of the staff of the Commission set forth in no-action letters
that are discussed herein under "--Resales of Exchange Notes," (iv) that if the
Eligible Holder is a broker-dealer that acquired Old Notes for its own account
as a result of market-making or other trading activities, such Eligible Holder
will deliver a prospectus in connection with any resale of Exchange Notes
acquired in the Exchange Offer, (v) the Eligible Holder and each Beneficial
Owner understand that a secondary resale transaction described in clause (iii)
above should be covered by an effective registration statement containing the
selling security holder information required by Item 507 of Regulation S-K of
the Commission and (vi) neither the Eligible Holder nor any Beneficial Owner is
an affiliate of TV Filme within the meaning of Rule 405 of the Securities Act,
except as otherwise dislcosed to TV Filme in writing. In connection with a
book-entry transfer, each participant will confirm that it makes the
representations and warranties contained in the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES. Eligible Holders of Old Notes who wish to
tender their Old Notes and (i) whose Old Notes are not immediately available or
(ii) who cannot deliver their Old Notes or any other documents required by the
Letter of Transmittal to the Exchange Agent prior to the Expiration Date (or
complete the procedure for book-entry transfer on a timely basis), may tender
their Old Notes according to the guaranteed delivery procedures set forth in the
Letter of Transmittal. Pursuant to such procedures: (i) such tender must be made
by or through an Eligible Institution and a Notice of Guaranteed Delivery must
be signed by such Eligible Holder, (ii) on or prior to the Expiration Date, the
Exchange Agent must have received from the Eligible Holder and the Eligible
Institution a properly completed and duly executed Notice of Guaranteed Delivery
(by facsimile transmission, mail or hand delivery) setting forth the name and
address of the Eligible Holder, the certificate number or numbers of the
tendered Old Notes, and the principal amount of tendered Old Notes, stating that
the tender is being made thereby and guaranteeing that, within three (3)
business days after the date of delivery of the Notice of Guaranteed Delivery,
the tendered Old Notes, a duly executed Letter of Transmittal and any other
required documents will be deposited by the Eligible Institution with the
Exchange Agent and (iii) such properly completed and executed documents required
by the Letter of Transmittal and the tendered Old Notes in proper form for
transfer (or confirmation of a book-entry transfer of such Old Notes into the
Exchange Agent's account at the Depository) must be received by the Exchange
Agent within three (3) business days after the Expiration Date. Any Eligible
Holder who wishes to tender Old Notes pursuant to the guaranteed delivery
32
<PAGE>
procedures described above must assure that the Exchange Agent receives the
Notice of Guaranteed Delivery and Letter of Transmittal relating to such Old
Notes prior to 5:00 p.m., New York City time, on the Expiration Date.
BOOK-ENTRY DELIVERY. The Exchange Agent will establish an account with
respect to the Old Notes at the Depository ("Book-Entry Transfer Facility") for
purposes of the Exchange Offer promptly after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of the Old Notes by causing such
facility to transfer Old Notes into the Exchange Agent's account in accordance
with such facility's procedure for such transfer. Even though delivery of Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal (or a manually signed facsimile thereof), with
any required signature guarantees, or an Agent's Message (as defined below) in
connection with a book-entry transfer, and other documents required by the
Letter of Transmittal, must, in any case, be transmitted to and received by the
Exchange Agent at one of its addresses set forth under "--The Exchange Agent;
Assistance" before the Expiration Date, or the guaranteed delivery procedure set
forth above must be followed. Delivery of the Letter of Transmittal and any
other required documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent. The term "Agent's Message" means a message
transmitted by the Book-Entry Transfer Facility to, and received by, the
Exchange Agent and forming a part of a book-entry confirmation, which states
that such Book-Entry Transfer Facility has received and express acknowledgment
from the participant in such Book-Entry Transfer Facility tendering the Old
Notes that such participant has received and agrees to be bound by the terms of
the Letter of Transmittal and that TV Filme may enforce such agreement against
such participant.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all the conditions to the Exchange Offer, TV
Filme will accept any and all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date.
The Exchange Notes issued pursuant to the Exchange Offer will be delivered
promptly after acceptance of the Old Notes. For purposes of the Exchange Offer,
TV Filme shall be deemed to have accepted validly tendered Old Notes, when, as,
and if TV Filme has given oral or written notice thereof to the Exchange Agent.
In all cases, issuances of Exchange Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal and all other required documents (or of
confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at the Depository); provided, however, that TV Filme reserves
the absolute right to waive any defects or irregularities in the tender or
conditions of the Exchange Offer. If any tendered Old Notes are not accepted for
any reason, such unaccepted Old Notes will be returned without expense to the
tendering Eligible Holder thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a written notice to
the Exchange Agent, at its address set forth under "--The Exchange Agent;
Assistance" at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes, as applicable), (iii) be signed
by the Eligible Holder in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by a bond power in the name of
the person withdrawing the tender, in satisfactory
33
<PAGE>
form as determined by TV Filme in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution together with the other documents required upon transfer by the
Indenture, and (iv) specify the name in which such Old Notes are to be
re-registered, if different from the Depositor, pursuant to such documents of
transfer. Any questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by TV Filme, in its sole
discretion. The Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are withdrawn will be returned to the
Eligible Holder thereof without cost to such Eligible Holder as soon as
practicable after withdrawal. Properly withdrawn Old Notes may be retendered by
following one of the procedures described under "--Procedures for Tendering
Notes" at any time on or prior to the Expiration Date.
THE EXCHANGE AGENT; ASSISTANCE
IBJ Schroder Bank & Trust Company is the Exchange Agent. All tendered Old
Notes, executed Letters of Transmittal and other related documents should be
directed to the Exchange Agent. Questions and requests for assistance and
requests for additional copies of this Prospectus, the Letter of Transmittal and
other related documents should be addressed to the Exchange Agent as follows:
<TABLE>
<S> <C> <C>
BY MAIL: BY HAND/OVERNIGHT EXPRESS: FACSIMILE TRANSMISSION:
IBJ Schroder Bank & Trust IBJ Schroder Bank & Trust (212) 858-2952
Company Company (For Eligible Institutions
One State Street One State Street Only)
New York, New York 10004 New York, New York 10004 TO CONFIRM RECEIPT:
Attention: Corporate Trust Attention: Corporate Trust (212) 858-2815
Administration Administration
</TABLE>
SOLICITATION OF TENDERS; FEES AND EXPENSES
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by TV Filme. Neither the delivery
of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will offers be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, TV Filme may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Old Notes
in such jurisdiction.
All expenses incident to TV Filme's consummation of the Exchange Offer and
compliance with the Registration Rights Agreement will be borne by TV Filme,
including without limitation: (i) all registration and filing fees and expenses,
(ii) all fees and expenses incurred in connection with compliance with federal
securities and state securities or Blue Sky laws, (iii) printing expenses
(including, without limitation, expenses of printing certificates for the
Exchange Notes to be issued in the Exchange Offer and printing of prospectuses),
(iv) messenger, delivery and telephone expenses, (v) all fees and disbursements
of counsel for TV Filme, (vi) fees and disbursements of independent auditors of
TV Filme (including the expenses of any special audit and comfort letters
required by or incident to such performance), (vii) internal expenses of TV
Filme (including, without limitation, all salaries and expenses of officers and
employees of TV Filme performing legal or accounting duties), and (viii) fees
and expenses, if any, incurred in connection with the listing of the Exchange
Notes on any securities exchange.
34
<PAGE>
TV Filme has not retained any dealer-manager in connection with the Exchange
Offer and will not make any payments to brokers, dealers or others soliciting
acceptance of the Exchange Offer. TV Filme, however, will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
TV Filme will pay all transfer taxes, if any, applicable to the exchange of
Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed
for any reason other than the exchange of Old Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption is not submitted
with the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, as reflected in TV Filme's accounting records on the date of the
exchange. Accordingly, no gain or loss will be recognized by TV Filme for
accounting purposes. The expenses of the Exchange Offer and the unamortized
expenses related to the issuance of the Old Notes will be amortized over the
term of the Exchange Notes.
RESALES OF THE EXCHANGE NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, TV Filme believes that the Exchange
Notes issued pursuant to the Exchange Offer to an Eligible Holder in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by
such Eligible Holder (other than (i) a broker-dealer who purchased Old Notes
directly from TV Filme for resale pursuant to Rule 144A under the Securities Act
or any other available exemption under the Securities Act, or (ii) a person that
is an affiliate of TV Filme within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the Eligible Holder is acquiring
the Exchange Notes in the ordinary course of business and is not participating,
and has no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes. TV Filme has not requested or obtained an
interpretive letter from the Commission staff with respect to this Exchange
Offer, and TV Filme and the Eligible Holders are not entitled to rely on
interpretive advice provided by the staff to other persons, which advice was
based on the facts and conditions represented in such letters. However, the
Exchange Offer is being conducted in a manner intended to be consistent with the
facts and conditions represented in such letters. If any Eligible Holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such Eligible Holder
cannot rely on the position of the staff of the Commission enunciated in MORGAN
STANLEY & CO., INCORPORATED (available June 5, 1991) and EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988), or interpreted in the Commission's letters
to SHEARMAN AND STERLING (available July 2, 1993) and K-III COMMUNICATIONS
CORPORATION (available May 14, 1993), or similar no-action or interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, unless an exemption from registration is otherwise available. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired by such broker-dealer as a result
of market-making or other trading activities, must, in connection with any
resale of such Exchange Notes, comply with the prospectus delivery requirements
of the Securities Act and must acknowledge that it will deliver a prospectus in
connection with any such resale. TV Filme has agreed that, for a period of
twelve months after the date of this Prospectus, it will make this Prospectus,
as amended and supplemented, available to any broker-dealer who receives
Exchange Notes in the Exchange Offer for use in connection with any such resale.
See "Plan of Distribution."
35
<PAGE>
CONSEQUENCE OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the offer or sale of the Old Notes pursuant to an exemption from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exception from, or in a transaction not subject to, the
Securities Act and applicable states securities laws. TV Filme does not
currently anticipate that it will register the Old Notes under the Securities
Act. See "Risk Factors--Risk Factors Relating to the Company and the Exchange
Offer--Consequences of Failure to Exchange."
OTHER
Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of the Old Notes are
urged to consult their financial and tax advisers in making their own decisions
on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, TV
Filme will have fulfilled certain covenants contained in the Registration Rights
Agreement. Holders of Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights, and limitations applicable thereto, under the Indenture, except for
any such rights under the Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of
this Exchange Offer. See "Description of Exchange Notes." All untendered Old
Notes will continue to be subject to the restrictions on transfer of such Old
Notes as set forth in the legend thereon and in the Indenture. To the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered Old Notes could be adversely affected.
TV Filme may in the future seek to acquire untendered Old Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. TV Filme has no present plan to acquire any Old Notes which are
not tendered in the Exchange Offer.
36
<PAGE>
EXCHANGE RATE DATA
There are two legal foreign exchange markets in Brazil: the Commercial
Market and the Floating Market. The Commercial Market is reserved primarily for
foreign trade transactions and transactions that generally require prior
approval from Brazilian monetary authorities, including the purchase and sale of
registered investments by foreign persons and related remittances of funds
abroad, including a purchase by TV Filme of the Intercompany Note. Purchases of
foreign exchange in the Commercial Market may be carried out only through a
financial institution in Brazil authorized to buy and sell currency in that
market. The "Floating Market Rate" generally applies to transactions to which
the "Commercial Market Rate" does not apply. Prior to the implementation of the
Real Plan, the Commercial Market Rate and the Floating Market Rate differed
significantly at times. Since the introduction of the REAL, the two rates have
not differed significantly, although there can be no assurance that there will
not be significant differences between the two rates in the future. Both the
Commercial Market Rate and the Floating Market Rate are reported by the Central
Bank on a daily basis.
Both the Commercial Market Rate and the Floating Market Rate are freely
negotiated but are strongly influenced by the Central Bank, which typically
intervened in the Commercial Market, prior to the implementation of the Real
Plan, in order to control fluctuations and to regulate disparities between the
Commercial Market Rate and the Floating Market Rate. After implementation of the
Real Plan, the Central Bank allowed the REAL to float with minimal intervention.
However, as described below, on March 6, 1995, the Central Bank announced its
intention to intervene in the foreign exchange markets and has subsequently
intervened in the markets and taken other actions affecting such markets.
On August 1, 1993, the CRUZEIRO REAL replaced the CRUZEIRO as the unit of
Brazilian currency, with each CRUZEIRO REAL being equal to 1,000 CRUZEIROS.
Beginning in 1994, the Brazilian Government began implementation of the Real
Plan. On July 1, 1994, the REAL replaced the CRUZEIRO REAL as the unit of
Brazilian currency, with each REAL being equal to 2,750 CRUZEIROS REAIS and
having an exchange rate of R$1.00 to US$1.00. According to Brazilian law, the
issuance of REAIS is controlled by quantitative limits backed by a corresponding
amount of U.S. dollars in reserves, but the Brazilian Government subsequently
expanded those quantitative limits and allowed the REAL to float, with parity
between the REAL and the U.S. dollar (R$1.00 to US$1.00) as a ceiling.
On March 6, 1995, the Central Bank announced that it would intervene in the
market and buy or sell U.S. dollars, establishing a band (FAIXA DE FLUTUACAO) in
which the exchange rate between the REAL and the U.S. dollar could fluctuate.
The Central Bank initially set the band with a floor of R$0.86 per US$1.00 and a
ceiling of R$0.90 per US$1.00 and provided that, from and after May 2, 1995, the
band would fluctuate between R$0.86 and R$0.98 per US$1.00. Shortly thereafter,
the Central Bank issued a new directive providing that the band would be between
R$0.88 and R$0.93 per US$1.00. On June 22, 1995, the Central Bank issued another
directive providing that the band would be between R$0.91 and R$0.99 per US$1.00
and subsequently reset the band on January 30, 1996 to between R$0.97 and R$1.06
per US$1.00. There can be no assurance that the band will not be altered in the
future.
The following table sets forth the Commercial Market Rate for the periods
indicated.
<TABLE>
<CAPTION>
EXCHANGE RATES OF BRAZILIAN CURRENCY PER
US$1.00(1)
--------------------------------------------------
<S> <C> <C> <C> <C>
PERIOD LOW HIGH AVERAGE(2) PERIOD-END
- ------------------------------------------------------- ----------- ----------- ----------- -----------
1990................................................... 0.000004 0.000062 0.000025 0.000062
1991................................................... 0.000062 0.000389 0.000149 0.000389
1992................................................... 0.000393 0.004505 0.001655 0.004505
1993................................................... 0.004557 0.118584 0.032809 0.118584
1994................................................... 0.120444 0.940000 0.645000 0.846000
1995................................................... 0.834000 0.972600 0.917742 0.972500
1996................................................... 0.097260 1.040000 1.006300 1.039400
1997 (through April 3)................................. 1.039300 1.061500 1.049000 1.060000
</TABLE>
- ------------------------------
(1) The information set forth above is based on information published by the
Central Bank. The Federal Reserve Bank of New York does not publish a
noon-buying rate for REAIS.
(2) Weighted average of the exchange rates on business days for the period.
37
<PAGE>
THE COMPANY
The predecessor of TV Filme was founded in 1989 by certain 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. Licenses
to operate the Goiania and Belem systems were acquired in 1994 from TVA Sistema.
From 1993 through 1996, the Company raised an aggregate of approximately
$16.8 million through a series of private equity placements to Tevecap and
Warburg, Pincus. TV Filme completed the Initial Public Offering in August 1996
with net proceeds of approximately $24.4 million. With proceeds from these
financings, the Company increased the channel offerings in Brasilia, launched
new wireless cable television systems in Goiania and Belem and expanded its
subscriber base. The Company has exclusive rights in its current operating
markets to transmit, via MMDS and hardwire cable, programming offered by Tevecap
and its subsidiaries.
In connection with the Initial Public Offering, TV Filme was formed in April
1996 to become the holding company of and successor to ITSA. ITSA was formed in
May 1994 as a holding company for and successor to TV Filme Servicos de
Telecomunicacoes S.A. ("TVFSA"), the predecessor of TV Filme Servicos.
In connection with the Initial Public Offering, TV Filme entered into a
reorganization (the "Reorganization") pursuant to which all of the preferred
stock of ITSA was converted into common stock of ITSA and each share of common
stock of ITSA was exchanged for 1,844 shares of Common Stock of TV Filme.
Pursuant to the Reorganization, (i) 51% of the voting stock of TV Filme Servicos
was transferred to TVTEL Ltda., an entity all the stock of which is owned by
certain stockholders of TV Filme who are Brazilian nationals, including certain
directors and executive officers of TV Filme (namely Tevecap, Mrs. Maria Nise
Studart Lins de Albuquerque, Messrs. Hermano Lins and Carlos Andre Lins and Ms.
Maria Veronica Lins) with ITSA retaining 49% of the voting stock and 83% of the
economic interests in TV Filme Servicos; (ii) the operating assets of the
wireless cable system of Brasilia were transferred from TV Filme Servicos to TV
Filme Brasilia; and (iii) TV Filme Servicos entered into various agreements with
ITSA and its subsidiaries pursuant to which, among other things, TV Filme
Servicos has authorized ITSA to operate the existing wireless cable systems
under its current licenses and to operate future cable systems under future
license grants. TV Filme owns 100% of ITSA, which holds 49% of the voting stock
and 83% of the economic interests of TV Filme Servicos, and 100% of TV Filme
Brasilia, TV Filme Goiania and TV Filme Belem.
TV Filme is a publicly-traded Delaware corporation. Its major stockholders
include Tevecap, one of the leading pay television operators in Brazil and one
of the country's largest pay television programming distributors, Warburg,
Pincus, and certain members of management and their family.
38
<PAGE>
The Company's organizational structure is as follows:
[Contains a chart describing the organizational structure of the Company. The
Chart explains that TV Filme is 100% owned by existing U.S. stockholders and
certain existing Brazilian stockholders, that ITSA is 100% owned by TV Filme,
that TV Filme Brasilia, TV Filme Goiania and TV Filme Belem are 100% owned by
ITSA. In addition, the Chart indicates that ITSA has a 49% voting interest and
83% equity interest in TV Filme Servicos, and that TVTEL Ltda. has a 51% voting
interest and 17% total equity interest in TV Filme Servicos. The Chart also
shows that TVTEL Ltda. is 100% owned by Brazilian stockholders.]
39
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds to TV Filme from the exchange of Old Notes
for Exchange Notes pursuant to the Exchange Offer. See "Plan of Distribution."
In accordance with the terms of the Indenture, on the Closing Date the proceeds
of the Offering were loaned to ITSA, which loan is evidenced by the Intercompany
Note. Of the $140.0 million loaned to ITSA, approximately $33.5 million was used
to purchase the Pledged Securities, scheduled interest and principal payments on
which is in an amount sufficient to provide for payment in full when due of the
first four scheduled interest payments on the Notes. The Pledged Securities have
been pledged as security for the repayment of principal and interest on the
Notes. See "Description of Exchange Notes--Security." The Pledged Securities are
being held by the Collateral Agent under the Pledge Agreement pending
disbursement.
The Company expects to use the balance of the net proceeds as follows: (i)
approximately $15.0 million to finance the acquisition of additional MMDS
licenses or systems; (ii) approximately $40.0 million to fund the development of
new systems launched or acquired, including capital expenditures, working
capital needs and operating losses associated with such systems; and (iii)
approximately $44.9 million to (a) acquire and develop additional programming
for its pay television systems, (b) provide value-added services to existing and
potential subscribers, such as Internet access and (c) fund the Company's
working capital and capital expenditure needs, including funding continued
subscriber growth and exploring and implementing new transmission technologies,
which may include digital transmission, for its pay television systems.
While no new MMDS licenses have been awarded to the Company, it believes it
is well-positioned to obtain some of the licenses which it expects to be
auctioned by the Ministry of Communications. See "Business--Regulatory
Environment--License Procedures." Although the cost of purchasing or acquiring
any given license cannot be predicted, the Company believes that such costs have
increased substantially in recent years and will continue to increase, due to
increased competition. Based upon current market and operating conditions, the
Company estimates that the average cost of launching and deploying any
additional wireless cable operating system after the granting of a new license
in the Company's application markets could be up to approximately $12.0 million,
including construction of a headend facility, subscriber-related capital costs
and funding initial development and marketing costs and operating losses,
depending upon factors particular to each such market.
A portion of the Company's expansion may occur through joint ventures or
acquisitions of both existing pay television systems and new pay television
licenses. Currently, the Company is engaged, on a preliminary basis, in
evaluations, discussions and other activities relating to the possible
acquisition of existing pay television providers. Because of the preliminary
nature of all of such acquisition-related activities, there can be no assurance
as to whether or when any such transaction will be consummated or as to the
terms thereof. See "Description of Exchange Notes--Certain Covenants--Incurrence
of Indebtedness and Issuance of Disqualified Stock."
40
<PAGE>
CAPITALIZATION
The following table sets forth the actual cash and cash equivalents, pledged
securities and capitalization of the Company as of December 31, 1996. This table
should be read in conjunction with the Consolidated Financial Statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Cash and cash equivalents, excluding pledged securities......................................... $ 116,355
Pledged securities(1)........................................................................... 33,512
--------
Total cash and cash equivalents, including pledged securities................................. $ 149,867
--------
--------
Long-term debt:
12 7/8% Senior Notes due 2004................................................................. $ 140,000
Payables to affiliate......................................................................... 200
--------
Total long-term debt........................................................................ $ 140,200
--------
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 10,166,176 shares issued and
outstanding(2).............................................................................. 102
Additional paid-in capital.................................................................... 41,825
Deficit....................................................................................... (4,179)
--------
Total stockholders' equity.................................................................. 37,748
--------
Total capitalization...................................................................... $ 202,929
--------
--------
</TABLE>
- ------------------------
(1) The pledged securities were purchased as collateral for the Notes. See Note
6 to the Consolidated Financial Statements.
(2) Excludes (i) 936,432 shares of Common Stock reserved for issuance upon the
exercise of stock options available for grant under TV Filme's 1996 Stock
Option Plan (as defined herein) pursuant to which options to purchase
417,000 shares of Common Stock have been granted, 297,000 of which are
exercisable at $10.00 per share and 110,000 of which are exercisable at
$11.00 per share, and which generally vest and become exercisable at the
rate of 20% per year for five years beginning on the first anniversary of
the consummation of the Initial Public Offering (August 2, 1997) and 10,000
of which are exercisable at $11.75 per share, and which vest and become
exercisable at a rate of 20% per year for five years beginning December 13,
1997 and (ii) 794,764 shares of Common Stock issuable upon the exercise of
certain warrants, all of which are currently exercisable at an exercise
price of $6.52 per share. See "Management--Stock Options--1996 Stock Option
Plan."
41
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA(1)
The selected consolidated balance sheet data as of December 31, 1994, 1995
and 1996 and the selected consolidated statement of operations data for each of
the years ended December 31, 1993, 1994, 1995 and 1996 are derived from, and are
qualified by reference to, the Consolidated Financial Statements, which have
been audited by Ernst & Young Auditores Independentes S.C., independent
auditors. The selected consolidated balance sheet data as of December 31, 1992
and 1993 and the selected consolidated statement of operations data for the year
ended December 31, 1992, 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. The Consolidated Financial
Statements have been prepared in accordance with U.S. 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
Statement of Financial Accounting Standards No. 52 ("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>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT RATIO AND
OTHER OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................................. $ 69 $ 287 $ 2,438 $ 11,404 $ $31,388
Operating costs and expenses:
System operating.................................................... 7 196 773 2,957 9,593
Selling, general and administrative................................. 38 558 2,394 8,975 16,737
Depreciation and amortization....................................... 11 43 365 2,049 5,921
--------- --------- --------- --------- ---------
Total operating costs and expenses................................ 56 797 3,532 13,981 32,251
--------- --------- --------- --------- ---------
Operating income (loss)............................................... 13 (510) (1,094) (2,577) (863)
Other income (expense)................................................ -- (6) 1,612 360 (1,147)
--------- --------- --------- --------- ---------
Net income (loss)..................................................... $ 13 $ (516) $ 518 $ (2,217) $ (2,010)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share (2)....................................... $ 0.00 $ (0.10) $ 0.08 $ (0.27) $ (0.22)
Weighted average number of common stock and common stock equivalents
outstanding (2)..................................................... 4,516 5,295 6,885 8,086 9,256
OTHER FINANCIAL DATA:
EBITDA(3)............................................................. $ 24 $ (467) $ (729) $ (216) $ 5,330
Capital expenditures.................................................. 31 852 3,637 16,621 25,225
Ratio of earnings to fixed charges(4)................................. 5.3x -- 12.5x -- --
OTHER OPERATING DATA:
Number of subscribers at end of period(5)............................. 135 1,864 7,641 36,594 79,176
Average monthly revenue per subscriber(6)............................. -- $ 30.43 $ 34.13 $ 40.00 $ 39.63
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........................................... $ -- $ 279 $ 3,204 $ (6,430) $ 123,263
Property, plant and equipment, net.................................. 86 895 4,182 18,870 38,333
Total assets........................................................ 87 1,795 10,008 23,683 202,929
Total long-term debt................................................ -- -- 600 400 140,200
Stockholders' equity(7)............................................. 86 982 6,500 7,895 37,748
</TABLE>
- ------------------------
(1) The Selected 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 had been part of
TV Filme for all periods presented. See Note 1a to the Consolidated
Financial Statements.
(2) Net income (loss) per share (after giving effect to the Reorganization) 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 Offering.
(3) EBITDA is defined as operating income (loss) plus depreciation, amortization
and non-cash charges. EBITDA is a commonly used measure of performance in
the pay 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, each of which is determined in
accordance with U.S. 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, however, 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) For the years ended December 31, 1993, 1995 and 1996, earnings were
insufficient to cover fixed charges by $516,000, $2,217,000, and $2,010,000,
respectively. For purposes of calculating the ratio of earnings to fixed
charges: (i) earnings consist of loss before income taxes, plus fixed
charges and (ii) fixed charges consist of interest, plus one third of rental
payments on operating leases (such amounts having been deemed by the Company
to represent the interest portion of such payments).
(5) See "Business--Operating Systems and the Company's Markets."
(6) Average monthly revenue per subscriber is calculated by dividing
subscription revenue for the month by the average number of subscribers for
the month.
(7) TV Filme has never paid cash dividends on its Common Stock.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS REFLECTS THE HISTORICAL RESULTS OF THE COMPANY. DUE TO THE LIMITED
OPERATING HISTORY, STARTUP NATURE AND RAPID GROWTH OF THE COMPANY AND
TRANSLATIONS OF BRAZILIAN CURRENCY INTO U.S. DOLLARS, PERIOD-TO-PERIOD
COMPARISONS OF FINANCIAL DATA ARE NOT NECESSARILY INDICATIVE, AND SHOULD NOT BE
RELIED UPON AS AN INDICATOR, OF THE FUTURE PERFORMANCE OF THE COMPANY.
OVERVIEW
The Company develops, owns and operates pay television systems in mid-sized
markets in Brazil. The Company is the sole provider of MMDS in the cities of
Brasilia, Goiania and Belem. Since the beginning of 1994, the Company's
subscriber base has grown substantially, increasing from 1,864 subscribers to
79,176 subscribers as of December 31, 1996.
Historically, the Company has generated operating losses, which may increase
to the extent that operations of additional systems are commenced or acquired.
As the Company continues to develop systems, positive EBITDA(1) from more
developed systems is expected to be partially or completely offset by corporate
overhead, 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 system EBITDA positive in the third quarter of 1994, with
approximately 6,000 subscribers, and generated system EBITDA of $7.4 million and
operating income of $4.0 million for the year ended December 31, 1996. The
Company's Belem System became system EBITDA positive in the fourth quarter of
1995, with approximately 5,000 subscribers, and generated system EBITDA of $1.6
million and operating income of $0.3 million for the year ended December 31,
1996.
Each of the Company's systems has required an initial capital investment of
approximately $1.0 million to $1.5 million 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 $470, 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 which vary from market to market, depending on factors which include the
subscriber's access to other forms of pay television and whether the
installation is the first installation in a building. The Company charges its
subscribers an installation fee ranging from $90-$180. The Company expects to
lower installation charges per subscriber as it expands its subscriber base. 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 launch 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 the costs of
- ------------------------
(1) EBITDA is defined as operating income (loss) plus depreciation, amortization
and non-cash charges. EBITDA is a commonly used measure of performance in
the pay 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, each of which is determined in
accordance with U.S. 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, however, 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.
44
<PAGE>
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, costs as a percentage of revenues
decrease and operating margins generally increase.
Although the Company's financial statements are presented pursuant to U.S.
GAAP in U.S. dollars, the Company's transactions are consummated in both REAIS
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 "Risk Factors--Risk Factors Relating to
Brazil" and "Annex B--The Federative Republic of Brazil--Brazilian Economic
Environment--Effects of Inflation."
TV Filme, as a holding company, is dependent on the receipt of dividends and
payment of intercompany obligations from its operating subsidiaries in order to
meet its cash requirements. The payment of dividends from the subsidiaries of TV
Filme to TV Filme and the payment of any interest on or the repayment of any
principal of any loans or advances made by TV Filme to any of its subsidiaries
may be subject to statutory or contractual restrictions, are contingent on the
earnings and performance of such subsidiaries and are subject to various
business considerations.
RESULTS OF OPERATIONS
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 year presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Revenues.......................................................................... 100.0% 100.0% 100%
Operating costs and expenses:
System operating................................................................ 31.7 25.9 30.6
Selling, general and administrative............................................. 98.2 78.7 53.3
Depreciation and amortization................................................... 15.0 18.0 18.9
--------- --------- ---------
Total operating costs and expenses............................................ 144.9 122.6 102.8
--------- --------- ---------
Operating income (loss)........................................................... (44.9) (22.6) (2.8)
Other income (expense)............................................................ 66.1 3.2 (3.6)
--------- --------- ---------
Net income (loss)................................................................. 21.2% (19.4)% (6.4)%
--------- --------- ---------
--------- --------- ---------
</TABLE>
REVENUES. The Company's revenues primarily consist of monthly fees paid by
subscribers for the programming package, as well as installation fees recognized
for the period. Revenues increased from approximately $2.4 million in 1994 to
approximately $11.4 million in 1995 primarily due to an increase in the average
number of subscribers in the Brasilia System of 16,513 and the launch of two new
operating systems in Goiania and Belem, which had average subscribers of 5,605.
Additionally, installation fees recognized increased by $1.4 million from 1994
to 1995. The average monthly revenue per subscriber increased due to an increase
in monthly subscription fees implemented during 1995. Revenues increased
45
<PAGE>
from approximately $11.4 million in 1995 to approximately $31.4 million in 1996,
primarily due to an aggregate increase of approximately 39,000 in the average
number of subscribers in the Company's three operating systems. Average monthly
revenue per subscriber remained essentially constant from 1995 to 1996.
SYSTEM OPERATING EXPENSES. System operating expenses include programming
costs, a portion of costs of compensation and benefits for the Company's
employees, vehicle rental costs, transmitter site rentals, repair and
maintenance expenditures and service call costs. System operating expenses, net
of capitalized installation costs, increased from approximately $800,000 in 1994
to approximately $3.0 million in 1995 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, of $500,000.
System operating expenses, net of capitalized installation costs, increased from
approximately $3.0 million in 1995 to approximately $9.6 million in 1996,
primarily due to an increase in programming expenses of approximately $6.0
million and an increase in compensation and benefits of approximately $0.4
million, primarily to employees in the customer service and engineering
departments. From 1994 through 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
during 1994 through 1995 by decreasing programming costs per subscriber due to
volume discounts. Additionally, the Company received discounts from list prices
on Tevecap programming during 1994 and the first ten months of 1995 which
amounted to $340,000 and $539,000 in 1994 and 1995, respectively. The Company
did not receive any such discounts in 1996 and such discounts are not expected
to recur.
SELLING, GENERAL AND ADMINISTRATIVE COSTS. Selling, general and
administrative expenses ("SG&A") increased from approximately $2.4 million in
1994 to approximately $9.0 million in 1995 but as a percentage of revenues
decreased to approximately 78.7% from approximately 98.2%. During 1995,
compensation and benefits increased by $3.6 million, primarily to employees in
the sales department and senior management, advertising increased by $500,000
and there was non-cash compensation expense in 1995 of $300,000 in connection
with a grant of stock options. SG&A increased from approximately $9.0 million in
1995 to approximately $16.7 million in 1996, but as a percentage of revenues
decreased to approximately 53.3% from 78.7%. Compensation and benefits increased
by approximately $3.4 million from 1995 to 1996, primarily due to additions to
management, additional employees in the sales department and more commissions
paid to sales employees. The Company added employees primarily in the sales
department to service the Company's expanded subscriber base and growth,
including the expansion into the Goiania and Belem markets. From 1995 to 1996,
the Company also added approximately $1.0 million to its allowance for bad debt
and incurred approximately $0.8 million of additional expenses associated with
advertising. Bank fees and rents also increased from 1995 to 1996 by $0.5
million and $0.3 million, respectively.
The termination of subscriber accounts resulted in the write-off of accounts
receivables of approximately $0.95 million. The result of such terminations
increased average monthly churn to 1.22% for the year ended December 31, 1996
from historic levels of less than 1%. As of December 31, 1996, the Company's
accounts receivables totaled approximately $4.3 million before an allowance for
doubtful accounts of $0.7 million.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
consist primarily of depreciation of decoder boxes, headend facilities and
capitalized installation costs. Since inception, the Company's direct costs of
obtaining subscribers generally have exceeded installation revenues. These costs
are capitalized and depreciated over a five year period. Depreciation and
amortization expense increased from approximately $400,000 in 1994 to
approximately $2.0 million in 1995 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.
46
<PAGE>
Depreciation and amortization expense increased from approximately $2.0 million
in 1995 to approximately $5.9 million in 1996, primarily due to increases in the
number of installed subscribers in each of the Company's three operating
systems.
OPERATING INCOME (LOSS). Operating loss increased from 1994 to 1995 and
from 1995 to 1996 primarily due to increases in expenses in connection with the
development of the Company's business, as explained above. The Company may
continue to generate operating losses as it further expands its existing systems
and develops additional systems.
OTHER INCOME (EXPENSE). Interest expense for 1994 was insignificant.
Interest expense increased in 1995 as a result of short-term borrowings from
Abril 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 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
by $1.0 million from 1995 to 1996 primarily as a result of higher average
short-term borrowings from Abril and certain of its affiliates and accrued
interest associated with the Old Notes. Interest income increased by $0.3
million from 1995 to 1996 primarily as a result of earnings on additional
investments.
Exchange and translation gains have arisen primarily as a result of
short-term investments and borrowings denominated in REALS to U.S. dollars in
accordance with SFAS No. 52. These amounts can fluctuate significantly as a
result of changes in the exchange rate of the REAL relative to the U.S. dollar.
In connection with the transfer of the proceeds of the Old Notes to ITSA and the
remittance and conversion of REALS to U.S. dollars, the Company incurred
exchange losses of approximately $0.6 million. See "Risk Factors--Risk Factors
Relating to Brazil."
INCOME TAXES. At December 31, 1996, the Company had $12.2 million of net
operating loss carryforwards, of which approximately $1.2 million were
attributable to TV Filme Servicos. As a result of the Reorganization, the net
operating loss carryforwards of TV Filme Servicos, which is no longer a wholly-
owned subsidiary of the Company, are available only to offset its own income and
are not available to offset any profits generated by TV Filme and its
consolidated subsidiaries. Under Brazilian law, the carryforward period for net
operating losses is unlimited. Use of these losses, however, is restricted 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, 1997, Brazilian
effective tax rates increased to approximately 33.5% from 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.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/30/94 9/30/94 12/31/94 3/31/95 6/30/95 9/30/95 12/31/95 3/31/96 6/30/96
----------- ----------- ----------- --------- --------- --------- ----------- --------- ---------
<CAPTION>
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subscribers............ 4,480 5,796 7,641 11,924 19,009 27,024 36,594 47,066 59,036
Revenues............... $ 457 $ 732 $ 1,000 $ 1,364 $ 2,149 $ 3,222 $ 4,669 $ 5,852 $ 6,781
Operating income
(loss)............... $ (176) $ (217) $ (540) $ (874) $ (668) $ (523) $ (512) $ (139) $ (262)
EBITDA................. $ (109) $ (109) $ (404) $ (638) $ (306) $ 388 $ 340 $ 959 $ 1,065
Net income (loss)...... $ (131) $ 768 $ 35 $ (656) $ (619) $ (532) $ (411) $ (459) $ (311)
<CAPTION>
<S> <C> <C>
9/30/96 12/31/96
--------- -----------
<S> <C> <C>
Subscribers............ 70,591 79,176
Revenues............... $ 8,654 $ 10,101
Operating income
(loss)............... $ (15) $ (447)
EBITDA................. $ 1,557 $ 1,749
Net income (loss)...... $ (77) $ (1,163)
</TABLE>
47
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
The pay 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 $25.2 million in 1996. Such capital expenditures were financed
principally through vendor financing, loans from affiliates and offerings of
equity and debt. From 1993 through 1996, the Company raised an aggregate of
approximately $16.8 million through a series of private equity placements to
Tevecap and Warburg, Pincus. In August 1996, TV Filme completed the Initial
Public Offering with net proceeds to the Company of $24.4 million and in
December 1996 TV Filme completed the sale of the Old Notes. In the past, working
capital requirements have been met primarily by (i) vendor financing which
requires payment within 360 days of shipment, some of which has been supported
by irrevocable letters of credit guaranteed by Abril and certain of its
affiliates and (ii) borrowings from Abril and certain of its affiliates. As of
December 31, 1996, the Company had repaid working capital borrowings from Abril
and certain of its affiliates in their entirety with a portion of the net
proceeds from the Initial Public Offering. As a result of the Initial Public
Offering and the Old Notes offering, the Company does not expect to continue
borrowing from Abril or its affiliates. As of December 31, 1996, the Company has
a payable to Abril of $400,000 in connection with the Company's purchase of the
Belem and Goiania licenses from Abril. Such amount is due in two equal
installments in February of 1997 and 1998.
As of December 31, 1996, approximately $7.3 million was outstanding under
letters of credit with maturities ranging from 30 days to 360 days, of which
approximately $4.1 million was guaranteed by affiliates of TV Filme. As of
December 31, 1996, the Company had importation lines of credit in the aggregate
amount of $6.0 million with two commercial banks, of which approximately $2.75
million was available on such date. The Company currently believes that lines of
credit, additional vendor financing and other credit facilities are available on
acceptable terms. As a result of the Initial Public Offering and the Old Notes
offering, the Company had positive working capital at December 31, 1996 in the
amount of $107.1 million. Net cash provided by operating activities for the year
ended December 31, 1996 was approximately $8.4 million.
For 1997, the Company anticipates that its aggregate capital expenditures in
its existing operating markets will be approximately $25.0 million, comprised
primarily of subscriber installation equipment. 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 27 additional markets in Brazil. As a result of the
uncertainty regarding the process for granting new concessions and licenses for
MMDS services following a preliminary injunction issued by the Brazilian Federal
Supreme Court and the Presidential Decree, there can be no assurance as to the
grant of any such concessions and licenses and the timing of any such grants
generally. See "Risk Factors--Risk Factors Relating to the Company and the
Exchange Offer--Risks Associated with New Markets and Growth Strategy," "Risk
Factors--Risk Factors Relating to the Company and the Exchange Offer--Government
Regulation" and "Business--Regulatory Environment--License Procedures." Based on
current market and operating conditions, the Company estimates that the average
cost of launching and deploying any additional wireless cable operating system
after the granting of a new license in the Company's application markets could
be up to approximately $12.0 million, including construction of a headend
facility, subscriber-related capital costs and funding initial development and
marketing costs and operating losses, depending on factors particular to each
market. The Company also from time to time may selectively pursue the
acquisition of existing pay television systems, although it currently has no
understanding, commitment or agreement with respect to any such acquisitions.
The Company believes that the Company's current cash and internally generated
funds, will be sufficient to fund its cash requirements for at
48
<PAGE>
least the next twelve months. In the longer term, the Company's funding needs
are subject to a variety of factors, including the number and size of new system
launches or acquisitions, the implementation of alternative transmission
technologies and the offering of additional communications services.
Accordingly, there can be no assurance that the Company will be able to meet its
funding needs in the longer term.
The Company believes it is not likely that the pledge of the Intercompany
Note by TV Filme as security for the Notes and the issuance of the Subsidiary
Guarantees in support of the Intercompany Note will result in U.S. Federal
income tax liability. Although no assurance can be given that the Internal
Revenue Service ("IRS") will not assert that TV Filme is subject to U.S. Federal
income tax as a result of such pledge and guarantees, the Company does not
believe that the amount of any such tax, if imposed, would be material.
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 its prices 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 anniversary of the subscribers initial
subscription date. 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 REAIS, but pays certain of its expenses,
including a substantial portion of its equipment costs and substantially all of
its programming costs, in U.S. dollars. 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 be adversely affected.
This effect on the Company's revenues may negatively impact the Company's
ability to fund U.S. dollar-based expenditures. 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.
49
<PAGE>
BUSINESS
BRAZILIAN PAY TELEVISION INDUSTRY
The pay television industry in Brazil began in 1989 with the commencement of
UHF service in Sao Paulo. In contrast to the U.S., the Brazilian hardwire cable
industry and wireless cable industry began developing concurrently. By December
31, 1996, approximately 100 hardwire cable licenses and 12 wireless cable
licenses had been issued by the Ministry of Communications. The Company believes
that as of December 31, 1996, fewer than 15% of Brazilian homes were passed by
hardwire cable as compared to over 90% in the U.S. Brazil is the largest
television market in Latin America with an estimated 34.5 million television
households. As of December 31, 1996, the Company estimates that there were
approximately 1.6 million pay television subscribers, representing approximately
4.7% of Brazilian television households. The Ministry of Communications has
estimated that Brazil will have approximately 16 million pay television
subscribers by the year 2003.
As of December 31, 1995, Brazilian television households viewed an average
of more than 6.5 hours of television per day, as compared to an average of 6.8
hours per day in the United States. Viewers prefer Portuguese language
programming, including movies, sports and "novelas" (soap operas). The second
language of many Brazilians is English. U.S. culture generally, and U.S. films,
shows and sports in particular, are popular with Brazilians. The programming
market for pay television is dominated by Brazil's two largest media
conglomerates, Abril and the Globo Organization. Both groups offer programming
packages including a movie channel, a sports channel, a news channel, U.S. prime
time network shows and cartoons. In general, much of the Brazilian programming
transmitted by pay television systems, such as HBO Brazil, ESPN International
and MTV Latino, is based on formats found in the U.S. In addition, there are
programming packages which include channels directly from the U.S., such as
Warner, Sony and Superstation, as well as packages from Europe and other
countries in Latin America.
COMPANY OVERVIEW
The Company develops, owns and operates pay television systems in mid-sized
markets in Brazil, with populations of between 100,000 and 2.5 million. The
Company is the sole provider of MMDS in the cities of Brasilia, Goiania and
Belem. Together, these cities have a total population of approximately 5.7
million and encompass approximately 1.3 million households, an estimated 1.1
million of which can be served by the Company's LOS transmission. Since the
beginning of 1994, the Company's subscriber base has grown substantially,
increasing from 1,864 subscribers to 79,176 subscribers as of December 31, 1996.
For the year ended December 31, 1996, average monthly revenue per subscriber was
$39.63. For the same period, the Company generated revenues of approximately
$31.4 million, an operating loss of approximately $0.9 million, a net loss of
approximately $2.0 million and EBITDA of approximately $5.3 million.
The Company has filed applications for licenses to operate wireless cable
systems in an additional 27 markets in Brazil which have an aggregate population
of approximately 12.5 million and encompass approximately 2.7 million
households. An estimated 2.2 million of such households can be served by LOS
transmission. As a result of certain developments concerning the granting of new
concessions and licenses for the rendering of commercial telecommunications
services in Brazil, in the absence of further governmental action, the process
of granting new concessions and licenses for MMDS services is uncertain. There
can be no assurance as to the grant of any such concessions and licenses and the
timing of any such grants generally. See "Risk Factors--Risk Factors Relating to
the Company and the Exchange Offer--Risks Associated with New Markets and Growth
Strategy," "Risk Factors--Risk Factors Relating to the Company and the Exchange
Offer--Government Regulation" and "Business--Regulatory Environment-- License
Procedures."
Until September 9, 1996, licenses were granted for renewable periods of 10
years; under the Revised MMDS Rule licenses would be awarded for renewable
15-year periods. However, there can be no
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assurance as to the applicability of the Revised MMDS Rule. Under the Revised
MMDS Rule, MMDS licenses have a coverage area of up to a 50 kilometer radius
from transmission sites and permit transmission of up to 31 analog wireless
cable channels. The Company requested and received approval to increase channel
transmission in its existing markets to 31 wireless cable channels from its
current 16 wireless cable channels and to extend the coverage area in these
markets beyond the existing 25 kilometer range.
The Company primarily targets mid-sized markets with demographics,
competitive environments and topographies that it believes offer the Company the
opportunity to become the leading provider of pay television services in those
markets. The Company believes that mid-sized markets in Brazil are currently
underpenetrated by existing pay television providers. There is only one hardwire
cable provider in each of Brasilia and Goiania and no hardwire cable provider in
Belem. Of the approximately 1.3 million households in Brasilia, Goiania and
Belem, the Company estimates that approximately 70% 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 service can be deployed more rapidly than
most alternative technologies and provides immediate coverage of entire markets,
enabling service to be delivered to all potential subscribers 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 hardwire cable because (i) the headend for a wireless cable system has a
relatively low cost, (ii) capital expenditures for wireless cable systems are
only required at the headend facility and in connection with installation of
subscriber reception equipment and (iii) incremental investment is only
undertaken in response to customer demand with the addition of each new
subscriber. 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 method of delivery.
STRATEGY
The Company's objective is to become a leading provider of pay television
services in mid-sized markets in Brazil and generally to become the largest
provider of pay television services in each of its markets. The Company believes
Brazil offers substantial growth opportunities for pay television providers
because there is significant demand among television viewers for additional
programming choices and the penetration rate for pay television services is
currently less than 5% of Brazil's total television households. As demonstrated
by the rapid growth in the Company's subscriber base, the Company believes it is
well positioned to take advantage of these opportunities. The principal elements
of the Company's operating strategy are: (i) increasing penetration of existing
markets, (ii) targeting mid-sized markets for expansion, (iii) developing TV
Filme brand name recognition through exclusive programming, (iv) providing
superior customer service, (v) providing value-added services and (vi)
implementing a consistent operating model. These elements of the Company's
strategy are discussed below:
INCREASING PENETRATION OF EXISTING MARKETS. The Company seeks to increase
its penetration of existing markets through (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, (vii) other
marketing activities, including referral programs and promotional gifts, and
(viii) adding households to the Company's service area by installing signal
repeaters.
TARGETING MID-SIZED MARKETS FOR EXPANSION. The Company primarily targets
markets with populations from approximately 100,000 to 2.5 million with
demographics, competitive environments and topographies favorable for
implementation of the Company's pay television services. The Company believes
that these markets are currently underpenetrated by pay television service
providers. The Company intends to pursue development of additional markets by
(i) obtaining new pay television licenses offered by the Brazilian
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government, (ii) acquiring or investing in existing pay television operations or
(iii) acquiring or co-developing newly issued pay television licenses from or
with third parties. The Company has filed applications for licenses to operate
wireless cable systems in an additional 27 markets in Brazil which have an
aggregate population of approximately 12.5 million and encompass approximately
2.7 million households. In the second half of 1996, the Brazilian government
announced its intention to auction MMDS licenses in 15 of its state capitals.
The Company has filed applications in 14 of these 15 markets. As a result of
certain developments concerning the granting of new concessions and licenses for
the rendering of commercial telecommunications services in Brazil, in the
absence of further governmental action, the process for granting new concessions
and licenses for MMDS services is uncertain. There can be no assurance as to the
grant of any such concessions and licenses and the timing of any such grants
generally. See "Risk Factors--Risk Factors Relating to the Company and the
Exchange Offer--Risks Associated with New Markets and Growth Strategy" and "Risk
Factors--Risk Factors Relating to the Company and the Exchange Offer--Government
Regulation."
In addition, the Company is engaged, on a preliminary basis, in evaluations,
discussions and other activities relating to the possible acquisition of, or
investment in, existing pay television providers or holders of MMDS licenses.
Because of the preliminary nature of such acquisition-related activities, there
can be no assurance as to whether or when any such transaction will be
consummated or as to the terms thereof.
DEVELOPING TV FILME BRAND NAME RECOGNITION THROUGH EXCLUSIVE
PROGRAMMING. The Company believes that the exclusive programming it offers is
superior to that of its hardwire competitors. In its current operating markets,
the Company has the exclusive right to transmit, via MMDS 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
MTV Brazil. 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 televise annually through 1998 all of the games of the
Goias State Soccer Championship matches, which the Company offers to its
subscribers in the Goiania market and the rights to televise annually through
1999 all of the games of the Belem State Soccer Championship which the Company
will offer to its subscribers in the Belem market. The Company emphasizes its
exclusive programming in attracting new and maintaining existing subscribers 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. The Company intends to develop additional original programming such as
local news and sports channels, to strengthen further the Company's brand name
and appeal.
PROVIDING SUPERIOR CUSTOMER SERVICE. The Company believes that it delivers
high levels of customer service to its subscribers. Customer satisfaction is
emphasized with 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 36 hours.
PROVIDING VALUE-ADDED SERVICES. The Company intends to provide value-added
services, such as Internet access, other media and/or communications services
and co-branded discount and credit cards. The Company believes that by providing
such services to its existing and potential subscribers, it can generate
additional revenue, attract new subscribers and increase ties to its subscriber
base, thereby increasing customer retention rates.
IMPLEMENTING A 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 targeted marketing plans, conducts employee
training programs and
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uses a sophisticated intra-company telecommunications network and proprietary
management information systems to maximize the efficiency of its marketing,
customer service, operations and control functions.
OPERATING SYSTEMS AND THE COMPANY'S MARKETS
The table below provides information regarding the Company's markets as of
December 31, 1996:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED NUMBER FULL
TOTAL TOTAL LOS OF LAUNCH
POPULATION HOUSEHOLDS(1) HOUSEHOLDS(2) CHANNELS(3) DATE
------------ ------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATING MARKETS:
Brasilia...................................... 2,000,000 472,000 417,102 37 Feb. 1994(4)
Belem......................................... 1,900,000 398,000 345,000 36 Feb. 1995
Goiania....................................... 1,800,000 444,000 331,000 36 Jan. 1995
------------ ------------- -------------- ---
Total in Operating Markets.................... 5,700,000 1,314,000 1,093,102
------------ ------------- --------------
------------ ------------- --------------
APPLICATION MARKETS:(5)....................... 12,500,000 2,700,000 2,200,000
------------ ------------- --------------
------------ ------------- --------------
</TABLE>
- ------------------------
(1) Represents the Company's estimate of the number of total households within
the greater metropolitan areas of Brasilia, Belem and Goiania. See
"Business--Regulatory Environment--License Procedures." The Company's
estimates are based on data from the 1991 Census conducted by the IBGE as
adjusted to reflect total household growth of 3.13% per year in Brasilia,
2.65% per year in Belem and 2.33% per year in Goiania.
(2) Represents the Company's estimate of the number of Estimated LOS Households
within a 35 kilometer radius in Brasilia and a 30 kilometer radius in each
of Belem and Goiania that can receive an adequate signal from the Company
(eliminating 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 and 15
wireless cable channels which were recently granted to the Company but over
which the Company is not currently transmitting programming.
(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) Represents the 27 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 concessions and licenses and the timing of any such grants
generally. See "Business-- Strategy" and "Business--Regulatory
Environment--License Procedures."
Since the beginning of 1994, the Company's subscriber base has grown
substantially, increasing from 1,864 subscribers to 79,176 subscribers as of
December 31, 1996. A description of the Company's current markets follows.
BRASILIA SYSTEM. Brasilia, the capital of Brazil, had an estimated greater
metropolitan population of approximately 2.0 million as of December 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 MMDS. In
addition, Brasilia's zoning provisions favor MMDS by requiring that in certain
areas residential buildings be of a similar height and located together. The
Company's current 35 kilometer coverage territory encompasses approximately
417,102 households which the Company believes can be served by LOS transmission.
The Brasilia System currently offers a 22 channel package, consisting of 16
wireless cable channels and six local off-air VHF/UHF 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 wireless cable channels in November 1994. In December 1996, the Company
received approval to transmit an additional 15 wireless cable channels. The
Company has not yet begun transmitting programming over any of these additional
channels. The Brasilia System became system EBITDA positive in the
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third quarter of 1994 with approximately 6,000 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 tower which is 300 feet above average terrain. The
principal pay television competitor in the city of Brasilia is NET Brasilia, a
hardwire cable operator.
BELEM SYSTEM. Belem, with a greater metropolitan population of
approximately 1.9 million as of December 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, trees block wireless cable transmission in
Belem more often than they do in Brasilia and Goiania and thus, the Belem System
requires increased utilization of signal repeaters. 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 Company's current 30
kilometer coverage territory encompasses approximately 345,000 households which
the Company believes can be served by LOS transmission.
The Belem System currently offers a 21 channel package, consisting of 16
wireless cable channels and five local off-air VHF/UHF channels. In December
1996, the Company received approval to transmit an additional 15 wireless cable
channels. The Company has not yet begun transmitting programming over any of
these additional channels. The Belem System became system EBITDA positive in the
fourth quarter of 1995 with approximately 5,000 subscribers. The Belem System
transmits at 50 watts of power per channel from a transmission tower which is
300 feet above average terrain. There currently is no hardwire or other wireless
cable provider in the city of Belem.
GOIANIA SYSTEM. Goiania, with a greater metropolitan population of
approximately 1.8 million as of December 31, 1996, is located approximately 100
miles southwest of Brasilia. 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
Company's current 30 kilometer coverage territory encompasses approximately
331,000 households which the Company believes can be served by LOS transmission.
The Goiania System currently offers a 21 channel package, consisting of 16
wireless cable channels and five local off-air VHF/UHF channels. In December
1996, the Company received approval to transmit an additional 15 wireless cable
channels. The Company has not yet begun transmitting programming over any of
these 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 pay television competitor in the city of Goiania is Multicanal, a
hardwire cable operator.
APPLICATION MARKETS
The Company has filed applications for licenses to operate wireless cable
systems in an additional 27 markets in Brazil which have an aggregate population
of approximately 12.5 million and encompass approximately 2.7 million
households. In the second half of 1996, the Brazilian government announced its
intention to auction MMDS licenses in 15 of its state capitals. The Company has
filed applications in 14 of these 15 markets. As a result of certain
developments concerning the granting of new concessions and licenses for the
rendering of commercial telecommunications services in Brazil, in the absence of
further governmental action, the process for granting new concessions and
licenses for MMDS services is uncertain. There can be no assurance as to the
grant of any such concessions and licenses and the timing of any such grants
generally. See "Risk Factors--Risk Factors Relating to the Company and the
Exchange Offer--Risks Associated with New Markets and Growth Strategy" and "Risk
Factors--Risk Factors Relating to the Company and the Exchange Offer--Government
Regulation."
In July 1996, TV Filme, through its wholly-owned subsidiary ITSA, entered
into an agreement with TV Filme Servicos (the "Operating Agreement") whereby TV
Filme Servicos granted exclusive licenses to
54
<PAGE>
each of TV Filme Brasilia, TV Filme Goiania and TV Filme Belem to operate
wireless cable systems in Brasilia, Goiania and Belem, respectively. TV Filme
Servicos also granted ITSA an exclusive license to operate wireless cable
systems in any market where the Company is successful in obtaining a new
license. The Operating Agreement is valid for the term of each license which it
governs.
PROGRAMMING
The Company currently purchases substantially all of its programming from
Tevecap and its subsidiaries pursuant to the Programming Agreement. 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 Sistema 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 pay 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 2004,
with certain limited exceptions with respect to the Company's application
markets.
In addition, pursuant to the Programming Agreement, Tevecap has granted the
Company a non-exclusive license to transmit programming in most of the markets
where the Company has applications pending if such applications are successful,
with exclusivity to be negotiated on a case-by-case basis.
From time to time, in connection with the Programming 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.
In addition, the Programming Agreement provides that 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 marketing satellite television
services in the Company's current operating markets.
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 the
Company offers to its subscribers in the Goiania market and the rights to
televise annually through 1999 all of the games of the Belem State Soccer
Championship, which the Company will offer to its subscribers in the Belem
market. In addition, the Company offers certain exclusive sports programming,
including ESPN Brazil on which selected games of the Sao Paulo Soccer
Championship and the Rio de Janeiro Soccer Championship matches are offered. 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.
55
<PAGE>
The Company's channel offerings as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
HBO Brazil............................. Brazilian version of HBO
HBO Brazil 2........................... HBO Brazil with a six hour time delay
ESPN Brazil............................ Brazilian version of ESPN
Eurochannel............................ Package of programming from free TV in Europe
Superstation/History................... Package of programming from ABC, CBS and NBC/Brazilian version of The
History Channel
CMT Brazil............................. 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 U.S.
Fox.................................... General entertainment
Discovery Channel...................... Brazilian version of Discovery Channel
ESPN International..................... International version of ESPN
Warner................................. Warner channel produced in the U.S.
Bravo.................................. Brazilian version of Bravo
Sony................................... Sony channel produced in the U.S.
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 pay television marketplace and, therefore, by the
Company to its subscribers, in 1997:
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
Cinemax................................ Brazilian version of Cinemax
CNA.................................... Brazilian news channel
E! Entertainment....................... Brazilian version of E! Entertainment
Mundo Ole.............................. Variety 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 levels. The amount of time a subscriber waits for the
commencement of service is determined based 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
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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 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 $90 to $180. The Company expects to lower
installation charges per subscriber as it expands its subscriber base.
CUSTOMER SERVICE. The Company believes that delivering high levels of
customer service in installation and maintenance enables it to maintain 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. 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 11 employees dedicated to the
development, enhancement and integration of the Company's customer information
systems.
EMPLOYEES
As of December 31, 1996, the Company had a total of 655 employees,
substantially all of whom are employed by TV Filme's subsidiaries. All of the
Company's employees, except for Messrs. Hermano Lins, Carlos Andre Lins and
Alvaro Aguirre, are subject to collective bargaining agreements which expire
from October 1997 to March 1998. 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.
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 are able to
serve the maximum regulatory range for license coverage areas of 50 kilometers.
In certain areas within the Company's markets that are otherwise
terrain-blocked, the Company utilizes signal repeaters to enhance signal
coverage.
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.
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COMPETITION
Through its affiliate, TV Filme Servicos, the Company is the only entity
licensed to operate wireless cable systems in Brasilia, Goiania and Belem. The
Company currently provides service via 16 wireless cable channels in each such
market and has authority to provide service via an additional 15 wireless cable
channels in each such market. The Company believes it is the largest pay
television provider in Brasilia based on total number of subscribers. The
Company's principal competitor in the city of Brasilia is NET Brasilia, a
hardwire cable operator. The Company believes it is the second largest pay
television provider in Goiania based on total number of subscribers. The
Company's principal competitor in the city of Goiania is Multicanal, a hardwire
cable operator. There currently is no hardwire or other wireless 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. Competition in the pay
television industry is based upon program offerings, customer service,
reliability and pricing. 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 "--Brazilian
Pay Television Industry," and "--Operating Systems and the Company's Markets."
REGULATORY ENVIRONMENT
GENERAL. The pay 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 Telecommunications Code
empowers the Ministry of Communications, among other things, to issue, revoke,
modify and renew licenses within the spectrum available to MMDS, to approve the
assignments and transfer of control of such licenses, to approve the location of
channels that comprise MMDS systems, to regulate the type, configuration and
operation of equipment used by MMDS systems, and to impose certain other
reporting requirements on MMDS license holders and MMDS operators. On February
10, 1994, the Ministry of Communications issued Administrative Rule No. 43,
which adopted Rule 002/94 (the "MMDS Rule"), which regulated the MMDS service.
On November 28, 1995, Decree No. 1719 was issued providing for specific
competitive procedures for the granting of concessions and licenses for the
rendering of commercial telecommunication services (including MMDS) in Brazil.
Based on the provisions of Decree No. 1719, the Ministry of Communications
revised the MMDS Rule, by means of Directive No. 1085, dated September 9, 1996
(the "Revised MMDS Rule"). However, on December 4, 1996, following the issuance
of a preliminary injunction by the Brazilian Federal Supreme Court, Decree No.
1719 was revoked by the Presidential Decree and, as a result, the applicability
of the Revised MMDS Rule is uncertain.
Wireless cable or MMDS 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. Until September 9, 1996, licenses
were granted for renewable periods of ten years; under the Revised MMDS Rule,
MMDS licenses were granted for renewable periods of 10 years; under the Revised
MMDS Rule, licenses would be awarded for renewable 15-year periods. However,
there can be no assurance as to the applicability of the Revised MMDS Rule.
Under the terms of the Revised MMDS Rule, each license holder and its
affiliates could have been granted permission to operate MMDS systems in
different areas of Brazil, provided that no holder could be granted licenses for
(i) more than seven municipalities with a population equal to or exceeding
700,000 inhabitants or (ii) more than 12 municipalities with a population
between 300,000 and 700,000 inhabitants. In accordance with the Revised MMDS
Rule, the restrictions would only apply to areas in which the MMDS system
operator (or an affiliate thereof) faces no competition from other pay
television services, excluding services that utilize a satellite to transmit
their signal. Under the Revised MMDS Rule, the Ministry of Communications would
have discretion to alter or eliminate such restrictions, taking into
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account the level of diversity among information sources available and ownership
of MMDS providers. The term affiliate is defined for these purposes as (i) any
legal entity that directly or indirectly holds at least 20% of the voting
capital of another legal entity or any of two legal entities under common
ownership of at least 20% of their respective voting capital, with successive
interests in a chain being multiplied against each other to calculate the 20%,
(ii) any of two legal entities that have at least one officer or director in
common, (iii) any of two legal entities when, due to a financial relationship
between them, one entity is dependent on the other. If all of the 27 additional
markets for which applications have been made for the Company to operate MMDS
systems were to be granted, no more than 7 of the Company's total markets with a
competitor to MMDS would have populations exceeding 700,000 inhabitants and no
more than 12 of the Company's total markets with a competitor to MMDS would have
populations between 300,000 and 700,000 inhabitants. The Company faces
competition from other terrestrial pay television services in two of its three
current operating markets and one of the 27 application markets.
Prices for pay television services currently in operation 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 MMDS operators to transmit
video programming, entertainment services and other information. Under the
Revised MMDS Rule, MMDS licensees are permitted to transmit up to 31 analog MMDS
channels (constituting a spectrum bandwidth of 186 MHz). Historically, however,
only 16 analog channels have been available. The Revised MMDS Rule allows for
the utilization of all 31 analog channels in markets with more than 700,000
inhabitants. If a license is for 16 or more channels, at least two channels must
be reserved for educational and cultural programming. If a license involves 15
channels, only one channel must be reserved for educational and cultural
purposes. The Company believes, but can give no assurance, that channels such as
Discovery and Bravo qualify as cultural and educational programming.
LICENSE PROCEDURES. On November 28, 1995, Decree No. 1719 was enacted,
which provided that all granting of concessions and licenses for the rendering
of most commercial telecommunications services in Brazil, including MMDS, would
be made through bidding procedures. In accordance with Decree No. 1719 and the
Revised MMDS Rule, the Ministry of Communications would have been permitted, in
its discretion or by means of applications filed by interested parties, to
publish public notices requesting comments by interested parties to determine,
among other things, the geographic area where the services were to be provided
and the number of concessions to be granted. In both cases, the interested party
would have been required to present to or file with the Ministry of
Communications its comments or application, as the case may be, containing,
among other things, the technical feasibility of a proposed MMDS system and a
demonstration of the market potential for the targeted area. The Ministry of
Communications would have thereafter ascertained the public interest in granting
the concession and could have decided to open the public bid process for the
granting of such concessions. During such public bid, applicants would have been
evaluated based on a number of factors including: (i) participation of local
residents as stockholders of the applicant, (ii) the number of days for the
installation of the MMDS 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 minimum time reserved
for local programs, (v) the number of cultural or educational programs, (vi) the
number of local community establishments that would receive cultural and
educational programs free of charge and (vii) the subscription price. These
items would have been rated according to certain criteria established in the
Revised MMDS Rule and licenses could have been granted: (i) in the case of areas
with less than 300,000 inhabitants, to the applicant that offered 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 was the highest, and (iii) in the case of areas
with more than 700,000 inhabitants, to the applicant that offered the highest
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price for the license. Once an MMDS concession was granted by the Ministry of
Communications, the license holder would have been required to submit, within
three months, an installation proposal for its MMDS system's headend. Subsequent
to approval of such proposal, construction would have been required to be
finalized and operations commenced within 12 months, which period could have
been extended by an additional 12 months.
On December 4, 1996, in response to a preliminary injunction granted by the
Brazilian Federal Supreme Court suspending the effectiveness of Decree No. 1719,
the President of Brazil signed the Presidential Decree, which revoked Decree No.
1719. The effect of the revocation is that the process for granting new
concessions and licenses for MMDS services remains uncertain. Until such time as
further governmental action is taken to provide for the granting of concessions
and licenses for MMDS services, there can be no assurance as to the grant of any
such concessions and licenses and the timing of any such grants generally. The
Company believes, based on discussions with the Ministry of Communications, that
revised MMDS regulations will be issued, although there can be no assurance
when, and if, such regulations will be issued.
In addition to qualifying under the application and bid process ultimately
adopted, a license holder may also be required to demonstrate that its proposed
signal does not violate interference standards in the area of another MMDS
channel license holder. The maximum area to be covered by the services is a
radius of up to 50 kilometers 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 may be required to
obtain the consent of such other license holder.
OTHER REGULATIONS. MMDS 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 pay television industry also is
subject to the 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. The MMDS Rule and the Revised MMDS Rule also
contain 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 pay 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.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings that would have a
material adverse effect on its 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 in April 1997. The Company has no reason to believe that the leases
expiring in April 1997 will not be renewed. 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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PAY TELEVISION INDUSTRY
INTRODUCTION
The pay television industry began in the late 1940's in the U.S with the
introduction of hardwire cable. The pay television industry did not begin in
Brazil until 1989 when hardwire cable and wireless cable were introduced
concurrently. As of December 31, 1996, the Company believes that there were
approximately 1.6 million Brazilian pay 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 70% 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 some other obstructions. Some of these obstructions can be bypassed
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. The need to purchase decoders and pay for programming has
reduced the popularity of DTH, although the Company competes with DTH systems to
some degree.
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-
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transmitted signals, its reception can be accomplished with an 18-inch or larger
dish mounted on a rooftop or in 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 antennas.
Both Tevecap and the Globo Group recently began to advertise and market
alternative DBS services in Brazil. In the U.S., 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 pursuant to
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.
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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 Company's 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
David E. Libowitz(1).................................... Director
Jose Augusto Pinto Moreira(1)........................... Director
Claudio Dascal.......................................... Director
Adriano Nascimento Barbosa.............................. General Manager of the Brasilia System
Ivan Alexandre Barcellos................................ General Manager of the Goiania System
Rafael Augusto Colino................................... General Manager of the 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 since its
incorporation. Mr. Karp has been a Managing Director of E.M. Warburg, Pincus &
Co., LLC (or its predecessor, E.M. Warburg, Pincus & Co., Inc.) since May 1991.
Prior to joining E. M. Warburg, Pincus & Co., LLC, 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
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 was 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 34 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 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 since June 1996. Prior to joining TV Filme, Mr. Aguirre was a member of
the Latin America Corporate Finance Group of Morgan Stanley & Co., Incorporated
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.
DAVID E. LIBOWITZ has served as a director of TV Filme since April 1997. Mr.
Libowitz is a Vice President of E.M. Warburg, Pincus & Co., LLC and has been
associated with E.M Warburg Pincus & Co., LLC (or its predecessor E.M. Warburg,
Pincus & Co., Inc.) since July 1991. Mr. Libowitz is a director of Caribiner
International, Inc. Mr. Libowitz is 34 years old.
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JOSE AUGUSTO PINTO MOREIRA has served as a director of TV Filme since its
incorporation. Mr. Moreira has been the Executive Vice-President of Finance and
Administration of Abril since 1982. Mr. Moreira is a director of several
privately held companies. Mr. Moreira is 53 years old.
CLAUDIO DASCAL has served as a director of TV Filme since July 1996. Mr.
Dascal has been a Vice President of Tevecap since April 1996. Prior to joining
Tevecap, Mr. Dascal held several senior management positions at Alcatel Standard
Electrica, S.A. and its affiliates from 1991 to 1996. Mr. Dascal is 53 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 33 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 45 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 in the telephone
directory printing business, from 1987 to 1994. Mr. Colino is 50 years old.
The Board of Directors of TV Filme (the "Board of Directors") is currently
composed of seven directors. 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") are
parties to a Stockholders Agreement (the "Warburg Stockholders Agreement"),
pursuant to which, among other things, Warburg, Pincus and the Lins Family have
agreed to vote for (i) current 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 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. Jose Augusto Pinto Moreira and Claudio Dascal are Tevecap's
current designees to the Board of Directors. Pursuant to the Warburg
Stockholders Agreement, Warburg, Pincus has also agreed to provide Tevecap with
certain rights of first offer in the event Warburg, Pincus proposes to sell
shares of the Common Stock. See "Principal Stockholders."
The Board of Directors is divided into three classes serving staggered
three-year terms. At each annual meeting of stockholders of TV Filme, 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 Libowitz are Class I directors and their terms expire
at the Company's annual meeting in 1997; Messrs. Karp, Carlos Andre Lins and
Dascal are Class II directors and their terms expire at the Company's annual
meeting in 1998; and Messrs. Moreira and Aguirre are Class III directors and
their terms expire at the Company's annual meeting in 1999. 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,
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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.
Independent directors are eligible to receive an annual fee of $10,000, a
meeting fee of $1,000 for every meeting of the Board of Directors attended and
each committee meeting held separately and a $500 fee for each meeting of the
Board of Directors or committee meeting participated in by telephone. All
directors are 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 who are not members of the Compensation
Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
TV Filme did not have a Compensation Committee during the first seven months
of 1996. As a result, Messrs. Karp, Gary D. Nusbaum (a former director and Vice
President of TV Filme), Hermano Lins, Carlos Andre Lins and Moreira participated
in deliberations concerning executive officer compensation. In connection with
the Initial Public Offering, the Board of Directors established a Compensation
Committee comprised of Messrs. Karp, Nusbaum and Moreira. Mr. Karp is a general
partner of Warburg, Pincus & Co., a New York general partnership ("WP") which is
the sole general partner of Warburg, Pincus. Mr. Moreira is the Executive
Vice-President of Finance and Administration of Abril. Mr. Libowitz became a
member of the Compensation Committee in April 1997 to fill the vacancy created
by Mr. Nusbaum's resignation.
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, 1996 by its Chief Executive Officer and each of
the Company's other executive officers whose total salary and bonus exceeded
$100,000 during the last fiscal year (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION AWARDS
----------------------------------------- -------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY ($) BONUS ($) COMPENSATION OPTIONS (#) COMPENSATION ($)
- ------------------------------- --------- ---------- ---------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Hermano Studart................ 1996 $ 113,979 $ 200,000(1) -0- $ 110,000 $6,520(2)
Lins de Albuquerque, 1995 98,463 111,500 -0- 49,788(3)
Chief Executive Officer
Carlos Andre Studart........... 1996 113,979 200,000(1) -0- 110,000 12,084 (2)
Lins de Albuquerque, 1995 98,463 111,500 -0- 49,788 (3)
President, Chief Operating
Officer and Treasurer
Alvaro J. Aguirre,............. 1996 62,499 200,000 (5) -- (6) 110,000 0
Chief Financial Officer(4)
</TABLE>
- ------------------------
(1) Includes non-cash bonus payments made to the Named Executive Officers in the
form of Common Stock in the amounts of $123,333 for Messrs. Hermano Lins and
Carlos Andre Lins and $25,000 for Mr. Aguirre.
(2) The Compensation reflected in this column represents Company paid life
insurance premiums.
(3) These options were exercised by Messrs. Hermano Lins and Carlos Andre Lins
in 1995.
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(4) Mr. Aguirre joined the Company in June 1996.
(5) Includes a special one-time sign on bonus in the amount of $50,000.
(6) The aggregate value of perquisites and other personal benefits have not been
reflected because the amounts were below the Securities and Exchange
Commission's (the "Commission") threshold for disclosure (i.e., the lesser
of $50,000 or 10% of the total of annual salary and bonus for such officer).
EMPLOYMENT AGREEMENTS
TV Filme and ITSA have entered into employment agreements with each of
Messrs. Hermano Lins and Carlos Andre Lins, pursuant to which Mr. Hermano Lins
has agreed to serve full time as Chief Executive Officer and Secretary of TV
Filme, Mr. Carlos Andre Lins has agreed to serve full time as President, Chief
Operating Officer and Treasurer of TV Filme, and each has agreed to serve in
comparable executive positions at ITSA. The annual base salary under such
agreements for each of Messrs. Lins is $125,000. Such salaries will be reviewed
at least annually by the Board of Directors and may be increased but not
decreased. In addition, each of Messrs. Lins are eligible to receive an annual
bonus, payable by ITSA, in amounts to be determined by the Board of Directors
taking into consideration, among other things, the financial and operating
performance of the Company. Pursuant to each of Messrs. Lins's employment
agreements, if TV Filme 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, each agreement does include a non-competition provision and a
prohibition on the solicitation of clients and employees.
TV Filme has entered into an employment agreement with Mr. Aguirre, pursuant
to which Mr. Aguirre has agreed to serve full time as Chief Financial Officer of
TV Filme until December 31, 1998, unless terminated earlier in accordance with
the terms of such agreement. The annual base salary under such agreement is
$125,000. Such salary will be reviewed at least annually by the Board of
Directors of TV Filme and may be increased but not decreased. In addition, Mr.
Aguirre is 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 TV Filme, taking into
consideration, among other things, the financial and operating performance of
the Company. Upon executing his employment agreement, Mr. Aguirre received a
one-time bonus of $50,000. Pursuant to Mr. Aguirre's employment agreement, if TV
Filme terminates Mr. Aguirre's employment because of the death or disability of
Mr. Aguirre, TV Filme 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 TV Filme terminates Mr. Aguirre without
"cause" (as defined therein), TV Filme 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
On July 18, 1996, the Board of Directors adopted and the stockholders of TV
Filme approved the 1996 Stock Option Plan (the "1996 Stock Option Plan"), which
provides 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 U.S. 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 is 936,432, subject to certain adjustments
reflecting changes in the Company's capitalization. In addition, no employee
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may receive options for more than 200,000 shares of Common Stock in the
aggregate in any fiscal year. The 1996 Stock Option Plan is administered by the
Compensation Committee. The Compensation Committee determines, among other
things, which officers, employees and consultants receive options under the
plan, the time when options are 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 become
exercisable, and, subject to certain conditions discussed below, the option
price and duration of the options. Members of the Compensation Committee are not
eligible to receive options under the 1996 Stock Option 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.
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 are not transferable, except by will or the laws of descent
and distribution in the event of death. During an optionee's lifetime, the
options are exercisable only by the optionee.
The Board of Directors has the right at any time and from time to time to
amend or modify the 1996 Stock Option Plan, without the consent of TV Filme'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 TV Filme, 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 is 2006.
Options to purchase 407,000 shares of Common Stock were granted upon the
consummation of the Initial Public Offering, of which 297,000 are exercisable at
$10.00 per share and 110,000 of which are exercisable at $11.00 per share, and
which generally vest and become exercisable at the rate of 20% per year for five
years beginning on August 2, 1997.
TV Filme has filed with the Commission a Registration Statement on Form S-8
covering the shares of Common Stock underlying options granted under the 1996
Stock Option Plan.
STOCK OPTION GRANTS
The following table sets forth information regarding grants of options to
purchase Common Stock during the fiscal year ended December 31, 1996 to each of
the Named Executive Officers. No stock appreciation rights were granted in 1996.
67
<PAGE>
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
---------------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE ($/ EXPIRATION ------------------------
NAME GRANTED(#) 1996(1) SHARE)(2) DATE (5%) (10%)
- ------------------------------------- ----------- --------------- ----------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Hermano Studart Lins de
Albuquerque........................ 110,000(4) 26.4% $ 10.00 08/02/06 $ 691,784 $ 1,753,116
Carlos Andre Studart Lins de
Albuquerque........................ 110,000(4) 26.4% 10.00 08/02/06 691,784 1,753,116
Alvaro J. Aguirre.................... 110,000(4) 26.4% 11.00 07/26/06 760,962 1,928,428
</TABLE>
- ------------------------------
(1) The Company granted options to purchase a total of 417,000 shares of Common
Stock in 1996.
(2) Each of the Company's stock options were granted at or above the fair market
value on the date of grant. The fair market value of the Common Stock on
December 31, 1996 was $13.00 per share.
(3) Amounts reported in these columns represent amounts that may be realized
upon exercise of options immediately prior to the expiration of their term
assuming the specified compounded rates of appreciation (5% and 10%) on the
Common Stock over the term of the options. These assumptions are based on
rules promulgated by the Commission and do not reflect the Company's
estimate of future stock price appreciation. Actual gains, if any, on the
stock option exercises and common stock holdings are dependent on the timing
of such exercise and the future performance of the underlying common stock.
There can be no assurance that the rates of appreciation assumed in this
table can be achieved or that the amounts reflected will be received by the
option holder.
(4) These options vest and become fully exercisable as to 20% on the first
anniversary of the date of grant (August 2, 1997 for each of Messrs. Hermano
Lins and Carlos Andre Lins and July 26, 1997 for Mr. Aguirre) and as to an
additional 20% on each anniversary thereafter until all such options are
fully vested and exercisable. Mr. Aguirre's options also vest, to the extent
not then vested, on December 31, 1998 if his employment agreement with the
Company is not renewed.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth information regarding the exercise of stock
options during fiscal 1996 and the number and year end value of unexercised
options held at December 31, 1996 by each of the Named Executive Officers. No
stock appreciation rights were exercised by the Named Executive Officers during
fiscal 1996.
FISCAL 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY(1)
OPTIONS AT FISCAL YEAR-END (OPTIONS)
(#) AT FISCAL YEAR-END($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------------------------------------- ---------------------------- -----------------------
<S> <C> <C>
Hermano Studart Lins de Albuquerque....................... 0/110,000 $ 0/330,000
Carlos Andre Studart Lins de Albuquerque.................. 0/110,000 0/330,000
Alvaro J. Aguirre......................................... 0/110,000 0/220,000
</TABLE>
- ------------------------
(1) Options are "in-the-money" if the fair market value of the underlying
securities exceeds the exercise price of the options.
(2) The amounts set forth represent the difference between $13.00 per share, the
fair market value of the Common Stock issuable upon exercise of options at
December 31, 1996, and the exercise price of the option, multiplied by the
applicable number of options.
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<PAGE>
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 to
Tevecap for a purchase price of $1.3 million.
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 TVFSA on a one-for-one basis for shares
of common stock of ITSA (the predecessor company of TV Filme).
In July 1994, the Company issued and sold 2,126,132 shares of Common Stock
(after giving effect to the Reorganization) to Warburg, Pincus for an aggregate
purchase price of $5.0 million.
In August 1995, the Company issued and sold 1,052,924 shares of Common Stock
(after giving effect to the Reorganization) to Warburg, Pincus for an aggregate
purchase price of $3.3 million.
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 Reorganization) to Warburg, Pincus for approximately $5.1
million, 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 Reorganization) to Tevecap for approximately $1.9 million. Such warrants are
exercisable at $6.52 per share.
Immediately prior to the consummation of the Initial Public Offering, in
connection with the Reorganization TV Filme issued 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 of $39.6 million, $14.6 million, $2.5 million, $2.5
million and $10.7 million, respectively, based on the price of the Common Stock
sold in the Initial Public Offering. Such shares were issued in exchange for all
of their shares of common stock of ITSA, which had the same value as the shares
of Common Stock received in the exchange.
Immediately prior to the consummation of the Initial Public Offering, in
connection with the Reorganization TV Filme issued 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 $6.4 million. During April 1996, the Company resumed
borrowing from Tevecap and its affiliates for working capital purposes, all of
which borrowings were repaid with the proceeds of the Initial Public Offering
with the exception of $200,000 due February 1997 and $200,000 due February 1998.
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.
69
<PAGE>
In July 1994, the Company, Tevecap and certain other parties thereto entered
into an agreement pursuant to which Tevecap agreed to provide programming
exclusively to the Company in certain areas. In June 1996, the Programming
Agreement was amended and restated effective August 2, 1996. See
"Business--Programming." From time to time, in connection with the Programming
Agreement, the Company enters into agreements with TVA Sistema 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, 1996, 1995 and 1994, TVA Sistema's and
its affiliates' revenues from the Company aggregated approximately $6.7 million,
$1.3 million and $178,000, respectively, net of discounts on programming fees
compared to list prices. Such discounts received by the Company in 1994 and the
first ten months of 1995, and in 1994 and 1995 were $340,000 and $539,000,
respectively. No discounts were received in 1996 and such discounts are not
expected to recur. The Company purchases from Tevecap a program guide which it
distributes to its subscribers monthly. Amounts paid to Tevecap in 1994, 1995
and 1996 were $0, $113,000 and $750,000, 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 Sistema for
a purchase price 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 April
4, 1997, $200,000 remained outstanding.
In connection with the Initial Public Offering, TV Filme entered into the
Reorganization pursuant to which all of the preferred stock of ITSA was
converted into common stock of ITSA and each share of common stock of ITSA was
exchanged for 1,844 shares of Common Stock of TV Filme. Pursuant to the
Reorganization, (i) 51% of the voting stock of TV Filme Servicos was transferred
to TVTEL Ltda., an entity all the stock of which is owned by certain
stockholders of TV Filme who are Brazilian nationals, including certain
directors and executive officers of TV Filme (namely Tevecap, Mrs. Maria Nise
Lins de Albuquerque, Messrs. Hermano Lins and Carlos Andre Lins and Ms. Maria
Veronica Lins), with ITSA retaining 49% of the voting stock and 83% of the
economic interests in TV Filme Servicos; (ii) the operating assets of the
wireless cable system of Brasilia were transferred from TV Filme Servicos to TV
Filme Brasilia; and (iii) TV Filme Servicos entered into various agreements with
ITSA and its subsidiaries pursuant to which, among other things, TV Filme
Servicos has authorized ITSA to operate the existing wireless cable systems
under its current licenses and to operate future cable systems under future
license grants. The Company has a representative on the executive management
team of TV Filme Servicos and any sale or transfer of any current or future
license held by TV Filme Servicos is prohibited. ITSA entered into various
agreements with TV Filme Servicos which authorize ITSA's subsidiaries to operate
the existing wireless cable systems under its current licenses and all other pay
television systems under future licenses. See "The Company."
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.
70
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of April 4, 1997 with respect to (i) each person
known by TV Filme 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>
NUMBER
OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES(2) OF TOTAL(2)
- ---------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Warburg, Pincus Investors, L.P.
466 Lexington Avenue
New York, New York 10017(3)(4)......................................................... 4,530,708 42.2%
Tevecap S.A.
Rua do Rocio, 313
Suite 101
Sao Paulo, Brazil(5)................................................................... 1,665,132 16.1
Maria Nise Studart Lins de Albuquerque.................................................. 1,069,520 10.5
Hermano Studart Lins de Albuquerque..................................................... 254,472 2.5
Carlos Andre Studart Lins de Albuquerque................................................ 254,472 2.5
Douglas M. Karp(4)(6)................................................................... 4,530,708 42.2
Jose Augusto Pinto Moreira(5)(7)........................................................ 1,665,132 16.1
Claudio Dascal(5)(7).................................................................... 1,665,132 16.1
David E. Libowitz....................................................................... -- --
Alvaro J. Aguirre....................................................................... 3,000 *
All executive officers and directors as a group (7 persons)............................. 6,707,784 61.3%
</TABLE>
- ------------------------
* Less than 1%.
(1) Unless otherwise indicated above, the address for each stockholder
identified above is 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.
(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 April 4, 1997 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.
(3) E.M. Warburg, Pincus & Co., LLC, a New York limited liability company ("E.M.
Warburg"), manages Warburg, Pincus. WP, the sole general partner of Warburg,
Pincus, has a 20% interest in the profits of Warburg, Pincus. Lionel I.
Pincus is the managing partner of WP and the managing member of E.M. Warburg
and may be deemed to control both WP and E.M. Warburg. The members of E.M.
Warburg are substantially the same as the partners of WP.
(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.
(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.
(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 and member of E.M. Warburg and a general partner of WP. 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 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 and Mr. Dascal,
respectively, are owned directly by Tevecap and are included because of Mr.
Moreira's and Mr. Dascal's respective affiliations with Tevecap. Mr. Moreira
and Mr. Dascal each disclaim "beneficial ownership" of these shares within
the meaning of Rule 13d-3 under the Exchange Act.
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<PAGE>
Pursuant to the Warburg Stockholders Agreement, (i) Warburg, Pincus granted
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 are entitled to certain
"tag-along" rights. Pursuant to the Warburg Stockholders Agreement, Warburg,
Pincus and the Lins Family also have 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 granted 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).
Under the terms of the Registration Rights Agreement entered into in
connection with the Initial Public Offering, TV Filme granted Tevecap, Warburg,
Pincus, the Lins Family and Messrs. Wallach and Pearson (the "Rights Holders")
registration rights, covering an aggregate of 7,071,740 shares of Common Stock.
If TV Filme 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 TV Filme to register any or all of their Registrable Shares,
provided that TV Filme is only 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 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 TV Filme. TV Filme is required
to use its diligent best efforts to effect such registrations, subject to
certain conditions and limitations.
Under the terms of outstanding warrants issued by the Company, if TV Filme
proposes to register any of its securities under the Securities Act, the holders
of such warrants are entitled to notice of such registration and to include the
shares underlying such 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, will be paid by TV Filme. Prior to the closing of the
Offering, TV Filme obtained from the Rights Holders and the warrant holders
waivers of any registration rights which they may have with respect to any
registration statement which TV Filme is required to file in connection with the
Notes. See "Description of Exchange Notes--Registration Rights; Liquidated
Damages."
72
<PAGE>
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued pursuant to the Indenture, dated December
20, 1996 (the "Indenture"), between TV Filme and IBJ Schroder Bank & Trust
Company, as trustee (the "Trustee"). The terms of the Exchange Notes will
include those stated in the Indenture and the Pledge Agreement and those made
part of the Indenture and the Pledge Agreement by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Exchange
Notes will be subject to all such terms, and holders ("Holders") of Exchange
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Indenture, the
Pledge Agreement, the Note Pledge Agreement and the Registration Rights
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Indenture, the Pledge Agreement, the Note Pledge Agreement and
the Registration Rights Agreement, including the definitions therein of certain
terms used below. As used herein the term "Notes" shall mean the Old Notes and
the Exchange Notes, unless otherwise indicated. The definitions of certain terms
used in the following summary are set forth below under "--Certain Definitions."
Currently all of TV Filme's Subsidiaries are Restricted Subsidiaries.
However, under certain circumstances, TV Filme will be able to designate current
or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries
will not be subject to many of the restrictive covenants set forth in the
Indenture.
The terms of the Exchange Notes are identical in all material respects
(including principal amount, interest rates, and maturity) to the terms of the
Old Notes for which they may be exchanged pursuant to the Exchange Offer, except
that (i) the Exchange Notes are freely transferable by the holders thereof
(other than as provided herein), and are not subject to any covenant regarding
registration under the Securities Act, (ii) holders of the Exchange Notes will
not be entitled to Liquidated Damages and (iii) holders of the Exchange Notes
will not be entitled to certain rights under the Registration Rights Agreement
intended for the holders of unregistered securities, except in limited
circumstances. The Exchange Notes will be issued solely in exchange for an equal
principal amount of Old Notes. As of the date hereof, $140.0 million aggregate
principal amount of Old Notes is outstanding. See "The Exchange Offer."
RANKING
The Exchange Notes will be senior obligations of TV Filme, will rank PARI
PASSU in right of payment with all existing and future senior Indebtedness of TV
Filme and will rank senior in right of payment to any subordinated Indebtedness
of TV Filme. As of December 31, 1996, the aggregate principal amount of
outstanding senior Indebtedness of TV Filme would have been approximately $140.0
million. The Exchange Notes will be effectively subordinated, however, to all
Indebtedness and other liabilities (including payables) of TV Filme's
Subsidiaries. As of December 31, 1996, the aggregate amount of outstanding
liabilities (including payables) of TV Filme's Subsidiaries, on a consolidated
basis, but excluding the Intercompany Note and the Subsidiary Guarantees, would
have been approximately $16.5 million.
SECURITY
PLEDGED SECURITIES. In accordance with the terms of the Indenture, on the
date (the "Closing Date") of the closing of the Offering, TV Filme caused ITSA
to purchase and pledge to the Trustee, for the benefit of the Holders of the
Notes, approximately $33.5 milion of Pledged Securities, scheduled interest and
principal payments on which is in an amount, in the opinion of a nationally
recognized firm of independent public accountants selected by TV Filme, to
provide for payment in full when due of the first four scheduled interest
payments on the Notes. The Pledged Securities have been pledged by ITSA to the
Trustee for the benefit of the Holders of the Notes pursuant to the Pledge
Agreement and are being held
73
<PAGE>
by the Trustee in the Pledge Account. Pursuant to the Pledge Agreement,
immediately prior to an interest payment date on the Notes, TV Filme may either
deposit with the Trustee from funds otherwise available to TV Filme cash
sufficient to pay the interest scheduled to be paid on such date or TV Filme may
direct the Trustee to release from the Pledge Account proceeds sufficient to pay
the interest scheduled to be paid on such date. In the event that TV Filme
exercises the former option, the Pledge Agreement provides that TV Filme may
thereafter direct the Trustee to release to ITSA proceeds or Pledged Securities
from the Pledge Account in a like amount. A failure by TV Filme to pay interest
on the Notes in a timely manner through December 15, 1998 will constitute an
immediate Event of Default under the Indenture, with no grace or cure period.
See "--Events of Default and Remedies."
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed the amount sufficient, in the opinion of a nationally recognized
firm of independent public accountants selected by TV Filme, to provide for
payment in full of the first four scheduled interest payments due on the Notes
(or, in the event an interest payment or interest payments have been made, an
amount sufficient to provide for payment in full of any interest payments
remaining, up to and including the fourth scheduled interest payment), the
Trustee will be permitted to release to ITSA at TV Filme's request any such
excess amount. The Exchange Notes will be secured by a first priority security
interest in the Pledged Securities and in the Pledge Account and, accordingly,
the Pledged Securities and the Pledge Account will also secure repayment of the
principal amount of the Exchange Notes to the extent of such security.
Under the Pledge Agreement, assuming that TV Filme makes the first four
scheduled interest payments on the Notes in a timely manner, all of the Pledged
Securities will be released from the Pledge Account and thereafter the Notes
will be secured only pursuant to the Note Pledge Agreement.
PLEDGED INTERCOMPANY NOTE. On the Closing Date, the proceeds of the
Offering were loaned by TV Filme to ITSA, which loan is guaranteed by the
Intercompany Note. The Intercompany Note has been pledged by TV Filme to the
Trustee for the benefit of the Holders of the Notes pursuant to the Note Pledge
Agreement as security for repayment of principal and interest under the Notes.
Each of TV Filme Brasilia, TV Filme Goiania, TV Filme Belem have unconditionally
guaranteed, and each other Restricted Subsidiary that may from time to time
exist and that gives such a guarantee under the terms of the Indenture (each, a
"Guarantor") will unconditionally guarantee (the "Subsidiary Guarantees"),
jointly and severally, to the holder of the Intercompany Note, on an unsecured
basis, the full and prompt performance of ITSA's obligations under the
Intercompany Note. Additionally, the current Guarantors have agreed, and future
Guarantors will agree, to pay any and all expenses (including reasonable counsel
fees and expenses) incurred by the holder of the Intercompany Note in enforcing
any rights under the Subsidiary Guarantees.
Each existing Subsidiary Guarantee is, and all future Subsidiary Guarantees
will be, limited to an amount not to exceed the maximum amount that can be
Guaranteed, as it relates to such Guarantor, without such Subsidiary Guarantee
being voidable or unlawful under applicable law, including laws relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally. See "Risk Factors--Risk Factors Relating to the
Company and the Exchange Offer--Fraudulent Conveyance Considerations."
Each existing Subsidiary Guarantee is, and all future Subsidiary Guarantees
will be, a continuing Guarantee and shall (i) remain in full force and effect
until payment in full of all the obligations under the Intercompany Note, (ii)
be binding upon such Guarantor and (iii) inure to the benefit of and be
enforceable by the holder of the Intercompany Note and its successors,
transferees and assigns.
The Indenture provides that, subject to the provisions described in the next
succeeding paragraph, no Guarantor may consolidate or merge with or into
(whether or not such Guarantor is the surviving entity or Person), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, entity or Person unless (i) the entity or Person formed by or
surviving any such consolidation or merger (if other than such
74
<PAGE>
Guarantor) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of such Guarantor under the Subsidiary Guarantee, in form
satisfactory to the Trustee; (ii) immediately after such transaction, no Default
or Event of Default exists; (iii) TV Filme and its Restricted Subsidiaries will
have Consolidated Net Worth immediately after such transaction equal to or
greater than the Consolidated Net Worth of TV Filme and its Restricted
Subsidiaries immediately preceding such transaction; (iv) TV Filme and its
Restricted Subsidiaries would, at the time of such transaction and after giving
pro forma effect thereto as if such transaction had occurred at the beginning of
the applicable four quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Leverage Ratio test set forth in the
first paragraph of the covenant described under "--Certain Covenants--Incurrence
of Indebtedness and Issuance of Disqualified Stock;" (v) TV Filme shall have
delivered to the Trustee an Officers' Certificate, and an Opinion of Counsel,
each stating that such consolidation, merger or transfer complies with the
Indenture; and (vi) such Guarantor shall have delivered a written instrument in
form satisfactory to the Trustee confirming its Subsidiary Guarantee after
giving effect to such consolidation, merger or transfer. Notwithstanding the
foregoing, any Guarantor may merge into, consolidate with or transfer all or
part of its properties or assets to TV Filme, one or more Guarantors or one or
more Restricted Subsidiaries which become Guarantors concurrently therewith.
Notwithstanding the preceding paragraph, if no Default exists or would exist
under the Indenture, concurrently with any sale or disposition (by merger or
otherwise) of any Guarantor in accordance with the terms of the Indenture (other
than a transaction subject to the provisions of the preceeding paragraph) by TV
Filme or any of its Restricted Subsidiaries to any Person that is not an
Affiliate of TV Filme or any of its Restricted Subsidiaries, such Guarantor will
automatically and unconditionally be released from all obligations under its
Subsidiary Guarantee; PROVIDED, HOWEVER, that any such release shall occur only
to the extent that all obligations of such Guarantor under, and all of its
guarantees of, and all of its pledges of assets or other security interests
which secure, any other Indebtedness of TV Filme or any of its Restricted
Subsidiaries shall also terminate upon such release, sale or transfer.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be limited in aggregate principal amount to $140.0
million and will mature on December 15, 2004. Interest on the Exchange Notes
will accrue at the rate of 12 7/8% per annum and will be payable semi-annually
in arrears on June 15 and December 15 of each year, commencing on June 15, 1997,
to Holders of record on the immediately preceding June 1 and December 1.
Interest on the Exchange Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal of and premium, if any, and
interest on the Exchange Notes will be payable by wire transfer of immediately
available funds to the holder of the Global Exchange Notes (as defined herein)
and with respect to holders of Certificated Exchange Notes (as defined herein),
at the office or agency of TV Filme maintained for such purpose or, at the
option of TV Filme, payment of interest may be made by check mailed to the
Holders of the Exchange Notes at their respective addresses set forth in the
register of Holders of the Exchange Notes; PROVIDED that all payments with
respect to Exchange Notes the Holders of which have given wire transfer
instructions to TV Filme will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by TV Filme, TV Filme's office or agency will be the
office of the Trustee maintained for such purpose. The Exchange Notes will be
issued in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The Exchange Notes will not be redeemable at TV Filme's option prior to
December 15, 2000. Thereafter, the Exchange Notes will be subject to redemption
at the option of TV Filme, in whole or in
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part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on December 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------------------------- ------------
<S> <C>
2000............................................................................ 106.4375%
2001............................................................................ 104.2917%
2002............................................................................ 102.1458%
2003 and thereafter............................................................. 100.0000%
</TABLE>
Notwithstanding the foregoing, on or prior to December 15, 1999, TV Filme
may, at its option, redeem, from time to time, up to 35% in aggregate principal
amount of the Notes at a redemption price of 112 7/8% of the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date with
the net proceeds of a Public Equity Offering; PROVIDED that no less than 65% of
the aggregate principal amount of Notes initially issued remains outstanding
immediately after the occurrence of such redemption; and PROVIDED, FURTHER, that
notice of such redemption shall have been given not later than 30 days, and such
redemption shall occur not later than 90 days, after the date of the closing of
such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a PRO RATA basis, by
lot or by such method as the Trustee shall deem fair and appropriate; PROVIDED
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders" and
"--Merger, Consolidation, or Sale of Assets" TV Filme is not required to make
mandatory redemption or sinking fund payments with respect to the Exchange
Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL. Upon the occurrence of a Change of Control, TV Filme
will be required to make an offer (a "Change of Control Offer") to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of each
Holder's Notes, at an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, to the date
of repurchase (the "Change of Control Payment"). Within 20 days following any
Change of Control, TV Filme will mail a notice to each Holder describing the
transaction that constitutes the Change of Control and offering to repurchase
Notes pursuant to the procedures required by the Indenture and described in such
notice. TV Filme will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
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On a date that is at least 30 but no more than 60 days from the date on
which TV Filme mails notice of the Change of Control (the "Change of Control
Payment Date"), TV Filme will, to the extent lawful, (i) accept for payment all
Notes or portions thereof properly tendered pursuant to the Change of Control
Offer, (ii) deposit with the Trustee an amount equal to the Change of Control
Payment in respect of all Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee the Notes so accepted together
with an Officers' Certificate stating the aggregate principal amount of Notes or
portions thereof being purchased by TV Filme. The Trustee will promptly mail to
each Holder of Notes so tendered the Change of Control Payment for such Notes,
and the Trustee will promptly authenticate and mail (or cause to be transferred
by book entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; PROVIDED that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. TV Filme will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
Unless TV Filme defaults in the payment for any Notes properly tendered pursuant
to the Change of Control Offer, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable.
The occurrence of a Change of Control, or the exercise by the Holders of
Notes of their right to require TV Filme to repurchase the Notes upon a Change
of Control, could cause a default under other senior indebtedness of TV Filme.
TV Filme's ability to pay cash to the Holders of Notes and to holders of any
such other senior indebtedness upon a Change of Control may be limited by TV
Filme's then existing financial resources.
TV Filme will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by TV Filme and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of TV Filme and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than Warburg, Pincus, TVA Sistema or members of the Lins Family, (ii)
the adoption of a plan relating to the liquidation or dissolution of TV Filme,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation, but excluding any foreclosure on the Pledged Securities
by the Trustee) the result of which is that any "person" (as defined above),
other than Warburg, Pincus, TVA Sistema or members of the Lins Family, becomes
the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act), directly or indirectly, of (a) more than 35% of the
voting stock of TV Filme and (b) more of the voting stock of TV Filme than is at
the time "beneficially owned" (as defined above) by Warburg, Pincus, TVA Sistema
and members of the Lins Family in the aggregate or (iv) the first day on which a
majority of the members of the Board of Directors of TV Filme are not Continuing
Directors.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of TV Filme and its Subsidiaries taken as a whole. Although there
is a developing body of case law interpreting the phrase "substantially all,"
there is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of Exchange Notes to require TV Filme to
repurchase such Exchange Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of TV Filme and
its Subsidiaries taken as a whole to another Person or group may be uncertain.
"CONTINUING DIRECTOR" means, as of any date of determination, any member of
the Board of Directors of TV Filme who (i) was a member of such Board on the
date of the Indenture, (ii) was nominated for
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election or elected to such Board by Warburg, Pincus, TVA Sistema or members of
the Lins Family or (iii) was nominated for election or elected to such Board
with the approval of two-thirds of the following members of such Board: (a) the
members of such Board who are described in clause (i) or (ii) of this definition
and (b) members of such Board previously nominated for election or elected to
such Board as described in this clause (iii).
ASSET SALES. The Indenture provides that TV Filme will not, and will not
permit any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i)
TV Filme or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value (which, if it exceeds $1.0 million (or the equivalent thereof at the time
of determination), shall be determined by, and set forth in, a resolution of the
Board of Directors of TV Filme and described in an Officers' Certificate of TV
Filme delivered to the Trustee) of the assets or Equity Interests issued or sold
or otherwise disposed of and (ii) at least 75% of the consideration therefor
received by TV Filme or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; PROVIDED that the amount of (a) any liabilities (as shown on
TV Filme's or such Restricted Subsidiary's most recent balance sheet) of TV
Filme or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes) that are
cancelled or assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases TV Filme or such Restricted
Subsidiary from further liability and (b) any notes or other obligations
received by TV Filme or such Restricted Subsidiary from such transferee that are
promptly (but in any event, within 30 days) converted by TV Filme or such
Restricted Subsidiary into cash or Cash Equivalents (to the extent of the cash
or Cash Equivalents received) shall be deemed to be cash or Cash Equivalents for
purposes of this provision. For purposes of this covenant, TV Filme Servicos
shall be deemed a Restricted Subsidiary of TV Filme.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale, TV
Filme may apply, directly or indirectly, such Net Proceeds (a) to permanently
reduce Indebtedness under the Bank Credit Agreement (and to correspondingly
reduce commitments with respect thereto) or (b) to the acquisition of a majority
interest in another business, the making of a capital expenditure or the
acquisition of other long-term assets, in each case in the Telecommunications
Business. Pending the final application of any such Net Proceeds, TV Filme may
temporarily reduce Indebtedness under the Bank Credit Agreement or otherwise
invest such Net Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million (or
its equivalent thereof at time of determination), TV Filme will be required to
make an offer to all Holders of Notes and to all other holders of senior
Indebtedness (other than holders of Indebtedness under the Bank Credit
Agreement) (an "Asset Sale Offer") to purchase the maximum principal amount of
Notes and of such other senior Indebtedness, on a pro rata basis, that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to, in the case of the Notes, 100% of the principal amount thereof, plus
accrued and unpaid interest thereon, to the date of purchase, and, in the case
of all other senior Indebtedness, 100% of the principal amount thereof, plus
accrued and unpaid interest, or premium, if any, thereon to the date of
purchase, in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, TV Filme may use any remaining Excess
Proceeds for general corporate purposes (subject to the restrictions of the
Indenture). If the aggregate principal amount of Notes and such other senior
Indebtedness surrendered by holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased in compliance with
the requirements of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not so listed, on a PRO RATA basis
(with such adjustments as may be deemed appropriate by TV Filme so that only
Notes with denominations of $1,000 or integral multiples thereof shall be
purchased). Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero. Notwithstanding the preceding provisions of
this paragraph which may be to the contrary, TV Filme shall not be required to
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include in any Asset Sale Offer any offer to purchase any Indebtedness (other
than the Notes) which by its terms does not require such offer.
The Indenture provides that TV Filme will not, and will not permit any of
its Restricted Subsidiaries to, transfer, convey, sell, lease or otherwise
dispose of any Capital Stock of any Restricted Subsidiary of TV Filme to any
Person (other than TV Filme or a Restricted Subsidiary of TV Filme), unless
(i)(a) after giving effect to such transfer, conveyance, sale, lease or other
disposition, the Restricted Subsidiary which is subject to such transaction
remains a Restricted Subsidiary or (b) such transfer, conveyance, sale, lease or
other disposition is of all of the Capital Stock of such Restricted Subsidiary
owned by TV Filme and its Restricted Subsidiaries and (ii) such transaction is
conducted in accordance with the covenant described under "--Repurchase at the
Option of Holders--Asset Sales."
TV Filme will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of Notes
using Excess Proceeds.
CERTAIN COVENANTS
RESTRICTED PAYMENTS. The Indenture provides that TV Filme will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
(i) declare or pay any dividend or make any other payment or distribution on
account of TV Filme's Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving TV Filme) or to
any direct or indirect holder of TV Filme's Equity Interests in its capacity as
such, other than dividends or distributions (a) paid or payable in Equity
Interests (other than Disqualified Stock) of TV Filme or (b) paid or payable to
TV Filme or any Wholly Owned Restricted Subsidiary of TV Filme or (c) paid or
payable in respect of Equity Interests of a Restricted Subsidiary to Persons
other than TV Filme or a Restricted Subsidiary of TV Filme on not more favorable
terms than a PRO RATA basis with dividends or distributions being paid in
respect of Equity Interests held by TV Filme or a Restricted Subsidiary of TV
Filme; (ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of TV Filme or any direct or indirect parent of TV Filme or other
Affiliate of TV Filme or any Restricted Subsidiary of TV Filme (other than any
such Equity Interests owned by TV Filme or any Restricted Subsidiary of TV
Filme); (iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated to
the Notes, except at or following final maturity of such Indebtedness; or (iv)
make any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof;
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(b) TV Filme would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Leverage Ratio test set
forth in the first paragraph of the covenant described under the caption
"--Incurrence of Indebtedness and Issuance of Disqualified Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments declared or made by TV Filme and its Restricted Subsidiaries
after the date of the Indenture shall not exceed, at the date of determination,
the sum of (1) an amount equal to TV Filme's Consolidated Cash Flow from the
first day of TV Filme's first full fiscal quarter following the date of the
Indenture to the end of TV Filme's most recently ended full fiscal quarter for
which internal financial statements are available, taken as a single accounting
period, less the product of 1.5 times TV Filme's Consolidated Interest Expense
from the first day of TV Filme's first full fiscal quarter following the date of
the Indenture to the end of TV Filme's most recently ended full fiscal quarter
for which internal financial statements are available, taken as a single
accounting period, plus (2) 100% of the aggregate amount of cash and marketable
securities contributed to the capital of TV Filme after the date of the
Indenture, plus (3) 100% of the aggregate net cash proceeds received by TV Filme
from the issue or sale after the date of the Indenture of Equity Interests of TV
Filme or of Disqualified Stock or debt securities of TV Filme that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of TV
Filme and other than Disqualified Stock or debt securities that have been
converted into Disqualified Stock), plus (4) to the extent that any Restricted
Investment that was made after the date of the Indenture is sold for cash or
otherwise liquidated or repaid for cash, the lesser of (A) the cash return of
capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (B) the initial amount of such Restricted Investment,
plus (5) the aggregate amount of any cash dividends or distributions on any
Restricted Investment and any repayment in cash of loans constituting Restricted
Investments and the amount of any guarantee that constituted a Restricted
Investment and is or has been released.
The foregoing provisions do not prohibit (i) the payment of any dividend or
other distribution within 60 days after the date of declaration thereof, if at
said date of declaration such payment would have complied with the provisions of
the Indenture; (ii) the redemption, repurchase, retirement or other acquisition
of any Equity Interests of TV Filme in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of TV Filme) of
other Equity Interests of TV Filme (other than any Disqualified Stock); PROVIDED
that the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (c) of the preceding paragraph; (iii) the defeasance, redemption,
retirement or acquisition for value or repurchase of subordinated Indebtedness
with the net cash proceeds from an incurrence of Permitted Refinancing Debt or
the substantially concurrent sale (other than to a Subsidiary of TV Filme) of
Equity Interests of TV Filme (other than Disqualified Stock); PROVIDED that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition shall be excluded from clause (c) of
the preceding paragraph; (iv) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of TV Filme from an employee or former
employee of TV Filme or any of its Subsidiaries in connection with such
employee's death, disability or termination of employment; PROVIDED that the
amount expended by TV Filme or any of its Restricted Subsidiaries in connection
with such redemption, repurchase, retirement or other acquisition does not
exceed $500,000 (or the equivalent thereof at time of determination) per year;
PROVIDED, FURTHER, that any amount of such permitted amount which is not
expended may be carried over to any subsequent year; and (v) the redemption,
repurchase, retirement or other acquisition of any Equity Interest of any of TV
Filme's Restricted Subsidiaries.
The Board of Directors of TV Filme may designate any Restricted Subsidiary
to be an Unrestricted Subsidiary if such designation would not cause a Default.
For purposes of making such determination, all outstanding Investments by TV
Filme and its Restricted Subsidiaries (except to the extent repaid in cash)
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in the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greater of (i) the net book value of such Investments at the time of such
designation, (ii) the Fair Market Value of such Investments at the time of such
designation and (iii) the original Fair Market Value of such Investments at the
time they were made. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. Upon being so
designated as an Unrestricted Subsidiary, any Subsidiary Guarantee which was
previously executed by such Unrestricted Subsidiary shall be deemed terminated.
The amount of all Restricted Payments not made in cash shall be the Fair
Market Value (which, if it exceeds $1.0 million (or the equivalent thereof at
the time of determination thereof), shall be determined by, and set forth in, a
resolution of the Board of Directors of TV Filme and described in an Officers'
Certificate delivered to the Trustee) on the date of the Restricted Payment of
the asset(s) proposed to be transferred by TV Filme or any Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the fiscal quarter end following the date of making any Restricted Payment,
TV Filme shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payments during such quarter were permitted and setting forth the
basis upon which the calculations required by the covenant described under
"--Restricted Payments" were computed, which calculations may be based upon TV
Filme's latest available financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK. The
Indenture provides that TV Filme will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) or Disqualified Stock and will not permit
any of its Restricted Subsidiaries to issue any shares of preferred stock;
PROVIDED, HOWEVER, that TV Filme may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock if, at the time of incurrence of
such Indebtedness or the issuance of such Disqualified Stock, after giving PRO
FORMA effect to such incurrence or issuance as of such date and to the use of
proceeds therefrom (including the application or the use of the net proceeds
therefrom to repay Indebtedness or make any Restricted Payment) as if the same
had occurred at the beginning of the most recently ended full fiscal quarter of
TV Filme for which internal financial statements are available, TV Filme's
Leverage Ratio would have been no greater than 6.5 to 1.
The foregoing provisions will not apply to:
(i) the incurrence by TV Filme or any of its Restricted Subsidiaries of
Indebtedness pursuant to the Bank Credit Agreement in an amount not to exceed
$40.0 million (or the equivalent thereof at time of determination) at any time
outstanding, less the aggregate amount of all permanent reductions thereto
pursuant to the covenant described under "--Repurchase at the Option of
Holders--Asset Sales;"
(ii) Indebtedness of any Restricted Subsidiary consisting of a guarantee of
Indebtedness under the Bank Credit Agreement;
(iii) Existing Indebtedness;
(iv) the incurrence by TV Filme of Indebtedness represented by the Notes and
the Indenture;
(v) the incurrence of intercompany Indebtedness between or among TV Filme
and any of its Restricted Subsidiaries or TV Filme Servicos; PROVIDED that (a)
if TV Filme is an obligor on such Indebtedness, such Indebtedness is expressly
subordinate to the payment in full of all Obligations with respect to the Notes
and (b) any subsequent issuance or transfer of Equity Interests that results in
any such Indebtedness being held by a Person other than TV Filme or a Restricted
Subsidiary of TV Filme, or any sale or other transfer of any such Indebtedness
to a Person that is not either TV Filme or a Restricted
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Subsidiary of TV Filme, shall be deemed to constitute an incurrence of such
Indebtedness by TV Filme or such Restricted Subsidiary, as the case may be;
(vi) the incurrence by TV Filme or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any Indebtedness that is permitted by the
terms of the Indenture to be outstanding or currency exchange rate risk;
(vii) the incurrence by TV Filme or any of its Restricted Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund Indebtedness that
was permitted by the Indenture to be incurred; and
(viii) the incurrence of Indebtedness by TV Filme or any of its Restricted
Subsidiaries having a Weighted Average Life to Maturity in excess of the
Weighted Average Life to Maturity on the Notes lent by one or more Strategic
Investors (or any Subsidiaries thereof and including any refinancing of such
outstanding amount) resulting in up to $50.0 million (or the equivalent thereof
at time of determination) in aggregate Net Proceeds; PROVIDED that (a) such
Indebtedness (and any refinancing thereof) is subordinated in right of payment
to the prior payment in full in cash of all Obligations (including principal,
interest and premium, if any) of TV Filme under the Notes and the Indenture
(including as a consequence of any repurchase, redemption or other repayment of
the Notes, including, without limitation, by way of optional redemption, Asset
Sale Offer or Change of Control Offer to the extent such rights to repayment are
exercised by the Holders) such that (I) TV Filme or such Restricted Subsidiary
shall make no payment or distribution in respect of such Indebtedness and may
not acquire such Indebtedness until the prior payment in full in cash of all
Obligations in respect of the Notes if any Default on the Notes shall occur and
be continuing and (II) the holders of such Indebtedness may not take any action
to enforce or accelerate such Indebtedness until the Holders of the Notes have
taken such action in respect of the Notes, (b) such Indebtedness (and any
refinancing thereof) is not guaranteed by any of TV Filme's Subsidiaries and is
not secured by any Lien on any property or asset of TV Filme or any Subsidiary
(other than an escrow of proceeds of such Indebtedness or similar arrangement
pending use by or disbursement to TV Filme or a Subsidiary), (c) such
Indebtedness (and any refinancing thereof) has no scheduled maturity of
principal earlier than a date at least one year after the final stated maturity
of the Notes, (d) accreted interest on such Indebtedness shall only be payable
on the maturity thereof and cash interest on such Indebtedness shall only be
payable to the extent that immediately prior to and after such payment of
interest TV Filme is permitted to incur $1.00 of Indebtedness under the ratio
described in the first paragraph of this covenant and (e) the holders of such
Indebtedness shall assign any rights to vote, including by way of proxy, in a
bankruptcy, insolvency or similar proceeding to the Trustee;
(ix) issuance of preferred stock by a Restricted Subsidiary of TV Filme to
TV Filme or any of its Restricted Subsidiaries; or
(x) issuance of preferred stock, which is not Disqualified Stock, by a
Restricted Subsidiary of TV Filme which is a Guarantor to any Person.
ASSET SWAPS. The Indenture provides that TV Filme will not, and will not
permit any of its Restricted Subsidiaries to, in one or a series of related
transactions, directly or indirectly, engage in any Asset Swaps, unless:
(i) at the time of entering into the agreement to swap assets and
immediately after giving effect to the proposed Asset Swap, no Default or Event
of Default shall have occurred and be continuing or would occur as a consequence
thereof;
(ii) TV Filme would, at the time of entering into the agreement to swap
assets and after giving PRO FORMA effect to the proposed Asset Swap as if such
Asset Swap had occurred at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Leverage Ratio test set forth in the first paragraph of the covenant
described under "--Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock;"
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(iii) the respective Fair Market Values of the assets being purchased and
sold by TV Filme or any of its Restricted Subsidiaries are substantially the
same at the time of entering into the agreement to swap assets; and
(iv) at the time of the consummation of the proposed Asset Swap, the
percentage of any decline in the Fair Market Value of the asset or assets being
acquired by TV Filme and its Restricted Securities shall not be significantly
greater than the percentage of any decline in the Fair Market Value of the
assets being disposed of by TV Filme or its Restricted Subsidiaries, calculated
from the time the agreement to swap assets was entered into.
LIENS. The Indenture provides that TV Filme will not, and will not permit
any of its Restricted Subsidiaries or TV Filme Servicos to, directly or
indirectly, create, incur, affirm, assume or suffer to exist any Lien of any
kind on any property or asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
unless (i) in the case of Liens securing Indebtedness subordinate to the Notes,
the Notes are secured by a valid, perfected Lien on such property or asset that
is senior in priority to such Liens and (ii) in all other cases, the Notes are
equally and ratably secured; PROVIDED, HOWEVER, that the foregoing shall not
prohibit or restrict Permitted Liens.
LIMITATIONS ON ISSUANCE OF GUARANTEES OF INDEBTEDNESS. The Indenture
provides that TV Filme will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee the payment of any other Indebtedness of TV Filme
(other than Indebtedness permitted under the Bank Credit Agreement pursuant to
clause (i) of the second paragraph of the covenant described under "--Incurrence
of Indebtedness and Issuance of Disqualified Stock") unless such Restricted
Subsidiary simultaneously executes and delivers a guarantee providing for the
Guarantee of the payment of the Notes by such Restricted Subsidiary, which
Guarantee shall be senior to or PARI PASSU with such Restricted Subsidiary's
Guarantee of such other Indebtedness, except that (i) such Guarantee need not be
secured unless required pursuant to the provisions of the covenant described
under "--Liens," and (ii) if such Indebtedness is by its terms expressly
subordinated to the Notes, any such assumption, guarantee or other liability of
such Restricted Subsidiary with respect to such Indebtedness shall be
subordinated to such Restricted Subsidiary's assumption, guarantee or other
liability with respect to the Notes to the same extent as such Indebtedness is
subordinated to the Notes. Notwithstanding the foregoing, any such Guarantee by
a Restricted Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon either (i) the
release or discharge of such Guarantee of Indebtedness, except a discharge by or
as a result of payment under such Guarantee or (ii) any sale, exchange or
transfer to any Person not an Affiliate of TV Filme, of all of TV Filme's stock
in, or all or substantially all the assets of, such Restricted Subsidiary, which
sale, exchange or transfer is made in compliance with the applicable provisions
of the Indenture. The form of such Guarantee is attached as an exhibit to the
Indenture.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The
Indenture provides that TV Filme will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to TV Filme or any of its Restricted Subsidiaries on its
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits or (b) pay any indebtedness owed to TV Filme or any of
its Restricted Subsidiaries, (ii) make loans or advances to TV Filme or any of
its Restricted Subsidiaries, (iii) transfer any of its properties or assets to
TV Filme or any of its Restricted Subsidiaries, (iv) grant any Liens or security
interests in favor of the Holders of the Notes and the Trustee or (v) guarantee
the Notes or any renewals or refinancings thereof, except for such encumbrances
or restrictions existing under or by reason of (A) Existing Indebtedness or the
Bank Credit Agreement, (B) applicable law, (C) any instrument governing
Indebtedness or Capital Stock of a Person acquired by TV Filme or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is
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not applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired, PROVIDED
that in the case of Indebtedness, such Indebtedness was permitted by the terms
of the Indenture to be incurred, (D) by reason of (x) customary non-assignment
provisions in leases, licenses, sales agreements or other contracts entered into
in the ordinary course of business and consistent with past practices or (y)
restrictions imposed pursuant to a binding agreement for the sale or disposition
of all or substantially all of the Equity Interests or assets of any Restricted
Subsidiary, PROVIDED such restrictions apply solely to the Equity Interests or
assets being sold, (E) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (iii) above on the property so acquired, (F) restrictions imposed by
Permitted Liens on the transfer of the assets that are subject to such Liens,
(G) Permitted Refinancing Debt, PROVIDED that the restrictions contained in the
agreements governing such Permitted Refinancing Debt are no more restrictive, as
a whole, than those contained in the agreements governing the Indebtedness being
refinanced or (H) provisions in agreements with other persons who own Equity
Interests in a Restricted Subsidiary which have the effect of requiring that
transactions described in clauses (ii) or (iii) above be effected on terms no
more favorable to TV Filme or its Restricted Subsidiaries than a PRO RATA basis
in accordance with Equity Interests owned in such Restricted Subsidiary.
MERGER, CONSOLIDATION, OR SALE OF ASSETS. The Indenture provides that TV
Filme may not consolidate or merge with or into (whether or not TV Filme is the
surviving entity), or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of its properties or assets in one or more related
transactions, to another corporation, Person or entity, unless (i) TV Filme is
the surviving entity or the entity or the Person formed by or surviving any such
consolidation or merger (if other than TV Filme) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than TV Filme) or the
entity or Person to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made assumes all the obligations of TV Filme
under the Notes and the Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately after giving effect to
such transaction, no Default or Event of Default exists or would exist; (iv)
such transaction will not result in the loss or suspension or material
impairment of any Material Telecommunications License; (v) except in the case of
a merger of TV Filme with or into a Wholly Owned Restricted Subsidiary of TV
Filme, TV Filme or the entity or Person formed by or surviving any such
consolidation or merger (if other than TV Filme) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will (treating any Indebtedness not previously an obligation of TV
Filme or any of its Restricted Subsidiaries as a result of such transaction as
having been incurred at the time of such transaction) have Consolidated Net
Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of TV Filme immediately preceding the transaction and (B)
will, at the time of such transaction and after giving PRO FORMA effect thereto
as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Leverage Ratio test set forth in the first
paragraph of the covenant described under "--Incurrence of Indebtedness and
Issuance of Disqualified Stock;" and (vi) TV Filme shall have delivered to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture. For purposes of the foregoing, the transfer (by
lease, assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more of the Subsidiaries of TV Filme, the Capital Stock of which constitutes all
or substantially all of the properties and assets of TV Filme, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
TV Filme. Notwithstanding the foregoing clause (v), (a) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to TV Filme and (b) TV Filme may merge with an Affiliate
incorporated solely for the purpose of reincorporating TV Filme in another State
of the United States so long as the amount of Indebtedness of TV Filme and its
Restricted
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Subsidiaries is not increased thereby. For restrictions on mergers,
consolidations and disposition of assets involving Guarantors, see
"--Security--Pledged Intercompany Note."
TRANSACTIONS WITH AFFILIATES. The Indenture provides that TV Filme will
not, and will not permit any of its Restricted Subsidiaries to, make any payment
to, or sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter into or make or
amend any contract, agreement, understanding, loan, advance or guarantee with,
or for the benefit of, any Affiliate (other than TV Filme or a Wholly Owned
Restricted Subsidiary) (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
TV Filme or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction with an unrelated Person and (ii) TV Filme
delivers to the Trustee (a) with respect to any Affiliate Transaction or series
of related Affiliate Transactions after December 20, 1996 involving aggregate
consideration in excess of $2.0 million (or the equivalent thereof at time of
determination), a resolution described in an Officers' Certificate, certifying
that such Affiliate Transaction complies with clause (i) above and such
Affiliate Transaction has been approved by a majority of the disinterested
members of the Board of Directors of TV Filme and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions after the
Closing Date involving aggregate consideration in excess of $5.0 million (or the
equivalent thereof at time of determination), an opinion as to the fairness to
the Holders of the Notes of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of recognized
national standing; PROVIDED that (1) any transaction with an officer or director
of TV Filme or any Restricted Subsidiary (in connection with such person's
compensation, employee benefit or severance arrangements) entered into by TV
Filme or any of its Restricted Subsidiaries in the ordinary course of business
and customary in the industry of TV Filme or such Restricted Subsidiary, (2)
transactions between or among TV Filme and its Restricted Subsidiaries, (3) the
Programming Agreement, (4) the Operating Agreement and (5) Restricted Payments
and Permitted Investments that are permitted by the provisions of the covenant
described under "--Restricted Payments," in each case, shall not be deemed
Affiliate Transactions.
SALE AND LEASEBACK TRANSACTIONS. The Indenture provides that TV Filme will
not, and will not permit any of its Restricted Subsidiaries or TV Filme Servicos
to, enter into any sale and leaseback transaction; PROVIDED that TV Filme may
enter into a sale and leaseback transaction if TV Filme could have (i) incurred
Indebtedness in an amount equal to the Attributable Debt relating to such sale
and leaseback transaction pursuant to the Leverage Ratio test set forth in the
first paragraph of the covenant described under "--Incurrence of Indebtedness
and Issuance of Disqualified Stock" and (ii) incurred a Lien to secure such
Indebtedness pursuant to the covenant described under "--Liens."
BUSINESS ACTIVITIES. The Indenture provides that TV Filme will not, and
will not permit any of its Restricted Subsidiaries to, engage in any business
other than the Telecommunications Business and such business activities as are
incidental or directly related thereto. The Indenture further provides that TV
Filme will not permit (i) TV Filme Servicos to engage in any business other than
the holding of authorizations, licenses or permits issued by the Ministry of
Communications or such other applicable Brazilian governmental authority or
agency in connection with the Telecommunications Business and business
activities incidental or directly related thereto; (ii) TV Filme Servicos to
incur any Indebtedness other than Indebtedness to TV Filme or any of its
Restricted Subsidiaries; (iii) the Operating Agreement to terminate or be
modified in any way which prevents TV Filme and its Restricted Subsidiaries from
operating pay television systems relating to such authorizations, licenses or
permits; and (iv) its ownership interest in TV Filme Servicos to be decreased.
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ADDITIONAL SUBSIDIARY GUARANTEES. The Indenture provides that, if TV Filme
or any of its Restricted Subsidiaries shall acquire or create another Restricted
Subsidiary after December 20, 1996, and such newly acquired or created
Restricted Subsidiary shall be required pursuant to the terms of the Indenture
to execute and deliver a Subsidiary Guarantee, such Subsidiary Guarantee shall
be so executed by such Restricted Subsidiary and delivered to the Trustee,
together with an opinion of counsel, in accordance with the terms of the
Indenture.
PAYMENTS FOR CONSENT. The Indenture provides that TV Filme will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder of any Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Indenture, the
Notes, the Pledge Agreement, the Note Pledge Agreement, the Intercompany Note or
the Subsidiary Guarantees unless such consideration is offered to be paid or is
paid to all Holders of the Notes that so consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
REPORTS. The Indenture provides that, whether or not required by the rules
and regulations of the Commission, so long as any Notes are outstanding, TV
Filme will furnish to the Holders of Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if TV Filme was required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of TV Filme and its Subsidiaries and, with respect to the annual
information only, a report thereon by TV Filme's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if TV Filme was required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, following consummation of the Exchange Offer, TV Filme will file a
copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, TV Filme has agreed that, for so long as any Notes remain
outstanding, it will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an "Event of
Default": (i) default in the payment when due of any interest payable on or
prior to December 15, 1998, with respect to the Notes; (ii) default for 30 days
in the payment when due of any interest payable after December 15, 1998; (iii)
default in payment when due of the principal of or premium, if any, on the
Notes; (iv) failure by TV Filme to comply with the provisions described under
"--Security," "--Repurchase at the Option of Holders-- Change of Control,"
"--Repurchase at the Option of Holders--Asset Sales" or "--Certain Covenants--
Merger, Consolidation, or Sale of Assets;" (v) failure by TV Filme for 30 days
after notice from the Trustee or Holders of at least 25% in aggregate principal
amount of the Notes to comply with any of its other agreements in the Indenture
and the Notes; (vi) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by TV Filme or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by TV Filme or any of its
Restricted Subsidiaries), whether such Indebtedness or Guarantee now exists or
is created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
following the expiration of the grace period provided in such Indebtedness on
the date of such default (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $5.0
million (or the equivalent thereof at time of determination) or more; (vii)
failure by TV Filme or any of its Restricted
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Subsidiaries to pay final non-appealable judgments rendered against TV Filme or
any of its Restricted Subsidiaries aggregating in excess of $2.5 million (or the
equivalent thereof at time of determination), which judgments are not paid,
discharged or stayed for a period of 60 days after such judgments become final
and non-appealable; and (viii) certain events of bankruptcy or insolvency with
respect to TV Filme and its Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to TV Filme, any Significant Subsidiary of TV Filme or
any group of Restricted Subsidiaries of TV Filme that, taken together, would
constitute a Significant Subsidiary of TV Filme, all outstanding Notes will
become due and payable without further action or notice by the Trustee or any
Holder. Holders of the Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of TV Filme with the
intention of avoiding payment of the premium that TV Filme would have had to pay
if TV Filme then had elected to redeem the Notes pursuant to the optional
redemption provisions of the Indenture, an equivalent premium shall also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the Notes. If an Event of Default occurs prior to December 15,
2000 by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of TV Filme with the intention of avoiding the prohibition on redemption
of the Notes prior to such date, then the premium specified in the Indenture
shall also become immediately due and payable to the extent permitted by law
upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
the principal of or premium, if any, or interest on the Notes.
TV Filme is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and TV Filme is required, upon becoming
aware of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, PARTNERS AND
STOCKHOLDERS
No past, present or future director, officer, employee, incorporator,
partner or stockholder of either of TV Filme or any of its Subsidiaries, as
such, shall have any liability for any obligations of TV Filme or its
Subsidiaries under the Exchange Notes, the Intercompany Note, the Subsidiary
Guarantees or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Holder of Exchange Notes by
accepting an Exchange Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Exchange Notes and
the Subsidiary Guarantees. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that such
a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
TV Filme may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes, the obligations of
the Guarantors under the Subsidiary Guarantees and the obligations of ITSA under
the Intercompany Note ("Legal Defeasance") except for (i) the rights of
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Holders of outstanding Notes to receive payments in respect of the principal of
and premium, if any, and interest on the Notes when such payments are due from
the trust referred to below, (ii) TV Filme's obligations with respect to the
Notes concerning issuing temporary notes, registration of transfers or exchanges
of Notes, replacement of mutilated, destroyed, lost or stolen Notes as required
by the Indenture and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and TV Filme's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, TV Filme may, at its option and at any time, elect to have its
obligations released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) TV
Filme must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in U.S. dollars or non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
without reinvestment, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of and premium, if any, and
interest on the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be; (ii) in the case of Legal Defeasance, TV
Filme shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (a) TV Filme has
received from, or there has been published by, the IRS a ruling or (b) since the
date of the Indenture, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, TV Filme shall have delivered to the Trustee an opinion of counsel
in the United States reasonably acceptable to the Trustee confirming that the
Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period ending
on the 123rd day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute a
default under any material agreement or instrument (other than the Indenture) to
which TV Filme or any of its Subsidiaries is a party or by which TV Filme or any
of its Subsidiaries is bound; (vi) TV Filme shall have delivered to the Trustee
an opinion of counsel to the effect that after the 123rd day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) TV Filme shall have delivered to the Trustee an
Officer's Certificate stating that the deposit was not made by TV Filme with the
intent of preferring the Holders of Notes over the other creditors of TV Filme
with the intent of defeating, hindering, delaying or defrauding creditors of TV
Filme or others; and (viii) TV Filme shall have delivered to the Trustee an
Officer's Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance, as the case may be, have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and TV Filme
may require a Holder to pay any taxes and fees required by law or
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permitted by the Indenture. TV Filme is not required to transfer or exchange any
Exchange Note selected for redemption. Also, TV Filme is not required to
transfer or exchange any Exchange Note for a period of 15 days before a
selection of Exchange Notes to be redeemed.
The registered Holder of a Exchange Note will be treated as the owner of
such Exchange Note for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, the
Pledge Agreement, the Note Pledge Agreement, the Notes, the Intercompany Note or
the Subsidiary Guarantees may be amended or supplemented by TV Filme, each
Guarantor, ITSA and the Trustee with the consent of the Holders of at least a
majority in principal amount of the Notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Notes), and any existing default or non-compliance with
any provision of the Indenture, the Pledge Agreement, the Note Pledge Agreement,
the Notes, the Intercompany Note or the Subsidiary Guarantees may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a purchase of,
or tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver; (ii) reduce the principal of or change the fixed maturity of any Note
or the Intercompany Note or alter the provisions with respect to the redemption
of the Notes (other than provisions relating to the covenants described under
"--Repurchase at the Option of Holders"); (iii) reduce the rate of or change the
time for payment of interest on any Note or the Intercompany Note; (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any or
interest on the Notes (except a rescission of acceleration of the Notes by the
Holders of at least a majority in aggregate principal amount of the Notes and a
waiver of the payment default that resulted from such acceleration) or the
Intercompany Note; (v) make any Note or the Intercompany Note payable in money
other than that stated in the Notes or the Intercompany Note; (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of Holders of Notes to receive payments of principal of or
premium, if any, or interest on the Notes; (vii) waive a redemption payment with
respect to any Note (other than a payment required by one of the covenants
described under "-- Repurchase at the Option of Holders"); (viii) release any
Collateral from the Lien created by the Pledge Agreement or the Note Pledge
Agreement, except in accordance with the terms thereof, or amend such terms; or
(ix) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
TV Filme, the Guarantors and ITSA and the Trustee may amend or supplement the
Indenture, the Pledge Agreement, the Note Pledge Agreement, the Notes, the
Intercompany Note or the Subsidiary Guarantees to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of TV Filme's obligations to
Holders of Notes in the case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of Notes or
that does not adversely affect the legal rights under the Indenture of any such
Holder, to add Guarantors with respect to the Notes or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of Notes)
as to all outstanding Notes when (i) either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes that have
been replaced or
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paid and Notes for whose payment money has theretofore been deposited in trust
with the Trustee and thereafter repaid to TV Filme or discharged from such
trust) have been delivered to the Trustee for cancellation; or (b) all such
Notes not theretofore delivered to the Trustee for cancellation have become due
and payable by their terms and TV Filme has irrevocably deposited or caused to
be deposited with the Trustee funds in an amount of money in U.S. dollars
sufficient to pay and discharge the entire indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for the principal amount,
premium, if any, accrued and unpaid interest to the date of such deposit
together with irrevocable instructions from TV Filme directing the Trustee to
apply such funds to the payment thereof; (ii) TV Filme has paid all other sums
payable by it under the Indenture; and (iii) TV Filme has delivered irrevocable
instructions to the Trustee to apply the deposited money toward the payment of
the Notes at maturity, as the case may be. In addition, TV Filme must deliver an
Officers' Certificate and an opinion of counsel stating that all conditions
precedent under the Indenture to satisfaction and discharge have been complied
with.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of TV Filme, to obtain payment of claims in certain
cases or to realize on certain property received in respect of any such claim as
security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to
continue, or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing 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: Chief Financial Officer.
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BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Exchange Notes will initially be represented
by one or more permanent global certificates in definitive, fully registered
form (each a "Global Exchange Note"). Each Global Exchange Note will be
deposited with, or on behalf of, the Depository and registered in the name of
Cede, as nominee of the Depository, or will remain in the custody of the Trustee
under the Indenture, pursuant to the FAST Balance Certificate Agreement between
the Depository and the Trustee.
Holders of Exchange Notes who elect to take physical delivery of their
certificates instead of holding their interests through the Global Exchange Note
(collectively referred to herein as the "Non-Global Holders") will be issued in
registered form (a "Certificated Exchange Note"). Upon the transfer of any
Certificated Exchange Note initially issued to a Non-Global Holder, such
Certificated Exchange Note will, unless the transferee requests otherwise or a
Global Exchange Note has previously been exchanged in whole for Certificated
Exchange Notes, be exchanged for an interest in such Global Exchange Note.
The Company understands that the Depository is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" with the meaning of New York Banking Law, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. The Depository was created to hold securities
for its participants and facilitates the clearance and settlement of securities
transactions between participants through electronic book-entry changes to the
accounts of its participants, thereby eliminating the need for physical transfer
and delivery of certificates. The participants include securities brokers, and
dealers (including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depository's system
is also available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
The Company expects that pursuant to procedures established by the
Depository (i) upon the issuance of the Global Exchange Note, the Depository or
its custodian will credit the accounts of participants designated by the Initial
Purchasers with an interest in the Global Exchange Note and (ii) ownership of
beneficial interests in the Global Exchange Note will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depository or its nominee (with respect to the interests of participants
and the records of participants and the indirect participants (with respect to
interests of persons other than participants). Ownership of beneficial interests
in the Global Exchange Note will be shown on, and the transfer of that ownership
will be effected only through, records maintained by the Depository or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
So long as the Depository, or its nominee, is the registered owner or holder
of a Global Exchange Note, the Depository or such nominee, as the case may be,
will be considered the sole owner or holder of the Exchange Notes represented by
such Global Exchange Note for all purposes under the Indenture and the Exchange
Notes. No beneficial owner of an interest in a Global Exchange Note will be able
to transfer that interest except in accordance with applicable procedures of the
Depository, in addition to those provided for under the Indenture with respect
to the Exchange Notes.
Payments of the principal of, premium, if any, and interest on any Exchange
Notes represented by a Global Exchange Note will be payable by the Trustee to or
at the direction of the Depository or its nominee in its capacity as the
registered holder of the Global Exchange Note. Neither the Company, the Trustee
nor any paying agent will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in a Global Exchange Note or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
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The Company expects that the Depository or its nominee, upon receipt of any
payment of principal, premium, if any, and interest in respect of a Global
Exchange Note, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Exchange Notes as shown on the records of the Depository or its
nominee. The Company also expects that payments by participants and indirect
participants to owners of beneficial interests in such Global Exchange Note will
be governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants and indirect participants, as the case may be.
Transfers between participants will be effected in the ordinary way in
accordance with the Depository's rules and will be settled in same-day funds. If
a holder requires physical delivery of a Certificated Exchange Note for any
reason, including to sell Exchange Notes to persons in states which require such
delivery of such Exchange Notes or to pledge such Exchange Notes, such holder
must transfer its interests in the Global Exchange Note, in accordance with the
normal procedures of the Depository and the procedures set forth in the
Indenture.
The Company expects that the Depository will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
participants to whose account the Depository's interests in a Global Exchange
Note is credited and only in respect of such portion of the aggregate principal
amount of Exchange Notes as to which such participant or participants has or
have given such direction. However, if there is an Event of Default under the
Indenture, the Depository will exchange the applicable Global Exchange Note for
Certificated Exchange Notes, which it will distribute to its participants.
Although the Depository is expected to follow the foregoing procedures in
order to facilitate transfers of interests in a Global Exchange Note among
participants of the Depository it is under no obligation to perform or continue
to perform such procedures, and such procedures may be discontinued at any time.
Neither the Company nor the Trustee nor the paying agent will have any
responsibility for the performance by the Depository or its participants or
indirect participants of its obligations under the rules and procedures
governing its operations.
If the Depository is at any time unwilling or unable to continue as a
depository for the Global Exchange Notes and a successor depository is not
appointed by the Company within 90 days, the Company will issue Certificated
Exchange Notes, in exchange for the Global Exchange Notes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Exchange Notes
represented by the Global Exchange Note (including principal, premium, if any,
and interest) be made by wire transfer of immediately available funds to the
accounts specified by the Holder of the Global Exchange Note. With respect to
Certificated Securities, TV Filme will make all payments of principal, premium,
if any, and interest by wire transfer of immediately available funds to the
accounts specified by the Holders thereof or, if no such account is specified,
by mailing a check to each such Holder's registered address. The Exchange Notes
represented by the Global Exchange Note are expected to be eligible to trade in
the PORTAL Market and to trade in the Depository's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such Exchange
Notes will, therefore, be required by the Depository to be settled in
immediately available funds. TV Filme expects that secondary trading in the
Certificated Securities will also be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
On December 20, 1996, TV Filme and the Initial Purchasers entered into the
Registration Rights Agreement. Pursuant to the Registration Rights Agreement, TV
Filme agreed to file with the Commission
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the Exchange Offer Registration Statement on the appropriate form under the
Securities Act with respect to the Exchange Notes. Upon the effectiveness of the
Exchange Offer Registration Statement, TV Filme agreed to offer to the Holders
of Transfer Restricted Securities pursuant to the Exchange Offer who are able to
make certain representations the opportunity to exchange its Transfer Restricted
Securities for Exchange Notes. If (i) TV Filme is not required to file the
Exchange Offer Registration Statement or permitted to commence or accept tenders
pursuant to the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy or (ii) any Holder of Transfer Restricted
Securities notifies TV Filme within 20 business days after the consummation of
the Exchange Offer that (a) it is prohibited by law or Commission policy from
participating in the Exchange Offer or (b) that it may not resell the Exchange
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (c) that it is a
broker-dealer and owns Old Notes acquired directly from TV Filme or an affiliate
of TV Filme, TV Filme has agreed to file with the Commission a Shelf
Registration Statement to cover resales of the Old Notes by the Holders thereof
who satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. TV Filme has agreed to use its
best efforts to cause the applicable registration statement to be declared
effective as promptly as possible by the Commission. For purposes of the
foregoing, "Transfer Restricted Securities" means each Old Note until (i) the
date on which such Old Note has been exchanged by a person other than a broker-
dealer for an Exchange Note in the Exchange Offer, (ii) following the exchange
by a broker-dealer in the Exchange Offer of an Old Note for an Exchange Note,
the date on which such Exchange Note is sold to a purchaser who receives from
such broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Old Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (iv) the date
on which such Old Note is distributed to the public pursuant to Rule 144 under
the Securities Act.
The Registration Rights Agreement provides that (i) TV Filme will file an
Exchange Offer Registration Statement with the Commission on or prior to
February 18, 1997, (ii) TV Filme will use its best efforts to have the Exchange
Offer Registration Statement declared effective by the Commission under the
Securities Act on or prior to April 19, 1997, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, TV Filme will
commence the Exchange Offer and use its best efforts to issue on or prior to 30
business days after the date on which the Exchange Offer Registration Statement
is declared effective by the Commission, Exchange Notes in exchange for all Old
Notes tendered prior thereto in the Exchange Offer and (iv) if obligated to file
the Shelf Registration Statement, TV Filme will use its best efforts to file the
Shelf Registration Statement with the Commission on or prior to 60 days after
such filing obligation arises (and in any event by April 19, 1997) and to cause
the Shelf Registration to be declared effective by the Commission on or prior to
120 days after such obligation arises. If (a) TV Filme fails to file any of the
Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (c) TV Filme
fails to commence, accept tenders and, in the case of accepted tenders, issue
registered Exchange Notes in respect of accepted tenders under the Exchange
Offer within 30 business days of the Effectiveness Target Date with respect to
the Exchange Offer Registration Statement or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective but
thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Securities during the periods specified in the Registration
Rights Agreement (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then TV Filme will pay Liquidated Damages to each
Holder of Old Notes, with respect to the first 90-day period immediately
following the occurrence of such Registration Default, in an amount equal to
$.05 per week per $1,000 principal amount of Old Notes held by such Holder. The
amount of the Liquidated Damages will increase by an additional $.05 per week
per $1,000 principal amount of Old Notes with respect to each subsequent 90-day
period until all Registration
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Defaults have been cured, up to a maximum amount of Liquidated Damages of $.20
per week per $1,000 principal amount of Old Notes. All accrued Liquidated
Damages will be paid by TV Filme on each Damages Payment Date to the holder of
the Global Note by wire transfer of immediately available funds and to Holders
of Certificated Securities by wire transfer to the accounts specified by them or
by mailing checks to its registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of Old Notes will be required to make certain representations to TV
Filme (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
The Registration Statement of which this Prospectus is a part constitutes
the Exchange Offer Registration Statement.
FOREIGN EXCHANGE RESTRICTIONS; CURRENCY INDEMNITY
As a result of TV Filme being a holding company, TV Filme's operating cash
flow and its ability to service indebtedness, including the Notes, is dependent
upon the operating cash flow of its subsidiaries and the payment of funds by
such subsidiaries to TV Filme in the form of loans, dividends or otherwise. In
the event that on any payment date in respect of the Notes, any restrictions or
prohibition on access to the Brazilian foreign exchange market exists which
impairs the ability of TV Filme's subsidiaries to pay funds to TV Filme, TV
Filme agrees to, and to cause each of its subsidiaries to provide TV Filme with
all funds necessary to, pay all amounts payable under the Notes in the currency
of such Notes by means of any legal procedure existing in Brazil (except
commencing legal proceedings against the Central Bank) on any due date for
payment under the Notes. All costs and taxes payable in connection with the
procedures referred to in this covenant shall be borne by TV Filme.
Payments in respect of the Intercompany Note or any Subsidiary Guarantee
shall be made in U.S. dollars as shall be legal tender at the time of payment
for the payment of public and private debts in that currency. In the event that,
on any payment date in respect of the Intercompany Note or any Subsidiary
Guarantee, any restrictions or prohibition of access to the Brazilian foreign
exchange market exists, ITSA and each Guarantor agree to pay all amounts payable
under the Intercompany Note in the currency of the Intercompany Note by means of
any legal procedure existing in Brazil (except commencing legal proceedings
against the Central Bank) on any due date for payment under Intercompany Note.
All costs and taxes payable in connection with the procedures referred to in
this covenant shall be borne by ITSA and the Guarantors.
U.S. dollars are the sole currency of account and payment for all sums
payable by ITSA and the Guarantors under or in connection with the Intercompany
Note and the Subsidiary Guarantees, including damages. Any amount received or
recovered in a currency other than U.S. dollars (whether as a result of, or of
the enforcement of, a judgment or order of a court of any jurisdiction, in the
winding-up or dissolution of ITSA and the Guarantors or otherwise) by any Holder
of a Note in respect of any sum expressed to be due to it from the ITSA and the
Guarantors shall only constitute a discharge to ITSA and the Guarantors to the
extent of the U.S. dollar amount which the recipient is able to purchase with
the amount so received or recovered in that other currency on the date of that
receipt or recovery (or, if it is not practicable to make that purchase on that
date, on the first date on which it is practicable to do so). If that U.S.
dollar amount is less than the U.S. dollar amount expressed to be due to the
recipient under the Intercompany Note, ITSA and the Guarantors shall, jointly
and severally, indemnify it against any loss sustained by it as a result. In any
event ITSA and the Guarantors shall, jointly and severally, indemnify the
recipient against the cost of making any such purchase. For the purposes of this
paragraph, it will be
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sufficient for the holder of the Intercompany Note to certify in a satisfactory
manner (indicating sources of information used) that it would have suffered a
loss had an actual purchase of dollars been made with the amount so received in
that other currency on the date of receipt or recovery (or, if a purchase of
dollars on such date had not been practicable, on the first date on which it
would have been practicable, it being required that the need for a change of
date be certified in the manner mentioned above). These indemnities constitute a
separate and independent obligation from other obligations of ITSA and the
Guarantors, shall give rise to a separate and independent cause of action, shall
apply irrespective of any indulgence granted by any holder of the Intercompany
Note and shall continue in full force and effect despite any other judgment,
order, claim or proof for a liquidated amount in respect of any sum due under
the Intercompany Note.
ENFORCEABILITY OF JUDGMENTS WITH RESPECT TO THE INTERCOMPANY NOTE AND SUBSIDIARY
GUARANTEES
Service of process upon ITSA or any Guarantor in an action (other than an
insolvency, liquidation or bankruptcy proceeding or any other proceeding in the
nature of an in rem or quasi in rem proceeding) to enforce their obligations
under the Note Pledge Agreement, the Intercompany Note or the Subsidiary
Guarantees may be obtained within the U.S. by service upon Corporation Service
Company. See "Risk Factors--Risk Factors Relating to Brazil--Potential
Unenforceablility of Civil Liabilities and Judgments." Since substantially all
of the assets of ITSA and its subsidiaries are outside the U.S., any judgment
obtained in the United States against ITSA or any Guarantor, including judgments
with respect to the payment of amounts owing with respect to the Note Pledge
Agreement, the Intercompany Note or the Subsidiary Guarantees, may not be
collectible within the United States.
Judgments for monetary claims obtained in U.S. courts arising out of or in
relation to the obligations of ITSA and the Guarantors under the Note Pledge
Agreement and the Intercompany Note and the Subsidiary Guarantees will be
enforceable in Brazil, PROVIDED that such judgment has been previously confirmed
by the Brazilian Federal Supreme Court. In order to be confirmed by the
Brazilian Federal Supreme Court of Brazil, such foreign judgment must meet the
following conditions: (a) it must comply with all formalities required for its
enforceability under the laws of the country where it was issued; (b) it must
have been given by a competent court after the proper service of process on the
parties; (c) it must not be subject to appeal; (d) it must not offend Brazilian
national sovereignty, public policy or good morals; and (e) it must be duly
authenticated by a competent Brazilian consulate and be accompanied by a sworn
translation thereof into Portuguese. Notwithstanding the foregoing, no assurance
can be given that such confirmation will be obtained, that the process described
above can be conducted in a timely manner or that a Brazilian court will enforce
such monetary judgment. See "Risk Factors--Risk Factors Relating to
Brazil--Potential Unenforceability of Civil Liabilities and Judgments."
Any judgment obtained against ITSA or the Guarantors in a court in Brazil
under the Intercompany Note, the Note Pledge Agreement or any Subsidiary
Guarantee will be expressed in the Brazilian currency equivalent to the U.S.
dollar amount. See "Risk Factors--Risk Factors Relating to Brazil--Foreign
Exchange Controls and Exchange Rates," "Risk Factors--Risk Factors Relating to
Brazil--Restrictions on Conversion and U.S. Remittances Abroad" and "Risk
Factors--Risk Factors Relating to Brazil--Potential Unenforceability of Civil
Liabilities and Judgments."
The purchase of U.S. dollars for the payment by ITSA or the Guarantors of
any such judgment requires approval of the Central Bank. See "Risk Factors--Risk
Factors Relating to the Company and the Exchange Offer--Exchange Control
Regulations."
CERTAIN BANKRUPTCY LAW CONSIDERATIONS
Brazilian Bankruptcy Law (Decree-law No. 7661, of June 21, 1945, the
"Brazilian Bankruptcy Law") establishes two different proceedings for the
resolution of debts of commercial companies which are insolvent or do not pay
their obligations when due; the bankruptcy proceeding ("FALENCIA") and the
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reorganization proceeding ("CONCORDATA"). Both proceedings apply to all
unsecured creditors of a company which is declared bankrupt or which is under a
reorganization proceeding. In the event that ITSA or any of the Guarantors is
declared bankrupt or enters into a CONCORDATA, the Intercompany Note will be
considered general unsecured indebtedness of ITSA and the Guarantors and
therefore will be subject to such proceedings.
Under a bankruptcy proceeding (essentially a liquidation proceeding),
payments in respect of the Notes will be subject to an order of priority.
Generally, Brazilian Bankruptcy Law and other applicable rules establish that
claims of employees for wages or indemnity and tax or social security claims
have priority over other claims against the bankrupt estate. Other claims are
subject to the following order of priority: (i) secured credits, (ii) credits
with special privileges over certain assets, (iii) credits with general
privilege, (iv) unsecured credits (including the Intercompany Note) and (v)
subordinated credits. Credits in foreign currency are converted into Brazilian
currency on the date the company is declared bankrupt and are not subject to
adjustment in accordance with the exchange variation. Such amount in Brazilian
currency must be monetarily adjusted to account for inflation (in accordance
with the rules applicable from time to time) and bears no interest.
Under a CONCORDATA proceeding, which is a protection available under the
Brazilian Bankruptcy Law for commercial companies experiencing financial
distress to avoid the declaration of bankruptcy, the company's unsecured credits
existing at the time the CONCORDATA is declared are rescheduled for one of the
periods defined in the law which in virtually all cases is 24 months (in which
event 40.0% of the debt must be paid in the first year). The benefit may be
given by the court without any prior consultation with or manifestation by the
creditors, so long as the beneficiary demonstrates, INTER ALIA, that its assets
are worth at least 50.0% of its unsecured indebtedness. The CONCORDATA
proceeding has the following basic characteristics: (i) it only affects
unsecured creditors; (ii) it does not affect the day-to-day management of the
company, the other commercial obligations of the company and the obligations
assumed after the date on which the CONCORDATA is declared; (iii) amounts due in
foreign currency subject to the CONCORDATA are converted into local currency on
the date on which the CONCORDATA is accepted by the court and are not subject to
adjustment in accordance with the exchange variation; (iv) amounts due under the
CONCORDATA, either in local currency or converted into local currency, must be
monetarily adjusted to account for inflation (in accordance with the rules
applicable from time to time) and bear interest at the rate of 12.0% per annum;
(v) a company under CONCORDATA which fails to meet its rescheduled obligations
will be declared bankrupt; and (vi) a company that benefits from CONCORDATA
protection shall not be eligible for such protection for a period of five years.
CONSENT TO JURISDICTION AND SERVICE
Pursuant to the terms of the Intercompany Note and the Subsidiary Guarantees
ITSA and the Guarantors have appointed Corporation Service Company as their
agent for service of process in any suit, action or proceeding with respect to
the Intercompany Note or the Subsidiary Guarantees and for actions brought under
Federal or state securities laws brought in any Federal or state court located
in the City of New York and have agreed to submit to such jurisdiction. See
"Risk Factors--Risk Factors Relating to Brazil--Potential Unenforceability of
Civil Liabilities and Judgments."
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full description of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of,
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such other Person merging with or into or becoming a Subsidiary of such
specified Person and (ii) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control and PROVIDED, FURTHER, that TV Filme Servicos shall not
be deemed to be an Affiliate of TV Filme or any of its other Restricted
Subsidiaries for the purposes of the covenant described under "--Certain
Covenants--Transactions with Affiliates."
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback or similar arrangement) other than sales or dispositions in the
ordinary course of business consistent with past practices; PROVIDED that the
sale, lease, conveyance or other disposition of all or substantially all of the
assets of TV Filme and its Restricted Subsidiaries taken as a whole will be
governed by the provisions of the Indenture described under "-- Repurchase at
the Option of Holders--Change of Control" and/or the provisions described under
"-- Certain Covenants--Merger, Consolidation, or Sale of Assets" and not by the
provisions of the covenant described under "--Repurchase at Option of
Holders--Asset Sales," and (ii) the issuance or sale by TV Filme or any of its
Restricted Subsidiaries of Equity Interests of TV Filme's Restricted
Subsidiaries. Notwithstanding the foregoing, none of the following will be
deemed an Asset Sale: (i) a transfer of assets by TV Filme to a Restricted
Subsidiary or by a Restricted Subsidiary to TV Filme or to another Restricted
Subsidiary; (ii) an issuance of Equity Interests by a Restricted Subsidiary to
TV Filme or to another Restricted Subsidiary; (iii) a Restricted Payment that is
permitted by the covenant described under "--Certain Covenants--Restricted
Payments;" (iv) dispositions in any fiscal year with Net Proceeds in the
aggregate of $1.0 million (or the equivalent thereof at time of determination)
or less; (v) an Asset Swap that is permitted by the covenant described under
"--Certain Covenants--Asset Swaps;" (vi) a contribution to an Unrestricted
Subsidiary which complies with the covenant described under "--Certain
Covenants--Restricted Payments;" (vii) a sale and leaseback which complies with
the covenant described under "--Certain Covenants--Sale and Leaseback
Transactions;" (viii) any liquidation of any Cash Equivalent; and (ix) the
issuance or sale of Equity Interests of a Restricted Subsidiary of TV Filme to
TV Filme or one of its other Restricted Subsidiaries.
"ASSET SWAP" means the execution of a definitive agreement, subject only to
approvals of the Ministry of Communications or such other applicable Brazilian
governmental authority or agency and other customary closing conditions, that TV
Filme in good faith believes will be satisfied, for a substantially concurrent
purchase and sale, or exchange, of Telecommunications Assets between TV Filme or
any of its Restricted Subsidiaries and another Person or group of Persons who
are Affiliates of one another; PROVIDED that any amendment to or waiver of any
closing condition which individually or in the aggregate is material to the
Asset Swap shall be deemed to be a new Asset Swap.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"BANK CREDIT AGREEMENT" means loans or advances made by banks, trust
companies or other institutions, which are, principally engaged in the business
of lending money to businesses to TV Filme or a Restricted Subsidiary under
credit facilities, loan agreements or similar agreements.
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"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"CASH EQUIVALENTS" means (i) securities issued or directly and fully
guaranteed or insured by the United States government or any agency or
instrumentality thereof having maturities of not more than twelve months from
the date of acquisition, (ii) certificates of deposit and eurodollar time
deposits with maturities of twelve months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Brazilian regulated bank or member bank of the
U.S. Federal Reserve System having capital and surplus in excess of $500 million
(or equivalent thereof at the time of determination) (or a branch of any such
bank), (iii) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (i) and (ii) above
entered into with any financial institution meeting the qualifications specified
in clause (ii) above and (iv) commercial paper having the rating of at least P-1
from Moody's Investors Service, Inc., or any successor to its rating business,
or at least A-1 from Standard & Poor's Ratings Group, or any successor to its
rating business, and in each case maturing within 180 days after the date of
acquisition.
"CLOSING PRICE" on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such date, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the Nasdaq
National Market or, if such shares are not listed or admitted to trading on any
national securities exchange or quoted on such automated quotation system but
the issuer is a Foreign Issuer (as defined in Rule 3b-4(b) under the Exchange
Act) and the principal securities exchange on which such shares are listed or
admitted to trading is a Designated Offshore Securities Market (as defined in
Rule 902(a) under the Securities Act), the average of the reported closing bid
and asked prices regular way on such principal exchange, or, if such shares are
not listed or admitted to trading on any national securities exchange or quoted
on such automated quotation system and the issuer and principal securities
exchange do not meet such requirements, the average of the closing bid and asked
prices in the over-the-counter market as furnished by any New York Stock
Exchange member firm that is selected from time to time by TV Filme for that
purpose and is reasonably acceptable to the Trustee.
"COLLATERAL" means the Pledged Securities, the Intercompany Note and the
proceeds thereof.
"COMMON EQUITY INTERESTS" means (i) with respect to a person which is a
corporation, any and all shares, interests or other participations in, and other
equivalents (however designated and whether voting or nonvoting) of such
Person's common stock and includes, without limitation, all series and classes
of such common stock and (ii) with respect to a Person which is not a
corporation, Equity Interests which have characteristics similar in all material
respects to those of common stock of a corporation.
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"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, to the extent
deducted in computing Consolidated Net Income, (i) an amount equal to any
extraordinary loss plus any net loss realized in connection with an Asset Sale,
(ii) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, (iii) Consolidated Interest Expense and
(iv) depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) of such Person and its Restricted Subsidiaries for such
period, and other non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a prior
period), minus (v) non-cash items increasing consolidated revenues in
determining such Consolidated Net Income for such period (excluding any items
which represent the reversal of any accrual of, or cash reserves for,
anticipated cash charges in any prior period and excluding the recognition of
deferred sign-on or hook-up fee revenue), in each case, on a consolidated basis
and determined in accordance with GAAP and (vi) to the extent included in
computing Consolidated Net Income, an amount equal to any extraordinary gain.
Notwithstanding the foregoing, the amounts referred to in clauses (i) through
(vi) of the preceding sentence with respect to Restricted Subsidiaries shall
only be added to (deducted from) Consolidated Net Income to compute Consolidated
Cash Flow to the extent (and in the same proportion) that the Net Income of such
Restricted Subsidiary was included in calculating the Consolidated Net Income of
such Person and only if a corresponding amount would be permitted at the date of
determination to be paid as a dividend to TV Filme by such Restricted Subsidiary
without direct or indirect restriction pursuant to the terms of its charter and
by-laws and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to such Restricted Subsidiary or
its stockholders.
"CONSOLIDATED INDEBTEDNESS" means, with respect to any Person as of any
date of determination, the sum, without duplication, of (i) the total amount of
Indebtedness of such Person and its Restricted Subsidiaries, plus (ii) the
aggregate liquidation value of all Disqualified Stock of such Person, in each
case, determined on a consolidated basis in accordance with GAAP, less the Fair
Market Value of the Pledged Securities then held by the Trustee as determined in
good faith by the Board of Directors of TV Filme.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the sum of (i) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
interest payments in respect of Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (if such
Guarantee or Lien is called upon and to the extent such interest payments are
satisfied under or by means of such Lien), commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations) and (ii)
the consolidated interest expense of such Person and its Restricted Subsidiaries
that was capitalized during such period, in each case, on a consolidated basis
and in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person as to which Consolidated Net
Income is being calculated or a Restricted Subsidiary thereof, (ii) the Net
Income of any Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary of such Net Income would not be permitted at the date
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of determination directly or indirectly, pursuant to the terms of its charter
and by-laws and all agreements, instruments, judgments, decrees, orders,
statutes, rules or governmental regulations applicable to such Restricted
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded and (v) the Net Income of any
Unrestricted Subsidiary shall be excluded, except to the extent of the amount of
dividends or distributions paid in cash by such Unrestricted Subsidiary to TV
Filme or its Restricted Subsidiaries.
"CONSOLIDATED NET WORTH" means, (a) with respect to a partnership as of any
date, the sum of the common and preferred partnership interests of such Person
and its consolidated Restricted Subsidiaries as of such date, as determined on a
consolidated basis in accordance with GAAP, and (b) with respect to any other
Person as of any date, the sum of (i) the consolidated equity of the common
equity holders of such Person and its consolidated Restricted Subsidiaries as of
such date plus (ii) the respective amounts reported on such Person's balance
sheet as of such date with respect to any series of preferred equity; PROVIDED
that the preferred partnership interests or the preferred equity, as the case
may be, is not (A) Disqualified Stock and (B) by its terms entitled to the
payment of dividends or other distributions, unless such dividends or other
distributions may be declared and paid only out of net earnings in respect of
the year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred partnership interests or
preferred equity, less (x) all write-ups (other than write-ups resulting from
foreign currency translations and write-ups of tangible assets of a going
concern business made within 12 months after the acquisition of such business)
subsequent to the date of the Indenture in the book value of any asset owned by
such Person or a consolidated Restricted Subsidiary of such Person, (y) all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Restricted Subsidiaries (except, in each case, Permitted Investments),
and (z) all unamortized debt discount and expense and unamortized deferred
charges as of such date, all of the foregoing determined in accordance with
GAAP.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXISTING INDEBTEDNESS" means Indebtedness of TV Filme and its Restricted
Subsidiaries in existence on the date of the Indenture listed on Annex I to the
Indenture, until such amounts are repaid.
"FAIR MARKET VALUE" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy; PROVIDED that if such value exceeds $1.0 million (or
the equivalent thereof at the time of determination), such determination shall
be made in good faith by the Board of Directors of TV Filme.
"GAAP" means generally accepted accounting principles in the United States
of America set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in effect on the
date of the Indenture.
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"GOVERNMENT SECURITIES" means direct obligations of, or obligations fully
guaranteed by, or participations in pools consisting solely of obligations of or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States of
America is pledged.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest or currency exchange rate swap agreements,
interest or currency exchange rate cap agreements and interest or currency
exchange rate collar agreements and (ii) other agreements or arrangements, in
any case, designed to protect such Person against fluctuations in interest or
currency exchange rates.
"INDEBTEDNESS" means, with respect to any Person, without duplication, (i)
any liability, contingent or otherwise, of such Person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), whether as a cash advance, bill, overdraft
or money market facility loan, or (b) evidenced by a note, debenture or similar
instrument or, to the extent drawn upon and not reimbursed, letters of credit or
other similar liability evidenced by book-entry mechanism, or (c) for the
payment of money relating to a Capital Lease Obligation or other obligation
relating to the deferred purchase price of property; PROVIDED, HOWEVER, that
Indebtedness shall not include trade payables arising in the ordinary course of
business consistent with past practice, or (d) in respect of any Hedging
Obligation; (ii) any liability of others of the kind described in the preceding
clause (i) which the Person has Guaranteed or which is otherwise its legal
liability; and (iii) any obligation secured by a Lien to which the property or
assets of such Person are subject, whether or not the obligations secured
thereby shall have been assumed by or shall otherwise be such Person's legal
liability; PROVIDED, HOWEVER, for purposes of this clause (iii), if such
obligation is not assumed by such Person, or not otherwise the legal liability
of such Person, such obligation shall only be included in Indebtedness to the
extent of the Fair Market Value of such property or assets.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to directors, officers and employees made in the ordinary course of
business), purchases or other acquisitions (for consideration) of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP; PROVIDED that an acquisition of assets, Equity Interests or other
securities by TV Filme or any of its Restricted Subsidiaries for consideration
consisting of common equity securities of TV Filme shall not be deemed to be an
Investment.
"LEVERAGE RATIO" means, with respect to any Person as of any date of
determination (the "Calculation Date"), the ratio of (i) the Consolidated
Indebtedness of such Person as of the Calculation Date to (ii) the result of the
multiplication of the Consolidated Cash Flow of such Person for the most recent
full fiscal quarter ending immediately prior to the Calculation Date for which
internal financial statements are available times four. In the event that TV
Filme or any of its Restricted Subsidiaries incurs, assumes, guarantees or
redeems any Indebtedness (other than revolving credit borrowings with respect to
which the related commitment remains outstanding) or issues or redeems
Disqualified Stock subsequent to the commencement of the period for which the
Leverage Ratio is being calculated but prior to the Calculation Date then the
Leverage Ratio shall be calculated giving PRO FORMA effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, or such issuance or
redemption of Disqualified Stock, as if the same had occurred at the beginning
of the applicable period. For purposes of making the computation referred to
above, Investments, acquisitions, dispositions which constitute all or
substantially all of an operating unit of a business and discontinued operations
(as determined in accordance with GAAP) that
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have been made by TV Filme or any of its Restricted Subsidiaries, including all
mergers, consolidations and dispositions, during the quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be calculated on a PRO FORMA basis assuming that all such Investments,
acquisitions, dispositions, discontinued operations, mergers, consolidations
(and the reduction of any associated fixed charge obligations and the change in
Consolidated Cash Flow resulting therefrom) has occurred on the first day of
such reference period and without regard to clause (iii) of the definition of
Consolidated Net Income. If since the beginning of such reference period any
Person (that subsequently became a Restricted Subsidiary or was merged with or
into TV Filme or any Restricted Subsidiary since the beginning of such period)
shall have made any Investment, acquisition, disposition which constitutes all
or substantially all of an operating unit of a business, discontinued operation,
merger or consolidation that would have required adjustment pursuant to this
definition, the Leverage Ratio shall be calculated giving PRO FORMA effect
thereto for such reference period as if such Investment, acquisition,
disposition, discontinued operation, merger or consolidation had occurred at the
beginning of such reference period and without regard to clause (iii) of the
definition of Consolidated Net Income. For purposes of this definition, whenever
PRO FORMA effect is to be given to a transaction, the PRO FORMA calculations
shall be made in good faith by a responsible financial or accounting officer of
TV Filme.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, and any
lease in the nature thereof).
"MATERIAL TELECOMMUNICATIONS LICENSE" means one or more authorizations
issued by the Ministry of Communications or such other applicable Brazilian
governmental authority or agency used or useful in the operation of a
Telecommunications Business that individually or collectively have a Fair Market
Value exceeding $1.0 million (or the equivalent thereof at time of
determination).
"NET INCOME" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with GAAP
and before any reduction in respect of preferred stock dividends, excluding,
however, (i) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with (a) any Asset
Sales (including, without limitation, dispositions pursuant to sale and
leaseback transactions) or (b) the disposition of any securities by such Person
or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness
of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary
or nonrecurring gain (but not loss), together with any related provision for
taxes on such extraordinary or nonrecurring gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by TV Filme or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions), any relocation expenses
incurred as a result thereof, any taxes paid or payable by TV Filme or any of
its Restricted Subsidiaries as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), amounts
required to be paid to any Person (other than TV Filme, its Restricted
Subsidiaries or its Affiliates) having a Lien on the assets subject to the Asset
Sale, amounts required to be paid to any Person (other that TV Filme or any
Restricted Subsidiary) owning a beneficial interest in the assets subject to the
Asset Sale, and any reserve for adjustment in respect of the sale price of such
asset or assets established in accordance with GAAP; PROVIDED, HOWEVER, that if
such proceeds are received by any such Restricted Subsidiary, all of the Equity
Interests of which are not owned directly or indirectly by TV Filme, as a result
of an Asset Sale by it, Net Proceeds for purposes of the covenant described
under "--Repurchase at Option of Holder--Asset Sales" shall mean the proportion
of such proceeds (as so adjusted) which is the same as the proportion of such
Equity Interests owned directly or indirectly by TV Filme.
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"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither TV Filme nor
any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender, (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of TV Filme or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity
and (iii) as to which the lenders have expressly waived any recourse which they
may have, in law, equity or otherwise, whether based on misrepresentation,
control, ownership or otherwise, to TV Filme or any of its Restricted
Subsidiaries, including, without limitation, a waiver of the benefits of the
provisions of Section 1111(b) of the U.S. Bankruptcy Code (Title 11, United
States Code), as amended.
"NOTE PLEDGE AGREEMENT" means the Note Pledge Agreement, dated as of the
date of the Indenture, by and between the Trustee and TV Filme, governing the
pledge of the Intercompany Note.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFICER" means, with respect to any Person, the chief executive officer,
the president, the chief operating officer, the chief financial officer, the
chief accounting officer, the treasurer, any assistant treasurer, the
controller, the secretary, any assistant secretary or any vice-president of such
Person.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf of a Person by
two Officers of such Person, one of whom must be the principal executive
officer, the principal financial officer or the principal accounting officer of
such Person, that meets the requirements set forth in the Indenture.
"OPERATING AGREEMENT" means the Master Operating Agreement dated July 24,
1996, between ITSA and TV Filme Servicos.
"PERMITTED INVESTMENTS" means (i) any Investment in TV Filme or in a
Restricted Subsidiary of TV Filme which is a Guarantor; (ii) any Investment in
Cash Equivalents; (iii) any Investment by TV Filme or any of its Restricted
Subsidiaries in a Person engaged in the Telecommunications Business if, as a
result of such Investment, (a) such Person becomes a Restricted Subsidiary of TV
Filme and a Guarantor or (b) such Person is merged, consolidated or amalgamated
with or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, TV Filme or a Restricted Subsidiary of TV Filme which is a
Guarantor; (iv) any Investment in TV Filme Servicos; (v) Investments in
Restricted Subsidiaries that are not Guarantors in an aggregate amount not to
exceed $30.0 million (or the equivalent thereof at time of determination),
PROVIDED, HOWEVER, that Investments in such Restricted Subsidiaries shall be
excluded from the calculation of such aggregate amount (A) if concurrently with
such Investment such Restricted Subsidiary becomes a Guarantor or (B) from the
time after such Investment such Restricted Subsidiary becomes a Guarantor; (vi)
any Investment in Government Securities in accordance with the provisions of the
Pledge Agreement; (vii) Investments in Persons engaged in the Telecommunications
Business, taken together with all other Investments made pursuant to this clause
(vii), in an aggregate amount not to exceed $15.0 million (or the equivalent
thereof at time of determination); (viii) any Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described under "--Repurchase at the Option
of Holders--Asset Sales;" (ix) loans and advances to officers, directors and
employees for business-related travel expenses, moving expenses and other
similar expenses, in each case incurred in the ordinary course of business; (x)
Investments the payment for which consists exclusively of Equity Interests
(excluding Disqualified Stock) of TV Filme; (xi) any Investment acquired by TV
Filme or any of its Restricted Subsidiaries (A) in exchange for any other
Investment or accounts receivable held by TV Filme or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of
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the issuer of such other Investment or accounts receivable or (B) as a result of
the foreclosure by TV Filme or any of its Restricted Subsidiaries with respect
to any secured Investment or default; (xii) Investments in shares of money
market funds having assets in excess of $500 million; and (xiii) Investments
existing on December 20, 1996.
"PERMITTED LIENS" means (i) Liens securing Indebtedness which may be
incurred pursuant to clause (i) of the second paragraph of "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock;" (ii)
Liens in favor of TV Filme or any of its Restricted Subsidiaries; (iii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with TV Filme or any of its Restricted Subsidiaries, PROVIDED that
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with TV Filme or any such Restricted Subsidiary;
(iv) Liens on property or securing any Acquired Debt and which exist at the time
of acquisition thereof by TV Filme or any of its Restricted Subsidiaries,
PROVIDED that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens arising under the Indenture in favor of the Trustee; (vi)
Liens existing on the date of the Indenture; (vii) Liens arising by reason of
(1) any judgment, decree or order of any court, so long as enforcement of such
Lien is effectively stayed and any appropriate legal proceedings which may have
been duly initiated for the review of such judgment, decree or order shall not
have been finally terminated or the period within which such proceedings may be
initiated shall not have expired; (2) taxes not yet delinquent or which are
being contested in good faith; (3) security for payment of workers' compensation
or other insurance; (4) good faith deposits in connection with tenders, leases
and contracts (other than contracts for the payment of money), bids, licenses,
performance or similar bonds and other obligations of a like nature, in the
ordinary course of business; (5) zoning restrictions, easements, licenses,
reservations, provisions, covenants, conditions, waivers, restrictions on the
use of property or minor irregularities of title (and with respect to leasehold
interests, mortgages, obligations, liens and other encumbrances incurred,
created, assumed or permitted to exist and arising by, through or under a
landlord or owner of the leased property, with or without consent of the
lessees), none of which materially impairs the use of any parcel of property
material to the operation of the business of TV Filme or any Restricted
Subsidiary or the value of such property for the purpose of such business; (6)
deposits to secure public or statutory obligations or in lieu of surety or
appeal bonds; (7) surveys, exceptions, title defects, encumbrances, easements,
reservations of, or rights of others for, rights of way, sewers, electric lines,
telegraph or telephone lines and other similar purposes or zoning or other
restrictions as to the use of real property not interfering with the ordinary
conduct of the business of TV Filme or any of its Restricted Subsidiaries; or
(8) operation of law or statute and incurred in the ordinary course of business,
including without limitation, those in favor of mechanics, materialman,
suppliers, laborers or employees, and, if securing sums of money, for sums which
are not yet delinquent or are being contested in good faith by negotiations or
by appropriate proceedings which suspend the collection thereof; (viii) Liens
created by the Pledge Agreement and the Note Pledge Agreement; (ix) Liens
securing purchase money Indebtedness, including pursuant to clause (i) under the
second paragraph of the covenant described under "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock;" (x)
Liens incurred in the ordinary course of business of TV Filme or any of its
Restricted Subsidiaries which do not secure obligations of TV Filme or any
Restricted Subsidiary, including, without limitation, licenses and leases
granted or made by TV Filme or any Restricted Subsidiary as licensor or lessor
or which secure obligations that do not exceed $2.0 million (or the equivalent
thereof at time of determination) at any one time outstanding and that (a) are
not incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of business)
and (b) do not in the aggregate materially detract from the value of the
property or materially impair the use thereof in the operation of business by TV
Filme or any such Restricted Subsidiary; and (xi) any extension, renewal or
replacement (or successive extensions, renewals or replacements), in whole or in
part, of any Lien referred to in the foregoing clauses; PROVIDED that the
principal amount of the Indebtedness secured thereby shall not exceed the
principal amount of Indebtedness so secured immediately prior to the time of
such extension, renewal or replacement (or with respect to
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the Bank Credit Agreement, the maximum amount then permitted to be borrowed
thereunder), and that such extension, renewal or replacement Lien shall be
limited to all or a part of the property which secured the Lien so extended,
renewed or replaced (plus improvements on such property).
"PERMITTED REFINANCING DEBT" means any Indebtedness of TV Filme or any of
its Restricted Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of TV Filme or any such Restricted Subsidiary; PROVIDED that: (i)
the principal amount (or accreted value, if applicable) of such Permitted
Refinancing Debt does not exceed the principal amount (or accreted value, if
applicable) of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded, plus accrued interest and the amount of any premiums and
transaction costs and reasonable expenses incurred in connection therewith; (ii)
such Permitted Refinancing Debt has a final maturity date equal to or later than
the final maturity date of, and has a Weighted Average Life to Maturity equal to
or greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes, such Permitted Refinancing
Debt is subordinated in right of payment to the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred only by TV Filme or
the Restricted Subsidiary that is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PLEDGE ACCOUNT" means an account established with the Trustee pursuant to
the terms of the Pledge Agreement for the deposit of the Pledged Securities
purchased by ITSA with a portion of the proceeds from the sale of the Notes.
"PLEDGE AGREEMENT" means the Collateral Pledge and Security Agreement,
dated as of the date of the Indenture, by and among ITSA, TV Filme and the
Trustee governing the disbursement of funds from the Pledge Account.
"PLEDGED SECURITIES" means the securities purchased by ITSA with a portion
of the proceeds from the sale of the Notes, which shall consist of Government
Securities, deposited in the Pledge Account.
"PUBLIC EQUITY OFFERING" means an underwritten public offering of Common
Equity Interests made on a primary basis by TV Filme pursuant to a registration
statement filed with, and declared effective by, the Commission in accordance
with the Securities Act.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of such Person
that is not an Unrestricted Subsidiary.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"STRATEGIC INVESTOR" means any Person (i) engaged in the Telecommunications
Business that as of the date of determination has a Total Equity Market
Capitalization of at least $500 million (or the equivalent thereof at time of
determination) or (ii) any corporation, partnership, joint venture, limited
liability company or similar entity of which a stockholder, general partner,
joint venturer or member with more
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than 50% of the capital accounts, distribution rights, total equity and voting
interests or general or limited partnership interests, as applicable, are owned
or controlled, directly or indirectly, by a Person that satisfies clause (i) of
this definition; PROVIDED that clause (ii) of this definition may be satisfied
by any group of stockholders, general partners, joint venturers or members so
long as (a) each Person included in such group satisfies clause (i), (b) at
least one member in such group owns or controls, directly or indirectly, 35% or
more of the capital accounts, distribution rights, total equity and voting
rights or general or limited partnership interests of such Strategic Investor,
(c) no more than five Persons may be included in such group and (d) the
stockholders, general partners, joint venturers or members to be included in
such group shall act as a group and in concert.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"TELECOMMUNICATIONS ASSETS" means assets used or useful in the ownership or
operation of a Telecommunications Business.
"TELECOMMUNICATIONS BUSINESS" means, when used in reference to any Person,
that such Person, directly or indirectly, is engaged primarily in the business
of (i) transmitting video, voice or data, (ii) creating, developing or packaging
entertainment or communications programming, (iii) offering private telephony
services or (iv) evaluating, participating or pursuing any other activity or
opportunity that is related to those identified in (i), (ii) or (iii) above.
"TOTAL EQUITY MARKET CAPITALIZATION" of any Person means, as of any date of
determination, the product of (i) the aggregate number of outstanding shares of
common stock of such Person on such date (which shall not include any options or
warrants on, or securities convertible or exchangeable into, shares of common
stock of such Person) and (ii) the average Closing Price of such common stock
over the 20 consecutive Trading Days immediately preceding such date. If no such
Closing Price exists with respect to shares of any such class, the value of such
shares shall be determined by the Board of Directors of TV Filme in good faith
and evidenced by a resolution of the Board of Directors of TV Filme filed with
the Trustee.
"TRADING DAY" with respect to a securities exchange or automated quotation
system means a day on which such exchange or system is open for a full day of
trading.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by the
Board of Directors of TV Filme as an Unrestricted Subsidiary pursuant to a
resolution of the Board of Directors of TV Filme, but only to the extent that
such Subsidiary (i) has no Indebtedness other than Non-Recourse Debt, (ii) does
not own any Equity Interests of, or own or hold any Lien on, any property of TV
Filme or any Subsidiary of TV Filme (other than any Subsidiary of the Subsidiary
to be so designated), (iii) has not, and the Subsidiaries of such Subsidiary
have not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable with
respect to any Indebtedness pursuant to which the lender has recourse to any of
the assets of TV Filme or any of its Restricted Subsidiaries, (iv) is not party
to any material agreement, contract, arrangement or understanding with TV Filme
or any of its Restricted Subsidiaries unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to TV Filme or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of TV Filme, (v) is a Person with respect to which
neither TV Filme nor any of its Restricted Subsidiaries has any direct or
indirect obligation (a) to subscribe
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for additional Equity Interests or (b) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results, (vi) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of TV Filme or any of its
Restricted Subsidiaries and (vii) has at least one director on its board of
directors that is not a director or executive officer of TV Filme or any of its
Restricted Subsidiaries and has at least one executive officer that is not a
director or executive officer of TV Filme or any of its Restricted Subsidiaries.
Any such designation by the Board of Directors of TV Filme shall be evidenced to
the Trustee by filing with the Trustee a certified copy of the resolution of the
Board of Directors of TV Filme giving effect to such designation and an
Officers' Certificate certifying that (i) such designation complied with the
foregoing conditions, (ii) was permitted by the covenant described under
"--Certain Covenants--Restricted Payments" and (iii) immediately after giving
effect to such designation, TV Filme could incur at least $1.00 of additional
Indebtedness under the provisions of the first paragraph of the covenant
described under "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Disqualified Stock." If, at any time, any Unrestricted Subsidiary would fail to
meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of TV Filme as of such date (and, if such Indebtedness is
not permitted to be incurred as of such date under the covenant described under
"--Certain Covenants-- Incurrence of Indebtedness and Issuance of Disqualified
Stock," TV Filme shall be in default of such covenant). The Board of Directors
of TV Filme may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary, PROVIDED that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of TV Filme of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under the covenant
described under "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Disqualified Stock," and (ii) no Default or Event of Default would be in
existence following such designation.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person 95% or more of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
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TAX CONSIDERATIONS
FEDERAL INCOME TAXATION
The following summary sets forth the opinion of Kelley Drye & Warren LLP,
special counsel to the Company, as to the principal U.S. Federal income tax
consequences to holders from the acquisition, ownership and disposition of
Exchange Notes as of the date hereof. This summary does not purport to consider
all the possible U.S. Federal tax consequences of the ownership and disposition
of the Exchange Notes, and is not intended to reflect the particular tax
position of any purchaser. It deals only with Exchange Notes held as capital
assets and does not address investors that may be subject to special tax rules,
such as individual retirement accounts and other tax-deferred accounts,
tax-exempt organizations, banks, insurance companies, dealers in securities or
currencies, purchasers that hold the Exchange Notes as a hedge against currency
risks or as part of a straddle with other investments (including a "conversion
transaction") comprised of an Exchange Note and one or more investments, or
purchasers that have a "functional currency" other than the U.S. dollar.
This summary is based on the Internal Revenue Code, final, temporary and
proposed Treasury regulations thereunder (the "Regulations"), revenue rulings,
court cases, and other legal authorities as now in effect (or proposed) and as
currently interpreted, and does not take into account possible changes in such
tax laws or other legal authorities or such interpretations. No rulings on any
of the issues discussed below will be sought from the the IRS. In addition,
except as otherwise indicated, the following does not consider the effect of any
applicable foreign, state, local or other tax laws or estate or gift tax
considerations.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. THE TAX TREATMENT
OF A HOLDER OF THE EXCHANGE NOTES MAY VARY DEPENDING UPON SUCH HOLDER'S
PARTICULAR SITUATION. EACH HOLDER OF EXCHANGE NOTES SHOULD CONSULT HIS, HER OR
ITS TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF ACQUIRING, HOLDING,
EXCHANGING AND DISPOSING OF THE EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
For purposes of the discussion below, the payment of Liquidated Damages
should be includable in a holder's gross income as ordinary income in accordance
with the holders method of accounting for such purposes.
EXCHANGE OFFER
The exchange of an Old Note for an Exchange Note should not constitute a
taxable exchange because the Exchange Notes should not be considered to differ
materially either in kind or extent from the Old Notes. Moreover, any increase
in the interest rate of the Old Notes through the payment of Liquidated Damages
resulting from a Registration Default would not be treated as a taxable
exchange, as such change in interest rate would occur pursuant to the original
terms of the Old Notes. As a result of the foregoing, there should be no Federal
income tax consequences to a holder who exchanges an Old Note for an Exchange
Note and such holder should have the same tax basis and holding period in the
Exchange Notes as it had in the Old Notes immediately before the exchange.
U.S. HOLDERS
In general, interest on the Exchange Notes will be taxable to a beneficial
owner that is (1) a citizen or resident of the U.S., (2) a corporation that is
organized under the laws of the U. S. or any State thereof (including the
District of Columbia), or (3) a person otherwise subject to U.S. Federal income
taxation on its worldwide income (a "U.S. Holder") as ordinary income at the
time it is received or accrued, depending on the holder's method of accounting
for tax purposes. A U.S. Holder's tax basis in an Exchange Note will, in
general, be the U.S. Holder's cost therefor. A U.S. Holder will recognize a gain
or loss upon a sale or
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other disposition (including redemption) of its Exchange Notes in an amount
equal to the difference between the amount realized from such sale or other
disposition (less any accrued interest upon redemption, which will be taxable as
such) and the U.S. Holder's adjusted tax basis in the Exchange Notes. Such gain
or loss will be a capital gain or loss, provided the holder has held the
Exchange Notes as a capital asset, and will be long-term capital gain or loss if
the holder held the Exchange Notes for more than one year at the time of sale or
other disposition.
If a U.S. Holder purchases an Exchange Note for an amount that is less than
its stated principal amount, the amount of the difference will be treated as
"market discount" for U.S. Federal income tax purposes, unless such difference
is less than a specified de minimis amount. Under the market discount rules, a
U.S. Holder will be required to treat any principal payment on, or any gain on
the sale, exchange, retirement or other disposition of, an Exchange Note as
ordinary income to the extent such principal payment or gain does not exceed the
market discount accrued on such Exchange Note at the time of such payment or
disposition. In addition, the U.S. Holder may be required to defer, until the
maturity of the Exchange Note or its earlier disposition in a taxable
transaction, the deduction of all or a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such Exchange Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Exchange Note, unless
the U.S. Holder elects to accrue on a constant interest rate method. A U.S.
Holder of an Exchange Note may elect to include market discount in income
currently as it accrues (on either a ratable or constant interest rate method),
in which case the rules described in the preceding paragraph will not apply. The
election to include market discount in income currently, once made, applies to
all market discount obligations acquired on or after the first taxable year to
which the election applies and may not be revoked without the consent of the
IRS.
A U.S. Holder that purchases an Exchange Note for an amount in excess of the
sum of all amounts payable on the Exchange Note after the purchase date other
than stated interest will be considered to have purchased the Exchange Note at a
"premium." A U.S. Holder generally may elect to amortize the premium over the
remaining term of the Exchange Note on a constant yield method. The amount
amortized in any year will be treated as a reduction of the U.S. Holder's
interest income from the Exchange Note. Bond premium on an Exchange Note held by
a U.S. Holder that does not make such an election will decrease the gain or
increase the loss otherwise recognized on disposition of the Exchange Note. The
election to amortize premium on a constant yield method once made applies to all
debt obligations held or subsequently acquired by the electing U.S. Holder on or
after the first day of the first taxable year to which the election applies and
may not be revoked without the consent of the IRS.
NON-U.S. HOLDERS
Subject to the discussion below under "INFORMATION REPORTING AND BACKUP
WITHHOLDING":
(a) payments of interest on the Exchange Notes by TV Filme or any agent of
TV Filme to any holder of an Exchange Note that is not a U.S. Holder (a
"Non-U.S. Holder") will not be subject to U.S. Federal withholding tax if
(1) the Non-U.S. Holder does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of TV
Filme entitled to vote within the meaning of section 871(h)(3) of the
Internal Revenue Code and regulations thereunder, (2) the Non-U.S. Holder
is not a "controlled foreign corporation" (within the meaning of the
Internal Revenue Code) that is related to TV Filme (directly or
indirectly) through stock ownership, (3) the beneficial owner is not a
bank whose receipt of interest on an Exchange Note is described in
section 881(c)(3)(A) of the Internal Revenue Code, and (4) the beneficial
owner satisfies the statement requirement (described generally below) set
forth in section 871(h) and section 881(c) of the Internal Revenue Code
and the Regulations thereunder;
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(b) no withholding of U.S. Federal income tax will be required with respect
to any gain or income realized by a Non-U.S. Holder upon the sale,
exchange, retirement or other disposition of an Exchange Note; and
(c) an Exchange Note beneficially owned by an individual who at the time of
death is a Non-U.S. Holder will not be subject to U.S. Federal estate tax
as a result of such individual's death, provided that such individual
does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the company entitled to vote
within the meaning of section 871(h)(3) of the Internal Revenue Code and
provided that the interest payments with respect to such Exchange Note
would not have been, if received at the time of such individual's death,
effectively connected with the conduct of a U.S. trade or business by
such individual.
To satisfy the requirement referred to in (a)(4) above, the beneficial owner
of such Exchange Note, or a financial institution holding the Exchange Note on
behalf of such owner, must provide, in accordance with specified procedures, a
paying agent of the Company with a statement to the effect that the beneficial
owner is not a United States person. Pursuant to current temporary Regulations,
these requirements will be met if (1) the beneficial owner provides his name and
address, and certifies, under penalties of perjury, that he is not a United
States person (which certification may be made on Internal Revenue Service Form
W-8 (or successor form)) or (2) a financial institution holding the Exchange
Note on behalf of the beneficial owner certifies, under penalties of perjury,
that such statement has been received by it and furnishes a paying agent with a
copy thereof.
If the conditions set forth in the preceding paragraph are not satisfied,
interest received by a Non-U.S. Holder of the Exchange Notes will be subject to
U.S. withholding tax at a rate of 30% of the gross amount thereof (or such other
rate prescribed by an applicable income tax treaty) unless the beneficial owner
of the Exchange Note provides the Company or its paying agent, as the case may
be, with a properly executed (1) IRS Form 1001 (or successor form) claiming an
exemption from withholding under the benefit of a tax treaty or (2) IRS Form
4224 (or successor form) stating that interest paid on the Exchange Note is not
subject to withholding tax because it is effectively connected with the
beneficial owner's conduct of a trade or business in the United States.
Moreover, if a Non-U.S. Holder is engaged in a trade or business in the U.S.
and the interest on the Exchange Notes is effectively connected with the conduct
of such trade or business, the Non-U.S. Holder, although exempt from the
withholding tax discussed above, will be subject to U.S. Federal income tax at
the same rates and in the same manner as if the income had been received by a
U.S. Holder. In the case of Non-U.S. Holders that are corporations, such
effectively connected income also may be subject to the branch profits tax equal
to 30% of its effectively connected earnings and profits for the taxable year,
subject to adjustments. For this purpose, such payment on an Exchange Note will
be included in such foreign corporation's earnings and profits.
Generally, a Non-U.S. Holder will not be subject to U.S. Federal income tax
on any gain realized upon a sale, exchange, retirement or other disposition of
the Exchange Notes unless (1) such gain is effectively connected with a U.S.
trade or business of the Non-U.S. Holder or, if a tax treaty applies, is
attributable to a permanent establishment (generally an office or other fixed
place of business maintained by the Non-U.S. Holder in the U.S.) or (2) the
Non-U.S. Holder is an individual and is present in the U.S. for 183 days or more
in the taxable year of disposition and certain other conditions are met. Gain
that is effectively connected with the conduct of a trade or business within the
U.S. by a Non-U.S. Holder will be subject to U.S. Federal income tax on net
income that applies to U.S. Holders, but will not be subject to withholding. An
individual described in (2) above generally will be subject to tax at a 30% rate
on any gain recognized on such disposition, but will not be subject to
withholding. Individual Non-U.S. Holders also may be subject to tax pursuant to
provisions of U.S. Federal income tax law applicable to expatriates of the U.S.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the Exchange Notes are outstanding, TV Filme
is required to provide the IRS with certain information, including the holder's
name, address and taxpayer identification number, the aggregate amount of
principal and interest paid to that holder during the calendar year and the
amount of tax withheld, if any. This reporting obligation, however, does not
apply with respect to certain U.S. Holders such as corporations. Payment of the
proceeds from the sale of an Exchange Note to or through a foreign office of a
broker will not be subject to information reporting or backup withholding,
except that information reporting may apply to such payments if the broker is a
U.S. person, a "controlled foreign corporation" (within the meaning of the
Internal Revenue Code) or a foreign person 50% or more of whose gross income
from all sources for the three-year period ending with the close of its taxable
year preceding the payment was effectively connected with a U.S. trade or
business, unless (1) such custodian, nominee, agent or broker has documentary
evidence in its records that the beneficial owner is not a U.S. person and
certain other conditions are met or (2) the beneficial owner otherwise
establishes an exemption. Temporary Regulations provide that the Treasury is
considering whether backup withholding will apply with respect to payments of
principal, interest or the proceeds of a sale that are not subject to backup
withholding under the current regulations. Payment of the proceeds from a sale
of an Exchange Note to or through the U.S. office of a broker is subject to
information reporting and backup withholding unless the holder or beneficial
owner certifies as to its taxpayer identification number or otherwise
establishes an exemption from information reporting and backup withholding.
In the event that a U.S. Holder subject to the foregoing reporting
requirements fails to supply its correct taxpayer identification number in the
manner required by applicable law or under reports its tax liability, TV Filme,
its agents or a broker may be required to "backup" withhold a tax equal to 31%
of each payment of interest and principal on the Exchange Notes. Backup
withholding is not an additional tax and may be credited against the U.S.
Holder's U.S. Federal income tax liability, provided that the required
information is furnished to the IRS.
Under current Regulations, information reporting and backup withholding will
not apply to payments made by TV Filme or any agent thereof (in its capacity as
such) to a Non-U.S. Holder of an Exchange Note if such holder has provided the
required certification that it is not a United States person as set forth in
clause (a)(4) under "NON-U.S. HOLDERS," or has otherwise established an
exemption (provided that neither TV Filme nor its agent has actual knowledge
that the holder is a United States person or that the conditions of any
exemption are not in fact satisfied).
The Treasury Department has issued proposed Regulations that would modify
the information reporting and withholding rules as they apply to Non-U.S.
Holders. The Regulations would unify the current certification procedures and
forms and would, in certain circumstances, require additional information from
Non-U.S. Holders claiming treaty benefits. The proposed Regulations are
scheduled to take effect January 1, 1998, and are subject to further changes.
PLAN OF DISTRIBUTION
Each broker-dealer that holds Old Notes that were acquired for its own
account as a result of market-making or other trading activities (other than Old
Notes acquired directly from TV Filme), may exchange Old Notes for Exchange
Notes in the Exchange Offer. However, any such broker-dealer may be deemed to be
an "underwriter" within the meaning of such term under the Securities Act and
must, therefore, acknowledge that it will deliver a prospectus in connection
with any resale of Exchange Notes received in the Exchange Offer. This
prospectus delivery requirement may be satisfied by the delivery by such broker-
dealer of this Prospectus, as amended or supplemented. TV Filme has agreed that,
for a period of twelve months after the date of this Prospectus, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer who
receives Exchange Notes in the Exchange Offer for use in connection with any
such sale.
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TV Filme will not receive any proceeds from any sales of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own accounts
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale of Exchange Notes
by broker-dealers may be made directly to a purchaser or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act.
TV Filme has agreed to pay all expenses incident to the Exchange Offer other
than commissions or concessions of any brokers or dealers and will indemnify
Eligible Holders (including any broker-dealer) against certain liabilities,
including liabilities under the Securities Act.
By acceptance of the Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer hereby agrees to notify TV Filme
prior to using this Prospectus in connection with the sale or transfer of
Exchange Notes, and acknowledges and agrees that, upon receipt of notice from TV
Filme of the happening of any event which makes any statement in this Prospectus
untrue in any material respect or which requires the making of any changes in
this Prospectus in order to make the statements herein not misleading (which
notice TV Filme agrees to deliver promptly to such broker-dealer), such
broker-dealer will suspend use of this Prospectus until TV Filme has amended or
supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented prospectus to such
broker-dealer.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Exchange Notes
will be passed upon for the Company by Kelley Drye & Warren LLP, New York, New
York.
EXPERTS
The financial statements of the Company appearing in this Prospectus have
been audited by Ernst & Young Auditores Independentes S.C., independent
auditors, as set forth in their report thereon appearing elsewhere herein.
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TV FILME, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Auditors............................................................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1994, 1995 and 1996...................................................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1994, 1995 and
1996..................................................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996...................................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</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, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years ended December 31, 1996. 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, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years ended December 31, 1996, in conformity with generally accepted accounting
principles in the United States.
ERNST & YOUNG
AUDITORES INDEPENDENTES S.C.
Sao Paulo, Brazil
March 26, 1997
F-2
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
1995 1996
--------- ----------
<CAPTION>
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 43 $ 116,355
Accounts receivable, net................................................................. 1,781 3,607
Supplies................................................................................. 1,632 2,721
Prepaid expenses and other current assets................................................ 497 1,175
Pledged securities--current.............................................................. -- 16,159
--------- ----------
Total current assets................................................................. 3,953 140,017
Property, plant and equipment, net......................................................... 18,870 38,333
Pledged securities......................................................................... -- 17,353
Debt issuance costs........................................................................ -- 6,036
Other assets............................................................................... 860 1,190
--------- ----------
Total assets......................................................................... $ 23,683 $ 202,929
--------- ----------
--------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................................... $ 6,876 $ 11,106
Short-term debt.......................................................................... -- 2,996
Payroll and other benefits payable....................................................... 1,283 1,538
Accrued interest payable................................................................. -- 502
Accrued liabilities and taxes payable.................................................... 361 412
Payables to affiliates-current........................................................... 1,863 200
--------- ----------
Total current liabilities............................................................ 10,383 16,754
Payables to affiliates-long term........................................................... 400 200
Deferred installation fees................................................................. 5,005 8,227
Senior Notes............................................................................... -- 140,000
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, 6,193,996 and 10,166,176
shares issued and outstanding in 1995 and 1996......................................... 62 102
Additional paid-in capital............................................................... 10,070 41,825
Deficit.................................................................................. (2,237) (4,179)
--------- ----------
Total stockholders' equity........................................................... 7,895 37,748
--------- ----------
Total liabilities and stockholders' equity........................................... $ 23,683 $ 202,929
--------- ----------
--------- ----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Revenues......................................................................... $ 2,438 $ 11,404 $ 31,388
--------- --------- ---------
Operating costs and expenses:
System operating-Note 3........................................................ 773 2,957 9,593
Selling, general and administrative............................................ 2,394 8,975 16,737
Depreciation and amortization.................................................. 365 2,049 5,921
--------- --------- ---------
Total operating costs and expenses......................................... 3,532 13,981 32,251
--------- --------- ---------
Operating loss............................................................. (1,094) (2,577) (863)
--------- --------- ---------
--------- --------- ---------
Other income (expense):
Interest expense-Note 3........................................................ (2) (49) (1,049)
Interest and other income-Note 3............................................... 932 475 664
Exchange and translation gains (losses)........................................ 682 (66) (762)
--------- --------- ---------
Total other income (expense)............................................... 1,612 360 (1,147)
--------- --------- ---------
Net income (loss)................................................................ $ 518 $ (2,217) $ (2,010)
--------- --------- ---------
--------- --------- ---------
Net income (loss) per share...................................................... $ 0.08 $ (0.27) $ (0.22)
--------- --------- ---------
--------- --------- ---------
Weighted average number of shares of common stock and
common stock equivalents....................................................... 6,885 8,086 9,256
--------- --------- ---------
--------- --------- ---------
</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, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------- PAID-IN
SHARES PAR VALUE CAPITAL DEFICIT TOTAL
------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS, EXCEPT SHARES)
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 options............................ 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 options............................ 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
Issuance of common stock and warrants................ 1,097,180 11 7,140 -- 7,151
Non-cash compensation................................ -- -- 272 -- 272
Initial public offering of common stock, net of
costs.............................................. 2,875,000 29 24,343 -- 24,372
Equity adjustment for restructuring.................. -- -- -- 68 68
Net loss for the year................................ -- -- -- (2,010) (2,010)
------------- ----- ----------- --------- ---------
BALANCE AT DECEMBER 31, 1996......................... 10,166,176 $ 102 $ 41,825 $ (4,179) $ 37,748
------------- ----- ----------- --------- ---------
------------- ----- ----------- --------- ---------
</TABLE>
See accompanying notes.
F-5
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ----------
<CAPTION>
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................................................... $ 518 $ (2,217) $ (2,010)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization................................................. 365 2,049 5,921
Provision for losses on accounts receivable................................... -- 315 1,296
Non-cash compensation......................................................... -- 312 272
Amortization of debt issuance costs........................................... -- -- 14
Increase in deferred installation fees........................................ 934 3,884 3,222
Changes in operating assets and liabilities
Increase in accounts receivable............................................... (369) (1,669) (3,122)
Increase in supplies.......................................................... (517) (980) (1,089)
Increase in prepaid expenses and other current assets......................... (76) (419) (678)
Increase in other assets...................................................... (914) (77) (421)
Increase in accounts payable.................................................. 549 5,803 4,230
Increase in payroll and other benefits payable................................ 403 815 255
Increase in accrued interest payable.......................................... -- -- 502
Increase in accrued liabilities and taxes payable............................. 10 315 51
--------- --------- ----------
Net cash provided by operating activities....................................... 903 8,131 8,443
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions:
Property, plant and equipment................................................. (3,637) (16,621) (25,225)
--------- --------- ----------
Net cash used in investing activities........................................... (3,637) (16,621) (25,225)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term debt................................................... -- -- 2,996
Proceeds from initial public offering, net of costs........................... -- -- 24,372
Proceeds from issuance of senior notes, net of costs.......................... -- -- 133,950
Pledged securities............................................................ -- -- (33,512)
Issuance of common stock and warrants......................................... 5,000 3,300 7,151
Increase (decrease) in payables from affiliates............................... 800 1,463 (1,863)
(Increase) decrease in receivables from affiliates............................ (1,426) 2,111 --
--------- --------- ----------
Net cash provided by financing activities..................................... 4,374 6,874 133,094
--------- --------- ----------
Net change in cash and cash equivalents......................................... 1,640 (1,616) 116,312
Cash and cash equivalents at beginning of year.................................. 19 1,659 43
--------- --------- ----------
Cash and cash equivalents at end of year........................................ $ 1,659 $ 43 $ 116,355
--------- --------- ----------
--------- --------- ----------
</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
"Initial Public 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 has been 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 Initial Public Offering, the Company has entered into
a restructuring (the "Restructuring") pursuant to which all of the preferred
stock of ITSA was 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 was exchanged for 1,844 shares of Common Stock of the Company. As all of
the preferred stock of ITSA has been converted and there were 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 Initial Public
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 owned 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 was
transferred to an entity, all of which is owned by certain 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 were transferred from TVFSA to TV Filme
Brasilia Servicos de Telecomunicacoes Ltda. ("TV Filme Brasilia"), which is
substantially owned by ITSA; and (iii) TVFSA has entered into various agreements
with ITSA and its subsidiaries pursuant to which, among other things, TVFSA has
authorized ITSA to operate the existing wireless cable systems under its current
licenses. Subsequent to the Restructuring and the Initial Public Offering, the
Company owns 100% of ITSA, which holds 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 pay 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 27 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.
F-7
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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. NET LOSS PER SHARE
Net 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 Initial Public Offering. The computation of
fully diluted pro forma net loss per share of common stock was antidilutive;
therefore, the amounts reported for primary and fully diluted loss per share are
the same.
D. CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
E. SUPPLIES
Supplies are recorded at the lower of cost or market.
F. 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.
G. INTANGIBLE ASSETS
Intangible assets are comprised primarily of pay television licenses, which
are amortized on a straight-line basis over a period of 10 years. Accumulated
amortization at December 31, 1995 and 1996 was $131,000 and $159,000,
respectively.
F-8
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. 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.
I. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company had an allowance for doubtful accounts of $315,000 and $666,000
at December 31, 1995 and 1996, respectively. Charges to the allowance during
1995 and 1996 were $0 and $945,000, respectively.
J. STOCK OPTIONS
The Company accounts for stock options granted to employees in accordance
with the provisions of Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees" ("APB 25"). Under APB 25, because the exercise price
of the Company's employee stock option grants is greater than or equal to the
market price on the date of grant, no compensation is recognized.
K. INTEREST EXPENSE
Interest expense approximates the amount of cash interest paid.
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.
M. RECLASSIFICATION
Certain 1994 and 1995 amounts have been reclassified to conform to the 1996
presentation.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS OF
DOLLARS)
Building and leasehold improvements............................... $ 597 $ 665
Machinery and equipment........................................... 10,288 19,956
Furniture and fixtures............................................ 308 610
Installation costs................................................ 9,948 25,136
--------- ---------
21,141 46,367
Accumulated depreciation.......................................... (2,271) (8,034)
--------- ---------
$ 18,870 $ 38,333
--------- ---------
--------- ---------
</TABLE>
F-9
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Depreciation expense of $350,000, $1,933,000 and $5,762,000 is included in
the statements of operations for the years ended December 31, 1994, 1995 and
1996, 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 1994, 1995 and 1996 were $178,000, $1,334,000
and $6,731,000, respectively, net of discounts on programming fees compared to
list prices. Such discounts were received during 1994 and the first ten months
of 1995, and in 1994 and 1995 were $340,000 and $539,000, respectively. No
discounts were received in 1996 and such discounts are not expected to recur.
The Company purchases from Tevecap a program guide which it distributes to its
subscribers monthly. Amounts paid to Tevecap in 1994, 1995 and 1996 were $0,
$113,000 and $750,000, respectively.
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 ranged from 3.48% to 4.27% per month
during 1995. Interest income from such affiliates was $433,000 in 1995.
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,
1995 and 1996 is $600,000 and $400,000, respectively, related to this purchase.
Other payables to Abril (and its affiliates) bear interest at the CDI plus 0.8%,
which ranged from 3.24% to 4.41% per month. Interest expense to Abril (and its
affiliates) was $433,000 in 1996.
The Company purchases equipment and supplies from vendors under irrevocable
letters of credit. Total issued and outstanding letters of credit at December
31, 1995 and 1996 were $6,683,000 and $7,296,000. Abril and a subsidiary of
Tevecap guarantee such obligations from time to time. At December 31, 1995 and
1996, issued and outstanding letters of credit secured by affiliates were
$4,155,000 and $4,097,000, respectively. The maturity date of such letters of
credit range from 30 days to 360 days.
4. STOCKHOLDERS' EQUITY
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 a 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.
F-10
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
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 to
Warburg, Pincus Investors, L.P. for approximately $5.1 million and issued and
sold 287,664 shares of Common Stock and warrants to purchase an additional
208,372 shares of Common Stock to Tevecap for approximately $1.9 million. Such
warrants are exercisable at $6.52 per share.
Immediately prior to the consummation of the Initial Public Offering, in
connection with the Restructuring, the Company issued 3,962,756, 1,456,760,
254,472, 254,472 and 1,069,520 shares of Common Stock to Warburg, Pincus
Investors, L.P., Tevecap, Mr. Hermano Studart Lins de Albuquerque, Mr. Carlos
Andre Studart Lins de Albuquerque and Mrs. Maria Nise Studart Lins de
Albuquerque, respectively, with a value at the initial public offering price of
$10.00 per share of $39,627,560, $14,567,600, $2,544,720, $2,544,720 and
$10,695,200, respectively. Such shares were issued in exchange for all of their
shares of common stock of ITSA, which have the same value as the shares of
Common Stock received in the exchange.
Immediately prior to the consummation of the Initial Public Offering, in
connection with the Restructuring, the Company issued warrants to purchase
567,952 shares of Common Stock to Warburg, Pincus, warrants to purchase 208,372
shares of Common Stock to Tevecap and warrants to purchase 18,440 shares of
Common Stock to two other stockholders of the Company in exchange for all of
their warrants to purchase shares of common stock of ITSA.
The Company recorded non-cash compensation of $272,000 in 1996 in connection
with the issuance of 23,121 shares of Common Stock to officers of the Company,
which amount has been included in selling, general and administrative expenses.
5. STOCK-OPTION PLAN
In connection with the Initial Public Offering, the Board of Directors of
the Company adopted and the stockholders of the Company approved 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 is
administered by the Compensation Committee of the Board and the total number of
shares of Common Stock for which options may be granted pursuant to the Plan is
936,432, subject to certain adjustments reflecting changes in the Company's
capitalization. The Plan allows the granting of incentive stock options, which
may not have an exercise price below the greater of par value or the market
value on the date of grant, and non-qualified stock options, which have no
restrictions as to exercise price other than the exercise price cannot be below
par value. All options must be exercised no later than 10 years from the date of
grant. Options to purchase 407,000 shares of Common Stock were granted upon the
consummation of the Initial Public Offering, 297,000 of which are exercisable at
$10.00 per share, and 110,000 of which are exercisable at $11.00 per share, and
which generally vest 20% per year for five years beginning on the first
anniversary of consummation of the Initial Public Offering. Options to purchase
an additional 10,000 shares of Common Stock were granted in December 1996 at an
exercise price of $11.75.
Pro forma information regarding net loss and loss per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method of FASB Statement No. 123, "Accounting for Stock-Based
Compensation." The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for
F-11
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. STOCK-OPTION PLAN (CONTINUED)
1996: risk-free interest rate of 6.3%, dividend yield of 0%; volatility factor
of the expected market price of the Common Stock of .46; and a weighted-average
expected life of the option of 7.5 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. The Company's
pro forma information for the year ended December 31, 1996 follows (in thousands
of dollars):
<TABLE>
<S> <C>
Pro forma net loss................................................. $ (2,208)
Pro forma loss per share........................................... (.22)
</TABLE>
6. LONG-TERM DEBT
On December 20, 1996, the Company issued $140 million principal amount of
12 7/8% Senior Notes due December 15, 2004 (the "Senior Notes"). The proceeds of
the Senior Notes were loaned to ITSA and evidenced by an intercompany note.
Interest is payable semi-annually in arrears on June 15 and December 15 of each
year, commencing on June 15, 1997. Of the $140 million loaned to ITSA,
approximately $33.5 million was used to purchase government securities,
scheduled interest and principal payments on which is in an amount sufficient to
provide for payment in full when due of the first four scheduled interest
payments on the Senior Notes. In connection with the transfer of the proceeds of
the Senior Notes to ITSA and remittance of REAIS to U.S. dollars, the Company
incurred exchange losses of approximately $600,000. This amount was reflected in
exchange and translation gain (losses) at December 31, 1996. Debt issuance costs
are capitalized and amortized over the period of the debt under the effective
yield method.
The Senior Notes are redeemable on or after December 15, 2000 at the option
of the Company, in whole or in part from time to time, at specified redemption
prices declining annually to 100% of the principal amount on or after December
15, 2003, plus accrued interest. The Senior Notes contain certain covenants
that, among other things, limit the ability of the Company to incur additional
indebtedness and pay dividends or make certain other distributions. Upon a
change of control, the Company is required to make an offer to purchase the
Senior Notes at a purchase price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any. In accordance with the
covenants of the Senior Notes, at December 31, 1996, the Company is unable to
make any dividend payments.
The Company believes the recorded value of the Senior Notes approximates the
fair value at December 31, 1996.
F-12
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. 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>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Income taxes (benefit) at effective
Brazilian rate.................................................. $ 249 $ (1,064) $ (613)
Effect of monetary adjustments under
Brazilian tax law............................................... (709) 765 --
Nondeductible compensation expense................................ -- 150 78
Effect of change in tax rate...................................... -- 267 (232)
Other............................................................. -- 198 --
Increase (decrease) in valuation allowance 460 (316) 767
--------- --------- ---------
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 $12.2 million at
December 31, 1996, of which approximately $1.2 million was attributable to TV
Filme Servicos. As a result of the Restructuring, the net operating loss
carryforwards of TV Filme Servicos, which is no longer a wholly-owned subsidiary
of the Company, are available only to offset its own income and are not
available to offset any profits generated by TV Filme and its consolidated
subsidiaries. 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 in a tax period.
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, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS OF
DOLLARS)
Deferred tax assets
Net operating loss carryforwards..................................... $ 1,596 $ 4,155
Deferred installation fees........................................... 1,526 2,715
Other................................................................ 309 623
--------- ---------
3,431 7,493
Valuation allowance.................................................. (413) (1,180)
--------- ---------
$ 3,018 $ 6,313
--------- ---------
--------- ---------
Deferred tax liabilities
Fixed assets......................................................... $ 2,670 $ 6,313
Other................................................................ 348 --
--------- ---------
$ 3,018 $ 6,313
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
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. Effective January 1, 1997, the effective Brazilian tax
rate increased from 30.5% to 33.5%. This has been reflected in the deferred tax
assets and liabilities at December 31, 1996.
8. COMMITMENTS
The Company leases office space and vehicles and has entered into various
transmission tower rental agreements. Rent expense amounted to approximately
$128,000, $1,395,000 and $2,062,000 for the years ended December 31, 1994, 1995
and 1996, 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, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................... $2,432,000
1998............................................................... $1,243,000
1999............................................................... $ 64,000
2000............................................................... $ 20,000
</TABLE>
At December 31, 1996, payables to affiliates include $400,000 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 1997 and
1998.
F-14
<PAGE>
ANNEX A
GLOSSARY
C-BAND: A satellite transmission system which provides a signal on the "c"
bandwidth.
CABLE: A network that employs electromagnetic transmission over coaxial and/or
fiber-optic cable to transmit multiple channels carrying images, sound and data
between a central facility and individual customers' television sets.
CHURN: The rate of subscriber turnover. Churn rate equals the ratio of
disconnected subscribers to average monthly subscribers.
COAXIAL CABLE: Cable consisting of a central conductor surrounded and insulated
from another conductor. It is the standard material used in traditional cable
systems.
DIRECT BROADCAST SATELLITE OR DBS: The transmission of a compressed encoded
signal directly from a satellite to the customer's home.
DIRECT-TO-HOME OR DTH: Satellite television services available via satellite
receivers mounted in the yards of customers' homes.
HARDWIRE CABLE: Cable system that uses coaxial cable to transmit television
signals. Operators receive at a headend, signals for programming services which
have been either broadcast or transmitted to such operators by satellite.
HEADEND: 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: 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.
KU-BAND: A satellite transmission system which provides a signal over the "ku"
bandwidth.
LINE OF SIGHT OR LOS TRANSMISSION: Transmission to antennas that can be "seen"
by the headend transmitter of a wireless cable operator and that is able to
receive a commercially acceptable wireless signal from the transmission point.
LOCAL OFF-AIR VHF/UHF CHANNELS: Over-the-air broadcast television channels that
are available to viewers free of charge.
MHZ: A unit of frequency equal to one million hertz.
MMDS (MULTI-POINT, MULTI-CHANNEL DISTRIBUTION SYSTEM): A one way radio
transmission of television channels over microwave frequencies from a fixed
station transmitting to multiple receiving facilities located at fixed points.
PENETRATION RATE: The measurement of the take-up of pay 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.
WIRELESS CABLE: A cable system that receives programming at a headend which 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.
A-1
<PAGE>
ANNEX B
THE FEDERATIVE REPUBLIC OF 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 3.3 million square miles. It is the largest country in
Latin America and occupies nearly 50% of the land mass of South America. 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.
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 158 million
at August 31, 1996, 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.
The population is concentrated in the coastal regions and large cities. Over the
past 60 years there has been a marked migration 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 1.0 million
inhabitants.
FORM OF GOVERNMENT. Brazil is a federative republic with a representative
form of federal government. A new constitution was enacted in October 1988
confirming a presidential form of government with three independent branches:
executive, legislative and judicial. In addition, on April 21, 1993, a national
referendum was held to decide whether Brazil should continue as a presidential
republic or should become a parliamentary republic or a parliamentary monarchy.
Brazilians voted to continue the current presidential republic form of
government.
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 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. On August 15, 1995, the National Congress approved amendments
to the Constitution to allow greater competition in the Brazilian economy,
including an amendment to permit private sector investments in the
telecommunications industry.
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
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<PAGE>
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.
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 U.S.
which laid the foundation for negotiating a trade agreement with the U.S. 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 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 $75.0 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
B-2
<PAGE>
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.
FINANCIAL SYSTEM. The Conselho Monetario Nacional (the "National Monetary
Council"), which is the highest authority for monetary and financial policy in
Brazil, is in charge of the overall supervision of monetary, credit, budgetary,
fiscal and public debt policies. It is authorized to regulate credit
transactions of every kind, to authorize and regulate currency issues, to
supervise the country's gold and foreign exchange reserves, to determine savings
and investment policies and to regulate the securities and capital markets. In
this regard, the National Monetary Council oversees the activities of the
Central Bank.
The Central Bank is responsible for implementing policies adopted by the
National Monetary Council and overseeing the implementation of financial
legislation. It is authorized, among other things, to issue money, to oversee
the circulation of currency, to control the level of credit in the economy, to
control foreign investments and currency movements related to these investments
and to administer Brazil's internal Federal Government debt.
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.
RECENT PERFORMANCE. Throughout the 1980s and into the early 1990s, the
Brazilian economy experienced periods of high inflation and recession. Recently,
however, the Brazilian economy has shown improvement in a number of areas. The
GDP grew in constant real terms by 4.2% in 1995, 5.9% in 1994 and 4.2% in 1993,
compared with a decrease of 0.8% in 1992. Industrial production increased by
2.0% in 1995, 7.0% in 1994 and 6.9% in 1993, compared with declines of 3.8%,
1.8% in 1992 and 1991, respectively. In 1995, the service sector experienced an
overall growth rate of 5.7% in real terms as a result of increases in retail
services of 7.4%, transportation of 3.9% and communications of 24.3%.
Exports in 1995 increased by 6.8% over 1994 while imports grew by 50.4% in
the same period. The trade balance presented a deficit of the equivalent of $3.2
billion in 1995 compared to a surplus of the
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<PAGE>
equivalent of US$10.6 billion in 1994. Through July 1996, the trade balance has
shown a modest $600 million (0.1% of GDP) deficit, compared to a $4.3 billion
deficit during the same period in 1995. For the first seven months of the year,
export growth has exceeded that of 1995, while the growth of imports has lagged
behind that of the previous year, thereby narrowing the trade deficit.
Brazil registered significant growth in international currency reserves in
1995, despite the instability which followed the Mexican peso crisis. After a
sharp decline in the first four months of the year, an increase in foreign
capital inflows was registered which replenished reserves to the equivalent of
$51.8 billion at year-end 1995, up from $38.8 billion at year-end 1994 and $32.2
billion ar year-end 1993. By July 31, 1996, reserves totaled more than the
equivalent of $58 billion. After a fine tuning of the management of the foreign
exchange rate regime during 1994, the Central Bank has pursued a policy of
gradually depreciating the currency against the dollar. In 1995, the real fell
in value against the U.S. dollar from R$0.844 to R$0.972 per U.S. dollar and has
since depreciated to 1.015 on August 23, 1996, reflecting this policy of gradual
depreciation.
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 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 UNIDAD DE REAL DE VALOR (the "unit of real value" or "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
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<PAGE>
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 reais 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.
In the beginning of 1995, in an effort to control the burgeoning rate of
economic activity which followed the sharp decline in inflation, the Federal
Government took several measures to control monetary growth, including strict
credit control and a significant increase in real interest rates. In the third
quarter of 1995 the economy returned to a level of sustainable economic growth
and credit control was partially released while interest rates began to fall.
Finally, in order to consolidate the Real Plan the Federal Government has
introduced a series of proposals to reform the Constitution that will provide
the structural changes necessary for long-term economic stability.
The five "economic order" amendments proposed by the government have been
approved by Congress and are now awaiting implementing regulatory legislation.
These amendments eliminate the Federal Government's monopoly in the areas of
telecommunications, distribution of natural gas, oil and coastal and fluvial
shipping and change the definition of what constitutes a Brazilian company to
any company registered in Brazil. The extension of the ESF until June 1997 was
also approved early in 1996. The social security reform and the administrative
reform are presently being considered for approval by Congress.
The Federal Government has stated that it intends to propose several other
amendments to Brazilian legislation to further consolidate the Real Plan.
EFFECTS OF INFLATION. 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,
----------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Inflation (IGPM)....................................................... 1,175% 2,567% 870% 15% 9%
Devaluation............................................................ 1,059% 2,533% 613% 15% 7%
</TABLE>
As a result of the Real Plan, the rate of inflation and the rate of
devaluation have been reduced considerably since July 1, 1994 without the price,
usage or asset freezing mechanisms previously utilized in prior stabilization
programs. 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. The sharp decline of inflation during the second half of 1994 contributed
to a considerable recovery of domestic demand and coincided with a significant
acceleration of the growth rate of the Brazilian economy. The twelve-month GDP
growth rate increased to 7.7% in the second quarter of 1995 from 4.1% in the
second quarter of 1994. As a result, the trade balance deteriorated and
government was forced to implement deflationary measures which reduced GDP
growth to 4.2% in the fourth quarter of 1995. For the year ended December 31,
1995, the rate of inflation was 15%, and for the year ended December 31, 1996,
the rate of inflation was 9%.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES TO ANY PERSON OR BY
ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER 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 TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH
DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information........................... 5
Prospectus Summary.............................. 6
Risk Factors.................................... 18
The Exchange Offer.............................. 28
Exchange Rate Data.............................. 37
The Company..................................... 38
Use of Proceeds................................. 40
Capitalization.................................. 41
Selected Consolidated Financial Data............ 42
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 44
Business........................................ 50
Pay Television Industry......................... 61
Management...................................... 63
Certain Transactions............................ 69
Principal Stockholders.......................... 71
Description of Exchange Notes................... 73
Tax Considerations.............................. 108
Plan of Distribution............................ 111
Legal Matters................................... 112
Experts......................................... 112
Index to Financial Statements................... F-1
Annex A: Glossary............................... A-1
Annex B: The Federative Republic of Brazil...... B-1
</TABLE>
------------------------
TV FILME, INC.
---------------------
PROSPECTUS
---------------------
OFFER TO EXCHANGE $140,000,000 OF ITS 12 7/8% SENIOR NOTES DUE 2004 WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT FOR $140,000,000 OF ITS OUTSTANDING
12 7/8% SENIOR NOTES DUE 2004
, 1997
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 102(b)(7) of the Delaware General Corporation Law
(the "DGCL"), Article VII of TV Filme's Certificate of Incorporation eliminates
in certain circumstances the liability of directors of TV Filme 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 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.
TV Filme's By-laws require TV Filme, under certain circumstances, to
indemnify any person who is, was or agreed to become a director or officer
against expenses, liability and loss actually and reasonably incurred by him. TV
Filme's By-laws 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 TV
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<PAGE>
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS (CONTINUED)
Filme 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 TV Filme as authorized in the By-laws.
TV Filme has also agreed to indemnify its officers and directors pursuant to
indemnification agreements entered 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 TV Filme.
In addition, TV Filme has obtained directors' and officers' reimbursements
and liability insurance which insures against liabilities that directors and
officers of TV Filme may incur in such capacities. The risks covered by such
policies do not exclude liabilities under the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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<C> <S>
3.1 Certificate of Incorporation of TV Filme (incorporated herein by reference to Exhibit 3.1 to TV
Filme's Registration Statement on Form S-1, dated May 3, 1996, Registration No. 333-4512 ("TV Filme's
S-1").
3.2 By-Laws of TV Filme (incorporated herein by reference to Exhibit 3.2 to TV Filme's S-1).
*4.1 Indenture, dated as of December 20, 1996, between TV Filme and IBJ Schroder Bank & Trust Company, as
Trustee (including the form of the Notes and certain other exhibits).
*4.2 Registration Rights Agreement, dated December 20, 1996, between TV Filme and Bear, Stearns & Co. Inc.,
BT Securities Corporation, J.P. Morgan Securities Inc. and Alex. Brown & Sons Incorporated.
*4.3 Purchase Agreement, dated December 16, 1996, between TV Filme and Bear, Stearns & Co. Inc., BT
Securities Corporation, J.P. Morgan Securities Inc. and Alex. Brown & Sons Incorporated, as the
Initial Purchaser (including certain exhibits thereto).
*4.4 Note, dated December 20, 1996, of ITSA to TV Filme.
*4.5 Note Pledge Agreement, dated as of December 20, 1996, between TV Filme and IBJ Schroder Bank & Trust
Company, as Collateral Agent.
*4.6 Collateral Pledge and Security Agreement, dated as of December 20, 1996, among ITSA, TV Filme and IBJ
Schroder Bank & Trust Company, as Collateral Agent.
*4.7 Subsidiary Guarantee, dated as of December 20, 1996, made by TV Filme Brasilia Servicos de
Telecomunicacoes.
*4.8 Subsidiary Guarantee, dated as of December 20, 1996, made by TV Filme Belem Servicos de
Telecomunicacoes.
*4.9 Subsidiary Guarantee, dated as of December 20, 1996, made by TV Filme Goiania Servicos de
Telecomunicacoes.
***5.1 Opinion of Kelley Drye & Warren LLP regarding the legality of the Exchange Notes being registered.
**10.1 1996 Stock Option Plan.
10.2 Form of Stock Option Agreement (incorporated herein by reference to Exhibit 10.2 to TV Filme's S-1).
</TABLE>
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (CONTINUED)
<TABLE>
<C> <S>
**10.3 Stockholders Agreement, dated as of July 26, 1996, entered into by and among Warburg, Pincus, Tevecap,
Mrs. Maria Nise Studart Lins de Albuquerque, Mr. Hermano Studart Lins de Albequerque, Mr. Carlos Andre
Studart Lins de Albuquerque and Ms. Maria Veronica Studart Lins de Albuquerque.
**10.4 Registration Rights Agreement, dated as of July 26, 1996, entered into by and among Warburg, Pincus,
Tevecap, Mrs. Maria Nise Studart Lins de Albuquerque, Mr. Hermano Studart Lins de Albuquerque, Mr.
Carlos Andre Studart Lins de Albuquerque, Ms. Maria Veronica Studart Lins de Albuquerque, Joseph
Wallach, Donald Deely Pearson and TV Filme.
**10.5 Employment Agreement, dated as of July 26, 1996, entered into by and among TV Filme, ITSA and Mr.
Hermano Studart Lins de Albuquerque.
**10.6 Employment Agreement, dated as of July 26, 1996, entered into by and among TV Filme, ITSA and Mr.
Carlos Andre Studart Lins de Albuquerque.
**10.7 Employment Agreement, dated as of July 26, 1996, entered into by and between TV Filme and Mr. Aguirre.
**10.8 Warrant, dated as of July 24, 1996, issued by TV Filme to Warburg, Pincus.
**10.9 Warrant, dated as of July 24, 1996, issued by TV Filme to Tevecap.
**10.10 Warrant, dated as of July 24, 1996, issued by TV Filme to Joseph Wallach.
**10.11 Warrant, dated as of July 24, 1996, issued by TV Filme to Donald Deely Pearson.
**10.12 Programming License Agreement, dated as of June 27, 1996, entered into by and between TV Filme and
Tevecap.
**10.13 Master Operating Agreement, dated as of July 26, 1996, entered into by and among TV Filme, ITSA and TV
Filme Servicos de Telecomunicacoes Ltda.
10.14 Articles of Association of TV Filme Servicos de Telecomunicacoes Ltda. (incorporated herein by
reference to Exhibit 10.11 to TV Filme's S-1).
10.15 Form of Indemnification Agreement between TV Filme and the directors and officers parties thereto
(incorporated herein by reference to Exhibit 10.12 to TV Filme's S-1).
**12.1 Statement re Computation of Ratio of Earnings to Fixed Charges.
**21 Subsidiaries of TV Filme.
***23.1 Consent of Kelley Drye & Warren LLP (included in Exhibit 5.1 hereto).
***23.2 Consent of Tozzini, Freire, Teixeira e Silva Advogados.
**23.3 Consent of Ernst & Young Auditores Independentes S.C., independent auditors.
24 Powers of Attorney (Appears on original signature page).
*25.1 Statement of Eligibility on Form T-1 of IBJ Schroder Bank & Trust Company, as Trustee.
**99.1 Form of Letter of Transmittal.
**99.2 Form of Notice of Guaranteed Delivery.
**99.3 Form of Exchange Agent Agreement to be entered into by and between TV Filme and IBJ Schroder Bank &
Trust Company, as Exchange Agent.
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
*** To be filed by amendment.
II-3
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (CONTINUED)
(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.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the 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 whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, State of
New York, on April 4, 1997.
TV FILME, INC.
By: * HERMANO STUDART LINS DE ALBUQUERQUE
-----------------------------------------
Name: Hermano Studart Lins de Albuquerque
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 has been signed by the following persons in the capacities and
on the dates indicated.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
* HERMANO STUDART LINS DE Chief Executive Officer,
ALBUQUERQUE Secretary and Director
- ------------------------------ (Principal Executive April 4, 1997
Hermano Studart Lins de Officer)
Albuquerque
* CARLOS ANDRE STUDART LINS DE President, Chief Operating
ALBUQUERQUE Officer, Treasurer and
- ------------------------------ Director April 4, 1997
Carlos Andre Studart Lins de
Albuquerque
/s/ ALVARO J. AGUIRRE Chief Financial Officer
- ------------------------------ (Principal Financial and April 4, 1997
Alvaro J. Aguirre Accounting Officer) and
Director
* DOUGLAS M. KARP
- ------------------------------ Chairman of the Board and April 4, 1997
Douglas M. Karp Director
- ------------------------------ Director April 4, 1997
David E. Libowitz
* JOSE AUGUSTO PINTO MOREIRA
- ------------------------------ Director April 4, 1997
Jose Augusto Pinto Moreira
* CLAUDIO DASCAL
- ------------------------------ Director April 4, 1997
Claudio Dascal
* /s/ ALVARO J. AGUIRRE
By: -------------------------
Alvaro J. Aguirre
ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ---------- ----------------------------------------------------------------------------------------------- -----
<C> <S> <C>
3.1 Certificate of Incorporation of TV Filme (incorporated herein by reference to Exhibit 3.1 to TV
Filme's Registration Statement on Form S-1, dated May 3, 1996, Registration No. 333-4512 ("TV
Filme's S-1").
3.2 By-Laws of TV Filme (incorporated herein by reference to Exhibit 3.2 to TV Filme's S-1).
*4.1 Indenture, dated as of December 20, 1996, between TV Filme and IBJ Schroder Bank & Trust
Company, as Trustee (including the form of the Notes and certain other exhibits).
*4.2 Registration Rights Agreement, dated December 20, 1996, between TV Filme and Bear, Stearns &
Co. Inc., BT Securities Corporation, J.P. Morgan Securities Inc. and Alex. Brown & Sons
Incorporated.
*4.3 Purchase Agreement, dated December 16, 1996, between TV Filme and Bear, Stearns & Co. Inc., BT
Securities Corporation, J.P. Morgan Securities Inc. and Alex. Brown & Sons Incorporated, as the
Initial Purchaser (including certain exhibits thereto).
*4.4 Note, dated December 20, 1996, of ITSA to TV Filme.
*4.5 Note Pledge Agreement, dated as of December 20, 1996, between TV Filme and IBJ Schroder Bank &
Trust Company, as Collateral Agent.
*4.6 Collateral Pledge and Security Agreement, dated as of December 20, 1996, among ITSA, TV Filme
and IBJ Schroder Bank & Trust Company, as Collateral Agent.
*4.7 Subsidiary Guarantee, dated as of December 20, 1996, made by TV Filme Brasilia Servicos de
Telecomunicacoes.
*4.8 Subsidiary Guarantee, dated as of December 20, 1996, made by TV Filme Belem Servicos de
Telecomunicacoes.
*4.9 Subsidiary Guarantee, dated as of December 20, 1996, made by TV Filme Goiania Servicos de
Telecomunicacoes.
***5.1 Opinion of Kelley Drye & Warren LLP regarding the legality of the Exchange Notes being
registered.
**10.1 1996 Stock Option Plan.
10.2 Form of Stock Option Agreement (incorporated herein by reference to Exhibit 10.2 to TV Filme's
S-1).
**10.3 Stockholders Agreement, dated as of July 26, 1996, entered into by and among Warburg, Pincus,
Tevecap, Mrs. Maria Nise Studart Lins de Albuquerque, Mr. Hermano Studart Lins de Albequerque,
Mr. Carlos Andre Studart Lins de Albuquerque and Ms. Maria Veronica Studart Lins de
Albuquerque.
**10.4 Registration Rights Agreement, dated as of July 26, 1996, entered into by and among Warburg,
Pincus, Tevecap, Mrs. Maria Nise Studart Lins de Albuquerque, Mr. Hermano Studart Lins de
Albuquerque, Mr. Carlos Andre Studart Lins de Albuquerque, Ms. Maria Veronica Studart Lins de
Albuquerque, Joseph Wallach, Donald Deely Pearson and TV Filme.
**10.5 Employment Agreement, dated as of July 26, 1996, entered into by and among TV Filme, ITSA and
Mr. Hermano Studart Lins de Albuquerque.
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
**10.6 Employment Agreement, dated as of July 26, 1996, entered into by and among TV Filme, ITSA and
Mr. Carlos Andre Studart Lins de Albuquerque.
**10.7 Employment Agreement, dated as of July 26, 1996, entered into by and between TV Filme and Mr.
Aguirre.
**10.8 Warrant, dated as of July 24, 1996, issued by TV Filme to Warburg, Pincus.
**10.9 Warrant, dated as of July 24, 1996, issued by TV Filme to Tevecap.
**10.10 Warrant, dated as of July 24, 1996, issued by TV Filme to Joseph Wallach.
**10.11 Warrant, dated as of July 24, 1996, issued by TV Filme to Donald Deely Pearson.
**10.12 Programming License Agreement, dated as of June 27, 1996, entered into by and between TV Filme
and Tevecap.
**10.13 Master Operating Agreement, dated as of July 26, 1996, entered into by and among TV Filme, ITSA
and TV Filme Servicos de Telecomunicacoes Ltda.
10.14 Articles of Association of TV Filme Servicos de Telecomunicacoes Ltda. (incorporated herein by
reference to Exhibit 10.11 to TV Filme's S-1).
10.15 Form of Indemnification Agreement between TV Filme and the directors and officers parties
thereto (incorporated herein by reference to Exhibit 10.12 to TV Filme's S-1).
**12.1 Statement re Computation of Ratio of Earnings to Fixed Charges.
**21 Subsidiaries of TV Filme.
***23.1 Consent of Kelley Drye & Warren LLP (included in Exhibit 5.1 hereto).
***23.2 Consent of Tozzini, Freire, Teixeira e Silva Advogados.
**23.3 Consent of Ernst & Young Auditores Independentes S.C., independent auditors.
24 Powers of Attorney (Appears on original signature page).
*25.1 Statement of Eligibility on Form T-1 of IBJ Schroder Bank & Trust Company, as Trustee.
**99.1 Form of Letter of Transmittal.
**99.2 Form of Notice of Guaranteed Delivery.
**99.3 Form of Exchange Agent Agreement to be entered into by and between TV Filme and IBJ Schroder
Bank & Trust Company, as Exchange Agent.
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
*** To be filed by amendment.
<PAGE>
Exhibit 10.1
TV FILME, INC.
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 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.
<PAGE>
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 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
2
<PAGE>
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
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,
3
<PAGE>
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
Except for the transfer of options to Brazilian corporations where
any such corporation is wholly-owned by an optionee, 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
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
4
<PAGE>
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.
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 have 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.
5
<PAGE>
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, 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 July 26, 1996, the date of 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 July 25, 2006.
6
<PAGE>
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 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
7
<PAGE>
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.
(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 July 18, 1996
and approved by the shareholders of
TV Filme, Inc. as of July 26, 1996
8
<PAGE>
Exhibit 10.3
TV FILME, INC.
STOCKHOLDERS AGREEMENT
AGREEMENT, dated as of July 26, 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")
and Maria Veronica Studart Lins de Albuquerque ("Maria Veronica Lins" and with
Maria Nise Lins, Hermano Lins and Carlos Andre Lins, the "Lins Family") (each
hereinafter referred to individually as a "Stockholder" and collectively as the
"Stockholders").
W I T N E S S E T H :
WHEREAS, each Stockholder is the owner of shares of common stock,
par value $.01 per share (the "Common Stock"), of TV Filme, Inc., a Delaware
corporation (the "Company"); and
WHEREAS, the Company is contemplating an initial public offering
(the "Initial Public Offering") of its Common Stock; and
WHEREAS, the Stockholders desire to regulate certain aspects of the
relationship between the Stockholders and among the Stockholders as such and
desire to enter into this Agreement in order to effectuate such purposes;
NOW, THEREFORE, in consideration of the premises and of the
covenants, terms and conditions herein contained, the parties hereto mutually
agree as follows:
1. Election of Directors.
(a) (i) For so long as Tevecap and any persons or entities
directly or indirectly controlling, controlled by or under common control (an
"Affiliate") with Tevecap (a "Tevecap Affiliate") own beneficially in the
aggregate at least 13% of the outstanding shares of Common Stock, Warburg and
the Lins Family each agree to vote the shares of Common Stock of the Company
owned by them, respectively, for two (2) individuals designated by Tevecap to be
elected to the Board of Directors of the Company (the "Board"); and (ii) for so
long as Tevecap and any Tevecap Affiliates own beneficially in the aggregate at
least 5% of the outstanding shares of Common Stock, Warburg and the Lins Family
each agree to vote the Common Stock of the Company owned by them, respectively,
for one (1) individual designated by Tevecap to be elected to the Board.
(b) In the event that any director (a "Withdrawing Director")
designated in the manner set forth in Section 1(a) hereof is unable to serve, or
once having commenced to serve, is removed or withdraws from the Board, such
Withdrawing Director's replacement (the "Substitute Director") will be
designated by Tevecap. Warburg and the Lins Family each agree to vote the shares
of Common Stock of the Company beneficially owned by them, respectively, for the
election to the Board of such Substitute Director promptly following his or her
designation pursuant to this Section 1(b).
<PAGE>
2. Tevecap Right of First Offer with Respect to Block Transfers by
Warburg.
(a) In the event that Warburg desires to make a Block Transfer
(as hereinafter defined) of its shares of Common Stock of the Company (the
"Warburg Subject Shares") other than to Affiliates of Warburg or to the limited
partners of Warburg, Warburg shall so notify Tevecap (the "Warburg Notice"). For
purposes of this Agreement, a Block Transfer shall mean a private sale of an
amount of shares of Common Stock equal to at least 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).
(b) Tevecap may, within ten days following the receipt of the
Warburg Notice, by delivering a written notice to Warburg (a "Tevecap First
Offer Notice"), offer to purchase all, but not less than all, of the Warburg
Subject Shares at a cash price set forth in the Tevecap First Offer Notice.
Warburg may, if it so elects, accept the Tevecap First Offer Notice within ten
days following receipt of the Tevecap First Offer Notice, by written notice to
Tevecap, in which event Warburg and Tevecap shall be obligated to consummate
such transaction at a closing on a date scheduled by Warburg not less than three
nor more than seven days following Warburg's acceptance notice.
(c) If Tevecap timely delivers a Tevecap First Offer Notice
and if Warburg shall not so elect to accept it, Warburg shall have the right,
for an additional ten days following the end of such ten day period, to agree to
make a Block Transfer of all, but not less than all, of the Warburg Subject
Shares to any person or entity (a "Third Party") at a price higher than the
price set forth in the Tevecap First Offer Notice, provided that such Block
Transfer is consummated within seven days from the date of such agreement and
provided, further, that the price offered by such Third Party (the "Third Party
Offer Price") is not less than 10% higher than the price set forth in the
Tevecap First Offer Notice. If the Third Party Offer Price is less than 10%
higher than the price set forth in the Tevecap First Offer Notice, then Warburg
shall notify Tevecap of such Third Party Offer Price, enclosing a copy of the
offer from such Third Party, and Tevecap shall have the right within ten days
after receipt of such notice to acquire all, but not less than all, of the
Warburg Subject Shares on the same terms offered by such Third Party. If Warburg
has not agreed to make a Block Transfer of the Warburg Subject Shares within
such ten day period, Warburg may elect to accept the Tevecap First Offer Notice
within two days following the end of such ten day period, in which event Warburg
and Tevecap shall be obligated to consummate such transaction at a closing on a
date scheduled by Warburg not less than three nor more than seven days following
Warburg's acceptance notice.
3. Tag-Along Rights. If Warburg proposes to make a Block Transfer of
its shares of Common Stock of the Company other than to Affiliates of Warburg or
to the limited partners of Warburg, the Lins Family shall be offered, as
provided below, the opportunity in connection with such proposed Block Transfer
to sell its Common Stock on the same terms and conditions as those received by
Warburg. Warburg shall give no less than five days' prior written notice of the
proposed sale, including the name and address of the proposed purchaser, the
number of shares of Common Stock proposed to be sold, the proposed price per
share and the other terms and conditions of the proposed sale, to the Lins
-2-
<PAGE>
Family. The Lins Family may, if it so elects, accept the offer by written notice
to Warburg within five business days after notice of the transaction is given,
and then shall have the opportunity to sell to the purchaser(s) in such sale
that number of shares of Common Stock owned by the Lins Family such that the
number of shares to be sold to such purchaser(s) by the Lins Family, as a
percentage of the outstanding Common Stock owned by the Lins Family as of the
last day of such five business day period, shall equal the number of shares to
be sold to such purchaser(s) by Warburg, as a percentage of the outstanding
Common Stock owned by Warburg as of the last day of such five business day
period. The number of shares of Common Stock to be sold by Warburg shall be
reduced proportionately to the extent necessary to provide for the sale of
Common Stock by the Lins Family. Without limitation of the foregoing, the
foregoing rights shall apply in the context of a Block Transfer subject to
Section 2 hereof.
4. Miscellaneous.
4.1. Effective Date. This Agreement shall be effective
automatically upon consummation of the Initial Public Offering.
4.2. Term. This Agreement shall terminate as to Sections 2 and
3 hereof on July 20, 1999.
4.3. Injunctive Relief. It is hereby agreed and acknowledged
that it will be impossible to measure in money the damages that would be
suffered if the parties fail to comply with any of the obligations herein
imposed on them and that in the event of any such failure, an aggrieved person
will be irreparably damaged and will not have an adequate remedy at law. Any
such person shall, therefore, be entitled to injunctive relief, including
specific performance, to enforce such obligations, and if any action should be
brought in equity to enforce any of the provisions of this Agreement, none of
the parties hereto shall raise the defense that there is an adequate remedy at
law. Such remedies and all other remedies that may be provided for in this
Agreement shall, however, be cumulative and not exclusive and shall be in
addition to any other remedies which any party may have under this Agreement or
otherwise.
4.4. Notices. All notices, statements, instructions or other
documents required to be given hereunder (collectively, "Notices"), shall be in
writing and shall be given either by hand delivery or by facsimile transmission,
addressed as follows:
if to Warburg, to:
Warburg, Pincus Investors, L.P.
c/o E.M. Warburg, Pincus & Co., Inc.
466 Lexington Avenue
10th Floor
New York, New York 10017
Facsimile No.: 212-878-9351
Attention: Douglas M. Karp
-3-
<PAGE>
with a copy to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Facsimile No.: 212-593-5955
Attention: Marc Weingarten, Esq.
if to Tevecap, to:
Televisao Abril
Rua Do Rocio 313
Sao Paulo, SP 04552-904, Brazil
Facsimile No.: 011-55-11-828-9200
Attention: Luis Carlos Baliero, General Counsel
with a copy to:
Mayer Brown & Platt
1675 Broadway
New York, New York 10019
Facsimile No.: 212-262-1910
Attention: Peter V. Darrow, Esq.
if to the Lins Family, to:
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
Facsimile No.: 011-55-61-323-5660
Attention: Hermano Studart Lins de Albuquerque
with a copy to:
Kelley Drye & Warren LLP
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901
Facsimile: 203-327-2669
Attention: John Capetta, Esq.
Each Stockholder, by written notice given to the other parties hereto in
accordance with this Section 4.4 may change the address to which notices,
statements, instructions or other documents are to be sent to such Stockholder.
All such notices, statements, instructions and other documents hereunder shall
be deemed to have been given when received.
-4-
<PAGE>
4.5. Governing Law. Regardless of the place of execution, this
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware, applicable to contracts made and to be performed entirely
within such state.
4.6. Headings. All headings are inserted herein for
convenience only and do not form a part of this Agreement.
4.7. Entire Agreement. This Agreement contains the entire
agreement among the parties hereto with respect to the subject matter contained
herein and supersedes all prior written agreements and negotiations and oral
understandings, if any, and this Agreement may not be amended, supplemented or
discharged except by an instrument in writing signed by the parties hereto. In
the event that any Stockholder shall be required, as a result of the enactment,
amendment or modification, subsequent to the date hereof, of any applicable law
or regulation, or by the order of any governmental authority, to take any action
which is inconsistent with or which would constitute a violation or breach of
any terms of this Agreement, then the Stockholders shall use their best efforts
to negotiate an appropriate amendment or modification of, or waiver of
compliance with, such terms.
4.8. No Waiver. No failure to exercise and no delay in
exercising any right, power or privilege of a party hereunder shall operate as a
waiver or a consent to the modification of the terms hereof unless given by that
party in writing.
4.9. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties. Each Stockholder may assign its rights herein to any purchaser of the
capital stock of the Company purchased by it.
4.10. Counterparts. 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.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Stockholders Agreement as of the date first above written.
WARBURG, PINCUS INVESTORS, L.P.
By: Warburg, Pincus & Co., its general partner
By: /s/ Douglas M. Karp
-------------------------------------------
Name: Douglas M. Karp
Title:
TEVECAP S.A.
By: /s/ Jose Augusto Pinto Moreira
-------------------------------------------
Name: Jose Augusto Pinto Moreira
Title:
By: /s/ Claudio Cesar D'emilio
-------------------------------------------
Name: Claudio Cesar D'emilio
Title:
/s/ Maria Nise Studart Lins de Albuquerque
-------------------------------------------------
Maria Nise Studart Lins de Albuquerque
/s/ Hermano Studart Lins de Albuquerque
-------------------------------------------------
Hermano Studart Lins de Albuquerque
/s/ Carlos Andre Studart Lins de Albuquerque
-------------------------------------------------
Carlos Andre Studart Lins de Albuquerque
/s/ Maria Veronica Studart Lins de Albuquerque
-------------------------------------------------
Maria Veronica Studart Lins de Albuquerque
-6-
<PAGE>
Exhibit 10.4
TV FILME, INC.
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement (the "Agreement") dated as of July 26,
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 a 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 a
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 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
<PAGE>
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 Requesting Stockholder(s)
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 l. 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 Requesting Stockholder(s) 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 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 l(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
2
<PAGE>
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 l (b) without
obligation to any Stockholder.
(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
3
<PAGE>
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 quality 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 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
l, the term "Registration Expenses" shall mean all expenses incurred by the
Company in complying with this Section l, 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
4
<PAGE>
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 and each person, if any, who
controls 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 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 whose Registrable Shares
were registered therein 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")
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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 l, 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.
(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 Registrable 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. Notwithstanding the foregoing, the Company and each such seller
of Registrable Securities agree to modify this Agreement to conform to such
customary indemnity and contribution provisions as the underwriters of the
Registrable Securities may reasonably request
(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
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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 shall be required in connection with any registration, qualification or
compliance referred to in this Section l.
(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
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or contains confidential business, financial or other information of the Company
or its Subsidiaries, and each Stockholder covenants for 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
l(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 without restriction at such time from the registration requirements of
the Act, whether pursuant
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to the provisions of Rule 144(k) 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.
(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
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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 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-Intercontinental
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; 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 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
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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.
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IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first above written.
TV FILME, INC.
By /s/ Hermano Studart Lins de Albuquerque
---------------------------------------
Name: Hermano Studart Lins de Albuquerque
Title: Chief Executive Officer
Address for Warburg, Pincus WARBURG, PINCUS INVESTORS, L.P.
Investors, L.P.
466 Lexington Avenue By: Warburg, Lincus & Co., Inc.
New York, New York 10017 its general partner
Telecopy No.: 212-878-9351
Attention: Douglas M. Karp By: /s/ Douglas M. Karp
--------------------------------------
Name: Douglas M. Karp
Title: Managing Director
Address for Tevecap S.A.:
Televisao Abril TEVECAP S.A.
Rua Do Rocio 313
Sao Paulo, SP 04552-904, Brazil By: /s/ Jose Augusto Pinto Moreira
Attention: Lues Carlos Baliero, --------------------------------------
General Counsel Name: Jose Augusto Pinto Moreira
Title: Director
By: /s/ Claudia Cesar D'emilio
--------------------------------------
Name: Claudia Cesar D'emilio
Title: Director
Address for Maria Nise Studart
Lins, Hermano Lins, Carlos Andre
Lins and Maria Veronica Lins: /s/ Maria Nise Studart Lins de Albuquerque
c/o TV Filme, Inc. ------------------------------------------
SCS Quadra 07-B1.A Maria Nise Studart Lins de Albuquerque
Ed. Executive Tower, Sala 601
70.300-911 Brasilia-DF, Brazil /s/ Hermano Studart Lins de Albuquerque
Attention: Hermano Studart ------------------------------------------
Lins de Albuquerque Hermano Studart Lins de Albuquerque
/s/ Carlos Andre Studart Lins de Albuquerque
------------------------------------------
Carlos Andre Studart Lins de Albuquerque
/s/ Maria Veronica Studart Lins de Albuquerque
------------------------------------------
Address for Donald Deely Pearson: Maria Veronica Studart Lins de Albuquerque
c/o IVP
Rua Bandeira Paulista, 600 /s/ Donald Deely Pearson
Conj. 64 Sao Paulo SP 04532-001 ------------------------------------------
Brazil Donald Deely Pearson
Address for Joseph Wallach:
218 N. Bentley /s/ Joseph Wallach
BelAire, CA 90049 ------------------------------------------
Joseph Wallach
<PAGE>
Exhibit 10.5
TV FILME, INC.
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 26, 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 (the "Common Stock"); 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 Employers 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 Subsidiaries 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 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.
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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 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.
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<PAGE>
4.2. Rights Upon Termination.
4.2.1. 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, 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 against amounts due Executive under this Section 4.2.2 the
amounts paid to Executive in respect of such other employment or business
activity during such 12-month period; provided, however, that the amount to be
set-off shall not exceed one-half of the amount of the Severance Payment.
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.
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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 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
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<PAGE>
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 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 supersede 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. This
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<PAGE>
Agreement 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
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 10 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.
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<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 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.
-8-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
TV FILME, INC.
By: /s/ Carlos Andre Studart Lins de Albuquerque
---------------------------------------------
Name: Carlos Andre Studart Lins de Albuquerque
Title: President
ITSA-INTERCONTINENTAL
TELECOMUNICACOES LTDA.
By: /s/ Carlos Andre Studart Lins de Albuquerque
---------------------------------------------
Name: Carlos Andre Studart Lins de Albuquerque
Title: Director
EXECUTIVE
/s/ Hermano Studart Lins de Albuquerque
----------------------------------------
Hermano Studart Lins de Albuquerque
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<PAGE>
EXHIBIT A
FORM OF STOCK OPTION PLAN
<PAGE>
EXHIBIT B
FORM OF STOCK OPTION AGREEMENT
<PAGE>
EXHIBIT C
FORM OF INDEMNIFICATION AGREEMENT
<PAGE>
Exhibit 10.6
TV FILME, INC.
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 26, 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 (the "Common Stock"); 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 Employers 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 Subsidiaries 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 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.
3.4. Expenses. ITSA shall promptly reimburse Executive for all
reasonable expenses incurred by him in connection with the performance of his
services under
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<PAGE>
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 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.
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<PAGE>
4.2. Rights upon Termination.
4.2.1. 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, 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 against amounts due Executive under this Section 4.2.2 the
amounts paid to Executive in respect of such other employment or business
activity during such 12-month period; provided, however, that the amount to be
set-off shall not exceed one-half of the amount of the Severance Payment.
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
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<PAGE>
essential to the unique nature of Employers' business and for that reason, all
such materials and 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 supersede 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. This Agreement 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: Carlos Andre Studart Lins de
Albuquerque
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<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 10 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: /s/ Hermano Studart Lins de Albuquerque
----------------------------------------
Name: Hermano Studart Lins de Albuquerque
Title: Chief Executive Officer
ITSA-INTERCONTINENTAL
TELECOMUNICACOES LTDA.
By: /s/ Hermano Studart Lins de Albuquerque
----------------------------------------
Name: Hermano Studart Lins de Albuquerque
Title: Director
EXECUTIVE
/s/ Carlos Andre Studart Lins de Albuquerque
--------------------------------------------
Name: Carlos Andre Studart Lins de Albuquerque
President, Chief Operating Officer
and Treasurer
-8-
<PAGE>
EXHIBIT A
FORM OF STOCK OPTION PLAN
<PAGE>
EXHIBIT B
FORM OF STOCK OPTION AGREEMENT
<PAGE>
EXHIBIT C
FORM OF INDEMNIFICATION AGREEMENT
<PAGE>
Exhibit 10.7
TV FILME, INC.
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 26, 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.;
(B) expenses for obtaining the necessary passport, work permit
and visa;
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<PAGE>
(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 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
3
<PAGE>
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 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
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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.
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
<PAGE>
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 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
6
<PAGE>
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.
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:
7
<PAGE>
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.
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.
8
<PAGE>
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.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
EMPLOYER:
TV FILME, INC.
By:/s/ Hermano Studart Lins de Albuquerque
--------------------------------------------
Name: Hermano Studart Lins de Albuquerque
Title: Chief Executive Officer
EXECUTIVE:
/s/ Alvaro J. Aguirre
--------------------------------------------
Alvaro J. Aguirre
9
<PAGE>
Exhibit 10.8
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. 1 Warrant to Purchase 567,952 Shares of
Common Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
TV FILME, INC.
Void after September 28, 1997
This certifies that, for value received, Warburg, Pincus Investors,
L.P. or registered assigns ("Holder") is entitled, subject to the terms set
forth below, to purchase from TV Filme, Inc. (the "Company"), a Delaware
corporation, 567,952 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.
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
<PAGE>
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, 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)
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<PAGE>
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.
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.
-3-
<PAGE>
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 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
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<PAGE>
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 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.
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(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 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
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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 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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
(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
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
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<PAGE>
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.
(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;
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<PAGE>
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
(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
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<PAGE>
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 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
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<PAGE>
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.
(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.
(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.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Warrant to be
executed as of the 24th day of July, 1996.
WARBURG, PINCUS INVESTORS, L.P.
By: Warburg, Pincus & Co., Inc.
its general partner
By: /s/ Douglas M. Karp
---------------------------------------------------
Name: Douglas M. Karp
Title: General Partner
TV FILME, INC.
By: /s/ Carlos Andre Studart Lins de Albuquerque
---------------------------------------------------
Name: Carlos Andre Studart Lins de Albuquerque
Title: President
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<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)
<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)
<PAGE>
Exhibit 10.9
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. 2 Warrant to Purchase 208,372 Shares of
Common Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
TV FILME, INC.
Void after September 28, 1997
This certifies that, for value received, Tevecap S.A. or registered
assigns ("Holder") is entitled, subject to the terms set forth below, to
purchase from TV Filme, Inc. (the "Company"), a Delaware corporation, 208,372
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, 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)
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<PAGE>
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.
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.
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<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
(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 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.
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<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
(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 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.
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<PAGE>
(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
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
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<PAGE>
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.
(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
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(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
(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
-12-
<PAGE>
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 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-
<PAGE>
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.
(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.
(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 24th day of July, 1996.
TEVECAP S.A.
By:/s/ Sergio Vlachmirschi, Jr.
- --------------------------------------------------------
Name: Sergio Vlachmirschi, Jr.
Title:
By:/s/ Angelo Silvio Rossi
- --------------------------------------------------------
Name: Angelo Silvio Rossi
Title:
TV FILME, INC.
By:/s/ Carlos Andre Studart Lins de Albuquerque
- --------------------------------------------------------
Name: Carlos Andre Studart Lins de Albuquerque
Title: President
-14-
<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)
<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)
<PAGE>
Exhibit 10.10
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. 3 Warrant to Purchase 9,220 Shares of
Common Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
TV FILME, INC.
Void after September 28, 1997
This certifies that, for value received, Joseph Wallach or
registered assigns ("Holder") is entitled, subject to the terms set forth below,
to purchase from TV Filme, Inc. (the "Company"), a Delaware corporation, 9,220
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.
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
<PAGE>
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:
X = Y(A-B)
------
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, 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)
-2-
<PAGE>
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.
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.
-3-
<PAGE>
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 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
-4-
<PAGE>
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 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.
-5-
<PAGE>
(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 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
-6-
<PAGE>
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 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
-7-
<PAGE>
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 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
-8-
<PAGE>
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 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
-9-
<PAGE>
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
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
-10-
<PAGE>
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.
(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
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<PAGE>
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
(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
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<PAGE>
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 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
-13-
<PAGE>
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.
(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.
(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.
-14-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Warrant to be
executed as of the 24th day of July, 1996.
TV FILME, INC.
/s/ Joseph Wallach By: /s/ Carlos Andre Studart Lins de Albuquerque
- ------------------------ ----------------------------------------------
Joseph Wallach Name: Carlos Andre Studart Lins de Albuquerque
Title: President
-15-
<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)
<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)
<PAGE>
Exhibit 10.11
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. 4 Warrant to Purchase 9,220 Shares of
Common Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
TV FILME, INC.
Void after September 28, 1997
This certifies that, for value received, Donald Deely Pearson or
registered assigns ("Holder") is entitled, subject to the terms set forth below,
to purchase from TV Filme, Inc. (the "Company"), a Delaware corporation, 9,220
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, under the portion of
the Warrant being canceled (at the date of such
calculation)
-2-
<PAGE>
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.
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
-3-
<PAGE>
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 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.
-4-
<PAGE>
(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 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
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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 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
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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 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
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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 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
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<PAGE>
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 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.
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<PAGE>
(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
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
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<PAGE>
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.
(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
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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
(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.
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(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 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,
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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.
(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.
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(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 24th day of July, 1996.
TV FILME, INC.
/s/ Donald Deely Pearson By: /s/ Carlos Andre Studart Lins de Albuquerque
- -------------------------- --------------------------------------------
Donald Deely Pearson Name: Carlos Andre Studart Lins de Albuquerque
Title: President
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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)
<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)
<PAGE>
Exhibit 10.12
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.
<PAGE>
(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 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).
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(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 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:
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(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.
(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.
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(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,
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.
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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 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.
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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:
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
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TV FILME, INC.
By: /s/ Alvaro J. Aguirre
Name: Alvaro J. Aguirre
Title: Chief Financial Officer
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
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Exhibit 10.13
MASTER OPERATING AGREEMENT
Master Operating Agreement (this "Agreement") dated July 24, 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");
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
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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 and/or
other subscription television systems (collectively, "Subscription Television
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:
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.
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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 Subscription Television
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 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 time to time request, with ITSA to provide to LicenseCo all
funds necessary for the acquisition of licenses pursuant to such grants in the
form of Loans (as defined herein). 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
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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 Subscription Television System from a third party, or desires that a
license granted to a third party be transferred to LicenseCo in order for ITSA
to construct and/or operate the related Subscription Television System,
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. ITSA shall
provide to LicenseCo all funds necessary for the acquisition of such licenses in
the form of Loans.
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 and approval by
ITSA and at ITSA's expense). LicenseCo shall not assign, transfer, sell, trade,
dispose or otherwise encumber the Licenses except as provided in the Articles of
Association of LicenseCo.
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
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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 subscription 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 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
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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 Subscription Television 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.
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 Subscription Television System.
3.2 Operation of Subscription Television Systems. ITSA or its
affiliates, as the case may be, shall operate all Subscription Television
Systems under grant from LicenseCo hereunder in compliance with all applicable
law, and shall conduct such operations in a manner so as to preclude any
suspension or nonrenewal of a License or any
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fine, censure or administrative proceeding with respect thereto. Without
limitation of the foregoing, ITSA shall use its best efforts, directly or
through its affiliates and at its or their expense (subject to Section 2.2
hereof), to construct new Subscription Television Systems in a timely fashion as
required under applicable law and the related License Application in the case of
new markets.
4. ROYALTIES; EXPENSES; LOANS
4.1 Royalties. In consideration for the grant of rights under any
License hereunder by LicenseCo, the affiliate of ITSA which operates the related
Subscription Television 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. ITSA may effect payment of the Royalty by credit against the
outstanding amount of any Loan.
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 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
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frequently than quarterly), accompanied by such supporting documentation as ITSA
shall reasonably request.
4.3 Loans. ITSA shall provide all funds necessary for the
acquisition of Licenses by LicenseCo, whether such Licenses are to be acquired
from the Ministry or from third parties, in the form of loans ("Loans") to
LicenseCo, in each case at an interest rate equivalent to the cost of such funds
to ITSA. Such Loans shall not have a fixed maturity date but instead shall be
payable out of (1) Royalties received by LicenseCo hereunder, and (2) all
proceeds received by LicenseCo from any assignment, transfer, sale, trade,
disposal or other encumbrance of any License, subject to Section 2.3 above.
Where ITSA is to provide funds to LicenseCo in the form of Loans, LicenseCo
shall provide written notice to ITSA at least 10 business days prior to the date
such funds are required to be remitted by LicenseCo, with such notice to specify
the amount of funds required, the purpose therefor, the name of the payee and
the date by which LicenseCo is required to remit such funds to the payee. Such
notice shall be accompanied by such supporting documentation as ITSA shall
reasonably request. Each Loan shall be pursuant to a note and other appropriate
documentation in customary form.
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
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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.
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 Subsidiaries 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
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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 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.
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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.
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.
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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:
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)
12
<PAGE>
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 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: /s/ Hermano Studart Lins de Albuquerque
-----------------------------------------------------
Name: Hermano Studart Lins de Albuquerque
Title: Director
TV FILME SERVICOS DE
TELECOMUNICACOES LTDA.
By: /s/ Carlos Andre Studart Lins de Albuquerque
-----------------------------------------------------
Name: Carlos Andre Studart Lins de Albuquerque
Title: Director
Witnesses:
1. /s/ Aimee P. Jalazo
-------------------------------
2. /s/ Susan K. Shapiro
-------------------------------
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 Subscription Television 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 Subscription Television
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:
City State Process No.
---- ----- -----------
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
<PAGE>
EXHIBIT 12.1
TV FILME, INC.
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 13,
---------------------------------
1992 1993 1994 1995 1996
---- ---- ----- ---- -------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Net Income (Loss).................................................. (A) $ 13 $(516) $ 518 $(2,217) $(2,010)
Fixed Charges:
Interest expense................................................. 0 * 2 * *
One-third of rent expense........................................ 3 * 43 * *
---- -----
Total Fixed Charges.......................................... (B) 3 45
---- -----
Net Income (Loss) Plus Fixed Charges............................... (A)+(B)=(C) $ 16 * $ 563 * *
---- -----
Ratio of Earnings to Fixed Charges................................. (C)/(B) 5.3 * 12.5 * *
---- -----
</TABLE>
- ------------------------
*For the years ended December 31, 1993, 1995 and 1996, earnings were
insufficient to cover fixed charges by $516, $2,217, and $2,010, respectively.
<PAGE>
EXHIBIT 21
SUBSIDIARIES
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
%
NAME OF COMPANY OF
OWNERSHIP
BY TV
FILME, INC.
ITSA-Intercontinental Telecomunicacoes Ltda., a Brazilian limited
liability company 99*
Filme Sub, Inc., a Delaware corporation 100
TV Filme Servicos de Telecomunicacoes Ltda., a Brazilian limited
liability company 49**
TV Filme Brasilia de Telecomunicacoes Ltda., a Brazilian limited
liability company 99*
TV Filme Goiania de Telecomunicacoes Ltda., a Brazilian limited
liability company 99*
TV Filme Belem de Telecomunicacoes Ltda., a Brazilian limited
liability company 99*
TV Filme of Cayman, Ltd., a Cayman Island limited partnership ***
ITSA of Cayman, Ltd., a Cayman Island limited partnership ****
-------------------------------
* The remaining 1% interest is held by Filme, Sub, Inc.
** The remaining 51% is owned by TVTEL Ltda.
*** Owned 99% by TV Filme, Inc. and 1% by Filme Sub, Inc.
**** Owned 99% by ITSA-Intercontinental Telecomunicacoes Ltda. and 1% by TV
Filme Brasilia de Telecomunicacoes Ltda.
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Experts" and
under the caption "Selected Consolidated Financial Data" and to the use of our
report dated March 26, 1997, in the Registration Statement (Form S-4 No.
333-21057) and related Prospectus of TV Filme, Inc. for the registration of
$140,000,000 of 12 7/8% Senior Notes due 2004.
Ernst & Young
Auditores Independentes S.C.
Sao Paulo, Brazil
April 3, 1997
<PAGE>
LETTER OF TRANSMITTAL
FOR
12 7/8% SENIOR NOTES DUE 2004
OF
TV FILME, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON, , 1997 (THE "EXPIRATION DATE") UNLESS EXTENDED.
EXCHANGE AGENT:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C>
BY HAND/OVERNIGHT EXPRESS: BY MAIL:
IBJ Schroder Bank & Trust Company (INSURED OR REGISTERED MAIL RECOMMENDED)
One State Street IBJ Schroder Bank & Trust Company
New York, New York 10004 One State Street
Attention: Corporate Trust Administration New York, New York 10004
Attention: Corporate Trust Administration
</TABLE>
BY FACSIMILE TRANSMISSION:
(212) 858-2952
(For Eligible Institutions Only)
TO CONFIRM RECEIPT:
(212) 858-2815
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO A NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus, dated April , 1997
(the "Prospectus"), of TV Filme, Inc. ("TV Filme"), and this Letter of
Transmittal (the "Letter of Transmittal"), which together describe TV Filme's
offer (the "Exchange Offer") to exchange $1,000 principal amount of its 12 7/8%
Senior Notes due 2004 (the "Exchange Notes") for each $1,000 principal amount of
its outstanding 12 7/8% Senior Notes due 2004 (the "Old Notes"). Capitalized
terms used but not defined herein have the meanings given to them in the
Prospectus.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
<PAGE>
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS
INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND
REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS
LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If the
space provided below is inadequate, the Certificate Numbers and Principal
Amounts should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES TENDERED HEREWITH
AGGREGATE
NAME(S) AND ADDRESS(ES) OF PRINCIPAL AMOUNT PRINCIPAL
REGISTERED HOLDER(S) CERTIFICATE REPRESENTED AMOUNT
(PLEASE FILL IN) NUMBER(S) BY OLD NOTES* TENDERED**
<S> <C> <C> <C>
Total
</TABLE>
- ------------------------
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have tendered the
full aggregate principal amount represented by such Old Notes. See
instruction 2.
This Letter of Transmittal is to be used whether the Old Notes are to be
physically delivered herewith or whether guaranteed delivery procedures or
book-entry delivery procedures are being used, pursuant to the procedures set
forth in "The Exchange Offer--Procedures for Tendering Old Notes" in the
Prospectus. If delivery of Old Notes is to be made by book-entry transfer to the
account maintained by the Exchange Agent at the Depository Trust Company (the
"Depository"), this Letter of Transmittal need not be manually executed,
provided, however, that tenders of Old Notes must be effected in accordance with
the procedures mandated by the Depository and the procedures set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering Old
Notes--Book-Entry Delivery."
Registered holders whose Old Notes are not immediately available or who
cannot deliver their Old Notes and all other required documents to the Exchange
Agent on or prior to the Expiration Date, or if the procedures for delivery by
book-entry transfer cannot be completed on a timely basis, may tender their Old
Notes according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering Old
Notes."
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
/ / The Depository Trust Company
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
<PAGE>
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY AND DELIVERED TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name of Registered Holder(s): ______________________________________________
Name of Eligible Institution that Guaranteed Delivery: _____________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
If Delivered by Book-Entry Transfer:
Account Number: ____________________________________________________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
(Including Zip Code)
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Old Notes that were acquired as a
result of market-making activities or other trading activities, it acknowledges
that it will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act").
SPECIAL EXCHANGE INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
/ / CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO A PERSON OTHER THAN THE
PERSON SIGNING THE LETTER OF TRANSMITTAL:
Name:_________________________________________________________________________
(Please Print)
Address: _____________________________________________________________________
(Including Zip Code)
__
Employer Identification or Social Security Number
(Complete the Substitute Form W-9)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
/ / CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO AN ADDRESS DIFFERENT
FROM THAT LISTED ELSEWHERE IN THIS LETTER OF TRANSMITTAL:
Name: ________________________________________________________________________
Address: _____________________________________________________________________
(Including Zip Code)
________________________________________________________________________________
Employer Identification or Social Security Number
(Complete the Substitute Form W-9)
<PAGE>
<TABLE>
<CAPTION>
PAYER'S NAME: ------------------------------------
<S> <C> <C>
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR SOCIAL SECURITY NUMBER
FORM W-9 TIN IN THE BOX AT THE RIGHT OR
AND CERTIFY BY SIGNING AND EMPLOYER IDENTIFICATION
DATING BELOW. NUMBER
Department of the Treasury PART 2--Please check the box at the right if you have
Internal Revenue Service applied for, and are awaiting receipt of, your
TIN / /
PAYER'S REQUEST FOR
TAXPAYER
IDENTIFICATION NUMBER (TIN)
Certification--under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am
waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been notified by
the IRS that I am subject to backup withholding as a result of a failure to report
all interests or dividends, or the IRS has notified me that I am no longer subject
to backup withholding.
Certification Instructions -- You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received another
notification from the IRS that you are no longer subject to backup withholding, do not
cross out item (2). (Also see Certification under Specific Instructions in the enclosed
Guidelines.)
SIGNATURE DATE, 1997
</TABLE>
IF YOU CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9, YOU MUST SIGN AND
DATE THE FOLLOWING CERTIFICATION:
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
<TABLE>
<S> <C> <C>
I certify, under penalties of perjury, that a Taxpayer Identification Number has
not been issued to me, and that I mailed or delivered an application to receive a
Taxpayer Identification Number to the appropriate Internal Revenue Service Center or
Social Security Administration Office (or I intend to mail or deliver an application in
the near future). I understand that if I do not provide a Taxpayer Identification
Number to the payer, 31% of all payments made to me pursuant to this Exchange Offer
shall be retained until I provide a Tax Identification Number to the payer and that, if
I do not provide my Taxpayer Identification Number within sixty (60) days, such
retained amounts shall be remitted to the Internal Revenue Service as backup
withholding and 31% of all reportable payments made to me thereafter will be withheld
and remitted to the Internal Revenue Service until I provide a Taxpayer Identification
Number.
SIGNATURE DATE, 1997
</TABLE>
NOTE:FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to TV Filme the principal amount of Old Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
the Old Notes tendered herewith, the undersigned hereby exchanges, assigns and
transfers to, or upon the order of, TV Filme all right, title and interest in
and to such Old Notes. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent the true and lawful agent and attorney-in-fact of
the undersigned (with full knowledge that said Exchange Agent acts as the agent
of TV Filme in connection with the Exchange Offer) with respect to the Old Notes
to be assigned, transferred and exchanged with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest). The undersigned represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Old Notes tendered hereby
and to acquire Exchange Notes issuable upon the exchange of such tendered Old
Notes, and that, when the same are accepted for exchange, TV Filme will acquire
good and unencumbered title to the tendered Old Notes, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim or right. The undersigned also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Exchange Agent to be
necessary or desirable to complete the exchange, assignment and transfer of the
Old Notes tendered hereby or transfer ownership of such Old Notes on the account
books maintained by the book-entry transfer facility.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer--Conditions of the Exchange
Offer." The undersigned recognizes that as a result of these conditions (which
may be waived by TV Filme, in whole or in part, in the reasonable judgment of TV
Filme), as more particularly set forth in the Prospectus, TV Filme may not be
required to exchange any of the Old Notes tendered hereby and, in such event,
the Old Notes not exchanged will be returned to the undersigned at the address
shown above.
The undersigned acknowledges that the Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale, resold
and otherwise transferred by holders thereof (other than (i) a broker-dealer who
purchased Old Notes directly from TV Filme for resale pursuant to Rule 144A
under the Securities Act or (ii) a person that is an "affiliate" of TV Filme
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement with any person to
participate in the distribution of such Exchange Notes. See "Morgan Stanley &
Co. Inc." (available June 5, 1991) and Exxon Capital Holdings Corporation
(available May 13, 1988); and "The Exchange Offer--Resales of the Exchange Notes
in the Prospectus."
THE UNDERSIGNED UNDERSTANDS AND AGREES THAT TV FILME RESERVES THE RIGHT NOT
TO ACCEPT TENDERED OLD NOTES FROM ANY TENDERING HOLDER IF TV FILME DETERMINES,
IN ITS SOLE AND ABSOLUTE DISCRETION, THAT SUCH ACCEPTANCE COULD RESULT IN A
VIOLATION OF APPLICABLE SECURITIES LAWS.
The undersigned, if the undersigned is a beneficial holder, represents, or,
if the undersigned is a broker, dealer, commercial bank, trust company or other
nominee, represents that it has received representations from the beneficial
owners of the Old Notes stating that (i) the Exchange Notes to be acquired in
connection with the Exchange Offer by the Eligible Holder and each Beneficial
Owner of the Old Notes are being acquired by the Eligible Holder (as defined in
the Exchange Offer) and each Beneficial Owner in the ordinary course of business
of the Eligible Holder and each Beneficial Owner, (ii) the Eligible Holder and
each Beneficial Owner are not participating, do not intend to participate, and
have no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, (iii) the Eligible Holder and each
Beneficial Owner acknowledge and agree that any person participating in the
Exchange Offer for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary
<PAGE>
resale transaction of the Exchange Notes acquired by such person and cannot rely
on the position of the staff of the Commission set forth in no-action letters
that are discussed in the Prospectus under the caption "The Exchange
Offer--Resales of the Exchange Notes," (iv) that if the Eligible Holder is a
broker-dealer that acquired Old Notes as a result of market-making or other
trading activities, it will deliver a prospectus in connection with any resale
of Exchange Notes acquired in the Exchange Offer, (v) the Eligible Holder and
each Beneficial Owner understand that a secondary resale transaction described
in clause (iii) above should be covered by an effective registration statement
containing the selling security holder information required by Item 507 of
Regulation S-K of the Securities Act and (vi) neither the Eligible Holder nor
any Beneficial Owner is an "affiliate," as defined under Rule 405 of the
Securities Act, of TV Filme except as otherwise disclosed to TV Filme in
writing.
In addition, if the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes. If the undersigned is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
All authority herein conferred or agreed to be conferred by this Letter of
Transmittal and every obligation of the undersigned hereunder shall be binding
upon the heirs, legal representatives, successors and assigns, executors,
administrators and trustees in bankruptcy of the undersigned and shall survive
the death or incapacity of the undersigned. Tendered Old Notes may be withdrawn
at any time prior to the Expiration Date in accordance with the terms of the
Letter of Transmittal.
The undersigned understands that tenders of the Old Notes pursuant to any
one of the procedures described under "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and TV Filme in accordance with the
terms and subject to the conditions of the Exchange Offer.
The undersigned understands that by tendering Old Notes pursuant to one of
the procedures described under "The Exchange Offer--Procedures for Tendering" in
the Prospectus and the instructions hereto, the tendering holder will be deemed
to have waived the right to receive any payment in respect of interest on the
Old Notes accrued up to the date of issuance of the Exchange Notes.
The undersigned understands and acknowledges that TV Filme reserves the
right in its sole discretion to purchase or make offers for any Old Notes that
remain outstanding subsequent to the Expiration Date in the open market, in
privately negotiated transactions, through subsequent exchange offers or
otherwise. The terms of any such purchases or offers could differ from the terms
of the Exchange Offer.
Certificates for all Exchange Notes delivered in exchange for tendered Old
Notes and any Old Notes delivered herewith but not exchanged, and registered in
the name of the undersigned, shall be delivered to the undersigned at the
address shown below the signature of the undersigned.
<PAGE>
ALL TENDERING HOLDER(S) SIGN HERE
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
<TABLE>
<S> <C>
Signature(s) of Holder(s)
Dated: Area Code and Telephone Number:
</TABLE>
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) of Old Notes. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, please set forth the
full title of such person.) See Instruction 3.
<TABLE>
<S> <C>
Name(s):
- -------------------------------------------------------------------------------------------
(Please Type or Print)
Capacity (full title):
Address:
(Including Zip Code)
Area Code and Telephone No.:
Taxpayer Identification or Social Security No.(s):
</TABLE>
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTION 3)
<TABLE>
<S> <C>
Authorized Signature:
Name:
Title:
Address:
Name of Firm:
Area Code and Telephone No.:
Dated:
</TABLE>
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
Certificates for all physically delivered Old Notes or confirmation of any
book-entry transfer to the Exchange Agent's or its agent's account at a
Book-Entry Transfer Facility of Old Notes tendered by book-entry transfer, as
well as a properly completed and duly executed copy of this Letter of
Transmittal or facsimile thereof, and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at any of its
addresses set forth herein on or prior to the Expiration Date.
THE METHOD OF DELIVERY OF THE OLD NOTES, THIS LETTER OF TRANSMITTAL AND ANY
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS SUGGESTED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IT IS RECOMMENDED THAT THE HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES SUFFICIENT TIME SHOULD BE
ALLOWED TO PERMIT TIMELY DELIVERY.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other required documents to the Exchange Agent on or
prior to the Expiration Date or comply with book-entry transfer procedures on a
timely basis must tender their Old Notes pursuant to the guaranteed delivery
procedure set forth in that Prospectus under "The Exchange Offer--Procedures for
Tendering Old Notes--Guaranteed Delivery Procedures." Pursuant to such
procedure: (i) such tender must be made by or through an Eligible Institution;
(ii) on or prior to the Expiration Date, the Exchange Agent must have received
from such Eligible Institution a letter, telex, telegram or facsimile
transmission (receipt confirmed by telephone and an original delivered by
guaranteed overnight courier) setting forth the name and address of the
tendering holder, the names in which such Old Notes are registered, and, if
possible, the certificate numbers of the Old Notes to be tendered; and (iii) all
tendered Old Notes (or a confirmation of any book-entry transfer of such Old
Notes into the Exchange Agent's account at a Book-Entry Transfer Facility) as
well as this Letter of Transmittal and all other documents required by this
Letter of Transmittal, must be received by the Exchange Agent within three
business days after the Expiration Date, all as provided in the Prospectus under
the caption "The Exchange Offer--Procedures for Tendering Old Notes."
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
manually signed facsimile thereof), shall waive any right to receive notice of
the acceptance of the Old Notes for exchange.
2. PARTIAL TENDERS; WITHDRAWALS.
Tenders of Old Notes will be accepted only in integral multiples of $1,000.
If less than the entire principal amount of Old Notes evidenced by a submitted
certificate is tendered, the tendering holder should fill in the principal
amount tendered in the box entitled "Principal Amount Tendered." A newly issued
certificate for the principal amount of Old Notes submitted but not tendered
will be sent to such holder as soon as practicable after the Expiration Date.
All Old Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise clearly indicated.
<PAGE>
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable, except
that Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date. To be effective, a written, telegraphic,
telex or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at one of its addresses set forth in this Letter of Transmittal
by 5:00 P.M., New York City time, on the Expiration Date unless extended by TV
Filme. Any such notice of withdrawal must specify the person named in the Letter
of Transmittal as having tendered Old Notes to be withdrawn, the certificate
number(s) of the Old Notes to be withdrawn (except in the case of book-entry
tenders), the principal amount of Old Notes delivered for exchange or a
Book-Entry Confirmation with respect to such Old Notes and must be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees). The signature(s) on the notice of
withdrawal must be guaranteed by an Eligible Institution unless such Old Notes
have been tendered (i) by a Registered Holder (which term for purposes of this
document shall include any participant tendering by book-entry transfer) of Old
Notes who has not completed either the box entitled "Special Exchange
Instructions" or the box entitled "Special Delivery Instructions" on this Letter
of Transmittal or (ii) for the account of an Eligible Institution. If the Old
Notes have been tendered pursuant to the procedure for book-entry tender set
forth in the Prospectus under the caption "The Exchange Offer--Procedures for
Tendering Old Notes--Book-Entry Delivery" a notice of withdrawal is effective
immediately upon receipt by the Exchange Agent of a written, telegraphic or
facsimile transmission notice of withdrawal even if physical release is not yet
effected. In addition, such notice must specify, in the case of Old Notes
tendered by delivery of such Old Notes, the name of the Registered Holder (if
different from that of the tendering holder) to be credited with the withdrawn
Old Notes. Withdrawals may not be rescinded and any Old Notes withdrawn will
thereafter be deemed not validly tendered for purposes of the Exchange Offer.
However, properly withdrawn Old Notes may be retendered by following one of the
procedures described under "The Exchange Offer--Procedures for Tendering Old
Notes" in the Prospectus at any time on or prior to the applicable Expiration
Date.
3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered holder(s) of the
Old Notes tendered hereby, the signature must correspond with the name(s) as
written on the face of the certificates without alteration, enlargement or any
change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the Old Notes tendered hereby are registered in different names,
it will be necessary to complete, sign and submit as many separate copies of
this Letter of Transmittal as there are different registrations of Old Notes.
When this Letter of Transmittal is signed by the registered holder or
holders (which term, for the purposes described herein, shall include the
Book-Entry Transfer Facility whose name appears on a security listing as the
owner of the Old Notes) of Old Notes specified herein and tendered hereby, no
endorsements of certificates or separate written instruments of transfer or
exchange are required. If, however, Exchange Notes are to be issued, or any
untendered principal amount of Old Notes are to be reissued to a person other
than the registered holder, then endorsements of any Old Notes transmitted
hereby or separate bond powers are required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of the Old Notes specified herein, such Old Notes
must be endorsed or accompanied by separate written instruments of transfer or
exchange in form satisfactory to TV Filme and duly executed by the registered
holder, in either case signed exactly as the name or names of the registered
holder or holders appear(s) on the Old Notes.
<PAGE>
If this Letter of Transmittal or a Notice of Guaranteed Delivery or any
certificates or separate written instruments of transfer or exchange are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by TV Filme, proper
evidence satisfactory to TV Filme of their authority so to act must be
submitted.
Except as described in this paragraph, signatures on this Letter of
Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by
an Eligible Institution which is a firm which is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or otherwise be an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible Institution").
Signatures on this Letter of Transmittal or a notice of withdrawal, as the case
may be, need not be guaranteed if the Old Notes tendered pursuant hereto are
tendered (i) by a Registered Holder of Old Notes who has not completed either
the box entitled "Special Exchange Instructions" or the box entitled "Special
Delivery Instructions" on this Letter of Transmittal or (ii) for the account of
an Eligible Institution.
Endorsements on certificates or signatures on separate written instruments
of transfer or exchange required by this Instruction 3 must be guaranteed by an
Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
Tendering holders should indicate in the applicable box the name and address
to which Exchange Notes and/or substitute Old Notes for the principal amounts
not exchanged are to be issued or sent, if different from the name and address
of the person signing this Letter of Transmittal. In the case of issuance in a
different name, the employer identification or social security number of the
person named must also be indicated. If no such instructions are given, such Old
Notes not exchanged will be returned to the name and address of the person
signing this Letter of Transmittal.
5. TAX IDENTIFICATION NUMBER AND BACKUP WITHHOLDING
Federal income tax law of the United States requires that a holder of Old
Notes whose Old Notes are accepted for exchange provide TV Filme with such
holder's correct taxpayer identification number, which, in the case of a holder
who is an individual, is the holder's social security number, or otherwise
establish an exemption from backup withholding. If TV Filme is not provided with
the holder's correct taxpayer identification number, the exchanging holder of
Old Notes may be subject to a penalty imposed by the Internal Revenue Service.
In addition, interest on the Exchange Notes acquired pursuant to the Exchange
Offer may be subject to backup withholding in an amount equal to 31 percent of
any interest payment. If withholding occurs and results in an overpayment of
taxes, a refund may be obtained from the Internal Revenue Service filing of a
return.
To prevent backup withholding, each exchanging holder of Old Notes subject
to backup withholding must provide his correct taxpayer identification number by
completing the Substitute Form W-9 provided in this Letter of Transmittal,
certifying that the taxpayer identification number provided is correct (or that
the exchanging holder of Old Notes is awaiting a taxpayer identification number)
and that either (a) the exchanging holder has not been notified by the Internal
Revenue Service that he is subject to backup withholding as a result of failure
to report all interest or dividends or (b) the Internal Revenue Service has
notified the exchanging holder that he is no longer subject to backup
withholding.
Certain exchanging holders of Old Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding requirements. A foreign individual and other exempt holders (e.g.,
corporations) should certify, in accordance with the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9, to such
exempt status on the Substitute Form W-9 provided in this Letter of Transmittal.
<PAGE>
6. TRANSFER TAXES.
Holders tendering pursuant to the Exchange Offer will not be obligated to
pay brokerage commissions or fees or to pay transfer taxes with respect to their
exchange under the Exchange Offer unless the box entitled "Special Exchange
Instructions" in this Letter of Transmittal has been completed, or unless the
securities to be received upon exchange are to be issued to any person other
than the holder of the Old Notes tendered for exchange. TV Filme will pay all
other charges or expenses in connection with the Exchange Offer. If holders
tender Old Notes for exchange and the Exchange Offer is not consummated, such
Old Notes will be returned to the holders at TV Filme's expense.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
7. WAIVER OF CONDITIONS.
TV Filme reserves the right to waive, in whole or in part, in its reasonable
judgment, any of the conditions to the Exchange Offer set forth in the
Prospectus under the caption "The Exchange Offer-- Conditions of the Exchange
Offer".
8. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed,
should contact the Exchange Agent at the address indicated above for further
instructions.
9. VALIDITY AND ACCEPTANCE OF TENDERS
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by TV Filme in its sole discretion, which determination shall be
final and binding. TV Filme reserves the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes TV Filme's
acceptance of which might, in the judgment of TV Filme or its counsel, be
unlawful. TV Filme also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including this Letter of Transmittal and the instructions hereto) by TV Filme
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as TV Filme shall determine. TV Filme will use
reasonable efforts to give notification of defects or irregularities with
respect to tenders of Old Notes for exchange but shall not incur any liability
for failure to give such notification. Tenders of the Old Notes will not be
deemed to have been made until such irregularities have been cured or waived.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, should be
directed to the Exchange Agent at the address and telephone number set forth
above.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER WITH
CERTIFICATES OF OLD NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER
REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the number
to give the payer.
<TABLE>
<CAPTION>
- ----------------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- ----------------------------------------------------
<S> <C> <C>
1. An individual's The individual
account
2. Two or more The actual owner of
individuals (joint the account or, if
account) combined funds, any
one of the
individuals(1)
3. Husband and wife The actual owner of
(joint account) the account or, if
joint funds, either
person(1)
4. Custodian account The minor(2)
of a minor (Uniform
Gift to Minors Act)
5. Adult and minor The adult or, if the
(joint account) minor is the only
contributor, the
minor(1)
6. Account in the name The ward, minor, or
of guardian or incompetent
committee for a person(3)
designated ward,
minor, or
incompetent person
7. a. The usual The
revocable grantor-trustee(1)
savings trust
account (grantor
is also trustee)
b. So-called trust
account that is The actual owner(1)
not a legal or
valid trust
under State law
8. Sole proprietorship The owner(4)
account
- ----------------------------------------------------
<CAPTION>
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
<S> <C> <C>
- ----------------------------------------------------
9. A valid trust, The legal entity (Do
estate, or pension not furnish the
trust identifying number
of the personal
representative or
trustee unless the
legal entity itself
is not designated in
the account
title.)(5)
10. Corporate account The corporation
11. Religious, The organization
charitable, or
educational
organization
account
12. Partnership account The partnership
held in the name of
the business
13. Association, club, The organization
or other tax-exempt
organization
14. A broker or The broker or
registered nominee nominee
15. Account with the The public entity
Department of
Agriculture in the
name of a public
entity (such as a
State or local
government, school
district, or
prison) that
receives
agricultural
program payments
</TABLE>
- ---------------------------------------------
- ---------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a), or an individual
retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
- - An international organization or any agency, or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a).
- - An exempt charitable remainder trust, or a nonexempt trust described in
section 4947(a)(1).
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- - Payments to nonresident aliens subject to withholding under section 1441.
- - Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to non-resident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Beginning January 1, 1984, payers
must generally withhold 20% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
PENALTIES.
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CIVIL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ALL OUTSTANDING
12 7/8% SENIOR NOTES DUE 2004
IN EXCHANGE FOR NEW
12 7/8% SENIOR NOTES DUE 2004
OF
TV FILME, INC.
Registered holders of outstanding 12 7/8% Senior Notes due 2004 (the "Old
Notes") who wish to tender their Old Notes in exchange for a like principal
amount of new 12 7/8% Senior Notes due 2004 which have been registered under the
Securities Act of 1933, as amended (the "Exchange Notes"), and whose Old Notes
are not immediately available or who cannot deliver their Old Notes and all
other required documents to IBJ Schroder Bank & Trust Company (the "Exchange
Agent") prior to the Expiration Date (as defined), or if the procedures for
delivery by book-entry transfer cannot be completed on a timely basis, may use
this Notice of Guaranteed Delivery or one substantially equivalent hereto. This
Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile
transmission (receipt confirmed by telephone and an original delivered by
guaranteed overnight delivery) or mail to the Exchange Agent. See "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus, dated April ,
1997 (the "Prospectus").
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C>
BY HAND/OVERNIGHT EXPRESS: BY MAIL:
IBJ Schroder Bank & Trust Company (INSURED OR REGISTERED MAIL RECOMMENDED)
One State Street IBJ Schroder Bank & Trust Company
New York, New York 10004 One State Street
Attention: Corporate Trust Administration New York, New York 10004
Attention: Corporate Trust Adminstration
</TABLE>
BY FACSIMILE TRANSMISSION:
(212) 858-2952
(For Eligible Institutions Only)
TO CONFIRM RECEIPT:
(212) 858-2815
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution (as defined in the Prospectus), such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1997, UNLESS THE EXCHANGE OFFER IS EXTENDED.
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Old Notes indicated
below, upon the terms and subject to the conditions contained in the Prospectus
and in the related Letter of Transmittal (which, together with any amendments or
supplements thereto, collectively constitute the "Exchange Offer"), receipt of
which is hereby acknowledged, pursuant to the guaranteed delivery procedures set
forth in the Prospectus under the caption "The Exchange Offer--Procedures For
Tendering Old Notes--Guaranteed Delivery Procedures."
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<S> <C> <C>
NAME(S) AND ADDRESS(ES) OF
REGISTERED
HOLDER AS IT APPEARS ON THE OLD
NOTES CERTIFICATE NUMBER(S) OF OLD NOTES PRINCIPAL AMOUNT OF OLD NOTES
(PLEASE PRINT) TENDERED TENDERED
- ------------------------------------ ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------ ------------------------------------
</TABLE>
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
/ / The Depository Trust Company
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
2
<PAGE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, an Eligible Institution (as defined in the Prospectus),
hereby (a) represents that the above named person(s) "own(s)" the Old Notes
tendered hereby within the meaning of Rule 14e-4 promulgated under the
Securities Exchange Act of 1934, as amended ("Rule 14e-4"), (b) represents that
such tender of Old Notes complies with Rule 14e-4, and (c) guarantees to either
deliver to the Exchange Agent the certificates representing all the Old Notes
tendered hereby, in proper form for transfer, or to deliver such Old Notes
pursuant to the procedure for book-entry transfer into the Exchange Agent's
account at The Depository Trust Company, in either case together with the Letter
of Transmittal (or a facsimile thereof), properly completed and duly executed,
with any required signature guarantees or an Agent's Message (as defined in the
Prospectus) in the case of a book-entry transfer, and any other required
documents, all within three business days after the date hereof.
<TABLE>
<S> <C>
Name of Firm:
(Authorized Signature)
Address: Title:
Name:
(Zip Code) (Please type or print)
Area Code and Telephone Number: Date:
- --------------------------------------------
</TABLE>
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY.
CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
3
<PAGE>
Exhibit 99.3
April , 1997
IBJ Schroder Bank & Trust Company
One State Street, 11th Floor
New York, New York 10004
Attention: Corporate Trust & Agencies Division
Ladies and Gentlemen:
TV Filme, Inc., a Delaware corporation (the "Company"), is
making an offer to exchange $1,000 principal amount of its registered 12 7/8%
Senior Notes due 2004 (the "Exchange Notes"), upon the terms and subject to
the conditions set forth in the Prospectus, dated April , 1997 (the
"Prospectus"), and in the related Letter of Transmittal (the "LT") for each
$1,000 principal amount of its outstanding unregistered 12 7/8% Senior Notes
due 2004 (the "Old Notes"), issued pursuant to the Indenture dated as of
December 20, 1996 (the "Indenture"), between the Company and IBJ Schroder
Bank & Trust Company, as trustee (the "Trustee") and registrar (the
"Registrar"). The offer to exchange Exchange Notes for Old Notes pursuant to
the Prospectus and the LT is referred to herein as the "Exchange Offer."
References hereinafter to "you" shall refer to IBJ Schroder Bank & Trust
Company or your agent. Attached hereto as Exhibits A through D, respectively,
are the following:
A. The Prospectus;
B. A form of the LT;
C. A form of the Notice of Guaranteed Delivery (the "Notice of
Guaranteed Delivery"); and
D. Form of Exchange Note.
The Exchange Offer will commence on , 1997 (the
"Commencement Date") and will expire at 5:00 p.m., New York City time, on
, 1997, unless extended by the Company in its sole discretion as
provided in the Exchange Offer (the last date to which the Exchange Offer is
extended and on which the Exchange Offer expires is herein referred to as the
"Expiration Date"). The Company will notify you in writing on the day of any
extension of the Exchange Offer.
The Company hereby appoints you, and you hereby agree, to act as
the exchange agent (the "Exchange Agent") in connection with the Exchange
Offer. In that capacity, you
<PAGE>
will, on behalf of the Company, receive Old Notes tendered and deliver
Exchange Notes pursuant to this Agreement and the LT. The parties hereto
acknowledge that the Old Notes and the Exchange Notes are held in book-entry
form or in certificated form and that all references to the tendering,
delivery or exchange of Old Notes for Exchange Notes shall be deemed to
include book-entry procedures. In carrying out your duties as the Exchange
Agent in connection with the Exchange Offer, you and the Company agree as
follows:
1. You will make a request to establish an account with
respect to the Old Notes at The Depository Trust Company ("DTC") within two
business days after the date of this Agreement. You agree that any financial
institution that is a participant in DTC's systems may make book-entry
delivery of Old Notes in accordance with DTC's Automated Tender Offer Program
("ATOP").
2. On the Commencement Date, you will send by first class
mail to each holder of Old Notes, as the addresses shown on the register
maintained by you as Registrar under the Indenture, for use by that holder in
forwarding and tendering the Old Notes to you as Exchange Agent, one copy of
each of the Prospectus, the LT and the Notice of Guaranteed Delivery, along
with a return envelope addressed to you as Exchange Agent. Upon request of
any holder(s) of Old Notes, you are hereby authorized and directed to issue
and mail additional documents to that holder of Old Notes or to the persons
that holder may direct.
3. You will examine the LTs, the certificates evidencing Old
Notes, the Notices of Guaranteed Delivery and the other documents mailed or
otherwise delivered to you in connection with tenders of Old Notes to
ascertain whether each LT or Notice of Guaranteed Delivery has been properly
completed and duly executed and whether the certificates evidencing Old Notes
accompanying the LT or received pursuant to a Notice of Guaranteed Delivery
are in proper form for transfer, in each case in accordance with the
instructions set forth in the LT. Final determination of all questions as to
the validity, form, eligibility and acceptance for exchange of any tender of
Old Notes shall be made by the Company in its sole discretion, and that
determination shall be final and binding. The Company has reserved in the
Exchange Offer the absolute right to reject any or all tenders of Old Notes
determined by it not to be timely or in proper form or the acceptance of or
exchange for which may, in the opinion of the Company's counsel, be unlawful
and to waive any of the conditions of the Exchange Offer or any defect or
irregularity in the tender of the Old Notes, and the Company's interpretation
of the terms and conditions of the Exchange Offer will be final. The Company
promptly shall notify you, in writing, of any such rejection or waiver.
4. Subject to the provisions of Paragraph 3 hereof
concerning the Company's ability to waive defects in the tender, Old Notes
must be tendered only in accordance with the terms and conditions set forth
in the LT and the section of the Prospectus under the caption "The Exchange
Offer."
(a) An exchange of Exchange Notes for Old Notes tendered and
accepted for exchange pursuant to the Exchange Offer shall be made
only if:
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i) you receive on or prior to the Expiration Date (A)
certificates for such Old Notes and (B) a properly completed
and duly executed LT (or facsimile thereof) relating thereto; or
ii) you receive on or prior to the Expiration Date
electronic instructions tendering the Old Notes through the ATOP
system that contain the character by which the participant at
DTC acknowledges its receipt of and agrees to be bound by the LT;
or
iii) you receive (A) a Notice of Guaranteed Delivery
relating to such Old Notes from an "eligible guarantor
institution" within the meaning of Rule 17 Ad-15 under the
Securities Exchange Act of 1934, as amended, on or prior to the
Expiration Date and (B) certificates for such Old Notes and a
properly completed and duly executed LT (or a manually signed
facsimile thereof) relating thereto at or prior to 5:00 p.m.,
New York City time, or before the third business day after the
date of execution of that Notice of Guaranteed Delivery.
(b) An exchange shall be made only if a final determination of
the adequacy of the items received, as provided in Paragraph 3 hereof,
has been made by the Company and you receive written notice from the
Company that the conditions of the Exchange Offer have been satisfied or
waived.
(c) You are authorized to take such actions as may be necessary
and appropriate to correct any irregularities or deficiencies associated
with any tender not in proper order and to follow the instructions of the
Company with respect to the waiver of any irregularities or deficiencies
associated with any tender.
5. A tendering holder of Old Notes may withdraw Old Notes
tendered prior to the Expiration Date as set forth in the Exchange Offer, in
which event you shall, as promptly as possible after notification of that
withdrawal, return such Old Notes to, or in accordance with the instructions
of, that holder of Old Notes, and such Old Notes shall thereafter be deemed
not to have been validly tendered. All questions as to the form and validity
(including time of receipt) of notices of withdrawal shall be determined by
the Company, in its sole discretion, whose determination shall be final and
binding.
6. Once each week, on the day of the week fixed by notice to
you from the Company, and one each day on the Expiration Date and the four
business days immediately preceding the Expiration Date, you shall advise by
telephone and promptly thereafter confirm in writing to Alvaro J. Aguirre, 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
(telephone no: 011-55-61-314-9908; facsimile no: 011-55-61-323-5660) and
James Prenetta, Esq. of Kelley Drye & Warren LLP, Two Stamford Plaza, 281
Tresser Boulevard, Stamford, CT 06901-3229 (telephone no: (203) 351-8038;
facsimile no: (203) 327-2669) as to the information on the attached Exhibit
A. You shall also provide the aforementioned persons (or any other
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persons identified to you by the aforementioned persons), with such other
information as any of them may reasonably request.
7. LTs, Notices of Guaranteed Delivery, and withdrawn
tenders of Old Notes and facsimile transmissions submitted in lieu thereof
pursuant to the LT and the section of the Prospectus under the caption "The
Exchange Offer" shall be recorded by you as to the date and time of receipt
and shall be preserved and retained by you as permanent records until you are
otherwise instructed in writing by the Company. You shall match submitted
Notices of Guaranteed Delivery with Old Notes tendered pursuant thereto,
although you shall have no duty to enforce any Notices of Guaranteed Delivery.
8. You shall follow and act upon any written amendments,
modifications or supplements to these instructions to which you agree in
writing, and upon any further instructions in connection with the Exchange
Offer, any of which may be given to you by the Company or those other persons
as it may authorize in writing.
9. As soon as practicable after the Expiration Date, the
Company shall notify you in writing of the tendered Old Notes, if any, which
have been accepted for exchange (the "Acceptance Notice"), and that written
notification shall be irrevocable. On the date specified by the Company for
delivery of the Exchange Notes (the "Closing Date"), you shall deliver
Exchange Notes for such tendered Old Notes on behalf of the Company. You
shall thereupon mark "Cancelled" the certificates representing tendered Old
Notes accepted for exchange and retain such Old Notes as Registrar under the
Indenture. Upon completion of the issuance of Exchange Notes, you will
promptly provide to the Company upon the written request of the Company (i) a
list, certified by an authorized signatory, of the Old Notes that have been
cancelled in accordance therewith, (ii) a list, certified by an authorized
signatory, of the Exchange Notes that have been issued and (iii) a list,
certified by an authorized signatory, of the Old Notes not tendered for
exchange or tendered and withdrawn, each list to include the name and address
of the former or current holder, as applicable, and the principal amount of
each Old Note or Exchange Note, as applicable.
10. If, pursuant to the provisions of the instructions to the
LTs, less than the entire principal amount evidenced by any certificate
delivered to you is to be tendered, you shall, promptly after the Expiration
Date, and after receipt of the Acceptance Notice provided in Paragraph 9 with
respect to the tendered portion, return or cause to be returned a new
certificate evidencing the untendered remainder of the principal amount of
the Old Note that was evidenced by the certificate to, or in accordance with
the instructions of, the tendering holder of the Old Note.
11. If, pursuant to the terms of the Exchange Offer, the
Company does not accept for exchange all or any part of the tendered Old
Notes, or Old Notes are tendered but withdrawn in the manner provided in the
Exchange Offer, you shall promptly return to, or in accordance with the
instructions of, each tendering holder of such Old Notes the certificates
evidencing the principal amount of Old Notes not exchanged or, to the extent
required, submit
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to the Company (through the Registrar) for reissuance to, or in accordance
with the instructions of, each tendering holder of Old Notes certificates
evidencing the principal amount of Old Notes not tendered or exchanged, which
certificates shall be returned to you for disposition, together with a letter
of notice provided by the Company, explaining why the tendered Old Notes are
being returned.
12. Certificates evidencing the Exchange Notes as well as
certificates evidencing principal amounts of Old Notes not exchanged shall be
forwarded in accordance with Paragraphs 10, or 11 hereof, as the case may be,
by (a) first-class mail under an existing insurance policy protecting you and
the Company from loss or liability arising out of the non-receipt or
non-delivery of such certificates or (b) by registered mail insured
separately for the replacement value of such certificates.
13. Upon request of any person, you shall furnish copies of
the Prospectus, and supplements thereto, the LTs, the Notices of Guaranteed
Delivery and the other materials referred to in the Prospectus as being
available to holders of Old Notes. The Company will supply you promptly with
copies of those documents upon your request.
14. As Exchange Agent you:
(a) shall have no duties or obligations other than those
specifically set forth herein or as subsequently may be requested by the
Company in writing and agreed to in writing by you, and no implied duties
or obligations shall be read into this Agreement against you;
(b) shall not be required to refer to any documents for the
performance of your obligations hereunder other than this Agreement, the
LT and the section of the Prospectus under the caption "The Exchange
Offer";
(c) will be regarded as making no representations and having
no responsibilities as to the validity, accuracy, sufficiency, value or
genuineness of (i) any certificates evidencing Old Notes deposited with
you pursuant to the Exchange Offer and (ii) any signatures or
endorsements, other than its own and will not be required to and will
make no representations or have any responsibility as to the validity,
sufficiency, value or genuineness of (x) the Exchange Offer or the
Exchange Notes and (y) any signature or endorsement, other than your own;
(d) will be regarded as making no representations and having
no responsibilities as to the validity or accuracy of any documents
prepared by the Company in the Exchange Offer, including without
limitation, the Prospectus, the LT and the Notice of Guaranteed Delivery;
(e) shall not be required to initiate any legal action
hereunder that might in your reasonable judgment involve any expense or
liability to you except upon written
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instructions of the Company and then only if you have been furnished by
the Company with such indemnity as shall be reasonably satisfactory to
you;
(f) may rely on and shall be protected in acting upon any
certificate, instrument, opinion, notice, letter, telex, telegram,
facsimile transmission or other document delivered to you and reasonably
believed by you to be genuine and to have been signed by the proper party
or parties;
(g) may rely on and shall be protected in acting upon written
or oral instructions from the Chief Executive Officer, the President, the
Chief Operating Officer, the Chief Financial Officer, the Treasurer, any
Vice President or the Secretary of the Company (each, an "Authorized
Officer"), or such other person or persons as may be designated by the
Company in writing, with respect to any matter relating to your actions
as Exchange Agent specifically covered by this Agreement or supplementing
or qualifying any such actions;
(h) may consult with counsel satisfactory to you (including
counsel for the Company) and the written advice or opinion of that counsel
shall be full and complete authorization and protection in respect of any
action taken, suffered or omitted by you hereunder in good faith and in
accordance with the advice or opinion of that counsel;
(i) shall not at any time advise or be called upon to advise
any person as to the wisdom of making any tender pursuant to the Exchange
Offer, the market value or decline or appreciation in market value of the
Old Notes or the Exchange Notes, or any other financial or legal aspect
of the Exchange Offer or any transaction related thereto;
(j) shall be entitled, in the event that conflicting claims
are made, or threatened, against you with respect to the Exchange Offer,
to institute an interpleader action in any court of competent jurisdiction
requesting that court to resolve the conflicting claims;
(k) shall not be bound by any notice or demand, or any waiver
or modification of this Agreement or any of the terms hereof, unless
evidenced in writing delivered to the Exchange Agent signed on behalf of
the Company by an Authorized Officer and, if the Exchange Agent's duties
or rights are affected, unless the Exchange Agent shall agree to the same
in writing;
(l) shall have the right to assume, in the absence of written
notice to the contrary from the proper person or persons, that a fact or
an event by reason of which an action would or might be taken by the
Exchange Agent does not exist or has not occurred without incurring
liability for any action taken or omitted, or any action suffered by the
Exchange Agent to be taken or omitted, in good faith or in the exercise
of the Exchange Agent's best judgment, in reliance upon such assumption;
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<PAGE>
(m) shall not be liable for anything which you may do or
refrain from doing in connection with this Agreement except for your gross
negligence, bad faith, or willful misconduct in connection with your
obligations hereunder; and
(n) shall have no duty to enforce any obligation of any
person to make delivery, or to direct or cause any delivery to be made,
or to enforce any obligation of any person to perform any other act.
15. You hereby agree that all securities, money, assets and
property (collectively, the "Property") deposited with or received by you as
Exchange Agent constitute a special, segregated account, held solely for the
benefit of the Company and holders of Old Notes tendering in the Exchange
Offer, as their interests may appear, and the Property shall not be
commingled with the securities, money, assets or property of you or any other
person or entity.
16. In performing and carrying out your duties and
responsibilities under this Agreement, you may employ and utilize such agents
and employees as you in your sole discretion deem necessary, advisable or
desirable to carry out the purpose and intent of this Agreement. For services
rendered as Exchange Agent hereunder, you shall be entitled to a fee of $
. In addition, you shall be reimbursed promptly upon written request for
your reasonable disbursements and out-of-pocket expenses, including all
reasonable fees and expenses of your counsel. The failure of the Exchange
Offer in its entirety or in part or as to any particular holder of Old Notes
shall in no event affect your entitlement to your fees under this Agreement.
17. The Company covenants and agrees to indemnify and to hold
you harmless against any and all costs, expenses (including reasonable fees
and expenses of your legal counsel), losses or damages which may be paid,
incurred or suffered by you or to which you may become subject, arising from
or out of, directly or indirectly, any claim or liability resulting from your
actions or inactions as Exchange Agent pursuant hereto; provided that such
covenant and agreement does not extend to, and you shall not be indemnified
and held harmless with respect to, such costs, expenses, losses and damages
incurred or suffered by you as a result of, or arising out of, your gross
negligence, bad faith, or willful misconduct in connection with your
obligations under this Agreement.
18. All reports, notices and other communications required or
permitted hereunder (other than the telephonic advice required by Paragraph 6
and except as otherwise provided herein), shall be in writing, and shall be
deemed given when delivered by hand, telegram, telex, facsimile transmission
or first-class mail, postage prepaid, as follows:
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To the Exchange Agent:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Reorganization Operations
Department
Telephone: (212) 858-2103
Facsimile: (212) 858-2611
With a copy to:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Trust & Agencies
Administration
Telephone: (212) 858-2815
Facsimile: (212) 858-2952
To the Company:
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: Alvaro J. Aguirre
Telephone: 011-55-61-314-9908
Facsimile: 011-55-61-323-5660
With a copy to:
Kelley Drye & Warren LLP
Two Stamford Plaza
281 Tresser Boulevard
Stamford, CT 06901-3229
Attention: James P. Prenetta, Esq.
Telephone: (203) 351-8038
Facsimile: (203) 327-2669
19. This Agreement and your appointment as Exchange Agent
hereunder shall be construed and enforced in accordance with the laws of the
State of New York, is performable
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in New York, New York, and shall inure to the benefit of, and the obligations
created hereby shall be binding upon, the successors and assigns of each of
the parties hereto; PROVIDED, HOWEVER, that no assignment by the Company
shall affect the Exchange Agent's rights under Paragraphs 16 and 17 hereof.
This Agreement may not be assigned by you without the prior written consent
of the Company. Any inconsistency between this Agreement and the LT, as each
such document may from time to time be amended or supplemented, shall be
resolved in favor of the LT, except with respect to the duties, liabilities
and indemnification of you as Exchange Agent.
20. The relationship between you and the Company described in
this Agreement is that of agent and principal and nothing herein shall be
deemed to constitute you as trustee for or cause you to owe any fiduciary
duty to the holders of Old Notes or Exchange Notes or to impose any
obligation on you other than as stated herein.
21. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but which
together shall constitute one and the same agreement. This Agreement may only
be amended, modified or supplemented in a writing signed by each party hereto.
22. Upon the first to occur of (a) the completion of your
duties hereunder or (b) termination of the Exchange Offer, your designation
as Exchange Agent and your obligations hereunder will terminate at the close
of business on said date. The provisions of Paragraph 16 shall survive the
termination of this Agreement and shall continue in full force and effect.
Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
TV FILME, INC.
By:
---------------------------
Name:
Title:
Accepted as of April , 1997
IBJ SCHRODER BANK & TRUST COMPANY,
as Exchange Agent
By:
--------------------------------
Name:
Title:
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EXHIBIT A
SAMPLE REPORT LETTER
Date:
Report Number:
As of Date:
Re: Offer of TV Filme, Inc. (the "Company") to
Exchange $140,000,000 of its 12 7/8% Senior Notes
Due 2004 Which Have Been Registered Under the
Securities Act of 1933 for $140,000,000 of its
Outstanding 12 7/8% Senior Notes Due 2004 ("Old Notes")
Ladies and Gentlemen:
As Exchange Agent for the Exchange Offer (as described in the
Company's Prospectus dated April , 1997), we hereby render the following
report:
Principle amount of Old Notes previously received:_____________________
Principle amount of Old Notes received today:__________________________
Total principal amount of Old Notes received to date:__________________
VERY TRULY YOURS,
IBJ Schroder Bank & Trust Company,
as Exchange Agent
By:
-------------------------------
Name:
Title:
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