================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-28670
TV FILME, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 98-0160214
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
C/O ITSA - INTERCONTINENTAL TELECOMUNICACOES LTDA.
SCS, QUADRA 07-BL.A
ED. EXECUTIVE TOWER, SALA 601
70.300-911 BRASILIA - DF
BRAZIL
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
Registrant's telephone number, including area code: 011-55-61-314-9908
SECURITIES REGISTERED PURSUANT TO SECTION
12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $0.01 per share
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [X] No*
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 24, 2000 was approximately $1,162,770.
As of March 24, 2000, 10,824,594 shares of the registrant's Common Stock,
$0.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE. None.
*Although a bankruptcy plan has been confirmed by the U.S. Bankruptcy Court for
the District of Delaware, no securities have yet been distributed under such
plan.
================================================================================
<PAGE>
TABLE OF CONTENTS
PART I ......................................................................1
Item 1. Business..............................................................1
Background............................................................1
Company Overview......................................................1
Brazilian Pay Television Industry.....................................2
Operating Systems and the Company's Markets...........................3
Programming...........................................................4
High Speed Internet Access Service....................................6
Operations............................................................6
Employees.............................................................7
Facilities and Equipment..............................................7
Competition...........................................................8
Regulatory Environment................................................8
Item 2. Properties...........................................................10
Item 3. Legal Proceedings....................................................10
Item 4. Submission of Matters to a Vote of Security Holders..................11
PART II .....................................................................11
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters..............................................................11
Item 6. Selected Financial Data..............................................12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................14
Item 7A. Quantitative and Qualitative Disclosures about Market Risk...........24
Item 8. Financial Statements and Supplementary Data..........................25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................................37
PART III .....................................................................38
Item 10. Directors and Executive Officers of the Registrant..................38
Item 11. Executive Compensation..............................................39
Item 12. Security Ownership of Certain Beneficial Owners and Management......42
Item 13. Certain Relationships and Related Transactions......................44
PART IV .....................................................................45
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....45
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD -
LOOKING STATEMENTS
STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K THAT ARE NOT PURELY
HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934, INCLUDING STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, HOPES,
INTENTIONS OR STRATEGIES REGARDING THE FUTURE. FORWARD-LOOKING STATEMENTS
INCLUDE: STATEMENTS REGARDING IMPLEMENTATION OF THE COMPANY'S RESTRUCTURING
PLAN, STATEMENTS REGARDING THE COMPANY'S EXPANSION PLANS, THE IMPACT OF
COMPETITION, THE START-UP OF CERTAIN OPERATIONS, THE BRAZILIAN WIRELESS AUCTION
PROCESS AND TRENDS AFFECTING THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, INCLUDING THE COMPANY'S ABILITY TO MEET FUTURE CASH REQUIREMENTS.
ALL FORWARD-LOOKING STATEMENTS IN THIS REPORT ARE BASED ON INFORMATION AVAILABLE
TO THE COMPANY (AS HEREINAFTER DEFINED) AS OF THE DATE THIS REPORT IS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION, AND THE COMPANY ASSUMES NO OBLIGATION TO
UPDATE ANY 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 "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- CERTAIN FACTORS WHICH MAY AFFECT THE COMPANY'S
FUTURE RESULTS."
PART I
ITEM 1. BUSINESS.
Unless the context otherwise requires, reference to (i) "TV Filme" means TV
Filme, Inc., a Delaware corporation, (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"), TV FILME Programadora Ltda. ("TV FILME Programadora"), TV
Filme Operacoes, TV Filme Sistemas 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.
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.
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.
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 S.A.
("Tevecap").
TV Filme was organized in 1996 under the laws of the State of Delaware. Its
largest stockholders include Warburg, Pincus Investors, L.P. ("Warburg,
Pincus"); Tevecap, one of the leading pay television operators in Brazil; and
certain members of management and their family.
During 1998 and the first quarter of 1999, the Company faced significant
challenges that ultimately affected the Company's ability to pay interest on its
outstanding 12 7/8% senior notes due 2004 (the "Senior Notes") issued pursuant
to an indenture dated as of December 20, 1996 (the "Indenture"). The Brazilian
government's delay in granting wireless cable television licenses, the
instability in emerging markets, the devaluation of the Brazilian currency, the
REAL, and the resulting decline in consumer spending on wireless cable
television in the markets in which ITSA and the Company's other subsidiaries
provide services, significantly impacted the Company's business plan and its
ability to service its indebtedness under the Indenture and continue as a going
concern. While the Company decided to commence discussions with holders of the
<PAGE>
Senior Notes to pursue a comprehensive financial and operational restructuring
plan, the Company failed to make the required interest payment on the Senior
Notes on June 15, 1999.
The Indenture provides that failure to pay interest on the Senior Notes, if
not cured within 30 days of such failure, constitutes an Event of Default under
Section 6.1(b) of the Indenture. Section 6.2 of the Indenture provides that upon
the occurrence of an Event of Default, holders of at least 25% in principal
amount of the outstanding Senior Notes may declare the unpaid principal of, and
any accrued interest on, all the Senior Notes to be due and payable immediately.
RESTRUCTURING AND PLAN OF REORGANIZATION
Shortly after June 15, 1999, the Company requested a meeting with certain
holders of the Senior Notes. The Company also requested that pending discussions
on the possible restructuring of the Company's obligations under the Senior
Notes, such holders forbear from enforcing any right to accelerate the amounts
due on the Senior Notes and from enforcing any other rights and remedies under
the Indenture. Such agreements to forbear were originally evidenced by
forbearance agreements among the Company and three holders of the Senior Notes
who collectively held approximately 54% of the principal amount of the Senior
Notes and who together with certain other holders of the Senior Notes formed an
unofficial committee of Noteholders (the "Ad Hoc Noteholders' Committee") to
represent the interests of the holders of the Senior Notes.
After negotiations between the Company, the Ad Hoc Noteholders' Committee,
and other interested parties regarding restructuring of the Company's
obligations, the Company and holders of more than 65% of the aggregate principal
amount of the Senior Notes (the "Specified Holders") entered into a
Restructuring Agreement on January 24, 2000. In addition, the Specified Holders
who are signatories to the Restructuring Agreement have agreed that so long as
the Company is in compliance with the terms of the Restructuring Agreement, they
will forbear (and cause the Indenture Trustee to forbear) from exercising their
rights under the Senior Notes, the Indenture, applicable law or otherwise, with
respect to any default in existence or arising under the Senior Notes or the
Indenture during the term of the Restructuring Agreement.
On January 26, 2000, the Company filed a voluntary petition under chapter
11 of the United States Bankruptcy Code, together with a pre-negotiated Plan of
Reorganization and the Disclosure Statement relating to such Plan, with the U.S.
Bankruptcy Court for the District of Delaware. The court approved the Disclosure
Statement on March 1, 2000. Following approval of the adequacy of the Disclosure
Statement, ballots respecting the Plan were circulated to those parties entitled
to vote on the Plan, and the Plan was confirmed at a hearing by the court on
April 10, 2000. Overwhelming majorities of holders of the Senior Notes and
holders of the Company's common stock voted in favor of the restructuring set
forth in the Plan. Effectuation of the Plan is contingent upon obtaining
approval of the restructuring contemplated by the Plan from Agencia Nacional de
Telecomunicacoes, the Brazilian government agency that regulates
telecommunications services in Brazil, and the Central Bank of Brazil. The
Company continues to operate and manage its affairs as debtor in possession. No
trustee has been appointed.
The Company's restructuring principally provides that, upon effectutation
of the Plan, the senior noteholders will receive a $25 million cash payment and
their existing notes will be converted into (i) New Senior Secured Notes in the
aggregate principal amount of at least $35 million, subject to adjustment, with
a five year maturity and interest of 12% per annum (interest payable-in-kind at
the option of the reorganized company through the first 24 months), and (ii) 80%
of the new common equity of the reorganized company. Current management will
receive 15% of the new common equity, and existing common stockholders of TV
Filme, Inc. will receive 5% of the new common equity of the reorganized company
in exchange for their current stake. The Plan provides that the reorganized
company will be a newly-formed Cayman Islands holding company, and that the New
Senior Secured Notes will be issued by ITSA.
COMPANY OVERVIEW
The Company develops, owns and operates pay television and internet access
systems in markets in Brazil. The Company is the sole provider and operator of
2
<PAGE>
multi-point, multi-channel distribution systems ("MMDS") in the cities of
Brasilia, Goiania, Belem and Campina Grande ("Operating Markets") and holds MMDS
licenses in the cities of Bauru, Belo Horizonte, Caruaru, Franca, Porto Velho,
Presidente Prudente, and Uberaba. The Company also has been announced as the
winner of the MMDS license in the city of Vitoria; however, it has not yet
officially received the license. Combined (including Vitoria), these cities have
a total population of approximately 13 million and encompass approximately 3.1
million households, an estimated 2.6 million of which can be served by the
Company's line-of-sight ("LOS") transmission.
In addition to satellite competitors that operate on a national basis in
Brazil, hardwire cable providers operate or hold licenses to operate in
virtually all of the Company's licensed markets. The Company believes that, in
its Operating Markets, approximately 25% of households are currently unpassed by
hardwire cable. In the first quarter of 2000, the Company was awarded the MMDS
license for Belo Horizonte and was announced as the winner of the license for
Vitoria, for which, combined, it expects to pay approximately $2.3 million. The
Company has no outstanding applications pending for any additional markets. Also
see "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation - Overview."
The Company primarily targets markets with demographics, competitive
environments and topographies that it believes offer the Company the opportunity
to build and aggregate value through the provision of pay television, internet
and other telecommunications services.
The Company believes that MMDS technology is well suited to its current and
potential target markets and is an attractive alternative to existing
television, internet and telecommunications services. MMDS services can be
deployed more rapidly than most alternative technologies and provides immediate
coverage of entire markets, enabling services to be delivered to all potential
subscribers that are in the unobstructed path of the transmission tower. MMDS
services often can be deployed at a significantly lower system capital cost per
installed subscriber than hardwire cable and other wire-based technologies
because incremental investment is generally only undertaken in response to
customer demand with the addition of each new subscriber. The Company believes
that subscribers to television, internet and telecommunication services in
Brazil are generally indifferent to the method of delivery of these services.
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, 1999, approximately 276 hardwire cable licenses and 76 wireless
cable licenses had been issued by the Brazilian government. The Company believes
that as of December 31, 1999, fewer than 35% 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 33 million television
households. As of December 31, 1999, the Company estimates that there were
approximately 2.8 million pay television subscribers, representing approximately
8.5% of Brazilian television households.
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 S.A. ("Abril") and the Globo Organization. Both groups
offer programming packages including movie, sports and news channels and 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 channels which include programs directly from the U.S., such as Warner
and Sony, as well as channels from Europe and other countries in Latin America.
3
<PAGE>
OPERATING SYSTEMS AND THE COMPANY'S MARKETS
The table below provides information regarding the Company's markets as of
December 31, 1999:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED NUMBER FULL
TOTAL TOTAL LOS OF LAUNCH
POPULATION(1) HOUSEHOLDS(1) HOUSEHOLDS(1)(2) CHANNELS(3) DATE
------------------ --------------------- ------------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
OPERATING MARKETS:
Brasilia......................... 2,100,000 500,000 440,000 37 Feb. 1994(4)
Belem............................ 2,000,000 430,000 360,000 36 Feb. 1995
Goiania.......................... 1,900,000 460,000 345,000 36 Jan. 1995
Campina Grande................... 500,000 100,000 80,000 31 May 1999
--------- --------- ----------
Total in Operating Markets....... 6,500,000 1,490,000 1,225,000
========= ========= ==========
New Markets (5).................. 6,450,000 1,610,000 1,375,000
========== ========= ==========
- -----------
</TABLE>
(1) Represents the Company's estimate of the population and the total number of
total households within the greater metropolitan areas of each of its
markets. The Company's estimates for Brasilia, Goiania, Belem and Campina
Grande are based on data from the 1991 Census conducted by the Brazilian
Institute of Geography and Statistics as adjusted to reflect estimated
total household growth. The Company's estimates for the other markets are
based on data provided by Brazil's Telecommunications National Agency.
(2) Represents the Company's estimate of the number of LOS households within
the licensed radius in each market (ranging from 15-35 kilometers) 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, Belem and Campina Grande which
are offered to the Company's subscribers in addition to the Company's
authorized channels.
(4) Date when the Brasilia System increased its channel offering from four
channels to eight channels. The Brasilia System began service with one
channel in 1990.
(5) Represents the eight markets for which the Company has been awarded
licenses to operate new MMDS systems.
BRASILIA SYSTEM. Brasilia, the capital of Brazil, had an estimated greater
metropolitan population of approximately 2.1 million as of December 31, 1999.
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 residential
buildings be of a similar height and located together. The Company's current 35
kilometer coverage territory encompasses approximately 440,000 households which
the Company believes can be served by LOS transmission.
The Brasilia System currently offers a 30 channel package, consisting of 24
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, to
16 wireless cable channels in November 1994 and to 24 wireless cable channels by
the end of 1997. The Company also has approval to transmit programming over
seven additional wireless cable channels, one of which it currently uses to
transmit data to its internet access customers. The Brasilia System became
EBITDA positive in the third quarter of 1994 with approximately 6,000
subscribers. 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
4
<PAGE>
television competitor in the city of Brasilia is NET Brasilia, a hardwire cable
operator and affiliate of the Globo Organization. The Company believes that, at
December 31, 1999, it was the largest pay television provider in Brasilia based
on the total number of subscribers. In December 1997, the Company began
providing high speed Internet access, under the brand name of Link Express, to
its pay-TV customers in Brasilia. This service, which uses wireless cable modems
for delivery of access at much higher speeds than conventional phone line access
to subscribers, is believed to be the first marketed use of cable modem
technology in Brazil. See "- High Speed Internet Access Service."
BELEM SYSTEM. Belem, with an estimated greater metropolitan population of
approximately 2.0 million as of December 31, 1999, 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 360,000 households which
the Company believes can be served by LOS transmission.
The Belem System currently offers a 30 channel package, consisting of 25
wireless cable channels and five local off-air VHF/UHF channels. The Company
also has approval to transmit programming over an additional six wireless cable
channels which have not yet been placed in service. The Belem System became
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. The principal pay
television competitor in Belem is ORM Cabo, an independent hardwire cable
operator.
GOIANIA SYSTEM. Goiania, with an estimated metropolitan population of
approximately 1.9 million as of December 31, 1999, is located approximately 100
miles southwest of Brasilia. Goiania is the capital of the state 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
345,000 households which the Company believes can be served by LOS transmission.
The Goiania System currently offers a 29 channel package, consisting of 24
wireless cable channels and five local off-air VHF/UHF channels. The Company
also has approval to transmit programming over seven additional wireless cable
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 NET Goiania, a hardwire cable
operator and affiliate of the Globo Organization. The Company believes that, at
December 31, 1999, it was the second largest pay television provider in Goiania
based on total number of subscribers.
In September 1999, the Goiania system converted to the Company's new pay
television operating model, called "Mais TV" (see below).
CAMPINA GRANDE SYSTEM. Campina Grande, with an estimated metropolitan
population of approximately 500,000 as of December 31, 1999, is located
approximately 80 miles west of Joao Pessoa, the capital of the state of Paraiba.
Similar to Brasilia and Goiania, the topography of Campina Grande is favorable
to LOS transmission. The Company launched service in Campina Grande in May 1999,
exclusively using the MAIS TV operating model (see below). The Company's current
licensed coverage radius encompasses approximately 80,000 households that the
Company believes can be served by LOS transmission.
The Campina Grande system currently offers a 27-channel package, consisting
of 22 wireless cable channels and five local off-air VHF/UHF channels. The
Company also has approval to transmit programming over nine additional wireless
cable channels. The Campina Grande system transmits at 20 watts of power per
channel from a transmission tower that is approximately 2,500 feet above sea
level. There is currently no hardwire cable operation in Campina Grande.
5
<PAGE>
NEW MARKETS
The Company has been awarded licenses to operate MMDS systems in the
following seven markets: Bauru, Belo Horizonte, Caruaru, Franca, Porto Velho,
Presidente Prudente, and Uberaba. In addition, the Company was announced as the
winner of the license for the city of Vitoria. The Company believes that, in the
aggregate, these eight markets collectively encompass a total population of
approximately 6.5 million, total households of approximately 1.6 million and LOS
households of approximately 1.4 million. Bauru, Belo Horizonte, Franca,
Presidente Prudente and Vitoria have operating hardwire cable competitors. Under
the terms of the licenses awarded to the Company for its new markets, the entity
holding the licenses, TV Filme Sistemas, is prohibited from transferring the
licenses to another party for a period of three years after the date service is
commenced.
MAIS TV OPERATING MODEL
In May 1999, with the launch of the Campina Grande system, the Company
created and implemented a new pay television operating model, "Mais TV." The
major differences between the MAIS TV model and the previous model are:
o Customers choose from three to five different programming packages and
may vary their choice each and every month.
o All services are offered exclusively on a prepaid basis. The customer
receives a booklet which is to be filled out monthly, including the
programming package selected. With this information, the Company, upon
receipt of payment notification from the bank, is able to activate the
selected programming package for the customer.
o To initiate service, the customer purchases, from either a local store
or the Company's local showroom, an installation kit. Prices for these
kits are approximately $25, on average. Installation services, if
desired by the customer, may be contracted for separately, either with
the Company or with approved third-party installation companies.
Based on the success of the Campina Grande launch, the Company decided to
implement this new operating model in each of its existing (and future)
operations. The Goiania system switched over to the new model in
September/October 1999 and the Brasilia and Belem operations are scheduled to
switch in the first half of 2000.
PROGRAMMING
The Company currently purchases a large portion of its programming from
Tevecap and its subsidiaries (certain programs are purchased directly from the
programmer) pursuant to a license to transmit exclusive programming available
from Tevecap and its subsidiaries via wireless and hardwire cable in the
Company's current markets (the "Programming Agreement"). Under the terms of the
Programming Agreement, so long as the Company is transmitting exclusive TVA
programming, the Company has agreed that it shall use 50% of its total channel
capacity in its current 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 certain additional
markets if the Company is able to obtain an MMDS license for such markets, with
exclusivity to be negotiated on a case-by-case basis.
The Programming Agreement also 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.
6
<PAGE>
The Company also offers selected local programming to supplement its
channel line-up. For example, the Company owns the rights to televise annually
certain of the games of the Para State Soccer Championship. Further, in 1997 the
Company established TV FILME Programadora to develop and sell additional
programming to the Company's three systems and to other pay-TV operations in
Brazil. The first channel developed by TV FILME Programadora, Canal Adulto
(which provides adult content programming), has been available in each of the
Company's markets as a premium channel since May 1997. As of December 1999, the
programming distribution rights, as well as the trademarks associated with the
Canal Adulto channel were sold to a third party. The Company retained the rights
for at least five years to transmit Canal Adulto to its subscribers.
Beginning in October 1997, the Company also began producing its own
programming guide, which it distributes at no charge to its subscribers. The
Company, through TV FILME Programadora, is also exploring offering other
channels, which may contain local news, cultural events, religious programming,
home shopping and additional sporting events, although there can be no assurance
that such channels will be offered.
The Company's channel offerings as of December 31, 1999 are as follows:
CHANNEL DESCRIPTION
- ------- -----------
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
Mundo............................. Variety 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.
Film & Arts/Bravo................. Brazilian version of Bravo
Sony.............................. Sony channel produced in the U.S.
CBS Telenoticias.................. Brazilian version of CBS for Latin American
(in Spanish and Portuguese)
Discovery Kids.................... Children's version of Discovery
People and Art/Travel Channel*** Tourism, biography and art channel
Redevida.......................... Catholic programming
Cinemax........................... Films and special programming
Hallmark.......................... Films and special programming
Fox Kids.......................... Children's version of Fox
Canal Adulto ****................. Adult programming
Globo............................. Local off-air channel (where available)
SBT............................... Local off-air channel (where available)
Bandeirantes...................... Local off-air channel (where available)
Record............................ Local off-air channel (where available)
Nacional.......................... Local off-air channel (where available)
Manchete.......................... Local off-air channel (where available)
Cultura........................... Local off-air channel (where available)
Apoio............................. Local off-air channel (where available)
- ----------------------------------
* Offered only in Brasilia.
** Offered only in Campina Grande and Goiania.
*** Offered only in Belem.
**** Offered as a premium channel.
7
<PAGE>
HIGH SPEED INTERNET ACCESS SERVICE
In December 1997, the Company began providing Internet access service,
under the brand name Link Express, to its pay-TV customers in Brasilia. This
service, which uses wireless cable modems for delivery of access at greatly
increased speeds to subscribers, is believed to be the first marketed use of
cable modem technology in Brazil. In the future, the Company may also offer this
service in Goiania and Belem, and in other markets, depending on market demand.
OPERATIONS
MARKETING. Prior to applying for a license in a potential new market, the
Company has historically conducted pre-marketing surveys to evaluate the
demographics and terrain of such market. Upon receipt of a license, 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 upon several factors, including whether the subscriber is in a single
family home or multiple dwelling unit and the effect of any competition in the
market. This development plan ensures that the quality of installations and
customer service remains high. In each market, the Company's marketing staff has
historically applied the following types of programs to attract subscribers: (i)
door-to-door sales, (ii) telemarketing, (iii) extensive marketing tied to
regional events such as soccer matches, (iv) neighborhood promotional events
featuring large screen broadcasts of its channel offerings, (v) direct mailings,
(vi) television and newspaper advertisements, (vii) prewiring arrangements with
residential housing developers and (viii) other marketing activities, including
referral programs and promotional gifts.
In February 1999, the Company changed its marketing strategy to one focused
on customer loyalty. The Company has limited its sales efforts to passive
telemarketing and is directing its marketing expenditures towards customer
loyalty programs such as promotional discounts at retail stores, gifts, parties
and other items given exclusively to customers. This approach has enabled it to
significantly reduce expenditures, reduce churn, increase customer loyalty and
target its sales to prospects who truly want the service and have the financial
wherewithal to pay for the service. In addition, upon the launch of the MAIS TV
model in each city, the Company redirects its marketing efforts in such city
toward brand recognition and awareness in order to generate the majority of its
new installations through sales of installation kits at local stores. This
involves partnering with the local stores on advertising and paying sales
commissions to stores rather than having a direct sales force.
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 installation at multiple
dwelling units in which drop lines already have been installed require less time
and, accordingly, are less costly. During 1998, the Company charged its new
subscribers an installation fee typically ranging from $5-$75. However, upon
launching the MAIS TV model in any given city, the Company creates a network of
authorized installers in order to reduce direct costs of installation and
expects the customer to pay for this service, or self-install the system. While
the Company still offers installation service, it does not attempt to be
competitive in this market and reserves this service primarily for apartments
and other large buildings where the third-party installation teams are not as
qualified. Because of this strategy, and because installation kits are sold for
approximately $25, the Company expects to receive only a nominal amount of
revenue on future installations.
CUSTOMER SERVICE. The Company believes that delivering high levels of
customer service in installation and maintenance enables it to maintain customer
satisfaction. 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 programs.
Under the MAIS TV model, the Company still offer high levels of customer
service, but has begun to charge the customer for anything other than routine
service calls.
In the fourth quarter of 1998, the Company decided to centralize various
activities in a single service center in Brasilia. Along with centralizing
8
<PAGE>
billing, accounts payable, human resources administration and corporate
marketing, the Company centralized its customer service hotline and all routing
and scheduling functions. This centralization project was completed in April
1999 and has proven to further enhance and improve the quality of its customer
service function.
SUBSCRIBER MANAGEMENT SYSTEM. The Company has developed its own subscriber
management systems. The Company believes that its subscriber management 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 nine employees dedicated to the development,
enhancement, integration and maintenance of the Company's subscriber management
systems.
EMPLOYEES
As of December 31, 1999, the Company had a total of 554 employees,
substantially all of whom are employed by TV Filme's subsidiaries. All of the
Company's employees, except for Messrs. Hermano Lins and Carlos Andre Lins, are
subject to collective bargaining agreements. The collective bargaining
agreements covering the employees of TV Filme Brasilia and TV Filme Goiania
expire in June 2000. The collective bargaining agreements are with the Union for
the Employees of Radio and TV Broadcasting Companies. Employees of TV Filme
Belem and TV Filme Campina Grande are not covered under a collective bargaining
agreement; however, the Company has historically honored the terms of the TV
Filme Brasilia and TV Filme Goiania agreements with its other employees. The
Company has experienced no work stoppages in its history. 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.
In connection with the change in marketing strategy implemented in February
1999, the Company significantly reduced its headcount in the areas of sales and
installations, and reduced headcount in virtually all areas of the Company. As a
result, the Company laid off approximately 250 employees. While the Company
believes that its relationships with its employees have been, and will continue
to be, good, the impact of this lay off on such relationships cannot be
determined.
FACILITIES AND EQUIPMENT
ADMINISTRATIVE FACILITIES. A centralized corporate administrative facility
is located in Brasilia to handle training, engineering, computer systems
development, financial and controller functions and strategic planning. In
addition, the Company has established regional operating offices in its
Operating Markets to coordinate sales, billing, general marketing, customer
service and certain other administrative functions on a regional level. Each
facility is connected to the Company's computer network. Beginning in the fourth
quarter of 1998, the Company began centralizing its customer service, billing,
accounts payable and certain other administrative functions for all of its
operations in Brasilia. The centralization project was completed in April 1999.
Functions remaining in the regional offices include sales, local marketing,
installation and technical support services, maintenance and local
administrative functions. As new markets are launched, the Company expects to
use the same centralized model.
TRANSMISSION FACILITIES. The Company's headend and transmitter facilities
are located in leased buildings at the Company's transmission tower sites. The
transmitting antennas generally are able to serve the maximum regulatory range
for its license coverage areas. In certain areas within the Company's markets
that are otherwise terrain-blocked, the Company utilizes signal repeaters to
enhance signal coverage. For new markets, the Company expects to lease space for
transmission and headend facilities and expects to use transmitting antennas
which will serve the entire license coverage areas in each market.
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,
provided the Company has adequate resources for such implementation.
COMPETITION
Through its subsidiaries, the Company is the only entity licensed to
operate wireless cable systems in each of its licensed markets. The Company has
the authority to provide service using up to 31 wireless analog cable channels
9
<PAGE>
in each such market. The Company believes that, as of December 31, 1999, it was
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 and affiliate of the Globo Organization. The
Company believes that, as of December 31, 1999, it was 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 NET Goiania, a hardwire
cable operator and affiliate of the Globo Organization. The Company believes
that, as of December 31, 1999, it was the largest pay television provider in
Belem based on total number of subscribers. The Company's principal competitor
in the city of Belem is ORM Cabo, an independent hardwire cable operator. There
currently is no hardwire cable provider in the city of Campina Grande.
In addition to other terrestrial pay television operators, pay television
operators in Brazil face or may face competition from several other sources,
such as direct broadcasting satellite systems ("DBS"), local off-air VHF/UHF
channels, home videocassette recorders and out-of-home theaters. Currently,
there are three DBS providers in Brazil, "Sky," an affiliate of the Globo
Organization, Direct TV, and Tecsat, a privately held company in Brazil.
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. In July 1997, the Brazilian government adopted Federal Law No.
9472/97, the "General Telecommunications Law." Such law revoked the Brazilian
Telecommunications Code of 1962 pursuant to which the pay television industry
was subject to regulation by the Ministry of Communications. The General
Telecommunications Law provides that the newly-created Telecommunications
National Agency ("ANATEL") has jurisdiction over the regulation of
telecommunications services. ANATEL has been vested with the power to, among
other things, revoke, modify and renew licenses within the spectrum available to
MMDS, approve the assignment and transfer of control of such licenses, approve
the location of channels that comprise MMDS systems, regulate the type,
configuration and operation of equipment used by MMDS systems, and impose
certain other reporting requirements on MMDS license holders and MMDS operators.
Currently, MMDS license holders remain subject to the provisions of
Presidential Decree Number 2196 ("Decree No. 2196"), issued April 8, 1997, which
regulates "Special Services" including MMDS systems and operations. Decree No.
2196 specifies the competitive procedures for the granting of concessions and
licenses for the rendering of Special Services in Brazil. Based on the
provisions of Decree No. 2196, the Ministry of Communications revised Rule
002/94, which specifically regulated MMDS service, by means of Administrative
Rule 254, dated April 16, 1997, hereinafter referred to as the "Revised MMDS
Rule".
Under the terms of the Revised MMDS Rule, each license holder and its
affiliates may be granted permission to operate MMDS systems in different areas
of Brazil, provided that, if the license holder or its affiliates face no
competition from other pay television services, excluding services that utilize
a satellite to transmit their signal, such license holder may be granted
licenses for (i) no more than seven municipalities with a population equal to or
exceeding 700,000 inhabitants or (ii) no more than 12 municipalities with a
population between 300,000 and 700,000 inhabitants. Under the Revised MMDS Rule,
ANATEL has discretion to alter or eliminate such restrictions, taking into
account the level of competition and the ownership of MMDS providers. As the
Company expects to face local competition in most of the markets for which it
has or expects to file an application, it does not believe that these
restrictions should present a substantial limitation on its ability to implement
its expansion plan.
OWNERSHIP OF LICENSES. Decree No. 2196 eliminated the requirement that only
companies in which Brazilian nationals own at least 51% of the voting capital
were eligible to be granted a license to operate an MMDS system. Consequently,
under current regulations any company constituted in accordance with the laws of
Brazil and with a head office and management located in Brazil is eligible to be
granted such a license. Until November 1997, TV Filme Servicos held the licenses
to operate the MMDS systems in Brasilia, Goiania and Belem. As a result of the
lifting of the 51% ownership requirement, in November 1997, TV Filme Servicos
transferred the respective license for Brasilia, Goiania and Belem to TV Filme
Brasilia, TV Filme Goiania and TV Filme Belem, respectively. This transfer was
approved by Brazilian regulators. Licenses for the new markets are held by TV
10
<PAGE>
Filme Sistemas. Although Decree No. 2196 eliminated the requirement discussed
above, the General Telecommunications Law permits the Executive Branch, through
Presidential Decree, to impose restrictions on foreign capital investments in
telecommunications companies. However, such restrictions may not be imposed
retroactively with respect to outstanding licenses. Decree No. 2196 also
provides that licenses shall be granted for renewable periods of ten or fifteen
years; all the current invitations for bids for MMDS services provide for
15-year terms.
PRICES. Prices for pay television services currently in operation may be
freely established by the system operator, although ANATEL may intervene in the
event of abusive pricing practices. ANATEL may impose penalties including fines,
suspension or revocation of a license in the event the license holder fails to
comply with applicable regulations or becomes legally, technically or
financially unable to provide MMDS service. ANATEL and CADE, the Brazilian
antitrust authority, also may intervene to the extent operators engage in unfair
practices intended to eliminate competition. Under a Brazilian law designed to
reduce inflation, the prices which the Company may charge to a particular
subscriber may not be increased until the next anniversary of the subscriber's
initial subscription date and may only be increased by a percentage no greater
than the percentage of the increase in the general inflation rate which occurred
during the subscriber's contract year.
CHANNELS AVAILABLE FOR WIRELESS CABLE. ANATEL grants licenses and regulates
the use of channels by MMDS operators to transmit video programming,
entertainment services, advertising 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), the exact number of
channels depending on the number of inhabitants in a particular market. 16
analog channels are permitted in markets with less than 300,000 inhabitants; 15,
16 or 31 analog channels are permitted in markets with a population between
300,000 and 700,000 inhabitants; and 31 analog channels are permitted in markets
with 700,000 inhabitants or more. However, such limits may be changed by ANATEL
in its discretion.
LICENSE PROCEDURES. In accordance with Decree No. 2196 and the Revised MMDS
Rule, a party interested in providing MMDS services must file with ANATEL an
"Application for Telecommunications Services," which specifies the modality of
the services intended to be provided, the geographic area where the services are
to be provided, the technical specifications for the proposed system (including
the radio frequencies to be used) and the intended operation and the usage of
such services. ANATEL may, in its discretion or whenever it receives such an
application, publish public notices requesting comments by interested parties to
determine, among other things, the geographic area where the services are to be
provided and the number of concessions to be granted. In both cases, interested
parties are required to present to or file with ANATEL its comments or
application, as the case may be, containing, among other things, the technical
feasibility of the proposed MMDS system and a demonstration of the market
potential for the targeted area. ANATEL will thereafter ascertain the public
interest in granting the concession and may decide to open the public bid
process for the granting of such licenses. The 1997 bid process for the granting
of MMDS licenses was begun as a result of the existence of numerous requests for
licenses filed by competing parties.
In connection with the 1997-98 auction process, ANATEL established specific
criteria for evaluating the Applications for Telecommunication Services filed.
The criteria adopted include a combination of technical and financial criteria.
The following technical factors are being utilized by ANATEL in evaluating the
technical aspects of a license application: (i) the proposed length of time for
the installation of the transmission system, counted from the issuance of the
authorization for installation until the beginning of the service's commercial
operation; (ii) the number of cultural or educational channels to be offered;
(iii) the percentage of time dedicated to local programming, calculated on the
total time used for all channels, and excluding the time dedicated to the
channels referred in item (ii) above; and, (iv) the number of local community
establishments that would receive cultural and educational programming free of
charge. The Company believes that channels such as Discovery and Bravo will
qualify as cultural and educational programming.
The technical specifications, and the offer price for a license, are rated
according to certain criteria established in the Revised MMDS Rule and set forth
in the 1997 MMDS tender invitations, as follows: (a) in markets with less than
300,000 inhabitants, the technical aspects weigh more heavily than the offer
price; (b) in markets with a population between 300,000 and 700,000 inhabitants,
the technical aspects and the offer price are weighed equally; and, (c) in
markets with more than 700,000 inhabitants, the offer price weighs more heavily
than the technical aspects. Once an MMDS concession is granted by ANATEL, the
license holder is required to submit, within four months, an installation
11
<PAGE>
proposal for its MMDS system's headend. Subsequent to approval of such proposal,
construction will be required to be finalized and commercial operations
commenced within 12 months; however, this period may be extended for an
additional 12 months.
In addition to qualifying under the application and bid process, a license
holder may also be required to demonstrate that its proposed signal will not
violate interference standards in the area of another MMDS license holder. The
Revised MMDS Rule also contains certain other technical criteria designed to
avoid interference between licensed service areas.
TWO-WAY MMDS. In some countries, including the United States, MMDS license
holders have been granted additional spectrum to provide bi-directional, or
"two-way," services to their customers, including internet access, data
transmission and other advanced telecommunications services. Based upon public
comment requests and other information, the Company believes that ANATEL soon
will approve the use of additional spectrum for existing and future holders of
MMDS licenses to be used for advanced data and telecommunications services. It
is uncertain at this time what, if any, additional restrictions will be imposed
upon holders of the additional spectrum, how it may be acquired, and for what
price.
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 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.
ITEM 2. PROPERTIES.
The Company leases approximately 37,000 square feet of office space for its
corporate headquarters and the Brasilia System in Brasilia. In addition, the
Company leases office space for the Goiania System, Belem System and Campina
Grande System consisting of approximately 29,000, 22,000 and 16,000 square feet,
respectively. In addition to leased office space, the Company also owns a lot in
Brasilia, which may, in the future, be used as the site for the Company's
transmission tower and offices in such city, and less than 1,500 square feet of
office space in Goiania. The Company also leases space for transmission towers
located in Brasilia, Goiania, Belem and Campina Grande. Finally, the Company
leases office space and space for transmission towers in certain of its newly
awarded markets. 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.
ITEM 3. LEGAL PROCEEDINGS.
On January 26, 2000, the Company filed a voluntary petition under chapter
11 of the United States Bankruptcy Code, together with a pre-negotiated Plan of
Reorganization and the Disclosure Statement relating to such Plan, with the U.S.
Bankruptcy Court for the District of Delaware. The court approved the Disclosure
Statement on March 1, 2000. Following approval of the adequacy of the Disclosure
Statement, ballots respecting the Plan were circulated to those parties entitled
to vote on the Plan, and the Plan was confirmed at a hearing by the court on
April 10, 2000. Overwhelming majorities of holders of the Senior Notes and
holders of the Company's common stock voted in favor of the restructuring set
forth in the Plan. Effectuation of the Plan is contingent upon obtaining
approval of the restructuring contemplated by the Plan from Agencia Nacional de
Telecomunicacoes, the Brazilian government agency that regulates
telecommunications services in Brazil, and the Central Bank of Brazil. The
Company continues to operate and manage its affairs as debtor in possession. No
trustee has been appointed.
12
<PAGE>
At this time, it is not possible to predict the outcome of the chapter 11
case or its effect on the Company's business. Additional information regarding
the chapter 11 case is set forth in Item 1. "Business - Restructuring and Plan
of Reorganization," Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Restructuring and Plan of Reorganization,"
Note 1 of Notes to Consolidated Financial Statements, and the Report of
Independent Auditors included herein. For a description of other litigation with
respect to the Company, see also Note 9 of the Notes to Consolidated Financial
Statements included herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
From July 30, 1996 to February 4, 1999, the Company's common stock, $0.01
par value per share (the "Common Stock"), was quoted on the Nasdaq National
Market ("Nasdaq") under the symbol "PYTV." Effective February 4, 1999, the
Common Stock was delisted from Nasdaq based on the Company's inability to comply
with certain requirements for continued listing, including the net tangible
assets and minimum bid price requirements. Following delisting, the Common Stock
has been listed on the OTC Bulletin Board, sporadically traded in the
over-the-counter-market and reported in the "pink sheets." The OTC Bulletin
board is a controlled quotation service that offers real-time quotes, last-sale
prices and volume information in over-the-counter equity securities.
The following table reflects the high and low sale prices for the Common
Stock, as reported by the OTC Bulletin Board and Nasdaq, for the periods
indicated:
HIGH LOW
---- ---
(Per Share)
1OTC BULLETIN BOARD
1999*.....................................$ 1-5/8 $ 1/8
-----
NASDAQ NATIONAL MARKET
1998
-----
Fourth Quarter............................$ 2-1/8 $ 1/4
Third Quarter.............................. 4 7/8
Second Quarter............................ 5 1-7/8
First Quarter............................. 5-7/8 2-3/4
- -------------------------
* The OTC Bulletin Board stock summaries are compiled only once a year and are
not updated throughout the year.
On March 31, 2000, there were approximately 17 stockholders of record of
the Common Stock. The Company believes that it has approximately 448 beneficial
owners.
The Company has never declared or paid any cash dividends on the Common
Stock and does not presently anticipate paying any cash dividends on the Common
Stock in the foreseeable future. The Company currently expects that earnings, if
any, will be retained for growth and development of the Company's business. The
Company's ability to declare and pay dividends is (i) affected by the ability of
the Company's present and future subsidiaries to declare and pay cash dividends
or otherwise transfer funds to the Company since the Company conducts its
operations entirely through its subsidiaries, and (ii) restricted by the terms
of the Indenture, dated as of December 20, 1996, between the Company and IBJ
Schroder Bank & Trust Company (the "Indenture"), pursuant to which the Company
issued $140 million aggregate principal amount of 12-7/8% Senior Notes due 2004
(the "Senior Notes").
13
<PAGE>
The Company, as a holding company, depends on receipt of dividends and
other cash payments from its operating subsidiaries in order to meet the
Company's cash requirements. Such receipts are subject to statutory restrictions
pursuant to which the subsidiaries may pay dividends only out of retained
earnings.
Subject to the foregoing and to any restrictions which may be contained in
future indebtedness of the Company, the payment of cash dividends on the Common
Stock will be within the sole discretion of the Company's Board of Directors,
and will depend upon the earnings, capital requirements and financial position
of the Company, applicable requirements of law, general economic conditions and
other factors considered relevant by the Company's Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated balance sheet data as of December 31, 1995, 1996,
1997, 1998 and 1999 and the selected consolidated statement of operations data
for each of the years ended December 31, 1995, 1996, 1997, 1998 and 1999 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 Consolidated Financial Statements have been
prepared in accordance with U.S. GAAP in U.S. dollars. For this purpose, until
December 31, 1997 amounts in Brazilian currency were 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 were remeasured at exchange rates in effect when the
assets were acquired or the liabilities were incurred. All other assets and
liabilities were remeasured at fiscal year end exchange rates; and all other
income and expense items were remeasured at average exchange rates prevailing
during the year. Remeasuring adjustments were included in exchange and
translation gains (losses). Effective January 1, 1998, the Company determined
that Brazil ceased to be a highly inflationary economy under SFAS 52.
Accordingly, as of January 1, 1998, the Company began using the REAL as the
functional currency of its Brazilian subsidiaries. As a result, all assets and
liabilities are translated into dollars at period end exchange rates and all
income and expense items are translated into U.S. dollars at the average
exchange rate prevailing during the period. In addition, the Company recorded a
loss associated with holding a net foreign currency monetary liability position.
The data presented below should be read in conjunction with the Consolidated
Financial Statements and related notes thereto and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other information included elsewhere in this Report.
14
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (1)
-------------------------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ....................................... $ 11,404 $ 31,388 $ 50,547 $ 45,408 $ 26,177
Operating costs and expenses:
System operating ........................... 2,957 9,593 17,631 19,617 11,844
Selling, general and
administrative .......................... 8,975 16,737 27,965 31,637 20,625
Depreciation and amortization .............. 2,049 5,921 12,162 21,651 14,205
--------- --------- --------- --------- ---------
Total operating costs and ............... 13,981 32,251 57,758 72,905 46,674
expenses ................................ --------- --------- --------- --------- ---------
Operating loss ................................ (2,577) (863) (7,211) (27,497) (20,497)
Other income (expense) (2) .................... 360 (1,147) (12,045) (12,723) (46,073)
--------- --------- --------- --------- ---------
Net income (loss) ............................. $ (2,217) $ 2,010 (19,256) $ (40,220) $ (66,570)
========= ========= ========= ========= =========
Net income (loss) per share (3) ............... $ (0.27) $ (0.22) (1.76) $ (3.72) $ (6.15)
========= ========= ========= ========= =========
Weighted average number of common
stock and common stock
equivalents (3) ............................ 8,086 9,256 10,940 10,825 10,825
========= ========= ========= ========= =========
OTHER FINANCIAL DATA:
EBITDA(4) ..................................... $ (216) $ 5,330 5,026 $ $ (5,846) $ (6,292)
Capital expenditures .......................... 16,621 25,225 37,082 14,062 4,140
OTHER OPERATING DATA:
Number of subscribers at end of ............... 36,594 79,176 111,244 77,069 72,240
year(5)
Average monthly revenue per
subscriber(6) .............................. $ 40.00 $ 39.63 $ 37.91 $ 35.39 $ 27.01
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)(7) .................. $ (6,430) $ 123,263 $ 97,723 $ 58,227 $(120,965)
Pledged securities(8) ......................... -- 33,512 17,324 -- --
Property, plant and equipment, net ............ 18,870 38,333 63,405 50,974 25,005
Total assets .................................. 23,683 202,929 186,397 133,314 83,322
Total long-term debt .......................... 400 140,200 140,000 140,000 --
Stockholders'deficiency(9) .................... 7,895 37,748 22,330 (21,767) (91,642)
</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) Other income (expense) is comprised primarily of foreign currency losses
and interest expense.
(3) Net income (loss) per share is calculated using the weighted average number
of shares of stock outstanding during the period together with the number
of shares issuable upon the exercise of options and warrants issued during
the twelve months prior to the Company's initial public offering of Common
Stock which occurred in August 1996 (the "Initial Public Offering").
(4) EBITDA is defined as operating loss plus depreciation, amortization and
non-cash charges. While EBITDA should not be construed as a substitute for
operating loss or a better measure of liquidity than cash flow from
operating activities, which are 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 debt service. EBITDA, however, is not necessarily a
measure of the Company's ability to fund its cash needs. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
15
<PAGE>
(5) See "Item 1. 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) For periods prior to 1998, working capital includes current portion of
pledged securities.
(8) The pledged securities were purchased as collateral for the Senior Notes.
See Note 7 to the Consolidated Financial Statements.
(9) TV Filme has never paid cash dividends on its Common Stock. See "Item 5.
Market For Registrant's Common Equity and Related Stockholder Matters."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
The Notes to Consolidated Financial Statements are an integral part of
Management's Discussion and Analysis of Financial Condition and Results of
Operations and should be read in conjunction herewith.
The Company develops, owns and operates pay television systems in markets
in Brazil. The Company is the sole provider of MMDS in the cities of Brasilia,
Goiania, Belem and Campina Grande and holds the sole MMDS licenses in the cities
of Bauru, Belo Horizonte, Caruaru, Franca, Porto Velho, Presidente Prudente and
Uberaba. The Company also has been announced as the winner of the MMDS license
for Vitoria; however, it has yet to officially receive this license.
During 1998 and the first quarter of 1999, the Company faced significant
challenges that ultimately affected the Company's ability to pay interest on its
outstanding 12 7/8% senior notes due 2004 (the "Senior Notes") issued pursuant
to an indenture dated as of December 20, 1996 (the "Indenture"). The Brazilian
government's delay in granting wireless cable television licenses, the
instability in emerging markets, the devaluation of the Brazilian currency, the
REAL, and the resulting decline in consumer spending on wireless cable
television in the markets in which ITSA and the Company's other subsidiaries
provide services, significantly impacted the Company's business plan and its
ability to service its indebtedness under the Indenture and continue as a going
concern. While the Company decided to commence discussions with holders of the
Senior Notes to pursue a comprehensive financial and operational restructuring
plan, the Company failed to make the required interest payment on the Senior
Notes on June 15, 1999.
The Indenture provides that failure to pay interest on the Senior Notes, if
not cured within 30 days of such failure, constitutes an Event of Default under
Section 6.1(b) of the Indenture. Section 6.2 of the Indenture provides that upon
the occurrence of an Event of Default, holders of at least 25% in principal
amount of the outstanding Senior Notes may declare the unpaid principal of, and
any accrued interest on, all the Senior Notes to be due and payable immediately.
RESTRUCTURING AND PLAN OF REORGANIZATION
Shortly after June 15, 1999, the Company requested a meeting with certain
holders of the Senior Notes. The Company also requested that pending discussions
on the possible restructuring of the Company's obligations under the Senior
Notes, such holders forbear from enforcing any right to accelerate the amounts
due on the Senior Notes and from enforcing any other rights and remedies under
the Indenture. Such agreements to forbear were originally evidenced by
forbearance agreements among the Company and three holders of the Senior Notes
who collectively held approximately 54% of the principal amount of the Senior
Notes and who together with certain other holders of the Senior Notes formed an
unofficial committee of Noteholders (the "Ad Hoc Noteholders' Committee") to
represent the interests of the holders of the Senior Notes.
16
<PAGE>
After negotiations between the Company, the Ad Hoc Noteholders' Committee,
and other interested parties regarding restructuring of the Company's
obligations, the Company and the certain specified noteholders (the "Specified
Holders") entered into a Restructuring Agreement on January 24, 2000. In
addition, the Specified Holders who are signatories to the Restructuring
Agreement have agreed that so long as the Company is in compliance with the
terms of the Restructuring Agreement, they will forbear (and cause the Indenture
Trustee to forbear) from exercising their rights under the Senior Notes, the
Indenture, applicable law or otherwise, with respect to any default in existence
or arising under the Senior Notes or the Indenture during the term of the
Restructuring Agreement.
On January 26, 2000, the Company filed a voluntary petition under chapter
11 of the United States Bankruptcy Code, together with a pre-negotiated Plan of
Reorganization and the Disclosure Statement relating to such Plan, with the U.S.
Bankruptcy Court for the District of Delaware. The court approved the Disclosure
Statement on March 1, 2000. Following approval of the adequacy of the Disclosure
Statement, ballots respecting the Plan were circulated to those parties entitled
to vote on the Plan, and the Plan was confirmed at a hearing by the court on
April 10, 2000. Overwhelming majorities of holders of the Senior Notes and
holders of the Company's common stock voted in favor of the restructuring set
forth in the Plan. Effectuation of the Plan is contingent upon obtaining
approval of the restructuring contemplated by the Plan from Agencia Nacional de
Telecomunicacoes, the Brazilian government agency that regulates
telecommunications services in Brazil, and the Central Bank of Brazil. The
Company continues to operate and manage its affairs as debtor in possession. No
trustee has been appointed.
The Company's restructuring principally provides that, upon effectuation of
the Plan, the senior noteholders will receive a $25 million cash payment and
their existing notes will be converted into (i) New Senior Secured Notes in the
aggregate principal amount of at least $35 million, subject to adjustment, with
a five year maturity and interest of 12% per annum (interest payable-in-kind at
the option of the reorganized company through the first 24 months), and (ii) 80%
of the new common equity of the reorganized company. Current management will
receive 15% of the new common equity, and existing common stockholders of TV
Filme, Inc. will receive 5% of the new common equity of the reorganized company
in exchange for their current stake. The Plan provides that the reorganized
company will be a newly-formed Cayman Islands holding company, and that the New
Senior Secured Notes will be issued by ITSA.
GENERAL
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 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 EBITDA positive in the third quarter of 1994 with
approximately 6,000 subscribers. The Company's Belem System became EBITDA
positive in the fourth quarter of 1995 with approximately 5,000 subscribers.
Each of the Company's existing 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 has
required an average incremental investment of approximately $450, which includes
the cost of a decoder box, installation labor and materials, other equipment and
supplies, marketing and selling costs. The Company capitalizes installation
costs, including installation labor, decoders and other direct costs, and
depreciates these costs over a four year period. Prior to 1998, these costs were
depreciated over a five year period. 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 has charged
its subscribers an installation fee typically ranging from $5 - $75
(approximately $10, net of sales commissions, in markets which have adopted the
MAIS TV model.) For new market systems, the Company expects to incur an initial
capital investment of approximately $1.5 million each to build and install a
transmission tower, headend facilities and other equipment. Factoring in the
17
<PAGE>
$7.0 million cost of the licenses for the new markets, the total estimated
initial expenditures for these markets is expected to be approximately $19
million. The Company defers installation fees, net of direct selling expenses,
and is recognizing these fees as revenues ratably over a four-year period. Prior
to 1998, the Company recognized these fees as revenues ratably over a five-year
period.
The Company's historical subscriber growth has resulted from the addition
of subscribers in Brasilia and from the launch of operating systems in Goiania,
Belem and Campina Grande. Recent subscriber losses have resulted from the
general economic situation in Brazil, including the strict tightening of
consumer credit and increased levels of unemployment. Revenues primarily consist
of monthly fees paid by subscribers for the programming packages, installation
fees recognized for the period and advertising fees and revenue derived from the
provision of high speed Internet access services. See "Item 1. Business -- High
Speed Internet Access Service." System operating expenses include programming
costs, a portion of the costs of compensation and benefits for the Company's
employees, transmitter site rentals and certain repair and maintenance
expenditures. 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 should 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 are
currently having, substantial effects on the Company's results of operations and
financial condition. From time to time, the Company purchases hedge contracts to
reduce the risk of having a substantial portion of its cash in REAIS. At the end
of 1999, the Company held approximately $28.0 million of such contracts, which
expired on February 11, 2000. See "-- Certain Factors Which May Affect the
Company's Future Results -- Factors Relating to the Company -- Risks Associated
with New Markets and Growth and Expansion Strategy."
The economic and financial turmoil in Southeast Asia and the former Soviet
Republics during 1997 and 1998 has had an impact on many emerging markets,
including Brazil. As a result of these events, the Brazilian government
originally took significant measures to protect the REAL, as well as the gains
achieved over the past several years by Brazil's economic stabilization plan,
the Real Plan. Among other actions, on October 27, 1997, Brazil's Central Bank
significantly raised short-term interest rates, and, in November 1997, the
Brazilian government announced a series of austerity measures, generally
including budget cuts, restrictions on public indebtedness, tax increases,
export incentives and restrictions on imports. These measures were designed to
improve the country's fiscal and current account deficits and relieve pressure
on the REAL. Even after taking these measures, the government continued to
experience a reduction in foreign currency reserves which were being used to
purchase REAIS as a means to protect the relative value of the REAL versus the
U.S. dollar. Due to the continued reduction in foreign currency reserves, and
other reasons, the Brazilian government sought support from the International
Monetary Fund ("IMF"). On November 13, 1998, the IMF announced an aid package of
more than $41 billion. To secure these funds, in October 1998 the Brazilian
government announced additional austerity measures including pension plan reform
and significant spending cuts, which have been approved by the Brazilian
Congress. As part of these additional austerity measures, the government
increased the financial transactions tax (CPMF) from 0.2% to 0.38%. This tax is
levied on the value of all financial transactions, including bank withdrawals,
checks, and stock and fund purchases. Also, the Brazilian government increased
the public pension system contribution by corporations from 2% of revenue to 3%
of revenue and for the first time, subjected financial income, including accrued
intercompany interest income, to this tax. Despite these additional austerity
measures, in January 1999 the Brazilian government devalued the REAL and
subsequently eliminated the established trading band. These measures have had,
and will have for the foreseeable future, both a direct and indirect impact on
the Company's financial results.
Soon after the 1997 austerity measures were initiated, the Company began to
experience a significant increase in customer delinquency rates which, among
other things, resulted in the Company significantly increasing its provisions
18
<PAGE>
for doubtful accounts and increasing service disconnections. This trend
continued throughout 1998 and 1999. The Company has undertaken several steps to
address the impact of the deterioration in its operating environment, such as
performing credit checks on potential new subscribers, changing the way it
compensates its sales force to emphasize high quality sales and implementing
cost reduction measures, including a headcount reduction. In addition, as
previously discussed the Company has become more aggressive in canceling
delinquent subscriber accounts. There can be no assurance that the steps taken
by the Company or measures taken by the Brazilian government will be successful,
or that the increase in delinquent payments and service disconnections will
abate. If the steps implemented by the Company and the Brazilian government are
not effective in the near term, the Company may be unable to meet future cash
requirements. See "-- Liquidity and Capital Resources."
As a holding company, TV Filme 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. See "Item 5. Market For Registrant's Common Equity and
Related Stockholder Matters."
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,
------------------------------------------------------------------------------
(In thousands, except subscriber, per share and share data)
% OF % OF % OF
1997 REVENUE 1998 REVENUE 1999 REVENUE
---- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................... $ 50,547 100% $ 45,408 100% $ 26,177 100%
Operating costs and expenses:
System operating ....................... 17,631 35% 19,617 43% 11,844 45%
Selling, general and administrative (b) 27,965 55% 31,637 70% 20,625 79%
Depreciation and amortization .......... 12,162 24% 21,651 48% 14,205 54%
--------- --------- --------- --------- --------- ------
Total operating costs and expenses 57,758 114% 72,905 161% 46,674 178%
--------- --------- --------- --------- --------- ------
Operating loss ................... (7,211) (14%) (27,497) (61%) (20,497) (78%)
--------- --------- --------- --------- --------- ------
Other income (expense):
Interest and other expense ........... (19,167) (38%) (19,810) (44%) (24,088) (92%)
Interest and other income ............ 8,985 18% 11,300 25% 7,281 28%
Monetary loss......................... -- -- (4,213) (9%) (29,266) (112%)
Exchange and translation losses....... (1,863) (4%) -0- -- -- --
--------- --------- --------- --------- --------- ------
Total other expense ........... (12,045) (24%) (12,723) (28%) (46,073) (176%)
--------- --------- --------- --------- --------- ------
Net loss ............................... $ (19,256) (38%) $ (40,220) (89%) $ (66,570) (254%)
--------- --------- --------- --------- --------- ------
Net loss per share ..................... $ (1.76) $ (3.72) $ (6.15)
========= ========= =========
Weighted average number of
shares of common stock and
common stock equivalents ............. 10,940 10,825 10,825
========= ========= =========
Other Data:
EBITDA(a) ............................. $ 5,026 $ (5,846) $ (6,292)
========= ========= =========
Number of subscribers at end
of period ......................... 111,244 77,069(b) 72,240
========= ========= =========
</TABLE>
- --------------------
(a) EBITDA is defined as operating loss plus depreciation, amortization and
non-cash charges. While EBITDA should not be construed as a substitute for
operating loss or a better measure of liquidity than cash flow from
19
<PAGE>
operating activities, which are 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 debt service. EBITDA, however, is not necessarily a
measure of the Company's ability to fund its cash needs.
(b) In the second half of 1998, the Company became more aggressive in canceling
the accounts of delinquent subscribers.
NET LOSS. Net loss for 1999 increased to ($66.6) million versus ($40.2)
million in 1998, primarily due to the devaluation of the REAL versus the dollar,
which caused a $25 million increase in currency exchange loss due to the
Company's net dollar-denominated monetary liability position. Reductions in
operating loss due to staff cuts, stricter accounts receivable policies and the
REAL devaluation were offset by higher net interest and other expense. Net loss
for 1998 increased to ($40.2) million versus ($19.2) million in 1997 due to a
34,000 reduction in subscriber count, a change in the depreciation period from
five years to four years, increased costs to support new services and
programming and to generate new subscribers to replace those lost throughout the
year, and the currency exchange loss.
REVENUES. The Company's revenues for 1999 decreased by 42% compared to
1998, due primarily to the devaluation of the REAL between the periods, as well
as some decline in subscriber base. Revenues for 1998 decreased by 10% compared
to 1997, also due primarily to the REAL devaluation. In both cases, the decrease
in revenues was partially offset by revenues from the Company's proprietary
premium channel and high-speed Internet service.
SYSTEM OPERATING EXPENSES. For 1999 compared to 1998, system operating
expenses decreased by 40%, primarily due to the devaluation of the REAL between
the periods, offset in part by programming costs, most of which are denominated
in U.S. dollars. System operating expenses increased in 1998 by 11% over 1997,
primarily due to higher costs to support the Company's proprietary premium
channel and high-speed internet access services, along with increases in
programming and magazine costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses decreased during 1999 by 35% over 1998,
primarily due to the REAL devaluation. This decrease was offset, in part, by
debt restructuring costs of $5,145,000, an increase in bank charges due to a new
financial transactions tax implemented in Brazil in July 1999 and additional
rents paid for office and transmission space in cities where the Company has
been awarded new licenses. SG&A expenses increased in 1998 by 13% over 1997,
primarily due to an increase in the provision for litigation and taxes, a higher
bad debt provision associated with the reduction in subscribers, and higher
payroll costs to support the Company's proprietary premium channel and
high-speed internet access service. These increases were partially offset by a
reduction in advertising and promotion expenses during 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased in
1999 by 34% over 1998, primarily due to the devaluation in the REAL. This
decrease was offset, in part, by the extra depreciation caused by additional
capitalized installation costs during the period. Depreciation and amortization
increased in 1998 by 78% over 1997 primarily due to the change in the
depreciation period from five years to four years (effective January 1, 1998)
and the acquisition of over $14 million in additional equipment during the
period.
INTEREST AND OTHER EXPENSE. Interest and other expense increased in 1999 by
22% over 1998, primarily due to the write-off of capitalized debt issuance costs
and recognized losses associated with loss positions on foreign exchange
currency contracts held at year end. Interest and other expense increased in
1998 by only 3% compared to 1997.
INTEREST AND OTHER INCOME. Interest and other income decreased in 1999 by
36% compared to 1998, primarily due to a decrease in the average cash balance
between the two periods, partially offset by the Company holding a higher
proportion of its cash balance in Brazil, which enabled it to obtain
significantly higher rates of return. Interest and other income increased in
1998 by 26% versus 1997, primarily as a result of holding a higher percentage of
the Company's cash in Brazil, which earned higher rates of return.
20
<PAGE>
CURRENCY EXCHANGE LOSS. Due to its net dollar-denominated liability
position, which occurred throughout 1998 and 1999, the Company generates
currency exchange losses in any reporting period in which the value of the REAL
depreciates in relation to the value of the U.S. dollar.
LIQUIDITY AND CAPITAL RESOURCES
On January 26, 2000, the Company filed the Chapter 11 case, which will
affect the Company's liquidity and capital resources in fiscal 2000. See Item 1.
"Business--Restructuring and Plan of Reorganization."
The pay television business is capital intensive. From 1993 through the
first part of 1996, the Company raised an aggregate of approximately $16.8
million through a series of private equity placements to Tevecap and Warburg,
Pincus Investors, L.P. 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 Senior Notes with net proceeds to the Company
of approximately $134.0 million. In the past, working capital requirements have
been primarily met by (i) venture capital financings, (ii) capital markets
financings, (iii) vendor financing which generally requires payment within 420
days of shipment, some of which had been supported by irrevocable letters of
credit guaranteed by Abril and certain of its affiliates and (iv) borrowings
from Abril and certain affiliates. As of December 31, 1999, the Company had no
outstanding borrowings from Abril and its affiliates and the Company does not
expect to borrow from Abril or its affiliates in the future.
As of December 31, 1999, the Company had no amounts outstanding under
letters of credit. As of January 1, 1999, the Company had import lines of credit
in the aggregate amount of $30.5 million with four commercial banks. In January
1999, in conjunction with the devaluation of the REAL, all import lines of
credit were cancelled by the banks. Further import purchases by the Company will
have to be individually negotiated with the banks. While the Company believes
that lines of credit, additional vendor financing and other credit facilities
are available, the terms and conditions of such financing vehicles are uncertain
and may not be available on terms acceptable to the Company. As a result of
reclassifying its Senior Notes as a current liability (see "Event of Default on
Senior Notes"), the Company had a negative working capital at December 31, 1999
of $121.0 million. Net cash used in operating activities for the twelve months
ended December 31, 1999 was $4.6 million.
On February 4, 1999, the Company received notice from the Nasdaq Stock
Market, Inc. that its Common Stock was delisted, effective on the close of
trading that day. The delisting was a consequence of the Company's failure to
meet certain standards for continued listing on Nasdaq, including the net
tangible assets and minimum bid price requirements. The Company's Common Stock
was immediately quoted on the OTC Bulletin Board. The effects of the Nasdaq
delisting include, without limitation, the limited release of market prices of
the Common Stock, limited news coverage of the Company, and restriction of
investors' interest in the Company, and may have a material adverse effect on
the trading market and prices for the Common Stock, thereby affecting the
Company's ability to issue additional securities or secure additional financing.
In addition, because the Common Stock is deemed penny stock under the Securities
Enforcement Penny Stock Reform Act of 1990, additional disclosure is required in
connection with trading in the Common Stock, including delivery of a disclosure
schedule explaining the nature and risk of the penny stock market. Such
requirements could severely limit the liquidity of the Common Stock.
In order to assist the Company in evaluating strategic alternatives,
including a possible debt restructuring, and issues associated with the
Company's debt service requirements, the Company has selected BT Alex. Brown,
Inc. (now Deutsche Bank) as its financial advisor. On August 13, 1999, the
Company reached an agreement in principle with a committee representing holders
of the Company's outstanding 12-7/8% Senior Notes due 2004. Under the terms of
the agreement in principle, the senior noteholders will receive a $25 million
cash payment and their existing notes will be converted into (i) new Senior
Secured Notes in the aggregate principal amount of $35 million, with a five year
maturity and interest of 12% per annum (interest payable-in-kind at the
Company's option through the first 24 months), and (ii) 80% of the new common
equity of the reorganized company. Current management will receive 15% of the
new common equity, and the existing common stockholders of the Company will
receive 5% of the common equity of the reorganized company in exchange for their
current stake. All outstanding stock options will be cancelled. This agreement
in principle is subject to execution of definitive documentation, and is to be
effected pursuant to a pre-arranged plan which has received court approval under
Chapter 11 of the U.S. Bankruptcy Code. In addition, the Agencia Nacional de
21
<PAGE>
Telecomunicacoes, the Brazilian government agency that regulates
telecommunications in Brazil, and the Central Bank of Brazil must approve the
proposed restructuring. In the process of reviewing the proposed restructuring,
the Central Bank may examine the original approvals granted when the Secured
Notes were issued and there is a risk that the Central Bank may impose charges
or additional taxes with respect to the original transaction relating to the
Secured Notes. There can be no assurance that approval of the restructuring will
be given or as to whether any charges or taxes may be imposed. Moreover, charges
or taxes imposed by the Central Bank may result in the restructuring not being
feasible and may have a material adverse effect on the Company's financial
condition and results of operations. There can be no assurance that the proposed
restructuring transaction will be completed successfully.
The Company made capital expenditures of approximately $4.1 million during
1999. Such capital expenditures were financed with the proceeds from the Senior
Notes offering and from cash generated from the Company's operations.
In September 1997, the Brazilian Ministry of Communications announced the
bidding process by which additional pay-TV licenses would be awarded throughout
the country. This award process commenced in October 1997. Due to legal
challenges made to the bidding process by several bidders, the bidding process
had been postponed for all markets. However, on May 13, 1998, the Superior
Justice Tribunal issued a favorable ruling allowing the bidding process with
respect to a number of the smaller markets to go forward. In July 1998, the
license process for the smaller markets was reinstated and in the fourth quarter
of 1998, the Company was awarded licenses to operate pay-TV systems in the
following seven cities: Bauru, Campina Grande, Caruaru, Franca, Porto Velho,
Uberaba and Presidente Prudente. The Company paid an aggregate of $5.0 million
for these seven licenses, and launched its operation in Campina Grande during
the second quarter of 1999. Following a favorable ruling by the Superior Justice
Tribunal in the fourth quarter of 1998, with respect to the remaining markets,
on March 10, 1999 ANATEL initiated the bid process for these markets. The
Company decided not to participate in this process at that time. However, in
October 1999, the Company participated in a bidding process for the cities of
Belo Horizonte, Campinas, Sao Jose dos Campos and Vitoria. The Company was
successful in its bids for Belo Horizonte and Vitoria, for which it offered a
total of approximately $2.3 million.
The Company from time to time may selectively pursue joint ventures or
acquisitions in the pay television industry, although it currently has no
understanding, commitment or agreement with respect to any such joint venture or
acquisitions. The Company currently believes that its cash and internally
generated funds will be sufficient to fund its obligations pursuant to the
agreement in principle with the committee of noteholders and the cash
requirements for its four existing systems and eight new markets for at least
the next twelve months. As of December 31, 1999, of the Company's approximately
$42.2 million in cash and cash equivalents, approximately $12.9 million (31%)
was invested in U.S. dollar denominated securities. In the longer term, the
Company's funding needs are subject to a variety of factors, including its
ability to successfully complete a debt restructuring and plan of reorganization
under chapter 11 of the Bankruptcy Code, the number and size of new system
launches or acquisitions, the implementation of alternative transmission
technologies and the offering of additional telecommunications services.
Accordingly, there can be no assurance that the Company will be able to meet its
future funding needs.
As described in Notes 1 and 7 to the financial statements, the Company is
in default on its Senior Notes and has entered into a Restructuring Agreement
with certain Specified Holders and filed a voluntary petition under chapter 11
of the United States Bankruptcy Code, together with a pre-negotiated Plan of
Reorganization and the Disclosure Statement relating to such Plan, with the U.S.
Bankruptcy Court for the District of Delaware. The effect of this bankruptcy
proceeding on the Company's future liquidity cannot be determined at this time.
YEAR 2000 COMPLIANCE
The company assessed its exposure to the Year 2000 problem and completed a
comprehensive response to that exposure. The Company had potential Year 2000
exposures in three areas: (i) financial and management operating computer
systems used to manage the Company's business, (ii) SMS and video transmission
equipment used by the Company and (iii) computer systems used by third parties,
in particular third party vendors and suppliers of the Company. The Company
spent approximately $100,000 in its Year 2000 readiness efforts. The Company
22
<PAGE>
will continue to monitor its own systems and those of its suppliers to identify
and address any computer system problems related to the Year 2000.
INFLATION AND EXCHANGE RATES
Inflation and exchange rate variations have had, and are expected to
continue to have for the foreseeable future, 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
of its expenses and may set its prices without governmental regulation. However,
under a Brazilian law designed to reduce inflation, the prices which the Company
may charge to a particular subscriber may not be increased until the next
anniversary of the subscriber's initial subscription date and may only be
increased by a percentage no greater than the percentage of the increase in the
general inflation rate which occurred during the subscriber's contract year.
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, inflation in Brazil has been accompanied by devaluation of the
Brazilian currency relative to the U.S. dollar. The Company collects
substantially all of its revenues in REAIS, but pays certain of its expenses,
including a significant portion of its equipment costs, substantially all
interest expense and most 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
is able to raise prices, the value of the Company's revenues (as expressed in
U.S. dollars) is adversely affected. This effect on the Company's revenues also
negatively impacts the Company's ability to fund U.S. dollar-based expenditures.
As of January 1, 1998, the Company's financial statements reflect foreign
exchange gains and losses associated with monetary assets and liabilities
denominated in currencies other than the REAL. As a result, the devaluation of
the REAL against the U.S. dollar has caused, and is expected to cause, for the
foreseeable future, the Company to record a loss associated with its U.S. dollar
monetary liabilities and a gain associated with its U.S. dollar monetary assets.
Given that the Company has a net U.S. dollar monetary liability position, the
net effect of the devaluation of the REAL against the U.S. dollar is to generate
losses in the Company's financial statements. In order to protect against a
possible further devaluation of the REAL, the Company may from time to time
enter into certain foreign exchange contracts. See "Item 7A. Quantitative and
Qualitative Disclosures about Market Risk."
RECENT ECONOMIC EVENTS
The economic and financial turmoil in Southeast Asia and the former Soviet
Republics during 1997 and 1998 has had an impact on many emerging markets,
including Brazil. As a result of these events, the Brazilian government
originally took significant measures to protect the REAL, as well as the gains
achieved over the last several years by the REAL Plan. Among other actions, in
October 1997, Brazil's Central Bank significantly raised short-term interest
rates, and, in November 1997, the Brazilian government announced a series of
austerity measures, generally including budget cuts, restrictions on public
indebtedness, tax increases, export incentives and restrictions on imports.
These measures were designed to improve the country's fiscal and current account
deficits and relieve pressure on the REAL. While short-term interest rates
declined somewhat during the second quarter of 1998, they returned to levels
approaching 37% per annum by the end of the year and remain above 19% per annum.
Even with rates at this level, the government continued to experience a
reduction in foreign currency reserves which were being used to purchase REAIS
as a means to protect the relative value of the REAL versus the U.S. dollar. Due
to the continued reduction in foreign currency reserves, and other reasons, the
Brazilian government sought support from the International Monetary Fund (the
"IMF"). On November 13, 1998, the IMF announced an aid package of more than $41
billion. To secure funds from the IMF, in October 1998 the Brazilian government
announced additional austerity measures including pension plan reform and
significant spending cuts, which have been approved by the Brazilian Congress.
As part of these additional austerity measures, effective in June 1999, the
government increased the financial transactions tax (CPMF) from 0.2% to 0.38%.
This tax is levied on the value of all financial transactions, including bank
withdrawals, checks, and stock and fund purchases. Also, effective in January
1999, the Brazilian government increased the public pension system contribution
by corporations, from 2% of revenue to 3% of revenue and for the first time,
subjected financial income, including accrued intercompany interest income, to
this tax. Despite these additional austerity measures, in January 1999 the
Brazilian government devalued the REAL and subsequently eliminated the
established trading band, thereby allowing the REAL to float freely against the
23
<PAGE>
U.S. dollar. These measures have had, and will have for the foreseeable future,
an impact on the Company's financial results.
Soon after the 1997 austerity measures were initiated, the Company began to
experience a significant increase in customer delinquency rates which, among
other things, resulted in the Company significantly increasing its provisions
for doubtful accounts and increasing service disconnections. This trend
continued throughout 1998 and 1999. The Company has undertaken several steps to
address the impact of the deterioration in its operating environment, such as
performing credit checks on potential new subscribers, changing the way it
compensates its sales force to emphasize high quality sales and implementing
cost reduction measures, including a headcount reduction. In addition, as
previously discussed the Company has become more aggressive in canceling
delinquent subscriber accounts. There can be no assurance that the steps taken
by the Company or measures taken by the Brazilian government will be successful,
or that the increase in delinquent payments and service disconnections will
abate.
FACTORS RELATING TO BRAZIL GENERALLY
OUR BUSINESS COULD SUFFER FROM POLITICAL AND ECONOMIC UNCERTAINTIES IN
BRAZIL. Changes in policies involving, among other things, tariffs, exchange
controls, regulatory policy and taxation, as well as events such as inflation,
currency devaluation, social instability or other political, economic or
diplomatic developments could adversely affect our business, results of
operations and financial condition.
GOVERNMENT RESTRICTIONS ON THE CONVERSION AND REMITTANCE OF FUNDS ABROAD
COULD HINDER OUR ABILITY TO OPERATE OUR BUSINESS. The Brazilian government has
the authority to restrict the transfer of funds abroad. If the Brazilian
government were to exercise this power, as it has done in the past, our
subsidiaries could be prevented from purchasing equipment required to be paid
for in U.S. dollars and from transferring funds to TV Filme which are required
in order for TV Filme to make scheduled interest payments on its outstanding
Notes. Either of these events could have a material adverse impact on our
business, operating results and financial condition.
FACTORS RELATING TO THE COMPANY
OUR SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT OUR ABILITY TO RUN OUR
BUSINESS. We currently have a significant amount of indebtedness. This
substantial indebtedness could have important consequences. For example, it
could:
o limit our ability to obtain additional financing in the future to
refinance existing indebtedness and for working capital, capital
expenditures, acquisitions, and general corporate purposes or other
purposes;
o require us to dedicate a substantial portion of our cash flow from
operations and cash and/or marketable securities on hand to the
payment of principal and interest on our indebtedness, thereby
reducing funds available for market expansion and additional market
development;
o hinder our ability to adjust rapidly to changing market conditions;
and
o make us more vulnerable to economic downturns, limiting our ability to
withstand competitive pressures and reduce our flexibility in
responding to changing business and economic conditions.
OUR ABILITY TO DISTRIBUTE DIVIDENDS AND MEET DEBT OBLIGATIONS ARE DEPENDENT
ON OUR SUBSIDIARIES. Because we are a holding company, our ability to distribute
dividends and meet our debt obligations are dependent upon the earnings of our
subsidiaries and the distribution of those earnings to, or upon loans or other
payment of funds by the subsidiaries to, us. Our subsidiaries are separate and
distinct legal entities and have no obligation to pay any amounts to our
creditors or to make any funds available to our creditors. The payment of
dividends from our subsidiaries and the payment of any interest on or the
repayment of any principal of any loans or advances made to us by our
24
<PAGE>
subsidiaries, or by us to our subsidiaries (1) may be subject to statutory or
contractual restriction, (2) are contingent upon the earnings of such
subsidiaries and (3) are subject to various business considerations.
WE HAVE A LIMITED OPERATING HISTORY AND A HISTORY OF LOSSES AND MAY NEVER
ACHIEVE PROFITABILITY. We were incorporated in April 1996. Therefore, we have a
limited operating history upon which to evaluate our current business and
prospects. We have incurred net losses since our formation. At December 31,
1999, we had an accumulated deficit of $130.2 million. In 1999, we had net
losses of $66.6 million. We expect that we will continue to incur losses from
operations from the foreseeable future. We cannot assure you that we will ever
become profitable in the future.
A FAILURE TO EFFECTIVELY MANAGE OUR INTERNAL GROWTH WOULD ADVERSELY AFFECT
OUR BUSINESS. Our growth has placed a significant strain on managerial and
operation resources. Any inability to manage growth effectively, or a drop in
productivity of our employees could have a material adverse effect on our
business, results of operations and financial condition.
WE WILL NEED ADDITIONAL CAPITAL TO FINANCE GROWTH. Our business requires
substantial investment on a continuing basis to finance:
o debt service obligations,
o capital expenditures and expenses related to subscriber growth and
system development,
o the acquisition of new pay television licenses and operations, and
o net losses.
The amount and timing of our future capital requirements will depend upon a
number of factors, many of which are not within our control, including:
o the grant of new licenses,
o programming costs,
o capital costs,
o competitive conditions, and
o the costs of any necessary implementation of technological innovations
or alternative technologies.
We can make no assurance that we will be able to obtain additional debt or
equity capital on satisfactory terms, or at all, to meet our future financing
needs. Furthermore, the indenture under which our outstanding debt was issued
restricts the amount of additional indebtedness which we may incur. Failure to
obtain any required additional financing could adversely affect our growth and,
ultimately, could have a material adverse effect on our business, results of
operations and financial condition.
OUR ABILITY TO EXPAND INTO NEW MARKETS IS SUBJECT TO A NUMBER OF FACTORS.
Our ability to expand successfully into new markets through acquisitions depends
on many factors, including:
o the successful identification and acquisition of such systems, and
o management's ability to integrate and operate the acquired businesses
effectively.
We may compete for new system opportunities with other companies that have
significantly greater financial and managerial resources. We can make no
assurance that we will be successful in obtaining new licenses or launching or
acquiring any new pay television systems or that we will be able to integrate
25
<PAGE>
successfully any acquired systems into our current business and operations. Our
failure to obtain new licenses or launch or acquire new pay television systems
could impede our growth. The failure to integrate successfully acquired systems
could have a material adverse effect on our results of operations and financial
condition.
WE ARE IN A COMPETITIVE BUSINESS. We face potential competition from
hardwire cable operators, DBS, local off-air VHF/UHF channels, home
videocassette recorders and out-of-home theaters. Currently, there are three DBS
providers in Brazil. 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 of our actual and potential competitors have
greater financial, marketing and other resources than we do. We cannot provide
any assurance that we will be able to compete successfully.
OUR BUSINESS COULD SUFFER FROM CHANGES IN GOVERNMENT REGULATION. Changes in
the regulation of our business activities, including decisions by regulators
affecting our operations, could have an adverse effect on our business. Any new
regulations could have a material adverse effect on the pay television industry,
as a whole, and on us, in particular.
WE ARE DEPENDENT ON CERTAIN KEY SUPPLIERS. We are dependent on certain key
suppliers for our programming. We currently purchase a large portion of our
programming from one source under a programming agreement. Although we have no
reason to believe that the agreement will be canceled or will not be renewed, if
the agreement is canceled or not renewed, we will have to seek programming from
other sources. We cannot provide any assurances that other programming will be
available to us on acceptable terms or at all or, if available, that such
programming will be acceptable to our subscribers.
We currently purchase decoders and antennas from a limited number of
sources. Our inability to obtain sufficient components as required from these
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 our results of operations and financial
condition.
In February 2000, the Company's only supplier of decoders (General
Instruments, recently purchased by Motorola) in its four Operating Markets
announced that it was planning to discontinue production for this product in
the future, and gave the Company a limited time in which to give additional
orders for the manufacturing of this product. While the Company has a
substantial inventory of decoders available for use for new subscribers, the
technology used in the decoding process is proprietary and no other supplier
currently could provide the Company with additional decoders should they become
necessary. It is unclear if Motorola will maintain this limited period for
additional orders and it is unclear if Motorola will license its proprietary
decoding technology to any other manufacturer. If Motorola does not continue
production of this decoder, or permit any other manufacturer to do so, and if
the Company requires additional decoders for subscriber use, it could have a
material adverse effect on our results of operations and financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary market risk exposure is foreign currency exchange
rate risk between the U.S. dollar and the Brazilian REAL due to the Company
having all of its operations based in Brazil, and most of its revenues and some
of its expenses denominated in REAIS while substantially all of its debt and
many of its expenses and capital equipment needs are denominated in dollars. In
addition, for operating purposes, the Company holds a significant portion of its
available cash in REAIS.
The Company manages its risk exposure on its available cash held in REAIS
by purchasing, from time to time, foreign currency exchange contracts which have
the effect of "locking-in" a dollar based exchange rate for the Company's cash
held in Brazil. The Company believes that the cost of managing risk exposure to
its dollar-denominated debt and expenses is too high to warrant an attempt at
mitigating this risk.
In an effort to protect against a possible devaluation of the REAL, the
Company entered into the following foreign currency hedge contracts, which were
outstanding as of December 31, 1999 (these contracts were entered into for
purposes other than trading purposes):
26
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONTRACT VALUE EXCHANGE RATE PREMIUM % % CDI CONTRACT DATE EXPIRATION DATE
US$28,000,000 R$1.867:US$1 +11.25% 100% December 13, 1999 February 11, 2000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
In 2000, the Company entered into the following foreign currency hedge contracts
to protect against further devaluation of the REAL:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
CONTRACT VALUE EXCHANGE RATE PREMIUM % % CDI CONTRACT DATE EXPIRATION DATE
US$28,000,000 R$1.770:US$1 +6.8% 100% February 11, 2000 April 11, 2000
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The above contracts (both tables) require the Company to pay, on the expiration
date, an amount equal to the calculated interest (CDI--see below) on the
contract value. On the expiration date, the Company is to receive or pay an
amount, in REAIs, calculated as follows: the "Contract Value R$" divided by the
"Exchange Rate" times (the R$/US$ exchange rate in effect on the expiration date
plus the "Premium %") less the "Contract Value R$." If the Company receives a
net gain from such a transaction, it is required to pay 20% of the net gain in
Brazilian federal income tax.
"CDI" is the CERTIFICADO DE DEPOSITO INTERBANCARIO, or the interbank lending
rate within Brazil.
The Company has not entered into contracts for market risk sensitive instruments
for trading purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following statements are filed as part of this Annual Report on Form
10-K:
FORM 10-K
PAGE NO.
--------
FINANCIAL STATEMENTS:
TV FILME, INC.:
Report of Independent Auditors..................................... 28
Consolidated Balance Sheets as of December 31,1998 and 1999...... 29
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998, and 1999.................................. 30
Consolidated Statements of Changes in Stockholders'
Deficiency for the three years ended December 31, 1997, 1998
and 1999........................................................... 31
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1998 and 1999............................ 32
Notes to Consolidated Financial Statements......................... 33
All schedules have been omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements
or related notes.
27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
TV Filme, Inc.
1. We have audited the accompanying consolidated balance sheets of TV Filme,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' deficit and
cash flows for each of the three years ended December 31, 1999. 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.
2. 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.
3. 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, 1999 and 1998,
and the consolidated results of its operations and its cash flows for the
three years ended December 31, 1999, in conformity with generally accepted
accounting principles in the United States.
4. The accompanying financial statements have been prepared assuming that TV
Filme, Inc. will continue as a going concern. As more fully described in
Note 1, the Company has recurring operating losses and has a working
capital deficit, and has filed for protection under Chapter 11 of the
United States Bankruptcy Court. This raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans with
regard to these matters are also described in Note 1 to the Financial
Statements. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities
that may result from the outcome of this uncertainty.
ERNST & YOUNG
AUDITORES INDEPENDENTES S.C.
Sao Paulo, Brazil /s/ Sergio Citeroni
March 17, 2000 Sergio Citeroni
Except for Note 1 Partner
and 7, as to which
the date is April
10, 2000.
28
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------
1998 1999
---- ----
(IN THOUSANDS OF DOLLARS)
ASSETS
Current assets:
Cash and cash equivalents........................... $ 57,492 $ 42,175
Accounts receivable, net............................ 4,736 2,474
Supplies............................................ 4,930 2,750
Prepaid expenses and other current assets........... 2,560 5,700
---------- ---------
Total current assets........................... 69,718 53,099
Property, plant and equipment, net - Note 2............ 50,974 25,005
Debt issuance costs, net - Note 7...................... 4,731 --
Other assets........................................... 7,891 5,218
---------- ---------
Total assets................................... $133,314 $83,322
========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable....................................... $ 3,315 $ 6,168
Payroll and other benefits payable..................... 2,892 1,577
Accrued interest payable............................... 751 18,776
Accrued liabilities and taxes payable - Note 9......... 4,533 7,543
Long-term debt in default - Note 7 -- 140,000
--------- ---------
Total current liabilities...................... 11,491 174,064
Deferred installation fees............................. 3,590 900
Senior Notes........................................... 140,000 --
Stockholders' deficiency
Accumulated other comprehensive loss
Cumulative transaction adjustment - Note 4 (3,877) (7,182)
Preferred stock, $.01 par value, 1,000,000
shares authorized, no shares issued.............. -- --
Common stock, $.01 par value, 50,000,000
shares authorized, 10,824,594 and 10,824,594
shares issued and outstanding ................... 108 108
Additional paid-in capital....................... 45,657 45,657
Accumulated deficit.............................. (63,655) 130,225)
----------- ----------
Total stockholders' deficiency................. (21,767) (91,642)
----------- ----------
Total liabilities and stockholders' deficiency. $ 133,314 $ 83,322
=========== =========
See accompanying notes.
29
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31,
----------------------------
1997 1998 1999
---- ---- ----
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Revenues ...................................... $ 50,547 $ 45,408 $ 26,177
Operating costs and expenses:
System operating-Note 3 .................... 17,631 19,617 11,844
Selling, general and administrative ....... 27,965 31,637 20,625
Depreciation and amortization .............. 12,162 21,651 14,205
-------- -------- --------
Total operating costs and expenses .... 57,758 72,905 46,674
-------- -------- --------
Operating loss ........................ (7,211) (27,497) (20,497)
Other income (expense):
Interest and other expense - Notes 3 and 11 (19,167) (19,810) (24,088)
Interest and other income .................. 8,985 11,300 7,281
Currency exchange loss ..................... -- (4,213) (29,266)
Exchange and translation losses ............ (1,863) -- --
-------- -------- --------
Total other expense ................... (12,045) (12,723) (46,073)
-------- -------- --------
Net loss ...................................... $(19,256) $(40,220) $(66,570)
======== ======== ========
Net loss per share, basic and diluted ......... $ (1.76) $ (3.72) $ (6.15)
======== ======== ========
Weighted average number of shares of common
stock and common stock equivalents ......... 10,940 10,825 10,825
======== ======== ========
See accompanying notes.
30
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL OTHER
PAID-IN COMPREHEN- ACCUMULATED
SHARES PAR VALUE CAPITAL SIVE LOSS DEFICIT TOTAL
------ --------- ------- --------- ------- -----
(IN THOUSANDS OF DOLLARS, EXCEPT SHARES)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 .......... 10,166,176 102 41,825 -- (4,179) 37,748
Issuance of common stock for payment of
non-cash compensation ............. 36,163 -- 75 -- -- 75
Conversion of outstanding warrants into
Common stock ...................... 622,800 6 3,757 -- -- 3,763
Net loss for the year ................. -- -- -- -- (19,256) (19,256)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1997 .......... 10,825,139 $ 108 $ 45,657 $ (23,435) $ 22,330
Cumulative translation adjustment ..... -- -- -- (3,877) -- (3,877)
Net loss for the year ................. -- -- -- -- (40,220) (40,220)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1998 .......... 10,825,139 $ 108 $ 45,657 $ (3,877) $ (63,655) $ (21,767)
Cumulative translation adjustment ..... -- -- -- (3,305) -- (3,305)
Net loss for the year ................. -- -- -- -- (66,570) (66,570)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1999 .......... 10,825,139 $ 108 $ 45,657 $ (7,182) $ (130,225) $ (91,642)
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
31
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1998 1999
---- ---- ----
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .................................................... $ (19,256) $ (40,220) $ (66,570)
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Depreciation and amortization ............................ 12,162 22,050 14,669
Provision for losses on accounts receivable .............. 4,989 6,674 1,337
Non-cash compensation .................................... 75 -- --
Amortization of debt issuance costs ...................... 805 1,567 1,677
Decrease in deferred installation fees ................... (1,049) (3,107) (737)
Currency exchange loss ................................... -- 4,213 24,553
Changes in operating assets and liabilities:
Increase in accounts receivable .......................... (9,214) (4,176) (1,422)
(Increase) decrease in supplies .......................... (2,582) (32) 591
(Increase) decrease in prepaid expenses and other current
assets ................................................... (2,003) 375 (4,092)
(Increase) decrease in accrued interest receivable ....... (679) 679 --
(Increase) decrease in other assets ...................... (1,292) (6,449) 286
Decease in pledged securities ........................... 16,867 16,645 --
Increase (decrease) in accounts payable .................. 1,618 (9,023) 4,369
Increase (decrease) in payroll and other benefits payable 565 950 (685)
Increase in accrued interest payable ..................... 179 -- 18,025
Increase in accrued liabilities and taxes payable ....... 649 3,522 3,403
--------- --------- ---------
Net cash provided by (used in) operating activities ......... 1,884 (6,332) (4,596)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions:
Property, plant and equipment ............................ (37,082) (14,062) (3,593)
--------- --------- ---------
Net cash used in investing activities ....................... (37,082) (14,062) (3,593)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term debt ...................... (2,926) -- --
Proceeds from issuance of senior notes, net of costs ........ -- -- --
Debt issuance costs ......................................... (819) -- --
Issuance of common stock and warrants ....................... 3,763 -- --
Decrease in payables from affiliates ........................ (200) (200) --
--------- --------- ---------
Net cash used in financing activities ....................... (182) (200) --
--------- --------- ---------
Effect of exchange rate changes on cash ..................... -- (2,889) (7,128)
--------- --------- ---------
Net change in cash and cash equivalents ..................... (35,380) (23,483) (15,317)
Cash and cash equivalents at beginning of year .............. 116,355 80,975 57,492
--------- --------- ---------
Cash and cash equivalents at end of year .................... $ 80,975 $ 57,492 $ 42,175
========= ========= =========
</TABLE>
See accompanying notes.
32
<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 (the "Initial Public
Offering"), of its common stock, $.01 par value per share (the "Common Stock"),
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.
At its formation, the Company 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 were or 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 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. As of November 1997, the licenses to operate the
existing wireless cable systems were transferred from TV Filme Servicos to the
respective operating companies, TV Filme Brasilia, TV Filme Goiania and TV Filme
Belem.
Accordingly, the consolidated financial statements of the Company include
ITSA and its subsidiaries on a historical basis 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 markets
in Brazil. The Company has established wireless cable operating systems in the
cities of Brasilia, Goiania and Belem and has been awarded licenses to operate
pay television systems in seven additional markets in Brazil.
On January 26, 2000, the Company filed a voluntary petition under chapter
11 of the United States Bankruptcy Code, together with a pre-negotiated Plan of
Reorganization and the Disclosure Statement relating to such Plan, with the U.S.
Bankruptcy Court for the District of Delaware. The court approved the Disclosure
Statement on March 1, 2000. Following approval of the adequacy of the Disclosure
Statement, ballots respecting the Plan were circulated to those parties entitled
to vote on the Plan, and the Plan was confirmed at a hearing by the court on
April 10, 2000. Overwhelming majorities of holders of the Senior Notes and
holders of the Company's common stock voted in favor of the restructuring set
forth in the Plan. Effectuation of the Plan is contingent upon obtaining
approval of the restructuring contemplated by the Plan from Agencia Nacional de
Telecomunicacoes, the Brazilian government agency that regulates
33
<PAGE>
telecommunications services in Brazil, and the Central Bank of Brazil. The
Company continues to operate and manage its affairs as debtor in possession. No
trustee has been appointed.
These conditions raise substantial doubt as to the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
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. Until December 31, 1997, amounts in Brazilian currency were
remeasured into U.S. dollars in accordance with the methodology set forth in
Statement of Financial Accounting Standards No. 52 ("SFAS 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 were remeasured at exchange rates in effect when the assets
were acquired or the liabilities were incurred. All other assets and liabilities
were remeasured at year end exchange rates, and all other income and expense
items were remeasured at average exchange rates prevailing during the year.
Remeasurement adjustments were included in exchange and translation gains
(losses).
Effective January 1, 1998, the Company determined that Brazil ceased to be
a highly inflationary economy under SFAS 52. Accordingly, as of January 1, 1998,
the Company began using the REAL as the functional currency of its Brazilian
subsidiaries. As a result, all assets and liabilities are translated into
dollars at period end exchange rates and all income and expense items are
translated into U.S. dollars at the average exchange rate prevailing during the
period. In addition, the Company recorded a loss associated with holding a net
foreign currency monetary liability position.
C. NET LOSS PER SHARE
Basic EPS is computed by dividing income or loss by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution from the exercise or conversion of securities into common
stock when such securities are dilutive to earnings per share. The basic or
diluted EPS measured under SFAS 128 are not materially different than if
measured under APB No. 15.
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
(limited to the shorter of the lease term or the useful life), 5 years for
machinery and equipment, furniture and fixtures and 4 years for installation
costs. Prior to 1998, installation costs were depreciated over a 5 year period.
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, 1997, 1998 and 1999 was $449,000, $817,000, and
$1,105,000 respectively.
34
<PAGE>
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 four
year period. Prior to 1998, such fees were amortized over a five year period.
I. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company had an allowance for doubtful accounts of $387,000 and $651,000
at December 31, 1998 and 1999, respectively. Charges to the allowance during
1997, 1998 and 1999 were $3,945,100, $8,000,000 and $1,100,000 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, plus
amounts unpaid but accrued associated with the Company's restructuring of its
long-term debt (see Note 7).
L. FOREIGN EXCHANGE CONTRACTS
The Company enters into foreign exchange contracts as a hedge against
potential exchange rate variations on cash and cash equivalents held in foreign
currency. Realized gains and losses are recognized, and the resulting credit or
debit is recorded, in interest and other expense.
M. 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.
N. COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this statement had no impact on the Company's net
income or shareholders' equity. SFAS 130 requires foreign currency translation
adjustments to be included in other comprehensive income.
O. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company expects to adopt the new
Statement effective January 1, 2000. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. The Company does
not anticipate that the adoption of this Statement will have a significant
effect on its results of operations or financial position.
35
<PAGE>
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following at December 31:
1998 1999
---- ----
(IN MILLIONS OF
DOLLARS)
Land.................................................... $ 1.0 $ 1.0
Building and leasehold improvements..................... 2.1 1.3
Machinery and equipment................................. 35.1 24.1
Furniture and fixtures.................................. 1.4 0.8
Installation costs...................................... 50.2 37.1
-------- --------
89.8 64.3
Accumulated depreciation................................ (38.8) (39.3)
--------- --------
$ 51.0 $25.0
======== ========
Depreciation expense of $12,009,000, $21,651,000 and $13,338,000 is
included in the statements of operations for the years ended December 31, 1997,
1998 and 1999, 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 1997, 1998 and 1999 were $10,394,000,
$10,607,000 and $7,643,000 respectively. Through September 1997, the Company
purchased from Tevecap a program guide which it distributed to its subscribers
monthly. In October 1997, the Company discontinued purchasing the program guide
produced by Tevecap and began producing and distributing its own program guide.
The amount paid to Tevecap for the program guide during 1997 was $679,000.
The Company purchased two licenses to operate wireless cable systems from
Abril S.A. ("Abril") for $400,000 each, payable in four equal annual
installments, which do not bear interest. The $200,000 which remained
outstanding as of December 31, 1997 was repaid in February 1998.
The Company purchases equipment and supplies from vendors under irrevocable
letters of credit. Abril and a subsidiary of Tevecap guarantee such obligations
from time to time. Total issued and outstanding letters of credit at December
31, 1997, 1998 and 1999 were $7,665,000, $500,000, and $0, respectively. At
December 31, 1997, 1998 and 1999, issued and outstanding letters of credit
secured by affiliates were $110,000, $0, and $0 respectively. The maturity of
outstanding letters of credit at December 31, 1998 was 420 days.
4. COMPREHENSIVE LOSS
The calculation of comprehensive loss for the twelve months ended 1998 and
1999 is as follows:
1998 1999
---- ----
(IN THOUSANDS)
Net Loss............................................... $ (40,220) $ (66,570)
Foreign currency translation adjustments............... (3,877) (3,305)
--------- --------
$ (44,097) $ (69,875)
Accumulated comprehensive loss, consisting entirely of foreign currency
translation adjustments, was $3,877 and $7,182 at December 31, 1998 and 1999,
respectively.
36
<PAGE>
5. STOCKHOLDERS' DEFICIENCY
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.
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 had an exercise price of $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 warrants were
exercisable either for cash, the cancellation of indebtedness or on a cashless
exercise basis. In September 1997, 577,172 of the warrants were exercised for
cash for a total purchase price of $3,763,161. In addition, the remaining
217,592 warrants were exchanged for an aggregate of 45,628 shares of Common
Stock on a cashless exercise basis. Such warrants were converted into shares of
Common Stock based on the difference between the exercise price of $6.52 per
share and the average closing price of the Common Stock on the Nasdaq National
Market during the five trading days preceding the date of exercise ($8.25).
6. 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 (such plan, as subsequently amended in September 1997 and October
1998, is hereinafter referred to as 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 1,736,432, 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
37
<PAGE>
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 were 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.
Additional options to purchase Common Stock were granted as follows:
NUMBER OF EXERCISE
DATE OPTIONS PRICE
---- ------- -----
Dec. 1996 10,000 $11.750
Feb. 1997 10,000 $11.750
July 1997 15,000 $10.125
Oct. 1997 308,500 $6.000
Dec. 1997 150,000 $5.625
July 1998 10,000 $3.875
Of the total number of options which were exercisable as of December 31,
1999, 210,000 options have been forfeited in accordance with their terms.
Pro forma disclosure information has not been presented as all outstanding
options are expected to be cancelled in conjunction with the Company's
restructuring process under Chapter 11 of the U.S. Bankruptcy Code (see Notes 1
and 7).
7. LONG-TERM DEBT IN DEFAULT
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 U.S. government securities,
scheduled interest and principal payments on which was in an amount sufficient
to provide for payment in full when due of the first four scheduled interest
payments on the Senior Notes, the last of which occurred on December 15, 1998.
Until the third quarter of 1999, debt issuance costs were capitalized and
amortized over the period of the debt under the effective yield method (see
below).
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 and the Company's current level of leverage, at
December 31, 1999 it is unable to make any dividend payments.
Under the provisions of the Senior Note indenture, the Company is required
to make semi-annual interest payments on June 15 and December 15 of each year to
the noteholders. On June 15, 1999, the Company failed to make the required
interest payment, and did not make the payment within the subsequent 30 day
grace period allowable under the terms of the indenture, which caused an event
of default to occur. While the Company has reached an agreement in principle
with a committee representing holders of the Senior Notes to restructure this
obligation, and a pre-arranged plan implementing such restructuring has been
approved by the bankruptcy court (as described in Note 1), the restructuring
transaction contemplated by the plan has not yet been effected. As a result of
this event of default, the Company has classified the Senior Note, as a current
liability in the accompanying balance sheet. The agreement in principle was
reached in August 1999; accordingly, the Company wrote off the deferred debt
issuance cost of $3.3 million in the third quarter 1999.
38
<PAGE>
The Company believes that the Senior Notes, as of December 31, 1999, were
trading at approximately 20% of the principal value.
8. 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:
1997 1998 1999
---- ---- ----
(IN THOUSANDS OF
DOLLARS)
Income taxes (benefit) at effective
Brazilian rate........................ $(6,354) $(13,273) $(22,648)
Nondeductible compensation expense.......... 215 1,651 3,876
Effect of change in tax rate................ 103 -- 667
Increase (decrease) in valuation allowance.. 6,036 11,622 18,105
------- -------- --------
Tax expense (benefit)....................... $ -- $ -- $ --
======= ========= ========
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 $66,921 and $114,527 at
December 31, 1998 and 1999, respectively. 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, 1998 and 1999 is as follows:
1998 1999
---- ----
(IN THOUSANDS OF
DOLLARS)
Deferred tax assets
Net operating loss carryforwards......................... $21,414 $38,456
Deferred installation fees............................... 1,185 306
Other.................................................... 2,912 2,558
------- -------
25,511 41,316
Valuation allowance...................................... (18,838) (36,943)
-------- -------
$ 6,673 $4,373
======= =======
Fixed assets............................................. $ 6,673 $4,373
------- -------
$ 6,673 $4,373
======= =======
9. TAX AND LABOR CONTINGENCIES
The Company has several labor lawsuits and tax contingencies. The provision
for contingencies of $3,274,000 and $5,708,000 at December 31, 1998 and 1999,
respectively, is included in "Accrued liabilities and taxes payable" and
represents management's loss expectation for these contingencies.
39
<PAGE>
10. COMMITMENTS
The Company leases office space and vehicles, and has entered into various
transmission tower rental agreements. Rent expense amounted to approximately
$2,091,080, $3,508,000 and $2,527,000 for the years ended December 31, 1997,
1998 and 1999, 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, 1999 are as follows:
2000........................................................... 1,555,000
2001........................................................... 1,525,000
2002........................................................... 450,000
2003........................................................... 447,000
11. FOREIGN EXCHANGE CONTRACTS
At December 31, 1998 and 1999, the Company had $24.1 and $28.0 million,
respectively, of foreign exchange contracts. The Company regularly enters into
such contracts, typically with a duration of six months or less. The contracts
held at December 31, 1999 expired in February 2000. These contracts allow the
Company to receive in REAIS, at maturity, the dollar equivalent of the contract
value calculated using the exchange rate as of the maturity date. At maturity,
the Company is required to pay the contract value plus interest calculated using
the interbank lending rate during the life of the contract. Net contract gains,
if any, are subject to a 20% tax levied in Brazil. Realized gains and losses are
reported in "Interest and other expense." Unrealized losses as of December 31,
1999 totaled $1,298,000 and have also been recognized in "Interest and other
expense."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information with respect to the
persons who are members of the Board of Directors or are executive officers of
the Company as of March 23, 2000.
NAME AGE POSITION
---- --- --------
Hermano Studart Lins de Albuquerque 37 Chief Executive Officer, Secretary
and Director
Carlos Andre Studart Lins 35 President, Chief Operating Officer,
de Albuquerque acting Chief Financial Officer and
Director
Douglas M. Karp 45 Managing Director of E.M. Warburg,
Pincus & Co. LLC
Gary D. Nusbaum 33 Managing Director of E.M. Warburg,
Pincus & Co. LLC
Jose Augusto Pinto Moreira 56 President of Tevecap S.A.
Douglas Duran 46 Chief Financial Officer of Tevecap
S.A.
The business experience of each of the directors and executive officers of
the Company during the last five years is as follows:
40
<PAGE>
HERMANO STUDART LINS DE ALBUQUERQUE, one of the co-founders of the Company,
has served as Chief Executive Officer, Secretary and a director of the Company
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 the brother of Mr. Carlos Andre Studart Lins de
Albuquerque.
CARLOS ANDRE STUDART LINS DE ALBUQUERQUE, one of the co-founders of the
Company, has served as President, Chief Operating Officer and a director of the
Company since its incorporation and as the acting Chief Financial Officer since
October 1998. Mr. Lins also served as Treasurer of the Company from its
incorporation until July 1997. 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 the brother of Mr. Hermano
Studart Lins de Albuquerque.
DOUGLAS M. KARP has served as Chairman of the Board of the Company since
its incorporation. Mr. Karp has been a General Partner of Warburg, Pincus & Co.
and a Member and Managing Director of E.M. Warburg, Pincus & Co., LLC and its
predecessors 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
Journal Register Company, Qwest Communications International, Inc., Golden Books
Family Entertainment, Inc., Primus Telecommunications Group, Incorporated,
Paging Network do Brasil S.A. and several privately held companies.
GARY D. NUSBAUM has served as a director of the Company since July 1998.
Mr. Nusbaum also served as a director of the Company from its incorporation to
March 1997 and as Vice President of the Company from its incorporation to
December 1996. Mr. Nusbaum has been a Managing Director of E.M. Warburg, Pincus
& Co., LLC since January 1997. Mr. Nusbaum was a Vice President of Warburg,
Pincus Ventures, Inc. from January 1995 to January 1997 and was an Associate at
Warburg, Pincus Ventures, Inc. from September 1989 to December 1994. Mr. Nusbaum
is a director of Journal Register Company, Paging Network do Brasil S.A. and
several privately held companies.
JOSE AUGUSTO PINTO MOREIRA has served as a director of the Company since
its incorporation. Mr. Moreira has been President of Tevecap S.A. since February
1999 and prior to that served as the Executive Vice-President of Finance and
Administration of Abril S.A. since 1982. Mr. Moreira is a director of several
privately held companies.
DOUGLAS DURAN has served as a director of the Company since August 1998.
Mr. Duran has been the Chief Financial Officer of Tevecap S.A. since 1994 and
served as TVA Related Companies' Director of Tevecap S.A. from October 1991 to
1994. Prior to joining Tevecap S.A., Mr. Duran was employed by Abril S.A. for
more than 20 years, most recently as its Treasury Director.
The number of directors of the Company, as determined by the Board of
Directors is seven. There is currently one open Board seat. The Board consists
of three classes: Class I, Class II and Class III, as nearly equal in number as
possible. One of the three classes, comprising approximately one-third of the
directors, is elected each year to succeed the directors whose terms are
expiring. Directors hold office until the annual meeting for the year in which
their terms expire and until their successors are elected and qualified unless,
prior to that date, they have resigned, retired, or otherwise left office. In
accordance with the Company's Certificate of Incorporation, Class I directors
are to be elected at the 2000 Annual Meeting of Stockholders, Class II directors
are to be elected at the 2001 Annual Meeting of Stockholders, and Class III
directors are to be elected at the 2002 Annual Meeting of Stockholders.
41
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors, certain officers and persons holding more than
10% of a registered class of the Company's equity securities to file reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission (the "Commission") and any exchange on which the Company's securities
are traded. Directors, certain officers and greater than 10% stockholders are
also required by Commission regulations to furnish the Company with copies of
all such reports that they file. Based on the Company's review of copies of such
forms provided to it, the Company believes that all filing requirements were
complied with during the fiscal year ended December 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by, or paid to, any person acting
as the Company's Chief Executive Officer during 1999, regardless of the amount
of compensation paid, and the other most highly compensated executive officers
of the Company whose aggregate cash and cash equivalent compensation exceeded
$100,000 (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------- -----------
OTHER SECURITIES ALL OTHER
ANNUAL UNDERLYING COMPENSATION
NAME AND POSITION YEAR SALARY ($) BONUS ($) COMPENSATION(1) OPTIONS ($)(2)
- ----------------- ---- ---------- --------- --------------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Hermano Studart
Lins de Albuquerque, 1999 $203,000 $ -- $ -- -- $6,500
Chief Executive Officer 1998 201,748 125,000 $ -- -- 6,425
1997 143,750 150,000(3) -- 100,000 6,250
Carlos Andre Studart
Lins de Albuquerque, 1999 $203,000 -- -- -- 6,500
President, Chief 1998 201,748 125,000 -- -- 6,425
Operating Officer and 1997 143,750 150,000(3) -- 100,000 6,250
acting Chief Financial
Officer
</TABLE>
- ---------------------
(1) No amounts have been reflected in this column for any Named Executive
Officer because the aggregate value of perquisites and other personal
benefits for each officer in the specified years was below the Commission's
threshold for disclosure (i.e., the lesser of $50,000 or 10% of the total
of annual salary and bonus for such officer).
(2) Represents Company paid life insurance premiums.
(3) Includes non-cash bonus payments made to each Named Executive Officer in
the form of Common Stock in the amount of $25,000.
42
<PAGE>
EMPLOYMENT AGREEMENTS
The Company and ITSA have entered into employment agreements with each of
Messrs. Hermano Lins and Carlos Andre Lins, pursuant to which Mr. Hermano Lins
serves full time as Chief Executive Officer of the Company, Mr. Carlos Andre
Lins serves full time as President and Chief Operating Officer of the Company,
and each has agreed to serve in comparable executive positions at ITSA. The
minimum annual base salary under such agreements for each of Messrs. Lins is
$125,000. Such salaries are reviewed at least annually by the Board and may be
increased but not decreased. In addition, each of Messrs. Lins is eligible to
receive an annual bonus, payable by ITSA, in amounts determined by the Board
taking into consideration, among other things, the financial and operating
performance of the Company. Pursuant to each of Messrs. Lins's employment
agreements, if the Company terminates the executive's employment either without
"cause" (as defined therein) or because of the death of the executive, ITSA is
required to pay the executive any unpaid base salary accrued through the date of
termination, plus an amount equal to an additional 12 months' base salary.
Although Brazilian law does not permit employment agreements of this type to be
for a fixed term, each agreement does include a non-competition provision and a
prohibition on the solicitation of clients and employees.
STOCK OPTIONS
STOCK OPTION PLAN
In July 1998 the Board adopted, and in October 1998 the stockholders of the
Company approved, the Amended and Restated 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, 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 Stock Option Plan is 1,736,432,
subject to certain adjustments reflecting changes in the Company's
capitalization. In addition, no employee may receive options for more than
200,000 shares of Common Stock in the aggregate in any fiscal year. The 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
Company's Compensation Committee are not eligible to receive options under the
Stock Option Plan.
The exercise price for incentive stock options is 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 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 is 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 Stock
Option Plan are not transferrable, except by will or the laws of descent and
distribution in the event of death. During an optionee's lifetime, the options
are exerciseable only by the optionee.
The Board has the right at any time and from time to time to amend or
modify the Stock Option Plan, without the consent of the Company's stockholders
or optionees; provided that no such action may adversely affect options
previously granted without the optionee's consent, and provided further than no
such action, without the approval of the stockholders of the Company, may
increase the total number of shares of Common Stock which may be purchased
pursuant to options granted 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 Stock Option Plan after which no option may
be granted thereunder is 2006.
43
<PAGE>
YEAR-END VALUE TABLE
The following table sets forth information regarding the number and year
end value of unexercised options held at December 31, 1999 by each of the Named
Executive Officers. No options or stock appreciation rights were exercised by
the Named Executive Officers during fiscal 1999.
FISCAL 1999 OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED "IN-THE-MONEY" (1)
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END (#) YEAR-END ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
Hermano Studart Lins
de Albuquerque.......... 64,000/146,000 $0/$0
Carlos Andre Studart Lins
de Albuquerque.......... 64,000/146,000 $0/$0
- ------------
(1) Options are "in-the-money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The amounts set forth
represent the difference between $0.375 per share, the fair market value of
the Common Stock issuable upon exercise of options at December 31, 1999,
and the exercise price of the option, multiplied by the applicable number
of options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, the members of the Compensation Committee were Messrs. Karp,
Moreira and Nusbaum. Mr. Karp is the Chairman of the Board, a position which was
an officer position of the Company until December 1996, and Mr. Nusbaum was a
Vice President of the Company. Messrs. Karp and Nusbaum are general partners of
Warburg, Pincus & Co., a New York general partnership ("WP") which is the sole
general partner of Warburg, Pincus Investors, L.P. ("Warburg, Pincus"). Mr.
Moreira is the Executive Vice-President of Finance and Administration of Abril
S.A.
COMPENSATION OF DIRECTORS
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 and each committee meeting participated in by telephone. All directors are
reimbursed for out-of-pocket expenses. Under the Stock Option Plan, the Company
may, from time to time and in the sole discretion of the Board, grant options to
directors who are not members of the Compensation Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock, as of March 23, 2000, by (i) each person known to
the Company to be the beneficial owner of more than 5% of the Common Stock, (ii)
each of the Company's directors, (iii) each of the Named Executive Officers, and
(iv) all directors and executive officers as a group. All information with
respect to beneficial ownership has been furnished to the Company by the
respective stockholders of the Company.
44
<PAGE>
AMOUNT AND NATURE OF PERCENTAGE
BENEFICIAL OF
NAME AND ADDRESS (1) OWNERSHIP (2) CLASS (2)
- -------------------- -------------------- -----------
Warburg, Pincus Investors, L.P.
466 Lexington Avenue
New York, New York 10017(3)................ 4,937,008 45.6%
Tevecap S.A.
Rua do Rocio, 313
Suite 101
Sao Paulo, Brazil.......................... 1,500,455 13.9
Maria Nise Studart Lins de Albuquerque........ 1,069,520 9.9
Hermano Studart Lins de Albuquerque(4)........ 333,134 3.1
Carlos Andre Studart Lins de Albuquerque(4)... 333,134 3.1
Douglas M. Karp(5)............................ 4,937,008 45.6
Jose Augusto Pinto Moreira(6)................. 1,500,455 13.9
Douglas Duran (6)............................. 1,500,455 13.9
Gary D. Nusbaum (5)........................... 4,937,008 45.6
All executive officers and directors
as a group (6 persons)...................... 7,103,731 65.4
- ----------------
(1) Unless otherwise indicated above or in footnote 5 below, 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 March 23, 2000 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 the following number of shares of Common Stock which the executive
officers have the right to acquire through the exercise of options within
60 days of March 23, 2000: Mr. Hermano Lins, 64,000; and Mr. Carlos Andre
Lins, 64,000.
(5) All of the shares indicated as owned by Messrs. Karp and Nusbaum are owned
directly by Warburg, Pincus and are included because of their affiliation
with Warburg, Pincus. Mr. Karp, the Chairman of the Board of the Company,
and Mr. Nusbaum, a Director of the Company, are Managing Directors and
Members of E.M. Warburg and General Partners of WP. As such, Messrs. Karp
and Nusbaum may be deemed to have an indirect pecuniary interest, within
the meaning of Rule 16a-1 under the Exchange Act, in an indeterminate
portion of the shares of Common Stock beneficially owned by Warburg, Pincus
and WP. Messrs. Karp and Nusbaum disclaim "beneficial ownership" of these
shares within the meaning of Rule 13d-3 under the Exchange Act. The address
of Messrs. Karp and Nusbaum is c/o E.M. Warburg, Pincus & Co., LLC, 466
Lexington Avenue, New York, New York 10017.
(6) All of the shares indicated as owned by Mr. Moreira and Mr. Duran are owned
directly by Tevecap and are included because of Mr. Moreira's and Mr.
Duran's respective affiliations with Tevecap. Messrs. Moreira and Duran
45
<PAGE>
each disclaim "beneficial ownership" of these shares within the meaning of
Rule 13d-3 under the Exchange Act.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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 Company's initial public
offering with the exception of $200,000 which was due in February 1997 and 1998,
each of which has been repaid in full.
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 (the "Programming
Agreement"). In June 1996, the Programming Agreement was amended and restated
effective August 2, 1996. In the years ended December 31, 1997, 1998 and 1999,
TVA Sistema's and its affiliates' revenues from the Company aggregated
approximately $10.4 million, $10.6 million and $7.6 million, 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. The final installment was paid by the Company in February
1998.
In connection with the Company's initial public offering, the Company
entered into the restructuring (the "Restructuring") 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
the Company. Pursuant to the Restructuring, (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 the Company who are Brazilian nationals,
including certain directors and executive offices of the Company (namely
Tevecap, Mrs. Maria Nise Lins, 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 systems 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. 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. As of November 1997, the
licenses to operate the existing wireless cable system were transferred from TV
Filme Servicos to the respective operating companies, TV Filme Brasilia Servicos
de Telecomunicacoes Ltda., TV Filme Goiania Brasilia Servicos de
Telecomunicacoes Ltda and TV Filme Belem Brasilia Servicos de Telecomunicacoes
Ltda.
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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) 1. FINANCIAL STATEMENTS.
The financial statements are included in Part II, Item 8. of this
Report.
46
<PAGE>
2. FINANCIAL STATEMENT SCHEDULES AND SUPPLEMENTARY INFORMATION
REQUIRED TO BE SUBMITTED.
All schedules have been omitted because they are inapplicable or the
required information is shown in the consolidated financial statements
or notes.
(B) REPORTS ON FORM 8-K.
No Current Reports on Form 8-K were filed by the Company during the
fourth quarter of 1999.
(C) INDEX TO EXHIBITS.
The following is a list of all Exhibits filed as part of this Report:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
**2.1 First Amended Disclosure Statement relating to the First Amended
Plan of Reorganization, dated February 29, 2000, approved by the
U.S. Bankruptcy Court for the District of Delaware on March 1,
2000.
**2.2 First Amended Plan of Reorganization under Chapter 11 of the
Bankruptcy Code, dated February 29, 2000.
*3.1(i) 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")).
*3.1(ii) Amended and Restated By-Laws of TV Filme (incorporated herein by
reference to Exhibit 3.1(ii) to TV Filme's Form 10-Q for the
fiscal quarter ended June 30, 1997, File No. 0-28670).
*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 Senior Notes) (incorporated herein by reference to Exhibit 4.1
to TV Filme's Registration Statement on Form S-4, dated February
4, 1997, Registration No. 333-21057 ("TV Filme's S-4")).
*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
(incorporated herein by reference to Exhibit 4.2 to TV Filme's
S-4).
*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 Purchasers (incorporated herein by reference to Exhibit
4.3 to TV Filme's S-4).
*4.4 Note, dated December 20, 1996, of ITSA to TV Filme (incorporated
herein by reference to Exhibit 4.4 to TV Filme's S-4).
*4.5 Note Pledge Agreement, dated as of December 20, 1996, between TV
Filme and IBJ Schroder Bank & Trust Company, as Collateral Agent
(incorporated herein by reference to Exhibit 4.5 to TV Filme's
S-4).
*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 (incorporated herein by reference to Exhibit
4.6 to TV Filme's S-4).
*4.7 Subsidiary Guarantee, dated as of December 20, 1996, made by TV
Filme Brasilia Servicos de Telecomunicacoes (incorporated herein
by reference to Exhibit 4.7 to TV Filme's S-4).
*4.8 Subsidiary Guarantee, dated as of December 20, 1996, made by TV
Filme Belem Servicos de Telecomunicacoes (incorporated herein by
reference to Exhibit 4.8 to TV Filme's S-4).
*4.9 Subsidiary Guarantee, dated as of December 20, 1996, made by TV
Filme Goiania Servicos de Telecomunicacoes (incorporated herein by
reference to Exhibit 4.9 to TV Filme's S-4). Amended and Restated
Stock Option Plan (incorporated herein by reference to Exhibit
10.1 to TV
*10.1 Filme's Annual Report on Form 10-K for the year ended December.31,
1998).+
*10.2 Form of Stock Option Agreement (incorporated herein by reference
to Exhibit 10.2 to TV Filme's S-1).+
47
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
*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 Albuquerque, Mr.
Carlos Andre Studart Lins de Albuquerque and Ms. Maria Veronica
Studart Lins de Albuquerque (incorporated herein by reference to
Exhibit 10.3 to TV Filme's S-4).
*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 (incorporated herein by reference to
Exhibit 10.4 to TV Filme's S-4).
*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 (incorporated herein by reference to Exhibit 10.5 to
TV Filme's S-4).+
*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 (incorporated herein by reference to Exhibit 10.6 to
TV Filme's S-4).+
*10.7 Programming License Agreement, dated as of June 27, 1996, entered
into by and between TV Filme and Tevecap (incorporated herein by
reference to Exhibit 10.12 to TV Filme's S-4).
*10.8 Master Operating Agreement, dated as of July 26, 1996, entered
into by and among TV Filme, ITSA and TV Filme Servicos
(incorporated herein by reference to Exhibit 10.13 to TV Filme's
S-4).
*10.9 Articles of Association of TV Filme Servicos (incorporated herein
by reference to Exhibit 10.14 to TV Filme's S-4).
*10.10 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).+
**10.11 Restructuring Agreement, dated January 24, 2000 by and among TV
Filme, Inc. and Specified Holders (included as Exhibit B to the to
the First Amended Plan of Reorganization attached hereto as
Exhibit 2.2).
**21 List of Subsidiaries of TV Filme.
**23.1 Consent of Ernst & Young Auditores Independentes S.C., independent
auditors.
**24 Powers of Attorney (Appears on signature page).
**27.1 Financial Data Schedule.
- --------------
+ Management contract or compensatory plan or arrangement.
* Incorporated herein by reference.
** Filed herewith.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 14th day of April, 2000.
TV FILME, INC.
By: /s/ Hermano Studart Lins de Albuquerque
-------------------------------------------
Hermano Studart Lins de Albuquerque
Chief Executive Officer
KNOWN BY ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Hermano Studart Lins de Albuquerque and
Carlos Andre Studart Lins de Albuquerque his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 17th day of April, 2000.
SIGNATURE TITLE(S)
--------- --------
/s/ Hermano Studart Lins de Albuquerque Chief Executive Officer,
- ---------------------------------- Secretary and Director
Hermano Studart Lins de Albuquerque (Principal Executive Officer)
/s/ Carlos Andre Studart Lins de Albuquerque President, Chief Operating Officer,
- ---------------------------------- acting Chief Financial Officer
Carlos Andre Studart Lins de Albuquerque (Principal Financial and Accounting
Officer) and Director
/s/ Douglas M. Karp
- ---------------------------------- Chairman and Director
Douglas M. Karp
/s/ Jose Augusto Pinto Moreira
- ---------------------------------- Director
Jose Augusto Pinto Moreira
/s/ Douglas Duran
- ---------------------------------- Director
Douglas Duran
/s/ Gary D. Nusbaum
- ---------------------------------- Director
Gary D. Nusbaum
49
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
**2.1 First Amended Disclosure Statement relating to the
First Amended Plan of Reorganization, dated February
29, 2000, approved by the U.S. Bankruptcy Court for
the District of Delaware on March 1, 2000.
**2.2 First Amended Plan of Reorganization under Chapter 11
of the Bankruptcy Code, dated February 29, 2000.
*3.1(i) 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")).
*3.1(ii) Amended and Restated By-Laws of TV Filme (incorporated
herein by reference to Exhibit 3.1(ii) to TV Filme's
Form 10-Q for the fiscal quarter ended June 30, 1997,
File No. 0-28670).
*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 Senior Notes)
(incorporated herein by reference to Exhibit 4.1 to TV
Filme's Registration Statement on Form S-4, dated
February 4, 1997, Registration No. 333-21057 ("TV
Filme's S-4")).
*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 (incorporated
herein by reference to Exhibit 4.2 to TV Filme's S-4).
*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
(incorporated herein by reference to Exhibit 4.3 to TV
Filme's S-4).
*4.4 Note, dated December 20, 1996, of ITSA to TV Filme
(incorporated herein by reference to Exhibit 4.4 to TV
Filme's S-4).
*4.5 Note Pledge Agreement, dated as of December 20, 1996,
between TV Filme and IBJ Schroder Bank & Trust
Company, as Collateral Agent (incorporated herein by
reference to Exhibit 4.5 to TV Filme's S-4).
*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
(incorporated herein by reference to Exhibit 4.6 to TV
Filme's S-4).
*4.7 Subsidiary Guarantee, dated as of December 20, 1996,
made by TV Filme Brasilia Servicos de Telecomunicacoes
(incorporated herein by reference to Exhibit 4.7 to TV
Filme's S-4).
*4.8 Subsidiary Guarantee, dated as of December 20, 1996,
made by TV Filme Belem Servicos de Telecomunicacoes
(incorporated herein by reference to Exhibit 4.8 to TV
Filme's S-4).
*4.9 Subsidiary Guarantee, dated as of December 20, 1996,
made by TV Filme Goiania Servicos de Telecomunicacoes
(incorporated herein by reference to Exhibit 4.9 to TV
Filme's S-4).
*10.1 Amended and Restated Stock Option Plan (incorporated
herein by reference to Exhibit 10.1 to TV Filme's
Annual Report on Form 10-K for the year ended
December.31, 1998).+
*10.2 Form of Stock Option Agreement (incorporated herein by
reference to Exhibit 10.2 to TV Filme's Form S-1).+
50
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
*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 Albuquerque, Mr. Carlos Andre
Studart Lins de Albuquerque and Ms. Maria Veronica
Studart Lins de Albuquerque (incorporated herein by
reference to Exhibit 10.3 to TV Filme's S-4).
*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 (incorporated herein by
reference to Exhibit 10.4 to TV Filme's S-4).
*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 (incorporated
herein by reference to Exhibit 10.5 to TV Filme's
S-4).+
*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 (incorporated
herein by reference to Exhibit 10.6 to TV Filme's
S-4).+
*10.7 Programming License Agreement, dated as of June 27,
1996, entered into by and between TV Filme and Tevecap
(incorporated herein by reference to Exhibit 10.12 to
TV Filme's S-4).
*10.8 Master Operating Agreement, dated as of July 26, 1996,
entered into by and among TV Filme, ITSA and TV Filme
Servicos (incorporated herein by reference to Exhibit
10.13 to TV Filme's S-4).
*10.9 Articles of Association of TV Filme Servicos
(incorporated herein by reference to Exhibit 10.14 to
TV Filme's S-4).
*10.10 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).+
**10.11 Restructuring Agreement, dated January 24, 2000 by and
among TV Filme, Inc. and Specified Holders (included
as Exhibit B to the to the First Amended Plan of
Reorganization attached hereto as Exhibit 2.2).
**21 List of Subsidiaries of TV Filme.
**23.1 Consent of Ernst & Young Auditores Independentes S.C.,
independent auditors.
**24 Powers of Attorney (Appears on signature page).
**27.1 Financial Data Schedule.
- --------------
+ Management contract or compensatory plan or arrangement.
* Incorporated herein by reference.
** Filed herewith.
51
EXHIBIT 2.1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
- --------------------------------
In re: Chapter 11
TV FILME, INC., Case No. 00-342(PJW)
Debtor.
- -------------------------------
FIRST AMENDED
DISCLOSURE STATEMENT
PURSUANT TO SECTION 1125 OF
THE BANKRUPTCY CODE
February 29, 2000
KELLEY DRYE & WARREN LLP
Mark I. Bane (MB 4883)
Karen Ostad (KO 5596)
101 Park Avenue
New York, New York 10178
212) 808-7800
SAUL, EWING, REMICK & SAUL LLP
Norman L. Pernick (DE# 2290)
222 Delaware Avenue, Suite 1200
Wilmington, Delaware 19899
(302) 421-6824
COUNSEL TO THE DEBTOR AND DEBTOR IN POSSESSION
<PAGE>
TABLE OF CONTENTS
I. INTRODUCTION..........................................................1
A. What is Chapter 11?..........................................1
B. What is a Plan of Reorganization?............................1
C. What is a Disclosure Statement?..............................1
D. How Do I Vote?...............................................2
E. The Purpose of this Disclosure Statement.....................2
F. Representations..............................................3
G. Summary of the Plan..........................................3
1. Generally...........................................3
2. Classification and Treatment of
Claims and Interests................................4
II. GENERAL INFORMATION...................................................5
A. Background Information.......................................5
1. The Debtor and Its Subsidiaries.....................5
2. Principal Liabilities and Stock Ownership
of the Debtor.......................................6
3. Assets of the Debtor................................7
B. Significant Events Preceding the Commencement of the
Reorganization Case..........................................7
1. The Failed Interest Payment and the Forbearance
Agreement...........................................7
2. The Restructuring Agreement.........................8
C. Debtor's Chapter 11 Case....................................10
1. Commencement of Chapter 11 Case....................10
2. Other Matters......................................10
III. GENERAL INFORMATION REGARDING THE PLAN...............................11
A. Introduction................................................11
B. Description of Individual Classes and the Treatment
of Each Class Under the Plan................................12
1. Administrative Expense Claims......................12
i
<PAGE>
2. Priority Tax Claims................................13
3. Class 1-- Priority Non-Tax Claims..................13
4. Class 2-- Senior Secured Claims....................13
5. Class 3-- General Unsecured Claims.................14
6. Class 4-- Equity Interests in the Debtor...........14
C. Other Provisions Of The Plan................................14
1. Implementation of the Plan.........................14
2. Transfer and Gains Taxes; Encumbrances.............15
3. Exchange of Secured Notes; Termination
of Indenture.......................................15
4. Exchange of Equity Interests.......................15
5. Appointment of Disbursing Agent....................15
6. Distributions Under the Plan.......................16
7. Conditions Precedent to Confirmation
of the Plan........................................17
8. Conditions Precedent to the Effective Date
of the Plan........................................17
9. Retention of Jurisdiction..........................18
IV. EFFECTS OF CONFIRMATION OF THE PLAN..................................18
A. Discharge of Debtor.........................................18
B. Release From Claims and Liabilities.........................19
1. Plan Releasees.....................................19
2. Affiliate Releasees................................19
C. Injunction..................................................20
D. Possible Objections to Affiliate Releases
and Injunction..............................................20
E. Vesting of Property in Reorganized Debtor...................21
V. INFORMATION ABOUT THE CLAIMS ALLOWANCE, OBJECTION AND
ESTIMATION PROCEDURES................................................21
A. Allowance of Claims and Equity Interests....................21
B. Objections to Claims and Equity Interests...................21
ii
<PAGE>
C. Estimation of Claims for Distribution Purposes..............22
VI. VOTING PROCEDURES....................................................22
A. Vote Required for a Class to Accept the Plan................22
B. Who May Vote................................................23
1. Impaired Classes...................................23
2. Classes that are not Impaired......................23
3. Temporary Allowance of Claims or Equity
Interests for Voting Purposes......................23
4. One Vote...........................................23
5. Record Date for Voting Purposes....................23
C. Voting Procedures...........................................23
1. Ballots............................................23
2. Voting Deadline....................................24
3. Brokerage Firms, Banks and Other Nominees..........24
4. Other Signatories..................................24
5. Waivers of Defects, Irregularities, etc............24
VII. EXEMPTIONS FROM SECURITIES ACT REGISTRATION..........................25
A. The Solicitation............................................25
B. Issuance of New Secured Notes and New Equity Interests......25
VIII. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............................26
A. Tax Consequences to Debtor..................................27
1. Discharge of Indebtedness Income...................27
2. Limitations of NOLs and Other Tax Attributes
of the Debtor......................................27
3. Alternative Minimum Tax............................28
B. Federal Income Tax Consequences to Holders of Secured Notes
and Holders of Equity Interests.............................28
1. Holders of Equity Interests........................28
2. Holders of Secured Notes...........................28
iii
<PAGE>
C. Backup Withholding and Information Reporting for U.S.
Holders of Secured Notes and Holders of Equity
Interests...................................................30
D. Importance of Obtaining Professional Tax Assistance.........30
IX. REQUIREMENTS FOR CONFIRMATION OF THE PLAN............................30
A. Section 1129(a).............................................30
1. Classification of Claims and Interests.............30
2. Best Interests of Creditors........................30
3. Feasibility of the Plan............................31
4. Directors of Reorganized Debtor....................31
5. Management of the Reorganized Debtor...............31
6. Acceptance by Impaired Classes.....................31
B. Cram Down of the Plan.......................................32
C. Risk Factors................................................32
1. Risk of Non-Confirmation of the Plan...............32
2. The New Secured Notes and New Equity Interests.....33
3. Liquidity..........................................33
4. Section 1146(c) Transfer Tax Exemption.............33
5. Brazilian Government Approval......................33
D. Alternatives to Confirmation and Consummation of the Plan...33
1. Continuation of the Reorganization Case............34
2. Alternative Plans of Reorganization................34
3. Liquidation Under Chapter 7........................34
X. CONCLUSION...........................................................35
EXHIBIT 1 PLAN OF REORGANIZATION.............................................36
EXHIBIT 2 FORM 10K...........................................................37
EXHIBIT 3 FORM 10Q...........................................................38
EXHIBIT 4 LIQUIDATION ANALYSIS...............................................39
iv
<PAGE>
I. INTRODUCTION
TV Filme, Inc. (the "Debtor") submits this Disclosure Statement to the
holders of Claims against the Debtor (collectively, the "Creditors") and the
holders of Equity Interests in the Debtor in connection with (i) the
solicitation of acceptances or rejections of the proposed First Amended Plan of
Reorganization dated as of February 29, 2000 (the "Plan"), a copy of which is
attached hereto as Exhibit 1 and (ii) the hearing to consider confirmation of
the Plan (the "Confirmation Hearing") scheduled for April 10, 2000 at 9:30 a.m.
Eastern Time. UNLESS OTHERWISE DEFINED HEREIN, ALL CAPITALIZED TERMS CONTAINED
HEREIN SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE PLAN.
The Board of Directors of the Debtor has approved the Plan and recommends
that all holders of impaired Claims and impaired Equity Interests entitled to
vote submit ballots accepting the Plan and the transactions contemplated hereby.
The Plan is based upon a Restructuring Agreement (the "Restructuring
Agreement") dated as of January 24, 2000, among the Debtor and certain specified
holders ("Specified Holders") of the Debtor's 12-7/8% Senior Notes due 2004 (the
"Secured Notes"). PURSUANT TO THE RESTRUCTURING AGREEMENT, THE SPECIFIED
HOLDERS, WHO HOLD OVER 65% OF THE OUTSTANDING SECURED NOTES, HAVE COMMITTED TO
VOTE IN FAVOR OF THE PLAN AND UNANIMOUSLY RECOMMEND THE ACCEPTANCE OF THE PLAN
BY ALL HOLDERS OF THE SECURED NOTES.
A. WHAT IS CHAPTER 11?
Chapter 11 is the principal reorganization chapter of the Bankruptcy Code.
A chapter 11 case can be commenced in one of two ways: (i) through a voluntary
petition filed by the debtor, or (ii) through an involuntary petition filed by
creditors of the debtor. If the case is commenced through an involuntary
petition, the involuntary case can be converted to a voluntary case if the
debtor consents to the entry of an order for relief. The period between the
filing of an involuntary petition and the entry of an order for relief is known
as the "gap period." In a voluntary case under chapter 11, the debtor becomes a
debtor in possession and is given a period of time within which to organize its
affairs, to review its assets and obligations and to reorganize its business.
B. WHAT IS A PLAN OF REORGANIZATION?
The principal purpose of a chapter 11 case is to facilitate the formulation
of a plan of reorganization which provides for the restructuring of a debtor's
liabilities and the treatment of its equity interests. The Plan proposed by the
Debtor provides for such a restructuring to be accomplished through the issuance
of New Secured Notes and New Equity Interests in the Reorganized Debtor, and the
distribution of Cash to Creditors.
C. WHAT IS A DISCLOSURE STATEMENT?
After a plan of reorganization has been proposed, the holders of claims
against, or equity interests in, the debtor that are impaired by the terms of
the plan and that are to receive distributions (in cash, securities or other
property) under the plan are entitled to vote on whether to accept the proposed
plan. The Bankruptcy Code requires disclosure of "adequate information" to all
such voting creditors and equity holders by way of a disclosure statement before
the debtor may solicit any votes on a plan. The Bankruptcy Code provides that a
disclosure statement containing "adequate information" must contain "information
of a kind, and in sufficient detail, as far as is reasonably practicable in
light of the nature and history of the debtor and condition of the debtor's
books and records, that would enable a hypothetical reasonable investor typical
of holders of claims or interests of the relevant class to make an informed
judgment about the plan."
The Debtor presents this Disclosure Statement to the voting holders of
Allowed Claims against and Allowed Equity Interests in the Debtor in order to
provide each such voting holder with sufficient information to make an informed
decision as to whether to accept or reject the Plan. The Debtor is also making
this Disclosure Statement available to the holders of Administrative Claims,
Priority Tax Claims, and General Unsecured Claims in order to provide such
holders with additional information to evaluate the Plan.
1
<PAGE>
D. HOW DO I VOTE?
Only persons holding Allowed Claims or Allowed Equity Interests in classes
impaired under the terms of the Plan that are to receive a distribution or are
agreeing to waive the right to receive a distribution from the Debtor are
entitled to vote. The Debtor is soliciting the votes of holders of Allowed
Claims in Class 2 and Allowed Equity Interests in Class 4. The classification of
Claims is discussed in Section I.G.2. of this Disclosure Statement. Under the
Plan, holders of Allowed Priority Non-Tax Claims and Allowed General Unsecured
Claims in Classes 1 and 3 are unimpaired and are, therefore, conclusively
presumed to have accepted the Plan without the need for a solicitation of their
votes. Holders of Senior Secured Claims (Class 2) and Equity Interests (Class 4)
are entitled to vote on the Plan.
TO VOTE ON THE PLAN, A VOTING HOLDER OF AN ALLOWED CLAIM OR EQUITY INTEREST
MUST COMPLETE THE BALLOT (THE "BALLOT") ENCLOSED WITH THIS DISCLOSURE STATEMENT
AND MAIL OR DELIVER THE BALLOT SO THAT IT IS RECEIVED BY THE DEBTOR'S COUNSEL,
KELLEY DRYE & WARREN LLP, 101 PARK AVENUE, NEW YORK, NEW YORK 10178, ATTN: JAY
HEINRICH, ESQ. (TEL. (212) 808-5073) (THE "VOTING AGENT"), NO LATER THAN 4:00
P.M., EASTERN TIME, ON APRIL 6, 2000 (THE "VOTING DEADLINE").
FOR A DETAILED DISCUSSION OF VOTING
PROCEDURES PLEASE REVIEW SECTION VI OF THIS DISCLOSURE
STATEMENT ENTITLED "VOTING PROCEDURES".
Section 1129(a) of the Bankruptcy Code requires that each class of claims
or interests that is impaired under a plan accept the plan, subject to the
"cramdown" exception described below. A class of Claims or Equity Interests
under the Plan will have accepted the Plan if the Plan is accepted by at least
two-thirds in amount and more than one-half in number of the holders of Allowed
Claims or Allowed Equity Interests in such class which actually cast ballots for
acceptance or rejection of the Plan. Pursuant to the "cramdown" exception, a
plan may be confirmed even if the plan is not accepted by all impaired classes,
as long as at least one impaired class of claims has accepted the plan. The Plan
may be confirmed under the cramdown provisions of the Bankruptcy Code if the
Plan (i) does not discriminate unfairly, and (ii) is fair and equitable with
respect to the classes which are impaired under, and which have not accepted,
the Plan. The Debtor believes that the Plan satisfies these requirements and may
be confirmed under section 1129(b) of the Bankruptcy Code. For more detailed
information regarding cramdown, see Section IX.B. of this Disclosure Statement
entitled "Cram Down of the Plan".
E. THE PURPOSE OF THIS DISCLOSURE STATEMENT.
The purpose of this Disclosure Statement is to provide holders of Allowed
Claims and Allowed Equity Interests that are impaired by the terms of the Plan
with adequate information to make an informed judgment with respect to the Plan
prior to exercising their right to vote to accept or reject the Plan. This
information includes, among other matters, a brief history of the Debtor, and a
description of the Debtor's assets and liabilities, the distributions that will
be made under the Plan and an explanation of how the Plan will be implemented.
THE DISCLOSURE STATEMENT AND PLAN HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE BANKRUPTCY COURT, THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION. NOR HAS THE BANKRUPTCY COURT, THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF THE PLAN OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THE
DISCLOSURE STATEMENT. FURTHERMORE, ANY SUBSEQUENT APPROVAL BY THE BANKRUPTCY
COURT OF THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE EITHER A GUARANTY OF THE
ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN OR AN ENDORSEMENT
OF THE PLAN BY THE BANKRUPTCY COURT.
THE DEBTOR IS RELYING ON, AMONG OTHER THINGS, SECTION 1145 OF THE
BANKRUPTCY CODE, TO EXEMPT FROM REGISTRATION PURSUANT TO THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS, THE OFFER OF THE NEW
SECURED NOTES AND NEW EQUITY INTERESTS WHICH MAY BE DEEMED TO BE MADE PURSUANT
TO THE SOLICITATION OF ACCEPTANCES TO THE PLAN.
2
<PAGE>
ALL CREDITORS AND HOLDERS OF EQUITY INTERESTS ARE ENCOURAGED TO READ THIS
DISCLOSURE STATEMENT AND ITS EXHIBITS CAREFULLY AND IN THEIR ENTIRETY BEFORE
DECIDING TO VOTE EITHER TO ACCEPT OR REJECT THE PLAN. THE DISCLOSURE STATEMENT
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE SPECIFIC AND DETAILED
INFORMATION SET FORTH IN THE PLAN. ANY PERCEIVED INCONSISTENCIES BETWEEN THE
INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT AND THE TERMS OF THE PLAN ARE
TO BE RESOLVED IN FAVOR OF THE ACTUAL TERMS OF THE PLAN AS SET FORTH THEREIN.
THE ESTIMATES OF CLAIMS SET FORTH HEREIN MAY VARY FROM THE FINAL AMOUNTS OF
CLAIMS ALLOWED BY THE BANKRUPTCY COURT. UNLESS OTHERWISE INDICATED, THE
INFORMATION PRESENTED HEREIN IS UNAUDITED.
F. REPRESENTATIONS.
No representations or other statements concerning the Debtor are authorized
other than those expressly set forth in this Disclosure Statement and the Plan.
You should not rely upon any representations or inducements made to secure your
acceptance of the Plan, other than those set forth in this Disclosure Statement
and the Plan.
The information presented herein was prepared by the Debtor and its
professionals with financial and other information provided by the Debtor. Each
Creditor and holder of an Equity Interest is urged to review the Plan in full
prior to voting on it (if so entitled to vote) to ensure a complete
understanding of the Plan and this Disclosure Statement.
This Disclosure Statement is intended for the sole use of Creditors,
holders of Equity Interests, and other parties in interest, and for the sole
purpose of assisting such parties in making an informed decision about the Plan.
THE DEBTOR BELIEVES THAT THE PLAN REPRESENTS THE BEST RECOVERIES TO
CREDITORS AND HOLDERS OF EQUITY INTERESTS. THE DEBTOR, THEREFORE, BELIEVES THAT
ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF CREDITORS AND HOLDERS OF
EQUITY INTERESTS, AND RECOMMENDS THAT CREDITORS AND HOLDERS OF EQUITY INTERESTS
VOTE TO ACCEPT THE PLAN.
THE SPECIFIED HOLDERS AND THE DEBTOR HAVE ENTERED INTO A RESTRUCTURING
AGREEMENT WHEREBY SUCH PARTIES HAVE AGREED TO SUPPORT THE PLAN. IF THE REQUISITE
VOTES ARE CAST IN FAVOR OF THE PLAN, AND THE EFFECTIVE DATE OF THE PLAN OCCURS,
ALL CREDITORS AND HOLDERS OF EQUITY INTERESTS (INCLUDING THOSE WHO DO NOT SUBMIT
BALLOTS TO ACCEPT OR REJECT THE PLAN) WILL BE BOUND BY THE PLAN AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
IMPORTANT: THIS DISCLOSURE STATEMENT CONTAINS INFORMATION THAT MAY BEAR
UPON YOUR DECISION TO ACCEPT OR REJECT THE PLAN. PLEASE READ THIS DOCUMENT WITH
CARE.
G. SUMMARY OF THE PLAN.
1. Generally.
The following is a brief summary of the Plan. This summary is qualified in
its entirety by reference to the provisions of the Plan. For a more detailed
description of the terms and provisions of the Plan, see "General Information
Regarding the Plan" at Section III of this Disclosure Statement and review the
Plan itself which is Exhibit 1 hereto. To implement the Plan, the Debtor will
form a new Cayman Islands entity (the "Reorganized Debtor") to which the Debtor
will transfer its Assets and which will be the successor in interest to the
3
<PAGE>
Debtor upon the Effective Date. The Reorganized Debtor will contribute as equity
to its subsidiary, ITSA, such portion of an existing inter-company note owed to
it by ITSA (the "ITSA Note") equal to $105 million less an amount equal to the
amount of the fee, if any, imposed by the Central Bank of Brazil (the "Central
Bank") in connection with the Central Bank's approval of the debt restructuring
contemplated by the Plan (the "Central Bank Fee"). The terms of the remaining
amount due on the ITSA Note, which remaining amount will equal $35 million plus
an amount equal to the amount of the Central Bank Fee, will be amended and
restated, and new notes ("New Secured Notes") in the aggregate principal amount
of $35 million plus an amount equal to the amount of the Central Bank Fee (the
"New Note Amount") will be issued to the Reorganized Debtor which will then
assign the New Secured Notes to holders of the Secured Notes, together with (i)
$25 million in Cash and (ii) 80% of the New Equity Interests in the Reorganized
Debtor. Allowed General Unsecured Claims, if any, will receive payment in full
in Cash, the Debtor's management will receive 15% of the New Equity Interests
and holders of Allowed Equity Interests will receive 5% of the New Equity
Interests.
2. Classification and Treatment of Claims and Interests.
The following is a brief summary of the treatment of holders of Claims
against, and Equity Interests in, the Debtor under the Plan and should not be
relied on for voting purposes. This summary does not purport to be complete. A
more complete description of the Plan is provided in Section III.B. of this
Disclosure Statement, "Description of Individual Classes and the Treatment of
Each Class Under the Plan."
The Bankruptcy Code does not require administrative and certain other
priority claims to be classified under a plan of reorganization. Accordingly,
Administrative Expense Claims and Priority Tax Claims are not classified in the
Plan. The Plan categorizes into four (4) classes certain Claims against, and
Equity Interests in, the Debtor. In addition, the Plan specifies the manner in
which the Claims and Equity Interests in each class are to be treated. HOLDERS
OF CLAIMS AGAINST AND EQUITY INTERESTS IN THE DEBTOR ARE URGED TO READ THE PLAN
AND MAY WISH TO CONSULT WITH LEGAL COUNSEL WITH RESPECT THERETO.
The table below provides a summary of the classification and treatment of
Claims and Equity Interests under the Plan. Total Claims represent the Debtor's
best estimate of Allowed amounts. Since there has not yet been a bar date
established for Creditors and holders of Equity Interests and any Claim
estimation and reconciliation procedure will be an ongoing process in the
Reorganization Case, the actual amount of the Claims may vary from the Debtor's
estimate. Reference should be made to the terms and provisions of this
Disclosure Statement in their entirety and the full version of the Plan for a
complete description of the classification and treatment of Claims and Equity
Interests. The outcome of various issues described herein and therein will
affect the ultimate Allowed amounts and classification of Claims and Equity
Interests.
Classes and Claim Types Treatment of Classes of Claims
Administrative Expense Paid in full, in Cash, on the Effective Date,
Claims (Unclassified) unless paid on otherwise agreed terms. See
Total Claims: Section III.B.l.
Approx. $6,500,000
Priority Tax Claims (Unclassified) Paid in full, in Cash, on the Effective Date,
Total Claims: unless paid on otherwise agreed terms. See
Approx. $-0- Section III.B.2.
Class 1 Unimpaired.
Priority Non-Tax Claims Paid in full, in Cash, on the Effective Date,
Total Claims: unless paid on otherwise agreed terms. See
Approx. $-0- Section III.B.3.
4
<PAGE>
Class 2 Impaired.
Senior Secured Claims In exchange for the Secured Notes, on the
Total Claims: Effective Date, as soon thereafter as is
$140,000,000, plus all interest practicable, each holder of an Allowed Class
accrued under Indenture from and 2 Senior Secured Claim will receive, up to
after December 15, 1998 through the full amount of its Allowed Senior
the Petition Date. Secured Claim, its Ratable Portion of (a)
$25 million in Cash, (b) New Secured Notes in
the aggregate principal amount of the New
Note Amount and (c) 80% of the New Equity
Interests. All Deficiency Claims pursuant to
the Secured Notes shall be extinguished under
section 1111(b) (1) (A) (i) of the Bankruptcy
Code. See Section III.B.4.
Class 3 Unimpaired
General Unsecured Claims Unless a holder of an Allowed Unsecured Claim
Total Claims: agrees to a different treatment, the Plan
Approx. $-0- leaves such Claims unimpaired pursuant to
section 1124(2) of theBankruptcy Code. See
Section III.B.5
Class 4 Impaired.
Equity Interests In exchange for the Equity Interests, on the
Effective Date, or as soon thereafter as is
practicable, each holder of an Allowed Class
4 Equity Interest will receive its Ratable
Portion of 5% of the New Equity Interests See
Section III.B.6.
II. GENERAL INFORMATION
This part of the Disclosure Statement provides general information about
the Debtor.
A. BACKGROUND INFORMATION.
1. The Debtor and Its Subsidiaries.
The Debtor is a corporation organized under the laws of the State of
Delaware. In connection with an initial public offering of its common stock, the
Debtor was formed in April 1996 to become the holding company of and successor
to ITSA-Intercontinental Telecomunicacoes Ltda. ("ITSA"), a Brazilian company,
and its subsidiaries. Annexed hereto as Exhibit 2 is a copy of the Debtor's Form
10K for the fiscal year ended December 31, 1998 filed with the SEC. Annexed
hereto as Exhibit 3 is a copy of the Debtor's Form 10Q for the quarter ended
September 30, 1999 filed with the SEC.
The Debtor's interests in ITSA are held as follows: (i) 29.09% of ITSA is
owned by the Debtor; (ii) 70.9% of ITSA is owned by the Debtor's wholly-owned
subsidiary, TV Filme of Cayman Ltd., a Cayman Island company ("TV Filme of
Cayman"); and (iii) .01% of ITSA is owned by the Debtor's wholly-owned
subsidiary, TV Filme Sub Inc., a Delaware corporation ("TV Filme Sub").
ITSA and its subsidiaries (collectively, the "Subsidiaries") develop, own
and operate pay television systems in markets in Brazil. The Debtor's material
subsidiaries are as follows: TV Filme Brasilia Servicos de Telecomunicacoes
Ltda., TV Filme Belem Servicos de Telecomunicacoes Ltda., TV Filme Goiania
5
<PAGE>
Servicos de Telecomunicacoes Ltda. and TV Filme Sistemas Ltda. The Subsidiaries
provide wireless cable operating systems in the cities of Brasilia, Goiania,
Belem and Campina Grande and hold licenses to operate pay television systems in
six additional markets in Brazil.
2. Principal Liabilities and Stock Ownership of the Debtor.
a. General Description of the Secured Notes. The Debtor's liabilities
consist principally of the 12-7/8% Senior Notes due 2004 (the "Secured Notes")
issued in the principal amount of $140 million pursuant to an Indenture dated as
of December 20, 1996 (the "Indenture") between the Debtor and IBJ Schroeder Bank
and Trust Company ("IBJ") as Indenture Trustee. Thereafter, IBJ changed its name
to IBJ Whitehall Bank and Trust Company. On October 6, 1999, the Bank of New
York acquired the corporate trust assets of IBJ and now serves as successor
Indenture Trustee under the Indenture (the "Indenture Trustee"). The Indenture
governs the issuance of the Secured Notes, the rights of the holders, the rights
and duties of the Indenture Trustee, and the rights and obligations of the
Debtor with respect to the Secured Notes.
The Secured Notes provide for the payment of interest at the rate of
12-7/8% semi-annually in arrears on June 15 and December 15 of each year
beginning on June 15, 1997. The stated maturity date of the Secured Notes is
December 15, 2004. As of October 31, 1999, the outstanding principal and
interest due and owing on the Secured Notes was approximately $155,771,875. The
Secured Notes are the direct, unsubordinated, secured and non-recourse
obligations of the Debtor.
The Indenture contains covenants restricting the Debtor from taking certain
actions such as incurring additional indebtedness other than the Secured Notes.
The Indenture also (i) restricts the Debtor from merging into or consolidating
with any other corporation, or transferring the Debtor's properties and assets
to any person or entity except certain Subsidiaries; (ii) requires that the
Debtor cause to be provided to the Indenture Trustee the Debtor's financial
statements on an annual basis; and (iii) provides for certain Events of Default
(as defined in the Indenture). The descriptions herein of the Secured Notes and
the Indenture are qualified in their entirety by reference to the Secured Notes,
the Indenture and the other documents referenced in the Indenture. Copies of the
Indenture are available to the holders of Secured Notes from the Indenture
Trustee or the Debtor's attorneys upon request and at the expense of the
requesting holder.
There is currently no established market for the Debtor's debt securities.
For a detailed disclosure of all transactions between Debtor and insiders
of the Debtor, see Debtor's Annual Report on Form 10-K for the year ended
December 31, 1998, Item 12. "Security Ownership of Certain Beneficial Owners and
Management" on page 42 and Item 13. "Certain Relationships and Related
Transactions" on page 44. The only relevant update to the information presented
in Item 12 is that Alvaro J. Aguirre, who is no longer an officer or director of
the Debtor, has since sold all 9,294 shares of Common Stock and is no longer a
stockholder of the Debtor. The only relevant update to the information presented
in Item 13 is that, in the year ended December 31, 1999, TVA Sistema and its
affiliates derived revenues from Debtor in the aggregated approximate amount of
$7.6 million. No insiders are party to any material litigation.
From July 30, 1996 to February 4, 1999, the Debtor's common stock, $0.01
par value per share (the "Common Stock"), was quoted on the Nasdaq National
Market ("Nasdaq") under the symbol "PYTV." Effective February 4, 1999, the
Common Stock was delisted from Nasdaq based on the Debtor's inability to comply
with certain requirements for continued listing, including the net tangible
assets and minimum bid price requirements. Following delisting, the Common Stock
has been listed on the OTC Bulletin Board, sporadically traded in the
over-the-counter-market and reported in the "pink sheets." The OTC Bulletin
Board is a controlled quotation service that offers real-time quotes, last-sale
prices and volume information in over-the-counter equity securities.
6
<PAGE>
The OTC Bulletin Board stock summaries are compiled only once a year and
are not updated throughout the year. The following table reflects the high and
low sale prices for the Common Stock, as reported by the OTC Bulletin Board and
Nasdaq, for the periods indicated:
<TABLE>
High Low
(Per Share)
<S> <C> <C> <C>
OTC Bulletin Board
1999.....................................$ 1-5/8 $ 1/8
Nasdaq National Market
1998
Fourth Quarter...........................$ 2-1/8 $ 1/4
Third Quarter............................ 4 7/8
Second Quarter.......................... 5 1-7/8
First Quarter........................... 5-7/8 2-3/4
</TABLE>
On February 23, 2000, there were 10,824,594 shares of the Debtor's Common
Stock outstanding, and approximately 17 stockholders of record of the Common
Stock.
b. Collateral for the Secured Notes. The Debtor's obligations under the
Secured Notes are secured by the Debtor's pledge of an intercompany note in the
principal amount of $140 million from ITSA to the Debtor (the "ITSA Note").
In addition, the obligations under the Secured Notes are guaranteed by
ITSA. ITSA's guaranty of the Secured Notes is secured by ITSA's collateral
assignment of the Pledged Securities (as defined in the Indenture) owned by
ITSA.
Each of TV Filme Brasilia Servicos de Telecomunicacoes Ltda., TV Filme
Goiania Servicos de Telecomunicacoes Ltda. and TV Filme Belem Servicos de
Telecomunicacoes Ltda. executed and delivered a Subsidiary Guarantee as defined
in the Indenture.
c. Use of Proceeds of Secured Notes. The proceeds of the Secured Notes
($140 million) were loaned by the Debtor to ITSA, as evidenced by the ITSA Note.
Approximately $33.5 million of such proceeds were used by ITSA to purchase the
Pledged Securities, which were comprised of U.S. government securities. The
principal and interest earned from the Pledged Securities was used to pay the
first four scheduled interest payments on the Secured Notes, the last payment of
which occurred on December 15, 1998.
3. Assets of the Debtor.
The ITSA Note, the Debtor's stock in ITSA, and the Debtor's stock in the
Subsidiaries set forth in Schedule 1 to the Plan, constitute the principal
assets of the Debtor. As earlier noted, the Indenture Trustee is the collateral
assignee of the ITSA Note.
B. SIGNIFICANT EVENTS PRECEDING THE COMMENCEMENT OF THE REORGANIZATION CASE.
1. The Failed Interest Payment and the Forbearance Agreement.
During 1998 and the first quarter of 1999, the Debtor and its Subsidiaries
faced significant challenges that ultimately affected the Debtor's ability to
pay interest on the Senior Notes. The Brazilian government's delay in granting
wireless cable television licenses, the instability in emerging markets, the
devaluation of the Brazilian currency, the real, and the resulting decline in
7
<PAGE>
consumer spending on wireless cable television in the markets in which ITSA and
the Subsidiaries provide services, significantly impacted the Debtor's business
plan and its ability to service its indebtedness under the Indenture and
continue as a going concern. While the Debtor decided to commence discussions
with holders of the Senior Notes to pursue a comprehensive financial and
operational restructuring plan, the Debtor failed to make the required interest
payment on the Secured Notes on June 15, 1999.
The Indenture provides that failure to pay interest on the Secured Notes,
if not cured within 30 days of such failure, constitutes an Event of Default
under Section 6.1(b) of the Indenture. Section 6.2 of the Indenture provides
that upon the occurrence of an Event of Default, holders of at least 25% in
principal amount of the outstanding Secured Notes may declare the unpaid
principal of, and any accrued interest on, all the Secured Notes to be due and
payable immediately.
Shortly after June 15, 1999, the Debtor requested a meeting with certain
holders of the Secured Notes. The Debtor also requested that pending discussions
on the possible restructuring of the Debtor's obligations under the Secured
Notes, such holders forbear from enforcing any right to accelerate the amounts
due on the Secured Notes and from enforcing any other rights and remedies under
the Indenture. Such agreements to forbear were originally evidenced by
forbearance agreements among the Debtor and three holders of the Secured Notes
who collectively held approximately 54% of the principal amount of the Secured
Notes and who together with certain other holders of the Secured Notes formed an
unofficial committee of Noteholders (the "Ad Hoc Noteholders' Committee") to
represent the interests of the holders of the Secured Notes.
2. The Restructuring Agreement
After negotiations between the Debtor, the Ad Hoc Noteholders' Committee,
and other interested parties regarding restructuring of the Debtor's
obligations, the Debtor and the Specified Holders entered into a Restructuring
Agreement, a copy of which is annexed to the Plan as Exhibit B. In addition, the
Specified Holders who are signatories to the Restructuring Agreement have agreed
that so long as the Debtor is in compliance with the terms of the Restructuring
Agreement, they will forbear (and cause the Indenture Trustee to forbear) from
exercising their rights under the Secured Notes, the Indenture, applicable law
or otherwise, with respect to any default in existence or arising under the
Secured Notes or the Indenture during the term of the Restructuring Agreement.
The holders of the Secured Notes who participated in negotiations leading to the
Restructuring Agreement and are signatories to the Restructuring Agreement are
Resurgence Asset Management LLC and Romulus Holdings, Inc. Both the pre-petition
and post-petition fees and expenses of the professionals for the Ad Hoc
Noteholders' Committee are being paid by the Debtor. The Ad Hoc Noteholders'
Committee retained Jones Day Reavis & Pogue as counsel, and Chanin Capital
Partners as financial advisors. Prior to the Debtor's bankruptcy filing, the
Debtor paid approximately $1,165,232.30 in professional fees and expenses
incurred on behalf of the Ad Hoc Noteholders' Committee. Pursuant to the
pre-petition agreement entered into by the Debtor with Chanin Capital Partners,
upon confirmation of the Plan, Chanin Capital Partners will be entitled to a
success fee of 0.75% of the face amount of the Debtor's existing debt securities
that are restructured, against which any fees it has received (except the first
$300,000), or will receive, will be applied. In addition, the Plan provides that
all reasonable post-petition fees and expenses incurred by Jones Day Reavis &
Pogue and Chanin Capital Partners on behalf of the Ad Hoc Noteholders' Committee
will be paid by the Debtor. The Debtor had retained BT Alex Brown, (now Deutche
Banc Alex Brown), which was later joined by Lazard Freres & Co., LLC, as the
Debtor's financial advisors. Under the terms of such retention, the Debtor's
financial advisors will be entitled to a success fee of 1.5% of the face amount
of the Debtor's existing debt securities that are restructured.
8
<PAGE>
The Plan and the Disclosure Statement, and the Restructuring Agreement
discussed below, have been reviewed and negotiated extensively by the Debtor
with the Ad Hod Noteholders' Committee. The Indenture Trustee has also reviewed
and commented on these documents but played no substantive role in the
formulation of the Plan or related documents. While the Ad Hoc Noteholders'
Committee and its counsel act solely on behalf of the members of such committee,
it has been the view of the Debtor that the Ad Hoc Noteholders' Committee's
views and positions are generally representative of those of the holders of the
Secured Notes.
The Debtor has been advised that the holders of Secured Notes who have
executed the Restructuring Agreement own at least sixty-five percent (65%) of
the Secured Notes, and thus these holders alone practically satisfy the dollar
portion of the requisite majority necessary for Plan approval by the Class of
holders of Secured Notes. There is no assurance, however, that the Debtor will
obtain votes in sufficient number and dollar amount from the holders of Secured
Notes, as required by section 1126 (c) of the Bankruptcy Code, to obtain
acceptance of the Plan by such Class or otherwise to satisfy the requirements
for confirmation of the Plan under section 1129(a) of the Bankruptcy Code.
The interests of shareholders in reaching the Restructuring Agreement was
represented by the insider shareholders, who comprise approximately ninety (90%)
percent of the old shares of the Debtor. Non-insider shareholders did not
participate in any negotiations.
ALL HOLDERS OF CLAIMS AND EQUITY INTERESTS ARE ENCOURAGED TO REVIEW THE
RESTRUCTURING AGREEMENT IN ITS ENTIRETY.
The Restructuring Agreement provides, among other things:
(i) The Specified Holders approve of and agree to support the Bankruptcy
Court's approval of the form and substance of the Plan and Disclosure Statement
and the exhibits thereto;
(ii) Upon Bankruptcy Court approval of the adequacy of the Disclosure
Statement, the Specified Holders agree to vote in favor of the Plan;
(iii) Unless the Termination Event occurs (which is defined as failure by
the Debtor to obtain confirmation of the Plan within 120 days of the Petition
Date), the Specified Holders and their assignees agree to forbear (and to cause
the Indenture Trustee to forbear) from enforcing their rights and remedies under
the Secured Notes and the Indenture;
(iv) Upon the Effective Date, the Specified Holders agree to underwrite and
ensure the availability of a $10 million secured line of credit (the "Exit
Financing") to the Reorganized Debtor. The terms of the Exit Financing are as
follows:
o Maturity: twelve months from the Effective Date of the Plan.
o Interest: 15% annual interest rate, payable monthly, in cash.
o Fees:
(a) $400,000 (U.S.) up-front underwriting fee to be paid on the
Effective Date of the Plan pro rata to the Specified Holders, as
underwriters;
(b) $100,000 (U.S.) up-front administration fee to be paid on the
Effective Date of the Plan to Resurgence Asset Management LLC, as
administrator of the Exit Financing; and
(c) $300,000 (U.S.) facility fee to be paid only upon the initial
draw down, payable to the Exit Financiers on a pro rata basis.
o Each draw down on the Exit Financing will require the prior approval of the
board of directors of the Reorganized Debtor.
o Security: The Exit Financing will be secured on a pari passu basis with the
New Secured Notes.
o Participation: Each holder of in excess of $1 million in principal amount
of Secured Notes may participate on a pro rata basis in the Exit Financing
9
<PAGE>
if such party commits to do so in writing at least five (5) business days
prior to the Confirmation Hearing. Participating holders of Secured Notes
who commit to and actually loan the Debtor a pro rata portion of the Exit
Financing are referred to as the "Exit Financiers."
o Documentation: The loan, security and other documentation relating to the
Exit Financing will be negotiated and finalized by the parties on or prior
to the hearing on confirmation of the Plan.
(v) The Specified Holders agree to the terms of employment agreements to be
entered by the Reorganized Debtor and certain key employees on the Effective
Date, which agreements are annexed as exhibits to the Restructuring Agreement;
(vi) The Debtor agrees to restrictions on incurring indebtedness and on
certain transfers of its assets; and
(vii) The Debtor agrees to use its best efforts to seek expeditious
approval of the Disclosure Statement and confirmation of the Plan.
C. DEBTOR'S CHAPTER 11 CASE.
1. Commencement of Chapter 11 Case.
On January 26, 2000, (the "Petition Date") the Debtor commenced the
Reorganization Case by filing with the Bankruptcy Court a petition for relief
under chapter 11 of the Bankruptcy Code.
a. First-Day Orders. On or about the Petition Date, the Debtor submitted
the following motions and orders for Bankruptcy Court approval:
o Motion for Order Fixing Bar Date for Filing Proofs of Claim.
o Motion for Order Fixing Date, Time and Place for a Hearing to
Consider Approval of Disclosure Statement, Solicitation
Procedures and Confirmation of Plan of Reorganization.
o Motions for Orders Authorizing Retention of Professionals for the
Debtor.
b. Retention of Professionals. The Bankruptcy Code provides that the
retention of attorneys and other professionals must be approved by the
Bankruptcy Court. Prior to, or shortly after, approval of this Disclosure
Statement, the Debtor has retained or intends to retain the following
professionals in the Reorganization Case:
(i) Kelley Drye & Warren LLP as bankruptcy counsel;
(ii) Saul Ewing Remick & Saul LLP as local bankruptcy counsel in
Delaware;
(iii) Financial advisors to the Debtor;
(iv) Accountants for the Debtor; and
(v) Such other professionals as the Debtor may deem necessary or
appropriate.
In addition, the Debtor anticipates that the United States Trustee may
eventually appoint an Official Committee of Creditors ("Creditors' Committee")
in this case which will likely submit its own "first day orders," along with
supporting applications, to the Bankruptcy Court on or after the Petition Date.
These orders would possibly include, among others, (i) an order authorizing the
retention of Jones, Day, Reavis & Pogue as counsel to the Creditors' Committee
and (ii) an order authorizing the retention of Chanin Capital Partners as
financial advisor to the Creditors' Committee. As set forth in the Restructuring
Agreement, the Specified Holders have agreed to use their best efforts to be
appointed to the Creditors' Committee. At this point, however, the United States
Trustee has indicated that it will not appoint a Creditors' Committee.
2. Other Matters.
a. Executory Contracts and Unexpired Leases. The Plan constitutes and
incorporates a motion by the Debtor to reject, as of the Confirmation Date, all
10
<PAGE>
executory contracts and unexpired leases to which the Debtor is a party, except
for any executory contract or unexpired lease that (a) is identified on Schedule
2 to the Plan (which executory contracts and unexpired leases are expressly
assumed); (b) has previously been assumed pursuant to a Final Order, or (c) is
the subject of a separate motion filed by the Debtor pursuant to section 365 of
the Bankruptcy Code which is pending on the Effective Date.
b. Schedules, Bar Date and Objections to Claims.
(i) Schedules. On or about the Petition Date, the Debtor filed the
Schedules with the Bankruptcy Court. Subsequent amendments of the Schedules may
be necessary throughout the pendency of the Reorganization Case.
(ii) Bar Date. The Bankruptcy Court has entered an order (the "Bar Order")
establishing February 28, 2000 as the last date by which all proofs of claim or
proofs of interest must be filed (the "Bar Date"). Pursuant to the Bar Order:
(a) proofs of claim need not be filed by Creditors whose Claims are listed on
the Debtor's Schedules in the correct dollar amount and classification (i.e.,
secured, unsecured, priority) and are not listed as "disputed," "contingent" or
"unliquidated;" and (b) proofs of interest need not be filed by holders of
Equity Interests whose interests are registered in the official records of the
Debtor's stock transfer agent. The Indenture Trustee will file a proof of claim
on behalf of all holders of the Secured Notes based upon the principal and
interest due on the Secured Notes.
(iii) Objections to Claims and Equity Interests. As soon as practicable
after the Bar Date, a notice of dispute shall be sent by the Debtor to the
holders of any Claims or Equity Interests that the Debtor believes should not be
Allowed, in whole or in part. The Debtor will evaluate all filed proofs of claim
to determine whether a notice of dispute should be sent. Unless otherwise
provided herein or by order of the Bankruptcy Court, all objections to Claims or
Equity Interests shall be filed and served on or before the Confirmation Date
(except with respect to any claim filed by a governmental unit which deadline
for the filing of any objections thereto shall be two hundred ten (210) days
after the Effective Date). The Debtor or the Reorganized Debtor, as applicable,
shall have the authority (i) to file and litigate objections to Disputed Claims
and (ii) to settle or withdraw any objections to Claims and Equity Interests
upon approval of the Bankruptcy Court under Rule 9019 of the Bankruptcy Rules.
III. GENERAL INFORMATION REGARDING THE PLAN
A. INTRODUCTION.
The following is qualified in its entirety by reference to the provisions
of the Plan, a copy of which is annexed to this Disclosure Statement as Exhibit
1 (together with Exhibits A and B thereto).
In general, a chapter 11 plan of reorganization (i) divides claims and
equity interests into separate classes, (ii) specifies the property that each
class is to receive under the plan, and (iii) contains other provisions
necessary to the reorganization of the debtor. For purposes of this Disclosure
Statement, the terms "Creditor" and "holder of an Equity Interest" refer to the
holder of a "Claim" or "Equity Interest," respectively, in a particular class
under the Plan. This Disclosure Statement (and the related Ballots and other
materials delivered together herewith) are being furnished to impaired classes
of Creditors and holders of Equity Interests that are entitled to vote to accept
or reject the Plan. Classes 2 and 4 are impaired classes under the Plan and are
entitled to vote.
A chapter 11 plan may specify that certain classes of claims or equity
interests are to remain unchanged by the reorganization effectuated by such
plan. Such classes are referred to as "unimpaired" and because of such favorable
11
<PAGE>
treatment are deemed to accept the plan. Accordingly, under section 1126(f) of
the Bankruptcy Code it is not necessary to solicit acceptances from the holders
of claims or equity interests in such unimpaired classes. Under the Plan,
Classes 1 and 3 are unimpaired and, therefore, are not entitled to vote on the
Plan. A chapter 11 plan also may specify that certain classes will not receive
any distribution of property. Under section 1126(g) of the Bankruptcy Code, such
classes are deemed to reject the plan and, therefore, need not be solicited to
vote to accept or reject the plan. Under the Plan, no Class is deemed to have
rejected the Plan.
The Effective Date of the Plan will occur on the later of eleven days after
the Confirmation Date if no stay of the Confirmation Order is then in effect, or
such other date as is fixed from time to time after the Confirmation Date by the
Debtor by filing a notice thereof with the Bankruptcy Court; but in no event
shall the Effective Date occur earlier than the date on which all of the
conditions precedent to the occurrence of the Effective Date set forth in
Section 11.2 of the Plan have been satisfied or waived.
B. DESCRIPTION OF INDIVIDUAL CLASSES AND THE TREATMENT OF EACH CLASS UNDER THE
PLAN.
Section 1122 of the Bankruptcy Code provides that a plan of reorganization
must designate classes of claims and interests, each of which must contain only
substantially similar claims or interests. The Plan provides for the payment of
certain Administrative Expense Claims and Priority Tax Claims that, consistent
with section 1123(a) (1) of the Bankruptcy Code, are not included in any Class
of Claims or Equity Interests.
The treatment of Administrative Expense Claims, Priority Tax Claims and
each of the Classes under the Plan is described below. Distributions to holders
of Allowed Claims are in full settlement, release and discharge of such Claims
and all other Claims of such holders and any rights of subordination among
Creditors, directly or indirectly relating to or arising out of the
transactions, agreements or instruments upon which such Claims were based.
A brief description, qualified in all respects by reference to the Plan
itself, of Administrative Expense Claims, Priority Tax Claims and each Class of
Claims and Equity Interests and their respective treatment under the Plan is as
follows:
1. Administrative Expense Claims.
Administrative Expense Claims are Claims that are accorded priority
treatment pursuant to section 503(b) (1) of the Bankruptcy Code. These are
Claims arising in connection with the actual and necessary costs of preserving
the assets of the Debtor's estate. The Plan provides that all Administrative
Expense Claims, which consist primarily of compensation for services rendered in
connection with the Reorganization Case and liabilities incurred in the ordinary
course of the Debtor's business during the Reorganization Case, accrued on or
prior to, but unpaid as of, the Effective Date, will be entitled to be paid, in
Cash, in full on the Effective Date. All requests for compensation or
reimbursement for services rendered and expenses incurred prior to the Effective
Date must be approved by the Bankruptcy Court after a hearing on notice as
provided under the Bankruptcy Code.
As set forth in Section II.C. of this Disclosure Statement, the Debtor and
the Creditors' Committee, if any, will seek to retain attorneys and other
professionals to assist them during the course of the Reorganization Case.
Pursuant to section 330 of the Bankruptcy Code, the Bankruptcy Court may allow
payment to these professionals for the services performed by them and
reimbursement of expenses incurred in connection therewith. Pursuant to section
503(b) (1) of the Bankruptcy Code, the Claims of such professionals for payment
constitute Administrative Expense Claims. Additionally, under section 503(b) of
the Bankruptcy Code, Creditors and their counsel who have made a "substantial
contribution" in the Reorganization Case may seek reimbursement of their fees
and expenses from the Debtor's estate by applying to the Bankruptcy Court.
Also included among the Administrative Expense Claims are the Claims of the
Indenture Trustee for any actual and necessary fees and expenses incurred by the
Indenture Trustee pursuant to the Indenture (whether before or after the
Petition Date) through and including the Effective Date, to the extent that such
amounts have not been paid to the Indenture Trustee during the Reorganization
Case, as well as the post-Petition Date fees and expenses of the professionals
retained by the Ad Hoc Noteholders' Committee.
12
<PAGE>
Pursuant to section 1129(a)(9)(A) of the Bankruptcy Code, each holder of an
Administrative Expense Claim accrued on or prior to, but unpaid as of, the
Effective Date which is allowed by the Bankruptcy Court will be paid in full, in
Cash, on the Effective Date, unless the holder of such a Claim has agreed to
different treatment. Allowed Administrative Expense Claims will be paid from
Distributable Cash.
Administrative Expense Claims are estimated to total approximately
$6,500,000.00.
2. Priority Tax Claims.
Priority Tax Claims are unsecured tax Claims that are accorded priority
pursuant to section 507(a)(8) of the Bankruptcy Code. The taxes entitled to such
priority are (i) taxes on income or gross receipts that meet the requirements
set forth in Bankruptcy Code section 507(a)(8)(A); (ii) property taxes meeting
the requirements of Bankruptcy Code section 507(a)(8)(B); (iii) taxes that were
required to be collected or withheld by the Debtor and for which the Debtor is
liable in any capacity as described in Bankruptcy Code section 507(a)(8)(C);
(iv) employment taxes on wages, salaries, or commissions that are entitled to
priority pursuant to Bankruptcy Code section 507(a)(3), to the extent that such
taxes also meet the requirements of Bankruptcy Code section 507(a)(8)(D); (v)
excise taxes of the kind specified in Bankruptcy Code section 507(a)(8)(E); (vi)
customs duties arising out of the importation of merchandise that meet the
requirements of Bankruptcy Code section 507(a)(8)(F); and (vii) prepetition
penalties related to any of the foregoing tax Claims to the extent such
penalties constitute compensation for actual pecuniary loss as provided for in
Bankruptcy Code section 507(a)(8)(G).
Pursuant to section 1129(a) (9) (C) of the Bankruptcy Code, each holder of
a Priority Tax Claim which is allowed by the Bankruptcy Court will be paid in
full, in Cash, on the Effective Date, unless the holder of such Claim has agreed
to a different treatment.
The Debtor does not believe that there are any Priority Tax Claims.
3. Class 1 -- Priority Non-Tax Claims.
Priority Non-Tax Claims are Claims entitled to priority under section
507(a) of the Bankruptcy Code, other than Administrative Expense Claims
described in section 507(a)(1) of the Bankruptcy Code and Priority Tax Claims
described in section 507(a)(8) of the Bankruptcy Code. Priority Non-Tax Claims,
to the extent that such Claims are entitled to priority under section 507(a) of
the Bankruptcy Code, include Claims for wages, salaries and commissions (up to
$4,300 per individual) earned within 90 days before the Petition Date.
The Plan provides that Allowed Priority Non-Tax Claims will be paid in
full, in Cash, on the Effective Date.
Priority Non-Tax Claims are unimpaired.
The Debtor does not believe that there are any Priority Non-Tax Claims.
4. Class 2 -- Senior Secured Claims.
Senior Secured Claims are Secured Claims governed by, arising under, or
related to, the Indenture or evidenced by any of the Secured Notes. The Debtor's
obligation to holders of the Senior Secured Claims is secured by the Debtor's
assignment of the ITSA Note.
The Plan provides that:
a. By virtue of an affirmative vote in favor of the Plan, holders of Senior
Secured Claims will be making an election pursuant to section 1111(b)(2) of the
Bankruptcy Code to treat their entire claim as a Senior Secured Claim. The
Senior Secured Claims against the Debtor shall be deemed to be Allowed Claims as
of the Petition Date in an amount equal to $140,000,000 plus all interest
accrued from and after December 15, 1998 through the Petition Date. By operation
of section 1111(b) (1) (A) (i) of the Bankruptcy Code, any Deficiency Claim
relating to the Senior Secured Claims shall be extinguished.
13
<PAGE>
b. On the Effective Date or as soon as practicable thereafter, in exchange
for the Secured Notes, each holder of a Secured Note shall received its Ratable
Portion of (i) $25 million in Cash, (ii) New Secured Notes in the aggregate
principal amount of the New Note Amount; and (iii) eighty percent (80%) of the
New Equity Interests of the Reorganized Debtor. Since the New Equity Interests
are being issued by the Reorganized Debtor, a Cayman Island entity, and the New
Secured Notes are issued by a Brazilian entity, holders of the New Equity
Interests and the New Secured Notes may not enjoy under Cayman Islands and
Brazilian law the same degree of disclosure, and identical legal rights, as did
the holders of the Equity Interests and the Secured Notes. Distributions to
holders of Secured Notes shall be made by the Disbursing Agent to the Indenture
Trustee for the benefit of the holders of Secured Notes. The Indenture Trustee
shall in turn make distributions under the Plan to holders of the Secured Notes.
Subsequent distributions to holders of the New Secured Notes will be made in
accordance with the terms of the New Indenture.
The form of New Secured Notes is annexed as Exhibit A to the New Indenture
and should be reviewed in its entirety for the terms thereof. The following is a
description of the material terms of the New Secured Notes, all of which are
subject to the terms of the New Indenture:
o Maturity: 5 years from Effective Date.
o Interest: 12% per annum, payable in cash or in kind as determined by
the board of directors of the Reorganized Debtor.
o Collateral: Secured by (1) first priority lien on all assets of ITSA
and the Subsidiaries and the proceeds thereof and (2) pledges of the
capital stock of ITSA and the Subsidiaries, to the extent permitted
under applicable law.
o Guaranty: Guaranteed by all of the subsidiaries of ITSA.
o Ranking: Senior to all other indebtedness of the Reorganized Debtor,
except the Exit Financing and certain exceptions set forth in the New
Indenture.
Senior Secured Claims are impaired.
5. Class 3 -- General Unsecured Claims.
General Unsecured Claims are all Claims which are not Secured Claims and
are not Administrative Expense Claims, Priority Tax Claims, or Priority Non-Tax
Claims. The Plan provides that Allowed General Unsecured Claims shall, except to
the extent that a holder of an Allowed General Unsecured Claim agrees to a
different treatment, be unimpaired in accordance with section 1124(2) of the
Bankruptcy Code.
The Debtor believes that General Unsecured Claims, other than Deficiency
Claims of Class 2 Creditors which are to be extinguished under the Plan, total
approximately $0.
6. Class 4 -- Equity Interests in the Debtor.
Class 4 consists of the Equity Interests in the Debtor.
The Plan provides that on the Effective Date, all Equity Interests in the
Debtor shall be extinguished. All options or warrants held by Equity Interest
holders shall also be extinguished. On the Effective Date or as soon as
practicable thereafter, holders of Allowed Equity Interests shall receive a
Ratable Portion of five percent (5%) of the New Equity Interests in the
Reorganized Debtor.
Class 4 Equity Interests are impaired.
C. OTHER PROVISIONS OF THE PLAN.
1. Implementation of the Plan.
To implement the Plan, the Debtor will form a new Cayman Islands entity as
the Reorganized Debtor. The Reorganized Debtor will not be incorporated in the
14
<PAGE>
United States because none of the assets or operations of the Reorganized Debtor
are located in the United States. Moreover, the perceived access to the United
States capital markets that compelled the 1996 incorporation of the Debtor in
the United States is no longer necessary or appropriate. On the Effective Date,
the Debtor will transfer all of the Debtor's Assets to the Reorganized Debtor
and the Reorganized Debtor will become the successor in interest to the Debtor.
Upon the Effective Date, the Reorganized Debtor will contribute as equity to its
subsidiary, ITSA, $105 million of the ITSA Note less an amount equal to the
amount of any Central Bank Fee. The terms of the remaining amount due on the
ITSA Note, which amount shall equal $35 million plus an amount equal to the
amount of the Central Bank Fee, will be amended and restated. In addition, New
Secured Notes in the aggregate principal amount of the New Note Amount will be
issued to the Reorganized Debtor, which will then assign the New Secured Notes
to holders of the Secured Notes, together with (i) $25 million in Cash and (ii)
80% of the New Equity Interests in the Reorganized Debtor. On or about the date
that the Court approves the adequacy of this Disclosure Statement, the Debtor
will be filing a form T-3 regarding the New Indenture, pursuant to the Trust
Indenture Act of 1939, as amended.
2. Transfer and Gains Taxes; Encumbrances.
The Plan provides that the Assets will be transferred free and clear of all
Claims of Creditors and all Equity Interests, except as may otherwise be
provided under the Plan. The Confirmation Order will provide that all
instruments of transfer to be executed or delivered under the Plan in connection
with any transfer of the Assets shall be free and clear of, and without the
payment of, any and all transfer, stamp, and similar taxes pursuant to section
1146(c) of the Bankruptcy Code.
3. Exchange of Secured Notes; Termination of Indenture.
The Indenture will terminate as of the Effective Date. As of the Effective
Date, the Secured Notes and the Indenture and all other documents executed or
delivered in connection with the aforesaid documents shall be of no further
force or effect, except that the holders of the Secured Notes shall be entitled
to the New Secured Notes, the protections afforded under the New Indenture, the
New Equity Interests and the Cash distributions payable to Class 2 Creditors
under the Plan. The Debtor will have no further obligations under the Indenture
and will be relieved of all obligations under the Indenture relating to the
Secured Notes. Termination of the Indenture will not impair the rights of the
holders of Senior Secured Claims to receive distributions on account of such
Claims pursuant to the Plan, and will not impair the rights of the Indenture
Trustee to enforce its charging lien, created in law, under the Plan, or
pursuant to the Indenture, against property that would otherwise be distributed
to holders of Senior Secured Claims.
4. Exchange of Equity Interests.
The Equity Interests in the Debtor shall be of no force or effect as of the
Effective Date, except that the holders of Allowed Equity Interests in the
Debtor shall be entitled to receive New Equity Interests as set forth in the
Plan. Holders of Allowed Equity Interests in the Debtor shall be entitled to
receive their Ratable Portion of 5% of the New Equity Interests as set forth in
ss. 4.4 of the Plan.
5. Appointment of Disbursing Agent.
The Plan provides that the Reorganized Debtor or such Entity designated by
the Debtor and approved in the Confirmation Order will serve as Disbursing
Agent, and shall make all distributions under the Plan, unless otherwise set
forth in the Plan. The Disbursing Agent shall not be required to give any bond
or surety or other security for the performance of its duties unless otherwise
ordered by the Bankruptcy Court.
a. Exculpation. Under the Plan, the Disbursing Agent, from and after the
Effective Date, will be exculpated by all Entities, including all holders of
Claims and Equity Interests and other parties in interest, from any and all
claims, causes of action and other assertions of liability (including breach of
15
<PAGE>
fiduciary duty) arising out of the discharge by such Disbursing Agent of the
powers and duties conferred upon it by the Plan or any order of the Bankruptcy
Court entered pursuant to or in furtherance of the Plan, or applicable law,
except solely for actions or omissions arising out of the gross negligence or
willful misconduct of such Disbursing Agent. No holder of a Claim or an Equity
Interest or other party in interest shall have or pursue any claim or cause of
action against the Disbursing Agent for making payments in accordance with the
Plan or for implementing the provisions of the Plan.
b. Powers of the Disbursing Agent. The Plan empowers the Disbursing Agent
to (a) effect all actions and execute all instruments and documents necessary to
implement the Plan, (b) make all distributions contemplated by the Plan, (c)
liquidate property as required to make distributions contemplated by the Plan,
(d) comply with the Plan and the obligations thereunder, (e) employ
professionals to represent it with respect to its responsibilities, and (f)
exercise such other powers as may be vested in the Disbursing Agent pursuant to
an order of the Bankruptcy Court, pursuant to the Plan, or as deemed by the
Disbursing Agent to be necessary and proper to implement the provisions of the
Plan.
c. Expenses Incurred on or After the Effective Date. Except as otherwise
ordered by the Bankruptcy Court, the amount of any reasonable fees and expenses
incurred by the Disbursing Agent on or after the Effective Date (including
reasonable fees and expenses of counsel) shall be paid in Cash by the
Reorganized Debtor.
6. Distributions Under the Plan.
On the Effective Date, the Disbursing Agent, shall out of the Distributable
Cash, (a) fund the Claims Reserve, and (b) make Cash distributions to holders of
Allowed Administrative Expense Claims, Allowed Priority Tax Claims, Allowed
Priority Non-Tax Claims, Allowed Senior Secured Claims, and Allowed General
Unsecured Claims. Pursuant to the terms of the Restructuring Agreement, on the
Effective Date, and prior to and in addition to the issuance of 80% of the New
Equity Interests to the holders of the Secured Notes and 5% of the New Equity
Interests to the Holders of the Equity Interests, members of the management of
the Reorganized Debtor, through their designees, will be receiving fifteen (15%)
percent of the equity of the Reorganized Debtor in partial consideration for
their future services to the Reorganized Debtor. Management will pay a nominal
par value for these New Equity Interests. The persons who will be beneficial
owners of the management-owned New Equity Interests in the Reorganized Debtor
are set forth below:
Name Percentage
- ---- ----------
Hermano Albuquerque 6.5%
Carlos Albuquerque 6.5%
Ari Lisboa 0.35%
Geraldo Mello 0.35%
Carlos Souza 0.35%
Veronica Albuquerque 0.35%
Dilton Caldas 0.35%
Robespierre M. Sa 0.25%
Of the above-listed persons, only Hermano Albuquerque and Carlos Albuquerque
are currently shareholders of the Debtor, each owning approximately 2.48% of the
Equity Interests of the Debtor and, therefore, they will also receive their pro
rata share of the 5% of the New Equity Interests to be issued to the holders of
the Equity Interests.
If any distribution to any Creditor or Equity Interest holder is returned
to the Disbursing Agent as undeliverable, then such distribution or the proceeds
thereof shall be set aside and, in the case of Cash, held in a segregated
interest bearing account to be maintained by the Disbursing Agent on behalf of
such person. If the Creditor or Equity Interest holder fails to claim the
distribution within one (1) year of the Effective Date, any unclaimed Cash or
property will be paid to the Reorganized Debtor and the Claim or Equity Interest
of such Creditor or Equity Interest holder shall be discharged and forever
barred.
As a condition to receiving any distribution or property pursuant to the
Plan, each holder of an Allowed Class 2 Claim and Allowed Class 4 Equity
Interest must surrender its respective Secured Note(s) or Equity Interest(s) to
the Disbursing Agent for cancellation (or establish the unavailability thereof
to the satisfaction of the Disbursing Agent and provide such security or
16
<PAGE>
indemnity as may be required by the Disbursing Agent) and shall deliver such
other documents as are necessary to effectuate the Plan, including any tax forms
required by the Disbursing Agent, in all cases, in proper form for transfer. The
Disbursing Agent shall make distributions only to holders of Secured Notes and
Equity Interests who surrender their instruments for cancellation. Any holder of
an Allowed Class 2 Claim or an Allowed Class 4 Equity Interest who fails to
surrender its Secured Note(s) or Equity Interest(s) within one (1) year from the
Effective Date shall be deemed to have forfeited all rights under such Secured
Note(s) or Equity Interests and will not participate in any distribution under
the Plan.
7. Conditions Precedent to Confirmation of the Plan.
Confirmation of the Plan is subject to:
a. Entry of Confirmation Order. The Clerk of the Bankruptcy Court shall
have entered the Confirmation Order of the Bankruptcy Court, which shall:
(i) decree that the transfers contemplated to be made under the Plan
shall be free and clear of all Claims, Liens and encumbrances, except as
expressly provided herein, or in the Implementation Documents;
(ii) approve the terms of the Restructuring Agreement and the exhibits
thereto, including the New Indenture and the employment agreements with key
management personnel of the Reorganized Debtor, approve the terms of the Exit
Financing and authorize and direct the Debtor, the Indenture Trustee, the New
Indenture Trustee and the Disbursing Agent to execute and deliver the
Implementation Documents, and decree that all of the Implementation Documents
shall constitute legal, valid and binding agreements, instruments or documents,
as applicable;
(iii) decree that the Confirmation Order shall supersede any
Bankruptcy Court orders issued prior to the Confirmation Date that may be
inconsistent with the Confirmation Order;
(iv) authorize the implementation of the Plan in accordance with its
terms;
(v) provide that any transfers to be effected under the Plan shall be
and are exempt from transfer taxes, and any applicable stamp or similar tax
under section 1146(c) of the Bankruptcy Code;
(vi) authorize the formation of the Reorganized Debtor and the
issuance of the New Secured Notes and New Equity Interests;
(vii) decree that the New Secured Notes and New Equity Interests are
exempt from registration pursuant to sections 1125(e), 1126(b) and 1145 of the
Bankruptcy Code and other applicable law; and
(viii) confirm the Plan.
b. Form of Confirmation Order. The Clerk of the Bankruptcy Court shall have
entered the Confirmation Order in such form and substance as is reasonably
acceptable to the Debtor, the Specified Holders, and the Creditors' Committee.
8. Conditions Precedent to the Effective Date of the Plan.
The occurrence of the Effective Date of the Plan is subject to satisfaction
of the following conditions precedent:
a. Finality of the Confirmation Order. The Clerk of the Bankruptcy Court
shall have entered the Confirmation Order and the Confirmation Order shall have
become a Final Order.
b. Governmental Approvals. ITSA and the Subsidiaries shall have received
all necessary approvals to implement the structure contemplated by the Plan from
Brazilian government regulatory agencies having jurisdiction with respect to the
licenses held by ITSA or the Subsidiaries.
c. Approval of the Central Bank. All required approvals of the Central Bank
shall have been received in form and substance reasonably satisfactory to the
Debtor, the Creditors' Committee and the Specified Holders.
17
<PAGE>
d. Distributions. The Disbursing Agent shall have fully funded the Claims
Reserve. The Disbursing Agent shall have received the Distributable Cash in
existence on the Effective Date.
e. Execution of Documents. All other actions and documents, including the
Implementation Documents, necessary to implement the provisions of the Plan
shall have been, respectively, effected or executed and delivered.
Each of the conditions precedent to Confirmation of the Plan and the
Effective Date may be waived, in whole or in part, by the Debtor with the
consent of the Indenture Trustee. Any such waiver may be effected at any time,
on two (2) Business Days' notice to the Entities that are party to the
Restructuring Agreement, without leave or order of the Bankruptcy Court and
without any formal action other than proceeding to confirm or consummate the
Plan.
9. Retention of Jurisdiction.
The Bankruptcy Court may retain jurisdiction, and if the Bankruptcy Court
exercises its retained jurisdiction, shall have exclusive jurisdiction, of all
matters arising out of, and related to, the Reorganization Case and the Plan
pursuant to, and for the purposes of, sections 105(a) and 1142 of the Bankruptcy
Code and for, among other things, the following purposes:
a. To hear and determine pending applications for the assumption or
rejection of executory contracts or unexpired leases, if any are pending, and
the allowance of Claims resulting therefrom;
b. To determine any and all adversary proceedings, applications and
contested matters;
c. To ensure that distributions to holders of Allowed Claims are
accomplished as provided herein;
d. To hear and determine any timely objections to Administrative Expense
Claims or to proofs of claim and equity interests filed, both before and after
the Confirmation Date, including any objections to the classification of any
Claim or Equity Interest, and to allow or disallow any Disputed Claim, in whole
or in part;
e. To enter and implement such orders as may be appropriate in the event
the Confirmation Order is for any reason stayed, revoked, modified, or vacated;
f. To issue such orders in aid of execution of the Plan, to the extent
authorized by section 1142 of the Bankruptcy Code;
g. To consider any modifications of the Plan, to cure any defect or
omission, or reconcile any inconsistency in any order of the Bankruptcy Court,
including the Confirmation Order;
h. To hear and determine all applications for awards of compensation for
services rendered and reimbursement of expenses related to implementation and
consummation of the Plan;
i. To hear and determine any disputes regarding the fees and expenses
incurred by the Disbursing Agent;
j. To hear and determine disputes arising in connection with the
interpretation, implementation, or enforcement of the Plan;
k. To hear and determine matters concerning state, local and federal taxes
in accordance with sections 346, 505 and 1146 of the Bankruptcy Code; and
l. To enter a final decree closing the Reorganization Cases.
IV. EFFECTS OF CONFIRMATION OF THE PLAN
A. DISCHARGE OF DEBTOR.
The rights afforded under the Plan and the treatment of all Claims and
Equity Interests provided therein, including the consideration provided for
18
<PAGE>
therein, shall, to the fullest extent permitted under applicable law, be in
complete release, satisfaction and discharge, effective as of the Effective
Date, of all Claims and Equity Interests of any nature whatsoever, known or
unknown, including any interest or expenses incurred thereon from and after the
Petition Date, against the Debtor, its estate, properties, or interests in
property at any time before the Effective Date. As of the Effective Date, all
Claims against and Equity Interests in the Debtor will be satisfied, discharged,
and released in full exchange for the consideration provided under the Plan,
regardless of whether a proof of claim or interest therefor was filed, whether
the Claim or Interest is Allowed, or whether the holder thereof votes to accept
the Plan. All Entities will be precluded from asserting against the Debtor or
any of its assets or properties, any other Claims based upon any act, omission,
transaction, promissory activity or other activity of any kind or nature that
occurred prior to the Effective Date.
B. RELEASE FROM CLAIMS AND LIABILITIES.
1. Plan Releasees.
Upon consummation of the Plan, the Indenture Trustee, the Specified Holders
and members of the and the Creditors' Committee, and their respective
successors, predecessors, assignors, and assignees, together with all of their
current and former partners or owners, officers, directors, trustees, employees,
agents, attorneys, counsel, accountants, financial advisors, investment bankers
and appraisers (collectively, the "Plan Releasees") are released and discharged,
which release and discharge will be binding on all Creditors of and holders of
Equity Interests in the Debtor, from any and all costs, expenses, actions,
causes of action, suits, controversies, damages, claims, liabilities or demands
of any nature, whether known or unknown, foreseen or unforeseen, existing or
hereinafter arising, liquidated or unliquidated, matured or not matured,
contingent or direct, whether arising at common law, in equity, or under any
statute, based in whole or in part upon any act or omission or other occurrence
taking place on or prior to the Effective Date (the "Liabilities") relating to
the Assets, the Secured Notes, the Debtor, the Indenture, the Reorganization
Case or the Plan including, without limitation, specifically any claims arising
from, inter alia:
(i) the undertaking by the Plan Releasees to restructure the
obligations governed by the Indenture and evidenced by the Secured Notes,
including any actions taken or not taken in respect of formulating, negotiating
and implementing the Plan;
(ii) all actions effected or not effected by the Indenture Trustee or
the Specified Holders, or their respective advisors, under the Indenture or
under any other agreements, instruments or documents, relating to the Debtor;
(iii) the preparation by any of the Plan Releasees of financial
statements, appraisals, or other reports or certificates in respect of the
Debtor or the Subsidiaries or their properties;
(iv) the actions, payments, and obligations required of any of the
Plan Releasees under, among other things, the Indenture, the Secured Notes, and
all agreements, instruments and documents executed and delivered pursuant to or
in connection with any of the foregoing;
(v) the use of proceeds by any of the Plan Releasees from the Secured
Notes or the revenues of property of the Subsidiaries.
This release shall not include (a) any defenses of the Plan Releasees to
any Liability or (b) any obligations of the Plan Releasees arising under the
Plan or the Implementation Documents.
2. Affiliate Releasees.
On the Effective Date, the Debtor is released from all Liabilities except
those expressly preserved under the Plan. The Debtor, all the Subsidiaries, and
their respective successors, predecessors, assignors, assignees, together with
all their current and former partners, members or owners, officers, directors,
19
<PAGE>
trustees, employees, agents, attorneys, counsel, accountants, financial
advisors, investment bankers, and appraisers (collectively, the "Affiliate
Releasees") are released and discharged, which release and discharge will be
binding on all Creditors and holders of Equity Interests in the Debtor, from any
and all Liabilities relating to the Secured Notes, the Debtor, the Indenture,
the Reorganization Case or the Plan including, without limitation, specifically
any claims arising from, inter alia:
(i) the offer, sale, purchase, resale or ownership of the Secured
Notes or the Equity Interests, any sales brochure, registration statement,
preliminary prospectus, prospectus, offering memorandum or circular, appraisal,
report or inspection, or any disclosure or omission related to any of the
foregoing, and any engagement, underwriting, placement agency or other role of,
or services rendered by, any Entity in connection with any of the foregoing;
(ii) the involvement of any of the Affiliate Releasees in or with the
sale of the Secured Notes;
(iii) the ownership, management and operation of any property by any
of the Affiliate Releasees;
(iv) the preparation by any of the Affiliate Releasees of financial
statements, appraisals, or other reports or certificates in respect of the
Debtor or the other Subsidiaries;
(v) the actions, payments and obligations required of any of the
Affiliate Releasees under, among other things, the Indenture, the Secured Notes,
and all agreements, instruments and documents executed and delivered pursuant to
or in connection with any of the foregoing;
(vi) the use of proceeds by any of the Affiliate Releasees from the
Secured Notes or revenues of the property of the Subsidiaries; and
(vii) the undertaking by the Affiliate Releasees to restructure the
obligations governed by the Indenture and evidenced by the Secured Notes,
including any actions taken or not taken in respect of formulating, negotiating,
soliciting acceptances to and implementing the Plan.
This release shall not release (a) any defenses of the Affiliate Releasees
to any Liability or (b) any obligations of the Affiliate Releasees arising under
the Plan or the Implementation Documents.
C. INJUNCTION.
The Confirmation Order shall be an injunction to permanently enjoin and
restrain all Entities from asserting against the Affiliate Releasees or the Plan
Releasees or their respective assets or properties or interests in property, any
Liabilities that are released by the Plan Releases or any Claims based upon any
act or omission, transaction or other activity of any kind or nature that
occurred prior to the Effective Date (other than actions provided for by the
Plan). The Confirmation Order shall also be an injunction to enjoin permanently
and restrain all Entities from taking any of the following actions (other than
actions brought to enforce any right or obligation provided for by the Plan)
against the Affiliate Releasees or the Plan Releasees or their respective
properties or interests in property:
(i) the commencement or continuation of any action or proceeding;
(ii) the enforcement, attachment, collection or recovery by any manner
or means of any judgment, award, decree or order;
(iii) creating, perfecting, or enforcing any encumbrance of any kind;
and
(iv) asserting any right of setoff, subrogation or recoupment of any
kind against any obligation due from any such party.
D. POSSIBLE OBJECTIONS TO AFFILIATE RELEASES AND INJUNCTION.
It is possible that, prior to confirmation of the Plan, objections will be
filed to the proposed releases of all or certain of the Affiliates, as well as
20
<PAGE>
to the proposed injunction. If such objections are sustained, the Plan may have
to be slightly modified. The Debtor believes that the affiliate releases and
injunctions are wholly appropriate. The corporate affiliates of the Debtor to be
released under the Plan are entering into new terms under the New Secured Notes
and the New Indenture, which terms provide substantial benefit to the creditors
of the Debtor. The agreement by the corporate affiliates to these terms is a
critical component of the Plan, and the grant of a release to the corporate
affiliates is a necessary prerequisite to the ability and willingness of the
corporate affiliates to agree to the terms of the New Secured Notes and the New
Indenture. Similarly, one of the foundations of the Restructuring Agreement that
underlies the Plan is the agreement of the Debtor's management, board members
and personnel to continue to operate and support the Reorganized Debtor. The
release of these individuals, and the injunction, are both appropriate to induce
these individuals' consent to continue to support the Reorganized Debtor, as
well as to ensure these individuals' future focus on the operations and growth
of the Reorganized Debtor. Finally, the Debtor notes that these individuals are
currently not the target of any claim, or threat of claim, with regard to their
affiliation with the Debtor.
E. VESTING OF PROPERTY IN REORGANIZED DEBTOR.
Effective as of the Effective Date, all Assets of the Debtor shall be
transferred to and shall vest in the Reorganized Debtor, including the Debtor's
right to prosecute any avoidance or recovery actions under sections 544, 545,
547, 548, 549, 550, 551 and 553 of the Bankruptcy Code or any other Causes of
Action, that belong to the Debtor.
V. INFORMATION ABOUT THE CLAIMS ALLOWANCE, OBJECTION AND ESTIMATION PROCEDURES
This Section describes (i) the procedure for objecting to claims, and (ii)
how this procedure affects the allowance of Claims.
A. ALLOWANCE OF CLAIMS AND EQUITY INTERESTS.
A Claim is Allowed if (a) proof thereof was filed, if required, on or
before the date designated by the Bankruptcy Court as the Bar Date or on or
before such date as may be specifically authorized for such proof of claim or
equity interest by Final Order of the Bankruptcy Court, or, if no proof of claim
is filed, such Claim is listed by the Debtor in its Schedules as liquidated in
amount and not disputed or contingent and, in either case, as to which either
(i) no objection to the allowance thereof has been interposed within the
applicable period of limitation fixed in the Plan, the Bankruptcy Code, the
Bankruptcy Rules, the Local Bankruptcy Rules or a Final Order of the Bankruptcy
Court or (ii) an objection has been interposed and such Claim has been allowed
in whole or in part by a Final Order to the extent allowed by such Final Order,
or (b) such Claim is a Claim against the Debtor arising pursuant to section
502(h) of the Bankruptcy Code. Unless otherwise specified in the Plan or in the
Final Order of the Bankruptcy Court allowing a Claim, an "Allowed Claim" shall
not include interest on the amount of such Claim from and after the Petition
Date.
An Equity Interest is Allowed if such interest is registered in the
official records of the Debtor's stock transfer agent, or if the holder of such
Equity Interest files a proof of interest by the Bar Date and as to which either
(i) no objection to the allowance thereof has been interposed within the
applicable period of limitation fixed in the Plan, the Bankruptcy Code, the
Bankruptcy Rules, the Local Bankruptcy Rules or a Final Order of the Bankruptcy
Court or (ii) an objection has been interposed and such Equity Interest has been
allowed in whole or in part by a Final Order to the extent allowed by such Final
Order.
B. OBJECTIONS TO CLAIMS AND EQUITY INTERESTS.
Under the provisions of the Bankruptcy Code, a debtor and any other party
in interest may object, on appropriate grounds, to the allowance of Claims and
Equity Interests filed with the Bankruptcy Court. Under section 502 (a) of the
Bankruptcy Code, a party in interest may object to a claim if the debtor refuses
to do so. All such objections will be litigated to Final Order, unless settled
or withdrawn.
21
<PAGE>
The Plan provides that, unless otherwise ordered by the Bankruptcy Court,
the Debtor shall notify in writing each holder of a Claim or Equity Interest
filed with the Bankruptcy Court with respect to which the Debtor disputes
liability in whole or in part on such Claim or Equity Interest. Unless otherwise
provided by the Plan or by order of the Bankruptcy Court, all objections to
Claims or Equity Interests shall be served and filed no later than the date of
the Confirmation (except with respect to any claim filed by a governmental unit
which deadline for the filing of any objections thereto shall be two hundred ten
(210) days after the Effective Date) or such later date as may be ordered by the
Bankruptcy Court by either the Debtor or, after the Effective Date, the
Reorganized Debtor. Any objection must be in writing, must set out the name of
the Creditor or Equity Interest holder who filed the proof of claim or interest
and specify the grounds for the objection. The objection must be filed with the
Bankruptcy Court and served in accordance with Bankruptcy Rule 3007. A copy of
the objection must be served upon the attorney of record (if any) for such
Creditor or Equity Interest holder or upon such party directly, if the same is
not represented by an attorney. The Debtor or, after the Effective Date, the
Reorganized Debtor, may compromise and settle any objections to Claims or Equity
Interests filed by it.
If an objection to a Claim or Equity Interest is filed, the holder of such
Claim or Equity Interest must file a response to any such objection within the
time period set by the Bankruptcy Court. Copies of such responses must be served
upon counsel for the Debtor. Failure to timely file a response is deemed a
consent to the objection and the Bankruptcy Court may enter an order disallowing
such Claim or Equity Interest without further notice or hearing.
Notwithstanding any other provision of the Plan, if any portion of a Claim
or Equity Interest is a Disputed Claim or Equity Interest, no payment or
distribution provided under the Plan shall be made on account of such Claim
unless and until such Disputed Claim becomes Allowed. Payments and distributions
to each holder of a Disputed Claim to the extent that such Claim ultimately
becomes Allowed, shall be made in accordance with the provisions of the Plan
governing the class in which such Claim or Equity Interest is classified. As
soon as practicable after the date that the order or judgment of the Bankruptcy
Court allowing any Disputed Claim becomes a Final Order, the Disbursing Agent
shall distribute to the holder of such Allowed Claim or Equity Interest any
payment or property that would have been distributed to such holder if the Claim
or Equity Interest had been Allowed on the Effective Date.
C. ESTIMATION OF CLAIMS FOR DISTRIBUTION PURPOSES.
Creditors holding Claims that are contingent or unliquidated will not
receive any distribution until the allowance and amount of the Claim is resolved
through the Claims objection procedure. In accordance with the Bankruptcy Code
and under the provisions of the Plan, the Debtor or, after the Effective Date,
the Reorganized Debtor may file a request that the Bankruptcy Court estimate for
purposes of distribution the amount of any contingent or unliquidated Claim, if
liquidation of the Claim would unduly delay administration of the Reorganization
Case. A request for estimation may be made regardless of whether such Claim has
been objected to or whether the Bankruptcy Court has ruled on any such
objection. The Plan provides for the Bankruptcy Court to retain jurisdiction to
estimate any such contingent or unliquidated Claim at any time during litigation
concerning any objection to any Claim. The Creditor holding such a contingent or
unliquidated Claim will receive a distribution based on the Allowed amount, if
any, as is determined by Final Order resolving the request for estimation.
VI. VOTING PROCEDURES
A. VOTE REQUIRED FOR A CLASS TO ACCEPT THE PLAN.
The Bankruptcy Code provides that a plan is accepted by a class of claims
if the plan is accepted by holders of at least two-thirds in amount and more
than one-half in number of the claims of the class which actually cast ballots
for acceptance or rejection of the plan. Similarly, a class of interests accepts
a plan of reorganization only if the holders of two-thirds in amount of
interests of the class which actually cast ballots for acceptance or rejection
of the plan vote to accept the plan.
22
<PAGE>
B. WHO MAY VOTE.
1. Impaired Classes.
Only classes that are "impaired" under the Plan and that are to receive a
distribution under the Plan are entitled to vote on acceptance or rejection of
the Plan. As a condition to confirmation, the Bankruptcy Code requires that each
impaired class of claims or interests accept a plan (subject to the "cramdown"
exception described below). A class is "impaired" under a plan unless, with
respect to each claim or interest of such class, (i) the plan leaves unaltered
the legal, equitable and contractual rights to which such claim or interest
entitles the holder of such claim or interest; or (ii) all defaults are cured,
the original maturity of the claim or interest is reinstated and the claim or
interest is otherwise treated as provided in clause (i) of this sentence. Claims
and Equity Interests in Classes 2 and 4 are impaired under the Plan.
2. Classes that are not Impaired.
Classes of Claims and Equity Interests that are not "impaired" under the
Plan are deemed to have accepted the Plan and are not entitled to vote. Classes
1 and 3 are not impaired under the Plan and, therefore, are conclusively
presumed to have accepted the Plan. 3. Temporary Allowance of Claims or Equity
Interests for Voting Purposes.
Under the Bankruptcy Code, a creditor or interest holder is entitled to
vote only if either (i) its claim or interest has been scheduled by the debtor
as not disputed, contingent or unliquidated, or (ii) it has filed a proof of
claim or interest before the last day set by the Bankruptcy Court. Any claim or
interest to which an objection is pending is not entitled to vote unless the
creditor or interest holder has obtained an order of the Bankruptcy Court
temporarily allowing its claim or interest for the purpose of voting on the
plan. The creditor or interest holder holding such a claim or interest will vote
the claim or interest in the amount, if any, that is determined by Final Order
resolving the request for temporary allowance.
All known holders of Class 2 Claims and Class 4 Equity Interests will
receive solicitation materials. Prior to the Confirmation Hearing, any party who
believes that it is a Creditor of the Debtor in Class 2 or an Equity Interest
holder in Class 4 and did not receive a Ballot may file a motion with the
Bankruptcy Court seeking to have its Claim or Equity Interest temporarily
allowed for voting purposes and to be permitted to cast a late Ballot on the
Plan in respect of such Claim or Equity Interest.
4. One Vote.
If a beneficial holder of a Claim or Equity Interest holds more than one
Claim or Equity Interest in a particular class, all of such holder's Claims or
Equity Interests will be aggregated and such holder will be entitled to one vote
in the amount of such holder's aggregated Claims or Equity Interests in such
class.
5. Record Date for Voting Purposes.
Only holders of record of Claims and Equity Interests as of January 10,
2000 that are otherwise entitled to vote under the Plan will receive Ballots and
may vote on the Plan.
C. VOTING PROCEDURES.
1. Ballots.
A Ballot is enclosed herewith for each Creditor and Equity Interest holder
eligible to vote on the Plan. The Debtor encourages you to vote to confirm the
Plan by checking the appropriate box. Please follow the directions printed on
the Ballot.
23
<PAGE>
2. Voting Deadline.
Ballots may not be transmitted orally or by facsimile. In order for your
vote on the Plan to be counted, your Ballot must BE RECEIVED at the following
address of the Voting Agent no later than the Voting Deadline of 4:00 p.m.,
Eastern Standard Time, on Arpil 6, 2000.
KELLEY DRYE & WARREN LLP
101 PARK AVENUE
NEW YORK, NEW YORK 10178
ATTN: JAY HEINRICH, ESQ.
(212) 808-5073
DO NOT RETURN YOUR SECURED NOTES OR EQUITY INTERESTS TO THE VOTING AGENT
WITH YOUR BALLOT.
3. Brokerage Firms, Banks and Other Nominees.
If you are a beneficial owner of Secured Notes or Equity Interests which
are registered in the name of a broker, bank or other nominee (collectively, the
"Nominee"), please complete a Ballot and return it to your Nominee in sufficient
time so as to enable such Nominee to complete a Master Ballot and to return such
Master Ballot to the Voting Agent prior to the Voting Deadline.
ONLY BENEFICIAL OWNERS OF CLASS 2 CLAIMS AND CLASS 4 EQUITY INTERESTS ARE
ENTITLED TO VOTE ON THE PLAN. NEITHER THE INDENTURE TRUSTEE NOR A NOMINEE CAN
VOTE ON THE PLAN ON BEHALF OF HOLDERS OF SECURED NOTES OR EQUITY INTERESTS.
A beneficial owner of Secured Notes or Equity Interests may receive
multiple mailings containing Ballots, especially beneficial owners that hold
such securities through more than one Nominee. Each beneficial owner should
complete and return all Ballots received by it to its Nominee in the return
envelope provided with each such Ballot. Any beneficial owner who has not
received a Ballot should contact his, her or its Nominee, or the Voting Agent.
4. Other Signatories.
If a Ballot is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, such person should indicate such capacity when
signing and, if requested by the Debtor or the Voting Agent, must submit proper
evidence satisfactory to the Debtor or the Voting Agent, of authority to so act.
5. Waivers of Defects, Irregularities, etc.
The Debtor may, in its sole discretion, reject any Ballot or Master Ballot
as invalid and, therefore, decline to utilize it in connection with seeking
confirmation of the Plan by the Bankruptcy Court, unless such Ballot or Master
Ballot is properly completed and timely submitted.
Any executed Ballot received by the Voting Agent that does not indicate
either an acceptance or rejection of the Plan shall be deemed to constitute an
acceptance of the Plan. All questions as to the validity, form, eligibility
(including time of receipt), acceptance, and revocation or withdrawal of Ballots
or Master Ballots will be determined by the Debtor in its sole discretion, which
determination will be final and binding. The Debtor reserves the absolute right
to contest the validity of any revocation or withdrawal. The Debtor also
reserves the right to reject any and all Ballots or Master Ballots not in proper
form, the acceptance of which would, in the opinion of the Debtor or its
counsel, be unlawful. The Debtor further reserves the right to waive any defects
or irregularities or conditions of delivery as to any particular Ballot or
24
<PAGE>
Master Ballot. The interpretation (including of the Ballot or Master Ballot and
the respective instructions thereto) by the Debtor, unless otherwise directed by
the Bankruptcy Court, will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with deliveries of Ballots or Master
Ballots must be cured within such time as the Debtor determines. Neither the
Debtor nor any other person will be under any duty to provide notification of
defects or irregularities with respect to deliveries of, or notices of
revocation or withdrawal of, Ballots or Master Ballots nor will any of them
incur any liabilities for failure to provide such notification. Delivery of such
Ballots or Master Ballots will not be deemed to have been made until such
irregularities have been cured or waived. Ballots or Master Ballots previously
furnished (and as to which any irregularities have not theretofore been cured or
waived) will be invalidated.
VII. EXEMPTIONS FROM SECURITIES ACT REGISTRATION
A. THE SOLICITATION.
The Debtor is relying on section 1145 of the Bankruptcy Code to exempt from
the registration requirements of the Securities Act (and of any equivalent state
securities or "blue sky" laws) the offer to exchange securities which may be
deemed to be made by the Debtor pursuant to the solicitation.
The Debtor has received assurances that no person will provide any
information to holders of the Secured Notes relating to the solicitation of the
Plan other than to refer holders of the Secured Notes to the information
contained in this Disclosure Statement and in the Ballots delivered together
herewith.
B. ISSUANCE OF NEW SECURED NOTES AND NEW EQUITY INTERESTS.
It is expected that the issuance on the Effective Date of (a) New Secured
Notes and New Equity Interests in exchange for Secured Notes and (b) New Equity
Interests in exchange for the Equity Interests will be exempt from the
registration requirements of the Securities Act (and of equivalent state
securities laws or "blue sky" laws) by reason of an exemption provided by
section 1145(a) (1) of the Bankruptcy Code. Generally, Section 1145(a) (1) of
the Bankruptcy Code exempts the issuance of securities from the registration
requirements of the Securities Act and equivalent state securities and "blue
sky" laws if the following conditions are satisfied: (i) the securities are
issued by a debtor (or an affiliate of the debtor participating in a Plan with
the debtor or a successor to the debtor) under a plan of reorganization; (ii)
the recipients of the securities hold a claim against, an interest in, or a
claim for an administrative expense against, the debtor; and (iii) the
securities are issued entirely in exchange for the recipient's claim against or
interest in the debtor, or are issued "principally" in such exchange and
"partly" for cash or other property.
The Debtor believes that the New Secured Notes and New Equity Interests
could be determined to be "securities" as such term is defined in the Securities
Act. If the New Secured Notes or New Equity Interests were determined not to be
"securities" as such term is defined in the Securities Act, then the Securities
Act would not be applicable to the New Secured Notes and New Equity Interests.
If the New Secured Notes and New Equity Interests were determined to be
"securities" as such term is defined in the Securities Act, the Debtor believes
that the New Secured Notes and New Equity Interests issued in exchange for
Secured Notes and Equity Interests will be exempt from registration under
section 1145(a)(1) of the Bankruptcy Code. The Debtor believes that the
Reorganized Debtor will be deemed to be a "successor" to the Debtor within the
meaning of section 1145 (a) (1) of the Bankruptcy Code. Thus, it is expected
that the Bankruptcy Court in the Confirmation Order will expressly confirm that
the exchange of (a) the Secured Notes for the New Secured Notes, New Equity
Interests and Cash and (b) the exchange of the Equity Interests for New Equity
Interests satisfies the requirements of section 1145(a)(1) of the Bankruptcy
Code.
In the event that the Bankruptcy Court were to determine that the New
Secured Notes and New Equity Interests are securities which are not exempt from
registration under section 1145(a) (1) of the Bankruptcy Code, the Debtor
expressly reserves the right to modify the Plan or seek to register the New
Secured Notes and New Equity Interests with the Securities and Exchange
Commission ("SEC").
25
<PAGE>
The Debtor believes that the issuance of New Equity Interests to the
members of the management of the Reorganized Debtor in accordance with the Plan
and Restructuring Agreement will not be subject to the registration requirements
of the Securities Act. The staff of the Securities and Exchange Commission
maintains that New Equity Interests to be distributed to management are not
exempt from registration pursuant to section 1145 of the Bankruptcy Code. In any
event, the Debtor is not relying on the applicability of section 1145 with
respect to the securities to be issued to management. The issuance of the
securities to management is exempt from registration because these securities
will be issued to one or more management-owned Cayman Islands entities, each
entity will be owned exclusively by a respective member of the management of the
Reorganized Debtor, all of the beneficial owners will be non-United States
persons residing outside the United States, and the securities are not being
issued as part of a public offering. The securities issued to the members of
management may be deemed "restricted securities" which may not be resold in the
United States unless registered under the Securities Act, or unless an exemption
from the registration requirements of the Securities Act is available for such
resale.
Due to the fact that securities issued pursuant to section 1145(a)(1) of
the Bankruptcy Code are deemed, pursuant to section 1145(c), to have been issued
in a "public offering" within the meaning of the Securities Act, such New
Secured Notes and New Equity Interests may be resold by the holders thereof
without restriction unless any such holder is deemed to be an "underwriter" with
respect to such securities, as such term is defined in section 1145(b)(1) of the
Bankruptcy Code. Generally, section 1145(b)(1) of the Bankruptcy Code defines an
"underwriter," among other things, to include a person who purchases a claim
against a debtor with a view to distribution to others of any security to be
received in exchange for such claim, or who offers to buy securities offered or
sold under a chapter 11 plan from holders of such securities with a view to
distribution to others of such securities under an agreement made in connection
with the plan, the consummation thereof or the offer or sale of securities under
the plan, and also includes an "issuer" as defined by section 2(11) of the
Securities Act. Section 2(11) of the Securities Act includes as "issuers" all
persons who, directly or indirectly, through one or more intermediaries,
control, are controlled by, or are under common control with, an issuer of
securities.
Rule 144A promulgated under the Securities Act provides a non-exclusive
safe harbor exemption from the registration requirements of the Securities Act
for resales of the New Secured Notes and New Equity Interests to certain
"qualified institutional buyers" of securities which are "restricted securities"
within the meaning of the Securities Act, irrespective of whether the seller of
such securities purchased his or its securities with a view toward reselling
such securities under the provisions of Rule 144A.
In addition, to the extent that Rule 144A is unavailable to holders who are
deemed to be "underwriters" or "subsidiaries," such holders may, under certain
circumstances, be able to resell their securities pursuant to the more limited
resale provisions of Rule 144 under the Securities Act. Generally, Rule 144
provides that, if certain conditions are met (e.g., volume limitations, manner
of sale, availability of current information about the issuer, etc.), specified
persons who resell "restricted securities" or who resell securities which are
not restricted but who are "affiliates" of the issuer of the securities sought
to be resold, will not be deemed to be "underwriters" as defined in section
2(11) of the Securities Act.
THE FOREGOING SUMMARY DISCUSSION HAS BEEN INCLUDED IN THIS DISCLOSURE
STATEMENT SOLELY FOR GENERAL INFORMATIONAL PURPOSES. THE DEBTOR MAKES NO
REPRESENTATIONS CONCERNING, AND DOES NOT HEREBY PROVIDE ANY OPINION OR ADVICE
WITH RESPECT TO, THE SECURITIES LAW AND BANKRUPTCY LAW MATTERS DESCRIBED ABOVE.
EACH HOLDER OF CLAIMS AND EQUITY INTERESTS SHOULD CONSIDER CAREFULLY AND CONSULT
WITH HIS, HER OR ITS OWN LEGAL ADVISOR(S) WITH RESPECT TO SUCH (AND ANY RELATED)
MATTERS.
VIII.CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING DISCUSSION IS A SUMMARY OF CERTAIN SIGNIFICANT, POTENTIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN TO THE DEBTOR, HOLDERS OF SECURED
26
<PAGE>
NOTES AND HOLDERS OF EQUITY INTERESTS, AND IS BASED UPON THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED (THE "TAX CODE"), THE LAWS, REGULATIONS, RULINGS AND
COURT DECISIONS NOW IN EFFECT, ALL OF WHICH ARE SUBJECT TO CHANGE, POSSIBLY WITH
RETROACTIVE EFFECT.
THE FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF SECURED NOTES AND HOLDERS
OF EQUITY INTERESTS MAY VARY BASED ON THE PARTICULAR CIRCUMSTANCES OF EACH SUCH
HOLDER OF ALLOWED CLAIMS. THIS SUMMARY DOES NOT ADDRESS ASPECTS OF FEDERAL
INCOME TAXATION APPLICABLE TO HOLDERS WHICH ARE SUBJECT TO SPECIAL TREATMENT FOR
FEDERAL INCOME TAX PURPOSES INCLUDING, BUT NOT LIMITED TO, FINANCIAL
INSTITUTIONS, TAX EXEMPT ENTITIES, INSURANCE COMPANIES, AND FOREIGN INDIVIDUALS
AND ENTITIES. MOREOVER, THE FEDERAL INCOME TAX CONSEQUENCES OF CERTAIN ASPECTS
OF THE PLAN ARE UNCERTAIN DUE TO A LACK OF DEFINITIVE LEGAL AUTHORITY. NO RULING
HAS BEEN OBTAINED OR WILL BE REQUESTED FROM THE INTERNAL REVENUE SERVICE (THE
"IRS") WITH RESPECT TO ANY OF THE FEDERAL INCOME TAX ASPECTS OF THE PLAN, AND NO
OPINION OF COUNSEL HAS BEEN OR WILL BE OBTAINED BY THE DEBTOR WITH RESPECT
THERETO. THIS SUMMARY ALSO DOES NOT ADDRESS ANY STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES OF THE PLAN.
THIS SUMMARY ASSUMES THAT THE PLAN CONSTITUTES A TAX-FREE REORGANIZATION
WITHIN THE MEANING OF SECTION 368(a)(1)(E) OF THE TAX CODE (I.E., A
RECAPITALIZATION). IN ADDITION, THE SUMMARY ASSUMES THE HOLDERS OF SECURED NOTES
AND EQUITY INTERESTS HELD THEIR SECURED NOTES AND EQUITY INTERESTS, AS THE CASE
MAY BE, AS CAPITAL ASSETS WITHIN THE MEANING OF SECTION 1221 OF THE TAX CODE
(GENERALLY PROPERTY HELD FOR INVESTMENT). FURTHERMORE, IT IS ASSUMED THAT THE
SECURED NOTES QUALIFY AS TRUE INDEBTEDNESS (AND NOT AS EQUITY OR AN INTEREST IN
STOCK) FOR ALL FEDERAL INCOME TAX PURPOSES.
EACH HOLDER OF AN ALLOWED CLAIM AND EQUITY INTEREST HOLDER IS STRONGLY
URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR REGARDING THE FEDERAL, STATE
AND LOCAL INCOME AND OTHER TAX CONSEQUENCES OF THE PLAN.
A. TAX CONSEQUENCES TO DEBTOR.
1. Discharge of Indebtedness Income.
A taxpayer generally must include in gross income the amount of any
discharge of indebtedness income realized during the taxable year, unless
payment of such liability would have given rise to a deduction. Discharge of
indebtedness income is realized to the extent that the amount of an indebtedness
discharged exceeds the amount of cash and the fair market value of property paid
to satisfy such indebtedness. An exception exists to this rule, however, if the
discharge of indebtedness income arises in a case under the Bankruptcy Code
pursuant to a confirmed bankruptcy plan. Under this bankruptcy exception, the
taxpayer does not include in income the discharge of indebtedness income, but,
instead, must reduce certain tax attributes (including net operating loss
carryovers ("NOLs"), capital losses and loss carryovers, certain tax credits
and, subject to certain limitations, the tax basis of property). The reduction
in tax attributes, however, is made after the tax for the year of discharge has
been determined, and, with respect to the reduction of tax basis, upon the first
day of the taxable year following the year of the discharge.
2. Limitations of NOLs and Other Tax Attributes of the Debtor.
The Debtor's federal income tax return for the taxable year ended December
31, 1998, is expected to show NOLs for regular tax purposes of approximately
$1,019,970. Generally, under section 382 of the Tax Code, a corporation's annual
taxable income for periods after an "ownership change" may be offset by NOLs
attributable to periods prior to such an "ownership change" only to the extent
of the product of the fair market value of the corporation's stock immediately
27
<PAGE>
before the "ownership change" and the long-term tax-exempt interest rate (as
announced each month by the Treasury Department) for the month in which the
"ownership change" occurs. For this purpose, "ownership change" is defined
generally as an increase by at least fifty percentage points over a three-year
period in the ownership percentage of the corporation's stock held by
shareholders who own at least 5% of the corporation's stock, over such
shareholders' smallest percentage ownership of such stock during such three-year
period. Certain broad attribution rules apply in determining the ownership of
the corporation's stock. The provisions of section 382 of the Tax Code are
extremely complex, and their application is uncertain in many respects. If the
Plan results in an "ownership change," the Debtor's ability to use its NOLs will
be subject to limitations.
3. Alternative Minimum Tax.
In general, an alternative minimum tax ("AMT") is imposed on a
corporation's alternative minimum taxable income at a 20% rate to the extent
such tax exceeds the corporation's regular federal income tax. For purposes of
computing taxable income for AMT purposes, certain tax deductions and other
beneficial allowances are modified or eliminated. In particular, even though a
corporation might otherwise be entitled to offset all of its taxable income for
regular tax purposes by available NOLs, only 90% of a corporation's taxable
income for AMT purposes may be offset by available NOLs (as recomputed for AMT
purposes), thus ensuring that companies may not totally eliminate all corporate
tax liability on recognized income through the use of NOLs. Accordingly, in the
case of the Debtor, even if NOLs are available, any income recognized will be
taxable at an effective rate of at least 2% (i.e., 10% of the 20% AMT tax rate).
B. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF SECURED NOTES AND HOLDERS OF
EQUITY INTERESTS.
THE SUMMARY BELOW ASSUMES THAT THE PLAN CONSTITUTES A TAX-FREE
REORGANIZATION WITHIN THE MEANING OF SECTION 368(a)(1)(E) OF THE TAX CODE (I.E.,
A RECAPITALIZATION). EACH HOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX
ADVISOR REGARDING THE STATUS OF HIS, HER OR ITS CLAIM.
1. Holders of Equity Interests.
Holders of Equity Interests who receive New Equity Interests in exchange
for their Equity Interests will not recognize any gain or loss on the exchange.
A holder's tax basis in such holder's Equity Interest will carryover to the New
Equity Interest received. In addition, such holder's holding period in the New
Equity Interest will generally include such holder's holding period in the
exchanged Equity Interest.
2. Holders of Secured Notes.
a. Qualification of the Secured Notes and New Secured Notes as "Securities"
for Federal Income Tax Purposes.
The federal income tax consequences to holders of Secured Notes arising
from the Plan may vary depending upon, among other things, the type of
consideration received by the Creditor in exchange for its Allowed Claim, and
whether the Secured Notes, and New Secured Notes, constitute "securities" for
federal income tax purposes. The term "security" is not defined in the Tax Code
or in Treasury regulations issued thereunder, and has not been clearly defined
by court decisions. As such, generally, whether a debt instrument constitutes a
"security" depends upon an overall evaluation of the debt, including its
original maturity, the degree of participation and continuing interest in the
business of the issuer, and the purpose of the issuance of the debt. Generally,
corporate debt instruments with maturities when issued of less than five years
are not considered "securities," and corporate debt instruments with maturities
when issued of ten years or more are considered "securities." While the
treatment of debt instruments, such as the Secured Notes and New Secured Notes,
with maturities between five and ten years is uncertain, this summary assumes
that for federal income tax purposes, (i) the Secured Notes are "securities,"
and (ii) the New Secured Notes will not be "securities."
b. Income, Gain or Loss on Payment of Claims.
If the Secured Notes are treated as "securities," the exchange of the
Secured Notes for New Equity Interests will be treated as a tax-free exchange.
28
<PAGE>
However, holders of the Secured Notes will recognize gain (but not loss), if
any, equal to the fair market value of the New Secured Notes and the amount of
cash received in the exchange. As a result, for federal income tax purposes:
i. A holder of Secured Notes will not recognize gain or loss on the
exchange of the Secured Notes solely for shares of the New Equity
Interest (other than with respect to any shares of New Equity
Interests which are allocable to interest accrued on such holder's
Secured Notes during such holder's holding period ("Accrued
Interest"));
ii. A holder of Secured Notes will recognize gain (but not loss), if any,
equal to the fair market value of the New Secured Notes and the amount
of cash received pursuant to the Plan;
iii. A holder of Secured Notes will recognize ordinary income to the extent
any New Equity Interests are allocable to any Accrued Interest which
was not previously included in such holder's taxable income; and
iv. A holder of Secured Notes that acquired the Secured Notes at a "market
discount" (i.e., at a price less than their adjusted issue price at
the time of purchase) may be required to recognize income under the
market discount rules (as discussed in "Accrued Market Discount"
below).
c. Basis in New Equity Interests and New Secured Notes.
The aggregate tax basis of the New Equity Interests received by a holder of
Secured Notes pursuant to the Plan will equal the aggregate tax basis of the
Secured Notes exchanged decreased by the fair market value of the New Secured
Notes and the amount of cash received, and increased by the amount of gain
recognized by a holder of Secured Notes pursuant to the Plan. However, the
aggregate tax basis of the New Equity Interests received which are attributable
to Accrued Interest will be equal to the fair market value of such shares of New
Equity Interests.
The basis of the New Secured Notes received by a holder of Secured Notes
pursuant to the Plan will equal the fair market value of the New Secured Notes.
d. Holding Period in New Equity Interests and New Secured Notes.
The holding period of the shares of New Equity Interests in the hands of a
holder of Secured Notes will include the holding period of the Secured Notes
exchanged therefore, except that the holding period of New Equity Interests
attributable to Accrued Interest, if any, will generally begin the date after
the date of issuance.
The holding period of the New Secured Notes in the hands of a holder of
Secured Notes will begin the day after the date of issuance.
e. Accrued Market Discount
A holder who acquired a Note subsequent to its original issuance with more
than a "de minimus" amount of "market discount" will be subject to the market
discount rules of the Tax Code. Under those rules, assuming that no election to
include market discount in income on a current basis has been made by a holder
of Secured Notes with respect to any market discount instrument, any gain
recognized on the exchange of a Note would be characterized as ordinary income
to the extent of the accrued market discount on such Note. Holders of Secured
Notes that may have been acquired with market discount are urged to consult
their own tax advisors.
f. If the Secured Notes Do Not Qualify as "Securities."
If the Secured Notes do not qualify as "securities," then the Plan would
constitute a taxable exchange of the Secured Notes for the consideration
received (i.e., the Cash, New Equity Interests and New Secured Notes), and in
general (i) a holder would recognize gain or loss equal to the difference
between the fair market value of the consideration received (Cash, New Equity
Interests and New Secured Notes), except for any New Equity Interests
29
<PAGE>
attributable to Accrued Interest and Accrued Market Discount, and the adjusted
tax basis of the Secured Notes, (ii) the tax basis of the New Equity Interests
and New Secured Notes would be their fair market value and (iii) the holding
period of the New Equity Interests and New Secured Notes in the hands of a
holder of Secured Notes would begin the day after the date of issuance. Such
gain or loss generally will be treated as capital gain or loss and will be
long-term if the Secured Notes are capital assets in the hands of such holder
and have been held for more than one year. However, any gain recognized will be
treated as ordinary income to the extent of any Accrued Interest or Accrued
Market Discount on the Secured Notes.
C. BACKUP WITHHOLDING AND INFORMATION REPORTING FOR U.S. HOLDERS OF SECURED
NOTES AND HOLDERS OF EQUITY INTERESTS.
Payors of interest, dividends, and certain other reportable payments
generally are required to withhold 31% of such payments if the payee fails to
furnish his or her correct taxpayer identification number (social security
number or employer identification number) to the payor. Certain shareholders
(including, among others, corporations) are generally exempt from back-up
withholding and reporting requirements. The Disbursing Agent may be required to
withhold a portion of any payments made to a holder of Secured Notes and a
holder of Equity Interests which does not provide its taxpayer identification
number. Accordingly, every holder of Secured Notes and holder of Equity
Interests is urged to complete and return to the Disbursing Agent any relevant
tax forms sent to such holder.
Amounts paid as backup withholding do not constitute an additional tax and
will be credited against such holder's federal income tax liabilities, so long
as the required information is provided to the IRS.
D. IMPORTANCE OF OBTAINING PROFESSIONAL TAX ASSISTANCE.
THE FOREGOING IS INTENDED AS A SUMMARY ONLY, AND IS NOT A SUBSTITUTE FOR
CAREFUL TAX PLANNING WITH A TAX PROFESSIONAL. THE FEDERAL, STATE AND LOCAL
INCOME AND OTHER TAX CONSEQUENCES OF THE PLAN ARE COMPLEX AND, IN SOME CASES,
UNCERTAIN. SUCH CONSEQUENCES MAY ALSO VARY BASED ON THE PARTICULAR CIRCUMSTANCES
OF EACH HOLDER OF SECURED NOTES AND HOLDER OF EQUITY INTERESTS. ACCORDINGLY,
EACH HOLDER OF SECURED NOTES OR EQUITY INTERESTS IS STRONGLY URGED TO CONSULT
WITH HIS, HER OR ITS OWN TAX ADVISOR REGARDING THE FEDERAL, STATE AND LOCAL
INCOME AND OTHER TAX CONSEQUENCES OF THE PLAN.
IX. REQUIREMENTS FOR CONFIRMATION OF THE PLAN
A. SECTION 1129(A).
At the Confirmation Hearing, the Bankruptcy Court will determine whether
the requirements of section 1129(a) or (b) of the Bankruptcy Code have been
satisfied, and if they are deemed satisfied the Bankruptcy Court will enter an
order confirming the Plan. Section 1129(a) of the Bankruptcy Code requires,
among other things, that the Plan be proposed in good faith and that the Plan
comply with the applicable provisions of chapter 11. Section 1129(a) also
requires that confirmation of the Plan be not likely to be followed by the need
for further financial reorganization. The requirements are as follows:
1. Classification of Claims and Interests.
The Bankruptcy Code requires that a plan of reorganization place each
creditor's claim and each equity holder's interest in a class with other claims
and interests which are "substantially similar." The Debtor believes that the
Plan meets the classification requirements of the Bankruptcy Code.
2. Best Interests of Creditors.
In order to confirm the Plan, the Bankruptcy Court must independently
determine that the Plan is in the best interests of all Classes of Creditors and
holders of Equity Interests impaired by the Plan. The "best interests" test
requires that the Bankruptcy Court find under section 1129(a)(7) of the
Bankruptcy Code that the plan provides, with respect to impaired classes of
30
<PAGE>
claims or equity interests, that each holder of an impaired claim or impaired
equity interest either (i) has accepted the plan, or (ii) will receive or retain
under the plan cash or property of a value, as of the effective date of the
plan, that is not less than the value that such holder would receive or retain
if the debtor were liquidated under chapter 7. The Bankruptcy Court will
determine whether the distributions under the Plan to holders of Allowed Claims
equal or exceed the value that would be allocated to such holders in a
liquidation of the Debtors under chapter 7 (the "Best Interests Test").
To estimate what members of each impaired Class of Creditors and holders of
Equity Interests would receive if the Debtor were liquidated, the Bankruptcy
Court must first determine the value of the consideration that would be
generated from the Debtor's assets if the Reorganization Case were converted to
a chapter 7 case under the Bankruptcy Code and the assets were liquidated by a
trustee in bankruptcy (the "Liquidation Value"). The Liquidation Value would
consist of the net proceeds from the disposition of the property of the Debtor.
The Debtor believes that the most likely outcome of liquidation proceedings
would be the rule of absolute priority of distributions. Under that rule, no
junior creditor of a debtor receives any distribution until all senior creditors
have been paid in full and no equity interest holder would receive any
distribution until all creditors have been paid in full with interest.
The Debtor believes that the value of the recoveries that would be
available to holders of Allowed Claims if this Reorganization Case were
converted to a case under chapter 7 of the Bankruptcy Code is substantially less
than the recoveries available under chapter 11 pursuant to the Plan.
Accordingly, the value of the distributions under the Plan to Class 2 Creditors
and Class 4 Equity Interest holders will be greater than the value of the
distributions that such Creditors or Equity Interest holders would receive in a
chapter 7 liquidation of the Debtor. Annexed hereto as Exhibit 4 is a
liquidation analysis estimating what Creditors would receive in a chapter 7
liquidation of the Debtor.
3. Feasibility of the Plan.
The Bankruptcy Code requires that, in order to confirm the Plan, the
Bankruptcy Court must find that confirmation of the Plan is not likely to be
followed by liquidation or the need for further financial reorganization of the
Debtor, unless such liquidation or reorganization is proposed in the Plan (the
"Feasibility Test"). The Debtor believes and intends to prove at the
Confirmation Hearing that the Reorganized Debtor will be capable of satisfying
the payments required to the holders of the New Secured Notes and that the Exit
Financing will enhance the Reorganized Debtor's future viability and value as a
going concern.
4. Directors of Reorganized Debtor.
Pursuant to the Restructuring Agreement, the Board of Directors of the
Reorganized Debtor will consist of seven directors. The holders of the New
Secured Notes are entitled to nominate four directors who will be identified at
or prior to the hearing on confirmation of the Plan. In addition, the other
three directors will be Hermano Studart Lins de Albuquerque (currently the
Debtor's Chief Executive Officer), Carlos Andre Studart Lins de Albuquerque
(currently the Debtor's Chief Operating Officer), and another director to be
designated by the Debtor's management at or prior to the hearing on confirmation
of the Plan.
5. Management of the Reorganized Debtor.
Hermano Studart Lins de Albuquerque and Carlos Studart Lins de
Alburquerque, both of whom are currently part of the Debtor's management team,
will be employed by the Reorganized Debtor, pursuant to the employment
agreements attached as Exhibit D to the Restructuring Agreement.
6. Acceptance by Impaired Classes.
Section 1129(a) of the Bankruptcy Code requires that each class of claims
or interests that is impaired under a plan accept that plan (subject to the
"cramdown" exception described below). A class of Claims under the Plan will
have accepted the Plan if the Plan is accepted by more than fifty percent in
number and at least two-thirds in amount of the holders of Allowed Claims in
31
<PAGE>
such class that actually vote on the Plan. A class of Equity Interests under the
Plan will have accepted the Plan if the Plan is accepted by holders of Equity
Interests that hold at least two-thirds in amount of the holders of Equity
Interests that actually vote on the Plan. Holders of Claims or Equity Interests
that fail to vote are not counted as either accepting or rejecting the Plan. A
class that is not "impaired" under a plan is conclusively presumed to have
accepted a plan. Solicitation of acceptances from that class is not required. A
class which will not receive or retain any property or distributions under a
plan, is deemed to have rejected the plan. Solicitation of acceptances from that
class is not required.
B. CRAM DOWN OF THE PLAN.
The Bankruptcy Code contains provisions for confirmation of a plan even if
the plan is not accepted by all impaired classes, as long as at least one
impaired class of claims has accepted it. A plan may be confirmed under the cram
down provisions if, in addition to satisfying the other requirements of section
1129 of the Bankruptcy Code, it (i) "does not discriminate unfairly," and (ii)
is "fair and equitable" with respect to each class of Claims or Equity Interests
that is impaired under, and has not accepted, the plan. As used by the
Bankruptcy Code, the phrases "discriminate unfairly" and "fair and equitable"
have narrow and specific meanings unique to bankruptcy law.
The requirement that a plan not "discriminate unfairly" means that a
dissenting class must be treated equally with respect to other classes whose
legal rights are related to the legal rights of the non-accepting class and that
no class receives more than it is legally entitled to receive for its claims.
The Debtor believes that the Plan does not "discriminate unfairly" with respect
to any class of Claims or Equity Interests because no class is afforded
treatment which is disproportionate to the treatment afforded other classes of
equal rank and no class receives more than it is legally entitled to.
The "fair and equitable" standard, also known as the "absolute priority
rule," has a different meaning for Secured Claims, Unsecured Claims and Equity
Interests.
Secured Creditors. Either (i) each impaired secured creditor retains its
liens securing its secured claim and it receives on account of its secured claim
deferred cash payments having a present value equal to the amount of its allowed
secured claim, (ii) each impaired secured creditor realizes the indubitable
equivalent of its allowed secured claim, or (iii) the property securing the
claim is sold free and clear of liens, with such liens to attach to the proceeds
and the treatment of such liens on proceeds is as provided in clause (i) or (ii)
of this subparagraph.
Unsecured Creditors. Either (i) each impaired unsecured creditor receives
or retains under the plan property of a value equal to the amount of its allowed
claim or (ii) the holders of claims and interests that are junior to the claims
of the dissenting class will not receive any property under the plan of
reorganization, subject to the applicability of the judicial doctrine of
contributing new value.
Holders of Equity Interests. Either (i) each equity interest holder will
receive or retain under the plan of reorganization property of a value equal to
the greater of (a) the fixed liquidation preference or redemption price, if any,
of such stock or (b) the value of the stock or (ii) the holders of interests
that are junior to the stock will not receive any property under the plan of
reorganization, subject to the applicability of the judicial doctrine of
contributing new value.
The Debtor believes that the Plan may be confirmed under section 1129(b) of
the Bankruptcy Code.
C. RISK FACTORS.
There are a number risk factors which could materially impact the Debtor's
ability to confirm the Plan or to implement the Plan as well as the timing of
Creditor distributions under the Plan. Each Creditor entitled to vote on the
Plan should carefully consider the risk factors enumerated or referred to below,
as well as all of the information contained in this Disclosure Statement,
including the exhibits hereto, in determining whether to accept or reject the
Plan.
1. Risk of Non-Confirmation of the Plan.
Although the Debtor believes that the Plan will satisfy all of the
requirements necessary for confirmation by the Bankruptcy Court, there can be no
32
<PAGE>
assurance that the Bankruptcy Court will reach the same conclusion. There can be
no assurance that modifications to the Plan will not be required for
confirmation or that such modifications would not necessitate the resolicitation
of votes.
2. The New Secured Notes and New Equity Interests.
If the Bankruptcy Court were to determine that the Reorganized Debtor is
not a successor or an affiliate who is participating in a plan of reorganization
with the Debtor, the New Secured Notes and New Equity Interests would not be
exempt from registration with the SEC under section 1145 of the Bankruptcy Code.
The failure of the New Secured Notes and New Equity Interests to qualify for an
exemption from registration under section 1145 means that, in order for (a) the
New Secured Notes and New Equity Interests to be distributed to the holders of
Allowed Senior Secured Claims, and (b) New Equity Interests to be distributed to
holders of Equity Interests and to be freely transferable, the New Secured Notes
and New Equity Interests would have to be registered with the SEC. Such a
registration would delay the receipt of the New Secured Notes and New Equity
Interests by holders of Allowed Class 2 Claims and Class 4 Equity Interests,
respectively, may reduce the amount of Cash available for distribution to
Creditors under the Plan by the cost of such registration, and may otherwise
affect the feasibility of the Plan. Alternatively, the Debtor might seek to
modify the Plan.
3. Liquidity.
There currently is no existing market for the New Secured Notes and New
Equity Interests and there can be no assurance that an active trading market
will develop or as to the degree of price volatility in any such particular
market. Accordingly, no assurance can be given that a holder of New Secured
Notes and New Equity Interests will be able to sell such securities in the
future or as to the price at which such sale may occur. If such market were to
exist, the liquidity of the market for such New Secured Notes and New Equity
Interests and the prices at which such securities will trade will depend upon
many factors.
4. Section 1146(c) Transfer Tax Exemption.
The Debtor believes that all of the transfers to be effectuated under the
Plan will be exempt from transfer taxes, and any stamp or similar tax, pursuant
to section 1146(c) of the Bankruptcy Code. Section 1146(c) provides that "the
issuance, transfer, or exchange of a security, or the making or delivery of an
instrument of transfer under a plan confirmed under section 1129 of this title,
may not be taxed under any law imposing a stamp tax or similar tax."
5. Brazilian Government Approval.
Agencia Nacional de Telecomunicacoes ("ANATEL"), the Brazilian government
agency which regulates telecommunication services in Brazil, has jurisdiction to
approve the transfer of control of the multi-channel distribution systems
licenses held by ITSA and the Subsidiaries. Since implementing the Plan will
result in a redistribution of the equity ownership of ITSA's parent, the Debtor
intends to have ITSA and the Subsidiaries seek ANATEL's approval of the
structure contemplated by the Plan. While the Debtor believes such approval by
ANATEL is likely to be obtained within a reasonable time, there is no assurance
that ANATEL will approve such redistribution of equity or that ANATEL will
render its decision within a reasonable time.
In addition, the Central Bank must approve the restructuring contemplated
by the Plan. In the process of reviewing the proposed restructuring, the Central
Bank may examine the original approvals granted when the Secured Notes were
issued and there is a risk that the Central Bank may impose a Central Bank Fee,
which may include charges or additional taxes with respect to the original
transaction relating to the Secured Notes. There is no assurance that approval
of the restructuring will be given or as to whether any charges or taxes may be
imposed Moreover, charges or taxes imposed by the Central Bank may result in the
Plan not being feasible, inasmuch as the Plan provides that the aggregate
principal amount of the New Secured Notes will be increased by an amount equal
to the amount of the Central Bank Fee.
D. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN.
The Debtor believes that the reorganization contemplated by the Plan
provides the highest and most expeditious recovery to holders of Allowed Claims.
33
<PAGE>
However, if the Plan is not confirmed by the Bankruptcy Court and consummated,
the alternatives to the Plan include an alternative plan of reorganization and
the liquidation of the Debtor under chapter 7 of the Bankruptcy Code.
The Debtor believes that the Plan provides all Classes of Claims and Equity
Interests with the potential for the greatest realization on the Debtor's assets
and, therefore, is in the best interests of Creditors and Equity Interest
holders. If the Plan is not confirmed, however, the Reorganization Case could
continue, alternative plans of reorganization could be proposed and/or
confirmed, the Debtor's estate could be liquidated under chapter 7 of the
Bankruptcy Code or the Reorganization Case could be dismissed. All of the
alternatives discussed herein may be further limited by the terms of the
Restructuring Agreement.
1. Continuation of the Reorganization Case.
If the Debtor remains in chapter 11, it may be able to continue for an
unspecified period of time to operate its business as debtor in possession, but
it would remain subject to the restrictions imposed by the Bankruptcy Code and
to the operating and financial constraints associated with bankruptcy cases, and
would incur continuing significant Administrative Expenses associated with such
case.
2. Alternative Plans of Reorganization.
If the Plan is not confirmed, the Debtor or any other party in interest
could attempt to formulate, propose and solicit acceptances to a different plan
or plans of reorganization. Such plans might involve a reorganization and
continuation of the Debtor's businesses or a liquidation of its assets. If the
Plan is not confirmed and one or more alternative plans of reorganization for
the Debtor are proposed, there exists a substantial risk that recoveries to
holders of Allowed Claims will be significantly delayed. Such delays will reduce
the value of recoveries to Creditors when compared to the recoveries
contemplated by the Plan.
3. Liquidation Under Chapter 7.
If the Plan is not confirmed, it is possible that the Reorganization Case
may be converted to a case under chapter 7, pursuant to which a trustee would be
elected or appointed to liquidate the assets of the Debtor for distribution to
Creditors in accordance with the priorities established and recognized by the
Bankruptcy Code. The Debtor believes that liquidation under chapter 7 would
result in substantially smaller distributions being made to holders of Allowed
Claims than those provided for in the Plan because of the increased fees and
expenses associated with a liquidation under chapter 7. Moreover, the Debtor
believes that holders of Equity Interests would receive no distribution in a
chapter 7 liquidation and their Equity Interests would be extinguished.
34
<PAGE>
X. CONCLUSION
The Debtor believes that, as compared to any alternative plan of
reorganization or liquidation, the Plan has the greatest chance to be confirmed
and consummated and provides the greatest and most expeditious return to holders
of Claims and Equity Interests.
The Debtor believes that the Plan is in the best interests of all holders
of Claims and Equity Interests and urges all such holders who are entitled to
vote on the Plan to vote to accept the Plan.
Dated: February 29, 2000
Respectfully submitted,
TV FILME, INC.
By: s/ Hermano Albuquerque
----------------------
Name: Hermano Albuquerque
Title: President and CEO
<PAGE>
EXHIBIT 1
PLAN OF REORGANIZATION
<PAGE>
EXHIBIT 2
FORM 10K
<PAGE>
EXHIBIT 3
FORM 10Q
<PAGE>
EXHIBIT 4
LIQUIDATION ANALYSIS
EXHIBIT 2.2
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
- ------------------------------------------------
In re: Chapter 11
TV FILME, INC., Case No. 00-342 (PJW)
Debtor.
- ------------------------------------------------
FIRST AMENDED
PLAN OF REORGANIZATION
February 29, 2000
KELLEY DRYE & WARREN LLP
Mark I. Bane (MB 4883)
Karen Ostad (KO 5596)
101 Park Avenue
New York, New York 10178
(212) 808-7800
SAUL, EWING, REMICK & SAUL LLP
Norman L. Pernick ( DE#2290)
222 Delaware Avenue, Suite 1200
Wilmington, Delaware 19899
(302) 421-6824
COUNSEL TO THE DEBTOR AND DEBTOR
IN POSSESSION
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS AND INTERPRETATION...............................1
A. Definitions..................................................1
B. Interpretation; Application of Definitions
and Rules of Construction....................................7
SECTION 2. PROVISIONS FOR PAYMENT OF ADMINISTRATIVE EXPENSE
CLAIMS AND PRIORITY TAX CLAIMS...............................7
2.1 Administrative Expense Claims................................7
2.2 Priority Tax Claims..........................................8
SECTION 3. CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS................8
SECTION 4. PROVISIONS FOR TREATMENT OF CLAIMS AND EQUITY
INTERESTS UNDER THIS PLAN....................................8
4.1 Priority Non-Tax Claims (Class 1)............................8
4.2 Senior Secured Claims (Class 2)..............................8
(a) Allowance of Senior Secured Claims..................8
(b) Treatment of Senior Secured Claims..................8
4.3 General Unsecured Claims (Class 3)...........................9
4.4 Equity Interests in the Debtor (Class 4).....................9
SECTION 5. IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS
IMPAIRED AND NOT IMPAIRED UNDER THIS PLAN;
ACCEPTANCE OR REJECTION OF THIS PLAN.........................9
5.1 Holders of Claims and Equity Interests
Entitled to Vote.............................................9
5.2 Acceptance by Unimpaired Classes.............................9
5.3 Elimination of Classes.......................................9
5.4 Revocation of Plan..........................................10
SECTION 6. MEANS OF IMPLEMENTATION.....................................10
6.1 Means of Implementing the Plan..............................10
6.2 Exit Financing..............................................10
6.3 Distributions under this Plan...............................11
6.4 Secured Notes and Indenture.................................11
SECTION 7. PROVISIONS GOVERNING DISTRIBUTIONS..........................11
7.1 Date of Distributions.......................................11
7.2 Disbursing Agent............................................11
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
7.3 Source of Distributions.....................................12
7.4 Delivery of Distributions...................................12
7.5 Manner of Payment Under this Plan...........................12
7.6 Distributions After Effective Date..........................12
SECTION 8. RIGHTS AND POWERS OF DISBURSING AGENT.......................13
8.1 Exculpation.................................................13
8.2 Powers of the Disbursing Agent..............................13
8.3 Expenses Incurred on or After the Effective Date............13
8.4 Successor Disbursing Agent..................................13
SECTION 9. PROCEDURES FOR RESOLVING AND TREATING DISPUTED
CLAIMS AND EQUITY INTERESTS UNDER THIS PLAN.................14
9.1 Prosecution of Objections...................................14
9.2 No Distributions Pending Allowance..........................14
9.3 Claims Reserve..............................................14
9.4 Distributions After Allowance...............................14
9.5 Distributions After Disallowance............................15
SECTION 10. PROVISIONS GOVERNING EXECUTORY CONTRACTS
AND UNEXPIRED LEASES UNDER THIS PLAN........................15
10.1 General Treatment...........................................15
10.2 Amendments to Schedule of Assumed Executory
Contacts; Effects of Amendments.............................15
10.3 Bar to Rejection Damages....................................15
SECTION 11. CONDITIONS PRECEDENT TO CONFIRMATION AND
EFFECTIVE DATE..............................................15
11.1 Conditions Precedent to Confirmation of this Plan...........15
(a) Entry of Confirmation Order........................16
(b) Form of Confirmation Order.........................16
11.2 Conditions Precedent to Effective Date of this Plan.........16
(a) Finality of the Confirmation Order.................16
(b) Governmental Approvals.............................17
(c) Approval of the Central Bank.......................17
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
(d) Distributions......................................17
(e) Execution of Documents.............................17
11.3 Waiver of Conditions Precedent..............................17
SECTION 12. EFFECT OF CONFIRMATION......................................17
12.1 Custody.....................................................17
12.2 Liens.......................................................17
12.3 Term of Injunctions or Stays................................17
SECTION 13. RELEASES, INJUNCTION AND WAIVER OF CLAIMS...................18
13.1 Releases of the Affiliate Releasees.........................18
(a) Release of the Debtor..............................18
(b) Release of the Affiliate Releasees.................18
13.2 Release of the Plan Releasees...............................19
13.3 Injunction..................................................19
13.4 Vesting of Property in Reorganized Debtor...................20
SECTION 14. RETENTION OF JURISDICTION...................................20
14.1 Retention of Jurisdiction...................................20
14.2 Modification of Plan........................................21
SECTION 15. MISCELLANEOUS PROVISIONS....................................21
15.1 Payment of Statutory Fees...................................21
15.2 Dissolution of Creditors' Committee.........................21
15.3 Fees and Expenses of Professional Persons...................21
15.4 Severability of Plan Provisions.............................22
15.5 Governing Law...............................................22
15.6 Payment of Withholding of Taxes; Allocation
of Payments.................................................22
15.7 Notices.....................................................22
SCHEDULE 1 List of Subsidiaries
SCHEDULE 2 List of Assumed Executory Contracts
EXHIBIT A Form of New Indenture
EXHIBIT B Restructuring Agreement
-iii-
<PAGE>
PLAN OF REORGANIZATION
TV Filme, Inc. (the "Debtor") proposes the following Plan of
Reorganization:
SECTION 1. DEFINITIONS AND INTERPRETATION
A. DEFINITIONS.
The following terms used herein shall have the respective meanings defined
below:
1.1. AD HOC NOTEHOLDERS' COMMITTEE means an unofficial committee consisting
of certain unaffiliated holders of the Secured Notes.
1.2. AFFILIATE RELEASEES means, collectively, (a) the Debtor, (b) the
Subsidiaries, (c) the respective successors, predecessors, assignors or
assignees of any of the foregoing, (d) all current or former partners, members
or owners of any of the foregoing (including current or former partners, members
or owners of any direct or indirect interest in any of the foregoing) and (e)
all current and former affiliates, officers, directors, trustees, employees,
agents, attorneys, counsel, accountants, financial advisors, investment bankers,
appraisers and engineers of any of the foregoing.
1.3. ADMINISTRATIVE EXPENSE CLAIM means any right to payment constituting a
cost or expense of administration of the Reorganization Case allowed under
sections 503(b) and 507 (a) (1), or 507(b) of the Bankruptcy Code, including (a)
any actual and necessary costs and expenses of preserving the estate of the
Debtor, (b) any actual and necessary costs and expenses of operating the
business of the Debtor, (c) any indebtedness or obligations incurred or assumed
by the Debtor in connection with the conduct of its business, the rendition of
services or the transfer of the Assets, (d) any allowances of compensation and
reimbursement of expenses to the extent allowed by Final Order under sections
330 or 503 of the Bankruptcy Code, whether arising before or after the Effective
Date, (e) any fees or charges assessed against the estate of the Debtor under
section 1930, chapter 123, title 28, United States Code and (f) the fees and
expenses payable to the Indenture Trustee under the Indenture for the period
from and after the Petition Date through and including the Effective Date to the
extent that such amounts have not been paid to the Indenture Trustee during the
Reorganization Case.
1.4. ALLOWED means, with reference to any Claim or Equity Interest, (a) any
Claim against or Equity Interest in the Debtor, proof of which was filed within
the applicable period of limitation fixed by the Bankruptcy Court in accordance
with Rule 3003(c) (3) of the Bankruptcy Rules (i) as to which no objection to
the allowance thereof has been interposed within the applicable period of
limitation fixed by this Plan, the Bankruptcy Code, the Bankruptcy Rules or a
Final Order or (ii) as to which an objection has been interposed, to the extent
such Claim or Equity Interest has been allowed by a Final Order, (b) if no proof
of claim or interest was so filed, (i) any Claim against the Debtor which has
been listed by the Debtor in its Schedules, as such Schedules may be amended
from time to time in accordance with Rule 1009 of the Bankruptcy Rules, as
liquidated in amount and not disputed or contingent, and (ii) any Equity
Interest that is registered in the official records of the Debtor's stock
transfer agent, (c) any Claim arising from the recovery of property under
section 550 or 553 of the Bankruptcy Code and allowed in accordance with section
502(h) of the Bankruptcy Code and (d) any Claim expressly allowed hereunder.
1
<PAGE>
1.5. ASSETS means all assets of the Debtor, including, without limitation,
any stock of or membership interest in the Subsidiaries, the ITSA Note and all
Causes of Action of the Debtor.
1.6. BALLOT means the form or forms distributed to each holder of an
impaired Claim or Equity Interest on which is to be indicated acceptance or
rejection of this Plan.
1.7. BALLOT DATE means the date by which all Ballots for acceptance or
rejection of this Plan must be received.
1.8. BANKRUPTCY CODE means the Bankruptcy Reform Act of 1978, as amended
and as codified at Title 11, United States Code.
1.9. BANKRUPTCY COURT means the United States District Court for the
District of Delaware and, to the extent of any reference under section 157,
title 28, United States Code, the unit of such District Court constituted under
section 151, title 28, United States Code having jurisdiction over the
Reorganization Case.
1.10. BANKRUPTCY RULES means the Federal Rules of Bankruptcy Procedure as
promulgated by the United States Supreme Court under section 2075, title 28,
United States Code, and any Local Rules of the Bankruptcy Court.
1.11. BUSINESS DAY means any day other than a Saturday, a Sunday, any other
day on which banking institutions in New York, New York are required or
authorized to close by law or executive order or Rosh Hashanah (both days), Yom
Kippur and the Friday after Thanksgiving.
1.12. CASH means legal tender of the United States of America.
1.13. CAUSES OF ACTION means any and all actions, causes of action,
liabilities, obligations, rights, suits, debts, sums of money, damages,
judgments, claims and demands whatsoever, whether known or unknown, in law,
equity or otherwise, including, without limitation, any avoidance or recovery
actions under sections 544, 545, 547, 548, 549, 550, 551 and 553 of the
Bankruptcy Code or any other causes of action, or rights to payments of claims,
that belong to the Debtor.
1.14. CENTRAL BANK means the Central Bank of Brazil.
1.15. CENTRAL BANK Fee means the fee, if any, imposed by the Central Bank
in connection with the Central Bank's approval of the debt restructuring
contemplated by the Plan.
1.16. CLAIM means (a) any right to payment from the Debtor, whether or not
such right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured or (b) any right to an equitable remedy for breach of performance if
such breach gives rise to a right of payment from the Debtor, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.
2
<PAGE>
1.17. CLAIMS RESERVE means one or more segregated accounts in which
Distributable Cash shall be held in accordance with Section 9 hereof.
1.18. COLLATERAL means any property or interest in property of the estate
of the Debtor subject to a Lien to secure the payment or performance of a Claim,
which Lien is not subject to avoidance under the Bankruptcy Code.
1.19. CONFIRMATION DATE means the date on which the Clerk of the Bankruptcy
Court enters the Confirmation Order.
1.20. CONFIRMATION HEARING means the hearing held by the Bankruptcy Court
on confirmation of this Plan, as such hearing may be adjourned or continued from
time to time.
1.21. CONFIRMATION ORDER means an order of the Bankruptcy Court confirming
this Plan.
1.22. CREDITORS' COMMITTEE means the statutory creditors' committee, if
any, appointed in the Reorganization Case under section 1102 of the Bankruptcy
Code.
1.23. DEBTOR means TV Filme, Inc., as debtor and debtor in possession under
the Bankruptcy Code.
1.24. DEFICIENCY CLAIM means, with reference to a Claim secured by a Lien
against Collateral, an amount equal to the difference between (a) the aggregate
amount of such Claim and (b) the value of the Collateral securing such Claim.
1.25. DISBURSING AGENT means the Reorganized Debtor or such Entity as is
designated by the Debtor prior to the Confirmation Hearing and approved in the
Confirmation Order, in its capacity as a disbursing agent under Section 7.2
hereof.
1.26. DISCLOSURE STATEMENT means the First Amended Disclosure Statement
relating to this Plan, dated as of the date hereof, including the exhibits
thereto, as the same may be amended, modified or supplemented from time to time.
1.27. DISPUTED CLAIM means a Claim or Equity Interest against the Debtor to
the extent that the allowance of such Claim or Equity Interest is the subject of
a notice of dispute issued by, or a timely objection to such Claim or Equity
Interest, interposed by the Debtor in accordance with Section 9.1 hereof.
1.28. DISTRIBUTABLE CASH means, as of the applicable date of determination,
(i) the $25 million of Cash to be distributed to holders of Senior Secured
Claims, (ii) the estimated amount for the payment of Administrative Expense
Claims which are projected to be allowed subsequent to the Effective Date, and
(iii) such other sums as may be needed to pay Allowed Claims pursuant to this
Plan.
3
<PAGE>
1.29. EFFECTIVE DATE means the later to occur of (a) the eleventh day
(calculated under Bankruptcy Rule 9006) after the Confirmation Date if no stay
of the Confirmation Order is then in effect or (b) such other date as is fixed
from time to time after the Confirmation Date by the Debtor by filing a notice
thereof with the Bankruptcy Court, but in no event shall the Effective Date
occur earlier than the date of the satisfaction of each of the conditions
precedent to the occurrence of the Effective Date of this Plan in Section 11.2
hereof unless waived as provided in Section 11.3 hereof.
1.30. ENTITY has the meaning assigned to such term in section 101(15) of
the Bankruptcy Code.
1.31. EQUITY INTEREST means any shares of common stock or other instrument
evidencing an ownership interest in the Debtor, whether or not transferable, and
any warrant, option or right to purchase, sell or subscribe for an interest or
security in the Debtor.
1.32. EXIT FINANCIERS means each holder of in excess of $1 million in
principal amount of Secured Notes which (i) commits in writing at least five (5)
business days prior to the Confirmation Hearing to participate, on a PRO RATA
basis, as a lender in the Exit Financing, and (ii) actually participates on a
PRO RATA basis in the Exit Financing.
1.33. EXIT FINANCING means the $10 million secured line of credit to be
provided by the Exit Financiers in accordance with Section 6.2 of this Plan.
1.34. FINAL ORDER means (a) an order or judgment of the Bankruptcy Court,
or other court of competent jurisdiction, which has not been reversed, vacated
or stayed and as to which the time to appeal, petition for certiorari or move
for a new trial, reargument or rehearing has expired and as to which no appeal,
petition for certiorari or other proceedings for a new trial, reargument or
rehearing shall then be pending or (b) if an appeal, writ of certiorari, new
trial, reargument or rehearing thereof has been sought, such order shall have
been affirmed by the highest court to which such order was appealed, or
certiorari shall have been denied or a new trial, reargument or rehearing shall
have been denied or resulted in no modification of such order, and the time to
take any further appeal, petition for certiorari or move for a new trial,
reargument or rehearing shall have expired; provided, that the possibility that
a motion under Rule 60 of the Federal Rules of Civil Procedure, or any analogous
rule under the Bankruptcy Rules, may be filed, relating to such order shall not
cause such order not to be a Final Order.
1.35. GENERAL UNSECURED CLAIM means any Unsecured Claim (including any
Deficiency Claim) that is not an Administrative Expense Claim, a Priority
Non-Tax Claim, or a Priority Tax Claim.
1.36. IMPLEMENTATION DOCUMENTS means the Restructuring Agreement, the New
Secured Notes, the New Indenture, certificates evidencing the New Equity
Interests, documents evidencing the Exit Financing and such agreements,
instruments or documents as the Debtor may reasonably request to implement this
Plan and the transactions contemplated hereby and by the Restructuring
Agreement.
1.37. INDENTURE means the Indenture, dated as of December 20, 1996, between
TV Filme, Inc. and IBJ Schroeder Bank and Trust Company, as indenture trustee.
4
<PAGE>
1.38. INDENTURE TRUSTEE means The Bank of New York as successor to IBJ
Schroeder Bank and Trust Company, (later known as IBJ Whitehall Bank and Trust
Company), in its capacity as indenture trustee under the Indenture, or any
successor indenture trustee appointed in accordance with the terms of the
Indenture.
1.39. ITSA means ITSA-Intercontinental Telecomuncacoes Ltda., a Brazilian
limited liability company.
1.40. ITSA NOTE means that certain promissory Note in the principal amount
of $140 million from ITSA as payor to the Debtor as payee, and all documents
executed in connection therewith.
1.41. LIABILITIES means any and all costs, expenses, actions, causes of
action, suits, controversies, damages, claims, liabilities or demands of any
nature, whether known or unknown, foreseen or unforeseen, existing or
hereinafter arising, liquidated or unliquidated, matured or not matured,
contingent or direct, whether arising at common law, in equity, or under any
statute, based in whole or in part upon any act or omission or other occurrence
taking place on or prior to the Effective Date.
1.42. LIEN has the meaning assigned to such term in section 101(37) of the
Bankruptcy Code.
1.43. NEW EQUITY INTEREST means any shares of stock to be issued by the
Reorganized Debtor pursuant to this Plan and the Restructuring Agreement.
1.44. NEW INDENTURE means the Indenture to be entered into as of the
Effective Date between the Reorganized Debtor and an indenture trustee with
respect to the New Secured Notes, pursuant to the terms of the Restructuring
Agreement, substantially in the form annexed to this Plan as EXHIBIT A.
1.45. NEW INDENTURE TRUSTEE means the entity appointed as indenture trustee
under the New Indenture, or any successor indenture trustee appointed in
accordance with the terms of the New Indenture.
1.46. NEW NOTE AMOUNT means an amount equal to the sum of $35 million plus
an amount equal to the amount of the Central Bank Fee.
1.47. NEW SECURED NOTES means the new secured note or notes, substantially
in the form annexed to the New Indenture as Exhibit A, to be issued by ITSA to
the Reorganized Debtor in the aggregate principal amount of the New Note Amount,
which will then be assigned to the holders of the Secured Notes pursuant to
Section 4.2 of this Plan and the terms of the New Indenture.
1.48. PETITION DATE means January 26, 2000, the date on which the Debtor
filed with the Bankruptcy Court its voluntary petition for relief under the
Bankruptcy Code.
5
<PAGE>
1.49. PLAN means this First Amended Plan of Reorganization, including the
schedules and exhibits hereto, as the same may be amended, modified or
supplemented from time to time in accordance with the terms hereof.
1.50. PLAN RELEASEES means, collectively, (a) the Indenture Trustee, the
Specified Holders who are signatories to the Restructuring Agreement and the
members of the Creditors' Committee, if any, (b) the respective successors,
predecessors, assignors or assignees of any of the foregoing, (c) all current or
former partners, members or owners of any of the foregoing (including current or
former partners, members or owners of any direct or indirect interest in any of
the foregoing) and (d) all current and former officers, directors, trustees,
employees, agents, counsel, attorneys, accountants, financial advisors,
investment bankers, appraisers and engineers of any of the foregoing.
1.51. PLAN RELEASES means the releases granted under Sections 13.1 and 13.2
hereof.
1.52. PRIORITY NON-TAX CLAIM means any Claim of a kind specified in section
507(a) (3), (4), (5), (6), (7) or (9) of the Bankruptcy Code.
1.53. PRIORITY TAX CLAIM means any Claim of a governmental unit of the kind
specified in section 507(a) (8) of the Bankruptcy Code.
1.54. RATABLE PORTION means, with reference to any distribution on account
of any Allowed Claim or Allowed Equity Interest in any class, a distribution
equal in amount to the ratio (expressed as a percentage) that the amount of such
Allowed Claim or Allowed Equity Interest bears to the aggregate amount of Claims
or Equity Interests in the same class.
1.55. REORGANIZATION CASE means the case commenced under chapter 11 of the
Bankruptcy Code by the Debtor on the Petition Date.
1.56. REORGANIZED DEBTOR means a new Cayman Islands entity which will be
the successor in interest to the Debtor as of the Effective Date.
1.57. RESTRUCTURING AGREEMENT means that certain agreement dated January
24, 2000, among the Debtor and the holders of Secured Notes which are
signatories thereto, a copy of which is annexed to this Plan as EXHIBIT B.
1.58. SCHEDULES means the schedules of assets and liabilities and the
statements of financial affairs filed or to be filed by the Debtor under section
521 of the Bankruptcy Code and the Official Bankruptcy Forms of the Bankruptcy
Rules, as such schedules and statements have been or may be supplemented or
amended.
1.59. SECURED CLAIM means a Claim secured by a Lien on Collateral to the
extent of the value of the Collateral, as determined in accordance with section
506(a) of the Bankruptcy Code.
1.60. SECURED NOTES means the "12-7/8% Senior Notes Due 2004" issued and
outstanding under the Indenture.
6
<PAGE>
1.61. SECURITIES ACT means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
1.62. SEC means the United States Securities and Exchange Commission.
1.63. SENIOR SECURED CLAIM means any Secured Claim governed by, arising
under or related to the Indenture or evidenced by any of the Secured Notes.
1.64. SPECIFIED HOLDERS means the holders of Secured Notes who are
signatories to the Restructuring Agreement.
1.65. SUBSIDIARIES means the Entities which are identified on Schedule 1
hereto and all direct and indirect subsidiaries of the Debtor and ITSA.
1.66. UNSECURED CLAIM means any Claim against the Debtor that is not a
Secured Claim.
1.67. VOTING AGENT means such Entity as is designated by the Debtor in the
Disclosure Statement in its capacity as Voting Agent to distribute Ballots and
tabulate votes with respect to the Plan.
B. INTERPRETATION; APPLICATION OF DEFINITIONS AND RULES OF CONSTRUCTION.
Unless otherwise specified, all section, article, schedule or exhibit
references in this Plan are to the respective section in, article of, or
schedule or exhibit to, this Plan, as the same may be amended, waived, or
modified from time to time. The words "herein," "hereof," "hereto," "hereunder,"
and other words of similar import refer to this Plan as a whole and not to any
particular section, article, subsection, or clause contained in this Plan. Any
defined term used herein that is not otherwise defined shall have the meaning
assigned to that term in the Bankruptcy Code. The rules of construction
contained in section 102 of the Bankruptcy Code shall apply to the construction
of this Plan. The headings in this Plan are for convenience of reference only
and shall not limit or otherwise affect the provisions of this Plan.
SECTION 2. PROVISIONS FOR PAYMENT OF ADMINISTRATIVE EXPENSE CLAIMS AND
PRIORITY TAX CLAIMS
2.1 ADMINISTRATIVE EXPENSE CLAIMS.
Except as provided herein, on the Effective Date, each holder of an
Administrative Expense Claim shall receive on account of such Administrative
Expense Claim an amount in Cash equal to the amount of such Administrative
Expense Claim allowed by the Bankruptcy Court, except to the extent that any
Entity entitled to payment of any Administrative Expense Claim agrees to a
different treatment of such Administrative Expense Claim. All Entities that are
awarded allowance of compensation or reimbursement of expenses by the Bankruptcy
Court under sections 503(b) (2), 503(b) (3), 503(b) (4) or 503(b) (5) of the
Bankruptcy Code shall be paid in full in such amounts as are allowed by the
Bankruptcy Court (a) upon the later of (i) the Effective Date and (ii) the date
upon which an order of the Bankruptcy Court with respect to any such
Administrative Expense Claim becomes a Final Order or (b) upon such other terms
as may be mutually agreed upon between such holder of an Administrative Expense
Claim and the Debtor. The post-Petition Date reasonable fees and expenses of
professionals retained by the Ad Hoc Noteholders' Committee will be paid on the
Effective Date.
7
<PAGE>
2.2 PRIORITY TAX CLAIMS.
On the Effective Date, each holder of an Allowed Priority Tax Claim shall
receive on account of such Allowed Priority Tax Claim a payment in Cash equal to
the amount of its Allowed Priority Tax Claim, unless the holder of such Claim
has agreed to a different treatment.
SECTION 3. CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
Claims against and Equity Interests in the Debtor are divided into the
following classes:
Class 1 -- Priority Non-Tax Claims
Class 2 -- Senior Secured Claims
Class 3 -- Unsecured Claims
Class 4 -- Equity Interests
SECTION 4. PROVISIONS FOR TREATMENT OF CLAIMS AND EQUITY INTERESTS UNDER
THIS PLAN
4.1 PRIORITY NON-TAX CLAIMS (CLASS 1).
On the Effective Date, each holder of an Allowed Priority Non-Tax Claim
shall receive on account of such Allowed Priority Non-Tax Claim a payment in
Cash equal to the amount of its Allowed Priority Non-Tax Claim unless the holder
of such Claim has agreed to a different treatment.
4.2 SENIOR SECURED CLAIMS (CLASS 2).
(a) ALLOWANCE OF SENIOR SECURED CLAIMS. By virtue of an affirmative vote in
favor of the Plan, holders of Senior Secured Claims will be making an election
pursuant to section 1111(b)(2) of the Bankruptcy Code to treat their entire
claim as a Senior Secured Claim. The Senior Secured Claims against the Debtor
shall be deemed to be Allowed Claims as of the Petition Date in an amount equal
to $140,000,000, plus all interest accrued under the Indenture from and after
December 15, 1998 through the Petition Date. By operation of section 1111(b) (1)
(A) (i) of the Bankruptcy Code, any Deficiency Claim relating to the Senior
Secured Claims shall be extinguished.
(b) TREATMENT OF SENIOR SECURED CLAIMS. On the Effective Date, or as soon
as practicable thereafter, in exchange for the Secured Notes, each holder of a
Secured Note shall receive its Ratable Portion of (i) $25 million in Cash, (ii)
New Secured Notes in the aggregate principal amount of the New Note Amount; and
(iii) eighty percent (80%) of the New Equity Interests in the Reorganized
Debtor. Distributions to holders of Secured Notes shall be made by the
Disbursing Agent to the Indenture Trustee for the benefit of the holders of
Secured Notes. The Indenture Trustee shall in turn make distributions under the
Plan to holders of the Secured Notes. Subsequent distributions to holders of the
New Secured Notes will be made in accordance with the New Indenture.
8
<PAGE>
4.3 GENERAL UNSECURED CLAIMS (CLASS 3).
To the extent unpaid prior to the Effective Date and except to the extent a
holder of an Allowed General Unsecured Claim agrees to a different treatment,
Allowed General Unsecured Claims shall be unimpaired in accordance with section
1124(2) of the Bankruptcy Code.
4.4 EQUITY INTERESTS IN THE DEBTOR (CLASS 4).
On the Effective Date, all Equity Interests in the Debtor shall be
extinguished. On the Effective Date or as soon as practicable thereafter,
holders of Allowed Equity Interests shall receive a Ratable Portion of five
percent (5%) of the New Equity Interests in the Reorganized Debtor.
SECTION 5. IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS IMPAIRED AND
NOT IMPAIRED UNDER THIS PLAN; ACCEPTANCE OR REJECTION OF THIS PLAN
5.1 HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE.
Each holder of an Allowed Claim or an Allowed Equity Interest in an
impaired class of Claims against or Equity Interests in the Debtor shall be
entitled to vote separately to accept or reject this Plan as provided in the
Disclosure Statement.
Each of Classes 2 and 4 is impaired hereunder and the holders of Claims or
Equity Interests in such Classes are entitled to vote on this Plan.
5.2 ACCEPTANCE BY UNIMPAIRED CLASSES.
Classes 1 and 3 are unimpaired under this Plan and holders of Claims in
such classes are conclusively presumed to have accepted this Plan.
5.3 ELIMINATION OF CLASSES.
Any class of Claims that is not occupied as of the date of the commencement
of the Confirmation Hearing by an Allowed Claim or by a Claim temporarily
allowed under Rule 3018 of the Bankruptcy Rules shall be deemed deleted from
this Plan for purposes of determining acceptance or rejection of this Plan by
such class under section 1129(a) (8) of the Bankruptcy Code.
9
<PAGE>
5.4 REVOCATION OF PLAN.
The Debtor reserves the right to revoke and withdraw this Plan at any time
prior to entry of the Confirmation Order. If this Plan is so revoked or
withdrawn, then this Plan shall be deemed null and void.
SECTION 6. MEANS OF IMPLEMENTATION
6.1 MEANS OF IMPLEMENTING THE PLAN.
To implement the Plan, the Debtor will form the Reorganized Debtor. On the
Effective Date, the Assets of the Debtor will be transferred to the Reorganized
Debtor and the Reorganized Debtor will be the successor in interest to the
Debtor. On the Effective Date, the Reorganized Debtor will contribute as equity
to its subsidiary, ITSA, $105 million of the ITSA Note less an amount equal to
the amount of any Central Bank Fee. The terms of the remaining amount due on the
ITSA Note, which amount shall equal $35 million plus an amount equal to the
amount of the Central Bank Fee, will be amended and restated. In addition, New
Secured Notes in the aggregate principal amount of the New Note Amount will be
issued to the Reorganized Debtor, which will then assign the New Secured Notes
to holders of the Secured Notes, together with (i) $25 million in Cash and (ii)
80% of the New Equity Interests. On or as soon as practicable after the
Effective Date, holders of Allowed Equity Interests and certain members of
management of the Reorganized Debtor, or their designee, will receive the
allocations of the New Equity Interests, as provided in this Plan and in the
Restructuring Agreement.
On or prior to the Effective Date, each party to the Implementation
Documents, including, without limitation, the Indenture Trustee, the New
Indenture Trustee and the Disbursing Agent, shall execute and deliver the
Implementation Documents to which it is a party.
6.2 EXIT FINANCING.
On the Effective Date, the Reorganized Debtor will obtain a $10 million
secured line of credit from the Exit Financiers on the following terms:
o Maturity: twelve months from the Effective Date of the Plan.
o Interest: 15% annual interest rate, payable monthly, in cash.
o Fees:
(i) $400,000 (U.S.) upfront underwriting fee to be paid on the
Effective Date of the Plan PRO rata to the Specified Holders, who
have agreed in the Restructuring Agreement to underwrite and
ensure the availability of the Exit Financing to the Reorganized
Debtor;
10
<PAGE>
(ii) $100,000 (U.S.) upfront administration fee to be paid on the
Effective Date of the Plan to Resurgence Asset Management LLC, as
administrator of the Exit Financing; and
(iii)$300,000 (U.S.) facility fee to be paid only upon the initial
draw down under the Exit Financing, payable to the Exit
Financiers on a PRO RATA basis.
o Each draw down under the Exit Financing will require the prior
approval of the board of directors of the Reorganized Debtor.
o Security: The Exit Financing will be secured on a PARI PASSU basis
with the New Secured Notes.
o Participation: Each holder of in excess of $1 million in principal
amount of Secured Notes may participate on a PRO RATA basis in the
Exit Financing if such party commits to do so in writing at least five
(5) business days prior to the Confirmation Hearing.
6.3 DISTRIBUTIONS UNDER THIS PLAN.
On the Effective Date, the Disbursing Agent shall make, or shall make
adequate reserve for, the distributions required to be made under this Plan from
the sources of Cash described in Section 7.3 hereof.
6.4 SECURED NOTES AND INDENTURE.
As of the Effective Date, the Secured Notes, the Indenture and all
guarantees and other documents executed or delivered in connection therewith
shall be of no further force or effect other than, with respect to the Secured
Notes, to entitle the holders thereof to the distributions described in this
Plan. On the Effective Date, the Debtor and the Indenture Trustee shall be
discharged from all further responsibilities under the Indenture.
SECTION 7. PROVISIONS GOVERNING DISTRIBUTIONS
7.1 DATE OF DISTRIBUTIONS.
Any distributions and deliveries to be made hereunder shall be made on the
Effective Date or as soon as practicable thereafter. If any payment or act under
this Plan is required to be made or performed on a date that is not a Business
Day, then the making of such payment or the performance of such act may be
completed on the next succeeding Business Day, but shall be deemed to have been
completed as of the required date.
7.2 DISBURSING AGENT.
All distributions under this Plan shall be made by the Disbursing Agent,
except as otherwise provided herein. The Disbursing Agent shall not be required
to give any bond or surety or other security for the performance of its duties
unless otherwise ordered by the Bankruptcy Court.
11
<PAGE>
7.3 SOURCE OF DISTRIBUTIONS.
All Cash distributions required to be made under this Plan on the Effective
Date on account of Allowed Claims required under this Plan to be made on the
Effective Date, shall be made from Distributable Cash.
7.4 DELIVERY OF DISTRIBUTIONS.
Subject to Rule 9010 of the Bankruptcy Rules, all distributions to holders
of Allowed Claims and Allowed Equity Interests shall be made at the address of
each such holder as set forth on the Schedules filed with the Bankruptcy Court
unless superseded by the address set forth on proofs of claim or proofs of
equity interest filed by such holders (or at the last known address of such a
holder if no proof of claim or proof of equity interest is filed or if the
Debtor or the Disbursing Agent has been notified in writing of a change of
address). For holders of Secured Notes, the Disbursing Agent shall make
distributions to the Indenture Trustee for the benefit of the holders of Secured
Notes who surrender their Secured Notes for cancellation to the Disbursing Agent
or its designee. Any holder of a Secured Note who fails to surrender its Secured
Note(s) within one (1) year from the Effective Date shall be deemed to have
forfeited all rights and Claims and will not participate in any distribution
under the Plan. If any distribution to any holder of a Claim or Equity Interest
is returned as undeliverable, the Disbursing Agent shall use reasonable efforts
to determine the current address of such holder, but no distribution to such
holder shall be made unless and until the Disbursing Agent has determined the
then current address of such holder, at which time such distribution shall be
made to such holder without interest. Amounts in respect of any undeliverable
distributions shall be returned to the Disbursing Agent until such distribution
is claimed. Any such distribution or the proceeds thereof shall be set aside,
and in the case of Cash, held in a segregated interest bearing account to be
maintained by the Disbursing Agent. If no proofs of claim or interest are filed
and the Schedules filed with the Bankruptcy Court fail to state addresses for
holders of Allowed Claims or Allowed Equity Interests, such distributions in
respect of such Allowed Claims or Allowed Equity Interests shall be deemed
unclaimed property under section 347(b) of the Bankruptcy Code at the expiration
of one year from the Effective Date. After such date, all unclaimed property
shall revert to and be property of the Reorganized Debtor and the Claim or
Equity Interest of any holder to such property shall be discharged and forever
barred.
7.5 MANNER OF PAYMENT UNDER THIS PLAN.
At the option of the Disbursing Agent, any Cash payment to be made pursuant
to this Plan may be made by a check or wire transfer or as otherwise required or
provided in any applicable Implementation Document.
7.6 DISTRIBUTIONS AFTER EFFECTIVE DATE.
Distributions made after the Effective Date to holders of Claims or Equity
Interests that are not Allowed as of the Effective Date but which later become
Allowed shall be deemed to have been made on the Effective Date.
12
<PAGE>
SECTION 8. RIGHTS AND POWERS OF DISBURSING AGENT
8.1 EXCULPATION.
The Disbursing Agent, from and after the Effective Date, is hereby
exculpated by all Entities, including all holders of Claims and Equity Interests
and other parties in interest, from any and all claims, causes of action and
other assertions of liability (including breach of fiduciary duty) arising out
of the discharge by the Disbursing Agent of the powers and duties conferred upon
it by this Plan or any order of the Bankruptcy Court entered pursuant to or in
furtherance of this Plan, or applicable law, except solely for actions or
omissions arising out of the gross negligence or willful misconduct of the
Disbursing Agent. No holder of a Claim or an Equity Interest or other party in
interest shall have or pursue any claim or cause of action against the
Disbursing Agent for making payments in accordance with this Plan or for
implementing the provisions of this Plan.
8.2 POWERS OF THE DISBURSING AGENT.
The Disbursing Agent shall be empowered to (a) effect all actions and
execute all instruments and documents necessary to implement this Plan, (b) make
all distributions contemplated by this Plan, (c) liquidate property as required
to make distributions contemplated by this Plan, (d) comply with this Plan and
the obligations thereunder, (e) employ professionals to represent it with
respect to its responsibilities and (f) exercise such other powers as may be
vested in the Disbursing Agent pursuant to an order of the Bankruptcy Court,
pursuant to this Plan, or as deemed by the Disbursing Agent to be necessary and
proper to implement the provisions of this Plan.
8.3 EXPENSES INCURRED ON OR AFTER THE EFFECTIVE DATE.
Except as otherwise ordered by the Bankruptcy Court, the amount of any
reasonable fees and expenses incurred by the Disbursing Agent on or after the
Effective Date (including reasonable fees and expenses of counsel) shall be paid
in Cash by the Reorganized Debtor.
8.4 SUCCESSOR DISBURSING AGENT.
Upon thirty (30) days prior written notice to the Debtor or, after the
Effective Date, the Reorganized Debtor, the Disbursing Agent may resign its
position as the Disbursing Agent. The Debtor or the Reorganized Debtor, as the
case may be, shall designate a successor Disbursing Agent to replace the
existing Disbursing Agent and shall provide written notice of such designation
to the resigning Disbursing Agent and the Indenture Trustee. Any successor
Disbursing Agent shall perform all the duties and obligations, and shall be
entitled to all of the rights and remedies of the Disbursing Agent hereunder.
13
<PAGE>
SECTION 9. PROCEDURES FOR RESOLVING AND TREATING DISPUTED CLAIMS AND EQUITY
INTERESTS UNDER THIS PLAN
9.1 PROSECUTION OF OBJECTIONS.
Unless otherwise provided herein or by order of the Bankruptcy Court, all
objections to Claims or Equity Interests shall be filed and served on or before
the Confirmation Date (except with respect to any claim filed by a governmental
unit which deadline for the filing of any objections thereto shall be two
hundred ten (210) days after the Effective Date). All objections may be
litigated to Final Order. The Debtor or, after the Effective Date, the
Reorganized Debtor, may compromise and settle any objections to Claims or Equity
Interests. In addition, the Debtor or, after the Effective Date, the Reorganized
Debtor, may file a request that the Bankruptcy Court estimate for purposes of
distribution the amount of any contingent or unliquidated Claim or Equity
Interest, if liquidation of the Claim or Equity Interest would unduly delay the
administration of the Reorganization Case.
9.2 NO DISTRIBUTIONS PENDING ALLOWANCE.
Notwithstanding any other provision hereof, if any portion of a Claim or
Equity Interest is a Disputed Claim, no payment or distribution provided
hereunder shall be made on account of such Claim or Equity Interest unless and
until such Disputed Claim becomes Allowed.
9.3 CLAIMS RESERVE.
On the Effective Date, the Disbursing Agent shall transfer to one or more
segregated accounts constituting the Claims Reserve an amount of Distributable
Cash equal to (i) the $25 million of Cash to be distributed to holders of Senior
Secured Claims, (ii) the estimated amount for the payment of Administrative
Expense Claims which are projected to be allowed subsequent to the Effective
Date, and (iii) such other sums as may be needed to pay Allowed Claims pursuant
to this Plan. The Distributable Cash held in the Claims Reserve shall be held in
trust for the benefit of holders of such Claims pending determination of their
entitlement thereto.
9.4 DISTRIBUTIONS AFTER ALLOWANCE.
Payments and distributions to each holder of a Disputed Claim or any other
Claim that is not Allowed, to the extent that such Claim or Equity Interest
ultimately becomes Allowed, shall be made in accordance with the provisions of
this Plan governing the Class of Claims in which such Claim or Equity Interest
is classified. As soon as practicable after the date that the order or judgment
of the Bankruptcy Court allowing any Disputed Claim or any other Claim that is
not Allowed becomes a Final Order, the Disbursing Agent shall distribute to the
holder of such Claim or Equity Interest any payment or property that would have
been distributed to such holder if the Claim or Equity Interest had been allowed
on the Effective Date, without any interest thereon, which in the case of Cash
distributions shall be made from Distributable Cash held in the Claims Reserve.
14
<PAGE>
9.5 DISTRIBUTIONS AFTER DISALLOWANCE.
Cash held in the Claims Reserve after all Claims have been allowed or
disallowed shall be distributed to the Reorganized Debtor.
SECTION 10. PROVISIONS GOVERNING EXECUTORY CONTRACTS AND UNEXPIRED LEASES
UNDER THIS PLAN
10.1 GENERAL TREATMENT.
This Plan constitutes a motion by the Debtor to reject, as of the Effective
Date, all executory contracts and unexpired leases to which the Debtor is a
party, except for an executory contract or unexpired lease that (a) has been
assumed pursuant to Final Order of the Bankruptcy Court prior to the Effective
Date, (b) is specifically listed on Schedule 2 hereto or (c) is the subject of a
separate motion filed under section 365 of the Bankruptcy Code by the Debtor and
pending on the Effective Date.
10.2 AMENDMENTS TO SCHEDULE OF ASSUMED EXECUTORY CONTACTS; EFFECTS OF
AMENDMENTS.
The Debtor shall assume and assign each of the executory contracts and
unexpired leases listed on Schedule 2 hereto; provided that, the Debtor may at
any time on or before the Confirmation Date amend Schedule 2 hereto to delete
therefrom or add any executory contract or unexpired lease thereto, in which
event such executory contract or unexpired lease shall be deemed to be rejected
or assumed, respectively, as of the Effective Date. The Debtor shall provide
notice of any amendments to Schedule 2 hereto to the parties to the executory
contracts or unexpired leases affected thereby. The fact that any contract or
lease is scheduled on Schedule 2 hereto shall not constitute or be construed to
constitute an admission by the Debtor that such contract or lease (including
related agreements and rights) is an executory contract or unexpired lease
within the meaning of section 365 of the Bankruptcy Code or that the Debtor has
any liability thereunder.
10.3 BAR TO REJECTION DAMAGES.
If the rejection of an executory contract or unexpired lease by the Debtor
results in damages to the other party or parties to such contract or lease, a
Claim for such damages, if not theretofore evidenced by a filed proof of claim,
shall be forever barred and shall not be enforceable against the Debtor, or its
properties or its interests in property or its agents, successors, or assigns,
unless a proof of claim is filed with the Bankruptcy Court and served upon the
Disbursing Agent with a copy to the Debtor on or before thirty (30) days after
the later to occur of (a) the entry of the Confirmation Order and (b) the entry
of an order by the Bankruptcy Court authorizing rejection of a particular
executory contract or lease.
SECTION 11. CONDITIONS PRECEDENT TO CONFIRMATION AND EFFECTIVE DATE
11.1 CONDITIONS PRECEDENT TO CONFIRMATION OF THIS PLAN.
The confirmation of this Plan is subject to:
15
<PAGE>
(a) ENTRY OF CONFIRMATION ORDER. The Clerk of the Bankruptcy Court shall
have entered the Confirmation Order of the Bankruptcy Court, which shall:
(i) decree that the transfers contemplated to be made shall be free
and clear of all Claims, Liens and encumbrances, except as expressly
provided herein or in the Implementation Documents;
(ii) approve the terms of the Restructuring Agreement and the exhibits
thereto, including the New Indenture and the employment agreements with key
management personnel of the Reorganized Debtor, approve the terms of the
Exit Financing, and authorize and direct the Debtor, the Indenture Trustee,
the New Indenture Trustee and the Disbursing Agent to execute and deliver
the Implementation Documents, and decree that each of the Implementation
Documents shall constitute a legal, valid and binding agreement, instrument
or document, as applicable;
(iii) decree that the Confirmation Order shall supersede any
Bankruptcy Court orders issued prior to the Confirmation Date that may be
inconsistent with the Confirmation Order;
(iv) authorize the implementation of this Plan in accordance with its
terms;
(v) provide that any transfers to be effected under this Plan shall be
and are exempt from transfer taxes, and any applicable stamp or similar tax
under section 1146 (c) of the Bankruptcy Code;
(vi) authorize the formation of the Reorganized Debtor and the
issuance of the New Secured Notes and New Equity Interests;
(vii) decree that the New Secured Notes and New Equity Interests are
exempt from registration under the Securities Act pursuant to sections
1125(e), 1126(b) and 1145 of the Bankruptcy Code and other applicable law;
and
(viii) confirm this Plan.
(b) FORM OF CONFIRMATION ORDER. The Clerk of the Bankruptcy Court shall
have entered the Confirmation Order in form and substance satisfactory to the
Debtor, the Specified Holders and the Creditors' Committee, if one is appointed.
11.2 CONDITIONS PRECEDENT TO EFFECTIVE DATE OF THIS PLAN.
The occurrence of the Effective Date of this Plan is subject to
satisfaction of the following conditions precedent:
(a) FINALITY OF THE CONFIRMATION ORDER. The Clerk of the Bankruptcy Court
shall have entered the Confirmation Order and the Confirmation Order shall have
become a Final Order.
16
<PAGE>
(b) GOVERNMENTAL APPROVALS. The Subsidiaries shall have received all
necessary approvals to implement the structure contemplated by the Plan from
Brazilian government regulatory agencies having jurisdiction with respect to the
licenses held by the Subsidiaries.
(c) APPROVAL OF THE CENTRAL BANK. All required approvals of the Central
Bank shall have been received in form and substance satisfactory to the Debtor,
the Specified Holders and the Creditors' Committee, if one is appointed.
(d) DISTRIBUTIONS. The Disbursing Agent shall have fully funded the Claims
Reserve. The Disbursing Agent shall have received the Distributable Cash in
existence on the Effective Date.
(e) EXECUTION OF DOCUMENTS. All other actions and documents, including the
Implementation Documents, necessary to implement the provisions of this Plan
shall have been respectively, effected or executed and delivered.
11.3 WAIVER OF CONDITIONS PRECEDENT.
Each of the conditions precedent in Sections 11.1 and 11.2 hereof may be
waived, in whole or in part, by the Debtor with the consent of the Indenture
Trustee, which consent shall not be unreasonably withheld. Any such waiver of a
condition precedent in Section 11.1 or 11.2 hereof may be effected at any time,
on two (2) Business Days' notice to the Entities that are party to the
Restructuring Agreement, without leave or order of the Bankruptcy Court and
without any formal action other than proceeding to confirm or consummate this
Plan.
SECTION 12. EFFECT OF CONFIRMATION
12.1 CUSTODY.
Until the Effective Date, the Bankruptcy Court shall retain custody and
jurisdiction of the Debtor, its properties and interests in property and their
operations. On the Effective Date, the Debtor, its properties and interests in
property and its operations shall be released from the custody and jurisdiction
of the Bankruptcy Court, except as provided in Section 14.1 hereof.
12.2 LIENS.
On the Effective Date, all Liens against any properties and interests in
property of the Debtor, except to the extent provided herein, shall be deemed
extinguished and discharged, provided that, on the Effective Date, the Indenture
Trustee shall have and shall retain all rights granted under and pursuant to
this Plan.
12.3 TERM OF INJUNCTIONS OR STAYS.
Unless otherwise provided, all injunctions or stays provided for in the
Reorganization Case pursuant to sections 105 or 362 of the Bankruptcy Code, or
otherwise, and in existence on the Confirmation Date, shall remain in full force
and effect until the Effective Date.
17
<PAGE>
SECTION 13. RELEASES, INJUNCTION AND WAIVER OF CLAIMS
Nothing in this Section 13 shall be construed to operate to release any
Entity from the obligations expressly contemplated by this Plan.
13.1 RELEASES OF THE AFFILIATE RELEASEES.
(a) RELEASE OF THE DEBTOR. The Debtor's estate shall be released from all
Liabilities except those expressly preserved under this Plan.
(b) RELEASE OF THE AFFILIATE RELEASEES. Without limiting the release
provided in Section 13.1(a) and except as provided in the last sentence of this
Section 13.1(b), the Affiliate Releasees are released from all Liabilities in
any way relating to (a) the Debtor, the Reorganization Case, or this Plan, and
(b) the Secured Notes or the Indenture. Subject to the limitations provided in
the last sentence of this Section 13.1(b), the release of the Affiliate
Releasees provided in this Section 13.1(b) includes a release from Liabilities
relating to:
(i) the offer, sale, purchase, resale or ownership of the Secured
Notes or the Equity Interests, any sales brochure, registration statement,
preliminary prospectus, prospectus, offering memorandum or circular,
appraisal, report or inspection, or any disclosure or omission related to
any of the foregoing, and any engagement, underwriting, placement agency or
other role of, or services rendered by, any Entity in connection with any
of the foregoing;
(ii) the involvement of any of the Affiliate Releasees in or with the
sale of the Secured Notes;
(iii) the ownership, management and operation of any property by any
of the Affiliate Releasees;
(iv) the preparation by any of the Affiliate Releasees of financial
statements, appraisals, or other reports or certificates in respect of the
Debtor or the other Subsidiaries;
(v) the actions, payments and obligations required of any of the
Affiliate Releasees under, among other things, the Indenture, the Secured
Notes and all agreements, instruments and documents executed and delivered
pursuant to or in connection with any of the foregoing;
(vi) the use of proceeds by any of the Affiliate Releasees from the
Secured Notes or revenues of the property of the Affiliate Releasees; and
(vii) the undertaking by any of the Affiliate Releasees to restructure
the obligations governed by the Indenture and evidenced by the Secured
Notes, including any actions taken or not taken in respect of formulating,
negotiating, soliciting acceptances to and implementing this Plan.
18
<PAGE>
The release provided in this Section 13.1 shall not release (a) any
defenses of the Debtor or the other Affiliate Releasees to any Liability or (b)
any obligations of the Reorganized Debtor arising under this Plan or the
Implementation Documents.
13.2 RELEASE OF THE PLAN RELEASEES.
Except as provided in the last sentence of this Section 13.2, the Plan
Releasees are released from all Liabilities in any way relating to (a) the
Debtor, the Reorganization Case, or this Plan, and (b) the Secured Notes or the
Indenture. Subject to the limitations provided in the last sentence of this
Section 13.2, the release of the Plan Releasees provided in this Section 13.2
includes a release from Liabilities relating to:
(i) the undertaking by the Plan Releasees to restructure the
obligations governed by the Indenture and evidenced by the Secured Notes,
including any actions taken or not taken in respect of formulating,
negotiating and implementing this Plan;
(ii) all actions effected or not effected by the Indenture Trustee or
the Specified Holders, or their respective advisors, under the Indenture or
under any other agreements, instruments or documents relating to the
Debtor;
(iii) the preparation by any of the Plan Releasees of financial
statements, appraisals, or other reports or certificates in respect of the
Debtor or the Subsidiaries or their properties;
(iv) the actions, payments, and obligations required of any of the
Plan Releasees under, among other things, the Indenture, the Secured Notes,
and all agreements, instruments and documents executed and delivered
pursuant to or in connection with any of the foregoing; and
(v) the use of proceeds by any of the Plan Releasees from the Secured
Notes or the revenues of property of the Subsidiaries.
The release provided in this Section 13.2 shall not release (a) any
defenses of the Plan Releasees to any Liability or (b) any obligations of the
Plan Releasees arising under this Plan or the Implementation Documents.
13.3 INJUNCTION.
The Confirmation Order shall be an injunction to permanently enjoin and
restrain all Entities from asserting against the Affiliate Releasees or the Plan
Releasees, or their respective properties or interests in property, any
Liabilities that are released by the Plan Releases or any Claims based upon any
act or omission, transaction or other activity of any kind or nature that
occurred prior to the Effective Date (other than actions provided for by the
Plan). The Confirmation Order shall also be an injunction to enjoin permanently
and restrain all Entities from taking any of the following actions (other than
actions brought to enforce any right or obligation provided for by the Plan)
against the Affiliate Releasees or the Plan Releasees or their respective
properties or interests in property:
19
<PAGE>
(i) the commencement or continuation of any action or proceeding;
(ii) the enforcement, attachment, collection or recovery by any manner
or means of any judgment, award, decree or order;
(iii) creating, perfecting, or enforcing any encumbrance of any kind;
and
(iv) asserting any right of setoff, subrogation, or recoupment of any
kind against any obligation due from any such party.
13.4 VESTING OF PROPERTY IN REORGANIZED DEBTOR.
Effective as of the Effective Date all Assets of the Debtor shall be
transferred to and shall vest in the Reorganized Debtor.
SECTION 14. RETENTION OF JURISDICTION
14.1 RETENTION OF JURISDICTION.
The Bankruptcy Court may retain jurisdiction, and if the Bankruptcy Court
exercises its retained jurisdiction, shall have exclusive jurisdiction, of all
matters arising out of, and related to, the Reorganization Case and this Plan
pursuant to, and for the purposes of, sections 105 (a) and 1142 of the
Bankruptcy Code and for, among other things, the following purposes:
(a) To hear and determine pending applications for the assumption or
rejection of executory contracts or unexpired leases, if any are pending, and
the allowance of Claims resulting therefrom;
(b) To determine any and all adversary proceedings, applications and
contested matters;
(c) To ensure that distributions to holders of Allowed Claims are
accomplished as provided herein;
(d) To hear and determine any timely objections to Administrative Expense
Claims or to proofs of claim and equity interests filed, both before and after
the Confirmation Date, including any objections to the classification of any
Claim or Equity Interest, and to allow or disallow any Disputed Claim, in whole
or in part;
(e) To enter and implement such orders as may be appropriate in the event
the Confirmation Order is for any reason stayed, revoked, modified, or vacated;
(f) To issue such orders in aid of execution of this Plan, to the extent
authorized by section 1142 of the Bankruptcy Code;
(g) To consider any modifications of this Plan, to cure any defect or
omission, or reconcile any inconsistency in any order of the Bankruptcy Court,
including the Confirmation Order;
20
<PAGE>
(h) To hear and determine all applications for awards of compensation for
services rendered and reimbursement of expenses related to implementation and
consummation of this Plan;
(i) To hear and determine any disputes regarding the fees and expenses
incurred by the Disbursing Agent;
(j) To hear and determine disputes arising in connection with the
interpretation, implementation, or enforcement of this Plan;
(k) To hear and determine matters concerning state, local and federal taxes
in accordance with sections 346, 505 and 1146 of the Bankruptcy Code; and
(l) To enter a final decree closing the Reorganization Case.
14.2 MODIFICATION OF PLAN.
Modifications of this Plan may be proposed in writing by the Debtor at any
time before confirmation, provided that this Plan, as modified, satisfies the
requirements of sections 1122 and 1123 of the Bankruptcy Code and the Debtor
shall have complied with section 1125 of the Bankruptcy Code. This Plan may be
modified by the Debtor at any time after confirmation hereof and before
substantial consummation hereof, provided that this Plan, as modified, satisfies
the requirements of sections 1122 and 1123 of the Bankruptcy Code and the
Bankruptcy Court, after notice and a hearing, confirms this Plan as modified
under section 1129 of the Bankruptcy Code and the circumstances warrant such
modifications. A holder of a Claim or Equity Interest that has accepted this
Plan shall be deemed to have accepted this Plan as modified if the proposed
modification does not materially and adversely change the treatment of the Claim
or Equity Interest of such holder.
SECTION 15. MISCELLANEOUS PROVISIONS
15.1 PAYMENT OF STATUTORY FEES.
All fees payable pursuant to section 1930, title 28, United States Code
shall be paid on the Effective Date.
15.2 DISSOLUTION OF CREDITORS' COMMITTEE.
If a Creditors' Committee has been appointed, it shall automatically be
dissolved on the Effective Date.
15.3 FEES AND EXPENSES OF PROFESSIONAL PERSONS.
Except as may otherwise be or have been ordered by the Bankruptcy Court,
all professionals seeking payment of reasonable fees and expenses incurred after
the Effective Date in connection with the implementation of this Plan shall
transmit a written invoice of such request to the Disbursing Agent with a copy
to the Reorganized Debtor. If no written objection to the payment of such fees
and expenses is received by the Disbursing Agent within thirty (30) days of the
receipt by the Disbursing Agent of such request, the Disbursing Agent shall pay
21
<PAGE>
from the Distributable Cash held in the Claims Reserve such fees and expenses.
If an objection to the payment of such fees and expenses is received by the
Disbursing Agent within such 30-day period, the Disbursing Agent shall pay such
fees and expenses only upon order of the Bankruptcy Court or the withdrawal of
such objection.
15.4 SEVERABILITY OF PLAN PROVISIONS.
If, prior to the Confirmation Date, any term or provision of this Plan is
held by the Bankruptcy Court to be invalid, void or unenforceable, the
Bankruptcy Court shall, with the consent of the Debtor, have the power to alter
and interpret such term or provision to make it valid or enforceable to the
maximum extent practicable, consistent with the original purpose of the term or
provision held to be invalid, void or unenforceable, and such term or provision
shall then be applicable as altered or interpreted. Notwithstanding any such
holding, alteration or interpretation, the remainder of the terms and provisions
of this Plan shall remain in full force and effect and shall in no way be
affected, impaired or invalidated by such holding, alteration or interpretation.
The Confirmation Order shall constitute a judicial determination and shall
provide that each term and provision of this Plan, as it may have been altered
or interpreted in accordance with the foregoing, is valid and enforceable
pursuant to its terms.
15.5 GOVERNING LAW.
Except to the extent that the Bankruptcy Code or other federal law is
applicable, or to the extent an Exhibit hereto provides otherwise, the rights,
duties and obligations arising under this Plan shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York.
15.6 PAYMENT OF WITHHOLDING OF TAXES; ALLOCATION OF PAYMENTS.
Except as otherwise specifically provided in the Plan, all distributions
made pursuant to the Plan shall, where applicable, be subject to information
reporting to appropriate governmental authorities and to withholding of taxes.
Except as otherwise prohibited by applicable tax law, the consideration received
by Class 2 Creditors shall, for all income tax purposes, be allocated and
applied first to the unpaid principal amount of the Secured Notes and thereafter
to the unpaid accrued interest on the Secured Notes.
15.7 NOTICES.
All notices, requests, and demands to be effective shall be in writing
(including by facsimile transmission) and, unless otherwise expressly provided
herein, shall be deemed to have been duly given or made when actually delivered
or, in the case of notice by facsimile transmission, when received and
telephonically confirmed, addressed as follows:
22
<PAGE>
If to the Debtor:
TV Filme, Inc.
SCS, Quadra 07-Bloco A
Ed. Executive Tower, Sala 601
70.300-911 Brasilia-DF
Brazil
with a copy to:
Kelley Drye and Warren, LLP
101 Park Avenue
New York, New York 10178
Attn: Mark I. Bane, Esq.
Telephone: (212) 808-7800
Telecopier: (212) 808-7897
If to the Indenture Trustee:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attn: Ms. Loretta Lundberg
Telephone: (212) 815-5080
Telecopier: (212) 815-5915
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attn: Douglas L. Furth, Esq.
Telephone: (212) 856-6978
Telecopier: (212) 230-7639
23
<PAGE>
Ad Hoc Noteholders' Committee:
Resurgence Asset Management, LLC
10 New King Street
White Plains, New York
Attn: Steven Audi
with a copy to:
Jones Day Reavis & Pogue LLP
599 Lexington Avenue
New York, New York 10022
Attn: Marc S. Kirschner, Esq.
Telephone: (212) 326-3939
Telecopier: (212) 755-7306
24
<PAGE>
Dated: February 29, 2000
Respectfully submitted,
TV FILME, INC.
By: S/ HERMANO ALBUQUERQUE
----------------------
Name: Hermano Albuquerque
Title: President and CEO
25
<PAGE>
SCHEDULE 1 TO PLAN OF REORGANIZATION
LIST OF SUBSIDIARIES
ITSA-INTERCONTINENTAL TELECOMUNICACOES
TV FILME BRASILIA SERVICOS DE TELECOMUNICACOES
TV FILME GOIANIA SERVICOS DE TELECOMUNICACOES
TV FILME BELEM SERVICOS DE TELECOMUNICACOES
TV FILME CAMPINA GRANDE SERVICOS DE TELECOMUNICACOES LTDA.
TV FILME PROGRAMADORA LTDA.
TV FILME SISTEMAS LTDA.
TV FILME ITSA OF CAYMAN, LTD.
TV FILME SERVICOS DE TELECOMUNICACOES LTDA.
TV FILME OPERACOES LTDA.
TV FILME OF CAYMAN, LTD.
<PAGE>
SCHEDULE 2 TO PLAN OF REORGANIZATION
LIST OF ASSUMED EXECUTORY CONTRACTS
1. Agreement dated May 11, 1999, between the Debtor and Chanin Capital
Partners relating to the retention of Chanin Capital Partners by the Ad Hoc
Noteholders' Committee.
<PAGE>
EXHIBIT A
ITSA-INTERCONTINENTAL TELECOMUNICACOES LTDA.
as Issuer
TV FILME BRASILIA SERVICOS DE TELECOMUNICACOES LTDA.
TV FILME GOIANIA SERVICOS DE TELECOMUNICACOES LTDA.
TV FILME BELEM SERVICOS DE TELECOMUNICACOES LTDA.
TV FILME CAMPINA GRANDE SERVICOS DE TELECOMUNICACOES LTDA.
TV FILME PROGRAMADORA LTDA.
TV FILME SISTEMAS LTDA.
TV FILME SERVICOS DE TELECOMUNICACOES LTDA.
-------------------
TV FILME OPERACOES LTDA.
As Guarantors
12% SENIOR SECURED NOTES DUE 2004
-------------------
INDENTURE
Dated as of , 2000
THE BANK OF NEW YORK
as Trustee
<PAGE>
CROSS-REFERENCE TABLE(1)
Trust Indenture Act Section Indenture Section
- --------------------------- -----------------
310 (a)(1)............... 7.10
(a)(2)............... 7.10
(a)(3)............... N.A.
(a)(4)............... N.A.
(a)(5)............... 7.10
(b).................. 7.3, 7.10
(c).................. N.A.
311 (a).................. 7.11
(b).................. 7.11
(c).................. N.A.
312 (a).................. 2.5
(b).................. 12.3
(c).................. 12.3
313 (a).................. 7.6
(b)(1)............... N.A.
(b)(2)............... 7.6, 7.7
(c).................. 7.6, 12.2
(d).................. 7.6
314 (a).................. 4.3
(a)(4)............ 12.5
(b).................. N.A.
(c)(1)............... 12.4
(c)(2)............... 12.4
(c)(3)............... N.A.
(d).................. 10.3, 10.4
(e).................. 12.5
(f).................. N.A.
315 (a).................. 7.1(b)
(b).................. 7.5, 12.2
(c).................. 7.1(a)
(d).................. 7.1(c)
(e).................. 6.11
316 (a)(last sentence)... 2.9
(a)(1)(A)............ 6.5
(a)(1)(B)............ 6.4
(a)(2)............... N.A.
(b).................. 6.7
(c).................. 9.4
317 (a)(1)............... 6.8
(a)(2)............... 6.9
(b).................. 2.4
318 (a).................. 12.1
(b).................. N.A.
(c).................. 12.1
- ------------------------------
(1) This Cross-Reference Table is not part of this Indenture.
N.A. means not applicable
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE.........................1
SECTION 1.1. DEFINITIONS......................................................1
SECTION 1.2. OTHER DEFINITIONS...............................................15
SECTION 1.3. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT...............15
SECTION 1.4. RULES OF CONSTRUCTION...........................................16
ARTICLE 2 THE NOTES.........................................................16
SECTION 2.1. FORM AND DATING.................................................16
SECTION 2.2. EXECUTION AND AUTHENTICATION....................................17
SECTION 2.3. TRUSTEE, REGISTRAR AND PAYING AGENT.............................18
SECTION 2.4. PAYING AGENT TO HOLD MONEY IN TRUST.............................18
SECTION 2.5. HOLDER LISTS....................................................19
SECTION 2.6. TRANSFER AND EXCHANGE...........................................19
SECTION 2.7. CERTIFICATED NOTES..............................................22
SECTION 2.8. REPLACEMENT NOTES...............................................23
SECTION 2.9. OUTSTANDING NOTES...............................................23
SECTION 2.10. TREASURY NOTES.................................................23
SECTION 2.11. TEMPORARY NOTES................................................23
SECTION 2.12. CANCELLATION...................................................24
SECTION 2.13. DEFAULTED INTEREST.............................................24
SECTION 2.14. PERSONS DEEMED OWNERS..........................................24
SECTION 2.15. CUSIP NUMBERS..................................................24
ARTICLE 3 REDEMPTION AND PREPAYMENT.........................................24
SECTION 3.1. NOTICES TO TRUSTEE..............................................24
SECTION 3.3. NOTICE OF REDEMPTION............................................25
SECTION 3.4. EFFECT OF NOTICE OF REDEMPTION..................................26
SECTION 3.5. DEPOSIT OF REDEMPTION PRICE.....................................26
SECTION 3.6. NOTES REDEEMED IN PART..........................................26
SECTION 3.7. OPTIONAL REDEMPTION.............................................26
SECTION 3.8. MANDATORY REDEMPTION............................................27
ARTICLE 4 COVENANTS.........................................................27
SECTION 4.1. PAYMENT OF NOTES................................................27
SECTION 4.2. MAINTENANCE OF OFFICE OR AGENCY.................................27
SECTION 4.3. PROVISIONS OF REPORTS AND OTHER INFORMATION.....................28
SECTION 4.4. COMPLIANCE CERTIFICATE..........................................28
SECTION 4.5. TAXES...........................................................29
SECTION 4.6. STAY, EXTENSION AND USURY LAWS..................................29
SECTION 4.7. LIMITATION ON RESTRICTED PAYMENTS...............................29
SECTION 4.8. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING SUBSIDIARIES..........................................31
SECTION 4.9. LIMITATION ON INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK...31
SECTION 4.10. LIMITATION ON ASSET SALES......................................32
SECTION 4.11. LIMITATION ON TRANSACTIONS WITH AFFILIATES.....................35
SECTION 4.12. LIMITATION ON LIENS............................................35
SECTION 4.13. GUARANTORS.....................................................35
SECTION 4.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.....................36
SECTION 4.15. CORPORATE EXISTENCE............................................37
<PAGE>
SECTION 4.16. LIMITATION ON ASSET SWAPS......................................37
SECTION 4.17. LIMITATION ON SALE LEASEBACK TRANSACTIONS......................38
SECTION 4.18. MAINTENANCE OF BUSINESS, PROPERTIES AND INSURANCE..............38
SECTION 4.19. IMPAIRMENT OF SECURITY INTEREST................................39
SECTION 4.20. PAYMENT OF ADDITIONAL AMOUNTS..................................39
ARTICLE 5 SUCCESSORS.........................................................40
SECTION 5.1. MERGER, CONSOLIDATION, OR SALE OF ASSETS........................40
SECTION 5.2. SUCCESSOR COMPANY SUBSTITUTED...................................42
ARTICLE 6 DEFAULTS AND REMEDIES.............................................42
SECTION 6.1. EVENTS OF DEFAULT...............................................42
SECTION 6.2. ACCELERATION....................................................44
SECTION 6.3. OTHER REMEDIES..................................................44
SECTION 6.4. WAIVER OF PAST DEFAULTS.........................................44
SECTION 6.5. CONTROL BY MAJORITY.............................................44
SECTION 6.6. LIMITATION ON SUITS.............................................44
SECTION 6.7. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT...................45
SECTION 6.8. COLLECTION SUIT BY TRUSTEE......................................45
SECTION 6.9. TRUSTEE MAY FILE PROOFS OF CLAIM................................45
SECTION 6.10. PRIORITIES.....................................................46
SECTION 6.11. UNDERTAKING FOR COSTS..........................................46
ARTICLE 7 TRUSTEE...........................................................46
SECTION 7.1. DUTIES OF TRUSTEE...............................................46
SECTION 7.2. RIGHTS OF TRUSTEE...............................................47
SECTION 7.3. INDIVIDUAL RIGHTS OF TRUSTEE....................................48
SECTION 7.4. TRUSTEE'S DISCLAIMER............................................48
SECTION 7.5. NOTICE OF DEFAULTS..............................................48
SECTION 7.6. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES......................48
SECTION 7.7. COMPENSATION AND INDEMNITY......................................49
SECTION 7.8. REPLACEMENT OF TRUSTEE..........................................49
SECTION 7.9. SUCCESSOR TRUSTEE BY MERGER, ETC................................50
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION..................................50
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY..............50
ARTICLE 8 DEFEASANCE AND DISCHARGE..........................................51
SECTION 8.1. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE........51
SECTION 8.2. LEGAL DEFEASANCE................................................51
SECTION 8.3. COVENANT DEFEASANCE.............................................51
SECTION 8.4. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE......................52
SECTION 8.5. DISCHARGE.......................................................52
SECTION 8.6. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST...53
SECTION 8.7. REPAYMENT TO COMPANY............................................53
SECTION 8.8. REINSTATEMENT...................................................54
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER..................................54
SECTION 9.1. WITHOUT CONSENT OF HOLDERS OF NOTES.............................54
SECTION 9.2. WITH CONSENT OF HOLDERS OF NOTES................................54
SECTION 9.3. COMPLIANCE WITH TRUST INDENTURE ACT.............................56
SECTION 9.4. REVOCATION AND EFFECT OF CONSENTS...............................56
SECTION 9.5. NOTATION ON OR EXCHANGE OF NOTES................................56
SECTION 9.6. TRUSTEE TO SIGN AMENDMENTS, ETC.................................56
SECTION 9.7. PAYMENTS FOR CONSENT............................................57
ARTICLE 10 COLLATERAL AND SECURITY..........................................57
<PAGE>
SECTION 10.1. SECURITY DOCUMENTS.............................................57
SECTION 10.2. OPINIONS.......................................................57
SECTION 10.3. RELEASE OF COLLATERAL..........................................57
SECTION 10.4. CERTIFICATES OF THE COMPANY....................................58
SECTION 10.5. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE
UNDER THE SECURITY DOCUMENTS...................................58
SECTION 10.6. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER
THE SECURITY DOCUMENTS.........................................58
ARTICLE 11 GUARANTEE OF NOTES...............................................59
SECTION 11.1. GUARANTEE......................................................59
SECTION 11.2. GUARANTEE UNCONDITIONAL, ETC...................................60
SECTION 11.3. LIMITATION OF GUARANTOR'S LIABILITY............................60
SECTION 11.4. CONTRIBUTION...................................................60
SECTION 11.5. RELEASE........................................................61
SECTION 11.6. ADDITIONAL GUARANTORS..........................................61
SECTION 11.7. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.............61
SECTION 11.8. SUCCESSORS AND ASSIGNS.........................................61
SECTION 11.9. WAIVER OF STAY, EXTENSION OR USURY LAWS........................61
ARTICLE 12 MISCELLANEOUS....................................................62
SECTION 12.1. TRUST INDENTURE ACT CONTROLS...................................62
SECTION 12.2. NOTICES........................................................62
SECTION 12.3. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.63
SECTION 12.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.............63
SECTION 12.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION..................63
SECTION 12.6. RULES BY TRUSTEE AND AGENTS....................................64
SECTION 12.7. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHERS.....................................................64
SECTION 12.8. GOVERNING LAW..................................................64
SECTION 12.9. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS..................64
SECTION 12.10. SUCCESSORS....................................................64
SECTION 12.11. SEVERABILITY..................................................64
SECTION 12.12. ORIGINALS.....................................................65
SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC..............................65
SECTION 12.14. COUNTERPARTS..................................................65
SECTION 12.15. AGENT FOR SERVICE; SUBMISSION TO JURISDICTION;
WAIVER OF IMMUNITIES..........................................65
SECTION 12.16. CURRENCY OF ACCOUNT; CONVERSION OF CURRENCY; FOREIGN
EXCHANGE RESTRICTIONS.........................................66
ANNEX
Annex I EXISTING INDEBTEDNESS......................................Annex-1
Annex II GUARANTORS.................................................Annex-2
EXHIBITS
Exhibit A FORM OF NOTE...................................................A-1
Exhibit B CERTIFICATE OF TRANSFEROR......................................B-1
SCHEDULE
Schedule I SECURITY DOCUMENTS.............................................S-1
<PAGE>
This INDENTURE, dated as of , 2000, is by and among
ITSA-Intercontinental Telecomunicacoes Ltda., a Brazilian limited liability
company, as issuer (the "Company"), TV Filme Brasilia Servicos de
Telecomunicacoes Ltda., a Brazilian limited liability company, TV Filme Goiania
Servicos de Telecomunicacoes Ltda., a Brazilian limited liability company, TV
Filme Belem Servicos de Telecomunicacoes Ltda., a Brazilian limited liability
company, TV Filme Campina Grande Servicos de Telecomunicacoes Ltda., a Brazilian
limited liability company, TV Filme Programadora Ltda., a Brazilian limited
liability company, TV Filme Sistemas Ltda., a Brazilian limited liability
company, TV Filme Servicos de Telecomunicacoes Ltda., a Brazilian limited
liability company and TV Filme Operacoes Ltda., a Brazilian limited liability
company, as guarantors (collectively, the "Guarantors") and The Bank of New
York, as trustee (the "Trustee").
RECITALS
WHEREAS, the Company has issued to TV Filme, Inc., in a private placement
offering, its promissory note, dated December 20, 1996, in the principal amount
of US$140,000,000 (the "Existing Note"), the entire principal amount of which
remains outstanding on the date hereof;
WHEREAS, TV Filme, Inc. has transferred its assets to [NEW CAYMAN], as a
result of which [NEW CAYMAN] has become the current holder of the Existing Note;
WHEREAS, [NEW CAYMAN], on the date hereof, is contributing to the capital
of the Company US$105,000,000 principal amount of the Existing Note;
WHEREAS,[NEW CAYMAN] and the Company desire to restructure, amend and
restate the remaining [US$35,000,000] outstanding principal amount of the
Existing Note as 12% Senior Secured Notes due 2004 of the Company (the "Notes"),
subject to the terms and conditions of this Indenture; and
WHEREAS, for all purposes, the provisions of this Indenture shall not be
construed to mean that the Existing Note has been prepaid or terminated before
its original final maturity;
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, for and in consideration
of the premises, the parties listed above mutually covenant and agree, for the
equal and ratable benefit of all Holders of the Notes, as follows:
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. DEFINITIONS.
"Accounts" means all present and future rights of the Company and each
Restricted Subsidiary to payment for goods sold or leased or for services
rendered, which are not evidenced by instruments or chattel paper, and whether
or not earned by performance.
"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, 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, will 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
<PAGE>
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the voting securities of a Person will be
deemed to be control.
"Agent" means any Registrar or Paying Agent.
"Amendment Effective Date" means , 2000.
"Applicable Law," except as the context may otherwise require, means all
applicable laws, rules, regulations, ordinances, judgments, decrees,
injunctions, writs and orders of any court or governmental agency or authority
and rules, regulations, orders, licenses and permits of any United States
federal, state, municipal, regional, or other governmental body,
instrumentality, agency or authority, in each case in any way applicable to the
Company, any Guarantor or the Collateral (or the ownership or use thereof).
"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; and (ii) the
issuance or sale by the Company or any of its Restricted Subsidiaries of Equity
Interests of any of the Company's Restricted Subsidiaries. Notwithstanding the
foregoing, none of the following will be deemed an Asset Sale: (a) a transfer of
assets by the Company to a Restricted Subsidiary that is a Guarantor or by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary that is
a Guarantor; (b) a Restricted Payment that is permitted under Section 4.7; (c)
dispositions in any fiscal year with Net Proceeds in the aggregate amount of
US$500,000 (or the equivalent thereof at time of determination) or less; (d) an
Asset Swap that is permitted under Section 4.16; (e) a contribution to an
Unrestricted Subsidiary which complies with Section 4.7; (f) a sale and
leaseback which complies with Section 4.17; (g) any liquidation of any Cash
Equivalent; (h) the issuance or sale of Equity Interests of a Restricted
Subsidiary to the Company or one of its other Restricted Subsidiaries; (i) sales
or other dispositions of excess inventory of decoders or antennae; (j) sales or
other dispositions of the assets or Capital Stock of TV Filme Programadora
Ltda.; but only if and to the extent that consideration other than cash is
received for such sales or other dispositions; and (k) sales or issuances of the
Capital Stock of a Restricted Subsidiary to Persons other than the Company or
another Restricted Subsidiary in consideration of the transfer or contribution
to the Restricted Subsidiary of assets that (i) have a value at least equal to
the Fair Market Value of such Capital Stock at the time of such transaction and
(ii) would constitute a Related Business Investment if acquired by such
Restricted Subsidiary with Net Proceeds of an Asset Sale; PROVIDED that, if such
Restricted Subsidiary is a Guarantor, such sale or issuance of Capital Stock
will not impair the Guarantee given by such Restricted Subsidiary and, PROVIDED,
further, that the acquisition of such assets constitutes a Permitted Investment.
"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
the Company in good faith believes will be satisfied, for a substantially
concurrent purchase and sale, or exchange, of Telecommunications Assets between
the Company 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 will 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).
"Authority" means any national, federal, state, provincial, municipal or
local government or quasi-governmental agency or authority.
"Bankruptcy Law" means Title 11, United States Code, or Brazilian Decree
Law No. 7,661 of June 21, 1945 as each may be amended from time to time, or any
similar federal, state or foreign law relating to bankruptcy, insolvency,
receivership, winding-up, liquidation, reorganization, "concordata" or relief of
debtors, that is applicable to the Company or any of its Subsidiaries.
2
<PAGE>
"Brazil" means the Federative Republic of Brazil.
"Brazilian GAAP" means generally accepted accounting principles in Brazil,
applied on a consistent basis.
"Business Day" means any day other than a Saturday, Sunday, public holiday
or day on which banking institutions in New York City (or, with respect to any
payments or transfers to be made by the Trustee or any Agent, as applicable, in
the city where such Trustee or Agent is located) are authorized or obligated by
law to close.
"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, quotas 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 Brazilian or 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
US$500,000,000 (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 calendar 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 or at least A-1 from S&P and in each
case maturing within 180 calendar days after the date of acquisition.
"Casualty" means, with respect to any Collateral, loss of, damage to or
destruction of all or any part of such Collateral.
"Certificated Note" means a certificated Note bearing the securities legend
set forth in Section 2.6(f).
"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 the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act), (ii) the adoption of a plan relating to the liquidation or dissolution of
the Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation, but excluding any foreclosure on the
Collateral by the Trustee) the result of which is that any "person" (as defined
above), 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 more than 35%
of the voting stock of the Company or (iv) the first day on which a majority of
the members of the Board of Directors of the Company are not Continuing
Directors.
"Collateral" means (i) all of the Capital Stock of the Company and its
Restricted Subsidiaries which is owned by the Company or another Restricted
Subsidiary, (ii) non-cash consideration received as consideration for an Asset
Sale pursuant to Section 4.10, and Related Business Investments acquired with
Net Proceeds from an Asset Sale, Insurance Proceeds or Condemnation Proceeds,
(iii) all Collateral Property and all of the other assets (other than Capital
Stock (except as provided for in clause (i) or (ii)) or cash and Cash
Equivalents (except as provided for in this clause (iii)), whether now existing
or from time to time hereafter acquired, of the Company or any Restricted
3
<PAGE>
Subsidiary that is a Guarantor, including, without limitation, any and all real
property and leasehold interests in real property now or hereafter owned by the
Company or any such Restricted Subsidiary, all Equipment, the Collateral Account
and all monies, Cash Equivalents, securities and instruments deposited or
required to be deposited in the Collateral Account, copyrights (including all
reissues and renewals thereof), patents (including all reissues and renewals
thereof), licenses used in the Telecommunications Business, trademarks, trade
secrets, trade secret rights, contracts, contract rights, general intangibles,
goods, chattel paper, instruments, documents, and all proceeds and products of
any and all of the foregoing, and (iv) any other property or assets securing the
Notes and proceeds of any and all of the foregoing from time to time pursuant to
this Indenture or any Security Document.
"Collateral Account" means the collateral account established by the
Trustee in accordance with the terms and conditions of [------------].
"Collateral Agent" means the Trustee or a collateral agent appointed by the
Trustee pursuant to any Security Document.
"Collateral Property" means any and all real property and leasehold
interests in real property (and all Equipment, Fixtures, and Improvements
located thereon and on any leasehold properties) now or hereafter owned by the
Company or any Restricted Subsidiary that is a Guarantor.
"Commission" or "SEC" means the Securities and Exchange Commission, and any
successor thereto.
"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.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Condemnation" means any taking of the Collateral or any part thereof, in
or by condemnation, expropriation, or similar proceedings, eminent domain
proceedings, seizure or forfeiture, pursuant to any law, general or special, or
by reason of the temporary requisition of the use or occupancy of the
Collateral, or any part thereof, by any Authority.
"Condemnation Proceeds" means any awards, proceeds, payment or other
compensation arising out of a Condemnation.
"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 will 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
4
<PAGE>
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 such Person 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.
"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
Guarantor or that is accounted for by the equity method of accounting will 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 which is a Guarantor, (ii) the Net
Income of any Restricted Subsidiary will be excluded to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary of such Net Income to the specified Person as to which Consolidated
Net Income is being calculated would not be permitted at the date of
determination directly or indirectly, pursuant to the terms of such Restricted
Subsidiary's 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 will be excluded, (iv) the cumulative effect of a change in
accounting principles will be excluded and (v) the Net Income of any
Unrestricted Subsidiary will be excluded, except to the extent of the amount of
dividends or distributions paid in cash by such Unrestricted Subsidiary to the
specified Person as to which Consolidated Net Income is being calculated or its
Restricted Subsidiaries that are Guarantors.
"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 Amendment Effective Date in the book value
of any asset owned by such Person or a consolidated Restricted Subsidiary of
5
<PAGE>
such Person, (y) all investments as of such date in unconsolidated Subsidiaries
and in Persons that are not Guarantors (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.
"Contaminant" means any pollutant, contaminant (as those terms are defined
in 42 U.S.C. ss. 9601(33) toxic pollutant (as that term is defined in 33 U.S.C.
ss. 1362(13)), hazardous substance (as that term is defined in 42 U.S.C. ss.
9601(14)), hazardous chemical (as that term is defined by 29 CFR ss.
1910.1200(c)), hazardous waste (as that term is defined in 42 U.S.C. ss.
6903(5)), or any state oR local equivalent of such laws and regulations,
including, without limitation, radioactive material, polychlorinated biphenyls,
asbestos, petroleum, including crude oil or any petroleum-derived substance,
waste, or breakdown or decomposition product thereof, or any constituent of any
such substance or waste.
"Continuing Director" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board on the
Amendment Effective Date, or (ii) 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) of this definition
and (b) members of such Board previously nominated for election or elected to
such Board as described in this clause (ii).
"Corporate Trust Office of the Trustee" will be at the address of the
Trustee specified in Section 12.2 hereof or such other address as to which the
Trustee may give notice to the Company.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator, custodian, "sindico," "comissario" or similar official under any
Bankruptcy Law.
"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.
"Depository" means, The Depository Trust Company, until a successor shall
have been appointed and becomes such pursuant to the applicable provision of
this Indenture, and, thereafter, "Depository" will mean or include such
successor.
"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 calendar days after the date on which the Notes mature.
"Environment" means all components of the earth, including, without
limitation, air (and all layers of the soil, underground spaces and cavities and
all land submerged under water) and water (and all surface and underground
water), organic and inorganic matter and living organisms and the interacting
natural systems that include the components referred to above in this
definition.
"Environmental Laws" means all Applicable Laws imposing liability or
standards of conduct for or relating to the protection of the Environment,
including, without limitation, (i) any actual or potential Release of any
Contaminant into the Environment; (ii) the required notification of same; (iii)
preventive or remedial measures in connection with any event or occurrence
referred to in clause (i) of this definition above; and (iv) the manufacturing,
processing, use, handling, packaging, labeling, sale, storage, recycling,
disposal, destruction, incineration, or transportation of any Contaminant, or
any solicitation or offer to do any activity referred to in this clause (iv) in
connection with any Contaminant.
"Equipment" means all equipment now or hereafter owned by the Company or
any Restricted Subsidiary that is a Guarantor or in which any of them has or
shall acquire an interest, now or hereafter located on, attached to or contained
in or used or usable in connection with any Collateral Property, and shall also
mean and include all building materials, construction materials, personal
property constituting furniture, fittings, appliances, apparatus, leasehold
improvements, machinery, devices, interior improvements, appurtenances,
6
<PAGE>
equipment, plant, furnishings, fixtures, computers, electronic data processing
equipment, telecommunications equipment and other fixed assets now owned or
hereafter acquired by the Company or any Restricted Subsidiary that is a
Guarantor and now or hereafter used in the operation of any Collateral Property,
and all proceeds thereof and all additions to, substitutions for, replacements
of or accessions to any of the items recited as aforesaid and all attachments,
components, parts (including spare parts) and accessories, whether installed
thereon or affixed thereto, and wherever located, now or hereafter owned by the
Company or any Restricted Subsidiary that is a Guarantor, and used or intended
to be used in connection with, or with the operation of, any Collateral Property
or the buildings, structures, or other improvements now or hereafter located at
any Collateral Property, or in connection with any construction being conducted
or which may be conducted thereon, all regardless of whether the same are
located on any Collateral Property or are located elsewhere (including, without
limitation, in warehouses or other storage facilities or in the possession of or
on the premises of a bailee, vendor or manufacturer) for purposes of
manufacture, storage, fabrication or transportation and all extensions and
replacements to, and proceeds of, any of the foregoing.
"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).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries in existence on the Amendment Effective Date listed on
Annex I to this 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 US$1,000,000 (or
equivalent thereof at the time of determination), such determination will be
made in good faith by the Board of Directors of the Company.
"Fixtures" means all Equipment now owned or hereafter acquired by the
Company or any Restricted Subsidiary that is a Guarantor which is so related to
the building or land in which or on which it is located that it is deemed
fixtures or real property under the laws of the state or province in which it is
located, together with all accessions, appurtenances, additions, replacements
and substitutions for any of the foregoing and the proceeds thereof.
"GAAP" means, as to any determination date, 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 such date.
"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 any obligation, contingent or otherwise, of any Person,
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay for (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by arrangement
to keep-well, to purchase assets, goods, securities or services, to take-or-pay
or to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); PROVIDED, that the term "Guarantee"
will not include endorsements for collection or deposit in the ordinary course
of business. The term "Guarantee" used as a verb has a corresponding meaning.
7
<PAGE>
"Guaranteed Obligations" has the meaning provided in Section 11.1.
"Guarantor" means each Restricted Subsidiary of the Company existing on the
Amendment Effective Date and identified on Annex II, and each Restricted
Subsidiary created or acquired after the Amendment Effective Date that executes
and delivers a Guarantee of the Obligations under the Notes.
"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.
"Holder" or "Securityholder" means a Person in whose name a Note is
registered on the Register.
"Improvements" means all buildings, structures, Fixtures and improvements
of every nature whatsoever to the extent such items are not owned by tenants or
by equipment lessors that lease such property to the Company or a Restricted
Subsidiary, and are situated on the land comprising any Collateral Property on
the Amendment Effective Date or thereafter (including, without limitation, gas
and electric fixtures, radiators, heaters, engines and machinery, boilers,
ranges, elevators and motors, plumbing, heating and ventilating fixtures,
elevators, carpeting and other floor coverings, water heaters, awnings and storm
sashes, and cleaning apparatus which are or shall be attached to the land or
said buildings, structures or improvements and including any additions,
enlargements, extensions, modifications, repairs or replacements thereto).
"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 will 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 will 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 will only be included in Indebtedness to the
extent of the Fair Market Value of such property or assets.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Insurance Proceeds" means any payment, proceeds or other amounts received
at any time under any insurance policy as compensation in respect of a Casualty,
PROVIDED, that, business interruption insurance proceeds shall not constitute
Insurance Proceeds.
"Interest Payment Date" means June 20 and December 20 of each year,
commencing on June 20, 2000.
"Inventory" means all of the Company's and each Restricted Subsidiary's (to
the extent such Restricted Subsidiary is a Guarantor) now owned and hereafter
existing or acquired inventory used or useful in the business of the Company and
each Restricted Subsidiary (to the extent such Restricted Subsidiary is a
Guarantor), wherever located.
"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,
8
<PAGE>
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 the Company or any of its Restricted Subsidiaries for
consideration consisting of Common Stock of the Company will not be deemed to be
an Investment.
"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).
"Loss Event" means a Condemnation or Casualty involving an actual or
constructive total loss or agreed or compromised actual or constructive total
loss of all or substantially all of any Collateral Property except where the
Company reasonably concludes that Restoration of such Collateral Property can be
made in accordance with this Indenture and elects to do so in an Officers'
Certificate delivered to the Trustee within 120 calendar days of the relevant
Condemnation or Casualty.
"Material Telecommunications License" means one or more authorizations
issued by the Ministry of Communications or 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 US$1,000,000 (or the equivalent thereof at time of
determination).
"Moody's" means Moody's Investors Service, Inc., or any successor to its
rating business.
"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 the Company 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 the Company 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 the Company, 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 than the Company or any
Restricted Subsidiary) owning a beneficial interest in the assets subject to the
Asset Sale, and any reserve for adjustments 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 the Company, as a
result of an Asset Sale by it, Net Proceeds for purposes of Section 4.10 will
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 the Company.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness) or (b) is directly or indirectly liable (as a guarantor or
otherwise), (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 the Company 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 the Company or any of its Restricted Subsidiaries, including,
without limitation, a waiver of the benefits of the provisions of Section
1111(b) of Title 11, United States Code, as amended.
9
<PAGE>
"Note Custodian" means the custodian with respect to the Global Note or any
successor person thereto and shall initially be the Trustee.
"Notes" means the Company's 12% Senior Secured Notes due 2004 issued under
this Indenture as an amendment and restatement of the Existing 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 this Indenture.
"Operating Agreement" means any and all agreements between the Company or a
Restricted Subsidiary, on the one hand, and another Restricted Subsidiary or
Affiliate of the Company that holds any license or permit related to the
business of the Company and its Subsidiaries, on the other hand.
"Opinion of Counsel" means an opinion, to be obtained at the sole cost and
expense of the Company or any Subsidiary of the Company, from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of Section
12.5 hereof. The counsel may be counsel to the Company, any Subsidiary of the
Company or the Trustee.
"Permits" means all licenses, permits, variances, approvals and
certificates used in connection with the ownership, operation, improvement, use
or occupancy of or installations at, any Collateral Property (including, without
limitation, business licenses, state health department licenses, licenses to
conduct business and all such other permits, licenses and rights, obtained from
any Authority concerning ownership, improvement, operation, use or occupancy of
such Collateral Property).
"Permitted Investments" means (i) any Investment in the Company or in a
Restricted Subsidiary of the Company which is a Guarantor; (ii) any Investment
in Cash Equivalents; (iii) any Investment by the Company 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 the Company 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, the Company or a Restricted
Subsidiary of the Company which is a Guarantor; (iv) Investments in Restricted
Subsidiaries that are not Guarantors in an aggregate amount not to exceed
US$5,000,000 (or the equivalent thereof at the time of determination), PROVIDED,
HOWEVER, that Investments in such Restricted Subsidiaries will 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; (v)
Investments in Persons engaged in the Telecommunications Business, taken
together with all other Investments made pursuant to this clause (v), in an
aggregate amount not to exceed US$5,000,000 (or the equivalent thereof at time
of determination); (vi) 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 Section 4.10; (vii) 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;
(viii) Investments the payment for which consists exclusively of Equity
Interests (excluding Disqualified Stock) of the Company; (ix) any Investment
acquired by the Company or any of its Restricted Subsidiaries (A) in exchange
for any other Investment or accounts receivable held by the Company or any such
Restricted Subsidiary in connection with or as a result of a bankruptcy,
10
<PAGE>
workout, reorganization or recapitalization of the issuer of such other
Investment or accounts receivable or (B) as a result of the foreclosure by the
Company or any of its Restricted Subsidiaries with respect to any secured
Investment; (x) Investments in shares of money market funds having assets in
excess of US$500,000,000; and (xi) Investments existing on the Amendment
Effective Date.
"Permitted Liens" means (i) Liens securing any senior secured Indebtedness
which may be incurred pursuant to clause (i) of Section 4.9(b); (ii) Liens in
favor of the Company or any of its Restricted Subsidiaries which are Guarantors;
(iii) Liens on property of a Person existing at the time such Person is merged
into or consolidated with the Company 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 the Company or any such Restricted
Subsidiary; (iv) Liens on property or securing any Acquired Debt and which exist
at the time of acquisition thereof by the Company or any of its Restricted
Subsidiaries, PROVIDED that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens arising under this Indenture in
favor of the Trustee; (vi) Liens existing on the Amendment Effective Date; (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 the Company 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 the Company 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 Security Documents; (ix) Liens granted by the
Company or any Restricted Subsidiary to secure Indebtedness incurred pursuant to
clause (x) of Section 4.9(b), in each case representing all or part of the cost
of purchase, lease, construction or improvement of property acquired,
constructed or improved after the date hereof owed to a Person not an Affiliate
of the Company; PROVIDED, HOWEVER, that (x) in any such case such Lien shall
extend only to the specific property of the Company or any Restricted Subsidiary
leased, acquired, constructed or improved with the proceeds of such Indebtedness
and (y) the aggregate amount of Indebtedness secured by any such Lien shall not
exceed the cost of purchase, lease, construction, or improvement of such
property and (z) such Liens shall attach to such property within 90 calendar
days of the acquisition or lease of, or completion of construction or
improvement on, such property; (x) Liens incurred in the ordinary course of
business of the Company or any of its Restricted Subsidiaries which do not
secure obligations of the Company or any Restricted Subsidiary, including,
without limitation, licenses and leases granted or made by the Company or any
Restricted Subsidiary as licensor or lessor or which secure obligations that in
the aggregate do not exceed US$2,000,000 (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 the Company 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, and that such extension, renewal or replacement Lien will be
limited to all or a part of the property which secured the Lien so extended,
renewed or replaced (plus improvements on such property).
11
<PAGE>
"Permitted Refinancing Debt" means any Indebtedness of the Company 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 the Company 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 the Company
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.
"Programming Agreement" means the Programming License Agreement, dated as
of June 27, 1996, between Tevecap S.A. and the TV Filme, Inc.
"Related Business" means the businesses carried out by the Company or a
Restricted Subsidiary on the date hereof and any reasonable extensions thereof,
directly or indirectly, related to the Telecommunications Business.
"Related Business Investment" means any expenditure by the Company or a
Restricted Subsidiary, as the case may be, to acquire assets, or the Equity
Interests of any Person that will as a result become a Restricted Subsidiary and
a Guarantor and which owns assets, to be used in the ordinary course of a
Related Business of the Company or such Restricted Subsidiary, as the case may
be, which shall constitute Collateral.
"Release" means any releasing, spilling, emitting, emptying, leaking,
pumping, pouring, injecting, depositing, disposing, dumping, discharge,
dispersing, leaching, escaping, emanating or migrating of any Contaminant in,
on, into or onto the Environment, including without limitation the movement of
any Contaminant through or in the environment, the abandonment or discard of
barrels, containers, tanks or other receptacles containing any Contaminant, or
any release, emission or discharge other than as permitted under any
Environmental Laws.
"Restoration" or "Restore" means the physical repair, restoration or
rebuilding of all or any portion of the Collateral following any Casualty or
Condemnation other than a Loss Event.
"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.
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
12
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Security Documents" means all of the security documents listed on Schedule
I hereto.
"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 Amendment Effective Date.
"S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill,
Inc, or any successor to its rating business.
"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 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.
"TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C. Sections
77aaa-77bbbb), and the rules and regulations thereunder, as in effect on the
date on which this Indenture is qualified under the TIA (except as provided in
Sections 9.1(e) and 9.3).
"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.
"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor or any subsequent successor, serving hereunder in the
capacity as Trustee.
"TV Filme Servicos" means TV Filme Servicos de Telecomunicacoes Ltda., a
Brazilian limited liability company.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a
resolution of the Board of Directors of the Company, 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 the
Company or any Subsidiary of the Company (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 the Company or any of its Restricted
Subsidiaries, (iv) is not party to any material agreement, contract, arrangement
or understanding with the Company or any of its Restricted Subsidiaries unless
the terms of any such agreement, contract, arrangement or understanding are no
less favorable to the Company or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of the
13
<PAGE>
Company, (v) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe 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 the Company 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 the Company or any of
its Restricted Subsidiaries and has at least one executive officer that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors of the Company will
be evidenced to the Trustee by filing with the Trustee a certified copy of the
resolution of the Board of Directors of the Company giving effect to such
designation and an Officers' Certificate certifying that (i) such designation
complied with the foregoing conditions, (ii) was permitted under Section 4.7 and
(iii) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence of such designation. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary will be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.9, the Company will be in default of
such covenant). The Board of Directors of the Company may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary, PROVIDED that such
designation will be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation will only be permitted if (i) such Indebtedness
is permitted under Section 4.9, and (ii) no Default or Event of Default would be
in existence following such designation.
"U.S. Dollar Equivalent" means, with respect to any monetary amount in a
currency other than the U.S. dollar at any one time for the determination
thereof, the amount of U.S. dollars obtained by converting such foreign currency
involved in such computation into U.S. dollars at the spot rate for the purchase
of U.S. dollars with the applicable foreign currency as quoted by Reuters at
approximately 11:00 a.m. (New York City time) on the date one Business Day prior
to the date of such determination.
"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) will at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
SECTION 1.2. OTHER DEFINITIONS.
Defined in
Term Section
"Additional Amounts" 4.20
"Affiliate Transaction" 4.11
"Asset Sale Offer" 4.10(b)
"Base Currency" 14.16(b)(i)
"Change of Control Offer" 4.14(a)
"Change of Control Payment" 4.14(a)
"Change of Control Payment Date" 4.14(b)
"Covenant Defeasance" 8.3
"Discharge" 8.5
14
<PAGE>
"Event of Default" 6.1
"Excess Proceeds Amount" 4.10(b)
"Excluded Holder" 4.20
"Funding Guarantor" 11.4
"Global Note" 2.1(b)
"incur" 4.9(a)
"judgment currency" 14.16(b)(i)
"Legal Defeasance" 8.2
"Net Proceeds Offer Price" 4.10(b)
"Net Proceeds Purchase Date" 4.10(b)
"Participant" 2.1(b)
"Paying Agent" 2.3
"Paying Agent Agreement" 2.3
"Payment Default" 6.1(e)
"rate of exchange" 12.16(b)(v)
"Register" 2.3
"Registrar" 2.3
"Restricted Payments" 4.7(a)
"Taxes" 4.20
SECTION 1.3. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company, each Guarantor and any successor
obligor the Notes.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings so assigned to them.
SECTION 1.4. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to it
in accordance with GAAP;
(c) "or" is not exclusive;
15
<PAGE>
(d) words in the singular include the plural, and in the plural include the
singular;
(e) provisions apply to successive events and transactions;
(f) references to sections of or rules under the Securities Act or the
Exchange Act will be deemed to include substitute, replacement or
successor sections or rules adopted by the SEC from time to time; and
(g) "herein," "hereof" and other words or similar import refer to this
Indenture as a whole (as amended or supplemented from time to time) and not to
any particular Article, Section or other subdivision.
ARTICLE 2
THE NOTES
SECTION 2.1. FORM AND DATING.
(a) Provisions relating to the Notes are set forth in this Section 2.1. The
Notes shall be substantially in the form of Exhibit A hereto which is hereby
incorporated in and expressly made a part of this Indenture. Each Note shall be
dated the date of its authentication.
(b) Global Notes. Notes issued to a Person who has an account with, or is a
member of, the Depository (a "Participant") shall be issued initially in the
form of one or more permanent global Notes in definitive, fully registered form
without interest coupons with the global securities legend and other securities
legend set forth in Exhibit A hereto (each, a " Global Note"), which shall be
deposited on behalf of the Holders of the Notes represented thereby with the
Note Custodian, and registered in the name of the Depository or a nominee of the
Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Global Notes may
from time to time be increased or decreased by adjustments made on the records
of the Trustee and the Depository or its nominee, as the case may be, as
hereinafter provided.
(c) Book-Entry Provisions. This Section 2.1(c) shall apply only to the
Global Notes deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with this
Section 2.1(c), authenticate and deliver initially one or more Global Notes that
(a) shall be registered in the name of the Depository or the nominee of the
Depository and (b) shall be delivered by the Trustee to the Depository or
pursuant to the Depository's instructions or held by the Trustee as custodian
for the Depository.
Participants shall have no rights under this Indenture with respect to any
Global Note held on their behalf by the Depository or by the Trustee as the
custodian of the Depository or under such Global Note, and the Depository may be
treated by the Company, the Trustee and any agent of the Company or the Trustee
as the absolute owner of such Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Participants, the operation of
customary practices of such Depository governing the exercise of the rights of a
holder of a beneficial interest in any Global Note.
(d) Certificated Notes. Except as provided in this Section 2.1, Section 2.6
or Section 2.7, owners of beneficial interests in Global Notes will not be
entitled to receive physical delivery of Certificated Notes. Notes issued to a
Person who is not a Participant or will not be holding the Notes through a
Participant will receive Certificated Notes; PROVIDED, HOWEVER, that upon
transfer of such Certificated Notes to a Participant or a Person holding through
a Participant, such Certificated Notes will, unless the relevant Global Note has
previously been exchanged, be exchanged for an interest in a Global Note
pursuant to the provisions of Section 2.6.
16
<PAGE>
(e) Provisions Applicable to Forms of Notes. The Notes may also have such
additional provisions, omissions, variations or substitutions as are not
inconsistent with the provisions of this Indenture, and may have such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with this Indenture, any Applicable Law or
with any rules made pursuant thereto or with the rules of any securities
exchange or governmental agency or as may be determined consistently herewith by
the Officer of the Company executing such Notes, as conclusively evidenced by
his/her execution of such Notes. All Notes will be otherwise substantially
identical except as provided herein.
Subject to the provisions of this Article 2, a registered Holder of a
beneficial interest in a Global Note may grant proxies and otherwise authorize
any Person to take any action that a Holder is entitled to take under this
Indenture or the Notes.
SECTION 2.2. EXECUTION AND AUTHENTICATION.
An Officer will sign the Notes for the Company by manual or facsimile
signature. The Company's seal may be reproduced on the Notes and may be in
facsimile form.
If an Officer whose signature is on a Note no longer holds that office at
the time a Note is authenticated, the Note will nevertheless be valid.
A Note will not be valid or obligatory for any purpose or entitled to the
benefits of this Indenture until authenticated by the manual signature of the
Trustee or its authenticating agent. The signature will be conclusive evidence
that the Note has been authenticated under this Indenture.
The Trustee shall authenticate and deliver Notes for original issue in an
aggregate principal amount of [US$35,000,000] upon a written order of the
Company signed by two Officers. Such order shall specify the amount of the Notes
to be authenticated and the date on which the original issue of securities is to
be authenticated. The aggregate principal amount of Notes outstanding at any
time may not exceed [US$35,000,000] except (i) as provided in Section 2.8, and
(ii) that the principal amount of the Notes will increase if, on any of the
first four Interest Payment Dates occurring after the date hereof, interest on
the Notes is, at the option of the Company, to be paid in kind instead of in
cash. Upon such an event, the Company will issue to each Holder of the Notes on
any such Interest Payment Date, and the Trustee will authenticate, upon a
written order of the Company signed by two Officers, an additional Note
substantially in the form set forth in Exhibit A registered in the name of such
Holder and having a principal amount equal to the amount of interest paid in
kind on all of the outstanding Notes held by such Holder on such Interest
Payment Date.
The Trustee may appoint an authenticating agent reasonably acceptable to
the Company to authenticate Notes.
An authenticating agent may authenticate Notes whenever the Trustee may do
so. Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or an Affiliate of the Company.
17
<PAGE>
SECTION 2.3. TRUSTEE, REGISTRAR AND PAYING AGENT.
The Company will maintain an office or agency where Notes may be presented
for registration of transfer or for exchange ("Registrar") and an office or
agency where Notes may be presented for payment ("Paying Agent"). The Registrar
will keep a register ("Register") of the Notes and of their transfer and
exchange. The Company may also from time to time appoint one or more
co-registrars and one or more additional paying agents. The term "Registrar"
includes any co-registrar and the term "Paying Agent" includes any additional
paying agent. The Company may change any Paying Agent or Registrar in accordance
with the terms of Paying Agent Agreement, dated as of December 20, 1996, among
the Company, Japan Bankers Trust Company, Ltd. and Bankers Trust Company, as may
be amended from time to time (the "Paying Agent Agreement"). The Company will
notify the Trustee in writing of the name and address of any Agent not a party
to this Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee will act, subject to the last paragraph
of this Section 2.3, as such. The Company or any of its Subsidiaries may act as
Paying Agent or Registrar; PROVIDED, HOWEVER, that none of the Company, its
Subsidiaries or the Affiliates of the foregoing will act (i) as Paying Agent in
connection with redemptions, offers to purchase, discharges and defeasance, as
otherwise specified in this Indenture, and (ii) as Paying Agent or Registrar if
a Default or Event of Default has occurred and is continuing.
The Company hereby appoints The Bank of New York, at its Corporate Trust
Office, as the Trustee hereunder and The Bank of New York hereby accepts such
appointment. The Trustee will have the powers and authority granted to and
conferred upon it in the Notes and hereby and such further powers and authority
to act on behalf of the Company as may be mutually agreed upon by the Company
and the Trustee, and the Trustee will keep a copy of this Indenture available
for inspection during normal business hours at its Corporate Trust Office.
The Company initially appoints The Depository Trust Company to act as
Depository with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and to
act as Note Custodian with respect to the Global Notes. Japan Bankers Trust
Company, Ltd. will continue to act in its capacity as principal Paying Agent
pursuant to the terms and conditions of the Paying Agent Agreement.
All of the terms and provisions with respect to such powers and authority
contained in the Notes are subject to and governed by the terms and provisions
hereof.
The Trustee may resign as Registrar or Paying Agent, if applicable, upon 30
calendar days prior written notice to the Company.
SECTION 2.4. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company will require each Paying Agent other than the Trustee or the
Company to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal of, or premium, if any, or interest on, the Notes, and will
notify the Trustee of any default by the Company in making any such payment.
While any such default continues, the Trustee may require a Paying Agent to pay
all money held by it to the Trustee. The Company at any time may require a
Paying Agent to pay all money held by it to the Trustee. Upon payment of all
such money over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) will have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it will segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee will serve as Paying Agent for the Notes.
SECTION 2.5. HOLDER LISTS.
The Trustee will preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders pursuant to TIA Section 312(a). If the Trustee is not the Registrar,
the Company will furnish to the Trustee at least seven Business Days before each
Interest Payment Date and at such other times as the Trustee may request in
writing, a list in such form and as of such date as the Trustee may require of
the names and addresses of the Holders of Notes and the Company will strictly
comply with TIA Section 312(a).
18
<PAGE>
SECTION 2.6. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Certificated Notes. If Certificated Notes are
presented by a Holder to the Registrar with a request:
(i) to register the transfer of the Certificated Notes; or
(ii) to exchange such Certificated Notes for an equal principal amount of
Certificated Notes of other authorized denominations,
the Registrar will register the transfer or make the exchange as requested if
its requirements for such transactions are met; PROVIDED, HOWEVER, that the
Certificated Notes presented or surrendered for register of transfer or exchange
shall be duly endorsed or accompanied by a written instruction of transfer in
form satisfactory to the Registrar duly executed by such Holder or by such
Holder's attorney, duly authorized in writing.
(b) Restrictions on Transfer of a Certificated Note for a beneficial
interest in a Global Note. A Certificated Note may not be exchanged for a
beneficial interest in a Global Note except upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Certificated
Note, duly endorsed or accompanied by appropriate instruments of transfer, in
form satisfactory to the Trustee, together with:
(i) certification from the Holder thereof (in substantially the form
of Exhibit B hereto) that such Certificated Note is being
transferred to a Participant or will be held through a
Participant; and
(ii) written instructions from the Holder thereof directing the
Trustee to make, or to direct the Note Custodian to make, an
adjustment on its books and records with respect to the Global
Note to reflect an increase in the aggregate principal amount of
the Notes represented by such Global Note, such instructions to
contain information regarding the Depository account to be
credited with such increase;
then the Trustee shall cancel such Certificated Note and cause, or direct the
Note Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Note Custodian, the aggregate
principal amount of Notes represented by the Global Note to be increased by the
aggregate principal amount of the Certificated Note to be exchanged and shall
credit or cause to be credited to the account of the Person specified in such
instructions a beneficial interest in such Global Note equal to the principal
amount of the Certificated Note so cancelled. If no applicable Global Notes are
then outstanding, the Company shall issue and the Trustee shall authenticate,
upon written order of the Company in the form of an Officers' Certificate, a new
Global Note in the appropriate principal amount.
(c) Transfer and Exchange of Global Notes. (i) The transfer and exchange of
Global Notes or beneficial interests in Global Notes will be effected through
the Depository, in accordance with this Indenture (including applicable
restrictions on transfer set forth herein, if any) and the procedures of the
Depository therefor. A transferor of a beneficial interest in a Global Note to
another Global Note shall deliver to the Registrar: (A) if applicable,
instructions given in accordance with the Depository's procedures directing the
Trustee to credit or cause to be credited a beneficial interest in the
applicable Global Note in an amount equal to the beneficial interest in the
Global Note to be exchanged; and (B) a written order given in accordance with
the Depository's procedures containing information regarding the Participant
account of the Depository to be credited with such increase.
The Registrar shall, in accordance with such instructions, instruct the
Depository to increase and reduce, as applicable, the principal amount of each
applicable Global Note to the extent required and to credit to the account of
the Person specified in such instructions a beneficial interest in the
applicable Global Note and to debit from the account of the Person making the
transfer the beneficial interest in the Global Note being transferred.
19
<PAGE>
(ii) Notwithstanding any provision of this Indenture (other than the
provisions set forth in Section 2.7), a Global Note may not be
transferred as a whole except by the Depository to a nominee of
the Depository or by a nominee of the Depository to the
Depository or another nominee of the Depository or by the
Depository or any such nominee to a successor Depository or a
nominee of such successor Depository.
(d) Transfer of a Beneficial Interest in a Global Note for a Certificated
Note. (i) Any person having a beneficial interest in a Global Note may transfer
such beneficial interest in the form of a Certificated Note to a Person that is
acquiring the Note and is not a Participant or is not holding the Note through a
Participant upon receipt by the Trustee of an instruction, duly endorsed or
accompanied by appropriate instruments of transfer, in form satisfactory to the
Trustee, together with written instructions from the Holder thereof directing
the Trustee to make, or to direct the Note Custodian to make, an adjustment on
its books and records with respect to the Global Note to reflect a decrease in
the aggregate principal amount of the Notes represented by such Global Note,
such instructions to contain information regarding the Participant account to be
debited with such decrease. Upon receipt by the Trustee of such instructions and
instruments, the Trustee or the Note Custodian, at the direction of the Trustee,
will cause, in accordance with the standing instructions and procedures existing
between the Depository and the Note Custodian, the aggregate principal amount of
the Global Note to be reduced on its books and records and, following such
reduction, the Company will execute and the Trustee will authenticate, upon a
written order of the Company signed by two Officers, and deliver to the
transferee a Certificated Note equal to the principal amount of the Global Note
being reduced.
(ii) Certificated Notes issued in exchange for a beneficial interest
in a Global Note pursuant to this Section 2.6(d) shall be
registered in such names and in such authorized denominations as
the Depository, pursuant to instructions from its Participants or
otherwise, shall instruct the Trustee. The Trustee shall deliver
such Certificated Notes to the persons in whose names such Notes
are so registered in accordance with the instructions of the
Depository.
(e) Authentication of Certificated Notes in Absence of Depository. If at
any time:
(i) the Depository for the Notes notifies the Company that the
Depository is unwilling or unable to continue as Depository for
the Global Notes or, if at any time such Depository ceases to be
a "clearing agency" registered under the Exchange Act, and a
successor Depository for the Global Notes is not appointed by the
Company within 90 calendar days after delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the Trustee in
writing that it elects to cause the issuance of Certificated
Notes under this Indenture in exchange for all or any part of the
Notes represented by a Global Note or Global Notes,
the Depository or the Note Custodian will surrender such Global Note to the
Trustee, without charge, and then the Company will execute, and the Trustee
will, upon receipt of an authentication order in accordance with Section 2.2
hereof, authenticate and deliver in exchange for such Global Notes, Certificated
Notes in an aggregate principal amount equal to the principal amount of such
Global Notes. Such Certificated Notes will be registered in such names as the
Depository shall direct in writing.
(f) Legend.
(i) Each Note certificate evidencing Global Notes will bear legends
in substantially the following form:
THIS IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN CERTIFICATED FORM, THIS SECURITY MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF
THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY TO A
20
<PAGE>
SUCCESSOR NOMINEE, OR BY THE DEPOSITORY OR NOMINEE TO A SUCCESSOR
DEPOSITORY OR TO A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS
THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE
OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE &
CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC ), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE. TRANSFERS OF
PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH IN SECTION 2.6 OF
THE INDENTURE.
(ii) Each note certificate evidencing Certificated Notes will bear
legends in substantially the following form:
THIS IS A SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO.
TRANSFERS OF THIS SECURITY OR PORTIONS OF THIS SECURITY TO GLOBAL
FORM SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
INSTRUCTIONS SET FORTH IN SECTION 2.6 OF THE INDENTURE.
(g) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in Global Notes have been exchanged for Certificated Notes,
redeemed, repurchased or cancelled, all Global Notes will be returned to or
retained and cancelled by the Trustee or its agent in accordance with Section
2.12 hereof. At any time prior to such cancellation, if any beneficial interest
in a Global Note is exchanged for Certificated Notes, redeemed, repurchased or
cancelled, the principal amount of Notes represented by such Global Note will be
reduced accordingly and an endorsement will be made on such Global Note, by the
Trustee or the Note Custodian, at the direction of the Trustee, to reflect such
reduction.
(h) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
will execute and the Trustee will authenticate Certificated Notes
and Global Notes at the Registrar's request.
(ii) No service charge will be made to a Holder for any registration
of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 2.2, 2.11, 3.6, 3.7,
4.10, 4.14 and 9.5 hereto).
(iii)Certificated Notes and Global Notes issued upon any registration
of transfer or exchange of Certificated Notes or Global Notes
will be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as
the Certificated Notes or Global Notes surrendered upon such
registration of transfer or exchange.
(iv) Neither the Registrar nor the Company will be required:
21
<PAGE>
(A) to issue, to register the transfer of or to exchange Notes
during a period beginning at the opening of business 15
Business Days before the day of any selection of Notes for
redemption under Article III hereof and ending at the close
of business on the day of selection; or
(B) to register the transfer of or to exchange any Note so
selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part; or
(C) to register the transfer of or to exchange a Note between a
record date and the next succeeding Interest Payment Date.
(v) Upon a written order of the Company signed by two Officers, the
Trustee will authenticate Certificated Notes and Global Notes in
accordance with the provisions of Section 2.2 hereof.
SECTION 2.7. CERTIFICATED NOTES.
(a) A Global Note deposited with the Depository or with the Trustee as
custodian for the Depository pursuant to Section 2.1 shall be transferred to the
beneficial owners thereof in the form of Certificated Notes in an aggregate
principal amount equal to the principal amount of such Global Note, in exchange
for such Global Note, only if such transfer complies with Section 2.6 and (i)
the Depository notifies the Company that it is unwilling or unable to continue
as Depository for such Global Note or if at any time such Depository ceases to
be a "clearing agency" registered under the Exchange Act and a successor
depository is not appointed by the Company within 90 calendar days of such
notice, or (ii) an Event of Default has occurred and is continuing or (iii) the
Company, in its sole discretion, notifies the Trustee in writing that it elects
to cause the issuance of Certificated Notes under this Indenture.
(b) Any Global Note that is transferable to the beneficial owners thereof
pursuant to this Section 2.7 shall be surrendered by the Depository to the
Trustee located in the Borough of Manhattan, The City of New York, to be so
transferred, in whole or from time to time in part, without charge, and the
Trustee shall authenticate, upon a written order of the Company signed by two
Officers, and deliver, upon such transfer of each portion of such Global Note,
an equal aggregate principal amount of Certificated Notes of authorized
denominations. Any portion of a Global Note transferred pursuant to this Section
2.7 shall be executed, authenticated and delivered only in denominations of
$1,000 and any integral multiple thereof and registered in such names as the
Depository shall direct.
(c) In the event of the occurrence of any of the events specified in
Section 2.7(a), the Company will promptly make available to the Trustee a
reasonable supply of Certificated Notes in definitive, fully registered form
without interest coupons.
SECTION 2.8. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the Company and the
Trustee receive evidence to their satisfaction of the destruction, loss or theft
of any Note, the Company will, upon the written request of the Holder thereof,
issue and the Trustee, upon the written order of the Company signed by two
Officers of the Company, will authenticate a replacement Note if the Trustee's
requirements are met. If required by the Trustee or the Company, an indemnity
bond must be supplied by such Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Company may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and will
be entitled to all of the benefits of this Indenture equally and proportionately
with all other Notes duly issued hereunder.
22
<PAGE>
The provisions of this Section 2.8 are exclusive and will preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.9. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those cancelled by it (or its agent), those delivered to it
(or its agent) for cancellation, those reductions in the interest in a Global
Note effected by the Trustee in accordance with the provisions hereof, and those
described in this Section as not outstanding. Except as set forth in Section
2.10 hereof, a Note does not cease to be outstanding because the Company or an
Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.8 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note (other than a mutilated Note surrendered for replacement) is held
by a bona fide purchaser (as such term is defined in Section 8-302 of the
Uniform Commercial Code as in effect in the State of New York).
If the principal amount of any Note is considered paid under Section 4.1
hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company or any of its Subsidiaries)
holds, on a redemption date or maturity date, cash or Cash Equivalents
sufficient to pay Notes payable on that date, then on and after that date such
Notes will be deemed to be no longer outstanding and will cease to accrue
interest.
SECTION 2.10. TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, will be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee will be protected in relying on any such direction, waiver or consent,
only Notes that a Responsible Officer of the Trustee has actual knowledge are so
owned will be so disregarded.
SECTION 2.11. TEMPORARY NOTES.
Until Certificated Notes are ready for delivery, the Company may prepare
and the Trustee will authenticate temporary Notes upon a written order of the
Company signed by two Officers of the Company. Temporary Notes will be
substantially in the form of Certificated Notes but may have variations that the
Company considers appropriate for temporary Notes and as will be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company will prepare
and the Trustee will authenticate, upon a written order of the Company signed by
two Officers, Certificated Notes in exchange for temporary Notes.
Until such exchange, Holders of temporary Notes will be entitled to all of
the benefits of this Indenture.
SECTION 2.12. CANCELLATION.
The Company at any time may deliver Notes to the Trustee or its Agent for
cancellation. The Registrar and Paying Agent will forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee (or its Agent) and no one else will cancel all Notes surrendered for
registration of transfer, exchange, payment, replacement or cancellation and
will destroy cancelled Notes (subject to the record retention requirement of the
Exchange Act). Certification of the destruction of all cancelled Notes will be
delivered to the Company from time to time. The Company may not issue new Notes
to replace Notes that it has paid or that have been delivered to the Trustee (or
its Agent) for cancellation. If the Company acquires any of the Notes, such
acquisition will not operate as a redemption or satisfaction of the indebtedness
represented by such Notes unless and until the same are surrendered to the
Trustee (or its Agent) for cancellation pursuant to this Section 2.12.
23
<PAGE>
SECTION 2.13. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it will pay
the defaulted interest in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.1 hereof. The Company will notify the Trustee in writing of the
amount of defaulted interest proposed to be paid on each Note and the date of
the proposed payment. The Company will fix or cause to be fixed each such
special record date and payment date, PROVIDED that no such special record date
will be less than 10 calendar days prior to the related payment date for such
defaulted interest. At least 15 calendar days before the special record date,
the Company (or, upon the written request of the Company, the Trustee in the
name and at the expense of the Company) will mail or cause to be mailed to
Holders a notice that states the special record date, the related payment date
and the amount of such defaulted interest to be paid.
SECTION 2.14. PERSONS DEEMED OWNERS.
Prior to due presentment for the registration of a transfer of any Note,
the Trustee, any Agent, the Company and any agent of the foregoing will deem and
treat the Person in whose name any Note is registered as the absolute owner of
such Note for all purposes (including the purpose of receiving payment of
principal of and interest on such Note; PROVIDED that defaulted interest will be
paid as set forth in Section 2.13), and none of the Trustee, any Agent, the
Company or any agent of the foregoing will be affected by notice to the
contrary.
SECTION 2.15. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will print CUSIP numbers on the
Notes, and the Trustee may use CUSIP numbers in notices of redemption and
purchase as a convenience to Holders; PROVIDED, HOWEVER, that any such notices
may state that no representation is made as to the correctness of such numbers
as printed on the Notes and that reliance may be placed only on the other
identification numbers printed on the Notes, and any such redemption or purchase
will not be affected by any defect or omission in such numbers.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.1. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.7 hereof, it will furnish to the Trustee, at least 30
days but not more than 60 days before a redemption date, an Officers'
Certificate setting forth (i) the clause of Section 3.7 pursuant to which the
redemption will occur, (ii) the redemption date, (iii) the principal amount of
Notes to be redeemed, (iv) the redemption price and accrued and unpaid interest
and (v) whether it requests the Trustee to give notice of such redemption. Any
such notice may be cancelled at any time prior to the mailing of notice of such
redemption to any Holder and will thereby be void and of no effect.
SECTION 3.2. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time, the Trustee
will select the Notes to be redeemed among the Holders of the Notes in
compliance with the requirements of any applicable Depository and securities
exchange requirements or, if the Notes are not so listed, on a pro rata basis,
by lot or in accordance with any other method the Trustee considers fair and
appropriate and in such manner as complies with any such requirements and any
applicable legal requirements; PROVIDED that no Notes of $1,000 principal amount
or less will be redeemed in part. In the event of partial redemption by lot, the
24
<PAGE>
particular Notes to be redeemed will be selected, unless otherwise provided
herein, not less than 30 nor more than 60 days prior to the redemption date by
the Trustee from the outstanding Notes not previously called for redemption.
The Trustee will promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected will be in amounts of $1,000 or whole multiples of $1,000; except
that if all of the Notes of a Holder are to be redeemed, the entire outstanding
amount of Notes held by such Holder, even if not a multiple of $1,000, will be
redeemed. Except as provided in the preceding sentence, provisions of this
Indenture that apply to Notes called for redemption also apply to portions of
Notes called for redemption.
SECTION 3.3. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption date, the
Company will mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose Notes are to be redeemed at such Holder's
registered address.
The notice will identify the Notes to be redeemed and will state:
(a) the redemption date;
(b) the redemption price and accrued and unpaid interest;
(c) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion will be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption payment,
interest on Notes called for redemption ceases to accrue on and after the
redemption date and the only remaining right of the Holders of such Notes is to
receive payment of the redemption price upon surrender to the Paying Agent of
the Notes redeemed;
(g) the paragraph of the Notes and/or Section of this Indenture pursuant to
which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy of the
CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee will give the notice of redemption in
the Company's name and at its expense; PROVIDED, HOWEVER, that the Company will
have delivered to the Trustee, at least 40 days prior to the redemption date
(unless a shorter period is acceptable to the Trustee), an Officers' Certificate
requesting that the Trustee give such notice and setting forth the information
to be stated in such notice as provided in the preceding paragraph.
SECTION 3.4. EFFECT OF NOTICE OF REDEMPTION.
Unless otherwise stated therein, once notice of redemption is mailed in
accordance with Section 3.3 hereof, Notes called for redemption become
irrevocably due and payable on the redemption date at the redemption price.
25
<PAGE>
SECTION 3.5. DEPOSIT OF REDEMPTION PRICE.
On or prior to the redemption date, the Company will deposit with the
Paying Agent (other than the Company or any of its Subsidiaries) money
sufficient in immediately available funds to pay the redemption price of, and
accrued interest on all, Notes to be redeemed on that date. The Paying Agent
will promptly return to the Company any money deposited with the Paying Agent by
the Company in excess of the amounts necessary to pay the redemption price of,
and accrued interest on, all Notes to be redeemed. If the money is deposited on
the redemption date, such deposit will be made by 11:00 a.m. New York City time.
If the Company complies with the provisions of the preceding paragraph, on
and after the redemption date, interest will cease to accrue on the Notes or the
portions of Notes called for redemption whether or not such Notes are presented
for payment, and the only remaining right of the Holders of such Notes will be
to receive payment of the redemption price upon surrender to the Paying Agent of
the Notes redeemed. If a Note is redeemed on or after an interest record date
but on or prior to the related interest payment date, then any accrued and
unpaid interest will be paid to the Person in whose name such Note was
registered at the close of business on such record date. If any Note called for
redemption will not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, interest will be
paid on the unpaid principal from the redemption date until such principal is
paid and to the extent lawful, on any interest not paid on such unpaid
principal, in each case at the rate provided in the Notes and in Section 4.1
hereof.
SECTION 3.6. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company will issue
and, upon the Company's written request, the Trustee will authenticate for the
Holder at the expense of the Company a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
SECTION 3.7. OPTIONAL REDEMPTION.
(a) The Notes will be subject to redemption at the option of the Company,
in whole or in 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, if any, thereon to the applicable
redemption date, if redeemed during the twelve month period beginning on
December 20 of the years indicated below:
YEAR PERCENTAGE
2000 106.4375%
2001 104.2917%
2002 102.1458%
2003 and thereafter 100.0000%
(b) Any redemption pursuant to this Section 3.7 will be made pursuant to
the provisions of Sections 3.1 through 3.6 hereof.
SECTION 3.8. MANDATORY REDEMPTION.
Except as set forth under Sections 4.10 and 4.14 hereof, the Company will
not be required to make mandatory redemption or sinking fund payments with
respect to the Notes.
ARTICLE 4
COVENANTS
SECTION 4.1. PAYMENT OF NOTES.
26
<PAGE>
The Company will pay or cause to be paid in the Borough of Manhattan, The
City of New York the principal of, premium, if any, and interest on the Notes on
the dates and in the manner provided in the Notes. Principal, premium, if any,
and interest will be considered paid on the date due if the Paying Agent, if
other than the Company or a Subsidiary thereof, holds as of 11:00 a.m. New York
City time on the due date money deposited by the Company in immediately
available funds and designated for and sufficient to pay all principal, premium,
if any, and interest then due. The Paying Agent will return to the Company, no
later than two Business Days following the date of payment, any money (including
accrued interest) in excess of the amounts paid on the Notes.
The Company will pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law to the extent that such interest is an
allowed claim enforceable against the debtor under any Bankruptcy Law) on
overdue principal and premium, if any, at a rate equal to 1% per annum in excess
of the then applicable interest rate on the Notes to the extent lawful; it will
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law to the extent that such interest is an allowed claim against the
debtor under such Bankruptcy Law) on overdue installments of interest (without
regard to any applicable grace period) from time to time on demand at the same
rate to the extent lawful.
SECTION 4.2. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in the Borough of Manhattan, The City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
fails to maintain any such required office or agency or fails to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; PROVIDED, HOWEVER,
that no such designation or rescission will in any manner relieve the Company of
its obligation to maintain an office or agency in the Borough of Manhattan, The
City of New York for such purposes. The Company will give prompt written notice
to the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with Section 2.3.
SECTION 4.3. PROVISIONS OF REPORTS AND OTHER INFORMATION.
(a) The Company and each Guarantor will deliver to the Trustee and each
Holder within 15 calendar days after the filing of the same with the Commission,
copies of the annual reports and of the information, documents and other
reports, if any, which the Company or such Guarantor is required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the Commission, to the extent permitted, and provide the Trustee and
Holders with such annual reports and such other information that would be
required to be contained in a filing with the Commission if the Company were
required to file such reports under Sections 13 and 15(d) of the Exchange Act
PROVIDED, HOWEVER, that (i) such reports may be prepared in accordance with
Brazilian GAAP (with annual U.S. GAAP reconciliation in accordance with the
Commission's rules), (ii) such reports shall include, without limitation, a
balance sheet, income statement and cash flow statement and shall contain
condensed consolidating financial statements concerning the Company and its
Subsidiaries, and (iii) such annual reports shall be furnished within 105
calendar days following the end of each fiscal year of the Company. The Company
will include an unaudited consolidating balance sheet and related statements of
income and cash flows for the Company and its Subsidiaries separately
identifying the Company and its Restricted Subsidiaries as one group and the
27
<PAGE>
Company's Unrestricted Subsidiaries as a separate group, in all reports
containing the consolidated financial statements (which in the case of annual
reports will be audited) of the Company and its consolidated Subsidiaries which
are required to be delivered by the Company to the Holders of Notes pursuant to
this Section 4.3, including the Company's Annual Reports on Form 20-F and any
interim reports on Form 6-K. If required by the terms thereof, the Company will
also comply with the provisions of TIA Section 314(a).
(b) Delivery of such reports, information and documents to the Trustee is
for information purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 4.4. COMPLIANCE CERTIFICATE.
(a) The Company will deliver to the Trustee, within 120 calendar days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Restricted Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge each of the Company and its Restricted Subsidiaries has
kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action each of the
Company and the Restricted Subsidiaries is taking or proposes to take with
respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest on the Notes are prohibited or, if such event has
occurred, a description of the event and what action each of the Company and its
Restricted Subsidiaries is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.3 above will be accompanied by a
written statement of the Company's independent public accountants (who will be a
firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that either the Company or any
of the Guarantors has violated any provisions of Article 4 or Article 5 hereof
or, if any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants will not be liable
directly or indirectly to any Person for any failure to obtain knowledge of any
such violation.
(c) The Company and each of the Guarantors will, so long as any of the
Notes are outstanding, deliver to the Trustee, forthwith upon any Officer
becoming aware of any Default or Event of Default, an Officers' Certificate
specifying such Default or Event of Default and what action the Company is
taking or proposes to take with respect thereto.
SECTION 4.5. TAXES.
The Company will pay, and will cause each of its Restricted Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except (i) such as are contested in good faith and by appropriate
proceedings, (ii) such for which reserves or other appropriate provision, if
any, as shall be required to be made in conformity with Brazilian GAAP, has been
made therefor, or (iii) where the failure to effect such payment is not adverse
in any material respect to the Holders of the Notes.
28
<PAGE>
SECTION 4.6. STAY, EXTENSION AND USURY LAWS.
The Company and each Guarantor covenants (to the extent that it may
lawfully do so) that it will not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Company and
each Guarantor (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law, and covenants that it will not,
by resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law has been enacted.
SECTION 4.7. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company 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 the Company's Equity Interests
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company) or to any direct or indirect holder of the
Company'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 the Company or (B) paid or payable to the Company or any Restricted
Subsidiary of the Company or (C) paid or payable in respect of Equity Interests
of a Restricted Subsidiary to Persons other than the Company or a Restricted
Subsidiary of the Company on not more favorable terms than a PRO RATA basis with
dividends or distributions being paid in respect of Equity Interests held by the
Company or a Restricted Subsidiary of the Company; (ii) purchase, redeem or
otherwise acquire or retire for value any Equity Interests of the Company or any
direct or indirect parent of the Company or other Affiliate of the Company or
any Restricted Subsidiary of the Company (other than any such Equity Interests
owned by the Company or any Restricted Subsidiary of the Company which is a
Guarantor); (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:
(I) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(II) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments declared or made by the Company and
its Restricted Subsidiaries after the Amendment Effective Date
will not exceed, at the date of determination, the sum of (A) an
amount equal to the Company's Consolidated Cash Flow from the
first day of the Company's first full fiscal quarter following
the Amendment Effective Date to the end of the Company'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 the Company's Consolidated Interest
Expense from the first day of the Company's first full fiscal
quarter following the Amendment Effective Date to the end of the
Company's most recently ended full fiscal quarter for which
internal financial statements are available, taken as a single
accounting period, plus (B) 100% of the aggregate amount of cash
and marketable securities contributed to the capital of the
Company after the Amendment Effective Date, plus (C) 100% of the
aggregate net cash proceeds received by the Company from the
issue or sale after the Amendment Effective Date of Equity
Interests of the Company or of Disqualified Stock or debt
securities of the Company that have been converted into such
Equity Interests (other than Equity Interests (or Disqualified
Stock or convertible debt securities) sold to a Subsidiary of the
Company and other than Disqualified Stock or debt securities that
have been converted into Disqualified Stock), plus (D) to the
extent that any Restricted Investment that was made after the
Amendment Effective Date is sold for cash or otherwise liquidated
or repaid for cash, the lesser of (1) the cash return of capital
with respect to such Restricted Investment (less the cost of
disposition, if any) and (2) the initial amount of such
Restricted Investment, plus (E) 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.
29
<PAGE>
(b) The provisions of Section 4.7(a) will not prohibit (i) the payment of
any dividend or other distribution within 60 calendar days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of this Indenture; (ii) the redemption, repurchase,
retirement or other acquisition of any Equity Interests of the Company in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Company) of other Equity Interests of the
Company (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 will be excluded from clause (II)(C) of Section
4.7(a); (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 the Company) of Equity Interests of the Company
(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 will be excluded from clause (II)(C) of Section 4.7(a); (iv)
the redemption, repurchase, retirement or other acquisition of any Equity
Interests of the Company from an employee or former employee of the Company or
any of its Subsidiaries in connection with such employee's death, disability or
termination of employment; PROVIDED that the amount expended by the Company or
any of its Restricted Subsidiaries in connection with such redemption,
repurchase, retirement or other acquisition does not exceed US$500,000 (or the
equivalent thereof at time of determination) per year; and (v) the redemption,
repurchase, retirement or other acquisition of any Equity Interest of any of the
Company's Wholly Owned Restricted Subsidiaries.
(c) The Board of Directors of the Company 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 the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) 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 Section 4.7(a). 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 Guarantee which was previously executed by such
Unrestricted Subsidiary will be deemed terminated.
(d) The amount of all Restricted Payments not made in cash will be the Fair
Market Value (which, if it exceeds US$1,000,000 (or the equivalent thereof at
time of determination), will be determined by, and set forth in, a resolution of
the Board of Directors of the Company 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 the Company 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, the Company
will deliver to the Trustee an Officers' Certificate stating that all Restricted
Payments during such quarter were permitted and setting forth the basis upon
which the calculations required by this Section 4.7 were computed, which
calculations may be based upon the Company's latest available financial
statements.
SECTION 4.8. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.
The Company 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 the Company 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 the Company or any
of its Restricted Subsidiaries, (ii) make loans or advances to the Company or
any of its Restricted Subsidiaries, (iii) transfer any of its properties or
assets to the Company 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 and any renewals or refinancings thereof, except for
such encumbrances or restrictions existing under or by reason of (A) Existing
Indebtedness, (B) Applicable Law, (C) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company 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 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
30
<PAGE>
Indebtedness, such Indebtedness was permitted by the terms of this 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) Indebtedness of the Company or any Restricted Subsidiary
represented by Capital Lease Obligations, mortgage financings or other purchase
money obligations or obligations under other financing transactions relating to
capital expenditures, incurred pursuant to clause (ix) of Section 4.9(b), (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 the Company or its Restricted
Subsidiaries than a PRO RATA basis in accordance with Equity Interests owned in
such Restricted Subsidiary.
SECTION 4.9. LIMITATION ON INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK.
(a) The Company 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.
(b) The foregoing provisions will not apply to:
(i) the incurrence by the Company or any of its Restricted
Subsidiaries of senior secured Indebtedness on commercially
reasonable terms (as determined by the Board of Directors of the
Company) in an aggregate principal amount not to exceed
US$10,000,000 outstanding at any time, which Indebtedness will
(A) rank PARI PASSU with or subordinate to the Notes, (B), if
secured, be equally and ratably secured by the Collateral
pursuant to security documents containing terms and conditions
substantially similar to the Security Documents and (C) be
subject to the terms and conditions of customary intercreditor
agreements to be executed by the holders of such Indebtedness and
the Trustee on behalf of the Holders in accordance with Section
7.1(g); PROVIDED, that all of the terms and conditions of such
Indebtedness and all documentation pertaining thereto shall be
approved by the Board of Directors of the Company, such approval
to be set forth in a resolution of the Board of Directors and
described in an Officers' Certificate delivered to the Trustee;
and PROVIDED, further, that the Trustee shall be furnished with
an Opinion of Counsel to the effect that the requirements of
subclauses (A) and (B) of this clause (i) have been met;
(ii) Indebtedness of any Restricted Subsidiary consisting of a
guarantee of any senior secured Indebtedness incurred pursuant to
clause (i) above, PROVIDED that (A) such Restricted Subsidiary is
a Guarantor and (B) the obligations of such Restricted Subsidiary
under its Guarantee of the Notes will rank PARI PASSU with its
obligations under such guarantees of other senior secured
Indebtedness;
(iii) Existing Indebtedness;
(iv) the incurrence by the Company of Indebtedness represented by the
Notes (including, without limitation, Notes issued in payment of
accrued interest on outstanding Notes) and this Indenture;
(v) the incurrence of intercompany Indebtedness between or among the
Company and any of its Restricted Subsidiaries; provided that (A)
if the Company is an obligor on such Indebtedness, such
Indebtedness is expressly subordinate to the payment in full of
all Obligations with respect to the Notes, (B) if a Restricted
Subsidiary is an obligor on such Indebtedness, such Restricted
Subsidiary must be a Guarantor and (C) any subsequent issuance or
31
<PAGE>
transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a
Restricted Subsidiary of the Company, or any sale or other
transfer of any such Indebtedness to a Person that is not either
the Company or a Restricted Subsidiary of the Company, will be
deemed to constitute an incurrence of such Indebtedness by the
Company or such Restricted Subsidiary, as the case may be,
subject to the limitations set forth in Section 4.9(a);
(vi) the incurrence by the Company 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 this Indenture
to be outstanding or for the purpose of fixing or hedging
currency exchange risk, in each case incurred in the ordinary
course of business and not for speculative reasons;
(vii)the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Debt;
(viii) issuance of preferred stock by a Restricted Subsidiary of the
Company to the Company or any of its Restricted Subsidiaries; or
(ix) Indebtedness of the Company or any Restricted Subsidiary
represented by Capital Lease Obligations, mortgage financings or
other purchase money obligations or obligations under other
financing transactions relating to capital expenditures, in each
case incurred for the purpose of financing all or any part of the
purchase price or cost of construction or improvement of property
used in a Telecommunications Business.
SECTION 4.10. LIMITATION ON ASSET SALES.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale unless (i) the Company 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
US$1,000,000 (or the equivalent thereof at time of determination), will be
determined by, and set forth in, a resolution of the Board of Directors of the
Company and described in an Officers' Certificate of the Company delivered to
the Trustee) of the assets or Equity Interests issued or sold or otherwise
disposed of, (ii) at least 75% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents; PROVIDED that any (1) liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet) of the Company 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 the Company or such Restricted Subsidiary from further liability,
and (2) notes or other obligations received by the Company or such Restricted
Subsidiary from such transferee that are promptly (but in any event, within 30
calendar days) converted by the Company or such Restricted Subsidiary into cash
or Cash Equivalents (to the extent of the cash or Cash Equivalents received) in
each case will be deemed to be cash or Cash Equivalents for purposes of this
provision, (iii) such Asset Sale is not made by the Company to any of its
Restricted Subsidiaries, (iv) the Company shall cause the Net Proceeds
consisting of cash or Cash Equivalents received in respect thereof to be
deposited in the Collateral Account and the other consideration received to
become Collateral as and when received by the Company or by any Restricted
Subsidiary, (v) no Default or Event of Default shall have occurred and be
continuing on the date of such proposed Asset Sale and (vi) such Asset Sale will
not materially adversely affect or materially impair the value of the remaining
Collateral or materially interfere with the Trustee's ability to realize such
value and will not materially impair the maintenance and operation of the
remaining Collateral, as determined by the Board of Directors of the Company,
which determination shall be set forth in a resolution of the Board of Directors
and described in an Officers' Certificate delivered to the Trustee.
(b) The Company shall apply, or cause such Restricted Subsidiary to apply,
the Net Proceeds of such Asset Sale and any Insurance Proceeds or Condemnation
Proceeds, as the case may be, resulting from a Loss Event, within 270 calendar
32
<PAGE>
days of consummation of such Asset Sale or the collection of such Insurance
Proceeds or Condemnation Proceeds, as the case may be, for the following
purposes, individually or in combination:
(i) (A) to purchase or otherwise invest in Related Business
Investments which shall constitute additional Collateral under
the relevant Security Documents and which shall be subject to a
first priority Lien in favor of the Trustee for the benefit of
the Holders, subject to Liens permitted under the Security
Documents in respect of the relevant item of Collateral;
PROVIDED, that such purchase or Investment shall be made by the
Company or such Restricted Subsidiary, (B) to purchase Notes in
open-market transactions; PROVIDED, that the Company shall be
deemed to have applied such Net Proceeds, Insurance Proceeds or
Condemnation Proceeds pursuant to this clause (B) in satisfaction
of the requirements of this covenant in an amount equal to the
lesser of (x) the purchase price paid in such open-market
transactions and (y) 100% of the principal amount of the Notes
repurchased; PROVIDED, further that the aggregate amount of Net
Proceeds, Insurance Proceeds or Condemnation Proceeds that may be
deemed to be applied pursuant to this clause (B) shall not exceed
US$5,000,000 in the aggregate from the Amendment Effective Date,
and (C) to repay senior secured Indebtedness of the Company or
its Restricted Subsidiaries incurred pursuant to clause (i) of
Section 4.9(b); and
(ii) if and to the extent that the Company fails to expend any Net
Proceeds, Insurance Proceeds or Condemnation Proceeds remaining
after application pursuant to the preceding subparagraph (b)(i)
(the "Excess Proceeds Amount"), the Company shall make an offer
to repurchase Notes (an "Asset Sale Offer") in an amount
(expressed as an integral multiple of US$1,000) equal to the
maximum aggregate principal amount of Notes that may be purchased
with the Excess Proceeds Amount at a purchase price equal to 100%
of the principal amount thereof plus accrued and unpaid interest
thereon, if any (the "Net Proceeds Offer Price"), to the date of
purchase (the "Net Proceeds Purchase Date") in accordance with
the procedures set forth in this Section 4.10. The Company may
defer the Asset Sale Offer until the aggregate unutilized Excess
Proceeds Amount equals or exceeds US$10,000,000 resulting from
one or more Asset Sales or Loss Events (at which time, the entire
unutilized Excess Proceeds Amount, and not just the amount in
excess of US$10,000,000, shall be applied as required pursuant to
this paragraph). All amounts remaining after the consummation of
any Asset Sale Offer pursuant to this paragraph shall remain
subject to the Lien of the Security Documents and may be used by
the Company only to purchase or otherwise invest in Related
Business Investments (which shall constitute additional
Collateral under the Security Documents) or to purchase Notes in
open market transactions up to the maximum set forth in clause
(i)(B) of this paragraph (b) or to permanently repay Indebtedness
of the Company or any Guarantor that is not subordinated to the
Notes.
(c) Each notice of an Asset Sale Offer shall be mailed by first class mail
to the record Holders as shown on the register of Holders not less than 30
calendar days nor more than 60 calendar days before the Net Proceeds Purchase
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in this Indenture. Upon receiving notice of the Asset Sale Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of
US$1,000 principal amount in exchange for cash. To the extent Holders properly
tender Notes in an amount exceeding the Excess Proceeds Amount, Notes of
tendering Holders will be purchased on a PRO RATA basis (based on amounts
tendered). An Asset Sale Offer shall remain open for a period of 20 Business
Days and until the close of business on the Net Proceeds Purchase Date or such
longer period as may be required by law. Each notice of an Asset Sale Offer
shall contain all instructions and materials necessary to enable such Holders to
tender Notes pursuant to the Asset Sale Offer and shall identify the Notes
(including CUSIP number) and shall state the following terms: (i) that the Asset
Sale Offer is being made pursuant to this Section 4.10 and that all Notes
tendered will be accepted for payment; PROVIDED, HOWEVER, that if the aggregate
principal amount of Notes tendered in an Asset Sale Offer plus accrued interest
at the expiration of such offer exceeds the aggregate amount of the Asset Sale
Offer, the Company shall select the Notes to be purchased on a PRO RATA basis
(with such adjustments as may be deemed appropriate by the Company so that only
Notes in denominations of US$1,000 or multiples thereof shall be purchased);
(ii) the Net Proceeds Offer Price and the Net Proceeds Purchase Date; (iii) that
any Note not tendered will continue to accrue interest; (iv) that, unless the
Company defaults in making payment therefor, any Note accepted for payment
pursuant to the Asset Sale Offer shall cease to accrue interest after the Net
33
<PAGE>
Proceeds Purchase Date; (v) that Holders electing to have a Note purchased
pursuant to an Asset Sale Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day prior to the Net Proceeds
Purchase Date; (vi) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than five Business Days prior to the Net
Proceeds Purchase Date, a facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Notes the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to have
such Note purchased; and (vii) that Holders whose Notes are purchased only in
part will be issued new Notes in a principal amount equal to the unpurchased
portion of the Notes surrendered; PROVIDED that each Note purchased and each new
Note issued shall be in an original principal amount of US$1,000 or an integral
multiple thereof.
On or before 11:00 a.m. on the Net Proceeds Purchase Date, the Company
shall (i) accept for payment Notes or portions thereof tendered pursuant to the
Asset Sale Offer which are to be purchased in accordance with clause (ii) of
paragraph (b) above, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the Net Proceeds Offer Price of all Notes to be purchased and
(iii) deliver to the Trustee Notes so accepted together with an Officers'
Certificate stating the Notes or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to the Holders of Notes so
accepted payment in an amount equal to the Net Proceeds Offer Price. For
purposes of this Section 4.10, the Trustee shall act as the Paying Agent.
If an offer is made to repurchase the Notes pursuant to an Asset Sale
Offer, the Company will comply with the requirements of Section 14(e) of the
Exchange Act, if applicable, the provisions of Rule 13e-4 and Rule 14e-1, if
applicable, and any other tender offer rules under the Exchange Act or other
relevant United States Federal and state securities legislation which may then
be applicable and will file Schedule 13E-4 or any other schedule required
thereunder in connection with any offer by the Company to purchase Notes
pursuant to an Asset Sale Offer. Notes repurchased pursuant to an Asset Sale
Offer shall be delivered to the Trustee for cancellation pursuant to Section
2.12.
(d) All Net Proceeds, Insurance Proceeds and Condemnation Proceeds from
Loss Events and non-cash consideration from Asset Sales, including all Excess
Proceeds Amounts, shall be deposited in the Collateral Account and be subject to
the perfected first priority Lien in favor of the Trustee subject to Liens
permitted under the Security Documents in respect of the relevant item of
Collateral. To the extent not applied as set forth above, such Excess Proceeds
Amounts shall remain on deposit in the Collateral Account in accordance with
this Indenture and the Security Documents. Excess Proceeds Amounts so deposited
in the Collateral Account may be withdrawn from the Collateral Account pursuant
to Section 4.10(b).
(e) Notwithstanding the foregoing, any disposition of Collateral that is
governed under and complies with Article 5 shall not be deemed to be an Asset
Sale, except that in the event of the transfer of substantially all (but not
all) of the Property of the Company and its Subsidiaries to a Person in a
transaction permitted under Article 5, the successor corporation shall be deemed
to have sold the Collateral not so transferred for purposes of this covenant,
and shall comply with the provisions of this covenant with respect to such
deemed sale as if it were an Asset Sale. In addition, the Fair Market Value of
such Property of the Company or its Subsidiaries deemed to be sold shall be
deemed to be Net Proceeds for purposes of this Section 4.10.
SECTION 4.11. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
34
<PAGE>
The Company 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 the Company 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 the Company or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction with an unrelated Person and (ii) the Company delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions after the Amendment Effective Date involving aggregate
consideration in excess of US$2,000,000 (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 the Company and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions after the
Amendment Effective Date involving aggregate consideration in excess of
US$5,000,000 (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 in Brazil; PROVIDED that (1) any
transaction with an officer or director of the Company or any Restricted
Subsidiary (in connection with such person's compensation, employee benefit or
severance arrangements) entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and customary in the industry of
the Company or such Restricted Subsidiary, (2) transactions between or among the
Company and its Restricted Subsidiaries, (3) the Programming Agreement, (4) any
Operating Agreement that contains terms and conditions substantially the same as
the Master Operating Agreement dated July 24, 1996 between the Company and TV
Filme Servicos, and (5) Restricted Payments and Permitted Investments that are
permitted under Section 4.7, in each case, will not be deemed Affiliate
Transactions.
SECTION 4.12. LIMITATION ON LIENS.
The Company will not, and will not permit any of its Restricted
Subsidiaries 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, except for Liens securing any senior secured
Indebtedness incurred pursuant to clause (i) of Section 4.9(b), PROVIDED that no
such Lien shall be senior to the Liens on the Collateral granted to the Trustee
under the Security Documents; PROVIDED, HOWEVER, that the foregoing will not
prohibit or restrict Permitted Liens.
SECTION 4.13. GUARANTORS.
(a) If at any time on or after the Amendment Effective Date, and at any
time that any of the Obligations remain outstanding, the Company or any
Restricted Subsidiary establishes or creates a Restricted Subsidiary and either
the Company elects to have such Restricted Subsidiary become a Guarantor or the
establishment or creation of such Restricted Subsidiary would be a Restricted
Investment unless it becomes a Guarantor, then the Company (or the Restricted
Subsidiary directly owning Capital Stock of such other Restricted Subsidiary)
shall (i) cause each such Restricted Subsidiary to execute and deliver to the
Trustee a supplemental indenture pursuant to which each such Restricted
Subsidiary shall guarantee the Obligations of the Company on a senior basis
together with an opinion of counsel (which counsel may be an employee of the
Company) to the effect that the supplemental indenture has been duly executed
and delivered by each such Restricted Subsidiary and is in compliance in all
material respects with the terms of this Indenture, (ii) cause such Restricted
Subsidiary to execute and deliver to the Trustee such Security Documents, and do
all other acts and things, as may be required to convey to the Trustee a first
priority security interest in all property of such Restricted Subsidiary
included within the definition of "Collateral" herein, and (iii) deliver to the
Trustee for the benefit of the Holders the stock certificates representing the
Capital Stock of any such Restricted Subsidiary, together with stock powers with
respect to such Capital Stock in blank.
(b) The Company will not permit any Restricted Subsidiary that is a
Guarantor to issue or sell any Capital Stock other than to the Company or a
Restricted Subsidiary, (i) if such issuance or sale could adversely affect or
impair the legality or enforceability of, or the ability of the Trustee to
realize upon, the Guarantee granted by such Restricted Subsidiary hereunder;
35
<PAGE>
(ii) if such issuance or sale would result in any Person or Persons (other than
the Company or a Restricted Subsidiary), directly or indirectly, owning or
controlling 15% or more of the Capital Stock of any Restricted Subsidiary that
is a Guarantor; PROVIDED, HOWEVER, that any sale of 100% of the shares of
Capital Stock of any Restricted Subsidiary that is a Guarantor effected in
accordance with Section 4.10 or Section 5.1 shall be permitted; and (iii) unless
such Restricted Subsidiary receives the Fair Market Value for such Capital
Stock.
SECTION 4.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the Company will make an
offer (a "Change of Control Offer") to repurchase all or any part (equal to
US$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, if any, thereon to the date of repurchase (the
"Change of Control Payment"). Within 30 calendar days following any Change of
Control, the Company 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 this Indenture and described in
such notice. The Company 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. The Change of
Control provisions described in this Section 4.14 will be applicable whether or
not any other provisions of this Indenture are applicable.
(b) Notice of a Change of Control Offer will be mailed by the Company, with
a copy to the Trustee, or, at the Company's option, by the Trustee (at the
Company's expense) not more than 30 calendar days after the Change of Control to
each Holder of the Notes at such Holder's last registered address appearing in
the Register. In such notice, the Company will describe the transaction that
constitutes the Change of Control and offer to repurchase Notes pursuant to the
procedures established by this Section 4.14 and described in such notice. The
notice will contain all instructions and materials necessary to enable Holders
to tender Notes pursuant to the Change of Control Offer. In addition, the notice
will state: (i) that the Change of Control Offer is being made pursuant to this
Section 4.14 and that all Notes tendered will be accepted for payment; (ii) the
Change of Control Payment and the purchase date, which will be no sooner than 60
nor later than 90 calendar days after the Change of Control (the "Change of
Control Payment Date"); (iii) that any Note not tendered will continue to accrue
interest; (iv) that, unless the Company defaults in the payment of the Change of
Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest after the Change of Control Payment
Date; (v) that Holders electing to have any Notes purchased pursuant to a Change
of Control Offer will be required to deliver the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed, or
transfer by book-entry transfer, to the Company, the Depository (if appointed by
the Company), or the Paying Agent at the address specified in the notice prior
to the close of business on the third Business Day preceding the Change of
Control Payment Date; (vi) that Holders will be entitled to withdraw their
election if the Company, the Depository or the Paying Agent, as the case may be,
receives, not later than the close of business on the third Business Day
preceding the Change of Control Payment Date, a telegram, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of Notes
delivered for purchase, and a statement that such Holder is withdrawing his
election to have the Notes purchased; and (vii) that Holders whose Notes are
being purchased only in part will be issued new Notes equal in principal amount
to the unpurchased portion of the Notes surrendered (or transferred by
book-entry transfer), which unpurchased portion must be equal to at least
US$1,000 in principal amount or an integral multiple thereof.
(c) On the Change of Control Payment Date, the Company will (i) accept for
payment Notes or portions thereof validly tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent money in immediately available
funds sufficient to pay the purchase price of all Notes or portions thereof so
accepted, and (iii) deliver to the Trustee Notes so accepted together with an
Officers' Certificate stating the Notes or portions thereof accepted for payment
by the Company. If the Company complies with its obligations set forth in the
immediately preceding sentence, whether or not a Default or Event of Default has
occurred and is continuing on the Change of Control Payment Date, the Paying
Agent will as promptly as practicable mail or deliver to each Holder of Notes so
accepted payment in an amount equal to the purchase price, and the Company will
execute and the Trustee will as promptly as practicable authenticate and mail or
deliver to such Holder a new Note equal in principal amount to any unpurchased
portion of the Note surrendered; PROVIDED that each such new Note will be in a
36
<PAGE>
principal amount of US$1,000 or an integral multiple thereof. Any Notes not so
accepted will be as promptly as practicable mailed or delivered by the Trustee
to the Holders thereof. The Company will publicly announce the results of the
Change of Control Offer on or as promptly as practicable after the Change of
Control Payment Date. For purposes of this Section 4.14, the Trustee will act as
the Paying Agent.
(d) Prior to complying with the other provisions of this Section 4.14, but
in any event within 90 calendar days following a Change of Control, the Company
will either repay all outstanding Indebtedness or obtain the requisite consents,
if any, under all agreements governing outstanding Indebtedness to permit the
repurchase of Notes required by this Section 4.14.
(e) The Company 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 this Indenture applicable to a Change of Control Offer made by the Company
and purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
SECTION 4.15. CORPORATE EXISTENCE.
Except as otherwise permitted pursuant to the terms hereof, the Company
will do or cause to be done all things necessary to preserve and keep in full
force and effect (i) its corporate existence, and the corporate, partnership or
other existence of each of its Restricted Subsidiaries in accordance with their
respective organizational documents (as the same may be amended from time to
time), and (ii) the material rights (charter and statutory), licenses and
franchises of the Company and each of its Restricted Subsidiaries; PROVIDED,
HOWEVER, that the Company will not be required to preserve any such right,
license or franchise belonging to it or any of its Restricted Subsidiaries, or
the corporate, partnership or other existence of any of its Restricted
Subsidiaries, if the Board of Directors of the Company determines that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Subsidiaries, taken as a whole, and that the loss thereof
would not reasonably be expected to be adverse in any material respect to the
Holders of the Notes.
SECTION 4.16. LIMITATION ON ASSET SWAPS.
The Company 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) the respective Fair Market Values of the assets being purchased and
sold by the Company or any of its Restricted Subsidiaries are
substantially the same at the time of entering into the agreement to
swap assets; and
(iii)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 the Company and its Restricted Subsidiaries
will not be significantly greater than the percentage of any decline
in the Fair Market Value of the assets being disposed of by the
Company or its Restricted Subsidiaries, calculated from the time the
agreement to swap assets was entered into.
SECTION 4.17. LIMITATION ON SALE LEASEBACK TRANSACTIONS.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; PROVIDED that
the Company may enter into a sale and leaseback transaction if the Company could
have (i) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction and (ii) incurred a Lien to
secure such Indebtedness pursuant to Section 4.12.
37
<PAGE>
SECTION 4.18. MAINTENANCE OF BUSINESS, PROPERTIES AND INSURANCE.
(a) The Company 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.
(b) The Company shall, and shall cause each of the Restricted Subsidiaries
to, maintain its material properties in good working order and condition
(subject to ordinary wear and tear) and make all reasonably necessary repairs,
renewals, replacements, additions, betterments and improvements thereto to
actively conduct and carry on its business; PROVIDED, HOWEVER, that nothing in
this Section 4.18 shall prevent the Company or any of the Restricted
Subsidiaries from discontinuing the operation and maintenance of any of its
properties, if such discontinuance is, in the good faith judgment of the Board
of Directors of the Company or such Restricted Subsidiary, as the case may be,
desirable in the conduct of their respective businesses and is not
disadvantageous in any material respect to the Holders as determined by the
Board of Directors of the Company.
(c) The Company shall provide or cause to be provided, for itself and each
of its Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the good faith judgment of the
Board of Directors of the Company, are adequate and appropriate for the conduct
of the business of the Company and its Restricted Subsidiaries in a prudent
manner, with reputable insurers or with the government of Brazil or an agency or
instrumentality thereof, in such amounts, with such deductibles, and by such
methods as shall be customary, in the good faith judgment of the Board of
Directors of the Company, for companies in Brazil and for companies similarly
situated in the industry; PROVIDED, HOWEVER, that the Company shall provide or
cause to be provided, for itself and each of its Restricted Subsidiaries,
directors and officers liability insurance with reputable insurers.
(d) The Company shall, and shall cause each of its Restricted Subsidiaries
to comply with all Applicable Laws of any Authority except to the extent that
noncompliance could not, singly or in the aggregate, reasonably be expected to
have a material adverse effect on the business, properties, condition (financial
or otherwise) or prospects of the Company or its Restricted Subsidiaries, as
determined by the Board of Directors of the Company.
(e) The Company will not permit the Operating Agreement to terminate or be
modified in any way which prevents the Company and the Restricted Subsidiaries
from operating pay television systems relating to the Company's authorizations,
licenses or Permits.
SECTION 4.19. IMPAIRMENT OF SECURITY INTEREST.
Neither the Company nor any of its Subsidiaries will take or omit to take
any action which action or omission could reasonably be expected to have the
result of materially and adversely affecting or materially impairing the
security interests in favor of the Trustee, on behalf of itself and the Holders,
with respect to the Collateral. Neither the Company nor any of its Subsidiaries
will enter into any agreement or instrument that by its terms requires the Net
Proceeds received from any sale of Collateral to be applied to repay, redeem,
defease or otherwise acquire or retire any Indebtedness of any Person prior to
the repayment in full of the Notes, other than the Indebtedness permitted under
Section 4.9(b)(i) to the extent such repayment, redemption, defeasance,
acquisition or retirement is permitted under Section 4.10(b).
SECTION 4.20. PAYMENT OF ADDITIONAL AMOUNTS.
All payments by the Company in respect of the Notes or any Guarantor in
respect of its Guarantee of the Notes shall be made free and clear of and
without withholding or deduction for or on account of any present or future
taxes, duties, assessments or other governmental charges of whatever nature,
including penalties, interest and any other liabilities related thereto, imposed
or levied by or on behalf of Brazil or any relevant jurisdiction or any
political subdivision or authority thereof or therein having power to tax
("Taxes"). In the event that the Company or any Guarantor, as the case may be,
38
<PAGE>
is required to make any withholding or deduction for or on account of any Taxes
from any payment made under or with respect to the Notes, or its Guarantee, as
the case may be, the Company or any Guarantor, as the case may be, will pay such
additional amounts ("Additional Amounts") as may be necessary so that the net
amount received by each Holder (including Additional Amounts) after such
withholding or deduction will not be less than the amount the Holder would have
received had such Taxes not been withheld or deducted; PROVIDED, that no
Additional Amounts will be payable to a Holder (an "Excluded Holder") (i) with
which the Company or any Guarantor, as the case may be, does not deal at arm's
length at the time of making such payment, (ii) which is subject to such Taxes
by reason of its being connected with Brazil or any political subdivision or
authority thereof otherwise than by the mere holding of the Notes or the receipt
of payments thereunder, (iii) which presents any Note for payment of principal
more than 60 calendar days after the later of (x) the date on which payment
first became due and (y) if the full amount payable has not been received by the
Trustee on or prior to such due date, the date on which, the full amount payable
having been so received, notice to that effect shall have been given to the
Holders by the Company, except to the extent that the Holder would have been
entitled to such Additional Amounts on presenting such Note for payment on the
last day of the applicable 60-day period, (iv) which failed to duly and timely
comply with a timely request of the Company to provide information, documents or
other evidence concerning the Holder's nationality, residence, entitlement to
treaty benefits, identity or connection with Brazil or any political subdivision
or authority thereof, if and to the extent that due and timely compliance with
such request would have reduced or eliminated any Taxes as to which Additional
Amounts would have otherwise been payable to such Holder but for this clause
(iv), (v) on account of any estate, inheritance, gift, sale, transfer, personal
property or other similar Tax, (vi) which is a fiduciary, a partnership, or not
the beneficial owner of any payment on a Note, if and to the extent that any
beneficiary or settlor of such fiduciary, any partner in such partnership, or
the beneficial owner of such payment (as the case may be) would not have been
entitled to receive Additional Amounts with respect to such payment if such
beneficiary, settlor, partner or beneficial owner had been the Holder of such
Note or (vii) any combination of the foregoing numbered clauses of this proviso.
The Company or any Guarantor, as the case may be, will also (i) make such
withholding or deduction as required by applicable law and (ii) remit the full
amount deducted or withheld to the relevant authority in accordance with
applicable law. The Company or any Guarantor, as the case may be, will furnish,
within 60 calendar days after the date the payment of any Taxes is due pursuant
to applicable law, to the Trustee copies of tax receipts evidencing that such
payment has been made by the Company or such Guarantor, as the case may be, in
such form as provided in the normal course by the taxing authority imposing such
Taxes and as is reasonably available to the Company or such Guarantor, as the
case may be. The Trustee shall make such evidence available to the Holders of
Notes upon written request.
If the Company or any Guarantor, as the case may be, has paid any
Additional Amounts to any Holder or, if different, the beneficial owners of an
interest in any Note, and such person is entitled to a refund of the Taxes to
which such Additional Amounts are attributable from any competent taxation
authority or other governmental body, then (a) such person shall so notify the
Company or such Guarantor as promptly as practicable after learning of such
entitlement, and as soon as practicable but in any event within 30 calendar days
after receiving a written request therefor from the Company or such Guarantor,
as the case may be, comply with any administrative procedure to obtain such
refund and (b) upon receipt of such refund, promptly pay over such refund to the
Company or such Guarantor, as the case may be. If Additional Amounts are paid to
a Holder, or, if different, the beneficial owner of an interest in any Note, and
it is subsequently determined that such Person was not entitled to such
Additional Amounts, then such Person shall promptly refund to the Company or
such Guarantor, as the case may be, the amount of all such Additional Amounts
previously paid to such Person.
The Company will indemnify and hold harmless each Holder of Notes that are
outstanding on the date that withholding or deduction was required pursuant to
applicable law (other than an Excluded Holder) and upon written request
reimburse each such Holder for the amount of (i) any taxes so levied or imposed
and paid by such Holder as a result of payments made under or with respect to
the Notes or any Guarantee, as the case may be, (ii) any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto, and
(iii) any taxes imposed with respect to any reimbursement under clause (i) or
(ii) above.
39
<PAGE>
Whenever in this Indenture there is mentioned, in any context, (a) the
payment of principal (and premium, if any), (b) purchase prices in connection
with a repurchase of Notes, (c) interest or (d) any other amount payable on or
with respect to any of the Notes, such mention shall be deemed to include
mention of the payment of Additional Amounts provided for in this section to the
extent that, in such context, Additional Amounts are, were or would be payable
in respect thereof.
ARTICLE 5
SUCCESSORS
SECTION 5.1. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
(a) The Company may not consolidate or merge with or into (whether or not
the Company 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) the Company is the surviving entity or the entity or Person formed by
or surviving any such consolidation or merger (if other than the
Company) 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 Brazil;
(ii) the entity or Person formed by or surviving any such consolidation or
merger (if other than the Company) 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 the
Company under the Notes and this 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 the Company with or into a Wholly
Owned Restricted Subsidiary of the Company, the Company or the entity
or Person formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made will
(treating any Indebtedness not previously an obligation of the Company
or any of its Restricted Subsidiaries as a result of such transaction
as having been incurred at the time of such transaction) (A) have a
Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of the Company immediately
prior to the transaction and (B) be in compliance with the
Indebtedness limitation set forth in Section 4.9(b); and
(vi) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in form reasonably satisfactory
to the Trustee, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with this
Indenture.
(b) Subject to the provisions described in Section 5.1(e), 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 Guarantor) or the entity or Person to which
such sale, assignment, transfer, lease, conveyance or other
40
<PAGE>
disposition shall have been made assumes all the obligations of such
Guarantor under the Guarantee, in form satisfactory to the Trustee;
(ii) immediately after such transaction, no Default or Event of Default
exists;
(iii)the Company and its Restricted Subsidiaries will have a Consolidated
Net Worth immediately after such transaction equal to or greater than
the Consolidated Net Worth of the Company and its Restricted
Subsidiaries immediately preceding such transaction and be in
compliance with the Indebtedness limitation set forth in Section
4.9(b) (treating any Indebtedness not previously an obligation of the
Company or any of its Restricted Subsidiaries as a result of such
transaction as having been incurred at the time of such transaction);
(iv) the Company shall have delivered to the Trustee an Officers'
Certificate, and an Opinion of Counsel in form reasonably satisfactory
to the Trustee, each stating that such consolidation, merger or
transfer complies with this Indenture; and
(v) such Guarantor shall have delivered a written instrument in form
reasonably satisfactory to the Trustee confirming its 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 the Company, one or more
Guarantors or one or more Restricted Subsidiaries of the Company which become
Guarantors concurrently therewith.
(c) Notwithstanding Section 5.1(b), if no Default exists or would exist
under this Indenture, concurrently with any sale or disposition (by merger or
otherwise) of any Guarantor in accordance with the terms of this Indenture
(other than a transaction subject to the provisions of Section 5.1(b)) by the
Company or any of its Restricted Subsidiaries to any Person that is not an
Affiliate of the Company or any of its Restricted Subsidiaries, such Guarantor
will automatically and unconditionally be released from all obligations under
its Guarantee; PROVIDED, HOWEVER, that any such release will 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 the Company or any of its Restricted Subsidiaries will
also terminate upon such release, sale or transfer; and PROVIDED, further, that
the Company deposits the Net Proceeds of such Asset Sale in the Collateral
Account in accordance with Section 4.10.
(d) For purposes of this Section 5.1, 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 the Company or a Guarantor, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company or such Guarantor,
as the case may be, will be deemed to be the transfer of all or substantially
all of the properties and assets of the Company or such Guarantor, as the case
may be.
(e) Notwithstanding Section 5.1(a), any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to, the Company or another Restricted Subsidiary.
SECTION 5.2. SUCCESSOR COMPANY SUBSTITUTED.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company and its Restricted Subsidiaries taken as a
whole in accordance with Section 5.1, the successor corporation formed by such
consolidation or into which the Company or the Restricted Subsidiary is merged
or to which such transfer is made, will succeed to, and be substituted for, and
may exercise every right and power of the Company or the Restricted Subsidiary
under this Indenture with the same effect as if such successor corporation had
been named as the Company or the Restricted Subsidiary herein; and thereafter,
if the Company or the Restricted Subsidiary is dissolved following a transfer of
all or substantially all of its assets in accordance with this Indenture, the
Company or the Restricted Subsidiary will be discharged and released from all
obligations and covenants under this Indenture, the Security Documents and the
41
<PAGE>
Notes. The Trustee will enter into a supplemental indenture to evidence the
succession and substitution of such successor Person and such discharge and
release of the Company or the Restricted Subsidiary.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1. EVENTS OF DEFAULT.
An "Event of Default" occurs if one of the following shall have occurred
and be continuing:
(a) the Company defaults in the payment when due of any interest payable
with respect to the Notes at any time, which default continues for a period of
30 calendar days;
(b) the Company defaults in payment when due of the principal of or
premium, if any, on the Notes at maturity, upon repurchase (including, without
limitation, pursuant to a Change of Control Offer or an Asset Sale Offer), upon
acceleration, redemption or otherwise;
(c) the granting by the Company or any Restricted Subsidiary of any Lien to
secure Indebtedness in excess of US$100,000 (other than a Permitted Lien);
(d) the Company fails to comply with the provisions of Sections 4.10, 4.14,
4.19 or 5.1;
(e) the Company fails to comply with any of its other agreements in this
Indenture or the Notes and such failure continues for 30 calendar days after
notice from the Trustee or Holders of at least 25% in aggregate principal amount
of the Notes then outstanding;
(f) the Company defaults 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 of the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries), whether such Indebtedness or Guarantee now exists or
is created after the Amendment Effective Date, which default (i) 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 (ii) 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
US$5,000,000 (or the equivalent thereof at time of determination) or more;
(g) the Company or any of its Restricted Subsidiaries fails to pay final
non-appealable judgments rendered against the Company or any of its Restricted
Subsidiaries aggregating in excess of US$2,500,000 (or the equivalent thereof at
time of determination), which judgments are not paid, discharged or stayed for a
period of 60 calendar days after such judgments become final and non-appealable;
(h) the Company or any Restricted Subsidiary of the Company pursuant to or
within the meaning of any Bankruptcy Law: (i) commences a voluntary case or
proceeding, (ii) consents to the entry of an order for relief against it in an
involuntary case or proceeding, (iii) consents to the appointment of a Custodian
of it or for all or substantially all of its property, (iv) makes a general
assignment for the benefit of its creditors, (v) admits in writing its inability
to pay its debts generally as they become due or (vi) takes any comparable
action under any foreign laws relating to insolvency;
(i) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (i) is for relief against the Company or any Significant
Subsidiary of the Company in an involuntary case or proceeding, (ii) appoints a
42
<PAGE>
Custodian of the Company or any Significant Subsidiary of the Company or for all
or substantially all of its respective properties, or (iii) orders the
liquidation of the Company or any Significant Subsidiary of the Company, or any
similar relief is granted under any foreign laws, and in each case the order or
decree remains unstayed and in effect for 60 calendar days;
(j) (a) a default in the observance or performance of any covenant or
agreement contained in any Security Document which default continues for 20
calendar days after notice has been given to the Company by the Trustee or the
holders of at least 25% in principal amount of the outstanding Notes, or (b) for
any reason other than the satisfaction in full and discharge of all obligations
secured thereby or any action or inaction of the Trustee or the Holders after
receiving notice of the requirement to take any such action from the Company,
any of the Security Documents ceases to be in full force and effect (other than
in accordance with its respective terms), or any of the Security Documents
ceases to give the Trustee the Liens, rights, powers and privileges purported to
be created thereby, or any Security Document is declared null and void, or the
Company or any of its Restricted Subsidiaries denies any of its obligations
under any Security Document, in each case with respect to Collateral the
aggregate value of which is in excess of US$100,000, or the Collateral becomes
subject to one or more Liens other than Permitted Liens securing one or more
obligations in excess of US$100,000 in the aggregate; or
(k) any Guarantee is declared null and void or ceases to be in full force
and effect (except as permitted under this Indenture) or any Guarantor shall
deny or disaffirm its obligations under its Guarantee.
Notwithstanding the foregoing, if an Event of Default specified in clause
(f) above occurs and is continuing, such Event of Default and all consequences
thereof (including, without limitation, any acceleration or resulting payment
default) will be annulled and rescinded, automatically and without any action by
the Trustee or the Holders of the Notes, if (i) the Indebtedness that is the
subject of such Event of Default has been repaid, or (ii) the default relating
to such Indebtedness is waived or cured (and if such Indebtedness has been
accelerated, when the holders thereof have rescinded their declaration of
acceleration in respect of such Indebtedness).
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 the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of this Indenture, an equivalent premium will
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes.
SECTION 6.2. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
Section 6.1 (h) or (i)) occurs and is continuing, then the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes by
written notice to the Company and the Trustee may declare the unpaid principal
of, and any accrued interest on, all the Notes to be due and payable
immediately. If any Event of Default specified in Section 6.1(h) or (i) hereof
occurs with respect to the Company, any Significant Subsidiary of the Company or
any group of Restricted Subsidiaries of the Company that, taken together, would
constitute a Significant Subsidiary of the Company, all outstanding principal
and interest on the Notes will be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder. The Holders
of a majority in principal amount of the Notes then outstanding, by written
notice to the Trustee and to the Company, may rescind an acceleration (except an
acceleration due to a default in payment of the principal of, or premium or
interest on, any of the Notes) if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal, premium, interest that have become due solely because of the
acceleration) have been cured or waived.
SECTION 6.3. OTHER REMEDIES.
Subject to Section 6.2, if an Event of Default occurs and is continuing,
the Trustee may pursue any available remedy by proceeding at law or in equity to
collect any payment due on the Notes or to enforce the performance of any
provision of the Notes, this Indenture or the Security Documents.
43
<PAGE>
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Holder of a Note in exercising any right or remedy
accruing upon an Event of Default will not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.4. WAIVER OF PAST DEFAULTS.
Subject to Section 9.2, Holders of a majority in aggregate principal amount
of the then outstanding Notes by notice to the Trustee may, on behalf of the
Holders of all of the Notes, waive an existing Default or Event of Default and
its consequences hereunder (including without limitation acceleration and its
consequences, including any related payment default that resulted from such
acceleration) except a continuing Default or Event of Default in the payment of
the principal of, or premium or interest on the Notes. Upon any such waiver,
such Default will cease to exist, and any Event of Default arising therefrom
will be deemed to have been cured for every purpose of this Indenture; but no
such waiver will extend to any subsequent or other Default or impair any right
consequent thereon.
SECTION 6.5. CONTROL BY MAJORITY.
The Holders of a majority in aggregate principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with law or this Indenture or that the Trustee determines may be
unduly prejudicial to the rights of another Holder or that involves the Trustee
in personal liability. The Trustee may take any other action deemed proper by
the Trustee that is not inconsistent with such direction.
SECTION 6.6. LIMITATION ON SUITS.
Subject to the provisions of Section 6.7 hereof, no Holder of a Note may
pursue any remedy with respect to this Indenture or the Notes (including,
without limitation, the institution of any proceeding, judicial or otherwise,
with respect to the Notes or this Indenture or for the appointment of a receiver
or trustee for the Company and/or any of its Subsidiaries) unless:
(a) the Holder has given to the Trustee written notice of a continuing
Event of Default;
(b) the Holders of at least 25% in aggregate principal amount of the Notes
then outstanding have made a written request to the Trustee to pursue the
remedy;
(c) such Holders have offered to provide to the Trustee indemnity
reasonably satisfactory to the Trustee against any loss, liability or expense;
(d) the Trustee has not complied with the request within 60 calendar days
after receipt of the request and the offer of indemnity; and
(e) during such 60-day period, the Holders of a majority in aggregate
principal amount of the Notes then outstanding have not given the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
44
<PAGE>
SECTION 6.7. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
The right of any Holder of a Note to receive payment of principal of, and
premium, if any, or interest on, such Note, on or after the respective due dates
expressed in such Note (including in the case of a redemption, the applicable
redemption price on the applicable redemption date), or to bring suit for the
enforcement of any such payment on or after such respective dates, will not be
impaired or affected without the consent of such Holder.
SECTION 6.8. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.1(a) or (b) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company for principal of, premium, if
any, and interest on, the Notes and interest on overdue principal and, to the
extent lawful, interest, and such further amount as will be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel and
any other amounts due to the Trustee under Section 7.7.
SECTION 6.9. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and will be
entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.7 hereof. To the extent that the payment of any such reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same will be secured by a Lien on, and will be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained will be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article 6, it will pay
out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.7 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for
principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Notes for
principal, premium, if any, and interest, respectively; and
Third: the remainder to the Company or to such party as a court of
competent jurisdiction may direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
45
<PAGE>
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, each party to this Indenture agrees, and each Holder by its acceptance
of its Notes will be deemed to have agreed, that any court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder of a Note pursuant to Section 6.7 hereof, or a suit
by Holders of more than 10% in principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.1. DUTIES OF TRUSTEE.
(a) If a Default or an Event of Default has occurred and is continuing, the
Trustee will exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent Person would exercise or use under the circumstances in the conduct of
its own affairs.
(b) Except during the continuance of a Default or an Event of Default:
(i) the Trustee will not be liable hereunder except for such duties
of the Trustee which will be determined solely by the express
provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture
and no others, and no implied covenants or obligations will be
read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon Officers'
Certificates or Opinions of Counsel furnished to the Trustee and
conforming to the requirements of this Indenture. However, the
Trustee will examine the certificates and opinions to determine
whether or not such documents conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee will not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii)the Trustee will not be liable with respect to any action it
takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.5 hereof.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b) and (c) of this Section 7.1.
(e) No provision of this Indenture will require the Trustee to expend or
risk its own funds or incur any liability whatsoever in the performance of any
of its duties hereunder or in the exercise of any of its rights or powers
hereunder. The Trustee will be under no obligation to exercise any of its rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders, unless such Holders shall have offered to the Trustee security and
indemnity satisfactory to the Trustee in its sole subjective discretion (which
discretion will be exercised in good faith) against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.
46
<PAGE>
(f) The Trustee will not be liable for interest on any money received by it
except as the Trustee may agree in writing with the Company. Money held in trust
by the Trustee need not be segregated from other funds except to the extent
required by law.
(g) In the event the Company incurs senior secured Indebtedness pursuant to
clause (i) of Section 4.9(b), the Trustee shall, and the Holders shall be deemed
to have authorized the Trustee to, enter into appropriate intercreditor
agreements providing for the ratable sharing of the Collateral between the
holders of senior secured Indebtedness and the Trustee for the benefit of the
Holders of the Notes and otherwise giving effect to the provisions of clause (i)
of Section 4.9(b). For this purpose, the Trustee may consult with counsel and
rely on Opinions of Counsel and Officers' Certificates.
SECTION 7.2. RIGHTS OF TRUSTEE.
(a) Subject to Section 7.1, the Trustee may conclusively rely upon any
document believed by it to be genuine and to have been signed or presented by
the proper Person. The Trustee need not investigate any fact or matter stated in
the document.
(b) Before the Trustee acts or refrains from acting, it may consult with
counsel and require an Officers' Certificate or an Opinion of Counsel or both.
The Trustee will not be liable for any action it takes or omits to take in good
faith in reliance on such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through its attorneys and agents and will not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee will not be liable for any action it takes or omits to take
in good faith that it believes in its sole subjective discretion (which
discretion will be exercised in good faith) to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) The permissive right of the Trustee to act hereunder will not be
construed as a duty.
(f) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company will be sufficient if signed by an
authorized Officer of the Company.
(g) The Trustee will be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders, unless such Holders shall have offered to the Trustee security or
indemnity satisfactory to the Trustee in its sole subjective discretion (which
discretion will be exercised in good faith) against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.
(h) The Trustee will not be required to take notice or deemed to have
notice of any Event of Default hereunder, except failure by the Company to make
any of the payments to the Trustee pursuant to Section 6.1(a) or (b), unless the
Trustee shall be specifically notified in writing of such Event of Default by
the Company or by one or more of the Holders.
SECTION 7.3. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Company or any Affiliate of the
Company with the same rights it would have if it were not Trustee. However, in
the event that the Trustee acquires any conflicting interest (as such term is
defined in TIA Section 310(b)), it must eliminate such conflict within 90
calendar days, apply to the SEC for permission to continue as trustee (to the
extent permitted under TIA Section 310(b)) or resign. Any Agent may do the same
with like rights and duties. The Trustee is also subject to Sections 7.10 and
7.11 hereof.
47
<PAGE>
SECTION 7.4. TRUSTEE'S DISCLAIMER.
The Trustee will not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes, it will not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it will not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it will not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
SECTION 7.5. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee will mail to Holders of Notes a notice of the
Default or Event of Default within 90 calendar days after such event occurs.
Except in the case of a Default or Event of Default under Section 6.1(a) or (b)
(including, without limitation, the payment of the Change of Control Payment on
the Change of Control Payment Date, the payment of the applicable redemption
price on the redemption date and the payment of the Net Proceeds Offer Price on
the Net Proceeds Purchase Date), the Trustee may withhold such notice if it
determines that withholding the notice is in the interests of the Holders of the
Notes.
SECTION 7.6. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 calendar days after each July 31 beginning with the July 31
following the Amendment Effective Date, and for so long as Notes remain
outstanding, the Trustee will mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if no
event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
will comply with TIA Section 313(b)(2). The Trustee will also transmit by mail
all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of Notes
will be mailed to the Company and filed with the SEC and each stock exchange, if
any, on which the Notes are listed in accordance with and to the extent required
by TIA Section 313(d). The Company will promptly notify the Trustee if the Notes
become listed on any stock exchange or automatic quotation system.
SECTION 7.7. COMPENSATION AND INDEMNITY.
Absent any other agreement to the contrary, the Company will pay to the
Trustee from time to time compensation as may be agreed upon between the Company
and the Trustee for its acceptance of this Indenture and services hereunder. The
Trustee's compensation will not be limited by any law on compensation of a
trustee of an express trust. The Company will reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses will
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company will indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.7) and defending itself against any claim (whether asserted by
the Company or any Holder or any other Person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its gross
negligence or bad faith. The Trustee will promptly notify the Company of any
claim for which it may seek indemnity. The Company will defend the claim and the
Trustee will cooperate in the defense. The Trustee may have separate counsel and
the Company will pay the reasonable fees and expenses of such counsel; PROVIDED
48
<PAGE>
that the Company will not be required to pay such fees and expenses if it
assumes the Trustee's defense with counsel acceptable to and approved by the
Trustee (such approval not to be unreasonably withheld) and there is no conflict
of interest between the Company and the Trustee in connection with such defense.
The Company need not pay for any settlement made without its written consent,
which consent will not be unreasonably withheld. The Company need not reimburse
the Trustee for any expense or indemnity against any liability or loss of the
Trustee to the extent such expense, liability or loss is attributable to the
gross negligence, bad faith or willful misconduct of the Trustee.
The obligations of the Company under this Section 7.7 will survive the
satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the Trustee
will have a Lien prior to the Notes on all money or property held or collected
by the Trustee, except that held in trust to pay principal and interest on
particular Notes. Such Lien will survive the satisfaction and discharge of this
Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(h) or (i) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee will comply with the provisions of TIA Section 313(b)(2) .
SECTION 7.8. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee will become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing upon 60 calendar days notice and be
discharged from the trust hereby created by so notifying the Company in writing.
The Holders of a majority in principal amount of the then outstanding Notes may
remove the Trustee by so notifying the Trustee and the Company in writing and
may appoint a successor trustee with the consent of the Company. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a receiver, Custodian or public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company will promptly appoint or request the
Trustee to appoint a successor Trustee. Within one year after the successor
Trustee takes office, the Holders of a majority in principal amount of the then
outstanding Notes may appoint a successor Trustee to replace the successor
Trustee appointed by the Company.
If a successor Trustee does not take office within 60 calendar days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company,
or the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Note who has been
a Holder of a Note for at least six months, fails to comply with Section 7.10,
such Holder may petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor Trustee.
49
<PAGE>
A successor Trustee will deliver a written acceptance of its appointment to
the retiring Trustee and to the Company. Thereupon, the resignation or removal
of the retiring Trustee will become effective, and the successor Trustee will
have all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee will mail a notice of its succession to Holders of the Notes.
The retiring Trustee will promptly transfer all property held by it as Trustee
to the successor Trustee, provided all sums owing to the Trustee hereunder have
been paid and subject to the Lien provided for in Section 7.7 hereof.
Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the
Company's obligations under Section 7.7 hereof will continue for the benefit of
the retiring Trustee.
SECTION 7.9. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
resulting, surviving or transferee corporation without any further act will, if
the resulting, surviving or transferee corporation is otherwise eligible
hereunder, be the successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There will at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least
US$100,000,000 as set forth in its most recent published annual report of
condition.
This Indenture will always have a Trustee who satisfies the requirements of
TIA Section 310(a) (1), (2) and (5). The Trustee shall comply with TIA Section
310(b) .
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed will be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8
DEFEASANCE AND DISCHARGE
SECTION 8.1. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.2 or 8.3 hereof applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.
50
<PAGE>
SECTION 8.2. LEGAL DEFEASANCE.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, the Company will, subject to the satisfaction of
the conditions set forth in Section 8.4 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company will be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which will thereafter be deemed to be "outstanding" only for
the purposes of Section 8.6 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, will execute proper instruments acknowledging
the same), except for the following provisions which will survive until
otherwise terminated or discharged pursuant to this Indenture: (a) the rights of
Holders of outstanding Notes to receive solely from the trust fund described in
Section 8.4 hereof, and as more fully set forth in such Section, payments in
respect of the principal of, and premium, if any, and interest on, such Notes
when such payments are due, (b) the Company's obligations with respect to such
Notes under Article 2 and, to the extent such obligations are not satisfied by
payment from such trust fund, Section 4.1 hereof, (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith and (d) this Article 8. Subject to
compliance with this Article 8, the Company may exercise its option under this
Section 8.2 notwithstanding the prior exercise of its option under Section 8.3
hereof.
SECTION 8.3. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, and subject to the satisfaction of the
conditions set forth in Section 8.4 hereof, the Company will be released from
its obligations under the covenants contained in Sections 4.3, 4.4, 4.5, 4.7,
4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16, 4.17, 4.18, 4.19, 4.20, 5.1, and
5.2 with respect to the outstanding Notes on and after the date the conditions
set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the
Notes will thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but will
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes will not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to the
outstanding Notes, the Company need not comply with and will have no liability
in respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply will
not constitute a Default or an Event of Default under Section 6.1 hereof, but,
except as specified above, the remainder of this Indenture and such Notes will
be unaffected thereby. In addition, upon the Company's exercise under Section
8.1 hereof of the option applicable to this Section 8.3 hereof, subject to the
satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(d),
(f) and (g) hereof will not constitute Events of Default.
SECTION 8.4. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
In order to exercise either Legal Defeasance or Covenant Defeasance, the
Company must irrevocably deposit, or cause to be deposited, with the Trustee (or
another trustee satisfying the requirements of this Indenture), in trust for
such purpose, (1) money in an amount, (2) non-callable Government Securities
which through the scheduled payment of principal, interest and premium, if any,
in respect thereof in accordance with their terms will provide not later than
one day before the due date of any payment money in an amount, or (3) a
combination thereof, sufficient, without reinvestment, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay the principal of,
and premium, if any, and interest on, the outstanding Notes at maturity or upon
redemption, together with all other amounts payable by the Company under this
Indenture. Such Legal Defeasance or Covenant Defeasance will become effective
123 calendar days after such deposit if and only if:
(i) no Default or Event of Default with respect to the Notes shall
have occurred and be continuing immediately prior to the time of such
deposit;
51
<PAGE>
(ii) no Default or Event of Default pursuant to Section 6.1(h) or
6.1(i) shall have occurred at any time in the period ending on the
123rd day after the date of such deposit and will be continuing on such
123rd day;
(iii) such defeasance does not result in a breach or violation of,
or constitute a default under, any other material agreement or
instrument to which the Company is a party or by which it is bound
(and, in furtherance of such condition, no Default or Event of Default
will result under this Indenture due to the incurrence of Indebtedness
to fund such deposit and the entering into of customary documentation
in connection therewith, even though such documentation may contain
provisions that would otherwise give rise to a Default or Event of
Default); and
(iv) the Company has delivered to the Trustee (A) (1) in the case
of Legal Defeasance, an Opinion of Counsel to the effect that (x) there
has been published by the Internal Revenue Service a ruling or (y)
since the Amendment Effective Date, 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 will confirm that, the
Holders of the 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, or (2) in the case of Covenant Defeasance,
an Opinion of Counsel to the effect that the Holders of the 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 amount, in the same manner and at the same times
as would have been the case if such Covenant Defeasance had not
occurred; (B) an Opinion of Counsel to the effect that after the 123rd
day after the date of such deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally; (C) an Officers'
Certificate stating that such deposit was not made by the Company with
the intent of preferring the Holders of Notes over the other creditors
of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (D) an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent relating to such Legal Defeasance or Covenant Defeasance have
been complied with.
SECTION 8.5. DISCHARGE.
If (i) either (a) all such Notes theretofore authenticated and delivered
except lost, stolen or destroyed Notes that have been replaced or paid and Notes
for whose payment money has theretofore been deposited in trust with the Trustee
and thereafter repaid to the Company or discharged from such trust) have been
delivered to the Trustee for cancellation; or (b) all such Notes not heretofore
delivered to the Trustee for cancellation have become due and payable by their
terms and the Company 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 the Company directing the Trustee to apply such funds to the
payment thereof; (ii) the Company has paid all other sums payable by it under
this Indenture; and (iii) the Company has delivered irrevocable instructions to
the Trustee to apply the deposited money toward the payment of the Notes (except
lost, stolen or destroyed Notes that have been replaced or paid and Notes for
whose payment money has been theretofore deposited in trust with the Trustee and
thereafter repaid to the Company or discharged from such trust) at maturity, as
the case may be, then this Indenture will cease to be of further force or effect
and, at the written request of the Company, accompanied by an Officers'
Certificate and Opinion of Counsel, each stating that all conditions precedent
provided for herein relating to the satisfaction and discharge of this Indenture
have been complied with, and upon payment of the costs, charges and expenses
incurred or to be incurred by the Trustee in relation thereto or in carrying out
the provisions of this Indenture, the Trustee will satisfy and discharge this
Indenture ("Discharge"); PROVIDED that the Company's obligations with respect to
the payment of principal, premium, if any, and interest will not terminate until
the Trustee shall apply the moneys so deposited to the payment to the Holders of
Notes of all sums due and to become due thereon.
52
<PAGE>
SECTION 8.6. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.7 hereof, all money and Government Securities
(including the proceeds thereof) deposited with the Trustee (or other qualifying
trustee, collectively for purposes of this Section 8.6, the "Trustee") pursuant
to Section 8.4 or 8.5 hereof in respect of the outstanding Notes will be held in
trust and applied by the Trustee, in accordance with the provisions of such
Notes and this Indenture, to the payment, either directly or through any Paying
Agent (including the Company or any of its Subsidiaries or Affiliates acting as
Paying Agent) as the Trustee may determine, to the Holders of such Notes of all
sums due and to become due thereon in respect of principal, premium, if any, and
interest but such money need not be segregated from other funds except to the
extent required by law.
The Company will pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the money or Government Securities
deposited pursuant to this Section 8.6 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
will deliver or pay to the Company from time to time upon the request of the
Company any money or Government Securities held by it as provided in this
Section 8.6 which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 8.4 hereof), are in
excess of the amount thereof that would then be required to be deposited to
effect an equivalent Legal Defeasance, Covenant Defeasance or Discharge.
SECTION 8.7. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company or any of its Subsidiaries or Affiliates, in trust for the payment
of the principal of, or premium, if any, or interest on, any Note and remaining
unclaimed for one year after such principal, premium, if any, or interest has
become due and payable will be paid to the Company on its request or (if then
held by the Company or any of its subsidiaries or Affiliates) will be discharged
from such trust; and the Holder of such Note will thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company or any of its Subsidiaries or Affiliates as
trustee thereof, will thereupon cease; PROVIDED, HOWEVER, that the Trustee or
such Paying Agent, before being required to make any such repayment, shall, at
the pre-paid expense of the Company, cause to be published once, in The New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which will not be
less than 30 calendar days from the date of such notification or publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.
SECTION 8.8. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States dollars
or Government Securities in accordance with Section 8.2, 8.3 or 8.5 hereof, as
the case may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Company's obligations under this Indenture and the Notes will be revived and
reinstated as though no deposit had occurred pursuant to Section 8.2, 8.3 or 8.5
hereof until such time as the Trustee or Paying Agent is permitted to apply all
such assets in accordance with Section 8.2, 8.3 or 8.5 hereof, as the case may
be; PROVIDED, HOWEVER, that, if the Company makes any payment of principal of,
or premium, if any, or interest on, any Note following the reinstatement of its
obligations, the Company will be subrogated to the rights of the Holders of such
Notes to receive such payment from the money or Government Securities held by
the Trustee or Paying Agent.
53
<PAGE>
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.1. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.2 of this Indenture, the Company and the Trustee
may amend or supplement this Indenture, the Security Documents or the Guarantees
without the consent of any Holder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
Certificated Notes;
(c) to provide for the assumption of the Company's obligations to the
Holders of Notes in the case of a merger or consolidation pursuant to Article 5
hereof;
(d) to make any change that would provide any additional rights or benefits
to the Holders of the Notes or that does not adversely affect the legal rights
hereunder of any such Holder; or
(e) to comply with requirements of the SEC in order to effect or maintain
the qualification of this Indenture under the TIA as then in effect.
Upon the request of the Company accompanied by a resolution of its Board of
Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in Section
7.2 hereof, the Trustee will join with the Company in the execution of any
amended or supplemental Indenture authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations that
may be therein contained.
SECTION 9.2. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided in Section 9.1 and in this Section 9.2, this Indenture,
the Notes, the Security Documents or the Guarantees may be amended or
supplemented by the Company, each Guarantor, 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, subject to
Sections 6.4 and 6.7 and the second to last paragraph of Section 6.1, any
existing Default, Event of Default (other than a Default or Event of Default in
the payment of principal of, premium, if any, or interest on, the Notes, except
a payment default resulting from an acceleration that has been rescinded) or
non-compliance with any provision of this Indenture, the Notes, the Security
Documents or the 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 a tender offer or exchange offer
for, the Notes).
Upon the request of the Company accompanied by a resolution of its Board of
Directors authorizing the execution of any such amended or supplemental
Indenture (or amendment or supplement to the Security Documents or the
Guarantees, as the case may be), and upon the filing with the Trustee of
evidence satisfactory to the Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Trustee of the documents described in Section
7.2 hereof, the Trustee will join with the Company in the execution of such
amended or supplemental Indenture (or amendment or supplement to the Security
Documents or the Guarantees, as the case may be), and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee will not be obligated to enter into such amended or supplemental
Indenture or any other document in connection with this Indenture that adversely
affects its own rights, duties, liabilities or immunities under this Indenture
or otherwise.
It will not be necessary for the consent of the Holders of Notes under this
Section 9.2 to approve the particular form of any proposed amendment or waiver,
but it will be sufficient if such consent approves the substance thereof.
54
<PAGE>
After an amendment, supplement or waiver under this Section 9.2 becomes
effective, the Company will mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, will not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.4 and 6.7 hereof, the Holders of a
majority in principal amount of the Notes then outstanding may waive compliance
in a particular instance by the Company with any provision of this Indenture or
the Notes. However, without the consent of each Holder affected, an amendment or
waiver may not (with respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes (other than
provisions relating to Section 3.7);
(c) reduce the rate of or change the time for payment of interest on any
Note;
(d) 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 reduce the Change of Control Payment, the Net Proceeds Offer
Price or the applicable redemption price;
(e) make any Note payable in money other than that stated in the Notes;
(f) make any change in the provisions of this Indenture relating to waivers
of past Defaults or the rights of Holders of Notes to receive payments of
principal of, premium, if any, or interest on, the Notes;
(g) waive a redemption payment with respect to any Note (other than
provisions relating to Section 3.7);
(h) release any Collateral from the Lien created by the Security Documents,
except in accordance with the terms thereof, or amend such terms; or
(i) make any change in the foregoing amendment and waiver provisions.
SECTION 9.3. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes will be set
forth in an amended or supplemental Indenture that complies with the TIA as then
in effect.
SECTION 9.4. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder of a Note is a continuing consent by the Holder of a Note and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder of a Note or subsequent Holder of a Note may
revoke the consent as to its Note if the Trustee receives written notice of
revocation before the date the waiver, supplement or amendment has been approved
by the requisite Holders. An amendment, supplement or waiver becomes effective
when approved by the requisite Holders and executed by the Trustee (or, if
otherwise provided in such waiver, supplement or amendment, in accordance with
its terms) and thereafter binds every Holder.
The Company may, but will not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the last
sentence of the immediately preceding paragraph, those Persons who were Holders
at such record date (or their duly designated proxies), and only those Persons,
will be entitled to consent to such amendment or waiver or revoke any consent
55
<PAGE>
previously given, whether or not such Persons continue to be Holders after such
record date. No consent will be valid or effective for more than 90 calendar
days after such record date except to the extent that the requisite number of
consents to the amendment, supplement or waiver have been obtained within such
90-day period or as set forth in the next paragraph of this Section 9.4.
After an amendment, supplement or waiver becomes effective, it will bind
every Holder, unless it makes a change described in any of clauses (a) through
(i) of Section 9.2, in which case, the amendment, supplement or waiver will bind
only each Holder of a Note who has consented to it and every subsequent Holder
of a Note or portion of a Note that evidences the same indebtedness as the
consenting Holder's Note, PROVIDED that any such waiver shall not impair or
affect the right of any other Holder to receive payment of principal, premium,
or interest on a Note, on or after the respective dates set for such amounts to
become due and payable expressed in such Note, or to bring suit for the
enforcement of any such payment on or after such respective dates.
SECTION 9.5. NOTATION ON OR EXCHANGE OF NOTES.
If an amendment, supplement or waiver changes the terms of a Note, the
Trustee may require the Holder of the Note to deliver it to the Trustee or
require the Holder to put an appropriate notation on the Note. The Trustee may
place an appropriate notation on the Note about the changed terms and return it
to the Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Note will issue and the Trustee will authenticate a
new Note that reflects the changed terms. Any failure to make the appropriate
notation or to issue a new Note shall not affect the validity of such amendment,
supplement or waiver.
SECTION 9.6. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee will sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. In
executing any amended or supplemental indenture, the Trustee will be entitled to
receive and (subject to Section 7.1) will be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel to the effect that the execution
of such amended or supplemental indenture is authorized or permitted by this
Indenture.
SECTION 9.7. PAYMENTS FOR CONSENT.
The Company will not, and will not permit any of its 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 terms or provisions of
this Indenture, the Notes, the Security Documents or the 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 solicitation
documents relating to such consent, waiver or agreement.
ARTICLE 10
COLLATERAL AND SECURITY
SECTION 10.1. SECURITY DOCUMENTS.
The due and punctual payment of the principal and premium, if any, of, and
interest on, the Notes when and as the same shall be due and payable, whether on
an Interest Payment Date, at maturity, by acceleration, repurchase, redemption
or otherwise, interest on the overdue principal of and interest (to the extent
permitted by law), if any, on the Notes and performance of all other Obligations
of the Company to the Holders of the Notes and the Trustee under this Indenture
with respect to the Notes, shall be secured as provided in the Security
Documents.
The Company shall, and shall cause each of its Restricted Subsidiaries to,
do or cause to be done all such acts and things as may be necessary or proper,
or as may be required by the provisions of the Security Documents, to assure and
56
<PAGE>
confirm to the Trustee or the Collateral Agent, if any, the security interest in
the Collateral contemplated hereby and by the Security Documents, as from time
to time constituted, so as to render the same available for the security and
benefit of this Indenture and the Notes secured hereby, according to the intent
and purposes herein and therein expressed. The Company shall, and shall cause
each of its Restricted Subsidiaries to, take, upon request of the Trustee or the
Collateral Agent, if any, any and all actions required to cause the Security
Documents to create and maintain, valid and enforceable, perfected (except as
expressly provided herein or therein), Liens in and on all the Collateral, in
favor of the Trustee, superior to and prior to the rights of all other third
Persons, and subject to no other Liens, other than Permitted Liens.
SECTION 10.2. OPINIONS.
The Company shall furnish to the Trustee within three months after each
anniversary of the date hereof, an Opinion of Counsel, dated as of such date of
delivery, stating either that (i) in the opinion of such counsel, all action has
been taken with respect to the recording, registering, filing, re- recording,
re-registering and refiling of the Security Documents and all supplements
thereto or to this Indenture, financing statements, continuation statements or
other instruments of further assurance as is necessary to maintain the Liens of
the Security Documents and reciting the details of such action or (ii) in the
opinion of such Counsel, no such action is necessary to maintain such Liens,
which Opinion of Counsel also shall state what actions it then believes are
necessary to maintain the effectiveness of such Liens during the next two years.
SECTION 10.3. RELEASE OF COLLATERAL.
(a) Unless a Default or Event of Default shall have occurred and be
continuing, Collateral shall be released from the Liens created by the Security
Documents from time to time at the sole cost and expense of the Company:
(i) upon payment in full of the Notes and all other Obligations of
the Company to the Holders of the Notes and the Trustee under
this Indenture with respect to the Notes then due and owing, or
(ii) upon the sale or other disposition of such Collateral pursuant to
an Asset Sale made in accordance with Section 4.10 hereof or
pursuant to a transaction which is deemed not to be an Asset Sale
as provided in the definition of such term,
PROVIDED, that the Trustee shall not release any Lien on any Collateral unless
and until it shall have received an Officers' Certificate certifying that all
conditions precedent hereunder have been met and such other documents required
by Section 10.4 hereof. Upon compliance with the above provisions, the Trustee
shall execute, deliver or acknowledge any necessary or proper instrument of
termination, satisfaction or release to evidence the release of any Collateral
permitted to be released pursuant to this Indenture or the Security Documents;
(b) The disposition of Inventory or Accounts in the ordinary course of
business may be made without delivery to the Trustee of certificates required by
TIA ss.314(d); and
(c) The release of any Collateral from the terms of the Security Documents
shall not be deemed to impair the security under this Indenture in contravention
of the provisions hereof and of the Security Documents if and to the extent the
Collateral is released pursuant to the terms of this Indenture and the Security
Documents.
SECTION 10.4. CERTIFICATES OF THE COMPANY.
The Company shall furnish to the Trustee prior to each proposed release of
Collateral other than by reason of transactions referred to in Section 10.3(b),
all documents required by TIA sec. 314(d). The Trustee may, to the extent
permitted by Sections 7.1 and 7.2 hereof, accept as conclusive evidence of
compliance with the foregoing provisions the appropriate statements contained in
such instruments. Any certificate or opinion required by TIA ss. 314(d) may be
57
<PAGE>
made by an Officer of the Company except in cases where TIA ss. 314(d) requires
that such certificate or opinion be made by an independent engineer, appraiser
or other expert within the meaning of TIA ss. 314(d).
SECTION 10.5. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE UNDER
THE SECURITY DOCUMENTS.
The Trustee may, in its sole discretion and without the consent of the
Holders, on behalf of the Holders, take all actions it deems necessary or
appropriate in order to (a) enforce any of the terms of the Security Documents
and (b) collect and receive any and all amounts payable in respect of the
Obligations of the Company and the Guarantors hereunder. The Trustee shall have
the power to institute and to maintain such suits and proceedings as it may deem
expedient to prevent any impairment of the Collateral by any acts that may be
unlawful or in violation of the Security Documents or this Indenture, and such
suits and proceedings as the Trustee may deem expedient to preserve or protect
its interests and the interests of the Holders in the Collateral (including
power to institute and maintain suits or proceedings to restrain the enforcement
of or compliance with any legislative or other governmental enactment, rule or
order that may be unconstitutional or otherwise invalid if the enforcement of,
or compliance with, such enactment, rule or order would impair the security
interest hereunder or be prejudicial to the interests of the Holders or the
Trustee).
SECTION 10.6. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER THE
SECURITY DOCUMENTS.
The Trustee is authorized to receive any funds for the benefit of the
Holders distributed under the Security Documents, and to make further
distributions of such funds to the Holders according to the provisions of this
Indenture and the Security Documents.
ARTICLE 11
GUARANTEE OF NOTES
SECTION 11.1. GUARANTEE.
(a) Each Guarantor hereby jointly and severally irrevocably and
unconditionally guarantees, as a primary obligor and not a surety, to each
Holder of a Note now or hereafter authenticated and delivered by the Trustee and
to the Trustee and its successors and assigns, irrespective of the validity and
enforceability of this Indenture, the Notes or the Obligations of the Company
hereunder or thereunder, (i) the due and punctual payment of the principal,
premium, if any, interest (including post-petition interest in any proceeding
under any Bankruptcy Law whether or not an allowed claim in such proceeding) on
overdue principal, premium, if any, and interest, if lawful on such Note, and
(ii) all other monetary Obligations payable by the Company, under this Indenture
(including under Section 7.7 hereof) and the Notes (all of the foregoing being
hereinafter collectively called the "Guaranteed Obligations"), when and as the
same shall become due and payable, whether by acceleration thereof, call for
redemption or otherwise (including amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code), in
accordance with the terms of any such Note and of this Indenture, subject,
however, in the case of (i) and (ii) above, to the limitations set forth in
Section 11.3 hereof. Each Guarantor hereby agrees that the Guaranteed
Obligations hereunder shall be absolute and unconditional, irrespective of, and
shall be unaffected by, any failure to enforce the provisions of any such Note
or this Indenture, any waiver, modification or indulgence granted to the Company
with respect thereto, the recovery of any judgment against the Company, any
action to enforce the same by the Holders or the Trustee, or any other
circumstances which might otherwise constitute a legal or equitable discharge of
a surety or guarantor. Each Guarantor hereby waives diligence, presentment,
filing of claims with a court in the event of a merger or bankruptcy of the
Company, any right to require a proceeding first against the Company, the
benefit of discussion, protest or notice with respect to any such Note or the
Indebtedness evidenced thereby and all demands whatsoever, and covenants that
this Guarantee shall not be discharged as to any such Note except by payment in
full of the principal thereof, premium, if any, and all accrued interest
thereon.
58
<PAGE>
(b) Each Guarantor further agrees that this Guarantee constitutes a
guarantee of payment, performance and compliance when due (and not a guarantee
of collection) and waives any right to require that any resort be had by any
Holder or the Trustee to any Note held for payment of the Guaranteed
Obligations.
(c) Each Guarantor agrees that it will not exercise any right of
subrogation in relation to the Holders or the Trustee in respect of any
Guaranteed Obligations until such time as the Notes and all other Guaranteed
Obligations are indefeasibly paid in full. Each Guarantor further agrees that,
as between such Guarantor, on the one hand, and the Holders and the Trustee, on
the other hand, (i) the maturity of the Guaranteed Obligations may be
accelerated as provided in Article 6 for the purposes of such Guarantor's
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the Guaranteed Obligations, and (ii) in the
event of any declaration of acceleration of such Guaranteed Obligations as
provided in Article 6 hereof, such Guaranteed Obligations (whether or not due
and payable) shall forthwith become due and payable by such Guarantor for the
purpose of this Article 11.
(d) Each Guarantor also agrees to pay any and all costs and expenses
(including reasonable attorneys' fees and expenses) incurred by the Trustee or
any Holder in enforcing any rights under this Article 11.
(e) The Guarantee set forth in this Article 11 shall not be valid or become
obligatory for any purpose with respect to a Note until the certificate of
authentication on such Note shall have been signed by or on behalf of the
Trustee.
(f) Each Guarantee is secured by a first priority security interest
(subject to Permitted Liens) in the Collateral.
59
<PAGE>
SECTION 11.2. GUARANTEE UNCONDITIONAL, ETC.
Upon failure of payment when due of any Guaranteed Obligation for whatever
reason, each Guarantor will be obligated to pay the same immediately. Each
Guarantor hereby agrees that its obligations hereunder shall be continuing,
absolute and unconditional, irrespective of: the recovery of any judgment
against the Company or any Guarantor; any extension, renewal, settlement,
compromise, waiver or release in respect of any obligation of the Company under
this Indenture or any Note, by operation of law or otherwise; any modification
or amendment of or supplement to this Indenture or any Note; any change in the
corporate existence, structure or ownership of the Company, or any insolvency,
bankruptcy, reorganization or other similar proceeding affecting the Company or
its assets or any resulting release or discharge of any obligation of the
Company contained in this Indenture or any Note; the existence of any claim,
set-off or other rights which any Guarantor may have at any time against the
Company, the Trustee, any Holder or any other Person, whether in connection
herewith or any unrelated transactions; PROVIDED, that nothing herein shall
prevent the assertion of any such claim by separate suit or compulsory
counterclaim; any invalidity or unenforceability relating to or against the
Company for any reason of this Indenture or any Note, or any provision of
applicable law or regulation purporting to prohibit the payment by the Company
of the principal, premium, if any, or interest on any Note or any other
Guaranteed Obligation; or any other act or omission to act or delay of any kind
by the Company, the Trustee, any Holder or any other Person or any other
circumstance whatsoever which might, but for the provisions of this Section
11.2, constitute a legal or equitable discharge of the Guarantors' obligations
hereunder. Subject to Section 11.5, each Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding first
against the Company, protest, notice and all demand whatsoever and covenants
that this Guarantee will not be discharged except by the complete performance of
the obligations contained in the Notes, this Indenture and in this Article 11.
Each Guarantor's obligations hereunder shall remain in full force and effect
until the Indenture shall have terminated and the principal of and interest on
the Notes and all other Guaranteed Obligations shall have been paid in full. If
at any time any payment of the principal of or interest on any Note or any other
payment in respect of any Guaranteed Obligation is rescinded or must be
otherwise restored or returned upon the insolvency, bankruptcy or reorganization
of the Company or otherwise, each Guarantor's obligations hereunder with respect
to such payment shall be reinstated as though such payment had been due but not
made at such time, and this Article 11, to the extent therefore discharged,
shall be reinstated in full force and effect. Each Guarantor irrevocably waives
any and all rights to which it may be entitled, by operation of law or
otherwise, upon making any payment hereunder to be subrogated to the rights of
the payee against the Company with respect to such payment or otherwise to be
reimbursed, indemnified or exonerated by the Company in respect thereof.
SECTION 11.3. LIMITATION OF GUARANTOR'S LIABILITY.
Each Guarantor and by its acceptance hereof each Holder hereby confirms
that it is the intention of all such parties that the guarantee by such
Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or
conveyance for purposes of the Bankruptcy Law, federal, state or provincial
fraudulent conveyance laws or other legal principles. To effectuate the
foregoing intention, the Holders and each Guarantor hereby irrevocably agree
that the obligations of each Guarantor under its Guarantee shall be limited to
the maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee of the Notes or pursuant
to Section 11.4 hereof, will result in the obligations of such Guarantor under
its Guarantee not constituting such fraudulent transfer or conveyance under
applicable law.
SECTION 11.4. CONTRIBUTION.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, INTER SE, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under its
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a PRO RATA amount based on the Adjusted Net Assets of each
Guarantor (including the Funding Guarantor), determined in accordance with GAAP,
for all payments, damages and expenses incurred by that Funding Guarantor in
discharging the Company's obligations with respect to the Notes or any other
Guarantor's obligations with respect to the Guarantee.
60
<PAGE>
SECTION 11.5. RELEASE.
Upon the sale or disposition of all of the Equity Interests of a Guarantor
to an entity which is not the Company or a Restricted Subsidiary of the Company,
which is otherwise in compliance with this Indenture, such Guarantor shall be
deemed released from all its obligations under this Indenture without any
further action required on the part of the Trustee or any Holder; PROVIDED,
HOWEVER, that any such termination shall occur if and only to the extent that
all Obligations of such Guarantor under all of its guarantees of, and under all
of its pledges of assets which secure, Indebtedness of the Company and the other
Guarantors shall also terminate upon such release, sale or transfer; PROVIDED
further, that without limiting the foregoing, any proceeds received by the
Company or any Restricted Subsidiary of the Company from such transaction shall
be applied as provided in Section 4.10. The Trustee shall deliver an appropriate
instrument evidencing such release upon receipt of a request by the Company
accompanied by an Officers' Certificate certifying as to the compliance with
this Section 11.5. Any Guarantor not released in accordance with the first
sentence of this Section 11.5, remains liable for the full amount of principal,
premium, if any, and interest on the Notes as provided in this Article 11.
SECTION 11.6. ADDITIONAL GUARANTORS.
Any Person that was not a Guarantor on the Amendment Effective Date may
become a Guarantor by executing and delivering to the Trustee (a) a supplemental
indenture in form and substance satisfactory to the Trustee, which subjects such
Person to the provisions (including, without limitation, the representations and
warranties in this Article 11 and Article 10) of this Indenture as a Guarantor
and (b) an Opinion of Counsel to the effect that such supplemental indenture has
been duly authorized and executed by such Person and constitutes the legal,
valid, binding and enforceable obligation of such Person (subject to such
customary exceptions concerning creditors' rights and equitable principles as
may be acceptable to the Trustee in its discretion). The Guarantee of each
Person described in this Section 11.6 shall apply to all Notes whether executed,
authenticated and delivered on, before or after the date such Person becomes a
Guarantor.
SECTION 11.7. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
Nothing contained in this Indenture or in any of the Notes shall prevent
any consolidation or merger of a Guarantor with or into the Company or another
Guarantor or shall prevent any sale or conveyance of the property of a Guarantor
as an entirety or substantially as an entirety, to the Company or another
Guarantor. Upon any such consolidation, merger, sale or conveyance, the
Guarantee given by such Guarantor shall no longer have any force or effect.
SECTION 11.8. SUCCESSORS AND ASSIGNS.
This Article 11 shall be binding upon each Guarantor and its successors and
assigns and shall inure to the benefit of the successors and assigns of the
Trustee and the Noteholders and, in the event of any transfer or assignment of
rights by any Holder or the Trustee, the rights and privileges conferred upon
that party in this Indenture and in the Notes shall automatically extend to and
be vested in such transferee or assignee, all subject to the terms and
conditions of this Indenture.
SECTION 11.9. WAIVER OF STAY, EXTENSION OR USURY LAWS.
Each Guarantor covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law that would prohibit or forgive such Guarantor from performing its
Guarantee as contemplated herein, wherever enacted, now or at any time hereafter
in force, or which may affect the covenants or the performance of this
Indenture; and (to the extent that it may lawfully do so) each such Guarantor
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
61
<PAGE>
ARTICLE 12
MISCELLANEOUS
SECTION 12.1. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA Section 318(c), such TIA-imposed duties will control.
SECTION 12.2. NOTICES.
Any notice or communication by the Company or a Guarantor or the Trustee to
the other is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
other's address:
If to the Company or a Guarantor:
ITSA-Intercontinental Telecomunicacoes Ltda.
SCS, Quadra 07-B1.A
Ed. Executive Tower
Sala 601
70.300.911 Brasilia-DF Brazil
Phone No.: 011-55-61-314-9908
Telecopier No.: 011-55-61-323-5660
Attention: _____________________
With a copy to:
Kelley Drye & Warren LLP
Two Stamford Plaza
281 Tresser Boulevard
Stamford, CT 06901-3229
Phone No.: (203) 324-1400
Telecopier No.: (203) 964-3188
Attention: John T. Capetta, Esq.
If to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, NY 10286
Phone No.: (212) 815-5080
Telecopier No.: (212) 815-5915
Attention: Loretta A. Lundberg
With a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Phone No.: (212) 856-7000
Telecopier No.: (212) 339-9150
Attention: Douglas L. Furth, Esq. and Benjamin Dean, Esq.
62
<PAGE>
The Company or the Trustee, by notice to the other, may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) will be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; ten Business Days after being deposited in the mail, postage prepaid,
if mailed; when receipt acknowledged, if telecopied; and the next Business Day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery, in each case to the address shown above.
Notwithstanding the foregoing, notices to the Trustee will only be effective
upon actual receipt thereof by the Trustee at the Corporate Trust Office of the
Trustee.
Any notice or communication to a Holder will be mailed by first class mail,
certified or registered, return receipt requested, or by overnight air courier
guaranteeing next day delivery to its address shown on the Register. Any notice
or communication will also be so mailed to any Person described in TIA Section
313(c), to the extent required by the TIA. Failure to mail a notice or
communication to a Holder or any defect in it will not affect its sufficiency
with respect to other Holders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it will mail a
copy to the Trustee and each Agent at the same time.
SECTION 12.3. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and anyone else will have the protection of TIA Section
312(c).
SECTION 12.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company will furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfactory
to the Trustee (which will include the statements set forth in Section 12.5
hereof) stating that, in the opinion of the signers, all conditions precedent
and covenants, if any, provided for in this Indenture relating to the proposed
action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee (which will include the statements set forth in Section 12.5 hereof)
stating that, in the opinion of such counsel, all such conditions precedent and
covenants have been satisfied.
SECTION 12.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a) (4)) will comply with the provisions of TIA
Section 314(e) and will include:
(a) a statement that the Person making such certificate or opinion has read
such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
63
<PAGE>
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condition has
been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been satisfied.
SECTION 12.6. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 12.7. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHERS.
No past, present or future director, officer, employee, incorporator,
partner or stockholder of either of the Company or any of its Subsidiaries, as
such, will have any liability for any obligations of the Company or its
Subsidiaries under the Notes, the Security Documents, the Guarantees or this
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder of a Note by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes and the Guarantees.
SECTION 12.8. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE NOTES.
SECTION 12.9. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 12.10. SUCCESSORS.
This Indenture will inure to the benefit of and be binding upon the parties
hereto and each of their respective successors and assigns, except that the
Company may not assign this Indenture or its obligations hereunder except as
expressly permitted by Sections 5.1 and 5.2. Without limiting the generality of
the foregoing, this Indenture will inure to the benefit of all Holders from time
to time. Nothing expressed or mentioned in this Indenture is intended or shall
be construed to give any Person, other than the parties hereto, their respective
successors and assigns, and the Holders, any legal or equitable right, remedy or
claim under or in respect of this Indenture or any provision herein contained.
SECTION 12.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 12.12. ORIGINALS.
The parties may sign any number of copies of this Indenture. Each signed
copy will be an original, but all of them together represent the same agreement.
64
<PAGE>
SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and will in no way
modify or restrict any of the terms or provisions hereof.
SECTION 12.14. COUNTERPARTS.
This Indenture may be signed in counterparts and by the different parties
hereto in separate counterparts, each of which will constitute an original and
all of which together will constitute one and the same instrument.
SECTION 12.15. AGENT FOR SERVICE; SUBMISSION TO JURISDICTION; WAIVER OF
IMMUNITIES.
By the execution and delivery of this Indenture or any amendment or
supplement hereto, the Company (i) acknowledges that it has, by separate written
instrument, designated and appointed Corporation Service Company currently
located at Two World Trade Center, Suite 8746, New York, New York 10048-0203, as
its authorized agent upon which process may be served in any suit, action or
proceeding with respect to, arising out of, or relating to, the Notes, this
Indenture (other than an insolvency, liquidation or bankruptcy proceeding or any
other proceeding in the nature of an in rem or quasi in rem proceeding), that
may be instituted in any Federal or state court in the State of New York, The
City of New York, the Borough of Manhattan, or brought under Federal or state
securities laws or brought by the Trustee (whether in its individual capacity or
in its capacity as Trustee hereunder), and acknowledges that Corporation Service
Company has accepted such designation, (ii) submits to the jurisdiction of any
such court in any such suit, action or proceeding, and (iii) agrees that service
of process upon Corporation Service Company shall be deemed in every respect
effective service of process upon the Company in any such suit, action or
proceeding. The Company further agrees to take any and all action, including the
execution and filing of any and all such documents and instruments as may be
necessary to continue such designation and appointment of Corporation Service
Company in full force and effect so long as this Indenture shall be in full
force and effect; PROVIDED that the Company and each Guarantor may and shall (to
the extent Corporation Service Company ceases to be able to be served on the
basis contemplated herein), by written notice to the Trustee, designate such
additional or alternative agents for service of process under this Section 12.15
that (i) maintains an office located in the Borough of Manhattan, The City of
New York in the State of New York, (ii) are either (a) counsel for the Company
or (b) a corporate service company which acts as agent for service of process
for other persons in the ordinary course of its business and (iii) agrees to act
as agent for service of process in accordance with this Section 12.15. Such
notice shall identify the name of such agent for process and the address of such
agent for process in the Borough of Manhattan, The City of New York, State of
New York. Upon the request of any Holder of a Note, the Trustee shall deliver
such information to such Holder. Notwithstanding the foregoing, there shall, at
all times, be at least one agent for service of process for the Company
appointed and acting in accordance with this Section 12.15.
To the extent that the Company has or hereafter may acquire any immunity
from jurisdiction of any court or from any legal process (whether through
service of notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to itself or its property, the Company
hereby irrevocably waives such immunity in respect of its obligations under this
Indenture and the Notes, to the extent permitted by law.
65
<PAGE>
SECTION 12.16. CURRENCY OF ACCOUNT; CONVERSION OF CURRENCY; FOREIGN
EXCHANGE RESTRICTIONS.
(a) U.S. dollars are the sole currency of account and payment for all sums
payable by the Company under or in connection with the Notes or this Indenture,
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 the
Company or otherwise) by any Holder of a Note in respect of any sum expressed to
be due to it from the Company will only constitute a discharge to the Company 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 any Note, the Company will indemnify it against any loss
sustained by it as a result as set forth in Section 12.16(b). In any event, the
Company will indemnify the recipient against the cost of making any such
purchase. For the purposes of this Section 12.16, it will be sufficient for the
Holder of a Note to certify in a satisfactory manner (indicating sources of
information used) that it would have suffered a loss had an actual purchase of
U.S. dollars been made with the amount so received in that other currency on the
date of receipt or recovery (or, if a purchase of U.S. 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). The indemnities set forth in this Section 12.16 constitute a
separate and independent cause of action, shall apply irrespective of any
indulgence granted by any Holder of a 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 any Note.
(b) The Company covenants and agrees that the following provisions shall
apply to conversion of currency in the case of the Notes and this Indenture:
(i) If for the purpose of obtaining judgment in, or enforcing the
judgment of, any court in any country, it becomes necessary to convert
into a currency (the "judgment currency") an amount due in any other
currency (the "Base Currency"), then the conversion shall be made at
the rate of exchange (as defined in clause (v) below) prevailing on the
Business Day before the day on which the judgment is given or the order
of enforcement is made, as the case may be (unless a court shall
otherwise determine).
(ii) If there is a change in the rate of exchange prevailing
between the Business Day before the day on which the judgment is given
or an order of enforcement is made, as the case may be (or such other
date as a court shall determine), and the date of receipt of the amount
due, the Company will pay such additional (or, as the case may be, such
lesser) amount, if any, as may be necessary so that the amount paid in
the judgment currency when converted at the rate of exchange prevailing
on the date of receipt will produce the amount in the Base Currency
originally due.
(iii) In the event of the winding-up of the Company at any time
while any amount or damages owing under the Notes and this Indenture,
or any judgment or order rendered in respect thereof, shall remain
outstanding, the Company will indemnify and hold the Holders of the
Notes and the Trustee harmless against any deficiency arising or
resulting from any variation in rates of exchange between (1) the date
as of which the U.S. Dollar Equivalent of the amount due or
contingently due under the Notes and this Indenture (other than under
this subsection (b) (iii) is calculated for the purposes of such
winding-up and (2) the final date for the filing of proofs of claim in
such winding-up. For the purpose of this subsection (b) (iii), the
final date for the filing of proofs of claim in the winding-up of the
Company will be the date fixed by the liquidator or otherwise in
accordance with the relevant provisions of applicable law as being the
latest practicable date as at which liabilities of the Company may be
ascertained for such winding-up prior to payment by the liquidator or
otherwise in respect thereof.
(iv) The obligations contained in subsections (a), (b) (ii) and
(b) (iii) of this Section 12.16 shall constitute separate and
independent obligations from the other Indenture obligations of the
Company, shall give rise to separate and independent causes of action
against the Company, shall apply irrespective of any waiver or
extension granted by any Holder of a Note or the Trustee or either of
them from time to time and shall continue in full force and effect
66
<PAGE>
notwithstanding any judgment or order or the filing of any proof of
claim in the winding-up of the Company for a liquidated sum in respect
of amounts due hereunder (other than under subsection (b) (iii) above)
or under any such judgment or order. Any such deficiency as aforesaid
shall be deemed to constitute a loss suffered by the Holders of the
Note or the Trustee, as the case may be, and no proof or evidence of
any actual loss shall be required by the Company or the liquidator or
otherwise or any of them. In the case of subsection (b) (iii) above,
the amount of such deficiency shall not be deemed to be reduced by any
variation in rates of exchange occurring between the said final date
and the date of any liquidating distribution.
(v) The term "rate(s) of exchange" shall mean the rate of exchange
quoted by Reuters at 10:00 a.m. (New York City time) for spot purchases
of the Base Currency with the judgment currency other than the Base
Currency referred to in subsections (b) (i) and (b) (ii) above and
includes any premiums and costs of exchange payable.
(c) In the event that on any payment date in respect of the Notes, any
restrictions or prohibition of access to the Brazilian foreign exchange market
exists, the Company agrees to pay all amounts payable under the Notes in the
currency of the Notes by all reasonable means (which shall not include
commencement of legal proceedings against the Central Bank of Brazil or any
other governmental agency or authority or central bank), on any due date for
payment under the Notes, for the purchase of the currency of such Notes. All
costs and taxes payable in connection with the procedures referred to in this
Section 12.16 shall be borne by the Company.
67
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Indenture this ,
2000.
ITSA-INTERCONTINENTAL TELECOMUNICACOES LTDA.
By:_________________________________________
Name:
Title:
TV FILME BRASILIA SERVICOS DE TELECOMUNICACOES LTDA.
By:_________________________________________
Name:
Title:
TV FILME GOIANIA SERVICOS DE TELECOMUNICACOES LTDA.
By:_________________________________________
Name:
Title:
TV FILME BELEM SERVICOS DE TELECOMUNICACOES LTDA.
By:_________________________________________
Name:
Title:
TV FILME PROGRAMADORA LTDA.
By:_________________________________________
Name:
Title:
TV FILME SISTEMAS LTDA.
By:_________________________________________
Name:
Title:
TV FILME SERVICOS DE TELECOMUNICACOES LTDA.
By:_________________________________________
Name:
Title:
TV FILME OPERACOES LTDA.
68
<PAGE>
By:_________________________________________
Name:
Title:
THE BANK OF NEW YORK, as trustee
By:_________________________________________
Name:
Title:
WITNESSES:
Name:
Name:
69
<PAGE>
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this ____ day of ________________, 2000, before me, a notary public
within and for said county, personally appeared ________________________, to me
personally known who being duly sworn, did say that he was the
______________________ of The Bank of New York, one of the persons described in
and which executed the foregoing instrument, and acknowledges said instrument to
be the free act and deed of said corporation.
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this ___ day of ___________, 2000, before me, a notary public within and
for said county, personally appeared ________________, to me personally known
who being duly sworn, did say that he was the Chief Executive Officer of ITSA -
Intercontinental Telecomunicacoes Ltda., one of the persons described in and
which executed the foregoing instrument, and acknowledges said instrument to be
the free act and deed of said corporation.
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this ___ day of _____________, 2000, before me, a notary public within
and for said county, personally appeared ________________, to me personally
known who being duly sworn, did say that he was the Chief Executive Officer of
TV Filme Brasilia Servicos de Telecomunicacoes Ltda., one of the persons
described in and which executed the foregoing instrument, and acknowledges said
instrument to be the free act and deed of said corporation.
Notary Public
[NOTARIAL SEAL]
70
<PAGE>
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this ___ day of ___________, 2000, before me, a notary public within and
for said county, personally appeared________________ , to me personally known
who being duly sworn, did say that he was the Chief Executive Officer of TV
Goiania Servicos de Telecomunicacoes Ltda., one of the persons described in and
which executed the foregoing instrument, and acknowledges said instrument to be
the free act and deed of said corporation.
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this ___ day of _____________, 2000, before me, a notary public within
and for said county, personally appeared________________ , to me personally
known who being duly sworn, did say that he was the Chief Executive Officer of
TV Filme Belem Servicos de Telecomunicacoes Ltda., one of the persons described
in and which executed the foregoing instrument, and acknowledges said instrument
to be the free act and deed of said corporation.
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this ___ day of ______________, 2000, before me, a notary public within
and for said county, personally appeared _________________, to me personally
known who being duly sworn, did say that he was the Chief Executive Officer of
TV Filme Campina Grande Servicos de Telecomunicacoes Ltda., one of the persons
described in and which executed the foregoing instrument, and acknowledges said
instrument to be the free act and deed of said corporation.
Notary Public
[NOTARIAL SEAL]
71
<PAGE>
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this ___ day of ______________, 2000, before me, a notary public within
and for said county, personally appeared ____________________, to me personally
known who being duly sworn, did say that he was the Chief Executive Officer of
TV Filme Programadora Ltda., one of the persons described in and which executed
the foregoing instrument, and acknowledges said instrument to be the free act
and deed of said corporation.
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this ___ day of _____________, 2000, before me, a notary public within
and for said county, personally appeared _________________, to me personally
known who being duly sworn, did say that he was the Chief Executive Officer of
TV Filme Sistemas Ltda., one of the persons described in and which executed the
foregoing instrument, and acknowledges said instrument to be the free act and
deed of said corporation.
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this ___ day of ________________, 2000, before me, a notary public
within and for said county, personally appeared ______________________, to me
personally known who being duly sworn, did say that he was the Chief Executive
Officer of TV Filme Servicos de Telecomunicacoes Ltda., one of the persons
described in and which executed the foregoing instrument, and acknowledges said
instrument to be the free act and deed of said corporation.
Notary Public
[NOTARIAL SEAL]
72
<PAGE>
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this ___ day of , 2000, before me, a notary public within and for
said county, personally appeared , to me personally known who being duly sworn,
did say that he was the Chief Executive Officer of TV Filme Operacoes Ltda., one
of the persons described in and which executed the foregoing instrument, and
acknowledges said instrument to be the free act and deed of said corporation.
Notary Public
[NOTARIAL SEAL]
73
<PAGE>
ANNEX I
EXISTING INDEBTEDNESS
Annex-1
<PAGE>
ANNEX II
GUARANTORS
TV Filme Brasilia Servicos de Telecomunicacoes Ltda.
TV Filme Goiania Servicos de Telecomunicacoes Ltda.
TV Filme Belem Servicos de Telecomunicacoes Ltda.
TV Filme Campina Grande Servicos de Telecomunicacoes Ltda.
TV Filme Programadora Ltda.
TV Filme Sistemas Ltda.
TV Filme Servicos de Telecomunicacoes Ltda.
TV Filme Operacoes Ltda.
Annex-2
<PAGE>
EXHIBIT A
(Face of Note)
[IF GLOBAL NOTE:] THIS IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART
FOR SECURITIES IN CERTIFICATED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT
AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH
NOMINEE OF THE DEPOSITORY TO A SUCCESSOR NOMINEE, OR BY THE DEPOSITORY OR
NOMINEE TO A SUCCESSOR DEPOSITORY OR TO A NOMINEE OF SUCH SUCCESSOR DEPOSITORY.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE. TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS
MADE IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH IN SECTION 2.6 OF THE
INDENTURE.
[IF CERTIFICATED NOTE:] THIS IS A SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO.
TRANSFERS OF THIS SECURITY OR PORTIONS OF THIS SECURITY TO GLOBAL FORM SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH IN
SECTION 2.6 OF THE INDENTURE.
A-1
<PAGE>
ITSA-INTERCONTINENTAL TELECOMUNICACOES LTDA.
12% Senior Secured Notes due 2004
No. __________ US$__________
[CUSIP No. __________](1)
[CUSIP No. __________](2)
ITSA-Intercontinental Telecomunicacoes Ltda., a Brazilian limited liability
company (the "Company") promises to pay to ______________________________ or
registered assigns, the principal sum of ________________________ Dollars on
December 20, 2004
Interest Payment Dates: June 20 and December 20 of each year,
commencing on June 20, 2000.
Record Dates: June 1 and December 1.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed.
Dated: __________, 2000
ITSA-INTERCONTINENTAL TELECOMUNICACOES LTDA.
By:_________________________________________
Name:
Title:
- -------------------
* CUSIP NO. for the Global Note.
** CUSIP NO. for the Certificated Notes.
A-2
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture:
THE BANK OF NEW YORK,
as Trustee
By:________________________________
Authorized Signatory
Dated:_____________________________
A-3
<PAGE>
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this _____ day of ______________, 2000, before me, a notary public
within and for said country, personally appeared ___________________, to me
personally known who being duly sworn, did say that he was the of
ITSA-Intercontinental Telecomunicacoes Ltda., one of the persons described in
and which executed the foregoing instrument, and acknowledges said instrument to
be the free act and deed of said corporation.
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this _____ day of ________________, 2000, before me, a notary public
within and for said country, personally appeared_________________ , to me
personally known who being duly sworn, did say that he was the of The Bank of
New York, one of the persons described in and which executed the foregoing
instrument, and acknowledges said instrument to be the free act and deed of said
corporation.
Notary Public
[NOTARIAL SEAL]
A-4
<PAGE>
(Back of Note)
12% Senior Secured Notes due 2004
Capitalized terms used herein but not defined will have the meanings
assigned to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST.
On any of the first four Interest Payment Dates occurring after the date of
the Indenture, interest on the Notes shall, at the option of the Company, be
paid in kind instead of in cash. Upon such an event, the Company will issue to
Holders of the Notes on any such Interest Payment Date, and the Trustee will
authenticate, an additional Note substantially in the form hereof registered in
the name of such Holder and having a principal amount equal to the amount of
interest paid in kind on all of the outstanding Notes held by such Holder on
such Interest Payment Date. The Notes will mature on December 20, 2004. The
Company promises to pay interest on the principal amount of this Note from
December 20, 1999 until maturity. The Company will pay interest semi-annually on
June 20 and December 20 of each year, commencing June 20, 2000, or if any such
day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"). Interest on the Notes will accrue at the rate of 12%
per annum from the most recent date to which interest has been paid or, if no
interest has been paid, from December 20, 1999. The Company will pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law to
the extent that such interest is an allowed claim enforceable against the debtor
under such Bankruptcy Law) on overdue principal and premium, if any, from time
to time on demand at the rate equal to 1% per annum in excess of the then
applicable interest rate on this Note to the extent lawful; it will pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law to
the extent that such interest is an allowed claim against the debtor under such
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
2. METHOD OF PAYMENT.
The Company will pay the principal of, and premium, and interest on, the
Notes on the dates and in the manner provided herein and in the Indenture.
Principal, premium, if any, and interest on, Certificated Notes will be payable,
and Certificated Notes may be presented for registration of transfer or
exchange, at the office or agency of the Company maintained for such purpose.
Principal of, and premium and interest on, Global Notes will be payable by the
Company through the Trustee to the Depository in immediately available funds.
Holders of Certificated Notes will be entitled to receive interest payments by
wire transfer in immediately available funds if appropriate wire transfer
instructions have been received in writing by the Trustee not less than 15
calendar days prior to the applicable Interest Payment Date. Such wire
instructions, upon receipt by the Trustee, will remain in effect until revoked
by such Holder. If wire instructions have not been received by the Trustee with
respect to any Holder of a Certificated Note, payment of interest may be made by
check in immediately available funds mailed to such Holder at the address set
forth upon the Register maintained by the Registrar.
3. PAYING AGENT AND REGISTRAR.
Initially, Japan Bankers Trust Company, Ltd. will act as principal Paying
Agent, and The Bank of New York, the Trustee under the Indenture, will act as
Registrar. The Company may change any Paying Agent or Registrar in accordance
with the terms of the Paying Agent Agreement. The Company or any of its
Subsidiaries may act in any such capacity, PROVIDED, HOWEVER, that none of the
Company, its Subsidiaries or the Affiliates of the foregoing will act (i) as
Paying Agent in connection with any redemption, offer to purchase, discharge or
defeasance, as otherwise specified in the Indenture, and (ii) as Paying Agent or
Registrar if a Default or Event of Default has occurred and is continuing.
A-5
<PAGE>
4. INDENTURE.
The Company issued the Notes under an Indenture dated as of ____________,
2000 (as such may be amended, supplemented or restated from time to time, the
"Indenture") between the Company and the Trustee. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections
77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred
to the Indenture and such Act for a statement of such terms. The Notes are
senior obligations of the Company ranking PARI PASSU in right of payment with
all existing and future senior Indebtedness of the Company and ranking senior in
right of payment to any future subordinated Indebtedness of the Company.
5. OPTIONAL REDEMPTION.
The Notes will be subject to redemption at the option of the Company, in
whole or in 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 if any, thereon to the applicable
redemption date, if redeemed during the twelve month period beginning on
December 20 of the years indicated below:
Year Percentage
---- ----------
2000 106.4375%
2001 104.2917%
2002 102.1458%
2003 and thereafter 100.0000%
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company will not be required
to make mandatory redemption or sinking fund payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon a Change of Control, the Company will be required to make an offer
to Holders to repurchase all or any part (equal to US$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 as provided in, and subject to the terms of,
the Indenture.
(b) If the Company or any Restricted Subsidiary consummates any Asset Sale,
the Company may be required, subject to the terms and conditions of the
Indenture, to utilize a certain portion of the proceeds received from such Asset
Sale to repurchase Notes at a purchase price equal to Net Proceeds Offer Price
on the Net Proceeds Purchase Date.
8. DENOMINATIONS, TRANSFER, EXCHANGE.
The Notes are in registered form without coupons in denominations of
US$1,000 and integral multiples of US$1,000. The transfer of Notes may be
registered and Notes may be exchanged as provided in the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company need not exchange or register the transfer of any Note or portion of
a Note selected for redemption, except for the unredeemed portion of any Note
being redeemed in part. Also, it need not exchange or register the transfer of
any Notes for a period of 15 calendar days before a selection of Notes to be
redeemed or during the period between a record date and the next succeeding
Interest Payment Date.
A-6
<PAGE>
9. PERSONS DEEMED OWNERS.
The registered Holder of a Note may be treated as its owner for all
purposes.
10. UNCLAIMED MONEY.
If money for the payment of principal, premium or interest remains
unclaimed for one year, the Trustee and the Paying Agent will pay the money back
to the Company at its request. After that, all liability of the Trustee and such
Paying Agent with respect to such money will cease.
11. DEFEASANCE PRIOR TO REDEMPTION OR MATURITY.
Subject to certain conditions contained in the Indenture, the Company at
any time may terminate some or all of its obligations under the Notes and the
Indenture if the Company deposits with the Trustee money or Government
Securities sufficient to pay the principal of, premium, and interest on, the
Notes to redemption or maturity, as the case may be.
12. AMENDMENT, SUPPLEMENT AND WAIVER.
Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding, and any existing Default or Event or
Default or compliance with any provision of the Indenture or the Notes may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Notes. Without the consent of any Holder of a Note, the
Indenture or the Notes may be amended or supplemented 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 the Company's
obligations to Holders of Notes in case of a merger or consolidation, to make
any change that would provide any additional rights or benefits to the Holders
of the Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, or to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Indenture under the TIA as
then in effect.
13. DEFAULTS AND REMEDIES.
An "Event of Default" occurs if one of the following shall have occurred
and be continuing:
(a) the Company defaults in the payment when due of any interest payable
with respect to the Notes at any time, which default continues for a period of
30 calendar days;
(b) the Company defaults in payment when due of the principal of or
premium, if any, on the Notes at maturity, upon repurchase (including, without
limitation, pursuant to a Change of Control Offer or an Asset Sale Offer), upon
acceleration, redemption or otherwise;
(c) the granting by the Company or any Restricted Subsidiary of any Lien to
secure Indebtedness in excess of US$100,000 (other than a Permitted Lien);
(d) the Company fails to comply with the provisions of Sections 4.10, 4.14,
4.19 or 5.1 of the Indenture;
(e) the Company fails to comply with any of its other agreements in this
Indenture or the Notes and such failure continues for 30 calendar days after
notice from the Trustee or Holders of at least 25% in aggregate principal amount
of the Notes then outstanding;
(f) the Company defaults 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 of the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries), whether such Indebtedness or Guarantee now exists or
A-7
<PAGE>
is created after the Amendment Effective Date, which default (i) 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 (ii) 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
US$5,000,000 (or the equivalent thereof at time of determination) or more;
(g) the Company or any of its Restricted Subsidiaries fails to pay final
non-appealable judgments rendered against the Company or any of its Restricted
Subsidiaries aggregating in excess of US$2,500,000 (or the equivalent thereof at
time of determination), which judgments are not paid, discharged or stayed for a
period of 60 calendar days after such judgments become final and non-appealable;
(h) the Company or any Restricted Subsidiary of the Company pursuant to or
within the meaning of any Bankruptcy Law: (i) commences a voluntary case or
proceeding, (ii) consents to the entry of an order for relief against it in an
involuntary case or proceeding, (iii) consents to the appointment of a Custodian
of it or for all or substantially all of its property, (iv) makes a general
assignment for the benefit of its creditors, (v) admits in writing its inability
to pay its debts generally as they become due or (vi) takes any comparable
action under any foreign laws relating to insolvency;
(i) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (i) is for relief against the Company or any Significant
Subsidiary of the Company in an involuntary case or proceeding, (ii) appoints a
Custodian of the Company or any Significant Subsidiary of the Company or for all
or substantially all of its respective properties, or (iii) orders the
liquidation of the Company or any Significant Subsidiary of the Company, or any
similar relief is granted under any foreign laws, and in each case the order or
decree remains unstayed and in effect for 60 calendar days;
(j) (a) a default in the observance or performance of any covenant or
agreement contained in any Security Document which default continues for 20
calendar days after notice has been given to the Company by the Trustee or the
holders of at least 25% in principal amount of the outstanding Notes, or (b) for
any reason other than the satisfaction in full and discharge of all obligations
secured thereby or any action or inaction of the Trustee or the Holders after
receiving notice of the requirement to take any such action from the Company,
any of the Security Documents ceases to be in full force and effect (other than
in accordance with its respective terms), or any of the Security Documents
ceases to give the Trustee the Liens, rights, powers and privileges purported to
be created thereby, or any Security Document is declared null and void, or the
Company or any of its Restricted Subsidiaries denies any of its obligations
under any Security Document, in each case with respect to Collateral the
aggregate value of which is in excess of US$100,000, or the Collateral becomes
subject to one or more Liens other than Permitted Liens securing one or more
obligations in excess of US$100,000 in the aggregate; or
(k) any Guarantee is declared null and void or ceases to be in full force
and effect (except as permitted under this Indenture) or any Guarantor shall
deny or disaffirm its obligations under its Guarantee.
Notwithstanding the foregoing, if an Event of Default specified in clause
(f) above occurs and is continuing, such Event of Default and all consequences
thereof (including, without limitation, any acceleration or resulting payment
default) will be annulled and rescinded, automatically and without any action by
the Trustee or the Holders of the Notes, if (i) the Indebtedness that is the
subject of such Event of Default has been repaid, or (ii) the default relating
to such Indebtedness is waived or cured (and if such Indebtedness has been
accelerated, when the holders thereof have rescinded their declaration of
acceleration in respect of such Indebtedness).
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 the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of this Indenture, an equivalent premium will
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes.
A-8
<PAGE>
If any Event of Default (other than an Event of Default specified in clause
(h) or (i) above occurs and is continuing), then the Trustee or the Holders of
at least 25% in principal amount of the then outstanding Notes by written notice
to the Company and the Trustee may declare the unpaid principal of, and any
accrued interest on, all the Notes to be due and payable immediately. If any
Event of Default with respect to the Company specified in clause (h) or (i)
hereof occurs with respect to the Company, any Significant Subsidiary of the
Company or any group of Restricted Subsidiaries of the Company that, taken
together, would constitute a Significant Subsidiary of the Company, all
outstanding principal and interest on the Notes will be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder. The Holders of a majority in principal amount of the Notes then
outstanding, by written notice to the Trustee and to the Company, may rescind an
acceleration (except an acceleration due to a default in payment of the
principal of, or premium or interest on, any of the Notes) if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default (except nonpayment of principal, premium, interest that have become due
solely because of the acceleration) have been cured or waived.
Subject to the preceding paragraph, if an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect any payment due, or to enforce the performance of any
provision, under the Notes, this Indenture or the Security Documents. The
Trustee may refuse to enforce the Indenture or the Notes unless it receives
reasonable indemnity or security. Holders of 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 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 under clauses (a) or (b) above) if it determines that withholding notice
is in their interest.
14. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Company or any Affiliate of the
Company with the same rights it would have if it were not Trustee. However, in
the event that the Trustee acquires any conflicting interest (as such term is
defined in TIA Section 310(b)), it must eliminate such conflict within 90
calendar days, apply to the SEC for permission to continue as trustee (to the
extent permitted under TIA Section 310(b)) or resign. Any Agent may do the same
with like rights and duties.
15. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHERS.
No past, present or future director, officer, employee, incorporator,
partner or stockholder of either of the Company or any of its Subsidiaries, as
such, will have any liability for any obligations of the Company or its
Subsidiaries under the Notes, the Security Documents, the 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 a Note by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes and the Guarantees.
16. AUTHENTICATION.
This Note will not be valid until authenticated by the manual signature of
the Trustee or an authenticating agent.
17. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or an assignee,
such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties),
JT TEN (= joint tenants with right of survivorship and not as tenants in
common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
A-9
<PAGE>
18. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes and the Trustee may use CUSIP numbers in notices of
redemption as a convenience to Holders. No representation is made as to the
accuracy of such numbers either as printed on the Notes or as contained in any
notice of redemption and reliance may be placed only on the other identification
numbers placed thereon.
19. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO
CONSTRUE THE INDENTURE AND THE NOTES.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
ITSA-Intercontinental Telecomunicacoes Ltda.
SCS, Quadra 07-B1.A
Ed. Executive Tower
Sala 601
70.300.911 Brasilia-DF Brazil
Phone No.: 011-55-61-314-9908
Telecopier No.: 011-55-61-323-5660
Attention: _____________________
A-10
<PAGE>
Assignment Form
To assign this Note, fill in the form below and have your signature
guaranteed: (I) or (we) assign and transfer this Note to
___________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
________________________________________________________________________________
Date:_____________ Your Name:_________________________________________________
(Print your name exactly as it appears on the
face of this Note)
Your Signature:____________________________________________
(Sign exactly as your name appears on the face
of this Note)
Signature Guarantee*:______________________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A-11
<PAGE>
Option of Holder to Elect Purchase
If you elect to have this Note purchased by the Company pursuant to Section
4.10 or Section 4.14 of the Indenture, check the appropriate box below:
| __ | Section 4.10 | __ | Section 4.14
If you elect to have only part of this Note purchased by the Company
pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount (in
minimum denominations of US$1,000 or integral multiples thereof) you elect to
have purchased: US$_________
Date:_____________ Your Name:_________________________________________________
(Print your name exactly as it appears on the
face of this Note)
Your Signature:____________________________________________
(Sign exactly as your name appears on the face
of this Note)
Social Security or Tax Identification No.:_________________
Signature Guarantee**:_____________________________________
** Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A-12
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED NOTE(1)
The following exchanges of a part of this Global Note for Certificated
Notes have been made:
<TABLE>
<S> <C> <C> <C>
Date of Exchange Amount of decrease in Amount of increase in Principal Amount
Principal Amount of Principal Amount of Global Note
this Global Note this Global Note following such
(or increase)
</TABLE>
* This schedule should be included only if the Note is issued in global form.
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF NOTES
Re: 12% Senior Secured Notes due 2004 of ITSA-Intercontinental Telecomunicacoes
Ltda.
This Certificate relates to US$_______ principal amount of Notes held in
*|__| global or *|__| certificated form by ______________________ (the
"Transferor").
The Transferor* has requested the Trustee by written order to exchange or
register the transfer of a Note or Notes as follows:
Date:_____________ Your Name:_________________________________________________
(Print your name exactly as it appears on the
face of this Note)
Your Signature:____________________________________________
Social Security or Tax Identification No.:_________________
Signature Guarantee*:______________________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
B-1
<PAGE>
SCHEDULE I
SECURITY DOCUMENTS
S-1
<PAGE>
EXHIBIT B
RESTRUCTURING AGREEMENT
dated as of January 24, 2000
among
TV FILME, INC.
and
EACH OF THE SPECIFIED HOLDERS OF
12-7/8% SENIOR NOTES DUE 2004
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 DEFINITIONS..............................................1
SECTION 2 AGREEMENT TO RESTRUCTURE.................................3
Section 2.1 Restructuring............................................3
Section 2.2 Financing Agreement......................................4
Section 2.3 Implementation of Restructuring..........................5
Section 2.4 Conditions...............................................5
SECTION 3 PLAN SOLICITATION AND CONFIRMATION.......................5
Section 3.1 Solicitation and Confirmation............................5
Section 3.2 Acceptance of Plan.......................................6
SECTION 4 RESTRICTIONS UPON TRANSFERS..............................6
Section 4.1 Restrictions.............................................6
Section 4.2 Permitted Transfers......................................6
SECTION 5 AGREEMENTS AND REPRESENTATIONS...........................7
Section 5.1 Negative Covenants of the Company........................7
Section 5.2 Forbearance..............................................7
Section 5.3 Employee Benefits........................................7
Section 5.4 Management Stock.........................................7
Section 5.5 Specified Holders' Representations.......................7
Section 5.6 Company's Representations................................8
SECTION 6 MISCELLANEOUS............................................9
Section 6.1 No Waiver; Modifications in Writing......................9
Section 6.2 Notices..................................................9
Section 6.3 No Solicitation..........................................9
Section 6.4 Further Assurances.......................................9
Section 6.5 Amendments..............................................10
Section 6.6 Appointment to Creditors' Committee.....................10
Section 6.7 Specific Performance....................................10
Section 6.8 Prior Negotiations......................................10
Section 6.9 No Third-Party Beneficiaries............................10
Section 6.10 Consideration...........................................10
Section 6.11 Term....................................................10
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
Section 6.12 Execution in Counterparts...............................10
Section 6.13 Assignment..............................................10
Section 6.14 Governing Law; Jurisdiction.............................10
Section 6.15 Headings................................................11
EXHIBIT A SCHEDULE OF SPECIFIED HOLDERS......................................13
EXHIBIT B PLAN OF REORGANIZATION.............................................14
EXHIBIT C DISCLOSURE STATEMENT...............................................15
EXHIBIT D LIST OF PERSONS RECEIVING 15% OF NEW EQUITY INTERESTS..............16
EXHIBIT E EMPLOYMENT AGREEMENTS..............................................17
EXHIBIT F NEW INDENTURE......................................................18
-ii-
<PAGE>
RESTRUCTURING AGREEMENT
Restructuring Agreement (the "AGREEMENT") dated as of January 24, 2000
among TV Filme, Inc., a Delaware corporation (the "COMPANY"), and each holder of
12-7/8% Senior Notes due 2004 ("OLD NOTES") of the Company that is a signatory
hereto (each, a "SPECIFIED HOLDER" and, collectively, the "SPECIFIED HOLDERS").
The Specified Holders own or have proxies to vote the principal amounts
of Old Notes set forth on EXHIBIT A and collectively own or have proxies to vote
65.77% of the aggregate principal amount of Old Notes outstanding. As described
herein, the Specified Holders consent to and will support the Company's
solicitation (the "SOLICITATION") of votes for acceptance of the Company's plan
of reorganization substantially in the form attached hereto as EXHIBIT B (the
"PLAN") under chapter 11 of title 11 of the United States Code (the "BANKRUPTCY
CODE") from the Company's securityholders.
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and each Specified Holder agrees as follows:
SECTION 1
DEFINITIONS
Unless otherwise defined in this Agreement, all capitalized terms shall
have the meanings set forth in the Plan annexed as EXHIBIT B hereto.
"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 the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" having meanings correlative to the foregoing.
"ANATEL" means Agencia Nacional de Telecomunicacoes, the Brazilian
government agency which regulates telecommunication services in Brazil and has
jurisdiction over the multi-channel distribution systems licenses held by ITSA
and the Subsidiaries.
"BANKRUPTCY COURT" means the United States Bankruptcy Court, or the
District Court, for the District of Delaware in which a chapter 11 bankruptcy
case will be commenced by the Company to seek confirmation of the Plan.
"CENTRAL BANK" means the Central Bank of Brazil.
"CENTRAL BANK FEE" means the fee, if any, imposed by the Central Bank
in connection with the Central Bank's approval of the debt restructuring
contemplated by this Agreement.
"COMMON STOCK" means the currently outstanding Common Stock of the
Company.
<PAGE>
"DISCLOSURE STATEMENT" means the Disclosure Statement substantially in
the form attached hereto as EXHIBIT C to be distributed by the Company in
connection with the Solicitation.
"HOLDERS" means holders of Old Notes including, without limitation, the
Specified Holders.
"INDEBTEDNESS" means without duplication (a) any liability (including
obligations to pay principal, interest and premium, as applicable) of the
Company or any of its Subsidiaries for borrowed money or evidenced by a bond,
note, debenture or similar instrument (including a purchase money obligation)
given in connection with the acquisition of any businesses, properties or assets
of any kind (other than a trade payable or a current liability arising in the
ordinary course of business) to the extent it would appear as a liability upon a
balance sheet of the Company prepared on a consolidated basis in accordance with
United States generally accepted accounting principles; (b) any liability of the
Company or any of its Subsidiaries under any reimbursement obligation relating
to a letter of credit; and (c) any liability of others described in clauses (a)
or (b) above that the Company or any of its Subsidiaries has guaranteed,
directly or indirectly (to the extent of such guarantee), or that is otherwise
the Company's or any of its Subsidiaries' legal liability; PROVIDED, HOWEVER,
that clauses (a) through (c) shall not limit the indebtedness and transactions
authorized in Article 4 of the New Indenture.
"INDENTURE" means the Indenture, dated as of December 20, 1996, between
the Company and IBJ Schroeder Bank and Trust Company, as indenture trustee.
"INDENTURE TRUSTEE" means The Bank of New York as successor to IBJ
Schroeder Bank and Trust Company, (later known as IBJ Whitehall Bank and Trust
Company), in its capacity as indenture trustee under the Indenture, or any
successor indenture trustee appointed in accordance with the terms of the
Indenture.
"NEW EQUITY INTERESTS" means the stock of the Reorganized Company to be
issued in the manner set forth in section 2.1 of this Agreement.
"NEW INDENTURE" means an indenture relating to the New Secured Notes,
in the form annexed hereto as EXHIBIT F.
"NEW NOTE AMOUNT" means an amount equal to the sum of $35 million plus
an amount equal to the amount of the Central Bank Fee.
"NEW SECURED NOTES" means the new secured note or notes to be issued by
ITSA to the Reorganized Company in the New Note Amount, which will then be
assigned to the holders of the Old Notes pursuant to the Plan and be governed by
the terms of the New Indenture.
"PERSON" means an individual, corporation, limited liability company,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, government (or an agency or political subdivision thereof)
or other entity of any kind.
2
<PAGE>
"REORGANIZED COMPANY" means a newly-formed Cayman Islands entity
initially to be named "Successor TV Filme Company" which, in accordance with the
Plan, will acquire the assets of the Company on the Effective Date and will be
the successor in interest to the Company pursuant to a reorganization in which
the newly-formed corporation survives (the "REORGANIZATION").
"SUBSIDIARY" means, with respect to any Person, (i) a corporation a
majority of whose capital stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such Person,
by one or more Subsidiaries of such Person or by such Person and one or more
Subsidiaries thereof or (ii) any other Person (other than a corporation) in
which such Person, one or more Subsidiaries thereof or such Person and one or
more Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has at least majority ownership interest.
"TERMINATION EVENT" means failure to obtain confirmation of the Plan
within 120 days of the filing date of the Company's chapter 11 petition.
"VOTING DEADLINE" means the voting deadline specified in the Disclosure
Statement prior to which ballots with respect to the Plan will be accepted by
the Company, as such voting deadline may be extended by the Company, with the
reasonable consent of the Specified Holders.
SECTION 2
AGREEMENT TO RESTRUCTURE
Section 2.1. RESTRUCTURING. Each Specified Holder and the Company
has, after good faith negotiations in which it was represented by counsel,
agreed to the restructuring of the outstanding Old Notes and Common Stock of the
Company pursuant to the Plan, as follows:
(a) Holders of Old Notes will collectively receive upon consummation of
the Plan in exchange for the Old Notes: (i) $25 million (U.S.) in cash, (ii) New
Secured Notes in the New Note Amount and (iii) 80% of the fully diluted New
Equity Interests in the Reorganized Company.
(b) Current equity shareholders of the Company will collectively
receive in exchange for all outstanding Common Stock of the Company upon
consummation of the Plan 5% of the fully diluted New Equity Interests in the
Reorganized Company. All outstanding options or warrants of the Company will be
canceled upon consummation of the Plan.
(c) Current management of the Company and its Subsidiaries, identified
in EXHIBIT D hereto, or an entity or entities controlled by them, will receive
15% of the fully diluted New Equity Interests in the Reorganized Company and
will receive employment contracts to be executed contemporaneously with the
Reorganization, substantially in the form annexed hereto as EXHIBIT E.
(d) The terms and provisions of the New Secured Notes shall be
substantially as set forth in the New Indenture annexed hereto as EXHIBIT F.
3
<PAGE>
(e) The initial Board of Directors of the Reorganized Company shall
consist of seven (7) directors, as follows; Hermano Albuquerque, as Chairman,
Carlos Albuquerque, one director appointed by Hermano and Carlos Albuquerque
prior to the hearing on confirmation of the Plan, and four (4) directors
appointed by the Specified Holders prior to confirmation of the Plan. The
initial term of the directors shall be for a one year period after the Effective
Date of the Plan. The Specified Holders agree that during the one year period
following the Effective Date (a) neither they nor their affiliates will take
action to call or permit the Company or the Reorganized Debtor to call a meeting
of shareholders for the purpose of changing, or to take any other action to
change, the initial composition of the Board of Directors as agreed to herein;
and (b) should the Specified Holders sell the equity securities in the
Reorganized Company received in connection with the Reorganization, the
Specified Holders will use their best efforts to cause any purchaser or
purchasers of such equity securities to agree to the restrictions set forth in
subsection (a) hereof.
Section 2.2. FINANCING AGREEMENT. The Specified Holders have agreed to
underwrite and ensure the availability of a $10 million (U.S.) secured line of
credit (the "Exit Financing") to the Reorganized Company on the Effective Date
of the Plan. The terms of the Exit Financing shall be as follows:
o Maturity: twelve months from the Effective Date of the Plan.
o Interest: 15% annual interest rate, payable monthly, in cash.
o Fees:
(i) $400,000 (U.S.) upfront underwriting fee, to be paid on the
Effective Date of the Plan PRO RATA, to the Specified
Holders, as underwriters;
(ii) $100,000 (U.S.) upfront administration fee to be paid on
the Effective Date of the Plan to Resurgence Asset
Management LLC, as administrator of the Exit Financing; and
(iii) $300,000 (U.S.) facility fee to be paid only upon the
initial draw down on the Exit Financing, payable on a PRO
RATA basis to the lenders who participate in the Exit
Financing.
o Each draw down on the Exit Financing will require the prior
approval of the board of directors of the Reorganized Company.
o Security: The Exit Financing will be secured on a PARI PASSU
basis with the New Secured Notes.
o Participation: Each holder of in excess of $1 million in Old
Notes may participate on a PRO RATA basis in the Exit Financing
if such party (i) commits to do so in writing at least five (5)
business days prior to the Confirmation Hearing and (ii) actually
participates on a PRO RATA basis in the Exit Financing.
4
<PAGE>
o Documentation: The loan, security and other documentation
relating to the Exit Financing will be negotiated and finalized
by the parties on or prior to the hearing on confirmation of the
Plan.
Section 2.3. IMPLEMENTATION OF RESTRUCTURING. The restructuring
shall be implemented under the Plan to be confirmed by the Bankruptcy Court. To
implement the Plan, the Company shall form the Reorganized Company and, upon
confirmation of the Plan, engage in the Reorganization. Upon the Reorganization,
the Reorganized Company will contribute as equity to its subsidiary, ITSA -
Intercontinental Telecomunicacoes Ltda. ("ITSA"), a portion of the indebtedness
under an existing intercompany note (the "ITSA Note") owed to the Company by
ITSA which portion is equal to: $105 million less an amount equal to the amount
of the Central Bank Fee. The terms of the remaining amount due on the ITSA Note
(which amount shall equal $35 million plus an amount equal to the amount of the
Central Bank Fee) will be amended and restated, and shall be assigned by the
Reorganized Company to the holders of the Old Notes. In addition, New Equity
Interests will be issued by the Reorganized Company, as set forth in section 2.1
above.
Section 2.4. CONDITIONS. Effectiveness of the restructuring under this
Agreement and the Plan shall be subject to the following conditions:
(a) Confirmation of the Plan by order of the Bankruptcy Court;
(b) Approval by ANATEL of the relevant transactions contemplated by the
Plan, in form and substance reasonably satisfactory to the Specified Holders and
the Company;
(c) Approval by the Central Bank of the relevant transactions
contemplated by the Plan, in form and substance reasonably satisfactory to the
Specified Holders and the Company; and
(d) Such other conditions to the occurrence of the Effective Date (as
defined in the Plan) as may be set forth in the Plan.
SECTION 3
PLAN SOLICITATION AND CONFIRMATION
Section 3.1 SOLICITATION AND CONFIRMATION. No later than five (5)
business days subsequent to all parties hereto executing this Agreement, the
Company will file a voluntary case under Chapter 11 of the Bankruptcy Code in
the Bankruptcy Court and will seek approval of the adequacy of the Disclosure
Statement as expeditiously as possible under the Bankruptcy Code and the Federal
Rules of Bankruptcy Procedure (the "BANKRUPTCY RULES") and as permitted by the
Bankruptcy Court's schedule. Upon approval of the adequacy of the Disclosure
Statement, the Company will solicit acceptances of the Plan from holders of the
Company's Common Stock and Old Notes as expeditiously as practical and as
possible under the Bankruptcy Code and the Bankruptcy Rules, and as permitted by
the Bankruptcy Court's schedule.
Section 3.2 ACCEPTANCE OF PLAN. Each of the Specified Holders covenants
and agrees that such Specified Holder will take and cause each of its Affiliates
and Persons whose funds are managed by such Specified Holder to take or refrain
from taking, as the case may be, directly or indirectly, the following actions:
5
<PAGE>
(i) vote for acceptance of the Plan with respect to all Old Notes currently
owned, controlled or hereafter acquired by such Specified Holder and,
accordingly, tender to the Company an executed and properly-completed ballot in
favor of acceptance of the Plan by the Voting Deadline; (ii) not withdraw or
otherwise revoke the ballot referred to in clause (i) above; (iii) not vote for
or otherwise consent to or participate in any action or agreement that would
impede, interfere with, delay, postpone or attempt to discourage consummation of
the Plan, including, but not limited to, any vote for or recommendation in favor
of any alternative plan of reorganization or liquidation not proposed by the
Company under the Bankruptcy Code; and (iv) use its reasonable best efforts to
have the adequacy of the Disclosure Statement approved and the Plan confirmed by
the Bankruptcy Court as expeditiously as possible under the Bankruptcy Code and
the Bankruptcy Rules, and as permitted by the Bankruptcy Court's schedule.
SECTION 4
RESTRICTIONS UPON TRANSFERS
Section 4.1 RESTRICTIONS. No Specified Holder shall sell, assign,
transfer, pledge, hypothecate, make gifts of or in any manner whatsoever dispose
of or encumber (any such sale, assignment, transfer, pledge, hypothecation, gift
or disposition being hereinafter referred to as a "TRANSFER") any Old Notes
(including the Old Notes set forth opposite such Specified Holders' name on
EXHIBIT A) or any interest therein, except pursuant to a permitted Transfer
specified in Section 4.2. Any purported Transfer by any Specified Holder in
violation of this Agreement shall be null and void and of no force and effect
and the purported transferee shall have no rights or privileges in or with
respect to the Company.
Section 4.2 PERMITTED TRANSFERS. Notwithstanding anything to the
contrary contained in Section 4.1, a Specified Holder may Transfer any or all
Old Notes solely pursuant to a permitted Transfer as follows: (a) Transfer of
Old Notes to any Person if the proposed transferee agrees in a writing delivered
to the Company to become a party to this Agreement and pursuant to which writing
such proposed transferee (i) shall be bound by the terms and conditions of this
Agreement in the same manner and to the same extent as the Specified Holder who
proposes to Transfer such Old Notes (including, without limitation, the
obligations set forth in Section 3), and (ii) shall be entitled to the benefit
of the provisions of this Agreement in the same manner and to the same extent as
the Specified Holder who proposes to Transfer such Old Notes; and (b) a Transfer
of Old Notes in connection with the exchange of such Old Notes as contemplated
by the Plan upon the Reorganization.
SECTION 5
AGREEMENTS AND REPRESENTATIONS
Section 5.1 NEGATIVE COVENANTS OF THE COMPANY. Absent the written
approval of the Specified Holders, the Company hereby covenants and agrees that,
until the earlier to occur of the Reorganization or a Termination Event, the
Company will not and will not permit any of its Subsidiaries to:
(a) LIMITATION ON RESTRICTED PAYMENTS. Declare or pay any dividend on,
or purchase, redeem or retire for value, or make any payment on the account of
6
<PAGE>
the purchase, redemption or other acquisition or retirement for value of, any
Common Stock of the Company, except as permitted in Article 4 of the New
Indenture.
(b) LIMITATION ON INDEBTEDNESS. Create, incur or assume, directly or
indirectly, any Indebtedness.
(c) LIMITATION ON MERGERS AND ASSET SALES. Merge or consolidate with
any Person or acquire all or any substantial part of the properties or assets of
any Person or sell, assign, lease, transfer, exchange or otherwise dispose of
any material property, except (i) for sales of goods and services made in the
ordinary course of business, (ii) sale of excess inventory in the manner
conducted by the Company or its Subsidiaries in the past and (iii) transactions
authorized by Articles 4 or 5 of the New Indenture.
Section 5.2 FORBEARANCE. Until the date of a Termination Event, each
Specified Holder hereby agrees to forebear (and agrees not to give any
instructions to the Indenture Trustee under the Indenture inconsistent with such
forbearance) from the exercise of any rights or remedies it may have under the
Old Notes or the Indenture (the "EXISTING AGREEMENTS"), applicable law or
otherwise, with respect to any default in existence or arising under the
Existing Agreements; PROVIDED, HOWEVER, that during such period, the Company
shall have continued to comply with its obligations under the terms and
conditions of this Agreement.
Section 5.3 EMPLOYEE BENEFITS. The Company has reviewed with the
Specified Holders the importance of retaining the services of key employees of
the Company and its Subsidiaries and, with the approval of the Specified Holders
and the recommendation of their financial advisor, has agreed to (i) enter into
the employment agreements with management substantially in the form annexed
hereto as EXHIBIT E which agreements are to become effective upon the Effective
Date, and (ii) continue to honor existing employment arrangements between the
Company and its management and/or its Subsidiaries' management.
Section 5.4 MANAGEMENT STOCK. Upon the Effective Date of the Plan, the
Specified Holders agree that an aggregate of 15% of the fully diluted Common
Stock of the Reorganized Debtor shall be issued to the key management employees
identified in EXHIBIT D, or an entity or entities controlled by them, in partial
consideration of the services to be rendered to the Reorganized Company.
Section 5.5 SPECIFIED HOLDERS' REPRESENTATIONS Each of the Specified
Holders represents and warrants to the Company that:
(a) AUTHORITY. Such Specified Holder has full legal right, power and
authority to enter into this Agreement and to perform such Specified Holder's
obligations hereunder without the need for the consent of any other Person; and
that the execution, delivery and performance of this Agreement have been duly
authorized by all necessary corporate, partnership or LLC action on its part.
(b) OWNERSHIP. Such Specified Holder is the sole beneficial owner
and/or the investment advisor or manager for the beneficial owner, with the
power to vote and dispose of on behalf of such beneficial owner, or has the
proxy to vote under the Plan or otherwise the principal amount of Old Notes set
7
<PAGE>
forth opposite the name of such Specified Holder on EXHIBIT A. Notwithstanding
the amounts set forth on EXHIBIT A, each Specified Holder agrees that the terms
of this Agreement shall also apply to any Old Notes such Holder acquires
subsequent to the date hereof.
(c) ENFORCEABILITY. This Agreement has been duly authorized, executed
and delivered and constitutes the legal, valid and binding obligation of such
Specified Holder enforceable against such Specified Holder in accordance with
the terms hereof.
(d) COMPLIANCE. The execution, delivery and performance of this
Agreement by such Specified Holder does not, in any material respect, (i)
violate any provision of applicable law, rule, regulation or ordinance or
require any government approval (other than the consents to be obtained as
contemplated by the Plan), (ii) violate any judgment, order, writ or decree of
any court or other tribunal applicable to such Specified Holder, (iii) violate
or result in a default under any of the provisions of the Certificate of
Incorporation or the By-Laws (or other constitutive documents) of such Specified
Holder or (iv) violate or otherwise constitute a default (with or without the
giving of notice or the lapse of time or both) under any material agreement to
which such Specified Holder is a party. Such Specified Holder is a sophisticated
institutional investor with respect to its ownership of the Old Notes and is an
"accredited investor" as defined in Rule 501(a) of Regulation D under the
Securities Act of 1933.
(e) The Specified Holders have reviewed and had an adequate opportunity
to review and comment on the terms of the Disclosure Statement, the Plan and
this Agreement (and all exhibits to such documents) and have consulted with
financial advisors and counsel in connection therewith.
Section 5.6 COMPANY'S REPRESENTATIONS. The Company represents and
warrants to each of the Specified Holders that:
(a) ORGANIZATION. The Company is a corporation validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and corporate authority to own, lease and operate its properties
and assets as now owned, leased and operated.
(b) AUTHORITY. The Company has the full legal right, power and
authority to enter into this Agreement and to perform its obligations hereunder
without the need for the consent of any other person, except for ANATEL, the
Central Bank and the Bankruptcy Court approvals contemplated by this Agreement.
(c) ENFORCEABILITY. This Agreement has been duly authorized, executed
and delivered and constitutes the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with the terms hereof.
(d) COMPLIANCE. The execution, delivery and performance of this
Agreement by the Company does not, in any material respect, (1) violate any
provision of applicable law, rule, regulation or ordinance (other than the
consents to be obtained as contemplated by the Plan), (ii) violate any judgment,
order, writ or decree of any court or other tribunal applicable to the Company,
(iii) violate or result in a default under any of the provisions of the
Certificate of Incorporation or the By-Laws of the Company or (iv) violate or
8
<PAGE>
otherwise constitute a default (with or without the giving of notice of the
lapse of time or both) under any material agreement to which the Company is a
party.
SECTION 6
MISCELLANEOUS
Section 6.1 NO WAIVER; MODIFICATIONS IN WRITING. No failure or delay on
the part of the Company or any Specified Holder in exercising any right, power
or remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy hereunder operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to any
party at law or in equity or otherwise.
Section 6.2 NOTICES. All notices, demands and other communications
provided for hereunder shall be in writing, and, if to the Specified Holders,
shall be given by registered or certified mail, return receipt requested,
telecopy, courier service or personal delivery, addressed to each Specified
Holder as shown on the execution pages hereof or to such other address as such
person may designate to the Company in writing and, if to the Company, shall be
given by similar means to the Company at: SCS, Quadra 07-Bl. A Ed Executive
Tower, Sala 601, Brasilia, DF Brazil, and shall be deemed given when received.
Copies of all such notices shall be provided to: Counsel for the Specified
Holders, Jones, Day, Reavis & Pogue, LLP, 599 Lexington Avenue, New York, New
York 10022, Attention: Marc S. Kirschner, Esq.; and counsel for the Company,
Kelley Drye & Warren LLP, 101 Park Avenue, New York, New York 10178, Attention:
Mark I. Bane, Esq.
Section 6.3 NO SOLICITATION. This Agreement is not and shall not be
deemed to be a solicitation of consents to the Plan. The acceptances of the
Specified Holders will not be solicited until the Bankruptcy Court has entered
an order approving the Disclosure Statement and the Specified Holders have been
sent the court-approved Disclosure Statement and related ballot.
Section 6.4 FURTHER ASSURANCES. The Company and each Specified Holder
hereby further covenants and agrees to use its best efforts to, and to cause the
Indenture Trustee to, negotiate in good faith and complete the documents
necessary to implement this Agreement and the Plan, and all agreements
contemplated thereby.
Section 6.5 AMENDMENTS. This Agreement may not be modified, amended or
supplemented with respect to any party except in writing signed by such party.
Section 6.6 APPOINTMENT TO CREDITORS' COMMITTEE. The Specified Holders
agree to support the appointment of an official committee of creditors by the
United States Trustee in the Company's bankruptcy case (the "CREDITORS'
COMMITTEE"). Each Specified Holder will use its best efforts to be appointed to
the Creditors' Committee. Service on the Creditors' Committee by a Specified
Holder shall not affect the continuing validity and enforceability of this
Agreement as to such Specified Holder.
Section 6.7 SPECIFIC PERFORMANCE. It is understood and agreed by each
of the parties hereto that money damages would not be a sufficient remedy for
any breach of this Agreement by any party and each non-breaching party shall be
9
<PAGE>
entitled to specific performance and injunctive or other equitable relief as a
remedy of any such breach.
Section 6.8 PRIOR NEGOTIATIONS. This Agreement supersedes all prior
negotiations with respect to the subject matter hereof.
Section 6.9 NO THIRD-PARTY BENEFICIARIES. Unless expressly stated
herein, this Agreement shall be solely for the benefit of the Parties hereto and
no other person or entity shall be a third-party beneficiary hereof.
Section 6.10 CONSIDERATION. It is hereby acknowledged by the parties
hereto that no consideration shall be due or paid to the Specified Holders for
their agreement to vote to accept the Plan in accordance with the terms and
conditions of this Agreement other than the Company's agreement to use its
reasonable best efforts to obtain approval of the Disclosure Statement and to
take all steps necessary and desirable to confirm the Plan in accordance with
the terms and conditions of this Agreement.
Section 6.11 TERM. This Agreement shall terminate upon the earliest to
occur of (a) the Termination Event and (b) the Effective Date of the Plan.
Section 6.12 EXECUTION IN COUNTERPARTS. This Agreement may be executed
in two or more counterparts, each of which shall constitute an original and all
of which together shall constitute one and the same Agreement. Delivery of an
executed counterpart of a signature page by telecopier shall be effective as a
delivery of a manually executed counterpart hereof.
Section 6.13 ASSIGNMENT. This Agreement shall be binding upon the
Company and each Specified Holder, and their successors and permitted assigns.
The Selected Holders shall not assign their rights under this Agreement except
to a permitted transferee of the Old Notes in accordance with Section 4 hereof.
Any assignment in violation of this provision shall be null and void.
Section 6.14 GOVERNING LAW; JURISDICTION. This Agreement shall be
governed under the laws of the State of New York, and without regard to the
conflicts of law principles thereof. Each of the parties hereto agrees to submit
to the exclusive jurisdiction of the Bankruptcy Court in any action or
proceeding arising out of or relating to this Agreement.
Section 6.15 HEADINGS. The Section headings and Table of Contents used
or contained in this Agreement are for convenience or reference only and shall
not affect the construction of this Agreement.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers hereunto duly authorized, as of the date
first above written.
TV FILME, INC.
By:__________________________________
Name:
Title:
11
<PAGE>
SPECIFIED HOLDER
Resurgence Asset Management LLC
(for itself and its Affiliates)
By:__________________________________
Name:
Title:
Address: 10 New King Street
White Plains, NY
SPECIFIED HOLDER
Romulus Holdings
(for itself and its Affiliates and Holders
for whom it has Power to Vote
By:__________________________________
Name:
Title:
Address:
SPECIFIED HOLDER
By:__________________________________
Name:
Title:
Address:
SPECIFIED HOLDER
By:__________________________________
Name:
Title:
Address:
SPECIFIED HOLDER
By:__________________________________
Name:
Title:
Address:
12
<PAGE>
EXHIBIT A
SCHEDULE OF SPECIFIED HOLDERS
PRINCIPAL AMOUNT OF OLD NOTES
SPECIFIED HOLDER CURRENTLY OWNED OR CONTROLLED
Resurgence Asset Management LLC $59,516,000
(and Affiliates)
Romulus Holdings $32,564,000
(and Affiliates and Holders for
whom Romulus has Power to Vote)
---------------
Total $92,080,000
13
<PAGE>
EXHIBIT B
PLAN OF REORGANIZATION
14
<PAGE>
EXHIBIT C
DISCLOSURE STATEMENT
15
<PAGE>
EXHIBIT D
LIST OF PERSONS RECEIVING, IN THE AGGREGATE, 15% OF NEW EQUITY INTERESTS
Veronica Albuquerque
Dilton Caldas
Ari Lisboa
Geraldo Mello
Carlos Souza
Robespierre Sa
Hermano Albuquerque
Carlos Albuquerque
16
<PAGE>
EXHIBIT E
EMPLOYMENT AGREEMENTS
17
<PAGE>
EXHIBIT F
NEW INDENTURE
18
TV FILME, INC.
LIST OF SUBSIDIARIES
NAME OF SUBSIDIARY STATE/COUNTRY OF INCORPORATION
- ------------------ ------------------------------
TV Filme Brasilia Servicos
de Telecomunicacoes Ltda. Brazil
TV Filme Belem Servicos
de Telecomunicacoes Ltda. Brazil
TV Filme Goiania Servicos
de Telecomunicacoes Ltda. Brazil
TV Filme Programadora Ltda. Brazil
TV Filme Operacoes Ltda. Brazil
TV Filme Servicos
de Telecomunicacoes Ltda. Brazil
TV Filme Sistemas Ltda. Brazil
TV Filme Campina Grande
Servicos de Telecomunicacoes Ltda. Brazil
ITSA - Intercontinental Telecomunicacoes Ltda Brazil
TV Filme of Cayman, Ltd. Cayman Islands
ITSA of Cayman, Ltd. Cayman Islands
Filme Sub, Inc Cayman Islands
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-18201) pertaining to the 1996 Stock Option Plan of TV Filme,
Inc. of our report dated March 17, 2000 (except for Notes 1 and 7, as to which
the date is April 10, 2000) with respect to the consolidated financial
statements of TV Filme, Inc. included in the Annual Report (Form 10-K) for the
year ended December 31, 1999.
ERNST & YOUNG
Auditores Independentes S.C.
/s/ Sergio Citeroni
Sergio Citeroni
Partner
Sao Paulo, Brazil
April 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet of TV Filme, Inc. at December 31, 1999 and
the condensed consolidated statement of operations for the year ended December
31, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 42,175
<SECURITIES> 0
<RECEIVABLES> 3,125
<ALLOWANCES> 651
<INVENTORY> 2,750
<CURRENT-ASSETS> 53,099
<PP&E> 64,296
<DEPRECIATION> 39,291
<TOTAL-ASSETS> 83,322
<CURRENT-LIABILITIES> 174,064
<BONDS> 0
0
0
<COMMON> 108
<OTHER-SE> (91,534)
<TOTAL-LIABILITY-AND-EQUITY> 83,741
<SALES> 26,177
<TOTAL-REVENUES> 26,177
<CGS> 11,844
<TOTAL-COSTS> 19,289
<OTHER-EXPENSES> 14,205
<LOSS-PROVISION> 1,336
<INTEREST-EXPENSE> (24,088)
<INCOME-PRETAX> (66,570)
<INCOME-TAX> 0
<INCOME-CONTINUING> (66,570)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (66,570)
<EPS-BASIC> (6.15)
<EPS-DILUTED> (6.15)
</TABLE>
