<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 11, 1997
REGISTRATION NO. 333-22267
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TEVECAP S.A.
(Exact Name of Registrant as Specified in its Charter)
TEVECAP INC.
(Translation of Registrant's name into English)
<TABLE>
<S> <C> <C>
THE FEDERATIVE REPUBLIC OF BRAZIL 4841 NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
RUA DO ROCIO, 313 CT CORPORATION SYSTEM
SAO PAULO, SP BRAZIL 1633 BROADWAY
04552-904 NEW YORK, NY 10019
(TELEPHONE: 55-11-821-8550) (TELEPHONE: 212-664-1666)
(ADDRESS AND TELEPHONE NUMBER OF (NAME, ADDRESS AND TELEPHONE NUMBER
REGISTRANT'S PRINCIPAL EXECUTIVE OF AGENT FOR SERVICE)
OFFICES)
</TABLE>
------------------------
COPY TO:
PETER V. DARROW, ESQ.
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NY 10019
------------------------
<TABLE>
<CAPTION>
NAME, ADDRESS AND
TELEPHONE NUMBER TRANSLATION OF JURISDICTION OF
OF ADDITIONAL REGISTRANTS ADDITIONAL REGISTRANTS' NAMES ORGANIZATION
- --------------------------------------------------- --------------------------------------------------- ----------------------
<S> <C> <C>
TVA Sistema de Televisao S.A....................... TVA Television Systems Inc. The Federative
Rua do Rocio, 313 Republic of Brazil
Sao Paulo SP 04552-904
(Telephone: 55-11-821-8550)
TVA Communications, Ltd............................ TVA Communications, Ltd. The British Virgin
P.O. Box 71 Islands
Craigmuir Chambers
Road Town, British Virgin Islands
(Telephone: 55-11-821-8550)
Galaxy Brasil S.A.................................. Galaxy Brazil Inc. The Federative
Rua do Rocio, 313 Republic of Brazil
Sao Paulo SP 04552-904
(Telephone: 55-11-821-8550)
TVA Sul Participacoes S.A.......................... TVA South Holdings Inc. The Federative
Rua Martha Kateiva de Oliveira, 319 Republic of Brazil
Curitiba PR
(Telephone: 55-11-821-8550)
Comercial Cabo TV Sao Paulo Ltda................... Commercial Cable TV Sao Paulo Ltd. The Federative
Rua do Rocio, 313 Republic of Brazil
Sao Paulo SP 04552-904
(Telephone: 55-11-821-8550)
TVA Parana Ltda.................................... TVA Parana Ltd. The Federative
Rua Martha Kateiva de Oliveira, 319 Republic of Brazil
Curitiba PR
(Telephone: 55-11-821-8550)
TVA Alfa Cabo Ltda................................. TVA Alpha Cable Ltd. The Federative
Rua Martha Kateiva de Oliveira, 319 Republic of Brazil
Curitiba PR
(Telephone: 55-11-821-8550)
CCS Camboriu Cable System de....................... CCS Camboriu Cable The Federative
Telecomunicacoes Ltda. Telecommunications Systems Republic of Brazil
Avenida Brasil, 802 Ltd.
Balneario de Camboriu SC
(Telephone: 55-11-821-8550)
TCC TV a Cabo Ltda................................. TCC Cable TV Ltd. The Federative
Rua Martha Kateiva de Oliveira, 319 Republic of Brazil
Curitiba PR
(Telephone: 55-11-821-8550)
TVA Sul Foz do Iguacu Ltda......................... TVA South Iguacu Falls Ltd. The Federative
Rua Carlos Sbaraini, 410 Republic of Brazil
Foz do Iguacu PR
(Telephone: 55-11-821-8550)
TVA Sul Santa Catarina Ltda........................ TVA South Santa Catarina Ltd. The Federative
Rodovia SC 401, no. 867 Republic of Brazil
Florianopolis, SC
(Telephone: 55-11-821-8550)
<CAPTION>
STANDARD
NAME, ADDRESS AND INDUSTRIAL I.R.S. EMPLOYER
TELEPHONE NUMBER CLASSIFICATION IDENTIFICATION
OF ADDITIONAL REGISTRANTS CODE NUMBER NO.
- --------------------------------------------------- -------------- -----------------
<S> <C> <C>
TVA Sistema de Televisao S.A....................... 4841 Not Applicable
Rua do Rocio, 313
Sao Paulo SP 04552-904
(Telephone: 55-11-821-8550)
TVA Communications, Ltd............................ 4841 Not Applicable
P.O. Box 71
Craigmuir Chambers
Road Town, British Virgin Islands
(Telephone: 55-11-821-8550)
Galaxy Brasil S.A.................................. 4841 Not Applicable
Rua do Rocio, 313
Sao Paulo SP 04552-904
(Telephone: 55-11-821-8550)
TVA Sul Participacoes S.A.......................... 4841 Not Applicable
Rua Martha Kateiva de Oliveira, 319
Curitiba PR
(Telephone: 55-11-821-8550)
Comercial Cabo TV Sao Paulo Ltda................... 4841 Not Applicable
Rua do Rocio, 313
Sao Paulo SP 04552-904
(Telephone: 55-11-821-8550)
TVA Parana Ltda.................................... 4841 Not Applicable
Rua Martha Kateiva de Oliveira, 319
Curitiba PR
(Telephone: 55-11-821-8550)
TVA Alfa Cabo Ltda................................. 4841 Not Applicable
Rua Martha Kateiva de Oliveira, 319
Curitiba PR
(Telephone: 55-11-821-8550)
CCS Camboriu Cable System de....................... 4841 Not Applicable
Telecomunicacoes Ltda.
Avenida Brasil, 802 Ltd.
Balneario de Camboriu SC
(Telephone: 55-11-821-8550)
TCC TV a Cabo Ltda................................. 4841 Not Applicable
Rua Martha Kateiva de Oliveira, 319
Curitiba PR
(Telephone: 55-11-821-8550)
TVA Sul Foz do Iguacu Ltda......................... 4841 Not Applicable
Rua Carlos Sbaraini, 410
Foz do Iguacu PR
(Telephone: 55-11-821-8550)
TVA Sul Santa Catarina Ltda........................ 4841 Not Applicable
Rodovia SC 401, no. 867
Florianopolis, SC
(Telephone: 55-11-821-8550)
</TABLE>
<PAGE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER
OF SECURITIES TO BE REGISTERED REGISTERED UNIT(2)(3)
<S> <C> <C>
12 5/8% Senior Notes due 2004(1)................................... US$250,000,000 100%
Subsidiary Guarantees of 12 5/8% Senior Notes Due 2004............. (5) (5)
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED PRICE(2)(3) REGISTRATION FEE(4)
<S> <C> <C>
12 5/8% Senior Notes due 2004(1)................................... US$250,000,000 US$75,757.57
Subsidiary Guarantees of 12 5/8% Senior Notes Due 2004............. (5) (5)
</TABLE>
(1) The Guarantees by TVA Sistema de Televisao S.A., TVA Communications, Ltd.,
Galaxy Brasil S.A., TVA Sul Participacoes S.A., Comercial Cabo TV Sao Paulo
Ltda, TVA Parana Ltda., TVA Alfa Cabo Ltda., CCS Camboriu Cable System de
Telecomunicacoes Ltda., TCC TV a Cabo Ltda. and TVA Sul Foz do Iguacu Ltda.
of the payment of principal, premium, if any, and interest on the Notes are
also being registered hereby. Pursuant to Rule 457(a), no registration fee
is required with respect to such Guarantees.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Exclusive of accrued interest, if any.
(4) Calculated pursuant to Rule 457.
(5) No additional consideration will be paid for such securities. Pursuant to
Rule 457 under the Securities Act of 1933, no separate fee is payable
therefor.
------------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, APRIL 11, 1997
PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
US$250,000,000
Offer for all Outstanding
12 5/8% Senior Notes due 2004
in Exchange for
[LOGO]
up to US$250,000,000 principal amount of
12 5/8% Senior Notes due 2004
of
TEVECAP S.A.
The Exchange Offer
will expire at 5:00 P.M., New York City time,
on , 1997, unless extended.
------------------------
Tevecap S.A., a Brazilian corporation ("Tevecap" and, together with its
consolidated subsidiaries and affiliates, "TVA" or the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Registered Exchange Offer"), to exchange an aggregate principal amount of
up to US$250,000,000 of its 12 5/8% Senior Notes due 2004 (the "Exchange Notes")
together with the Subsidiary Guarantees (as defined and together with the
Exchange Notes, the "Exchange Securities"), which have been registered under the
Securities Act of 1933 (the "Securities Act"), pursuant to a Registration
Statement of which this Prospectus constitutes a part, for a like principal
amount of its outstanding 12 5/8% Senior Notes due 2004 (the "Old Notes"), of
which US$250,000,000 aggregate principal amount is outstanding, together with
the Subsidiary Guarantees of the Old Notes (such Subsidiary Guarantees together
with the Old Notes, the "Old Securities").
The terms of the Exchange Notes are identical in all material respects to
the terms of the Old Securities, except for certain transfer restrictions and
registration rights relating to the Old Securities and except that, if the
Registered Exchange Offer is not consummated by May 23, 1997, Tevecap will be
obligated to pay each holder of the Old Notes an amount equal to $0.192 per week
per $1,000 of the Old Notes until the Registered Exchange Offer is consummated.
The Exchange Securities are being offered hereunder in order to satisfy certain
obligations of Tevecap under the Purchase Agreement dated as of November 21,
1996 (the "Purchase Agreement") between Tevecap, the Guarantors (as defined) and
the initial purchasers of the Old Notes (the "Initial Purchasers") and the
Exchange and Registration Rights Agreement dated November 26, 1996 (the
"Exchange and Registration Rights Agreement") among Tevecap, the Guarantors and
the Initial Purchasers. The Exchange Notes will evidence the same debt as the
Old Notes and will be issued under and be entitled to the same benefits under
the Indenture (as defined) as the Old Notes. In addition, the Exchange Notes and
the Old Notes will be treated as one series of securities under the Indenture.
The Exchange Notes and the Old Notes are collectively referred to herein as the
"Notes." See "Description of the Notes."
Interest on the Notes will be payable in cash in US dollars semi-annually on
May 26 and November 26 of each year, commencing on May 26, 1997. The Notes will
mature on November 26, 2004. Except as described below, Tevecap may not redeem
the Notes prior to November 26, 2004. In the event Tevecap receives Net Cash
Proceeds (as defined) at any time on or prior to November 26, 2000 from one or
more specified sales of equity, it may redeem up to $75.0 million of the
aggregate principal amount of the Notes at a price equal to 112.625% of the
principal amount to be redeemed, together with accrued and unpaid interest, if
any, to the date of redemption. In addition, Tevecap may redeem the Notes at any
time, in whole but not in part, at a price equal to 100% of their principal
amount, together with accrued and unpaid interest, if any, to the date of
redemption, in the event of certain changes affecting the withholding tax
treatment of the Notes, with the occurrence of such events to be determined by
the Company in accordance with the terms of the Notes. See "Description of the
Notes-Redemption for Changes in Withholding Taxes." The Notes will not be
subject to any sinking fund requirement. Upon the occurrence of a Change of
Control (as defined), each holder will have the right to require Tevecap to make
an offer to repurchase the Notes held by such holder at a price equal to 101% of
the principal amount thereof, together with accrued and unpaid interest, if any,
to the date of repurchase. See "Description of Notes."
(CONTINUED ON NEXT PAGE)
--------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 23 FOR A DISCUSSION OF CERTAIN FACTORS
THAT HOLDERS OF THE OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE
OFFER AND THAT PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES SHOULD CONSIDER IN
CONNECTION WITH SUCH INVESTMENT.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
The Notes will be unsecured, senior obligations of Tevecap ranking PARI
PASSU in right of payment with all other existing and future unsecured, senior
Indebtedness (as defined) of Tevecap and senior in right of payment to all other
existing and future subordinated Indebtedness of Tevecap. The Notes will be
jointly and severally guaranteed (the "Subsidiary Guarantees") by each
Restricted Subsidiary (as defined) of Tevecap (the "Guarantors"). The Subsidiary
Guarantees will be unsecured, senior obligations of the Guarantors ranking PARI
PASSU in right of payment with all other existing and future unsecured, senior
Indebtedness of the Guarantors and senior in right of payment to all other
existing and future subordinated Indebtedness of the Guarantors. However,
subject to certain limitations set forth in the Indenture, Tevecap and its
Subsidiaries may incur other senior Indebtedness, including Indebtedness that is
secured by the assets of Tevecap and its Subsidiaries. At September 30, 1996,
after giving effect to the sale of the Old Securities and the application of the
net proceeds therefrom, Tevecap would not have had any outstanding senior
Indebtedness, other than the Notes (exclusive of unused commitments) and the
aggregate principal amount of outstanding senior Indebtedness of the Guarantors,
other than the Subsidiary Guarantees, would have been $4.6 million (exclusive of
unused commitments and short term debt) all of which would have ranked pari
passu with the Subsidiary Guarantees, but none of which was secured
Indebtedness. As of April 1, 1997, Tevecap did not have any outstanding senior
Indebtedness other than the Notes (exclusive of unused commitments and short
term debt), and the aggregate principal amount of outstanding senior
Indebtedness of the Guarantors was $6.1 million (exclusive of unused commitments
and short term debt) all of which ranks pari passu with the Subsidiary
Guarantees, and none of which is secured. Although the Notes are titled "senior"
securities, Tevecap has not issued any Indebtedness to which the Notes would
rank senior. See "Description of Notes--Ranking" and "Certain Other
Indebtedness."
The Indenture (as defined) under which the Old Securities were issued and
the Exchange Securities would be issued contains covenants which, among other
limitations, will limit the incurrence of additional indebtedness by Tevecap and
its Restricted Subsidiaries. This limitation is subject to a number of important
qualifications and exceptions. Absent access by the Company to additional
financing (whether debt or equity) this limitation could, in circumstances in
which the Company is unable to incur additional debt under this covenant, and
has fully utilized the available exceptions, limit the ability of the Company to
acquire future network assets, inventory and equipment. However, the Company
retains the option to obtain additional equity financing through capital
contributions from its shareholders, or by means of a public offering in the
international capital markets.
Tevecap's operations are conducted through, and substantially all of
Tevecap's assets are owned by, Tevecap's direct and indirect subsidiaries. The
ability of Tevecap to meet its obligations in respect of the Notes and any
future indebtedness of Tevecap and the ability of Tevecap to refinance the Notes
at their maturity (or upon early redemption or otherwise) will depend on, among
other things, the future performance of such subsidiaries (including the
Guarantors). In addition, the ability of Tevecap's subsidiaries to pay dividends
and make other payments to Tevecap may be restricted by, among other things,
applicable corporate and other laws and regulations and by the terms of
agreements to which such subsidiaries become subject. Also, the property and
assets of certain of such subsidiaries have had, or in the future may have,
liens placed upon them pursuant to existing and future financings of such
subsidiaries. Although the Indenture limits the ability of such subsidiaries to
enter into consensual restrictions on their ability to pay dividends and make
other payments to Tevecap and to permit liens to exist on their property and
assets, such limitations are subject to a number of significant qualifications.
See "Description of Notes--Certain Covenants." A portion of the Company's total
assets (13.4% at September 30, 1996) represents interests in entities that are
not majority-owned subsidiaries of Tevecap. The ability of Tevecap to receive
funds from these entities may be limited by, among other things, shareholder
agreements with the other investors in those entities, credit arrangements at
those entities and the need of those entities to reinvest their cash flow in
their own operations. In addition, applicable Brazilian law limits the amount of
dividends which may be paid by Tevecap's minority-owned subsidiaries to the
extent they do not have profits available for distribution. Other statutory and
general law obligations may also affect the ability of those entities to make
payments to Tevecap on account of intercompany loans.
Tevecap is making the Registered Exchange Offer in reliance on the position
of the staff of the Securities and Exchange Commission (the "Commission") as set
forth in certain no-action letters addressed to other parties in other
transactions. However, Tevecap has not sought its own no-action letter and there
can be no assurance that the staff of the Commission would make a similar
determination with respect to the Registered Exchange Offer as in such other
circumstances. Based upon these interpretations by the staff of the Commission,
Tevecap believes that Exchange Securities issued pursuant to this Registered
Exchange Offer in exchange for Old Securities may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who acquired the Old Securities as a result of market making activities or other
trading activities, (ii) an Initial Purchaser who acquired the Old Securities
directly from the Company solely in order to resell pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act, or
(iii) a person that is an "affiliate" (as defined in Rule 405 of the Securities
Act) of Tevecap) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange
Securities are acquired in the ordinary course of such holder's business and
that such holder is not participating, and has no arrangement or understanding
with any person to participate, in the distribution of such Exchange Securities.
Holders of Old Securities accepting the Registered Exchange Offer will represent
to Tevecap in the Letter of Transmittal that such conditions have been met. Any
holder who participates in the Registered Exchange Offer for the purpose of
participating in a distribution of the Exchange Securities may not rely on the
position of the staff of the Commission as set forth in these no-action letters
and would have to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction.
Each broker-dealer who receives Exchange Securities for its own account
pursuant to the Registered Exchange Offer must acknowledge that it acquired the
Old Securities as a result of market-making activities or other trading
activities and will deliver a prospectus in connection with any resale of such
Exchange Securities. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Securities received in
exchange for Old Securities where such Old Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. Each of Tevecap and the Subsidiary Guarantors has agreed that, for a
period of 90 days after the date of this Prospectus, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Exchange Offer," and "Plan of Distribution."
The Exchange Securities are new securities for which there is currently no
market. Tevecap presently does not intend to apply for listing of the Exchange
Securities on any securities exchange or for quotation through the National
Association of Securities Dealers Automated Quotation (Nasdaq) system. Tevecap
has been advised by the Initial Purchasers, Chase
2
<PAGE>
Securities Inc., Donaldson Lufkin & Jenrette Securities Corporation, Bear,
Stearns & Co. Inc. and Bozano, Simonsen Securities, Inc., that, following
completion of the Exchange Offer, they presently intend to make a market in the
Exchange Securities and any Old Securities remaining outstanding; however, the
Initial Purchasers are not obligated to do so and any market-making activities
with respect to the Exchange Securities may be discontinued at any time without
notice. There can be no assurance that an active public market for the Exchange
Securities will develop.
Any Old Securities not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the rights and preferences and
will be subject to the limitations applicable thereto under the Indenture.
Following consummation of the Registered Exchange Offer, the holders of Old
Securities will continue to be subject to the existing restrictions upon
transfer thereof. Except for certain limited shelf registration rights of the
holders of Old Securities, Tevecap will have no further obligation to such
holders to provide for the registration under the Securities Act of the Old
Securities held by them. To the extent that Old Securities are tendered and
accepted in the Registered Exchange Offer, a holder's ability to sell untendered
Old Securities could be adversely affected. It is not expected that an active
market for the Old Securities will develop while they are subject to
restrictions on transfer.
Tevecap will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on the
date the Registered Exchange Offer expires, which will be , 1997
(the "Expiration Date"), unless the Registered Exchange Offer is extended by the
Company in its sole discretion, in which case the term "Expiration Date" shall
mean the latest date and time to which the Registered Exchange Offer is
extended. Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Registered Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. However, the Registered Exchange Offer is subject to certain
conditions which may be waived by Tevecap and to the terms and provisions of the
Exchange and Registration Rights Agreement. Tevecap has agreed to pay the
expenses of the Registered Exchange Offer. See "The Registered Exchange Offer."
The Exchange Notes will bear interest from the last interest payment date of the
Old Notes to occur prior to the issue date of the Exchange Notes or, if no such
interest has been paid, from November 26, 1996. Holders of the Old Notes whose
Old Notes are accepted for exchange will not receive interest on such Old Notes
for any period subsequent to the last interest payment date to occur prior to
the issue date of the Exchange Notes, if any, and will be deemed to have waived
the right to receive any interest payment on the Old Notes accrued from and
after such interest payment date or, if not such interest has been paid, from
November 26, 1996.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Securities as of , 1997.
Tevecap will not receive any proceeds from this Registered Exchange Offer.
No dealer-manager is being used in connection with this Registered Exchange
Offer. See "Use of Proceeds" and "Plan of Distribution."
3
<PAGE>
THE EXCHANGE SECURITIES MAY NOT BE OFFERED OR SOLD IN BRAZIL, EXCEPT UNDER
CIRCUMSTANCES WHICH DO NOT CONSTITUTE A PUBLIC OFFERING OR DISTRIBUTION OF
SECURITIES UNDER BRAZILIAN LAWS AND REGULATIONS. THE EXCHANGE SECURITIES HAVE
NOT BEEN, AND WILL NOT BE, REGISTERED WITH THE COMISSAO DE VALORES MOBILIARIOS
("CVM"), THE SECURITIES COMMISSION OF BRAZIL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Enforceability of Civil Liabilities........................................................................ 5
Presentation of Certain Information........................................................................ 5
Summary.................................................................................................... 7
Summary Historical Financial and Other Data................................................................ 20
Risk Factors............................................................................................... 22
Use of Proceeds............................................................................................ 36
Exchange Rate Data......................................................................................... 36
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 41
The Registered Exchange Offer.............................................................................. 54
Business................................................................................................... 62
Management................................................................................................. 90
Principal Shareholders..................................................................................... 95
Certain Transactions With Related Parties.................................................................. 98
Description of Certain Indebtedness........................................................................ 101
Description of Notes....................................................................................... 103
Income Tax Considerations.................................................................................. 137
Plan Of Distribution....................................................................................... 141
Experts.................................................................................................... 141
Legal Matters.............................................................................................. 142
Available Information...................................................................................... 142
Public Documents........................................................................................... 143
Report on Financial Statements............................................................................. F-1
The Federative Republic of Brazil.......................................................................... A-1
The Brazilian Economy...................................................................................... B-1
Glossary................................................................................................... C-1
</TABLE>
Until , 1997, broker-dealers effecting transactions in the Exchange
Notes, whether or not participating in the Registered Exchange Offer, may be
required to deliver a Prospectus. This is in addition to the obligation of
broker-dealers to deliver a Prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
No broker-dealer, salesperson or other individual has been authorized to
give any information or to make any representations in connection with the
Registered Exchange Offer other than those contained in this Prospectus and
Letter of Transmittal and, if given or made, such information or representation
must not be relied upon as having been authorized by the Company. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy the Exchange Notes in any jurisdiction to any person to whom it is unlawful
to make such offer or solicitation in such jurisdiction. The delivery of this
Prospectus shall not, under any circumstances, create any implication that the
information herein is correct at any time subsequent to its date.
4
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES
Tevecap and each of the Guarantors are Brazilian corporations (other than
TVA Communications Ltd., which is a corporation organized under the laws of the
British Virgin Islands) with substantially all of their assets and operations
located, and substantially all of their revenues derived, outside the United
States. Each of Tevecap and the Guarantors has appointed CT Corporation System,
New York, New York, as its agent to receive service of process with respect to
any action brought against it in any federal or state court in the State of New
York arising from the Registered Exchange Offer. However, it may not be possible
for investors to enforce outside the United States judgments against Tevecap and
the Guarantors obtained in the United States in any such actions, including
actions predicated upon the civil liability provisions of the US federal and
state securities laws. In addition, certain of the directors and officers of
Tevecap and the Guarantors, and certain of their advisors named herein, are
residents of Brazil, and all or substantially all of the assets of such persons
may be located outside the United States. As a result, it may not be possible
for investors to effect service of process within the United States upon such
persons, or to enforce against them judgments obtained in United States courts,
including judgments predicated upon the civil liability provisions of the US
federal and state securities laws.
Tevecap has been advised by its Brazilian counsel, Basch & Rameh--Advogados
e Consultores, that judgments of US courts for civil liabilities predicated upon
the federal securities laws of the United States, subject to certain
requirements described below, may be enforced in Brazil. A judgment against the
directors and officers of Tevecap and the Guarantors or the advisors named
herein who are residents of Brazil or against Tevecap or the Guarantors obtained
outside of Brazil would be enforceable in Brazil against such persons or Tevecap
or the Guarantors without reconsideration of the merits upon confirmation of
that judgment by the Brazilian Supreme Court. That confirmation, generally, will
occur if the foreign judgment (i) fulfills all formalities required for its
enforceability under the laws of the country where the foreign judgment is
granted, (ii) is issued by a competent court after proper service of process,
(iii) is not subject to appeal, (iv) is authenticated by a Brazilian consular
office in the country where the foreign judgment is issued and is accompanied by
a certified Portuguese translation and (v) is not contrary to Brazilian national
sovereignty or public policy or "good morals" (as set forth in Brazilian law).
Notwithstanding the foregoing, no assurance can be given that confirmation would
be obtained, that the process described above can be conducted in a timely
manner or that a Brazilian court would enforce a monetary judgment for violation
of the US securities laws with respect to the Notes or the Subsidiary
Guarantees. Tevecap has been further advised by its Brazilian counsel that
original actions predicated on the federal securities laws of the United States
may be brought in Brazilian courts and that Brazilian courts may enforce civil
liabilities in such actions against Tevecap or the Guarantors, their respective
directors, certain of their respective officers and the advisors named herein. A
plaintiff (whether Brazilian or non-Brazilian) who resides outside Brazil during
the course of litigation in Brazil must provide a bond to guarantee court costs
and legal fees if the plaintiff owns no real property in Brazil.
PRESENTATION OF CERTAIN INFORMATION
The accounts of the Company, which are maintained in Brazilian REAIS, were
prepared in accordance with the accounting principles generally accepted in the
United States of America and translated into United States dollars on the basis
set forth in Note 2.3 of the Financial Statements of Tevecap and Subsidiaries
(the "Tevecap Financial Statements" and together with the Financial Statements
of TVA Sistema de Televisao S.A., TVA Sul Participacoes S.A., and the Unaudited
Financial Information included elsewhere in this Prospectus, the "Financial
Statements") of the Company. Certain amounts stated herein in U.S. dollars
(other than as set forth in the Financial Statements and financial information
derived therefrom) have been translated, for the convenience of the reader, from
REAIS at the rate in effect on September 30, 1996 of R$1.0272 = US$1.00. Such
translations should not be construed as a representation that REAIS could have
been converted at such rate on such date or at any other date. See "Exchange
Rate Data." All references in this Prospectus to (i) "US dollars," "$" or "US$"
are to United
5
<PAGE>
States dollars and (ii) "REAIS," "REAL" or "R$" are to Brazilian REAIS.
Capitalized terms used in this Prospectus are defined, unless the context
otherwise requires, in the Glossary attached hereto as Appendix C. Unless
otherwise specified, data regarding population or homes in a licensed area are
projections based on 1991 population census figures compiled by the Instituto
Brasileiro de Geografia e Estastica ("IBGE"). There can be no assurance that the
number of people or the number of households in a specified area has not
increased or decreased by a higher or lower rate than those estimated by the
IBGE since the 1991 census. Unless otherwise indicated, references to the number
of the Company's subscribers are based on Company data as of September 30, 1996.
The term DIRECTV-Registered Trademark- ("DIRECTV")
(DIRECTV-Registered Trademark- is a registered trademark of Hughes Electronics
Corporation ("Hughes Electronics")) refers to the Ku-Band service provided by
Galaxy Brasil in conjunction with Galaxy Latin America. Data concerning total
MMDS, Cable, C-Band or Ku-Band subscribers and penetration rates represent
estimates made by the Company based on the January 1996 data of Kagan World
Media, Inc., the Company's knowledge of the pay television systems of the
Company and the Operating Ventures, and public statements of other Brazilian pay
television providers. Although the Company believes such estimates are
reasonable, no assurance can be made as to their accuracy.
6
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION INCLUDING THE FINANCIAL
STATEMENTS OF TEVECAP AND ITS SUBSIDIARIES (TOGETHER "TVA" OR THE "COMPANY")
INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
TVA is a leading pay television operator in Brazil and is the country's
largest pay television programming distributor. In 1989, TVA was the first to
provide pay television services in Brazil and, in July 1996, the Company
launched DIRECTV, Brazil's first digital Ku-Band service. With over 335,000
subscribers, TVA is the only operator in Brazil to offer pay television services
utilizing five distribution technologies: MMDS, Cable, digital Ku-Band, digital
C-Band and UHF. TVA believes that its ability to strategically deploy
alternative technologies provides it with significant competitive advantages,
including the ability to rapidly enter new markets, maximize penetration of
existing markets and deliver service in the most cost effective manner.
Additionally, TVA has interests in HBO Brasil Partners and ESPN Brasil Ltda.,
two programming joint ventures (the "Programming Ventures"). Through owned,
affiliated and independent pay television operators, TVA programming reaches
over 955,000 pay television households. TVA is a majority owned subsidiary of
Abril, S.A. ("Abril"), Latin America's leading magazine publishing, printing and
distribution company. TVA's other shareholders are Falcon International
Communications (Bermuda) L.P. ("Falcon International"), The Hearst Corporation
("Hearst"), ABC, Inc. ("ABC") and Chase Manhattan International Finance Ltd.
("CMIF").
The Company conducts its pay television operations through three owned
operating systems (the "Owned Systems"): TVA Sistema, TVA Sul and Galaxy Brasil.
Through the MMDS and Cable systems of TVA Sistema and TVA Sul, the Company
serves six cities with a combined population of approximately 18 million,
including three of the seven largest cities in Brazil: Sao Paulo (population of
10.2 million), Rio de Janeiro (population of 5.7 million) and Curitiba
(population of 1.5 million). The Company also holds minority interests in
Canbras TVA and TV Filme (the "Operating Ventures"), which together provide pay
television services to an additional seven cities with a total population of 6.5
million. In addition, the Company sells programming to, and receives a per
subscriber fee from, unaffiliated pay television operators ("Independent
Operators").
The Company, through Galaxy Brasil, is Brazil's exclusive provider of the
premium programming service, DIRECTV. Galaxy Brasil receives programming,
scheduling and related services for DIRECTV from Galaxy Latin America ("GLA"),
in which TVA holds a 10.0% equity interest. The other owners of GLA are a unit
of Hughes Electronics, a member of the Cisneros Group and a subsidiary of Grupo
MVS. Through local operating companies such as Galaxy Brasil, GLA plans to
provide DIRECTV service throughout much of Latin America and the Caribbean. The
Company, through TVA Sistema, also currently provides Brazil's only digital
C-Band television service (together with Galaxy Brasil, the "DBS Systems"). The
DBS Systems enable the Company to deliver a greater number of channels than any
other television operator in Brazil and provide TVA with access to substantially
all of Brazil's 33.9 million TV Homes.
7
<PAGE>
ORGANIZATIONAL STRUCTURE
The organizational structure of the Company, including the Owned Systems,
the Operating Ventures, the Programming Ventures and the License Subsidiaries,
is summarized in the following chart. Percentages represent Tevecap's ownership
interest in each entity.
Organizational Chart
- ------------------------
(a) License subsidiaries hold pay television licenses for the operation of
certain of the Owned Systems.
(b) TV Filme is publicly traded under the symbol "PYTV." TV Filme's market
capitalization, as of September 30, 1996, was $139.8 million. Upon exercise
of a warrant with a nominal exercise price, Tevecap's ownership interest
will increase to 16.7%.
(c) Equity interest held through TVA Communications Ltd., a wholly owned
subsidiary of Tevecap ("TVA Communications"), and TVA Communications Aruba
N.V., a wholly-owned subsidiary of TVA Communications.
(d) Hughes Electronics and the Cisneros Group have a right to purchase, and have
expressed an interest in purchasing, 25.0% of Galaxy Brasil.
(e) Equity interest held through TVA Communications.
(f) The capital stock of each of these companies is currently held by
affiliates of TVA. Each company has agreed to transfer the licenses held by
it to TVA at nominal cost.
8
<PAGE>
OWNERSHIP
Tevecap is a majority owned subsidiary of Abril, the leading magazine
publishing, printing and distribution company in Latin America. Abril publishes
over 266 weekly, bi-weekly and monthly titles. During 1995, the combined monthly
paid circulation of Abril and its affiliates averaged 15.6 million copies. TVA
benefits from Abril's extensive experience in the business of subscriptions and
distribution, advertising synergies, common research resources and financial
analysis and support. Certain of Tevecap's other shareholders provide the
Company with access to additional international programming and certain
technical and financial expertise. The Company's shareholders have invested, in
aggregate, approximately $288 million in the Company. Tevecap's current
ownership is as follows: Abril, 56.5%; Falcon International, 14.2%; Hearst,
10.0%; ABC, 10.0%; and CMIF, 9.3%. Each of Tevecap's corporate shareholders has
agreed, with certain exceptions, to a reorganization of the ownership of
Tevecap. As a result of the proposed reorganization a new Brazilian corporation
would become an 80.0% shareholder in Tevecap and Hearst/ABC would remain a 20.0%
shareholder in Tevecap. The new structure would not result in any change in the
current beneficial equity participation of the Stockholders in Tevecap, and the
transactions establishing the new structure and the new structure itself would
have to conform to the restrictions of the Indenture. As of the date hereof, the
timing of the restructuring is under discussion by the Stockholders. See
"Principal Shareholders."
THE BRAZILIAN PAY TELEVISION MARKET
Brazil is the largest television and video market in Latin America with an
estimated 33.9 million TV Homes which, as of December 31, 1995, watched on
average more than 4.0 hours of television per day, as compared to an average of
4.5 hours in the United States. Approximately 6.2 million television sets and
1.9 million VCR units were sold in Brazil during 1995. The pay television
industry in Brazil began in 1989 with the commencement by the Company of UHF
service in Sao Paulo. As of September 30, 1996, there were an estimated 1.6
million pay television subscribers, representing approximately 4.7% of Brazilian
TV Homes. By comparison, as of December 31, 1995, 51.1% of TV Homes in
Argentina, 12.6% of TV Homes in Mexico, 21.7% of TV Homes in the United Kingdom
and 69.2% of TV Homes in the United States subscribed to pay television.
Management believes that the number of pay television subscribers in Brazil will
continue to grow as pay television reaches more households both through the
expansion of existing and new MMDS and Cable systems and through development of
nationwide DBS systems. The Ministry of Communications estimates that Brazil
will have 16.5 million pay television subscribers by 2003.
COMPANY OPERATIONS
MMDS AND CABLE SYSTEMS. TVA's strategy of rapidly deploying an extensive
MMDS network has allowed it to enter new markets quickly and develop broad
geographic coverage which the Company may expand utilizing signal repeaters. TVA
has developed Brazil's largest MMDS network and, with the Operating Ventures,
serves the country's major metropolitan areas. MMDS systems are typically easier
to deploy and require relatively little capital investment for construction and
maintenance as compared to Cable systems. The MMDS systems of the Company and
the Operating Ventures currently provide 15 to 18 channels of programming.
Management expects this number to increase to 31 soon after the Ministry of
Communications grants additional channel rights as allowed under recently passed
regulations. See "Business--Regulatory Framework."
TVA has recently emphasized the strategic deployment of Cable service and
currently operates Cable systems in Sao Paulo, Curitiba and three other cities.
As of September 30, 1996, TVA had deployed approximately 900 kilometers of
cable, including 80 kilometers of fiber optic cable, that passed approximately
270,000 homes. By the end of 1996, the Company added an additional 890
kilometers to its Cable systems. As part of this buildout plan, the Company
constructed a 281 kilometer fiber optic network, including a 57 kilometer fiber
optic loop in Sao Paulo and a 28 kilometer fiber optic network in
9
<PAGE>
Curitiba and began upgrading or constructing four recently acquired Cable
systems. As a result, management believes that TVA Cable systems, as of the end
of 1996, passed more than 494,000 homes. Additionally, Canbras TVA is
constructing Cable networks in ten cities within the greater Sao Paulo area with
a combined population of over 2.8 million. All of these Cable systems have been
designed for or are being upgraded to either 750 or 550 MHz bandwidth capacity,
the latter of which is readily upgradeable to 750 MHz bandwidth capacity. The
Cable systems of TVA and Canbras TVA currently offer between 31 and 44 analog
channels of programming (including off-air channels).
DBS SYSTEMS. In July 1996, the Company, through Galaxy Brasil, launched
DIRECTV, Brazil's first Ku-Band service. GLA provides Galaxy Brasil with
programming, scheduling and related services for Galaxy Brasil's DIRECTV service
and Galaxy Brasil exclusively markets and sells the DIRECTV service in Brazil.
With DIRECTV service, TVA provided 49 channels of video programming (including
19 pay-per-view channels) as of September 30, 1996, with the intention to
provide up to 70 channels of video programming and 30 channels of audio
programming. Since September 30, 1996, the number of channels offered by the
Company with DIRECTV service has increased to 56. In addition, since September
30, 1996, a competitor has entered the Ku-Band market, but currently offers only
26 channels of programming (including four pay-per-view channels). As of
September 30, 1996, the Company had commenced only a limited regional roll-out
in the Sao Paulo area. The Company began a nationwide rollout of DIRECTV in
November 1996, at which time TVA initiated a publicity campaign supported by a
nationwide network of trained installers. By comparison, DIRECTV, Inc., a unit
of Hughes Electronics, started its DIRECTV service in the United States in June
1994 and, as of September 30, 1996, had approximately 1.9 million subscribers.
During 1997, management expects that a new Delaware limited liability company
will be established, the principal asset of which will be GLA's satellite uplink
facility. The new company will be owned by two subsidiaries of Hughes
Electronics. In connection with the establishment of the new company, TVA
Communications and Tevecap have agreed, pursuant to the Indemnification
Agreement, to provide certain indemnities in favor of GLA, Hughes Communications
GLA, the newly-established company and its shareholders. To secure its
obligations under the Indemnification Agreement, Tevecap has agreed to pledge
its equity interest in GLA, as well as any future notes or interests it may hold
relating to the uplink facility.
TVA has offered a C-Band service since 1993, and is the only pay television
operator to deliver a digital C-Band signal in Brazil. Currently, TVA's C-Band
service delivers 26 channels (including nine Second Audio Programming ("SAP")
channels) and, with further digital compression, TVA expects to increase the
number of channels to 38 (including SAP channels). By comparison, TVA's only
significant C-Band competitor offers six analog channels. As of September 30,
1996, there were over 3.7 million C-Band dish antennae in Brazil, most of which
were used to receive only off-air channels. This installed base represents the
Company's target market for its digital C-Band service and the Company expects
to attract these viewers through marketing and promotional initiatives.
PROGRAMMING. Management believes its programming provides a significant
competitive advantage by attracting and retaining subscribers. TVA holds equity
interests in two Programming Ventures, ESPN Brasil Ltda. and HBO Brasil
Partners, both of which provide programming to TVA. ESPN Brasil Ltda. produces
and packages Brazilian sporting events and holds exclusive rights, as of January
1997, to many major Brazilian soccer championships. ESPN Brasil Ltda. also
packages international sporting events and ESPN2 programming specifically for
the Brazilian market. HBO Brasil Partners packages and distributes HBO Brasil,
which airs popular first-run movies 24 hours a day, either dubbed or subtitled
in Portuguese. TVA has exclusive distribution rights to ESPN Brasil in Sao
Paulo, Rio de Janeiro, Curitiba, Brasilia, Belem and Goiania and is currently
the sole distributor of HBO Brasil and has exclusive distribution rights to this
channel in TVA's served markets.
TVA, in addition to its interests in the Programming Ventures, has entered
into agreements with international programmers such as ABC, Hearst, Time Warner
and Sony to gain the rights to sports, movies, news, arts and entertainment
programming for distribution in Brazil. Management expects TVA
10
<PAGE>
to soon offer Cinemax as part of its DIRECTV service and to introduce CNA, a
Brazilian news channel to be produced by Abril. TVA also generates revenue by
selling its programming to the Operating Ventures and the Independent Operators
as well as to GLA (to be packaged as part of GLA's DIRECTV service) and by
selling advertising spots to be aired on its programming.
SUBSCRIBERS AND HOUSEHOLDS RECEIVING TVA PROGRAMMING
Through the Owned Systems, TVA directly serves over 335,000 subscribers.
Together, these subscribers represent approximately 21.0% of all Brazilian pay
television subscribers.
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
31, 30, %
SUBSCRIBERS--OWNED SYSTEMS 1995 1996 CHANGE
----------- ------------ -----------
<S> <C> <C> <C>
MMDS(a).................................................. 188,893 229,656 21.6%
Cable(b)................................................. 15,129 39,253 159.5
DIRECTV and Digital C-Band............................... 15,126 47,436 213.6
----------- ------------
219,148 316,345 44.4
Paid Subscribers Awaiting Installation(c)................ 18,343 19,691 7.3
----------- ------------
Total Subscribers--Owned Systems......................... 237,491 336,036 41.5
----------- ------------
----------- ------------
</TABLE>
- ------------------------
(a) Includes UHF subscribers which, as of September 30, 1996, totaled 11,453.
(b) Reflects the purchase by the Company of existing cable systems in Curitiba,
Foz do Iguacu and Camboriu, during 1996.
(c) Subscribers who have paid an installation fee but are awaiting the
installation of service.
Through the Operating Ventures, TVA has minority interests in two pay
television operators which, together, serve over 66,000 subscribers.
<TABLE>
<CAPTION>
SEPTEMBER 30,
SUBSCRIBERS--OPERATING VENTURES DECEMBER 31, 1995 1996 % CHANGE
----------------- ----------------- -----------
<S> <C> <C> <C>
MMDS........................................... 35,572 62,774 76.5%
Cable.......................................... -- 3,614 --
------- -------
Total Subscribers--Operating Ventures.......... 35,572 66,388 86.6
------- -------
------- -------
</TABLE>
Through the Owned Systems and the Operating Ventures, and through sales of
programming to the Independent Operators, TVA's programming reaches over 955,000
pay television households, which represent approximately 60.0% of all Brazilian
pay television households.
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
31, 30,
HOUSEHOLDS RECEIVING TVA PROGRAMMING 1995 1996 % CHANGE
----------- ------------ -----------
<S> <C> <C> <C>
Owned Systems.......................................... 237,491 336,036 41.5%
Operating Ventures..................................... 35,572 66,388 86.6
Independent Operators.................................. 341,699 555,049 62.4
----------- ------------
Total.................................................. 614,762 957,473 55.7
----------- ------------
----------- ------------
</TABLE>
11
<PAGE>
COMPETITIVE ADVANTAGES
Management believes that the Company has the following competitive
advantages:
SUPERIOR QUALITY PROGRAMMING LINEUP. TVA's programming line-up includes
exclusive rights to ESPN Brasil in the Company's major markets, with exclusive
coverage, as of January 1997, of many of Brazil's most important soccer
championships, including the Brasil Cup, the Brazilian Championship and the Sao
Paulo and Rio de Janeiro State Championships. The Company exclusively offers CMT
Brasil and Bravo Brasil and is also the only pay television provider offering
HBO programming in TVA's served markets. Management believes that as the pay
television industry grows, programming will become the critical factor driving
consumer selection of a pay television provider, and that with TVA's
relationships with strong international partners and its exclusive soccer
coverage, TVA will continue to offer superior quality programming.
STRATEGIC DEPLOYMENT OF ALTERNATIVE DISTRIBUTION TECHNOLOGIES. The Company
is the only pay television operator utilizing five distribution technologies:
MMDS, Cable, Ku-Band, C-Band and UHF. The availability of multiple distribution
technologies enables the Company to capitalize on the population and income
characteristics, topography and competitive dynamics of each of its targeted
markets. The Company has the ability to penetrate new markets quickly and
efficiently and to offer tiered programming at low cost with MMDS. The Company
is expanding its Cable systems, where warranted by economic and competitive
conditions, to build its subscriber base and to prepare for future opportunities
in interactive services and telecommunications. Additionally, management
believes the Company can rapidly penetrate virtually any market through the
continued deployment of its DBS Systems.
DBS SYSTEMS: NATIONWIDE COVERAGE AND DIGITAL SERVICE. Through its DBS
Systems, TVA is capable of offering programming to nearly all of Brazil's 33.9
million TV Homes, including those households in markets where Cable or MMDS
systems are either not developed or not economically viable. Through its DIRECTV
service, TVA was the first provider of Ku-Band pay television services in Brazil
and expects to enroll as subscribers a significant share of those who are
interested in broader, digital quality programming and pay-per-view services.
Through its digital C-Band system, the Company provides 26 channels of
programming (including nine SAP channels) and is capable of providing up to 38
channels of programming (including SAP channels). The Company's only significant
competitor in C-Band pay television service provides six analog channels of
programming in addition to off-air channels. The Company currently targets its
C-Band service to the over 3.7 million C-Band satellite dish owners in Brazil,
most of whom currently receive only the off-air channels.
MODERN CABLE INFRASTRUCTURE. The Company's Cable systems are constructed
with, or are being upgraded to, either 750 MHz or 550 MHz bandwidth capacity,
the latter of which is readily upgradeable to 750 Mhz bandwidth capacity with
only moderate investment. This Cable technology will enable the Company to
provide data transmission and interactive services, including
telecommunications, in the future. Management believes that the Company's major
competitors for Cable service use narrower bandwidths over portions of their
Cable systems and have installed certain types of Cable in households which
currently may prevent them from providing telecommunications or high speed data
delivery through these portions of their systems until substantial additional
investments have been made for system reconstruction or upgrade.
STRONG STRATEGIC PARTNERS. The Company's strategic equity partners continue
to offer valuable expertise. TVA benefits from Abril's extensive experience in
the business of subscriptions and distribution and from the collective
experience of Falcon International, Hearst and ABC with regard to pay television
operations and from access to programming.
12
<PAGE>
BUSINESS STRATEGY
TVA seeks to be Brazil's largest and most profitable pay television operator
and programming distributor and intends to capitalize on the convergence and
development of voice, video and telecommunications services. The Company intends
to achieve these goals through the following strategies:
MAXIMIZE PENETRATION IN EXISTING MARKETS. The Company seeks to increase its
penetration of existing markets by: (i) expanding the range of TVA's Cable
systems by extending its fiber optic and coaxial cable network and by seeking
prewiring arrangements with residential housing developers, (ii) improving the
signal quality and coverage of TVA's MMDS systems by using signal repeater
technology, (iii) maximizing penetration by offering tiered subscription options
and developing programming packages to appeal to more households and (iv)
expanding its penetration in ABC Class households through its scheduled
nationwide rollout of DIRECTV service and the continued development of C-Band
service.
MAXIMIZE CUSTOMER RETENTION THROUGH SUPERIOR CUSTOMER SERVICE. In order to
maximize customer retention, the Company aims to provide a consistently high
level of customer service. The Company has developed or has acquired the right
to use proprietary management information systems which, among other things,
provide Company representatives immediate access to customer records and
correspondence history. This enables TVA to provide high quality service to its
clients while monitoring subscriber payment patterns. The Company's Churn rate,
which reflects the ability of the Company to retain subscribers, averaged
approximately 2.0% per month during the nine month period ended September 30,
1996. The average monthly Churn rate for MMDS service in 1994 was 1.6%, in 1995
was 1.3%, and for the nine month period ended September 30, 1996, was 2.1%. The
average monthly Churn rate for Cable service in 1994 (the year Cable service was
initiated) was less than 1.0%, in 1995 was 1.1%, and for the nine month period
ended September 30, 1996, was 0.7%. The average monthly Churn rate for C-Band
service in 1994 was 5.3%, in 1995 was 0.1% and for the nine month period ended
September 30, 1996, was 2.0%. Ku-Band service was initiated in July 1996.
ENHANCE TVA'S PROGRAMMING PACKAGE. In order to maintain and enhance its
position as a provider of superior programming in Brazil, TVA is developing new
programming through the programming Ventures, as well as through Abril and other
partners. TVA frequently evaluates the demographics of its subscribers and
potential subscribers and seeks to provide programming most in demand. The
Company also takes advantage of opportunities to enter into exclusive
distribution agreements for popular television programming in Brazil. Management
believes that its DIRECTV service, which includes both basic and premium
channels, as well as pay-per-view movies and events from Brazil, other Latin
American countries, Europe, Asia and the United States, further enhances TVA's
programming offerings and positions the Company to be the provider of the widest
selection of popular programming in Brazil.
ENTER NEW MARKETS. The Company intends to enter new markets by: (i)
acquiring existing MMDS and Cable operations, (ii) applying either
independently, or in conjunction with the Operating Ventures, independent pay
television providers or other appropriate third parties, for new MMDS and Cable
licenses offered by the Brazilian Government, (iii) initiating the nationwide
rollout of DIRECTV service and (iv) investing in new operating ventures with
other MMDS and Cable operators. The Brazilian Government has recently announced
its intention to auction MMDS licenses in 15 state capitals. Although no date
has been set for these auctions, management expects them to occur during 1997.
The Company has submitted proposals, either individually or in conjunction with
local partners, for all such licenses, as well as for additional licenses
throughout Brazil.
CONTINUE NETWORK ENHANCEMENT. The Company is positioning itself to provide
high-speed data transmission, interactive and other telecommunications service
over its systems and to take advantage of possible deregulation and the growing
demand for these services in Brazil. The Company is expanding its Cable systems
with fiber optic and coaxial cable capable of being upgraded to provide such
enhanced services. In addition, the Company continues to explore the development
of digital compression of MMDS signals.
13
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer.................. Tevecap is offering to exchange pursuant to the
Exchange Offer an aggregate principal amount of up to
US$250,000,000 principal amount of its 12 5/8% Senior
Notes due 2004 (the "Exchange Notes") together with
the Subsidiary Guarantees of the Exchange Notes (such
Subsidiary Guarantees and the Exchange Notes
together, the "Exchange Securities"), for a like
principal amount of its 12 5/8% Senior Notes due 2004
(the "Old Notes") together with the Subsidiary
Guarantees of the Old Notes (such Subsidiary
Guarantees and Old Notes together, the "Old
Securities"). Tevecap will issue the Exchange
Securities on or promptly after the Expiration Date.
As of the date of this Prospectus, US$250,000,000
aggregate principal amount of Old Notes is
outstanding. The terms of the Exchange Securities are
identical in all material respects to the terms of
the Old Securities for which they may be exchanged
pursuant to this offer, except that the Exchange
Securities have been registered under the Securities
Act and are issued free from any covenant regarding
registration, and except that if the Registered
Exchange Offer is not consummated by May 23, 1997,
Tevecap will be obligated to pay each holder of the
Old Notes an amount equal to $0.192 per week per
$1000 of the Old Notes until the Registered Exchange
Offer is consummated. The Exchange Securities will
evidence the same debt as the Old Securities and will
be issued under and be entitled to the same benefits
under the Indenture as the Old Securities. The
Issuance of the Exchange Securities and the
Registered Exchange Offer is intended to satisfy
certain obligations of Tevecap and the Subsidiary
Guarantors under the Purchase Agreement and pursuant
to certain registration rights granted under the
Exchange and Registration Rights Agreement. See "The
Registered Exchange Offer" and "Description of the
Notes."
Interest Payments................... Interest on the Exchange Notes shall accrue from the
last Interest Payment Date (May 26 or November 26) on
which interest was paid on the Old Notes surrendered
or, if no interest has been paid on such Old Notes,
from November 26, 1996. See "The Exchange
Offer--Interest on the Exchange Notes."
Expiration Date..................... The Registered Exchange Offer will expire at 5:00
p.m., New York City time, on , 1997, unless
extended by Tevecap in its sole discretion. See "The
Registered Exchange Offer--Expiration Date;
Extensions."
Exchange Date....................... The date of acceptance for exchange of the Old Notes
and the consummation of the Registered Exchange Offer
will be the first business day following the
Expiration Date unless
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
extended. See "The Registered Exchange Offer--Terms
of the Exchange."
Withdrawal Rights................... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date;
otherwise, all tenders will be irrevocable. See "The
Registered Exchange Offer--Withdrawal of Tenders."
Procedures for Tendering Notes...... See "The Registered Exchange Offer--Exchange Offer
Procedures."
Federal Income Tax Consequences..... The exchange of Old Securities for the Exchange
Securities pursuant to the Registered Exchange Offer
will not result in any income, gain or loss to
holders who participate in the Registered Exchange
Offer or to Tevecap for U.S. income tax purposes. See
"Income Tax Considerations."
Resale.............................. Tevecap is making the Registered Exchange Offer in
reliance on the position of the staff of the
Commission as set forth in certain no-action letters
addressed to other parties in other transactions.
However, Tevecap has not sought its own no-action
letter and there can be no assurance that the staff
of the Commission would make a similar determination
with respect to the Registered Exchange Offer as in
such other circumstances. Based on these
interpretations by the staff of the Commission,
Tevecap believes that Exchange Securities issued
pursuant to this Registered Exchange Offer in
exchange for Old Securities may be offered for
resale, resold and otherwise transferred by a holder
thereof (other than (i) a broker-dealer who acquired
the Old Securities as a result of market making
activities or other trading activities, (ii) an
Initial Purchaser who acquired the Old Securities
directly from the Company solely in order to resell
pursuant to Rule 144A of the Securities Act or any
other available exemption under the Securities Act,
or (iii) a person that is an "affiliate" (as defined
in Rule 405 of the Securities Act) of Tevecap)
without compliance with the registration and
prospectus delivery provisions of the Securities Act,
provided that such Exchange Securities are acquired
in the ordinary course of such holder's business and
that such holder is not participating, and has no
arrangement or understanding with any person to
participate, in the distribution of such Exchange
Securities. Holders of Old Securities accepting the
Registered Exchange Offer will represent to Tevecap
in the Letter of Transmittal that such conditions
have been met. Any holder who participates in the
Registered Exchange Offer for the purpose of
participating in a distribution of the Exchange
Securities may not rely on the position of the staff
of the Commission as set forth in these no-action
letters and would have to comply with the
registration and prospectus delivery requirements of
the Securities Act in connection with any secondary
resale transaction. Each broker-dealer who
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
receives Exchange Securities for its own account
pursuant to the Registered Exchange Offer must
acknowledge that it acquired the Old Securities as
the result of market-making activities or other
trading activities and will deliver a prospectus in
connection with any resale of such Exchange
Securities. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange
Securities received in exchange for Old Securities
where such Old Securities were acquired by such
broker-dealer as a result of market-making activities
or other trading activities. In addition, pursuant to
Section 4(3) under the Securities Act, until ,
1997, all dealers effecting transactions in the
Exchange Securities, whether or not participating in
the Registered Exchange Offer, may be required to
deliver a Prospectus. Each of Tevecap and the
Subsidiary Guarantors has agreed that, for a period
of 90 days after the date of this Prospectus, it will
make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "The
Registered Exchange Offer" and "Plan of
Distribution."
Remaining Old Notes................. Holders of Old Securities who do not tender their Old
Securities in the Registered Exchange Offer or whose
Old Securities are not accepted for exchange will
continue to hold such Old Securities and will be
entitled to all the rights and preferences, and will
be subject to the limitations, applicable thereto
under the Indenture. All untendered and tendered but
unaccepted Old Securities (collectively, the
"Remaining Old Securities") will continue to bear
legends restricting their transfer. In general, the
Old Securities may not be offered or sold, unless
registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject
to, the Securities Act and applicable state
securities laws. To the extent that the Registered
Exchange Offer is effected, the trading market, if
any, for Remaining Old Securities could be adversely
affected. See "Risk Factors--Factors Relating to the
Company and the Exchange Securities--Consequences of
Failure to Properly Tender Old Securities Pursuant to
the Registered Exchange Offer." See "The Registered
Exchange Offer--Terms of the Exchange."
Exchange Agent...................... The exchange agent with respect to the Exchange Offer
is The Chase Manhattan Bank (the "Exchange Agent").
The address and telephone number of the Exchange
Agent are set forth in "The Exchange Offer--Exchange
Agent."
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
Use of Proceeds..................... There will be no proceeds to Tevecap from the
exchange pursuant to the Exchange Offer. See "Use of
Proceeds."
</TABLE>
THE EXCHANGE NOTES
<TABLE>
<S> <C>
Issuer.............................. Tevecap S.A.
Notes Offered....................... $250,000,000 aggregate principal amount of 12 5/8%
Senior Notes due 2004 (the "Exchange Notes" and,
together with the Old Notes, the "Notes").
Maturity............................ November 26, 2004.
Interest Payment Dates.............. May 26 and November 26 of each year, commencing on
May 26, 1997.
Withholding Taxes; Additional
Amounts........................... Payments in respect of the Notes are not subject to
withholding taxes imposed by Brazil, provided that
the Notes are not redeemed prior to November 26,
2004. If the Notes are redeemed for any reason prior
to November 26, 2004, then Brazilian withholding
taxes will be imposed retroactively on interest, fees
and commissions paid by Tevecap in connection with
the Notes from the date of issuance through the date
of such redemption. Tevecap and the Guarantors have
agreed to pay such Additional Amounts (as defined) in
respect of such Brazilian withholding taxes as will
result in receipt by the holders of Notes of such
amounts as would have been received by them had no
such withholding or deduction been required, except
to the extent set forth under "Description of Notes--
Additional Amounts." See also "Income Tax
Considerations--Brazil."
Sinking Fund........................ None.
Optional Redemption................. Except as described below, Tevecap may not redeem the
Notes prior to November 26, 2004. In the event
Tevecap receives Net Cash Proceeds (as defined) at
any time, on or prior to November 26, 2000, from one
or more (i) Significant Equity Offerings (as defined)
or (ii) sales of Tevecap's Capital Stock to a
Strategic Investor (as defined), Tevecap may redeem
up to $75.0 million of the aggregate principal amount
of the Notes at a price equal to 112.625% of the
principal amount to be redeemed, together with
accrued and unpaid interest, if any, to the date of
redemption, provided that at least $175.0 million of
the aggregate principal amount of the Notes remains
outstanding after each such redemption. In addition,
Tevecap may redeem the Notes at any time, in whole
but not in part, at a price equal to 100% of their
principal amount, together with accrued and unpaid
interest, if any, to the date of redemption, in the
event of certain changes affecting the withholding
tax treatment of the Notes with the occurrence
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
of such events to be determined by the Company in
accordance with the terms of the Notes. See
"Description of Notes--Optional Redemption" and
"--Redemption for Changes in Withholding Taxes."
Change of Control................... Upon the occurrence of a Change of Control (as
defined), each holder will have the right to require
Tevecap to make an offer to repurchase the Notes held
by such holder at a price equal to 101% of the
principal amount thereof, together with accrued and
unpaid interest, if any, to the date of repurchase.
See "Description of Notes--Change of Control."
Subsidiary Guarantees............... The Notes are jointly and severally guaranteed (the
"Subsidiary Guarantees"), on a senior basis, by all
of Tevecap's Restricted Subsidiaries (as defined)
existing on the date the Notes were issued and each
Restricted Subsidiary acquired thereafter (the
"Guarantors"). See "Description of Notes--Subsidiary
Guarantees."
Ranking............................. The Notes are unsecured, senior obligations of
Tevecap ranking PARI PASSU in right of payment with
all other existing and future unsecured, senior
Indebtedness (as defined) of Tevecap and senior in
right of payment to all other existing and future
subordinated Indebtedness of Tevecap. The Subsidiary
Guarantees are unsecured, senior obligations of the
Guarantors ranking PARI PASSU in right of payment
with all other existing and future unsecured, senior
Indebtedness of the Guarantors and senior in right of
payment to all other existing and future subordinated
Indebtedness of the Guarantors. However, subject to
certain limitations set forth in the Indenture,
Tevecap and its Subsidiaries may incur other senior
Indebtedness, including Indebtedness that is secured
by the assets of Tevecap and its Subsidiaries. At
September 30, 1996, after giving effect to the
issuance of the Old Notes and the application of the
net proceeds therefrom, the Tevecap would not have
had any outstanding senior Indebtedness of Tevecap,
other than the Notes (exclusive of unused
commitments) and the aggregate principal amount of
outstanding senior Indebtedness of the Guarantors,
other than the Subsidiary Guarantees, would have been
$4.6 million (exclusive of unused commitments and
short term indebtedness) all of which ranks pari
passu with the Subsidiary Guarantees, but none of
which was secured Indebtedness. As of April 1, 1997,
Tevecap did not have any outstanding senior
Indebtedness other than the Notes (exclusive of
unused commitments and short term indebtedness), and
the aggregate principal amount of outstanding senior
Indebtedness of the Guarantors was $6.1 million
(exclusive of unused commitments and short term
indebtedness) all of which ranks pari passu with the
Subsidiary Guarantees, and none of which is secured.
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
Although the Notes are titled "senior" securities,
Tevecap has not issued any Indebtedness to which the
Notes would rank senior.
Restrictive Covenants............... The Indenture under which the Notes are issued (the
"Indenture") contains certain covenants which will
limit (i) the incurrence of additional indebtedness
and the issuance of Disqualified Stock by Tevecap and
its Restricted Subsidiaries, (ii) the payment of
dividends on, and the redemption of, capital stock of
Tevecap and the redemption of certain subordinated
obligations of Tevecap, (iii) investments, (iv) sales
of assets and stock of Restricted Subsidiaries, (v)
transactions with affiliates, (vi) the creation and
existence of liens, (vii) investments in Unrestricted
Subsidiaries (as defined), (viii) the types of
businesses Tevecap and its Restricted Subsidiaries
may conduct and (ix) consolidations, mergers and
transfers of all or substantially all of Tevecap's
assets. The Indenture also prohibits certain
restrictions on distributions from Restricted
Subsidiaries. However, all of these limitations and
prohibitions are subject to a number of important
qualifications and exceptions. See "Descriptions of
Notes-- Certain Covenants."
</TABLE>
RISK FACTORS
Prospective investors in the Notes should carefully consider all of the
information set forth in this Prospectus and, in particular, should evaluate the
specific factors set forth under "Risk Factors."
19
<PAGE>
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
The historical data as of December 31, 1995 and 1994, and for the three
years in the period ended December 31, 1995 have been derived from, and should
be read in conjunction with, the audited Financial Statements of the Company
included elsewhere in this Prospectus. The unaudited financial data set forth
below as of and for the nine month period ended September 30, 1996 and for the
nine month period ended September 30, 1995 have been derived from the unaudited
Financial Statements of the Company. The historical data as of December 31, 1992
and 1993 and for the year ended December 31, 1992 are derived from the audited
Financial Statements of the Company that are not included elsewhere in this
Prospectus. The historical data as of September 30, 1995 are derived from the
unaudited Financial Statements of the Company that are not included elsewhere in
this Prospectus.
As required by Brazilian law, and in accordance with local accounting
practices, the financial records of Tevecap and its subsidiaries are maintained
in the applicable Brazilian currency (the REAL). However, the Financial
Statements are presented in US dollars. In order to prepare the Financial
Statements, the Company's accounts have been translated from the applicable
Brazilian currency, on the basis described in Note 2.3 to the Financial
Statements. Because of the differences between the evolution of the rates of
inflation in Brazil and the changes in the rates of devaluation, amounts
presented in US dollars may show distortions when compared on a period-to-period
basis.
The results of operations for the nine month period ended September 30, 1996
are not necessarily indicative of the results expected for the year ending
December 31, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATING DATA:
Gross revenues
Monthly subscriptions.................................... $ 7,070 $ 12,544 $ 27,976 $ 62,496 $ 41,296 $ 85,301
Installation............................................. 1,857 4,350 6,997 26,045 17,995 39,396
Indirect programming(a).................................. 512 530 1,626 2,866 2,114 5,278
Other(b)................................................. 1,322 2,468 7,173 10,603 7,699 10,657
Revenue taxes(c)........................................... (305) (371) (872) (7,506) (5,171) (8,881)
--------- --------- --------- --------- --------- ---------
Total net revenue.......................................... 10,456 19,521 42,900 94,504 63,933 131,751
--------- --------- --------- --------- --------- ---------
Direct operating expenses(d)............................... 32,905 29,779 28,659 62,026 42,279 75,557
Selling, general and administrative expenses............... 17,834 19,957 24,370 46,902 30,787 53,710
Depreciation and Amortization.............................. 2,704 4,813 6,177 13,268 8,865 18,547
Allowance for inventory obsolescence....................... -- -- -- -- -- 2,493
--------- --------- --------- --------- --------- ---------
Total operating expenses................................... 53,443 54,549 59,206 122,196 81,931 150,307
--------- --------- --------- --------- --------- ---------
Operating loss............................................. (42,987) (35,028) (16,306) (27,692) (17,998) (18,556)
Nonoperating expenses
Interest expense......................................... (13,538) (8,492) (16,413) (17,745) (12,493) (10,125)
Equity in income (losses) of affiliates(e)............... -- -- 383 (3,672) (2,084) (6,642)
Other nonoperating (expenses) income, net(f)............. 2,232 5,892 20,339 8,039 5,158 (1,592)
Income tax expense....................................... -- -- -- -- -- (105)
--------- --------- --------- --------- --------- ---------
Net loss................................................... $ (54,293) $ (37,628) $ (11,997) $ (41,070) $ (27,417) $ (37,020)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
OTHER DATA:
EBITDA--TV Group(g)........................................ $ (40,283) $ (30,215) $ (10,129) $ (13,318) $ (8,462) $ 8,533
EBITDA--Galaxy Brasil(g)................................... -- -- -- (1,106) (671) (6,049)
--------- --------- --------- --------- --------- ---------
EBITDA(g)(h)............................................... (40,283) (30,215) (10,129) (14,424) (9,133) 2,484
Pro forma interest expense(i).............................. 38,623 29,940
Purchase of fixed assets................................... 7,627 11,379 22,369 93,029 52,987 72,538
Ratio of earnings to fixed charges(j)...................... -- -- -- -- -- --
CASH FLOW DATA:
Cash provided by (used in) operating activities (h)........ (32,633) (19,180) (9,707) 22,989 1,099 (5,385)
Cash provided by (used in) investing activities............ (11,761) (13,190) (24,334) (119,661) (68,541) (111,800)
Cash provided by (used in) financing activities............ 44,088 32,348 38,666 116,229 62,837 93,603
SELECTED OPERATING DATA:
Number of Subscribers to Owned Systems(k).................. 42,924 82,985 114,853 219,148 198,157 316,345
Average monthly revenue per Subscriber(l).................. $ 18.64 $ 21.30 $ 27.80 $ 33.24 $ 33.48 $ 37.66
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................................ $ 41 $ 19 $ 4,644 $ 24,201 $ 39 $ 619
Property, plant and equipment............................ 29,561 35,859 51,426 131,266 95,756 188,063
Total assets............................................. 40,779 45,529 80,441 218,848 148,473 291,154
Loans from affiliated companies.......................... 42,577 89,769 -- 586 22,301 91,926
Long-term liabilities.................................... 67,736 97,105 4,523 9,604 29,816 105,330
Redeemable common shares................................. -- -- 19,754 149,534 69,754 163,225
Total shareholders' equity............................... (54,483) (92,111) 27,590 (18,260) 173 (68,971)
</TABLE>
See accompanying Notes to Summary Historical Financial And Other Data
20
<PAGE>
NOTES TO SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
(a) Represents revenues received by the Company for selling programming to the
Independent Operators.
(b) Includes Advertising and Other revenues.
(c) Represents various non-income based taxes paid on certain of the Company's
gross revenue items with rates ranging from 2.65% to 7.65%.
(d) Represents costs directly related to Monthly subscriptions, and a portion of
Installation, Indirect programming and Other revenues.
(e) Represents the Company's pro rata share of the Net loss or income of its
equity investments.
(f) Includes Interest income, Translation gain or loss, Other nonoperating
(expenses) income, net, and Minority interest. The amount included for the
year ended December 31, 1994 includes Interest income totaling $21,806.
During that year, the Company received capital contributions from
stockholders which resulted in a surplus of cash invested during such
period.
(g) EBITDA represents the sum of (i) net income (loss), plus, without
duplication, (ii) income tax expense, (iii) interest expense (income), net,
(iv) other nonoperating (expenses) income, net (v) depreciation,
amortization and all other non-cash charges, less (vi) non-cash items
increasing net income (loss) (with the exception of amortized deferred
sign-on and hookup fee revenue), in each case determined in accordance with
GAAP. EBITDA-TV Group and EBITDA-Galaxy Brasil represent operating loss plus
depreciation and amortization. The term "TV Group" refers to the operations
of TVA, excluding the operations of Galaxy Brasil. The TV Group, which
constitutes the operations of TVA, excluding the operations of Galaxy
Brasil, represents the more mature operations of the Group while Galaxy
Brasil remains in a start up phase and has yet to collect material revenues
to offset the costs of initiating the Ku-Band service. EBITDA has been
presented separately for the TV Group and Galaxy Brasil to take account of
the different stages of development of these operations.
(h) Cash provided by (used in) operating activities (hereinafter referred to as
cash flows from operating activities) has been determined in accordance with
GAAP while EBITDA has been calculated in accordance with the definition in
footnote (g). In accordance with GAAP, cash flows from operating activities
generally reflect the cash effects of transactions and other events that
enter into the determination of net income. The principal difference between
EBITDA and cash flows from operating activities arise as a result of the
treatment of the changes in the balances of operating assets and liabilities
from the beginning to the end of a reporting period. That is, in accordance
with GAAP, such changes are components of cash flows from operating
activities while there is no similar adjustment in the calculation of
EBITDA. EBITDA has been presented as it is a financial measure commonly used
in the Company's industry. EBITDA should not be considered as an alternative
to cash provided by (used in) operating activities, as an indicator of
operating performance or as a measure of liquidity.
(i) Represents interest expense on a pro forma basis, resulting from the
offering of Old Securities and the application of the net proceeds therefrom
as follows:
<TABLE>
<CAPTION>
NINE MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
--------------- ---------------
<S> <C> <C>
Historical interest expense...................................... $ 17,745 $ 10,125
Elimination of interest expense related to certain related
indebtedness................................................... (11,788) (4,684)
Interest resulting from the Notes based on an interest rate of
12.625%........................................................ 31,563 23,672
Amortization of deferred financing costs relating to the Notes... 1,103 827
--------------- ---------------
$ 38,623 $ 29,940
--------------- ---------------
--------------- ---------------
</TABLE>
(j) For the four years ended December 31, 1995 and the nine months ended
September 30, 1995 and 1996, earnings were insufficient to cover fixed
charges by $54,487, $37,920, $13,100, $38,269, $25,905 and $31,911,
respectively. In calculating the Ratio of earnings to fixed charges,
earnings represents Net loss before minority interest, Equity in (losses)
income of affiliates, less fixed charges. Fixed charges consist of the sum
of Interest expense paid or accrued on indebtedness of the Company and its
subsidiaries and affiliates and one third of operating rental expenses (such
amount having been deemed by the Company to represent the interest portion
of such payments).
(k) Represents the number of Owned Systems' Subscribers as of the last day of
each period.
(l) Average monthly revenue per subscriber refers to the average monthly
subscription fee as of the last day of each period.
21
<PAGE>
RISK FACTORS
BEFORE TENDERING OLD SECURITIES FOR EXCHANGE SECURITIES, PROSPECTIVE
INVESTORS SHOULD CONSIDER CAREFULLY ALL THE INFORMATION SET FORTH HEREIN AND, IN
PARTICULAR, THE SPECIAL FACTORS APPLICABLE TO AN INVESTMENT IN BRAZIL AND
APPLICABLE TO AN INVESTMENT IN THE COMPANY, INCLUDING THOSE SET FORTH BELOW. IN
GENERAL, INVESTING IN THE SECURITIES OF ISSUERS IN DEVELOPING COUNTRIES, SUCH AS
BRAZIL, INVOLVES A HIGHER DEGREE OF RISK THAN INVESTING IN THE SECURITIES OF
ISSUERS IN THE UNITED STATES AND OTHER JURISDICTIONS. FOR ADDITIONAL INFORMATION
CONCERNING BRAZIL AND CERTAIN MATTERS DISCUSSED BELOW, SEE "ANNEX A--THE
FEDERATIVE REPUBLIC OF BRAZIL."
RISKS RELATING TO THE COMPANY
LIMITED OPERATING HISTORY; EARLY STAGE COMPANY
The Company, which began operating in 1989, has a limited operating history.
Accordingly, prospective investors have limited historical financial information
about the Company upon which to base an evaluation of the Company's performance
and an investment in the Notes. Since inception, the Company has sustained
substantial losses, due primarily to start-up costs, interest expense and
charges for depreciation and amortization arising from the development of its
pay television systems. Prospective investors should be aware of the
difficulties encountered by enterprises in the early stages of development,
particularly in light of the competitive nature of the Brazilian pay television
industry.
The Company derives most of its revenue from subscription revenue and
installation revenue. Subscriber penetration rates and subscriber sensitivity to
the price of installation and subscription fees will materially affect the
Company's results of operations. As TVA's networks mature, installation fees
will represent a declining portion of the Company's total revenues. The ability
of the Company to generate subscription revenue will depend on the acceptance of
its programming, which in turn will depend on the availability of programming at
a competitive cost and the relative appeal to subscribers of such programming.
There can be no assurance that the Company will be successful in establishing
and maintaining a substantial subscriber base or that it will generate revenues
which, when taken together with its sources of financing, will be sufficient to
meet its operating needs or capital requirements or to service its indebtedness,
including the Notes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
OPERATING LOSSES AND NEGATIVE CASH FLOW
As of September 30, 1996, the Company had incurred cumulative net losses of
approximately $193 million since 1991 and as of September 30, 1996 the Company
had negative working capital of $45,773. The Company may continue to generate
net losses and negative funds from operations during the period in which the
Company develops and expands its pay television distribution systems and builds
its subscriber base. The Company's future operating profitability will depend
upon many factors, including, among others, its ability to market its products
and services successfully, achieve its projected market penetration, manage
subscriber turnover rates effectively and price its pay television services
competitively.
There can be no assurance that the Company will achieve or sustain operating
profitability and positive cash flows in the future. If the Company does not
achieve and maintain operating profitability and positive cash flows on a timely
basis, it may not be able to satisfy its future liquidity needs including
funding its working capital requirements and capital expenditures and meeting
its debt service requirements. Future capital expenditure requirements relate
primarily to: (i) the construction of cable networks and the installation of
equipment at subscribers' locations, (ii) the construction of additional
transmission and headend facilities and related equipment purchases, and (iii)
investments in, and maintenance of vehicles and administrative offices. In
addition, the Company has certain commitments that must be, or have been funded,
in connection with its Operating and Programming Ventures and minority
interests.
22
<PAGE>
These requirements and commitments are important to the future development of
the business. To date, the Company has relied on contributions and loans from
Abril and investments made by its other shareholders to fund its operations.
The Company has net operating loss carryforwards ("NOLs") totaling
approximately $118.6 million which are unexpirable. Although management believes
the Company will be profitable in the future and will be able to realize the
benefits from a portion of the NOLs, in accordance with Statement of Financial
Accounting Standards No. 109 (Accounting for Income Taxes), the Company has
established a valuation allowance for all of these net deferred tax assets due
to its cumulative losses. See Note 12 to the Tevecap Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ADDITIONAL FINANCING
If the Company fails to meet its projected operating results or its capital
needs exceed its projected requirements, the Company may require substantial
investment on a continuing basis to finance its corresponding capital
expenditures. The Company may also require substantial additional capital for
any new pay television license acquisitions or investments or acquisitions of
entities holding such licenses, or for any investments in or acquisitions of
other existing pay television operations in order to further expand the
Company's operations. The amount and timing of the Company's future capital
requirements will depend upon a number of factors, many of which are not within
the Company's control, including subscriber growth and retention, programming
costs, capital costs, marketing expenses, staffing levels, and competitive
conditions. There can be no assurance that the Company's future cash
requirements will not increase as a result of unexpected developments in the
Brazilian pay television industry. Due to its highly leveraged capital
structure, there can be no assurance that the Company will be able to arrange
additional financing to fund capital or other requirements until the Company
maintains positive operating cash flow or that any such financing will be on
terms acceptable to the Company. Following the receipt of any additional
financing, there can be no assurance that the Company will be able to generate
sufficient funds to meet its fixed charges and other obligations. The Indenture
restricts the amount of additional indebtedness the Company may incur, subject
to certain qualifications and exceptions. Failure to obtain any required
additional financing could adversely affect the growth of the Company and,
ultimately, could have a material adverse effect on the Company. See
"Description of Notes--Certain Covenants."
COMPETITIVE INDUSTRY
The pay television industry in Brazil is, and is expected to continue to be,
highly competitive. The Company competes with providers of pay television
services utilizing Cable, MMDS, C-Band technology and, in the near future,
Ku-Band delivery systems and any new delivery systems which may be introduced,
as well as existing off-air broadcast television networks, movie theaters, video
rental stores and other entertainment and leisure activities generally. A number
of the Company's current and potential competitors have greater experience in
the television industry and greater resources, including financial resources,
than the Company.
TVA's principal competitors in Cable service are operations owned or
controlled by Multicanal, Net Brasil, Globo Cabo and RBS. Multicanal and Net
Brasil operate Cable service systems throughout much of Brazil, including Sao
Paulo Rio de Janeiro, Curitiba and several other large metropolitan areas. Globo
Cabo and RBS operate Cable systems in numerous smaller cities, including
Brasilia. RBS also provides MMDS service in Porto Alegre. Net Brasil also
provides MMDS service in Recife and has a license to provide MMDS service in
Curitiba. Globo Par and TV Globo, the owners of Brazil's most popular off-air
channels, control, or have significant interests, in each of Multicanal, Net
Brasil and Globo Cabo. RBS also holds an interest in Multicanal. Management
believes that the Company's only competitor in DBS service is Net Sat, which has
a C-Band and has recently begun a Ku-Band service. TVA's C-Band service
23
<PAGE>
offers a greater number of channels of programming than Net Sat's C-Band
service. However, while monthly charges are comparable and TVA's digital C-Band
service offers more channels, often with better picture quality, the analog
decoder necessary for Net Sat's service is significantly less expensive than the
digital decoder necessary for TVA's service. With respect to Ku-Band service,
Net Sat uses a satellite which provides broader coverage of Brazil. The orbital
location of the Galaxy III-R satellite enables GLA to offer DIRECTV service to
substantially all of the TV Homes in Brazil. However, in the less populated
northern and western regions of Brazil, reception of DIRECTV programming
requires a dish antenna 1.1 meters in diameter and in the western third of
Brazil (a sparsely populated area when compared to the southern and eastern
regions) reception may not be practical due to the size of the antenna necessary
for reception. Globo Par has a controlling interest in Net Sat while News
Corporation plc, a subsidiary of The News Corporation Limited, and Grupo
Televisa, S.A. of Mexico, also hold equity interests in Net Sat.
The Company expects that a number of new MMDS and Cable licenses will be
granted by the Brazilian Ministry of Communications beginning in the first half
of 1997. It is possible that new licenses will be granted to competitors in
areas in which the Company operates. Such awarding of competing licenses could
result in further competition which, in turn, may materially adversely affect
the Company's subscriber base, results of operations and financial condition.
New competitors are likely to emerge in markets in which the Company operates or
intends to operate and may include additional Cable, MMDS, C-Band service and
other competitors. For additional information regarding the competitive
environment in which the Company conducts its business, see
"Business--Competition."
The success of the Company's operating strategies is subject to factors that
are beyond the control of the Company and difficult to predict due, in part, to
the limited history of pay television services in Brazil. Consequently, the size
of the Brazilian market for pay television, the rates of penetration of that
market, the acceptance of pay television by subscribers and commercial
advertisers, the sensitivity of potential subscribers to the price of
installation and subscription fees, the extent and nature of the competitive
environment and the long-term viability of pay television services in Brazil are
uncertain.
HUGHES ELECTRONICS INTEREST IN PANAMSAT
Hughes Electronics, the majority owner of GLA and possible future
shareholder of GLB, agreed in August 1996 to acquire a majority interest in
PanAmSat Corporation ("PanAmSat") from PanAmSat's shareholders, pending
regulatory approval. PanAmSat is the owner and operator of the PAS-3 satellite.
Net Sat has leased transponder space on PAS-3 from PanAmSat to provide a
competing Ku-Band service in Brazil. The ownership by Hughes Electronics of a
majority interest in PanAmSat could have the potential of creating a conflict of
interest, since Hughes Electronics will have an interest in the financial
success of Net Sat's Ku-Band service. However, PanAmSat is not itself engaged in
providing pay television service in conflict with the Company's Ku-Band service,
but is only engaged in providing satellite transponders, on a leased basis, to
third parties for a variety of uses. Furthermore, under the terms of the
agreements among GLA and its partners, Hughes Electronics is only allowed to
provide additional services to PanAmSat with the approval of the other GLA
partners. As a consequence there are limitations on the extent to which Hughes
Electronics may engage in activities which may compete with the Company. No
assurances can be given as to the effect, if any, that the acquisition of a
majority interest in PanAmSat by Hughes Electronics may have on the operations
of the Company.
CURRENCY RISK
The Company expects substantially all of its long term debt obligations
(including the Notes) to be denominated in US dollars while the Company
generates revenues only in Brazilian reais. The Company also expects to incur a
significant portion of its equipment costs, and most of its programming costs,
in US dollars. Consequently, the devaluation of the REAL against the US dollar
could significantly affect the Company's ability to meet its obligations and
fund its capital expenditures, and could adversely affect its
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results of operations. While the Company may consider entering into transactions
to hedge the risk of exchange rate fluctuations, the Company, as of April 9,
1997, has not entered into any such transactions, and it may not be possible for
the Company to obtain hedging arrangements on commercially satisfactory terms.
In addition, shifts in currency exchange rates may have a material adverse
effect on the Company and may force the Company to seek additional capital,
which may not be available to it. Similarly, the Company expects that those
entities in which it does not have a majority interest may incur a significant
portion of their debt obligations and equipment and programming costs in US
dollars and generate revenues only in Brazilian reais. Shifts in currency
exchange rates may have a material adverse effect on those entities or make it
necessary for those entities to request additional equity or debt contributions
from the Company.
CHANGE IN TECHNOLOGY
The pay television industry as a whole is, and is likely to continue to be,
subject to rapid and significant changes in technology. Although the Company
believes that, for the foreseeable future, these existing and developing
alternative technologies will not materially adversely affect the viability or
competitiveness of its pay television business, there can be no assurance as to
the effect of such technological changes on the Company or that the Company will
not be required to expend substantial financial resources in the development or
implementation of new competitive technologies.
MMDS TRANSMISSION ISSUES
Reception of MMDS programming generally requires a direct, unobstructed
line-of-sight ("LOS") from the Company's headend to the subscriber's antenna.
MMDS service can also be provided by use of signal repeaters. If the LOS is
obstructed, the Company may not be able to supply service to certain potential
subscribers or may be required to install additional signal repeaters. In
addition to limitations resulting from terrain, extremely adverse weather can,
in limited circumstances, damage transmission and receive-site antennas as well
as other transmission equipment.
Interference from other transmission systems can limit the ability of an
MMDS system to serve any particular point, just as interference from one
television station limits the ability of a viewer to receive another television
station signal broadcasting on the same frequency. Under current regulations of
the Ministry of Communications in Brazil, an MMDS license holder is generally
protected from interference within a radius of up to 50 kilometers of the
transmission site, depending on the technical capability of the operator. A
prospective operator must demonstrate that its signal will not cause
interference with the reception of other permitted channels. In the event that
the Company acquires any new MMDS licenses, there can be no assurance that the
Company will be allowed to transmit such MMDS signals up to the full 50
kilometer radius.
DEPENDENCE UPON SATELLITES
The Company's C-Band and Ku-Band service and the delivery of programming to
the MMDS and Cable systems of the Owned Systems and the Operating Ventures
outside Sao Paulo are dependent upon the operation of satellites by third
parties. To deliver programming to the Owned Systems and the Operating Ventures
and provide its C-Band service, the Company utilizes transponders on Brasilsat,
a satellite owned and operated by Embratel, a Brazilian Government owned
company. The Company uses the Galaxy III-R satellite, which is leased and
operated by a unit of Hughes Electronics, to provide its Ku-Band service.
Although the Company has not experienced any significant disruption of its
transmissions to date, satellites are subject to significant risks that may
prevent or impair proper commercial operations, including satellite defects,
destruction and damage and incorrect orbital placement. On occasion, satellite
launches have resulted in a total or constructive total loss due to launch
failure, failure to achieve proper orbit or failure to operate upon reaching
orbit. For example, the original PAS-3 satellite, which Net Sat originally
planned to use for its Ku-Band service, was destroyed upon launch as a result of
a
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malfunction of the Ariane space launch vehicle. Disruption of the transmission
of the Galaxy III-R satellite or the failure of the launch of any replacement
satellite could have a material adverse effect on the Company. The ability of
the Company to transmit its programming following the expected useful life of
the Galaxy III-R satellite, which currently is approximately nine years, and to
broadcast additional channels, will depend upon the ability of the Company to
obtain rights to utilize transponders on other satellites.
RISK OF SIGNAL THEFT
The delivery of pay television programming requires the use of encryption
technology to prevent signal theft. Historically, piracy in the cable television
and DBS industries has been widely reported. With each of its services, the
Company uses an access control system to prevent unauthorized reception of its
programming. The Company's MMDS and Cable systems use various decoder
technologies, and the Company's Ku-Band receiver employs Smart Card technology,
allowing the Company to change the access control system in the event of a
security breach. There can be no assurance, however, that the access control
technology used in connection with each of the Company's delivery services will
be, or remain, effective. If the access control technology is compromised and
not promptly corrected, the Company's revenues and the Company's ability to
market its pay television services would be adversely affected.
REGULATION
Substantially all of the Company's business activities are regulated by the
Brazilian Ministry of Communications. Such regulation relates to, among other
things, licensing, local access to Cable and MMDS systems, commercial
advertising, and foreign investment in Cable and MMDS systems. Changes in the
regulation of the Company's business activities, including decisions by
regulators affecting the Company's operations (such as the granting or renewal
of licenses or decisions as to the subscription rates the Company may charge its
customers) or changes in interpretations of existing regulations by courts or
regulators, could adversely affect the Company. The Company's Cable and MMDS
licenses may not be transferred without regulatory approval. Under current
regulations, the Brazilian Ministry of Communications will grant Cable and MMDS
licenses pursuant to a public bidding process. The Company is unable to predict
what impact, if any, such public bidding will have on its ability to launch and
operate new systems. Any new regulations could have a material adverse effect on
the subscription television industry as a whole and on the Company in
particular. See "Business--Regulatory Framework."
The construction and launch of broadcasting satellites and the operation of
satellite broadcasting systems are subject to substantial regulation by the
Brazilian Ministry of Communications. Ministry of Communications rules are
subject to change in response to industry developments, new technology and
political considerations. Certain aspects of television and telecommunications
operations and ownership are governed by the Brazilian Constitution. It is
expected that a new law enacting constitutional amendments, along with possible
regulations thereunder, will be passed in 1996 or 1997. The Brazilian Government
may enact additional or new regulations applicable to the activities of the
Company's C-Band and Ku-Band satellite services. The Company's business and
business prospects could be adversely affected by the adoption of new
constitutional amendments, laws, policies or regulations or changes in the
interpretation or application of existing laws, policies and regulations. There
can be no assurance that the Company will succeed in obtaining all requisite
regulatory approvals for its operations without the imposition of restrictions
on, or adverse consequences to, the Company. There can also be no assurance that
material adverse changes in regulations affecting the Company's C-Band and
Ku-Band satellite services will not occur in the future. See
"Business--Regulatory Framework."
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AVAILABILITY OF PROGRAMMING AND EQUIPMENT
The success of the Company's business will be dependent on its ability to
obtain programming that is appealing to subscribers at commercially reasonable
costs. The Company is dependent on third party suppliers for a significant
amount of its programming. Most of the Company's programming is purchased from
programming providers in the United States and Europe pursuant to contracts some
of which will begin expiring within one year. Although the Company has no reason
to believe that such contracts will be cancelled or will not be renewed upon
expiration, in the event such contracts are cancelled or not renewed, the
Company will have to seek programming from other sources. Such other sources
include a large number of international programming providers as well as the
Company's own programming production capabilities. There can be no assurance
that other programming will be available to the Company on acceptable terms or
at all or, if so available, that such programming will be acceptable to the
Company's subscribers. See "Business--Programming."
The Company currently purchases decoders and antennas from a limited number
of sources. The inability to obtain sufficient components as required, or to
develop alternative sources if and when required in the future, could result in
delays or reductions in customer installations which, in turn, could have a
material adverse effect on the results of operations and financial condition of
the Company.
MANAGEMENT OF GROWTH
The Company is growing rapidly, which could place a significant strain on
its operational and personnel resources. As the Company's business develops and
expands, the Company will need to implement enhanced operational and financial
systems and will require additional employees and management, operational and
financial resources. There can be no assurance that the Company will
successfully implement and maintain such operational and financial systems or
successfully obtain, integrate and utilize the required employees and management
or operational and financial resources in order to manage a developing and
expanding business in a new industry. Failure to implement such systems
successfully and use resources effectively could have a material adverse effect
on the Company's results of operations and financial condition.
TRANSACTIONS WITH RELATED PARTIES; RIGHTS TO PUT THE COMPANY'S STOCK
Tevecap currently engages in, and expects from time to time to engage in,
financial and commercial transactions with its shareholders, subsidiaries and
other affiliates. Although transactions with affiliated persons are subject to
the terms of the Indenture, the Company may continue to enter into certain
transactions with affiliates in the future. While the Company believes that such
transactions in the past have generally had a beneficial effect on the Company,
no assurance can be given that any such transaction, or combination of
transactions, will not have a material adverse effect on the Company in the
future. See "Certain Transactions with Related Parties."
Pursuant to a Stockholders Agreement among Tevecap and its stockholders,
upon the occurrence of certain defined "triggering events," each of the
Stockholders, other than Abril, may demand that Tevecap buy all or a portion of
the shares of capital stock of Tevecap held by such Stockholder, unless the
shares of capital stock held by such Stockholder are publicly registered, listed
or traded (collectively referred to as an "Event Put"). The Indenture, however,
contains restrictions on the ability of Tevecap to purchase shares of its
capital stock. See "Description of Notes--Certain Covenants--Limitation on
Restricted Payments." Accordingly, the parties to the Stockholders Agreement
have unanimously amended the Stockholders Agreement to provide that if the terms
of the Indenture prohibit Tevecap from purchasing shares that are subject to an
Event Put ("Event Put Shares"), in whole or in part, the Company shall not be
obligated to purchase such shares to the extent it is so restricted. However, in
such event, the Company shall, subject to the terms of the Indenture, have the
obligation to issue shares of preferred stock of the Company ("Special Preferred
Shares") should the Tevecap stockholder elect to
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convert Event Put Shares to Special Preferred Shares. The holders of Special
Preferred Shares will be entitled to dividends required by law and a cumulative
dividend equal to LIBOR plus a 4.0% margin, provided that if the terms of the
Indenture prohibit the payment of dividends on the Special Preferred Shares, the
Company shall not be obligated to make such dividend payments to the extent so
restricted. However, under the terms of the Special Preferred Shares such unpaid
dividends shall cumulate and will be paid in full when permissible under the
Indenture or when the Indenture no longer restricts the payment of such
dividends. After the payment of all dividends on the Special Preferred Shares,
the Company must use any remaining profit or reserve to purchase the largest
number of Event Put Shares and Special Preferred Shares, provided that, if the
terms of the Indenture prohibit the purchasing of such shares, the Company shall
not be obligated to make such purchases until permitted by the terms of the
Indenture.
In addition, pursuant to the Stockholders Agreement, Falcon International
may demand that Tevecap buy all or any portion of the shares of capital stock of
Tevecap held by Falcon International if such shares are not publicly registered,
listed or traded by September 22, 2002 (the "Falcon Time Put"). If the terms of
the Indenture prohibit it from purchasing such shares, Tevecap may, subject to
the terms of the Indenture, delay the payment of such purchase price with three
annual payments ("Put Annual Payments") or issue promissory notes denominated in
US dollars for the amount of such price ("Put Promissory Notes"). The Put
Promissory Notes would mature three years after issuance with interest payments
due quarterly in arrears. The interest rate on the Put Promissory Notes would be
equal to the rate applicable to US Treasury obligations of similar maturity plus
a margin to be negotiated with the parties taking into account the risks
associated with the type of obligor, Tevecap's creditworthiness and investments
in Brazil. Under the provisions of the Stockholders Agreement, as amended, while
the Put Promissory Notes are outstanding, Tevecap may not pay any dividends or
make distributions with respect to its capital stock, including the Special
Preferred Shares should they exist. To the extent dividends and distributions of
payments under the Put Promissory Notes may be made under the Indenture,
payments must be made first to satisfy the obligations under the outstanding Put
Promissory Notes. If the terms of the Indenture prohibit the Company from making
the Put Annual Payments, the Company shall not be required to make such payment,
but shall be required to deliver Put Promissory Notes in the principal amount of
the affected Put Annual Payments. The Indenture does not restrict the principal
amount of Put Promissory Notes which the Company may issue, but does restrict
the ability of the Company to make interest and principal payments on the Put
Promissory Notes. If the terms of the Indenture prohibit the Company from making
an interest payment required under any Put Promissory Note, the Company shall
not be required to make such payment at such time, provided that any accrued and
unpaid interest shall accumulate and interest on such unpaid amount shall
compound quarterly and the Company shall make payments of interest as soon as
such payment is no longer restricted under the Indenture. Pursuant to the terms
of the proposed amendment to the Stockholders Agreement, payment of the
principal and interest on the Put Promissory Notes would be subordinated to the
prior payment in full of the Notes. See "Description of Notes--Certain
Covenants--Limitation on Restricted Payments," "--Limitation on Indebtedness"
and "Principal Shareholders."
OWNERSHIP OF FUTURE CABLE TELEVISION LICENSES
The Company holds a 36.0% equity interest in Canbras TVA Cabo and TV Cabo
Santa Branca (the "Canbras TVA Companies"), two Cable operators holding Cable
licenses for a number of smaller cities within the greater Sao Paulo
metropolitan area. Canbras, a publicly-traded Canadian company and Canbras-Par,
a Brazilian company, own the remaining interest in Canbras TVA Cabo, and
Canbras-Par owns the remaining interest in TV Cabo Santa Branca. BCI, an
affiliate of BCE, Inc., Canada's largest telecommunications group, holds a $27.0
million convertible debenture that, upon conversion, would permit BCI to become,
INTER ALIA, a majority shareholder of Canbras-Par. Pursuant to the Canbras
Association Agreement, dated June 14, 1995, among TVA, the Canbras TVA
Companies, Canbras and Canbras-Par, the Company agreed to grant to Canbras-Par a
"right of first refusal" to participate in other
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Cable licenses that the Company may obtain, directly or indirectly, and
Canbras-Par granted to the Company a similar "right of first refusal" to
participate in Cable licenses acquired by Canbras-Par. The term of the Canbras
Association Agreement is for so long as Canbras-Par or its assignee owns shares
"in companies which have the objective of engaging in the cable TV business."
The Canbras Association Agreement does not specify the terms and conditions on
which any co-investments in Cable licenses are to be made, and the Company
expects that such terms and conditions will be negotiated in good faith, on a
case-by-case basis, in connection with any future Cable license investments. The
Company does not believe that the implementation of the Canbras Association
Agreement will have a material adverse effect on the Company and its on-going
operations.
Subsequent to the date of the Canbras Association Agreement, the Company,
through TVA Sul, acquired two new Cable systems in Camboriu and Foz do Iguacu.
Under the terms of the Canbras Association Agreement, the Company is required to
offer to Canbras-Par the right to participate in these Cable systems. Although
Canbras-Par has indicated a preliminary interest in participating in these two
Cable systems, the Company has not yet made a formal offer to Canbras and,
therefore, Canbras' precise level of participation is uncertain at this time.
Additionally, Canbras-Par and the Company are contemplating Canbras-Par
investing directly in TVA Sul, on terms to be agreed upon.
The Canbras Association Agreement provides that to the extent programming is
owned exclusively by TVA, programming will be supplied to the Canbras TVA
Companies on an exclusive basis, and that TVA will not supply such programming
to any other party within the geographic territories covered by the licenses
held by the Canbras TVA Companies. The Canbras Association Agreement does not,
by its terms, refer to Ku-Band or C-Band service. Canbras has taken exception to
the Company's view that the programming provisions do not limit the Company's
ability to offer such services in such geographic territories. The Company
believes its on-going discussions with Canbras will lead to a clarification of
these provisions in a manner which will have no material adverse effect on the
Company or its on-going operations. However, there can be no assurance of such
an outcome, and as of April 10, 1997, the Company and Canbras had not reached an
agreement on such a clarification.
DIVIDENDS TO SHAREHOLDERS
Brazilian corporation law and the Stockholders Agreement among Tevecap and
its stockholders require Tevecap to distribute to its shareholders a mandatory
dividend equal to 25.0% of its net profits. Net profits are defined under the
Brazilian corporation law as the income remaining after the deduction of
payments due to employees, managers and individual shareholders in the service
of the applicable company. In addition, a Brazilian company is allowed to
distribute dividends only if, after a given fiscal year, its net profits exceed
its accumulated losses. However, in accordance with Brazilian corporation law,
Tevecap may suspend the mandatory dividend upon a unanimous decision of its
shareholders. Pursuant to the terms of an amendment to the Stockholders
Agreement, Tevecap's stockholders have unanimously agreed not to exercise their
right to receive such mandatory dividends (without limiting their right to
receive dividends payable in compliance with the "Limitation on Restricted
Payments" covenant in the Indenture) until the first to occur of (x) the date
that shares of Capital Stock of the Company are issued and listed on a Brazilian
or United States securities exchange in connection with a bona fide public
offering of such shares or the date that any shares of the Capital Stock of the
Company are otherwise effectively listed and traded on any Brazilian or United
States securities exchange, (y) the date that none of the Notes remain
outstanding or (z) the date that such commitment is no longer effective,
enforceable or legal under applicable Brazilian laws and regulations (including
without limitation any construction or interpretation thereof by CVM, any court
or any other governmental authority). Accordingly, although the Stockholders
Agreement and Brazilian corporate law would allow Tevecap to pay certain
dividends, the stockholders have waived their right to the payment of such
dividends as described above, and such dividends shall not be paid to the extent
such payment is restricted by the
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Indenture as described above. The common stock dividends provided for by the
Stockholders Agreement will cumulate and are required to be paid to the extent
such payment is not restricted by the Indenture. See "Description of
Notes--Certain Covenants--Limitation on Restricted Payments."
RIGHTS TO DIRECTV PROGRAMMING
Upon the occurrence of certain stipulated events, GLA, in which TVA has a
10.0% equity interest, has the right to terminate the Local Operating Agreement,
dated March 3, 1995, between GLA and Galaxy Brasil (the "Local Operating
Agreement"). Such termination would result in a cessation of the supply of
programming from GLA to Galaxy Brasil. The events that would entitle GLA to
terminate the Local Operating Agreement include breach of any material
obligation of Galaxy Brasil under the Local Operating Agreement, failure to meet
certain annual subscriber goals beginning August 1, 2000, and revocation of any
required governmental licenses. In addition, GLA has the right to terminate
Galaxy Brasil's exclusive rights to DIRECTV programming if Galaxy Brasil were to
fail to reach certain annual subscriber goals beginning August 1, 1998. The loss
of DIRECTV programming could have a material adverse effect on the revenues and
business of the Company.
RISKS RELATING TO THE NOTES
LIMITED ASSETS OF TEVECAP AND DEPENDENCE ON SUBSIDIARIES FOR REPAYMENT OF
NOTES
Tevecap's operations are conducted through, and substantially all of
Tevecap's assets are owned by, Tevecap's direct and indirect subsidiaries. The
ability of Tevecap to meet its obligations in respect of the Notes and any
future indebtedness of Tevecap will depend on, among other things, the future
performance of such subsidiaries (including the Guarantors) and the ability of
Tevecap to refinance the Notes at their maturity (or upon early redemption or
otherwise). In addition, the ability of Tevecap's subsidiaries to pay dividends
and make other payments to Tevecap may be restricted by, among other things,
applicable corporate and other laws and regulations and by the terms of
agreements to which such subsidiaries become subject. Also, the property and
assets of certain of such subsidiaries have had, or in the future may have,
liens placed upon them pursuant to existing and future financings of such
subsidiaries. Although the Indenture limits the ability of such subsidiaries to
enter into consensual restrictions on their ability to pay dividends and make
other payments to Tevecap and to permit liens to exist on their property and
assets, such limitations are subject to a number of significant qualifications.
"See Description of the Notes--Certain Covenants--Limitations on Restrictions on
Distributions from Restricted Subsidiaries," and "--Limitations on Liens".
A portion of the Company's total assets (13.4% at September 30, 1996)
represents interests in entities that are not majority-owned subsidiaries of
Tevecap. The ability of Tevecap to receive funds from these entities may be
limited by, among other things, shareholder agreements with the other investors
in those entities, credit arrangements at those entities and the need of those
entities to reinvest their cash flow in their own operations. In addition,
applicable Brazilian law limits the amount of dividends which may be paid by
Tevecap's minority-owned subsidiaries to the extent they do not have profits
available for distribution. Other statutory and general law obligations may also
affect the ability of those entities to declare dividends or the ability of
those entities to make payments to Tevecap on account of intercompany loans.
FRAUDULENT CONVEYANCE CONSIDERATIONS
The Company has been advised by its Brazilian counsel, Basch & Rameh
Advogados e Consultores, that, to the extent that the Subsidiary Guarantees
given by the Guarantors are valid and enforceable in accordance with the laws of
the State of New York and the United States, the laws of Brazil do not prevent
such Subsidiary Guarantees from being valid, binding and enforceable against the
Guarantors in accordance with their terms. In the event US federal and state
fraudulent conveyance or
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similar laws were applied to the issuance of a Subsidiary Guarantee, if any
Guarantor, at the time it incurs such Subsidiary Guarantee, (a) (i) was or is
insolvent or rendered insolvent by reason of such incurrence, (ii) was or is
engaged in a business or transaction for which the assets remaining with such
Guarantor constituted unreasonably small capital or (iii) intended or intends to
incur, or believed or believes that it would incur, debts beyond its ability to
pay such debts as they mature and (b) received or receives less than reasonably
equivalent value or fair consideration, the obligations of such Guarantor under
its Subsidiary Guarantee could be avoided, or claims in respect of such
Subsidiary Guarantee could be subordinated to all other debts of such Guarantor.
Among other things, a legal challenge of a Subsidiary Guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by such Guarantor
as a result of the issuance by Tevecap of the Notes. To the extent that any
Subsidiary Guarantee were held to be a fraudulent conveyance or unenforceable
for any other reason, the holders of the Notes would cease to have any claim in
respect of the Guarantor issuing such Subsidiary Guarantee and would be solely
creditors of Tevecap and any other Guarantors whose Subsidiary Guarantees were
not avoided or held unenforceable. There can be no assurance that, after
providing for all prior claims, there would be sufficient assets to satisfy
claims of the holders of the Notes relating to any avoided portion of a
Subsidiary Guarantee.
ENFORCEABILITY OF JUDGMENTS
The Company has been advised by its Brazilian counsel, Basch & Rameh
Advogados e Consultores, that judgments for monetary claims obtained in US
courts arising out of or in relation to the obligations of Tevecap and the
Guarantors under the Indenture, the Notes or the Subsidiary Guarantees will be
enforceable in Brazil, provided that such judgment has been previously confirmed
by the Brazilian Federal Supreme Court. In order to be confirmed by the
Brazilian Federal Supreme Court, such foreign judgment must meet the following
conditions: (a) it must comply with all formalities required for its
enforceability under the laws of the country where it was issued, (b) it must
have been given by a competent court after the proper service of process on the
parties, (c) it must not be subject to appeal, (d) it must not offend Brazilian
national sovereignty, public policy or good morals and (e) it must be duly
authenticated by a competent Brazilian consulate and be accompanied by a sworn
translation thereof into Portuguese. No assurance can be given that such
confirmation will be obtained, that the process described above can be conducted
in a timely manner or that a Brazilian court will enforce such monetary
judgment.
Any judgment obtained against Tevecap or the Guarantors in a court in Brazil
under the Notes, the Subsidiary Guarantees or under the Indenture will be
expressed in the Brazilian currency equivalent of the US dollar judgment amount
at the commercial exchange rate on the date on which such judgment is obtained,
and such Brazilian currency amount will be adjusted in accordance with the
exchange variation until the judgment holder receives effective payment.
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE SECURITIES; RESTRICTIONS ON RESALE
The Exchange Securities will be new securities for which there currently is
no market. The Initial Purchasers have informed Tevecap that they currently
intend to make a market in the Old Securities and, if issued, the Exchange
Securities, but they are not obligated to do so, and any such market making may
be discontinued at any time without notice. There can be no assurance as to the
development or liquidity of any market for the Exchange Securities. Tevecap does
not intend to apply for listing of the Notes or, if issued, the Exchange Notes
on any securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation (Nasdaq) system.
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CONSEQUENCES OF FAILURE TO PROPERLY TENDER OLD NOTES IN THE EXCHANGE
Issuance of the Exchange Securities in exchange for the Old Securities
pursuant to the Registered Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Securities, a properly completed and duly
executed Letter of Transmittal and all other required documents. Therefore,
holders of the Old Securities desiring to tender such Old Securities in exchange
for Exchange Securities should allow sufficient time to ensure timely delivery.
Tevecap is under no duty to give notification of defects or irregularities with
respect to tenders of Old Securities for exchange. Old Securities that are not
tendered or that are tendered but not accepted by Tevecap for exchange, will,
following consummation of the Registered Exchange Offer, continue to be subject
to the existing restrictions upon transfer thereof under the Securities Act and,
upon consummation of the Registered Exchange Offer, certain registration rights
under the Exchange and Registration Rights Agreement will terminate.
In the event the Registered Exchange Offer is consummated, Tevecap will not
be required to register the Remaining Old Securities. Remaining Old Securities
will continue to be subject to the following restrictions on transfer: (i) the
Remaining Old Securities may be resold only if registered pursuant to the
Securities Act, if any exemption from registration is available thereunder, or
if neither such registration nor such exemption is required by law, and (ii) the
Remaining Old Securities will bear a legend restricting transfer in the absence
of registration or an exemption therefrom. Tevecap does not currently anticipate
that it will register the Old Securities under the Securities Act. To the extent
that Old Securities are tendered and accepted in connection with the Registered
Exchange Offer, any trading market for Remaining Old Securities could be
adversely affected.
CONTROLS AND RESTRICTIONS ON US DOLLAR REMITTANCES; EXCHANGE REGULATION
Brazilian law provides whenever there is, or is a serious risk of, a
material imbalance in Brazil's balance of payments, the Brazilian Government
may, for a limited period of time, impose restrictions on the remittance to
foreign investors of the proceeds of their investments in Brazil. For
approximately six months in 1989 and early 1990, for example, the Brazilian
Government froze all dividend and capital repatriations that were owed to
foreign equity investors and held by the Central Bank of Brazil (the "Central
Bank") in order to conserve Brazil's foreign currency reserves. These amounts
were subsequently released in accordance with Brazilian Government directives.
There can be no assurance that similar measures will not be taken by the
Brazilian Government in the future.
The Brazilian Government currently restricts the ability of Brazilian or
foreign persons or entities to convert Brazilian currency into US dollars or
other currencies other than in connection with certain authorized transactions.
The issuance of the Notes has been approved by the Central Bank. The Central
Bank has issued a certificate of registration authorizing each of the scheduled
payments of principal at maturity and interest on the Notes. Consent from the
Central Bank will be needed for the payment of principal of and interest on the
Notes upon acceleration of the Notes following an Event of Default (as defined)
and for certain late payments of the Notes (i.e., payments made 181 days or more
after a scheduled payment date). In addition, consent from the Central Bank will
be needed for redemption of the Notes upon certain optional redemption events.
See "Description of Notes." There can be no assurance that the Company will
obtain the necessary consents and certificates from the Central Bank for the
foregoing payments or redemptions.
There can be no assurance that the Brazilian Government will not in the
future impose more restrictive foreign exchange regulations that would have the
effect of eliminating or restricting the Company's access to foreign currency
that it would require to meet its foreign currency obligations, including its
obligations under the Notes. The likelihood of the imposition of such
restrictions by the Brazilian Government may be affected by, among other
factors, the extent of Brazil's foreign currency reserves, the availability of
foreign currency in the foreign exchange markets on the date a payment is
32
<PAGE>
due, the size of Brazil's debt service burden relative to the economy as a
whole, Brazil's policy towards the International Monetary Fund and political
constraints to which Brazil may be subject.
In addition, there are two legal foreign exchange markets in Brazil: the
commercial rate exchange market (the "Commercial Market") and the floating rate
exchange market (the "Floating Market"). The Commercial Market is reserved
primarily for foreign trade transactions and transactions that generally require
prior approval from Brazilian monetary authorities, such as the purchase and
sale of registered investments by foreign persons and related remittances of
funds abroad, such as a repurchase by the Company of the Notes. Purchases of
foreign exchange in the Commercial Market may be carried out only through a
financial institution in Brazil authorized to buy and sell currency in that
market. The "Commercial Market Rate" is the commercial selling rate for
Brazilian currency into US dollars, as reported by the Central Bank. The
"Floating Market Rate" generally applies to transactions to which the Commercial
Market Rate does not apply. Prior to the implementation of the Real Plan, the
Commercial Market Rate and the Floating Market Rate differed significantly at
times. Since the introduction of the REAL, the two rates have not differed
significantly, although there can be no assurance that there will not be
significant differences between the two rates in the future. Both the Commercial
Market Rate and Floating Market Rate are reported by the Central Bank on a daily
basis.
Both the Commercial Market Rate and the Floating Market Rate are freely
negotiated but are strongly influenced by the Central Bank, which typically
intervened in the Commercial Market, prior to the implementation of the Real
Plan, in order to control fluctuations and to regulate disparities between the
Commercial Market Rate and the Floating Market Rate. After implementation of the
Real Plan, the Central Bank allowed the real to float with minimal intervention.
However, on March 6, 1995, the Central Bank announced its intention to intervene
in the foreign exchange markets and has subsequently intervened in the markets
and taken other actions affecting such markets.
On March 6, 1995, the Central Bank announced that it would intervene in the
market and buy or sell US dollars, establishing a band (faixa de flutuacao) in
which the exchange rate between the REAL and the US dollar could fluctuate. The
Central Bank initially set the band with a floor of R$0.86 per US$1.00 and a
ceiling of R$0.90 per US$1.00 and provided that, from and after May 2, 1995, the
band would fluctuate between R$0.86 and R$0.98 per US$1.00. Shortly thereafter,
the Central Bank issued a new directive providing that the band would be between
R$0.88 and R$0.93 per US$1.00. On June 22, 1995, the Central Bank issued another
directive providing that the band would be between R$0.91 and R$0.99 per US$1.00
and subsequently reset the band on January 30, 1996 to between R$0.97 and R$1.06
per US$1.00. Upon resetting the band on January 30, 1996, the Central Bank
adjusted the exchange rate within such band on a number of occasions, generally
in increments of R$0.001, by means of buying and selling US dollars in
electronic auctions. On February 18, 1997, the band was reset by the Central
Bank to float between R$1.05 and $R1.14 per US$1.00. On April 7, 1997, the
Commercial Market Rate was R$1.06 per US$1.00.
RISKS RELATING TO BRAZIL
GENERAL
Social, economic or political instability, among other developments in
Brazil, could adversely affect the financial condition and results of operations
of the Company, the ability of the Company to repay the Notes and the market
value and liquidity of the Notes. In the past, Brazil has suffered from high
levels of inflation, low real growth rates and political uncertainty. Brazil is
generally considered by investors to be an "emerging market" and thus political,
economic, social or other developments in other such markets may adversely
affect the market value and liquidity of the Notes. For example, in December
1994, the Mexican government sharply devalued the peso, resulting in an economic
crisis in Mexico. The Mexican peso crisis adversely affected the market value
and liquidity of securities issued by companies in many
33
<PAGE>
of the "emerging markets," including Brazil. There can be no assurance that
events in other such markets will not adversely affect the market value and
liquidity of the Notes.
POLITICAL AND ECONOMIC CONDITIONS
During the past several years, the Brazilian economy has been affected by
significant intervention by the Brazilian Government. The Brazilian Government
has changed monetary, credit, tariff and other policies to influence the course
of Brazil's economy. The Brazilian Government's actions to control inflation and
effect other policies have often involved wage and price controls (including
controls on the price of food and general merchandise) as well as other
interventionist measures, such as freezing bank accounts and imposing capital
controls. The stated policy of the present Government is to reduce gradually
governmental control of the economy. However, Government policies involving
tariffs, exchange controls, regulations and taxation may adversely affect the
Company's business and financial condition, as could the Brazilian Government's
response to inflation, devaluation, social instability and other political,
economic or diplomatic developments. Brazilian politics have been marked by
uncertainty since the country returned to civilian rule in 1985 after 20 years
of military government. The death of a President-elect in 1985 and the
resignation of another President in 1992 in the midst of his impeachment trial,
and frequent turnovers at and below the cabinet level, particularly in the
economic area, historically have resulted in the absence of a coherent and
sustained policy to confront Brazil's economic problems. The election of
Fernando Henrique Cardoso to the presidency of Brazil in 1994 and the reduction
of the level of inflation in Brazil following the introduction of the Real Plan
in 1994 have resulted in a more stable political and economic environment.
However, there can be no assurance that future developments in Brazil will not
result in a recurrence of political and economic instability.
IMPACT OF EXTREME INFLATION
Brazil in the past 20 years has experienced extremely high rates of
inflation. In 1993, the annual rate of inflation in Brazil exceeded 2,700%.
Inflation and certain governmental measures to fight inflation have in the past
significantly and negatively affected the Brazilian economy. See "Annex A--The
Federative Republic of Brazil." Actions taken to combat inflation and public
speculation about possible future actions have contributed significantly to
economic uncertainty in Brazil and the heightened volatility in the Brazilian
securities markets. Future measures to combat inflation could materially and
adversely affect the Brazilian economy and the Company. Prior to 1994, none of
the numerous economic stabilization plans enacted by the Brazilian Government
successfully reduced inflation over the long term. In 1994, the Brazilian
Government introduced the Real Plan. The Real Plan has resulted in a sustained
reduction in the level of Brazilian inflation. The annual rate of inflation for
1995 and 1996 was 14.8% and 9.34%, respectively. There can be no assurance,
however, that inflation will not increase as a result of future Brazilian
governmental actions or for other reasons.
EFFECTS OF EXCHANGE RATE FLUCTUATIONS
Primarily as a result of inflationary pressures, the Brazilian currency has
been devalued repeatedly during the last four decades. Throughout this period,
the Brazilian Government has implemented various economic plans and utilized a
number of exchange rate policies, including sudden devaluations, periodic
mini-devaluations (with the frequency of adjustments ranging from daily to
monthly), floating exchange rate systems, exchange controls and dual exchange
rate markets. Although over long periods of time devaluations of the Brazilian
currency generally have correlated with the rate of inflation in Brazil, such
governmental actions over shorter periods have resulted in significant
fluctuations in the real exchange rate between the Brazilian currency and the US
dollar. See "Exchange Rate Data."
Substantially all of the Company's revenues are denominated in Brazilian
reais. A substantial portion of the Company's indebtedness is, and may be
expected to continue to be, denominated in US dollars (including the Notes). In
addition, a portion of the Company's operating expenses, including
34
<PAGE>
those relating to programming commitments and cable television equipment costs,
are denominated in or indexed to US dollars. Any devaluation of the Brazilian
currency relative to any foreign currency in which debt or other obligations of
the Company are denominated, if such devaluation were in excess of inflation,
would result in a foreign exchange loss with respect to such indebtedness and
obligations. As a result, the relationship of Brazil's currency to the value of
the US dollar and other currencies, and the rates of devaluation of Brazil's
currency relative to the prevailing rates of inflation, may adversely affect the
Company's financial condition and results of operations, as well as its ability
to meet its debt service obligations (including payment of principal of,
premium, if any, and interest on the Notes) and operating costs. If the Company
cannot increase its prices to match the rate of inflation, even if the rate of
inflation matches the rate of devaluation, the Company's ability to meet its
debt service obligations and operating costs may be impaired.
In addition, the financial records of Tevecap and its subsidiaries have been
maintained in Brazilian reais. However, the Financial Statements are presented
in US dollars. In order to prepare the Financial Statements, Tevecap's accounts
have been translated from the applicable Brazilian currency on the basis
described in Note 2.3 to the Tevecap Financial Statements. Because of
differences between the evolution of the rates of inflation in Brazil and
changes in the rates of devaluation, amounts presented in US dollars will show
distortions when compared on a period-to-period basis.
CONTROLS AND RESTRICTIONS ON US DOLLAR REMITTANCES
Brazilian law provides that whenever there is, or is a serious risk of, a
material imbalance in Brazil's balance of payments, the Brazilian Government
may, for a limited period of time, impose restrictions on the remittance to
foreign investors of the proceeds of their investments in Brazil. For
approximately six months in 1989 and early 1990, for example, the Brazilian
Government froze all dividend and capital repatriations that were owed to
foreign equity investors and held by the Central Bank of Brazil (the "Central
Bank") in order to conserve Brazil's foreign currency reserves. These amounts
were subsequently released in accordance with Brazilian Government directives.
There can be no assurance that similar measures will not be taken by the
Brazilian Government in the future.
The Brazilian Government currently restricts the ability of Brazilian or
foreign persons or entities to convert Brazilian currency into US dollars or
other currencies other than in connection with certain authorized transactions.
The issuance of the Notes has been approved by the Central Bank. After the Notes
are issued, the Central Bank is expected in due course to issue a certificate of
registration authorizing each of the scheduled payments of principal at maturity
and interest on the Notes. In addition, consent from the Central Bank will be
needed for the payment of principal of and interest on the Notes upon
acceleration of the Notes following an Event of Default (as defined) and for
certain late payments of the Notes (I.E., payments made 181 days or more after a
scheduled payment date). In addition, consent from the Central Bank will be
needed for redemption of the Notes upon certain optional redemption events. See
"Description of Notes." There can be no assurance that the Company will obtain
the necessary consents and certificates from the Central Bank for the foregoing
payments or redemptions.
There can be no assurance that the Brazilian Government will not in the
future impose more restrictive foreign exchange regulations that would have the
effect of eliminating or restricting the Company's access to foreign currency
that it would require to meet its foreign currency obligations, including its
obligations under the Notes. The likelihood of the imposition of such
restrictions by the Brazilian Government may be affected by, among other
factors, the extent of Brazil's foreign currency reserves, the availability of
foreign currency in the foreign exchange markets on the date a payment is due,
the size of Brazil's debt service burden relative to the economy as a whole,
Brazil's policy towards the International Monetary Fund and political
constraints to which Brazil may be subject.
35
<PAGE>
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Securities offered hereby. In consideration for issuing the Exchange
Securities as described in this Prospectus, the Company will receive in exchange
Old Securities in like principal amount, the terms of which are identical in all
material respects to those of the Exchange Securities, except that the Exchange
Securities have been registered under the Securities Act and are issued free of
any covenant regarding transfer restrictions. The Old Securities surrendered in
exchange for the Exchange Securities will be retired and cancelled and cannot be
reissued. Accordingly, the issuance of the Exchange Securities will not result
in any change in the indebtedness of the Company.
The net proceeds to the Company from the offering of the Old Securities was
approximately $241.2 million after deducting discounts, commissions and
estimated expenses of the Offering payable by the Company. The Company used the
net proceeds of the offering of the Old Securities as follows:
<TABLE>
<CAPTION>
(IN
MILLIONS)
------------
<S> <C>
Repayment of Short-term bank loans(a)........................................... $ 5.4
Repayment of Loans from affiliated companies(b)................................. 107.9
Capital expenditures, investments and general corporate purposes(c)............. 127.9
------------
$ 241.2
------------
------------
</TABLE>
- ------------------------
(a) The Company repaid all of its Short-term bank loans which it incurred in
connection with the refinancing of certain deferred obligations for the
purchase of property. The annual interest rate on such short-term debt is
LIBOR plus a 1.5% margin.
(b) Includes repayment of all outstanding indebtedness under the Abril Credit
Facility ($105.8 million outstanding as of October 31, 1996). During the
period from September 30, 1996 through October 31, 1996, the Company paid
$16.8 million in connection with its capital spending program. As of ,
1997, the Company had not redrawn any amounts under the Abril Credit
Facility. See "Description of Certain Indebtedness." The interest rate
payable by the Company to Abril has ranged from 1.79% to 3.01% per month.
(c) The Company used this portion of the net proceeds to fund its capital
spending needs in connection with its ongoing operations, including
subscriber additions, subscriber equipment purchases, system construction,
installation labor and other expansion activities and, pending such
application, invested such amounts in short-term instruments. Additionally,
based on its business plans and plans supplied by the Operating Ventures and
Programming Ventures, management expects that an aggregate of approximately
$13.2 million of this amount will be invested in HBO Brasil Partners,
Canbras TVA and CNBC for the purpose of funding the Company's PRO RATA share
of these entities' capital spending needs and operating losses, as well as
in the California Broadcast Center (in the form of debt). See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
EXCHANGE RATE DATA
There are two legal foreign exchange markets in Brazil: the commercial rate
exchange market (the "Commercial Market") and the floating rate exchange market
(the "Floating Market"). The Commercial Market is reserved primarily for foreign
trade transactions and transactions that generally require prior approval from
Brazilian monetary authorities, such as the purchase and sale of registered
investments by foreign persons and related remittances of funds abroad, such as
a repurchase by the Company of the Notes. Purchases of foreign exchange in the
Commercial Market may be carried out only through a financial institution in
Brazil authorized to buy and sell currency in that market. The "Commercial
Market Rate" is the commercial selling rate for Brazilian currency into US
dollars, as reported by the Central Bank. The "Floating Market Rate" generally
applies to transactions to which the Commercial Market Rate does not apply.
Prior to the implementation of the Real Plan, the Commercial Market Rate and the
Floating Market Rate differed significantly at times. Since the introduction of
the REAL, the two rates have not differed significantly, although there can be
no assurance that there will not be significant differences between the two
rates in the future. Both the Commercial Market Rate and the Floating Market
Rate are reported by the Central Bank on a daily basis.
36
<PAGE>
Both the Commercial Market Rate and the Floating Market Rate are freely
negotiated but are strongly influenced by the Central Bank, which typically
intervened in the Commercial Market, prior to the implementation of the Real
Plan, in order to control fluctuations and to regulate disparities between the
Commercial Market Rate and the Floating Market Rate. After implementation of the
Real Plan, the Central Bank allowed the real to float with minimal intervention.
However, as described below, on March 6, 1995, the Central Bank announced its
intention to intervene in the foreign exchange markets and has subsequently
intervened in the markets and taken other actions affecting such markets.
On August 1, 1993, the CRUZEIRO REAL replaced the CRUZEIRO as the unit of
Brazilian currency, with each CRUZEIRO REAL being equal to 1,000 CRUZEIROS.
Beginning in December 1993, the Brazilian Government began implementation of the
Real Plan, which was intended to reduce inflation. On July 1, 1994, the REAL
replaced the CRUZEIRO REAL as the unit of Brazilian currency, with each REAL
being equal to 2,750 CRUZEIROS REAIS and having an exchange rate of R$1.00 to
US$1.00. According to Brazilian law, the issuance of REAIS is controlled by
quantitative limits backed by a corresponding amount of US dollars in reserves,
but the Brazilian Government subsequently expanded those quantitative limits and
allowed the REAL to float, with parity between the REAL and the US dollar
(R$1.00 to US$1.00) as a ceiling.
On March 6, 1995, the Central Bank announced that it would intervene in the
market and buy or sell US dollars, establishing a band (FAIXA DE FLUTUACAO) in
which the exchange rate between the REAL and the US dollar could fluctuate. The
Central Bank initially set the band with a floor of R$0.86 per US$1.00 and a
ceiling of R$0.90 per US$1.00 and provided that, from and after May 2, 1995, the
band would fluctuate between R$0.86 and R$0.98 per US$1.00. Shortly thereafter,
the Central Bank issued a new directive providing that the band would be between
R$0.88 and R$0.93 per US$1.00. On June 22, 1995, the Central Bank issued another
directive providing that the band would be between R$0.91 and R$0.99 per US$1.00
and subsequently reset the band on January 30, 1996 to between R$0.97 and R$1.06
per US$1.00. Upon resetting the band on January 30, 1996, the Central Bank
adjusted the exchange rate within such band on a number of occasions, generally
in increments of R$.001, by means of buying and selling US dollars in electronic
auctions. On February 18, 1997, the band was reset by the Central Bank to float
between R$1.05 and R$1.14 per US$1.00. On April 7, 1997, the Commercial Market
Rate was R$1.06 per US$1.00. There can be no assurance that the band will not be
altered in the future. See "Risk Factors -- Risks Relating to the Notes --
Controls and Restrictions on US Dollar Remittances; Exchange Regulation" -- and
"--Risks Relating to Brazil--Effects of Exchange Fluctuations" and "--Controls
and Restrictions on US Dollar Restrictions."
The following table sets forth the Commercial Market Rate for the periods
indicated.
<TABLE>
<CAPTION>
EXCHANGE RATES OF BRAZILIAN CURRENCY PER US$1.00(A)
------------------------------------------------------
<S> <C> <C> <C> <C>
PERIOD(B) LOW HIGH AVERAGE PERIOD END
- ---------------------------------------------- ------------ ------------ ------------ ------------
1991......................................... 0.000062 0.000389 0.000149 0.000389
1992......................................... 0.000393 0.004505 0.001655 0.004505
1993......................................... 0.004557 0.118584 0.032809 0.118584
1994......................................... 0.120444 0.940000 0.645000 0.846000
1995......................................... 0.834000 0.972600 0.917742 0.972500
1996......................................... 0.972600 1.040700 1.005000 1.039400
</TABLE>
- ------------------------
(a) The information set forth in this table is based on information published by
the Central Bank.
(b) The historical information from 1991 through 1994 represents the nominal
Brazilian currency expressed in current REAIS adjusted for depreciation and
currency substitution. The exchange rates have been translated at the rates
of exchange at the time the successor currencies took effect.
37
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual cash balance and
capitalization of the Company at September 30, 1996 and (ii) the cash balance
and capitalization of the Company at September 30, 1996 as adjusted to give
effect to the offering of the Old Securities and the application of the net
proceeds therefrom. This table should be read in conjunction with the Financial
Statements of the Company appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
---------- ------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash & cash equivalents............................................ $ 619 $ 128,432(a)
---------- ------------
---------- ------------
Short-term bank loans.............................................. $ 5,441 $ --
---------- ------------
---------- ------------
Long-term liabilities
Loans from affiliated companies.................................. $ 91,926 $ --(b)
Loans from shareholders.......................................... 4,607 4,607
Senior Notes due 2004............................................ -- 250,000
---------- ------------
Total long-term liabilities........................................ 96,533 254,607(c)
Redeemable common shares........................................... 163,225 163,225
Shareholders' equity
Paid-in capital.................................................. 142,495 142,495
Accumulated deficit.............................................. (211,466) (211,466)
---------- ------------
Total shareholders' equity......................................... (68,971) (68,371)
---------- ------------
Total capitalization............................................... $ 190,787 $ 348,861
---------- ------------
---------- ------------
</TABLE>
- ------------------------
(a) A portion of the net proceeds from the offering of the Old Securities was
invested in short-term instruments pending application as described under
"Use of Proceeds."
(b) Represents the repayment of all outstanding indebtedness under the Abril
Credit Facility ($105,800 outstanding as of October 31, 1996) and the
repayment of $2,121 of other related party indebtedness. During the period
from September 30, 1996 through October 31, 1996, the Company paid $16,844
in connection with its capital spending program. The Abril Credit Facility
will remain in place, with availability of up to $60,000, until December
1998. As of April 10, 1997, the Company had not redrawn any amounts under
the Abril Credit Facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Description of Certain Indebtedness."
(c) Does not reflect the Company's unused availability under either (i) the
pending Galaxy Brasil Leasing Facility, under which a maximum of $49,900 may
be drawn, or (ii) the EximBank Facility, under which a maximum of
approximately $29,350 may be drawn. The Company expects to draw during 1997
approximately $11,400 under the EximBank Facility and $19,599 under the
Galaxy Brasil Leasing Facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Description of Certain Indebtedness."
38
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
The historical data as of December 31, 1995 and 1994 and for the three years
in the period ended December 31, 1995 have been derived from, and should be read
in conjunction with, the audited Financial Statements of the Company included
elsewhere in this Prospectus. The unaudited financial data set forth below as of
and for the nine month period ended September 30, 1996 and for the nine month
period ended September 30, 1995 have been derived from the unaudited Financial
Statements of the Company. The historical data as of December 31, 1992 and 1993
and for the year ended December 31, 1992 are derived from the audited Financial
Statements of the Company that are not included elsewhere in this Prospectus.
The historical data as of September 30, 1995 are derived from the unaudited
Financial Statements of the Company that are not included elsewhere in this
Prospectus.
As required by Brazilian law, and in accordance with local accounting
practices, the financial records of Tevecap and its subsidiaries are maintained
in the applicable Brazilian currency (the REAL). However, the Financial
Statements are presented in US dollars. In order to prepare the Financial
Statements, the Company's accounts have been translated from the applicable
Brazilian currency, on the basis described in Note 2.3 to the audited Financial
Statements. Because of the differences between the evolution of the rates of
inflation in Brazil and the changes in the rates of devaluation, amounts
presented in US dollars may show distortions when compared on a period-to-period
basis.
The results of operations for the nine month period ended September 30, 1996
are not necessarily indicative of the results expected for the year ending
December 31, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATING DATA:
Gross revenues
Monthly subscriptions.................................. $ 7,070 $ 12,544 $ 27,976 $ 62,496 $ 41,296 $ 85,301
Installation........................................... 1,857 4,350 6,997 26,045 17,995 39,396
Indirect programming(a)................................ 512 530 1,626 2,866 2,114 5,278
Other(b)............................................... 1,322 2,468 7,173 10,603 7,699 10,657
Revenue taxes(c)....................................... (305) (371) (872) (7,506) (5,171) (8,881)
--------- --------- --------- --------- --------- ---------
Total net revenue........................................ 10,456 19,521 42,900 94,504 63,933 131,751
--------- --------- --------- --------- --------- ---------
Direct operating expenses(d)............................. 32,905 29,779 28,659 62,026 42,279 75,557
Selling, general and administrative expenses............. 17,834 19,957 24,370 46,902 30,787 53,710
Depreciation and Amortization............................ 2,704 4,813 6,177 13,268 8,865 18,547
Allowance for inventory obsolescence .................... -- -- -- -- -- 2,493
--------- --------- --------- --------- --------- ---------
Total operating expenses................................. 53,443 54,549 59,206 122,196 81,931 150,307
--------- --------- --------- --------- --------- ---------
Operating loss........................................... (42,987) (35,028) (16,306) (27,692) (17,998) (18,556)
Nonoperating expenses....................................
Interest expense....................................... (13,538) (8,492) (16,413) (17,745) (12,493) (10,125)
Equity in (losses) income of affiliates(e)............. -- -- 383 (3,672) (2,084) (6,642)
Other nonoperating (expenses) income, net(f)........... 2,232 5,892 20,339 8,039 5,158 (1,592)
Income tax expense..................................... -- -- -- -- -- (105)
--------- --------- --------- --------- --------- ---------
Net loss................................................. $ 54,293 $ (37,628) $ (11,997) $ (41,070) $ (27,417) $ (37,020)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
OTHER DATA:
EBITDA--TV Group(g)...................................... $ (40,283) $ (30,215) $ (10,129) $ (13,318) $ (8,462) $ 8,533
EBITDA--Galaxy Brasil(g)................................. -- -- -- (1,106) (671) (6,049)
--------- --------- --------- --------- --------- ---------
EBITDA(g)................................................ (40,283) (30,215) (10,129) (14,424) (9,133) 2,484
Pro forma interest expense(h)............................ 38,623 29,940
Purchase of fixed assets................................. 7,627 11,379 22,369 38,629 52,987 72,538
Ratio of earnings to fixed charges(i).................... -- -- -- -- -- --
CASH FLOW DATA:
Cash provided by (used in) operating activities (h)...... (32,633) (19,180) (9,707) 22,989 1,099 (5,385)
Cash provided by (used in) investing activities.......... (11,761) (13,190) (24,334) (119,661) (68,541) (111,800)
Cash provided by (used in) financing activities.......... 44,088 32,348 38,666 116,229 62,837 93,603
SELECTED OPERATING DATA:
Number of Subscribers to Owned Systems(j)................ 42,924 82,985 114,853 219,148 198,157 316,345
Average monthly revenue per Subscriber(k)................ $ 18.64 $ 21.30 $ 27.80 $ 33.24 $ 33.48 $ 37.66
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................................ $ 41 $ 19 $ 4,644 $ 24,201 $ 39 $ 619
Property, plant and equipment............................ 29,561 35,859 51,426 131,266 95,756 188,063
Total assets............................................. 40,779 45,529 80,441 218,848 148,473 291,154
Loans from affiliated companies.......................... 42,577 89,769 -- 586 22,301 91,926
Long-term liabilities.................................... 67,736 97,105 4,523 9,604 29,816 105,330
Redeemable common shares................................. -- -- 19,754 149,534 69,754 163,225
Total shareholders' equity............................... (54,483) (92,111) 27,590 (18,260) 173 (68,971)
<CAPTION>
<S> <C>
<S> <C>
STATEMENT OF OPERATING DATA:
Gross revenues
Monthly subscriptions..................................
Installation...........................................
Indirect programming(a)................................
Other(b)...............................................
Revenue taxes(c).......................................
-
Total net revenue........................................
-
Direct operating expenses(d).............................
Selling, general and administrative expenses.............
Depreciation and Amortization............................
Allowance for inventory obsolescence ....................
-
Total operating expenses.................................
-
Operating loss...........................................
Nonoperating expenses....................................
Interest expense.......................................
Equity in (losses) income of affiliates(e).............
Other nonoperating (expenses) income, net(f)...........
Income tax expense.....................................
-
Net loss.................................................
-
-
OTHER DATA:
EBITDA--TV Group(g)......................................
EBITDA--Galaxy Brasil(g).................................
-
EBITDA(g)................................................
Pro forma interest expense(h)............................
Purchase of fixed assets.................................
Ratio of earnings to fixed charges(i)....................
CASH FLOW DATA:
Cash provided by (used in) operating activities (h)......
Cash provided by (used in) investing activities..........
Cash provided by (used in) financing activities..........
SELECTED OPERATING DATA:
Number of Subscribers to Owned Systems(j)................
Average monthly revenue per Subscriber(k)................
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................................
Property, plant and equipment............................
Total assets.............................................
Loans from affiliated companies..........................
Long-term liabilities....................................
Redeemable common shares.................................
Total shareholders' equity...............................
</TABLE>
See accompanying Notes to Selected Historical Financial And Other Data
39
<PAGE>
NOTES TO SELECTED HISTORICAL FINANCIAL AND OTHER DATA
(a) Represents revenues received by the Company for selling programming to the
Independent Operators.
(b) Includes Advertising and Other revenues.
(c) Represents various non-income based taxes paid on certain of the Company's
gross revenue items with rates ranging from 2.65% to 7.65%.
(d) Represents costs directly related to Monthly subscriptions, and a portion of
Installation, Indirect programming and Other revenues.
(e) Represents the Company's pro rata share of the Net loss or income of its
equity investments.
(f) Includes Interest income, Translation gain or loss, Other nonoperating
(expenses) income, net, and Minority interest. The amount included for the
year ended December 31, 1994 includes Interest income totaling $21,806.
During that year, the Company received capital contributions from
stockholders which resulted in a surplus of cash invested during such
period.
(g) EBITDA represents the sum of (i) net income (loss), plus, without
duplication (ii) income tax expense, (iii) interest expense (income), net,
(iv) other nonoperating (expenses) income, net (v) depreciation,
amortization and all other non-cash charges, less (vi) non-cash items
increasing net income (loss) with the exception of amortized deferred
sign-on and hookup fee revenue, in each case determined in accordance with
GAAP. EBITDA-TV Group and EBITDA-Galaxy Brasil represent operating loss plus
depreciation and amortization. The term "TV Group" refers to the operations
of TVA, excluding the operations of Galaxy Brasil. The TV Group, which
constitutes the operations of TVA, excluding the operations of Galaxy
Brasil, represents the more mature operations of the Group while Galaxy
Brasil remains in a start up phase and has yet to collect material revenues
to offset the costs of initiating the Ku-Band service. EBITDA has been
presented separately for the TV Group and Galaxy Brasil to take account of
the different stages of development of these operations.
(h) Cash provided by (used in) operating activities (hereinafter referred to as
cash flows from operating activities) has been determined in accordance with
GAAP while EBITDA has been calculated in accordance with the definition in
footnote (g). In accordance with GAAP, cash flows from operating activities
generally reflect the cash effects of transactions and other events that
enter into the determination of net income. The principal difference between
EBITDA and cash flows from operating activities arise as a result of the
treatment of the changes in the balances of operating assets and liabilities
from the beginning to the end of a reporting period. That is, in accordance
with GAAP, such changes are components of cash flows from operating
activities while there is no similar adjustment in the calculation of
EBITDA. EBITDA has been presented as it is a financial measure commonly used
in the Company's industry. EBITDA should not be considered as an alternative
to cash provided by (used in) operating activities, as an indicator of
operating performance or as a measure of liquidity.
(i) Represents interest expense on a pro forma basis, resulting from the
offering of Old Securities and the application of the net proceeds therefrom
as follows:
<TABLE>
<CAPTION>
NINE MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
--------------- ---------------
<S> <C> <C>
Historical interest expense...................................... $ 17,745 $ 10,125
Elimination of interest expense related to certain affiliated
indebtedness................................................... (11,788) (4,684)
Interest resulting from the Notes based on an interest rate of
12.625%........................................................ 31,563 23,672
Amortization of deferred financing costs relating to the Notes... 1,103 827
--------------- ---------------
$ 38,623 $ 29,940
--------------- ---------------
--------------- ---------------
</TABLE>
(j) For the four years ended December 31, 1995 and the nine months ended
September 30, 1995 and 1996, earnings were insufficient to cover fixed
charges by $54,487, $37,920, $13,100, $38,269, $25,905 and $31,911,
respectively. In calculating the Ratio of earnings to fixed charges,
earnings represents Net loss before minority interest, Equity in (losses)
income of affiliates, less fixed charges. Fixed charges consist of the sum
of Interest expense paid or accrued on indebtedness of the Company and its
subsidiaries and affiliates and one third of operating rental expenses (such
amount having been deemed by the Company to represent the interest portion
of such payments).
(k) Represents the number of Owned Systems' Subscribers as of the last day of
each period.
(l) Average monthly revenue per subscriber refers to the average monthly
subscription fee as of the last day of each period.
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements (including the notes thereto) included elsewhere in this Prospectus.
For the purposes of the following discussion, all dollar amounts are set forth
in thousands of US dollars.
This Management's Discussion and Analysis of Financial Condition and Results
of Operations reflects the historical results of the Company. Due to the limited
operating history, startup nature, translations of Brazilian currency into US
dollars, and rapid growth of the Company, period-to-period comparisons of
financial data are not necessarily indicative, and should not be relied upon as
an indicator of the future performance of the Company.
OVERVIEW
Since its inception in 1989, the Company has been in a developmental or
buildout stage. The TV Group, representing the more mature operations of the
Company, has experienced, and continues to experience, rapid growth. In
addition, the Company, through Galaxy Brasil, initiated Ku-Band DIRECTV service
on a limited basis in July 1996. Despite its growth, the Company has sustained
substantial net losses due primarily to insufficient revenue with which to fund
startup costs, interest expense and charges for depreciation and amortization.
However, the TV Group has been generating positive operating cash flow beginning
with the three month period ended June 30, 1996, while Galaxy Brasil,
representing the Company's less mature operations, remains in a start-up phase
and has not yet collected material revenues to offset the costs of initiating
the Ku-Band service. Net losses incurred by the Company since inception have
been funded principally by (i) net contributions of approximately $288,000 from
the Company's shareholders, (ii) borrowings from Abril under the Abril Credit
Facility and (iii) short term borrowings made from time to time. Management
expects the financial results of the Company to improve as the operation of the
Ku-Band service matures and the number of subscribers for the Company's Ku-Band
service and TV Group services continues to grow. There can be no assurance,
however, that the number of the Company's subscribers will grow, or that the
Company's financial performance will improve.
41
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain statements
of operations data expressed in US dollar amounts and as a percentage of net
revenue:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------------------- ------------------------
1993 1994 1995 1995
---------------------- ---------------------- ---------------------- ------------------------
(DOLLARS IN THOUSANDS)
% OF NET % OF NET % OF NET UNAUDITED % OF NET
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
--------- ----------- --------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross revenues
Monthly subscriptions......... $ 12,544 64.3% $ 27,976 65.2% $ 62,496 66.1% $ 41,296 64.6%
Installation.................. 4,350 22.3 6,997 16.3 26,045 27.6 17,995 28.1
Indirect programming.......... 530 2.7 1,626 3.8 2,866 3.0 2,114 3.3
Other......................... 2,468 12.6 7,173 16.7 10,603 11.2 7,699 12.0
Revenue taxes................. (371) (1.9) (872) (2.0) (7,506) (7.9) (5,171) (8.0)
--------- ----------- --------- ----------- --------- ----------- ----------- -----------
Net revenue................... 19,521 100.0 42,900 100.0 94,504 100.0 63,933 100.0
--------- ----------- --------- ----------- --------- ----------- ----------- -----------
Direct operating expenses..... 29,779 152.5 28,659 66.8 62,026 65.6 42,279 66.1
Selling, general and
administrative expenses..... 19,957 102.2 24,370 56.8 46,902 49.6 30,787 48.2
Depreciation and
Amortization................ 4,813 24.7 6,177 14.4 13,268 14.0 8,865 13.9
Allowance for inventory
obsolescence................ -- -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- ----------- -----------
Total operating expenses...... 54,549 279.4 59,206 138.0 122,196 129.2 81,931 128.2
--------- ----------- --------- ----------- --------- ----------- ----------- -----------
Operating loss................ (35,028) (179.4) (16,306) (38.0) (27,692) (29.2) (17,998) (28.2)
--------- ----------- --------- ----------- --------- ----------- ----------- -----------
Interest income............... 5,369 27.5 21,806 50.8 3,118 3.3 1,360 2.1
Interest expense.............. (8,492) (43.5) (16,413) (38.3) (17,745) (18.8) (12,493) (19.5)
Translation (loss) gain....... 788 4.0 (914) (2.1) (339) (0.4) (41) (0.1)
Equity in (losses) income of
affiliates.................. -- -- 383 0.9 (3,672) (3.9) (2,084) (3.3)
Other nonoperating (expenses)
income, net................. (557) (2.9) (1,273) (3.0) 4,389 4.6 3,267 5.1
Minority interest............. 292 1.5 720 1.7 871 0.9 572 0.9
Income tax expense............ -- -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- ----------- -----------
Net loss...................... $ (37,628) (192.8)% $ (11,997) (28.0 )% $ (41,070) (43.5 )% $ (27,417 ) (42.8)%
--------- ----------- --------- ----------- --------- ----------- ----------- -----------
--------- ----------- --------- ----------- --------- ----------- ----------- -----------
<CAPTION>
1996
------------------------
UNAUDITED % OF NET
AMOUNT REVENUE
----------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross revenues
Monthly subscriptions......... $ 85,301 64.7%
Installation.................. 39,396 29.9
Indirect programming.......... 5,278 4.0
Other......................... 10,657 8.1
Revenue taxes................. (8,881) (6.7)
----------- -----
Net revenue................... 131,751 100.0
----------- -----
Direct operating expenses..... 75,557 57.3
Selling, general and
administrative expenses..... 53,710 40.8
Depreciation and
Amortization................ 18,547 14.1
Allowance for inventory
obsolescence................ 2,493 1.9
----------- -----
Total operating expenses...... 150,307 114.1
----------- -----
Operating loss................ (18,556) (14.1)
----------- -----
Interest income............... 3,650 2.8
Interest expense.............. (10,125) (7.7)
Translation (loss) gain....... 243 0.2
Equity in (losses) income of
affiliates.................. (6,642) (5.0)
Other nonoperating (expenses)
income, net................. (7,018) (5.3)
Minority interest............. 1,533 1.2
Income tax expense............ (105) (0.1)
----------- -----
Net loss...................... $ (37,020) (28 )%
----------- -----
----------- -----
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
The table below sets forth the number of subscribers at September 30, 1995
and September 30, 1996 for the Owned Systems.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
OWNED SYSTEMS SUBSCRIBERS 1995 1996
- ------------------------------------------------------------- -------------- --------------
<S> <C> <C>
MMDS(a)...................................................... 177,089 229,656
Cable........................................................ 11,087 39,253
DIRECTV and Digital C-Band................................... 9,981 47,436
-------------- --------------
198,157 316,345
Paid Subscribers Awaiting Installation(b).................... 18,460 19,691
-------------- --------------
Total Owned Systems.......................................... 216,617 336,036
-------------- --------------
-------------- --------------
</TABLE>
- ------------------------
(a) Includes UHF subscribers.
(b) Subscribers who have paid an installation fee but are awaiting the
installation of service.
42
<PAGE>
The table below sets forth at September 30, 1995 and September 30, 1996 the
approximate number of television households which received TVA's programming
through the Owned Systems and the Operating Ventures and through sales of
programming to the Independent Operators.
HOUSEHOLDS RECEIVING TVA PROGRAMMING
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
-------------- --------------
<S> <C> <C>
Total Owned Systems.......................................... 216,617 336,036
Operating Ventures........................................... 27,027 66,388
Independent Operators........................................ 252,000 555,049
-------------- --------------
Total........................................................ 495,644 957,473
-------------- --------------
-------------- --------------
</TABLE>
REVENUES. Revenues consist primarily of Monthly subscriptions revenue
(which principally consists of monthly fees paid by subscribers to the Company
for programming services, including equipment use), Installation revenue,
Indirect programming revenue (which consists of payments made to the Company for
the sale of its programming to the Independent Operators) and Other revenue
(which consists of Advertising revenues and Other revenues). Revenue taxes
consist of a 2.65% tax on Advertising revenue and a 7.65% tax on the balance of
revenues, in each case charged by the Brazilian Government.
Monthly subscriptions revenue for the nine months ended September 30, 1996
was $85,301, as compared to $41,296 for the comparable period in 1995, an
increase of $44,005. This increase was principally attributable to an increase
in subscriber base and an increase in the amount of average monthly fees from
$33.48 to $37.66 per subscriber. The average monthly subscription price during
the nine month period ended September 30, 1996, was $46.83 for MMDS service,
$39.84 for Cable service and, $37.89 for C-Band service, as compared to $44.32,
$35.75 and $32.57 respectively, for the nine month period ended September 30,
1995. The average monthly subscription price for Ku-Band service from its
introduction in July 1996 to September 30, 1996, was $56.40. Galaxy Brasil
contributed $502 to monthly subscription revenue for the nine months ended
September 30, 1996, as compared to $0 for the comparable period in 1996.
Installation revenue for the nine months ended September 30, 1996 was
$39,396, as compared to $17,995 for the comparable period in 1995, an increase
of $21,401. This increase was principally attributable to the increase in the
number of new subscribers and also to an increase in the average installation
fee for C-Band service from $500.00 to $707.24. The average installation fee
during the nine month period ended September 30, 1996, was $124.95 for MMDS
service, $40.40 for Cable service, $569.01 for C-Band service, as compared to
$187.63, $78.74 and $589.56, respectively, for the nine month period ended
September 30, 1995. The average installation fee for Ku-Band service from its
introduction in July 1996 to September 30, 1996, was $943.00. The net number of
subscribers added to the Company's Owned Systems during the nine months ended
September 30, 1996 was 97,197, as compared to 83,304 added during the same
period of 1995. Galaxy Brasil contributed $3,200 to Installation revenue for the
nine months ended September 30, 1996, as compared to $0 for the comparable
period in 1995. After an initial rollout in July 1996 Galaxy Brasil began
enrolling subscribers.
Indirect programming revenue for the nine months ended September 30, 1996
was $5,278, as compared to $2,114 for the comparable period of 1995, an increase
of $3,164. This increase was principally attributable to the increase in the
number of Independent Operators' subscribers for the period. The number of
Independent Operators' subscribers increased by 213,350 during the nine month
period ended September 30, 1996, as compared to an increase of 162,327 during
the same period of the prior year. Independent Operators pay a fee to the
Company based on the number of subscribers to such Independent Operator's system
and the number of channels purchased from the Company. The
43
<PAGE>
average monthly fee paid to the Company by an Independent Operator during the
nine months ended September 30, 1996 was $1.64 per subscriber.
Other revenue for the nine months ended September 30, 1996 was $10,657, as
compared to $7,699 for the comparable period of 1995, an increase of $2,958.
This change included a decrease in Advertising revenue to $5,362 from $5,505, a
decrease of $143, and an increase in Other to $5,295 from $2,194, an increase of
$3,101. The decrease in Advertising revenue was attributable to a shift in
advertising sales from advertising on ESPN International programming (the
Advertising revenues from which were reported as Advertising revenues in the
Company's consolidated financial statements), to advertising sales on ESPN
Brasil Ltda. programming (the Advertising revenues from which were not reported
in the Advertising revenues line of the Company's consolidated financial
statements but as part of the Company's Equity in (losses) income of
affiliates).
Revenue taxes for the nine months ended September 30, 1996 were $8,881, as
compared to $5,171 for the same period of the prior year, an increase of $3,710.
Galaxy Brazil contributed $508 to revenue taxes for the nine months ended
September 30, 1996, as compared to $0 for the comparable period of 1995. Galaxy
Brazil began enrolling subscribers and collecting revenue in July 1996.
For the reasons noted above, Net revenue for the nine months ended September
30, 1996 was $131,751, as compared to $63,933 for the comparable period in the
previous year, an increase of $67,818. Galaxy Brasil contributed $3,194 to Net
revenue for the nine months ended September 30, 1996, as compared to $0 for the
comparable period in the previous year.
DIRECT OPERATING EXPENSES. Direct operating expenses include Payroll and
benefits, Programming, Transponder lease cost, Technical assistance expense,
Vehicle rentals expense, TVA Magazine and Other expenses. These expenses, with
the exception of Transponder lease costs, are variable expenses which increase
as the number of subscribers increases and the Company's systems grow, and are
also dependent on the type of service subscribers select. Direct operating
expenses for the nine months ended September 30, 1996 were $75,557, as compared
to $42,279 for the same period in 1995, an increase of $33,278. This increase
was primarily attributable to expenses incurred to service the increase in the
number of subscribers for such period in 1996 compared to the same period in
1995. Payroll and benefits expense increased to $19,467 from $8,868, an increase
of $10,599, as a result of the hiring of more than 537 new employees.
Programming costs increased to $25,477 from $14,105, an increase of $11,372, as
a result of changes implemented in the programming purchased by the Company.
Transponder lease cost increased to $6,575 from $5,357, an increase of $1,218,
as a result of leasing a third transponder in 1996. Technical assistance costs
increased to $4,923 from $3,913, an increase of $1,010; Vehicle rentals expense
increased to $1,252 from $1,114, an increase of $138; and the expense of
publishing TVA Magazine increased to $4,680 from $2,164, an increase of $2,516.
Other costs include third party services, maintenance and other miscellaneous
expenses. For the nine months ended September 30, 1996, Other costs were
$13,183, as compared to $6,758 for the same period the prior year, an increase
of $6,425. Galaxy Brasil contributed $5,111 to Direct operating expenses, as
compared to $665 for the comparable period in 1995, an increase of $4,446 as
Galaxy Brasil incurred Payroll and benefits, Vehicle rentals and other costs
consistent with starting this operation.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include Payroll and benefits expense for selling,
administrative, financial, legal and human resources, Advertising and promotion,
Rent expense, Other administrative expenses, and Other general expenses.
Selling, general and administrative expenses for the nine months ended September
30, 1996 were $53,710, as compared to $30,787 for the same period of 1995, an
increase of $22,923. The Company has experienced increasing Selling, general and
administrative expenses as a result of its increased pay television activities
and the associated administrative costs, including costs related to opening and
maintaining additional facilities and an overall increase in Payroll and
benefits expense resulting from an increase in the number of employees.
Advertising and promotion expense increased to $12,794 from
44
<PAGE>
$5,882, an increase of $6,912, as a result of an increase in the number of
subscribers and promotional activity. Galaxy Brasil contributed $4,132 to
Selling, general and administrative expenses for the nine months ended September
30, 1996, as compared to $6 for the comparable period in 1995, an increase of
$4,126. Such increase at Galaxy Brasil was due to increases in Payroll and
benefits expense and Other administrative expenses.
DEPRECIATION, AMORTIZATION AND ALLOWANCE FOR INVENTORY
OBSOLESCENCE. Depreciation and Amortization includes depreciation of systems,
equipment, installation materials, installation personnel and organizational
costs and amortization of concessions. Allowance for inventory obsolescence
represents charges for obsolescence of certain equipment and material.
Depreciation and Amortization for the nine months ended September 30, 1996 was
$18,547, as compared to $8,865 for the same period of 1995, an increase of
$9,682. Allowance for inventory obsolescence for the nine months ended September
30, 1996 was $2,493 as compared to $0 for the comparable period in 1995, an
increase of $2,493. Galaxy Brasil contributed $1,059 to Depreciation,
Amortization and Allowance for inventory obsolescence for the nine months ended
September 30, 1996, as compared to $0 for the comparable period in 1995, an
increase of $1,059. Such increase was due to depreciation expenses associated
with the Tambore Facility.
For the reasons noted above, Operating loss for the nine months ended
September 30, 1996 was $18,556, as compared to $17,998 for the comparable period
in 1995, an increase of $558. Galaxy Brasil contributed $7,108 of this loss for
the nine months ended September 30, 1996, as compared to $671 for the comparable
period in 1995, an increase of $6,437.
INTEREST INCOME. Interest income for the nine months ended September 30,
1996 was $3,650, as compared to $1,360 for the same period in 1995, an increase
of $2,290.
INTEREST EXPENSE. Interest expense for the nine months ended September 30,
1996 was $10,125, as compared to $12,493 for the same period of 1995, a decrease
of $2,368. This decrease was due primarily to the utilization of capital
contributed to the Company by Falcon, Hearst and ABC, which occurred in the
second half of 1995, to repay outstanding debt.
EQUITY IN LOSSES (INCOME) OF AFFILIATES. For the nine months ended
September 30, 1996, Equity in losses (income) of affiliates amounted to a loss
of $6,642, as compared to a loss of $2,084 in the same period of 1995, an
increase in loss of $4,558. The primary reason for this increase in loss was
sustained losses at ESPN Brasil, which was formed on June 15, 1995.
OTHER NON-OPERATING (EXPENSES) INCOME. Other non-operating (expenses)
income for the nine months ended September 30, 1996 was an expense of $7,018, as
compared to income of $3,267 in the same period in 1995, an increase in expense
of $10,285. The Other non-operating expenses for the nine months ended September
30, 1996, consisted primarily of fees paid in connection with the investment of
Falcon International and Hearst/ABC Parties in the Company. The Other
non-operating income for the comparable period of 1995 consisted primarily of
income from the sale of movie inventory and other assets.
MINORITY INTEREST. The Minority interest of $1,533 for the nine months
ended September 30, 1996 represents Mr. Leonardo Petrelli's 13.0% share of the
$11,792 in aggregate losses of TVA Sul.
NET LOSS. For the reasons noted above, Net loss for the nine months ended
September 30, 1996 was $37,020, as compared to $27,417 for the comparable period
in 1995, an increase of $9,603.
45
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
The table below sets forth the number of subscribers at December 31, 1995
and December 31, 1994 for the Owned Systems.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
OWNED SYSTEM SUBSCRIBERS 1994 1995
- -------------------------------------------------------------- -------------- --------------
<S> <C> <C>
MMDS(a)....................................................... 111,771 188,893
Cable......................................................... 1,007 15,129
Digital C-Band................................................ 2,075 15,126
-------------- --------------
114,853 219,148
Paid Subscribers Awaiting Installation(b)..................... 13,956 18,343
-------------- --------------
Total Owned Systems........................................... 128,809 237,491
-------------- --------------
-------------- --------------
</TABLE>
- ------------------------
(a) Includes UHF subscribers.
(b) Subscribers who have paid an installation fee but are awaiting the
installation of service.
The table below sets forth at December 31, 1995 and December 31, 1994 the
approximate number of television households which received TVA's programming
through the Owned Systems and the Operating Ventures and through sales of
programming to the Independent Operators.
HOUSEHOLDS RECEIVING TVA PROGRAMMING
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
-------------- --------------
<S> <C> <C>
Total Owned Systems........................................... 128,809 237,491
Operating Ventures............................................ 7,640 35,572
Independent Operators......................................... 89,673 341,699
-------------- --------------
Total................................................... 226,122 614,762
-------------- --------------
-------------- --------------
</TABLE>
REVENUES. Monthly subscriptions revenue for the year ended December 31,
1995 was $62,496, as compared to $27,976 for the comparable period in 1994, an
increase of $34,520. This increase was attributable to the net addition of
104,295 subscribers to the Company's Owned Systems, and the increase in the
average monthly fee for existing subscribers to $33.24 from $27.80, an increase
of $5.44, and for new subscribers to $39.48 from $31.87, an increase of $7.61.
The average monthly subscription price during the year ended December 31, 1995
was $44.04 for MMDS service and $38.12 for Cable service, as compared to $42.48
and $26.26, respectively, for the year ended December 31, 1994. The average
monthly subscription price for C-Band service for the year ended December 31,
1995 was $41.37. In 1994, the Company's C-Band service was in its initial phase
of operations. In addition, Galaxy Brasil's Ku-Band service was under
development in 1995. The Company was able to increase the monthly fee as the
market price for pay television increased. The increase in the number of
subscribers was due to (i) the continued expansion and penetration of the
Company's MMDS service, including the introduction of signal repeaters in Sao
Paulo and Rio de Janeiro, (ii) the full year benefit of Cable system
construction in Sao Paulo and (iii) the net addition of 13,051 C-Band
subscribers through an aggressive national marketing campaign timed to coincide
with the Company's main competitor focusing on its Cable systems. During each
year, all revenues came from the operation of the TV Group as the operations of
Galaxy Brasil were in development.
Installation revenue for the year ended December 31, 1995 was $26,045, as
compared to $6,997 for the comparable period in 1994, an increase of $19,048.
This increase was principally attributable to the
46
<PAGE>
increase in the number of installations and to the increase in the average fees
for installations. The average fee for MMDS service installation increased to
$169.70 from $119.75, an increase of $49.95, and the average fee for Cable
service installation increased to $81.87 from $44.69, an increase of $37.18. The
C-Band average installation fee increased to $586.79 from $500.00, an increase
of $86.79. The growth in installations was aided by the continued growing
awareness of pay television in Brazil and the Company's start-up of live
broadcasts of the Brazilian National Soccer Championship, the Sao Paulo State
Championship and other soccer events through ESPN Brasil. As with Monthly
subscriptions revenue, all Installation revenue during each year came from the
operations of the TV Group.
Indirect programming revenue for the year ended December 31, 1995 was
$2,866, as compared to $1,626 for the comparable period of 1994, an increase of
$1,240. This increase was principally attributable to the increase in the number
of Independent Operators' subscribers for the period, as compared to the same
period in 1994. Such Independent Operators' subscribers increased to 341,699 at
December 31, 1995, as compared to 89,673 at December 31, 1994, an increase of
252,026. The average fee paid during both 1995 and 1994 was $1.50 per subscriber
per month.
Other revenue for the year ended December 31, 1995 was $10,603, as compared
to $7,173 for the comparable period of 1994, an increase of $3,430. This
increase included an increase in Advertising revenue to $8,377 from $5,727, an
increase of $2,650. The growth in Advertising revenue was due to the increase in
the subscriber base, an increase in the amount of advertising time sold by the
Company per hour of programming and an increase in the rate charged for
advertising time.
Revenue taxes for 1995 were $7,506, as compared to $872 for the prior year,
an increase of $6,634. This increase was primarily attributable to a Government
imposed 5.0% increase in the tax rate, which increased Revenue taxes to 7.65%
from 2.65%, imposed on the Company's Gross revenues (excluding Advertising
revenue, which is taxed at 2.65%).
For the reasons noted above, Net revenue for the year ended December 31,
1995 was $94,504, as compared to $42,900 for the comparable period the previous
year, an increase of $51,604.
DIRECT OPERATING EXPENSES. Direct operating expenses for the year ended
December 31, 1995 were $62,026, as compared to $28,659 for the same period of
1994, an increase of $33,367. This increase was attributable primarily to the
increase in the number of subscribers to the Company's systems which led to
increases in Payroll and benefits expense, Programming expense, Transponder
lease cost, Technical assistance expense, Vehicle rentals expense, TVA Magazine
expense and Other costs. Payroll and benefits expense increased to $12,520 from
$8,022, an increase of $4,498, as the Company added approximately 450 employees.
Programming costs increased to $21,609 from $12,133, an increase of $9,476, as
the Company's subscriber base grew and the Company added four new channels to
each of its distribution systems. Transponder lease cost increased to $7,568
from $1,555, an increase of $6,013, due to an increase in the cost of satellite
transponder leases and the application of a 25.0% tax charged by the Brazilian
Government on transponder lease payments beginning in June 1995. Technical
assistance expense increased to $5,152 from $1,622, an increase of $3,530, due
to an increase in the subscriber base and the upgrade of existing systems for
the receipt of additional channels by subscribers, Vehicle rentals expense
increased to $1,732 from $788, an increase of $944, and TVA Magazine expense
increased to $3,318 from $1,430, an increase of $1,888. These expenses are
variable and increased due to the costs associated with servicing the larger
subscriber base and installing new subscribers. For the year ended December 31,
1995, Other costs were $10,127, as compared to $3,109 for the same period the
prior year, an increase of $7,018. The Company experienced increased expenses as
a result of its increased television activities and associated costs, including
costs related to opening and maintaining additional facilities. Galaxy Brasil
contributed $1,027 to Direct operating expenses for the year ended December 31,
1995, as compared to $0 for the same period of 1994. Galaxy Brasil incurred
Payroll and benefits expense, Vehicle rentals expense and Other costs consistent
with starting its DIRECTV service.
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<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the year ended December 31, 1995 were $46,902, as
compared to $24,370 for the same period of 1994, an increase of $22,532. The
Company experienced increased Selling, general and administrative expenses as a
result of its increased pay television activities and associated administrative
costs, including costs related to opening and maintaining additional facilities
and an overall increase in payroll expenses resulting from an increase in the
number of employees. Advertising and promotion expense increased to $11,122 from
$3,540, an increase of $7,582, largely due to the Company's increased
promotional activity, including nationwide C-Band promotion. Galaxy Brasil
contributed $79 to Selling, general and administrative expenses for the year
ended December 31, 1995, all of which constituted Advertising and rent expenses,
as compared to $0 for the same period of 1994.
DEPRECIATION AND AMORTIZATION. Depreciation and Amortization expense for
the year ended December 31, 1995 was $13,268, as compared to $6,177 for the same
period of 1994, an increase of $7,091. The increase was due primarily to
increased capitalization of the costs associated with building the MMDS, Cable
and C-Band systems and with the installation of new subscribers. Galaxy Brasil
contributed $127 to Depreciation and Amortization expense (all of which
constituted Depreciation expense) for the year ended December 31, 1995, as
compared to $0 for the comparable period in 1994.
For the reasons noted above, Operating loss for the year ended December 31,
1995 was $27,692, as compared to $16,306 for the comparable period in 1994, an
increase in loss of $11,386. Galaxy Brasil contributed $1,233 to this loss for
the year ended December 31, 1995, as compared to $0 for the comparable period in
1994.
INTEREST INCOME. For the year ended December 31, 1995, Interest income
totaled $3,118, as compared to $21,806 in the similar period in 1994, a decrease
of $18,688. This reduction in Interest income was a result of the shorter period
in which a capital contribution of $125,000 in 1995 earned interest relative to
the length of time a capital contribution of $151,452 earned interest in 1994,
as well as due to the sharp appreciation of the Brazilian real versus the US
dollar upon introduction of the real in late 1994.
INTEREST EXPENSE. Interest expense for the year ended December 31, 1995 was
$17,745, as compared to $16,413 for the year ended December 31, 1994, an
increase of $1,332.
EQUITY IN LOSSES (INCOME) OF AFFILIATES. For the year ended December 31,
1995, Equity in losses (income) of affiliates was a loss of $3,672, as compared
to income of $383 for the same period in 1994, a decrease of $4,055. The
principal reasons for this reduction were the losses sustained by ESPN Brasil
Ltda. which came into existence during June 1995, and HBO Brasil Partners, which
came into existence in 1994.
OTHER NON-OPERATING (EXPENSES) INCOME. For the year ended December 31,
1995, Other non-operating (expenses) income was income of $4,389, as compared to
an expense of $1,273 for the same period of 1994, an increase of $5,662. The
primary reasons for this increase were equipment rental income, sales of assets
and a release of certain obligations, among others.
MINORITY INTEREST. The Minority interest of $871 for the twelve months
ended December 31, 1995 represents Mr. Leonardo Petrelli's 20.0% share of the
$4,355 in aggregate losses of TVA Curitiba.
NET LOSS. For the reasons noted above, Net loss for the year ended December
31, 1995 was $41,070, as compared to $11,997 for the comparable period in 1994,
an increase of $29,073.
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<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
The table below sets forth the number of subscribers at December 31, 1994
and December 31, 1993 for the Owned Systems.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
OWNED SYSTEM SUBSCRIBERS 1993 1994
- -------------------------------------------------------------- -------------- --------------
<S> <C> <C>
MMDS(a)....................................................... 82,474 111,771
Cable......................................................... 0 1,007
Digital C-Band................................................ 511 2,075
------- --------------
82,985 114,853
Paid Subscribers Awaiting Installation(b)..................... 7,438 13,956
------- --------------
Total Owned Systems........................................... 90,423 128,809
------- --------------
------- --------------
</TABLE>
- ------------------------
(a) Includes UHF subscribers.
(b) Subscribers who have paid an installation fee but are awaiting the
installation of service.
The table below sets forth at December 31, 1994 and December 31, 1993 the
approximate number of television households which received TVA's programming
through the Owned Systems and the Operating Ventures and through sales of
programming to the Independent Operators.
HOUSEHOLDS RECEIVING TVA PROGRAMMING
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1994
-------------- --------------
<S> <C> <C>
Total Owned Systems........................................... 90,423 128,809
Operating Ventures............................................ 1,505 7,640
Independent Operators......................................... 36,659 89,673
-------------- --------------
Total................................................... 128,587 226,122
-------------- --------------
-------------- --------------
</TABLE>
REVENUES. Monthly subscriptions revenue for the year ended December 31,
1994 was $27,976, as compared to $12,544 for the comparable period of 1993, an
increase of $15,432. This increase was attributable to the net addition of
31,868 subscribers to the Company's Owned Systems and the increase in the
average monthly fee for existing subscribers to $27.80 from $21.30, an increase
of $6.50, and for new subscribers to $31.87 from $23.63 over the same period, an
increase of $8.24. The Company added three premium channels, including HBO
Brasil, and suspended its "a la carte" channel offerings. The increase in the
number of subscribers was due to the continued expansion and penetration of the
Company's MMDS service, principally in Sao Paulo, Rio de Janeiro and Curitiba,
the launch of a Cable system in Sao Paulo, and the net addition (after the
December 1993 launch) of 1,564 C-Band subscribers.
Installation revenue for the year ended December 31, 1994 was $6,997, as
compared to $4,350 for the comparable period of 1993, an increase of $2,647.
This increase was principally attributable to the growing number of subscriber
installations and to the increase in the average revenue for installation of
MMDS service, which increased to $119.75 from $91.33, an increase of $28.42. The
growth in installations was aided by the growing awareness of pay television in
Brazil, the Company's larger sales force and increased promotional activities,
especially with respect to single family homes.
Indirect programming revenue for the year ended December 31, 1994 was
$1,626, as compared to $530 for the previous year, an increase of $1,096. This
increase was principally attributable to the increase in the number of
Independent Operators' subscribers for the period, as compared to the same
period in 1994. Such subscribers increased to 89,673 at December 31, 1994, as
compared to 36,659 at
49
<PAGE>
December 31, 1993, an increase of 53,014. The average fee paid by the
Independent Operators during both 1993 and 1994 was $1.50 per Independent
Operator subscriber per month.
Other revenue for the year ended December 31, 1994 was $7,173, as compared
to $2,468 for the comparable period of 1993, an increase of $4,705. This
increase included an increase in Advertising and promotion revenue to $5,727
from $2,099, an increase of $3,628. The growth in Advertising and promotion
revenue was due to the increase in the subscriber base, an increase in the
amount of advertising time sold by the Company per hour of programming and an
increase in the rate charged for advertising time.
Revenue taxes were $872 for the period ending December 31, 1994, as compared
to $371 for the comparable period of 1993, an increase of $501. This increase
was based on the growth of the subscriber base and an increase in revenue.
For the reasons noted above, Net revenue for the year ended December 31,
1994 was $42,900, as compared to $19,521 for the previous year, an increase of
$23,379.
DIRECT OPERATING EXPENSES. Direct operating expenses for the year ended
December 31, 1994 were $28,659, as compared to $29,779 for the same period of
1993, a decrease of $1,120. This decrease was attributable primarily to a
decrease in Programming expense which was partially offset by the increase in
the number of subscribers to the Company's systems, including the increase in
Payroll and benefits expense. Payroll and benefits expense increased to $8,022
from $6,079, an increase of $1,943 as the Company added approximately 200
employees. Programming costs decreased to $12,133, from $18,156, a decrease of
$6,023. This decrease was attributable to the termination of the production of
the Showtime channel (a 24 hour per day movie channel), which was expensive
relative to other channels, and the renegotiation of several other programming
contracts. Transponder lease cost increased to $1,555 from $1,262, an increase
of $293. Technical assistance expense decreased to $1,622 from $1,773, a
decrease of $151. Vehicle rentals expense increased to $788 from $597, an
increase of $191 and TVA Magazine expense increased to $1,430 from $725, an
increase of $705. Other costs were $3,109, as compared to $1,187 for the same
period the prior year, an increase of $1,922. The Company experienced increased
expenses as a result of its increased television activities and associated
costs, including costs related to opening and maintaining additional facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the year ended December 31, 1994 were $24,370, as
compared to $19,957 for 1993, an increase of $4,413. Selling, general and
administrative expenses, excluding Advertising and promotion expenses, remained
essentially unchanged due to the ability of the Company to increase its
subscriber base without increasing Selling, general and administrative expenses,
including human resource expense. Advertising and promotion expense increased to
$3,540 from $2,205, an increase of $1,335. The increase was due to the Company's
increase in promotional activity.
DEPRECIATION AND AMORTIZATION. Depreciation and Amortization expense for
the year ended December 31, 1994 was $6,177, as compared to $4,813 for the same
period of 1993, an increase of $1,364 due primarily to increased capitalization
of the costs associated with building the MMDS and Cable systems and installing
new subscribers.
For the reasons noted above, Operating loss for the year ended December 31,
1994 was $16,306, as compared to $35,028 for the year ended December 31, 1993, a
decrease of $18,722.
INTEREST INCOME. Interest income for the year ended December 31, 1994 was
$21,806, as compared to $5,369 for the previous year, an increase of $16,437.
This increase was due primarily to the contribution to the capital of the
Company by Abril and CMIF of $151,452 in the aggregate and the investment of
surplus funds from such contribution.
50
<PAGE>
INTEREST EXPENSE. Interest expense for the year ended December 31, 1994 was
$16,413, as compared to $8,492 for the previous year, an increase of $7,921.
This increase was primarily due to increased borrowing from Abril to fund
ongoing operations.
EQUITY IN LOSSES (INCOME) OF AFFILIATES. For the year ended December 31,
1994, Equity in losses (income) of affiliates was income of $383, as compared to
$0 in the same period in 1993. This increase was the result of the formation of
Tevecap as the holding company of its various operating subsidiaries which
became effective on June 30, 1994 and Equity in losses in HBO Brasil Partners,
which came into existence in 1994.
OTHER NON-OPERATING (EXPENSES) INCOME. For the year ended December 31,
1994, Other non-operating income and expenses was an expense of $1,273, as
compared to an expense of $557 for the same period in 1993, an increase in
expense of $716. The reasons for this increase in expense were the negative
results of TVA Sistema prior to its acquisition by Tevecap.
MINORITY INTEREST. The Minority interest of $720 for the twelve months
ended December 31, 1994 represents Mr. Leonardo Petrelli's 20.0% share of the
$3,601 in aggregate losses of TVA Parana.
NET LOSS. For the reasons noted above, Net loss for the year ended December
31, 1994 was $11,997, as compared to $37,628 for the comparable period in 1993,
a decrease of $25,631.
SEASONALITY
The Company's revenues are seasonal. Generally, during the Brazilian summer
months of December and January the Company experiences lower demand for
installation for each of its services and lower rates of retention of existing
subscribers for each of its services.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has sustained losses primarily due to
insufficient revenue to fund start-up costs, interest expense and charges for
depreciation and amortization arising from the development of its pay television
systems. As of September 30, 1996, the Company had incurred cumulative net
losses of approximately $193,000. During the periods under review, the Company
required external funds to finance its capital expenditures, operating
activities and make payments of principal and interest on its indebtedness. The
sources of such funds have been as follows: (i) borrowings from Abril under the
Abril Credit Facility ($90,205 outstanding as of September 30, 1996 which was
repaid with the proceeds of the sale of the Old Securities and none of which has
been redrawn), (ii) short-term borrowings under short-term lines of credit
($5,441 outstanding as of September 30, 1996 and $30.8 million outstanding as of
April 1, 1997), (iii) net capital contributions of approximately $288,000 from
shareholders and (iv) borrowings from shareholders (approximately $4,607
outstanding as of September 30, 1996 and $0 outstanding as of December 31,
1996). Although the Company had negative working capital of $45,773 at September
30, 1996, management believes that the Company has the ability to function on a
going concern basis. See Note 23 to the Tevecap Financial Statements.
The Company's liquidity needs will arise primarily from capital
expenditures, debt service requirements and, in certain periods, the funding of
its working capital requirements. As of September 30, 1996, on a pro forma basis
after giving effect to the sale of the Old Securities and the application of the
net proceeds therefrom, the Company would have had approximately $255,000 of
indebtedness outstanding, primarily consisting of $250,000 principal amount of
the Notes.
In addition to debt service, the Company will require substantial amounts of
capital for (i) the construction of cable networks and the installation of
equipment at subscribers' locations, (ii) the construction of additional
transmission and headend facilities and related equipment purchases, (iii) the
continued funding of losses and working capital requirements and (iv)
investments in, and maintenance of, vehicles and administrative offices. In
addition, the Company continually evaluates opportunities to acquire, either
directly or indirectly, pay television licenses and programming rights.
51
<PAGE>
The Company made purchases of fixed assets of $11,379, $22,639, $93,029 and
$72,538 in 1993, 1994, 1995 and in the nine month period ended September 30,
1996, respectively. The Company estimates that for the remaining three months of
1996, approximately $93,230 of capital expenditures will be required, primarily
for subscriber installations, system construction and development and other
expansion activities. Management also estimates that $292,708 and $239,202 of
capital expenditures will be required in 1997 and 1998, respectively. Of these
balances, management anticipates deferring payment of $108 million and $39
million respectively, for a period of 360 days. This is standard practice in
Brazil.
The Company also has certain commitments that must be, or have been, funded,
including capital contributions of approximately $26,992 prior to December 1997
to GLA, TV Filme, ESPN Brasil Ltda., HBO Brasil Partners, Canbras TVA and CNBC,
and programming payments of approximately $12,895 for the two-year period
beginning January 1, 1997 and ending December 31, 1998. Actual amounts of funds
required may vary materially from these estimates and additional funds could be
required in the event of cost overruns, unanticipated expenses, regulatory
changes, engineering design changes and other technological-driven changes. In
connection therewith, the Company invested $13,273 in the Operating Ventures,
the Programming Ventures and in other minority investments in the last quarter
of 1996, and management expects to invest $13,719 and $0 in the Operating
Ventures, the Programming Ventures and in other minority investments in 1997 and
1998, respectively.
After application of the proceeds from the sale of the Old Securities the
Company's principal sources of liquidity will be the Abril Credit Facility, the
EximBank Facility, the Galaxy Brasil Leasing Facility and the Company's
short-term line of credit (each as described below), together with net cash
provided by operating activities. However, until sufficient cash flow is
generated from operations, the Company will be required to utilize its current
sources of debt funding to satisfy its liquidity needs. The Company would have
had approximately $153,000 of cash and cash equivalents as of September 30, 1996
after consummation of the sale of the Old Securities and application of the
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
For the nine months ended September 30, 1996, net cash used by operating
activities was $5,385, primarily as the result of an increase in accounts
receivable of $13,432, an increase in payments to suppliers of $1,177 and an
increase in inventories of $5,257. The increase was partially offset by $17,436
of depreciation, a non-cash item. For the nine months ended September 30, 1996,
cash used in investing activities was $111,800, primarily as the result of
capital expenditures of $72,538 for the purchase of fixed assets and investments
in equity and cost investments of $30,201. The purchases of fixed assets were
principally related to the purchase of decoders, equipment, hardware and
materials and labor used for new subscriber installations and the investments
related to TVA Sul. For the nine month period ended September 30, 1996, net cash
provided by financing activities was $93,603, consisting principally of $86,656
in net proceeds from loans under the Abril Credit Facility.
The Abril Credit Facility allows the Company to borrow up to $60,000 on a
revolving basis until December 1998. Since June 1996, the Company has from time
to time requested, and Abril has provided, funds in excess of $60,000. The loans
are generally denominated in reais and bear interest at a rate equal to 99.5% of
the CDI rate, the Brazilian interbank lending rate, adjusted at the beginning of
each month. During September 1996, the applicable interest rate was 1.79% per
month. Since the application of the proceeds from the sale of the Old Securities
the Company has not had any amounts outstanding under the Abril Credit Facility.
However, the Company will be able to re-borrow the full amount of such facility,
as required. See "Description of Certain Indebtedness."
On December 9, 1996, TVA Sistema, as Borrower, and Tevecap, as Guarantor,
entered into a credit agreement with The Chase Manhattan Bank for the financing
of C-Band decoders and other related equipment (the "EximBank Facility"). The
Export-Import Bank of the United States of America ("EximBank") will guarantee
85.0% of the amount of the loan. The loan is to be made on terms customary for
credits supported by EximBank to Brazilian borrowers. The interest rate will be
LIBOR plus
52
<PAGE>
a specified margin. The principal amount of the loan will be $29,350, which will
be dispersed in two tranches, the first in the principal amount of $11,400 with
a term of five years and the second in the principal amount of $17,950 with a
term of 4.5 years. Neither tranche has been dispersed.
In addition, Galaxy Brasil expects to enter into the Galaxy Brasil Leasing
Facility, a five-year $49,900 sale leaseback facility, during the fourth quarter
of 1996. Under the Galaxy Brasil Leasing Facility, Galaxy Brasil will have
access to financing for the purpose of acquiring dish antennae, decoder boxes
and other equipment for its Ku-Band service. This facility will be available
until 2002 and will bear interest at a margin over LIBOR. See "Description of
Certain Indebtedness."
The Company has also from time to time received contributions and loans from
its shareholders to fund liquidity needs and may continue to receive such
contributions and loans in the future. See "Description of Certain Indebtedness"
and "Certain Transactions with Related Parties." In addition, as is standard
business practice in Brazil, the Company frequently finances a portion of its
working capital through the deferment of payment terms for the purchase price of
property (typically up to 360 days). These amounts have often subsequently been
refinanced by the Company with short-term bank indebtedness. The Company
currently has lines of credit with terms of 360 days which will continue to be
available after the Offering.
The Company believes, based on management's internal forecasts and
assumptions relating to its operations, that the aggregate net proceeds from the
sale of the Old Securities, together with proceeds from the deferral of payments
to suppliers of fixed assets, the Eximbank Facility, the Galaxy Brasil Leasing
Facility, the Abril Credit Facility, and funds generated from operations will be
sufficient to meet its working capital and capital expenditure requirements for
at least the period through December 31, 1997. In the long term, the Company
believes, based on management's internal forecasts and assumptions relating to
its operations, that its existing cash and funds generated from operations,
together with its existing financing facilities agreements, will be sufficient
to meet its working capital and capital expenditure requirements. In the event
that the Company's plans change, its assumptions change or prove inaccurate, or
if the proceeds from the Offering, the Eximbank Facility, the Galaxy Brasil
Leasing Facility, the Abril Credit Facility and projected cash flows otherwise
prove insufficient to fund operations (due to unanticipated expenses, technical
problems, difficulties or otherwise), the Company could be required to seek
additional sources of financing. The Company has no current arrangements with
respect to sources of additional financing and there can be no assurance that
the Company would be able to obtain additional financing on terms acceptable to
the Company, or at all. See "Risk Factors--Additional Financing" and "Risk
Factors--Transactions with Related Parties; Rights to Put the Company's Stock."
In addition, the Company's liquidity may also be adversely affected by
statutory minimum dividend requirements under applicable Brazilian law. See
"Risk Factors--Dividends to Shareholders" and "Description of Notes."
ACCOUNTING FOR INCOME TAXES
The Company has approximately $118,600 of net operating losses ("NOLs") to
offset against regular taxes. These NOLs are unexpirable. Statement of Financial
Accounting Standards No. 109 (Accounting for Income Taxes) ("SFAS 109") requires
that the Company determine whether it is "more-likely-than-not" that the Company
will realize the benefits associated with such losses and provides that in
making such a determination, all negative and positive evidence should be
considered (with more weight given to evidence that is "objective and
verifiable"). SFAS No. 109 indicates that "forming a conclusion that a valuation
allowance is not needed is difficult when there is negative evidence such as
cumulative losses in recent years". The Company has a limited operating history
and has generated losses since its inception. In view of this, the Company has
established a full valuation allowance for the amount of NOL carryforwards in
excess of net taxable temporary differences. This determination was based
primarily on historical losses. Management does, however, believe that the
Company will be profitable in the future and, as such, will be able to utilize
these NOLs.
53
<PAGE>
THE REGISTERED EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Securities, Tevecap and the
Subsidiary Guarantors entered into the Exchange and Registration Rights
Agreement with the Initial Purchasers, pursuant to which Tevecap and each of the
Subsidiary Guarantors agreed to use its best efforts to file with the Commission
a registration statement with respect to the exchange of the Old Securities for
a series of registered debt securities with terms identical in all material
respects to the terms of the Old Securities, except that the Exchange Securities
are issued free from any covenant regarding transfer restrictions, and except
that if the Registered Exchange Offer is not consummated by May 23, 1997,
Tevecap will be obligated to pay each holder of Old Notes an amount equal to
$0.192 per week per $1,000 of the Old Notes until the Registered Exchange Offer
is consummated.
Tevecap together with the Subsidiary Guarantors is making the Registered
Exchange Offer in reliance on the position of the staff of the Commission as set
forth in certain no-action letters addressed to other parties in other
transactions. However, Tevecap has not sought its own no-action letter and there
can be no assurance that the staff of the Commission would make a similar
determination with respect to the Registered Exchange Offer as in such other
circumstances. Based upon these interpretations by the staff of the Commission,
Tevecap believes that the Exchange Securities issued pursuant to this Registered
Exchange Offer in exchange for Old Securities may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who acquired the Old Securities as a result of market making activities or other
trading activities, (ii) an Initial Purchaser who acquired the Old Securities
directly from the Company solely in order to resell pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act, or
(iii) a person that is an "affiliate" (as defined in Rule 405 of the Securities
Act) of Tevecap) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange
Securities are acquired in the ordinary course of such holder's business and
that such holder is not participating, and has no arrangement or understanding
with any person to participate, in the distribution of such Exchange Securities.
Holders of Old Securities accepting the Registered Exchange Offer will represent
to Tevecap in the Letter of Transmittal that such conditions have been met. Any
holder who participates in the Registered Exchange Offer for the purpose of
participating in a distribution of the Exchange Securities may not rely on the
position of the staff of the Commission as set forth in these no-action letters
and would have to comply with the registration and prospectus delivery
requirements of the Securities Act in connection any secondary resale
transaction.
Each broker-dealer that receives Exchange Securities for its own account in
exchange for Old Securities, where such Old Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Securities. See "Plan of Distribution." This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Securities received in
exchange for Old Securities where such Old Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Letter of Transmittal states that by acknowledging and
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. Tevecap has agreed
that for a period of 90 days after the Expiration Date, it will make this
Prospectus available to broker-dealers for use in connection with any such
resale. See "Plan of Distribution."
Except as aforesaid, this Prospectus may not be used for an offer to resell,
resale or other retransfer of Exchange Securities.
The Registered Exchange Offer is not being made to, nor will Tevecap accept
tenders for exchange from, holders of Old Securities in any jurisdiction in
which the Registered Exchange Offer or the acceptance thereof would not be in
compliance with the securities or blue sky laws of such jurisdiction.
54
<PAGE>
The Exchange and Registration Rights Agreement also provides that, if (i)
because of any change in law or applicable interpretations thereof by the
Commission's staff, the Company and the Subsidiary Guarantors determine that
they are not permitted to effect the Registered Exchange Offer or (ii) any
holder (including any Initial Purchaser but excluding a broker-dealer who
acquired the Old Securities as a result of market making activities or other
trading activities) either (A) is not eligible to participate in the Registered
Exchange Offer or (B) participates in the Registered Exchange Offer and does not
receive freely transferable Exchange Securities in exchange for tendered
Securities (in each case under this clause (ii) other than as a result of
applicable interpretations of the Commission's staff or applicable law in effect
as of November 26, 1996 or (iii) if the Company so elects, then the following
provisions shall apply: The Company and the Subsidiary Guarantors shall use all
reasonable efforts to as promptly as practicable file with the Commission and
thereafter shall use their best efforts to cause to be declared effective a
shelf registration statement on an appropriate form under the Securities Act
relating to the offer and sale of the Transfer Restricted Securities (as defined
below) by the holders from time to time in accordance with the methods of
distribution set forth in such registration statement (hereafter, a "Shelf
Registration Statement"); PROVIDED, HOWEVER, that no holder of Old Securities or
Exchange Securities (other than the Initial Purchasers) shall be entitled to
have Securities or Exchange Securities held by it covered by such Shelf
Registration Statement unless such holder agrees in writing to be bound by all
the provisions of the Exchange and Registration Rights Agreement applicable to
such holder. The Company and the Subsidiary Guarantors shall use their best
efforts to keep the Shelf Registration Statement continuously effective in order
to permit the prospectus forming part thereof to be usable by holders for a
period of three years from November 26, 1996, or such shorter period that will
terminate when all the Old Securities and Exchange Securities covered by the
Shelf Registration Statement have been sold pursuant to the Shelf Registration
Statement or pursuant to Rule 144 under the Securities Act (in any such case,
such period being called the "Shelf Registration Period"). The Company and the
Subsidiary Guarantors shall be deemed not to have used their best efforts to
keep the Shelf Registration Statement effective during the requisite period if
any of them voluntarily takes any action that would result in holders of Old
Securities or Exchange Securities covered thereby not being able to offer and
sell such Old Securities or Exchange Securities during that period, unless such
action is required by applicable law. Notwithstanding any other provisions
hereof, the Company and the Subsidiary Guarantors will ensure that (i) any Shelf
Registration Statement and any amendment thereto and any prospectus forming part
thereof and any supplement thereto complies in all material respects with the
Securities Act and the rules and regulations thereunder, (ii) any Shelf
Registration Statement and any amendment thereto (in either case, other than
with respect to information included therein in reliance upon or in conformity
with written information furnished to the Company by or on behalf of any holder
specifically for use therein (the "Holders' Information")) does not, when it
become effective, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) any prospectus forming part of any
Shelf Registration Statement, and any supplement to such prospectus (in either
case, other than with respect to Holders' Information), does not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
TERMS OF THE EXCHANGE
Upon the terms and subject to the conditions of the Registered Exchange
Offer, Tevecap will, unless such Old Securities are withdrawn in accordance with
the withdrawal rights specified in "--Withdrawal of Tenders" below, accept any
and all Old Securities validly tendered prior to 5:00 p.m., New York City time,
on the Expiration Date. Tevecap will issue, on or promptly after the Expiration
Date, an aggregate principal amount of up to US$250,000,000 of Exchange Notes in
exchange for a like principal amount of outstanding Old Notes tendered and
accepted in connection with the Registered Exchange Offer. The Exchange Notes
issued in connection with the Registered Exchange Offer will be delivered on the
55
<PAGE>
earliest practicable date on or following the Expiration Date. Holders may
tender some or all of their Old Notes in connection with the Registered Exchange
Offer.
The terms of the Exchange Securities are identical in all material respects
to the terms of the Old Securities, except that the Exchange Securities have
been registered under the Securities Act and are issued free from any covenant
regarding transfer restrictions, and except that if the Registered Exchange
Offer is not consummated by , 1997, Tevecap will be obligated to pay each
holder of the Old Notes an amount equal to $0.192 per week per $1,000 of the Old
Notes until the Registered Exchange Offer is consummated. The Exchange Notes
will evidence the same debt as the Old Notes and will be issued under and be
entitled to the same benefits under the Indenture as the Old Notes. As of the
date of this Prospectus, US$250,000,000 aggregate principal amount of the Old
Notes is outstanding.
In connection with the issuance of the Old Notes, Tevecap arranged for the
Old Notes originally purchased by qualified institutional buyers to be issued
and transferable in book-entry form through the facilities of The Depository
Trust Company ("DTC"), acting as depositary. Except as described in "Description
of the Notes--Book-Entry; Delivery and Form," the Exchange Notes will be issued
in the form of a global note registered in the name of DTC or its nominee and
each holder's interest therein will be transferable in book-entry form through
DTC. See "Description of the Notes--Book-Entry; Delivery and Form."
Holders of Old Securities do not have any appraisal or dissenters' rights in
connection with the Registered Exchange Offer. Old Securities which are not
tendered for exchange or are tendered but not accepted in connection with the
Registered Exchange Offer will remain outstanding and be entitled to the
benefits of the Indenture, but will not be entitled to any registration rights
under the Exchange and Registration Rights Agreement.
Tevecap shall be deemed to have accepted validly tendered Old Securities
when, as and if Tevecap has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purposes of receiving the Exchange Securities from Tevecap.
If any tendered Old Securities are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Securities will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Securities in connection with the Registered Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Old Securities in connection with the Registered Exchange Offer.
Tevecap and the Guarantors will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the Registered Exchange
Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1997, unless extended by the Company in its sole discretion, in which
case the term "Expiration Date" shall mean the latest date and time to which the
Registered Exchange Offer is extended.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at the rate of 12 5/8% per annum.
Interest on the Exchange Notes shall accrue from the last Interest Payment Date
on which interest was paid on the Old Notes surrendered or, if no interest has
been paid on the Old Notes, from November 26, 1996.
Interest on the Exchange Notes will be payable semiannually on May 26 or
November 26 of each year, commencing on the first Interest Payment Date
following the issuance thereof.
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<PAGE>
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive interest on such Old Notes for any period subsequent to the last
interest payment date to occur prior to the issue date of the Exchange Notes,
and will be deemed to have waived the right to receive any interest payment on
the Old Notes accrued from and after such interest payment date.
EXCHANGE OFFER PROCEDURES
Only a holder of record of Old Securities on , 1997, may tender such
Old Securities in connection with the Registered Exchange Offer. The tender to
the Company of Old Securities by a holder thereof as set forth below and the
acceptance thereof by the Company will constitute a binding agreement between
the tendering holder and the Company upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a holder who wishes to tender Old
Securities for exchange pursuant to the Registered Exchange Offer must transmit
a properly completed and duly executed Letter of Transmittal, including all
other documents required by such Letter of Transmittal, to the Exchange Agent at
one of the addresses set forth below under "Exchange Agent" prior to 5:00 p.m.
New York City time on the Expiration Date. In addition, either (i) certificates
for such Old Securities must be received by the Exchange Agent along, with the
Letter of Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Old Securities, if such procedure is
available, into the Exchange Agent's account at DTC pursuant to the procedure
for book-entry transfer described below, must be received by the Exchange Agent
prior to 5:00 p.m. New York City time on the Expiration Date, or (iii) the
holder must comply with the guaranteed delivery procedures described below. THE
METHOD OF DELIVERY OF OLD SECURITIES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD SECURITIES
SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Securities surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Securities
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guarantees must be by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Securities are registered in the name of a person other
than the signer of a Letter of Transmittal, the Old Securities surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered holder with the
signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Securities tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Old Securities not properly tendered or to not accept
any particular Old Securities which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any defects or irregularities or conditions of the Registered
Exchange Offer as to any particular Old Securities either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Old Securities in the Registered Exchange Offer). The
interpretation of the terms and conditions of the Registered Exchange Offer as
to any particular Old Securities either before or after the Expiration Date
(including the Letter of
57
<PAGE>
Transmittal and the instructions thereto) by the Company shall be final and
binding on all parties. Unless waived, all defects or irregularities in
connection with tenders of Old Securities for exchange must be cured within such
reasonable period of time as the Company shall determine. Neither the Company,
the Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of Old
Securities for exchange, nor shall any of them incur any liability for failure
to give such notification. The Exchange Agent intends to use reasonable efforts
to give notification of such defects or irregularities.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Securities, such Old Securities must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name of names of the registered holder or holders that appear on
the Old Securities.
If the Letter of Transmittal or any Old Securities or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of a corporation or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the Exchange Securities acquired pursuant to the Registered Exchange
Offer are being obtained in the ordinary course of business of the person
receiving such Exchange Securities, whether or not such person is the holder and
such person has no arrangement with any person to participate in the
distribution of the Exchange Securities. If any holder or any such other person
is an "affiliate," as defined under Rule 405 of the Securities Act, of the
Company, is engaged in or intends to engage in or has an arrangement or
understanding with any person to participate in a distribution of such Exchange
Securities to be acquired pursuant to the Registered Exchange Offer, or acquired
the Old Securities as a result of market making or other trading activities,
such holder or any such other person (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Securities for its own account in exchange for Old Securities, where
such Old Securities were acquired as a result of market making activities or
other trading activities must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Securities. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
ACCEPTANCE OF OLD SECURITIES FOR EXCHANGE; DELIVERY OF EXCHANGE SECURITIES
The Company will accept, promptly after the Expiration Date, all Old
Securities properly tendered and will issue the Exchange Securities promptly
after acceptance of the Old Securities. For purposes of the Registered Exchange
Offer, the Company shall be deemed to have accepted properly tendered Old
Securities for exchange when, as and if the Company has given oral or written
notice thereof to the Exchange Agent, with written confirmation of any oral
notice to be given promptly thereafter.
In all cases, issuance of Exchange Securities for Old Securities that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of (i) certificates for such Old Securities
or a timely confirmation of such Old Securities into the Exchange Agent's
account at DTC, (ii) a properly completed and duly executed Letter of
Transmittal and (iii) all other required documents. If any tendered Old
Securities are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer, or if Old Securities are submitted for a greater amount
than the holder desires to exchange, such unaccepted or unexchanged Old
Securities will be returned without expense to the tendering holder thereof (or,
in the case of Old Securities tendered by book-entry
58
<PAGE>
transfer into the Exchange Agent's account at DTC pursuant to the book-entry
procedures described below, such nonexchanged Old Securities will be credited to
an account maintained with DTC) designated by the tendering holder as promptly
as practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Securities at DTC for purposes of the Registered Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the DTC systems may make book-entry
delivery of Old Securities by causing DTC to transfer such Old Securities into
the Exchange Agent's account at DTC in accordance with such DTC's procedures for
transfer. However, although delivery of Old Securities may be effected through
book-entry transfer at DTC, the Letter of Transmittal or facsimile thereof, with
any required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "--Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Securities desires to tender such Old
Securities and the Old Securities are not immediately available, or time will
not permit such holder's Old Securities or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if (i)
the tender is made through an Eligible Institution, (ii) prior to the Expiration
Date, the Exchange Agent has received from such Eligible Institution a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) and
Notice of Guaranteed Delivery, substantially in the form of the corresponding
exhibit to the Registration Statement of which this Prospectus constitutes a
part (by telegram, telex, facsimile transmission, mail or hand delivery),
setting forth the name and address of the holder of Old Securities and the
amount of Old Securities tendered, stating that the tender is being made thereby
and guaranteeing that within three New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Securities, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Securities, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal, are received by the Exchange Agent within three NYSE trading
days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Securities may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Securities to be withdrawn, identify the Old
Securities to be withdrawn (including the amount of such Old Securities), and
(where certificates for Old Securities have been transmitted) specify the name
in which such Old Securities are registered, if different from that of the
withdrawing holder. If certificates for Old Securities have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old Securities have been tendered pursuant to the
procedure for book-entry
59
<PAGE>
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn Old Securities
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Securities so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the Exchange Offer. Any
Old Securities which have been tendered for exchange but which are not exchanged
for any reason will be returned to the holder thereof without cost to such
holder (or, in the case of Old Securities tendered by book-entry transfer into
the Exchange Agent's account at DTC pursuant to the book-entry transfer
procedures described above, such Old Securities will be credited to an account
with DTC specified by the Holder) as soon as practicable after withdrawal,
rejection of tender or termination of the Registered Exchange Offer. Properly
withdrawn Old Securities may be retendered by following one of the procedures
described under "--Exchange Offer Procedures" above at any time on or prior to
the Expiration Date.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as Exchange Agent in connection
with the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent, at its offices at 450 West 33rd Street, 15th
Floor, New York, New York 10001. The Exchange Agent's telephone number is (212)
946-3014 and facsimile number is (212) 946-8177.
FEES AND EXPENSES
Tevecap will not make any payment to brokers, dealers or others soliciting
acceptances of the Registered Exchange Offer.
Tevecap will pay certain other expenses to be incurred in connection with
the Registered Exchange Offer, including the fees and expenses of the Trustee,
accounting and certain legal fees.
Holders who tender their Old Securities for exchange will not be obligated
to pay any transfer taxes in connection therewith. If, however, Exchange
Securities are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of the Old Securities tendered, or if
tendered Old Securities are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Securities in connection with the
Registered Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendered holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes as reflected in Tevecap's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by
Tevecap upon the consummation of the Exchange Offer. Any expenses of the
Registered Exchange Offer that are paid by Tevecap will be amortized by Tevecap
over the term of the Exchange Notes under generally accepted accounting
principles.
CONSEQUENCES OF FAILURE TO PROPERLY TENDER OLD NOTES IN THE EXCHANGE
Issuance of the Exchange Securities in exchange for the Old Securities
pursuant to the Registered Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Securities, a properly completed and duly
executed Letter of Transmittal and all other required documents. Therefore,
holders of the Old Securities desiring to tender such Old Securities in exchange
for Exchange Securities
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<PAGE>
should allow sufficient time to ensure timely delivery. Tevecap is under no duty
to give notification of defects or irregularities with respect to tenders of Old
Securities for exchange. Old Securities that are not tendered or that are
tendered but not accepted by Tevecap for exchange, will, following consummation
of the Registered Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof under the Securities Act and, upon
consummation of the Registered Exchange Offer, certain registration rights under
the Exchange and Registration Rights Agreement will terminate.
In the event the Registered Exchange Offer is consummated, Tevecap will not
be required to register the Remaining Old Securities. Remaining Old Securities
will continue to be subject to the following restrictions on transfer: (i) the
Remaining Old Securities may be resold only if registered pursuant to the
Securities Act, if any exemption from registration is available thereunder, or
if neither such registration nor such exemption is required by law, and (ii) the
Remaining Old Securities will bear a legend restricting transfer in the absence
of registration or an exemption therefrom. Tevecap does not currently anticipate
that it will register the Old Securities under the Securities Act. To the extent
that Old Securities are tendered and accepted in connection with the Registered
Exchange Offer, any trading market for Remaining Old Securities could be
adversely affected.
61
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BUSINESS
TVA is a leading pay television operator in Brazil and is the country's
largest pay television programming distributor. In 1989, TVA was the first to
provide pay television services in Brazil and, in July 1996, the Company
launched DIRECTV, Brazil's first digital Ku-Band service. With over 335,000
subscribers, TVA is the only operator in Brazil to offer pay television services
utilizing five distribution technologies: MMDS, Cable, digital Ku-Band, digital
C-Band and UHF. TVA believes that its ability to strategically deploy
alternative technologies provides it with significant competitive advantages,
including the ability to rapidly enter new markets, maximize penetration of
existing markets and deliver service in the most cost effective manner.
Additionally, TVA has interests in HBO Brasil Partners and ESPN Brasil Ltda.,
two programming joint ventures (the "Programming Ventures"). Through owned,
affiliated and independent pay television operators, TVA programming reaches
over 955,000 pay television households. TVA is a majority owned subsidiary of
Abril, S.A. ("Abril"), Latin America's leading magazine publishing, printing and
distribution company. TVA's other shareholders are Falcon International
Communications (Bermuda) L.P. ("Falcon International"), The Hearst Corporation
("Hearst"), ABC, Inc. ("ABC") and Chase Manhattan International Finance Ltd.
("CMIF").
The Company conducts its pay television operations through three owned
operating systems (the "Owned Systems"): TVA Sistema, TVA Sul and Galaxy Brasil.
Through the MMDS and Cable systems of TVA Sistema and TVA Sul, the Company
serves six cities with a combined population of approximately 18 million,
including three of the seven largest cities in Brazil: Sao Paulo (population of
10.2 million), Rio de Janeiro (population of 5.7 million) and Curitiba
(population of 1.5 million). The Company also holds minority interests in
Canbras TVA and TV Filme (the "Operating Ventures"), which together provide pay
television services to an additional seven cities with a total population of 6.5
million. In addition, the Company sells programming to, and receives a per
subscriber fee from, unaffiliated pay television operators ("Independent
Operators").
The Company, through Galaxy Brasil, is Brazil's exclusive provider of the
premium programming service, DIRECTV, Brazil's first digital direct broadcast
satellite Ku-Band service. Galaxy Brasil receives programming, scheduling and
related services for DIRECTV from Galaxy Latin America ("GLA"), in which TVA
holds a 10.0% equity interest. The other owners of GLA are a unit of Hughes
Electronics, a member of the Cisneros Group and a subsidiary of Grupo MVS.
Through local operating companies such as Galaxy Brasil, GLA plans to provide
DIRECTV service throughout much of Latin America and the Caribbean. The Company,
through TVA Sistema, also currently provides Brazil's only digital C-Band
television service (together with Galaxy Brasil, the "DBS Systems"). The DBS
Systems enable the Company to deliver a greater number of channels than any
other television operator in Brazil and provide TVA with access to substantially
all of Brazil's 33.9 million TV Homes.
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PROGRAMMING DISTRIBUTION AND MARKETS
The following table sets forth information regarding the markets in which
TVA operates systems and distributes programming:
<TABLE>
<CAPTION>
PAY TELEVISION
AVERAGE REVENUE PROGRAMMING
SERVICE LAUNCH CLASS ABC PER MONTH PER CHANNELS
DATE TV HOMES HOUSEHOLDS(A) SUBSCRIBERS SUBSCRIBER(B) OFFERED
--------------- ---------- --------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
OWNED SYSTEMS
MMDS
TVA Sistema
Sao Paulo(c)........... September 1991 3,978,096 2,732,686 133,005 $ 39.98 18
Rio de Janeiro......... March 1992 2,659,472 1,694,193 75,921 38.61 15
TVA Sul Curitiba......... March 1992 502,512 364,707 20,730 32.90 15
CABLE(D)
TVA Sistema
Sao Paulo.............. October 1994 3,978,096 2,732,686 19,575 35.66 44
TVA Sul Curitiba......... January 1995 502,512 364,707 9,545 27.93 44
Camboriu............... June 1996 37,618 22,686 3,949 38.27 31
Foz do Iguacu.......... June 1996 46,669 28,145 6,184 29.17 34
Florianopolis.......... September 1996 155,382 93,706 -- -- --
-------------
TOTAL MMDS AND CABLE
SUBSCRIBERS............ -- -- -- 268,909 -- --
-------------
DBS
TVA Sistema/Galaxy
Brasil(e)................ March 1995 33,900,000 19,568,310 47,436 $ 32.62 26(f)
SUBSCRIBERS AWAITING
INSTALLATION........... -- -- -- 19,691 -- --
-------------
TOTAL SUBSCRIBERS-OWNED
SYSTEMS................ -- -- -- 336,036 -- --
-------------
-------------
HOUSEHOLDS RECEIVING TVA
PROGRAMMING
OWNED SYSTEMS............ -- -- -- 336,036 -- --
-------------
OPERATING VENTURES
MMDS
TV Filme, Inc.
Brasilia............... July 1993 412,996 308,677 41,668 $ 44.49 16
Goiania................ December 1994 319,434 179,542 8,107 43.41 16
Belem.................. December 1994 221,370 135,020 12,999 46.49 15
CABLE
Canbras TVA
Four cities(g)......... April 1996 222,358 152,773 3,614 -- 38
-------------
TOTAL-OPERATING
VENTURES............... -- -- -- 66,388 -- --
-------------
-------------
INDEPENDENT OPERATORS (53
Independent
Operators)............. -- -- -- 555,049 -- --
-------------
TOTAL.................... -- -- -- 957,473 -- --
-------------
-------------
</TABLE>
- ------------------------
(a) The number of Class ABC Households is based on information provided by Grupo
Midia, IBGE and IBOPE.
(b) As of September 30, 1996. Amount does not include installation fees paid.
(c) The number of MMDS subscribers includes 11,453 UHF subscribers in the Sao
Paulo metropolitan area. UHF subscribers are provided two channels of
programming, HBO Brasil and ESPN Brasil. The average revenue per month per
UHF subscriber, as of September 30, 1996, was approximately $22.80.
(d) The Company's Cable Systems in Sao Paulo, Curitiba, Camboriu, Foz do Iguacu
and Florianopolis had approximately 126,877, 92,550, 25,722, 20,404 and
6,069 Homes Passed, respectively, as of September 30, 1996.
(e) This data principally reflects the Company's digital C-Band operations. TVA
launched DIRECTV service, on a limited basis, in July 1996. As of September
30, 1996, the DIRECTV service offered 49 channels of programming at an
average per month subscriber fee of $56.00. Since that date the number of
channels offered through the DIRECTV service has increased to 56. TV Homes
and Class ABC Households information is national information for all of
Brazil.
(f) The number includes nine SAP channels.
(g) The four cities served by Canbras TVA are Santo Andre, Sao Bernardo, Guaruja
and Sao Vicente.
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BRAZILIAN PAY TELEVISION MARKET
Brazil is the largest television and video market in Latin America with an
estimated 33.9 million TV Homes which, as of December 31, 1995, watched on
average more than 4.0 hours of television per day, as compared to an average of
4.5 hours in the United States. Approximately 6.2 million television sets and
1.9 million VCR units were sold in Brazil during 1995. The pay television
industry in Brazil began in 1989 with the commencement by the Company of UHF
service in Sao Paulo. As of September 30, 1996, there were an estimated 1.6
million pay television subscribers, representing approximately 4.7% of Brazilian
TV Homes. By comparison, as of December 31, 1995, 51.1% of TV Homes in
Argentina, 12.6% of TV Homes in Mexico, 21.7% of TV Homes in the United Kingdom
and 69.2% of TV Homes in the United States subscribed to pay television.
Management believes that the number of pay television subscribers in Brazil will
continue to grow as pay television reaches more households both through the
expansion of existing and new MMDS and Cable systems and through development of
nationwide DBS systems. The Ministry of Communications estimates that Brazil
will have 16.5 million pay television subscribers by 2003.
The following table sets forth, as of December 31, 1995, TV Homes, Cable
subscribers, MMDS subscribers, C-Band subscribers, Ku-Band subscribers, total
subscribers and the ratio of total subscribers to TV Homes in Brazil, Argentina,
Mexico, the United Kingdom and the United States.
<TABLE>
<CAPTION>
UNITED UNITED
BRAZIL(A) ARGENTINA(B) MEXICO(B) KINGDOM(B) STATES(C)
----------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
(NUMBERS IN THOUSANDS, EXCEPT PERCENTAGES)
TV Homes....................................... 33,900 9,000 13,200 22,347 95,000
----------- ----- ----------- ------------ -----------
Cable Subscribers............................ 560 4,410 1,257 1,400 62,500
MMDS Subscribers............................. 295(d) 189 406 -- 800
C-Band Subscribers........................... 125 -- -- 3,447 2,460(e)
Ku-Band Subscribers.......................... -- -- -- -- 2,460(e)
----------- ----- ----------- ------------ -----------
Total Subscribers.............................. 980 4,599 1,663 4,847 65,760
----------- ----- ----------- ------------ -----------
----------- ----- ----------- ------------ -----------
Total Subscribers/TV Homes (%)................. 2.9% 51.1% 12.6% 21.7% 69.2%
</TABLE>
- ------------------------
(a) The information set forth for Brazil represents estimates made by the
Company based upon figures compiled and published by the IBGE, management's
knowledge of the Company's pay television systems and those of the Operating
Ventures, and public statements of other pay television providers.
Management believes such estimates are reasonable, but neither management
nor any other party can provide assurances as to their accuracy. Kagan World
Media, Inc. reports that there were, as of December 31, 1995, 464 MMDS
subscribers, and 654 Cable subscribers and 100 C-Band subscribers in Brazil.
(b) The information set forth for Argentina, Mexico and the United Kingdom is
based on December 1995 data of Kagan World Media, Inc. and 1996 data of Paul
Kagan Associates, Inc.
(c) Source: National Cable Television Association.
(d) The number of MMDS subscribers includes UHF subscribers.
(e) The number represents C-Band and Ku-Band subscribers collectively.
COMPETITIVE ADVANTAGES
Management believes that the Company has the following competitive
advantages:
SUPERIOR QUALITY PROGRAMMING LINEUP. TVA's programming line-up includes
exclusive rights to ESPN Brasil in the Company's major markets, with exclusive
coverage, as of January 1997, of many of Brazil's most important soccer
championships, including the Brasil Cup, the Brazilian Championship and the Sao
Paulo and Rio de Janeiro State Championships. The Company exclusively offers CMT
Brasil and Bravo Brasil and is also the only pay television provider offering
HBO programming in TVA's served markets. Management believes that as the pay
television industry grows, programming will become the
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critical factor driving consumer selection of a pay television provider, and
that with TVA's relationships with strong international partners and its
exclusive soccer coverage, TVA will continue to offer superior quality
programming.
STRATEGIC DEPLOYMENT OF ALTERNATIVE DISTRIBUTION TECHNOLOGIES. The Company
is the only pay television operator utilizing five distribution technologies:
MMDS, Cable, Ku-Band, C-Band and UHF. The availability of multiple distribution
technologies enables the Company to capitalize on the population and income
characteristics, topography and competitive dynamics of each of its targeted
markets. The Company has the ability to penetrate new markets quickly and
efficiently and to offer tiered programming at low cost with MMDS. The Company
is expanding its Cable systems, where warranted by economic and competitive
conditions, to build its subscriber base and to prepare for future opportunities
in interactive services and telecommunications. Additionally, management
believes the Company can rapidly penetrate virtually any market through the
continued deployment of its DBS Systems.
DBS SYSTEMS: NATIONWIDE COVERAGE AND DIGITAL SERVICE. Through its DBS
Systems, TVA is capable of offering programming to nearly all of Brazil's 33.9
million TV Homes, including those households in markets where Cable or MMDS
systems are either not developed or not economically viable. Through its DIRECTV
service, TVA is the first provider of Ku-Band pay television services in Brazil
and expects to enroll as subscribers a significant share of those who are
interested in broader, digital quality programming and pay-per-view services.
Through its digital C-Band system, the Company provides 26 channels of
programming (including nine SAP channels) and is capable of providing up to 38
channels of programming (including SAP channels). The Company's only significant
competitor in C-Band pay television service provides six analog channels of
programming in addition to off-air channels. The Company currently targets its
C-Band service to the estimated 3.7 million C-Band satellite dish owners in
Brazil, most of whom currently receive only the off-air channels.
MODERN CABLE INFRASTRUCTURE. The Company's Cable systems are constructed
with, or are being upgraded to, either 750 MHz or 550 MHz bandwidth capacity,
the latter of which is readily upgradeable to 750 MHz bandwidth capacity with
only moderate investment. This Cable technology will enable the Company to
provide data transmission and interactive services, including
telecommunications, in the future. Management believes that the Company's major
competitors for Cable service use narrower bandwidths over portions of their
Cable systems and have installed certain types of Cable in households which
currently may prevent them from providing telecommunications or high speed data
delivery through these portions of their systems until substantial additional
investments have been made for system reconstruction or upgrade.
STRONG STRATEGIC PARTNERS. The Company's strategic equity partners continue
to offer valuable expertise. TVA benefits from Abril's extensive experience in
the business of subscriptions and distribution and from the collective
experience of Falcon International, Hearst and ABC with regard to pay television
operations and from access to programming.
BUSINESS STRATEGY
TVA seeks to be Brazil's largest and most profitable pay television operator
and programming distributor and intends to capitalize on the convergence and
development of voice, video and telecommunications services. The Company intends
to achieve these goals through the following strategies:
MAXIMIZE PENETRATION IN EXISTING MARKETS. The Company seeks to increase its
penetration of existing markets by: (i) expanding the range of TVA's Cable
systems by extending its fiber optic and coaxial cable network and by seeking
pre-wiring arrangements with residential housing developers, (ii) improving the
signal quality and coverage of TVA's MMDS systems by using signal repeater
technology, (iii) maximizing penetration by offering tiered subscription options
and developing programming packages to appeal to more households and (iv)
expanding its penetration in ABC Class households
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through its scheduled nationwide rollout of DIRECTV service and the continued
development of C-Band service.
MAXIMIZE CUSTOMER RETENTION THROUGH SUPERIOR CUSTOMER SERVICE. In order to
maximize customer retention, the Company aims to provide a consistently high
level of customer service. The Company has developed or has acquired the right
to use proprietary management information systems which, among other things,
provide Company representatives immediate access to customer records and
correspondence history. This enables TVA to provide high quality service to its
clients while monitoring subscriber payment patterns. The Company's Churn rate,
which reflects the ability of the Company to retain subscribers, averaged
approximately 2.0% per month during the nine month period ended September 30,
1996. The average monthly Churn rate for MMDS service in 1994 was 1.6%, in 1995
ws 1.3% and for the nine month period ended September 30, 1996, was 2.1%. The
average monthly Churn rate for Cable service in 1994 was less than 1.0%, in 1995
was 1.1%, and for the nine month period ended September 30, 1996 (the year Cable
service was initiated), was 0.7%. The average monthly Churn rate for C-Band
service in 1994 was 5.3%, in 1995 was 0.1% and for the nine month period ended
September 30, 1996, was 2.0%. DIRECTV service was only initiated in July 1996.
Ku-Band service was initiated in July 1996.
ENHANCE TVA'S PROGRAMMING PACKAGE. In order to maintain and enhance its
position as a provider of superior programming in Brazil, TVA is developing new
programming through the Programming Ventures, as well as through Abril and other
partners. TVA frequently evaluates the demographics of its subscribers and
potential subscribers and seeks to provide programming most in demand. The
Company also takes advantage of opportunities to enter into exclusive
distribution agreements for popular television programming in Brazil. Management
believes that its DIRECTV service, which includes both basic and premium
channels, as well as pay-per-view movies and events from Brazil, other Latin
American countries, Europe, Asia and the United States, further enhances TVA's
programming offerings and positions the Company to be the provider of the widest
selection of popular programming in Brazil.
ENTER NEW MARKETS. The Company intends to enter new markets by: (i)
acquiring existing MMDS and Cable operations, (ii) applying either
independently, or in conjunction with the Operating Ventures, independent pay
television providers or other appropriate third parties, for new MMDS and Cable
licenses offered by the Brazilian Government, (iii) initiating the nationwide
rollout of DIRECTV service and (iv) investing in new operating ventures with
other MMDS and Cable operators. The Brazilian Government has recently announced
its intention to auction MMDS licenses in 15 state capitals. Although no date
has been set for these auctions, management expects them to occur during 1997.
The Company has submitted proposals, either individually or in conjunction with
local partners, for all such licenses, as well as for additional licenses
throughout Brazil.
CONTINUE NETWORK ENHANCEMENT. The Company is positioning itself to provide
high speed data transmission, interactive and other telecommunications services
over its systems and to take advantage of possible deregulation and the growing
demand for these services in Brazil. The Company is expanding its Cable systems
with fiber optic and coaxial cable capable of being upgraded to provide such
enhanced services. In addition, the Company continues to explore the development
of digital compression of MMDS signals.
Through the implementation of the Company's strategy, the Company has been
able to achieve rapid subscriber growth. The following chart sets forth
information regarding (i) the number of subscribers to the Company's Owned
Systems at December 31, 1993, 1994, 1995 and at September 30, 1996, (ii) the
number of new installations during the years ended December 31, 1993, 1994, and
1995, and the nine month period ended September 30, 1996, and (iii) the average
installation fee for the year ended December 31, 1995.
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<TABLE>
<CAPTION>
SUBSCRIBERS AT
END OF PERIOD(A) NEW INSTALLATIONS
------------------------------------------------ DURING PERIOD
SEPTEMBER 30, --------------------------------------------
1993 1994 1995 1996 1993 1994 1995 1996(B)
--------- --------- --------- --------------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MMDS
Sao Paulo................... 54,183 72,425 121,969 133,005 33,966 34,372 75,332 45,098
Rio de Janeiro.............. 20,490 28,234 51,664 75,921 12,961 13,855 31,733 36,952
Curitiba.................... 7,801 11,112 15,260 20,730 5,965 5,972 10,513 11,220
--------- --------- --------- --------------- --------- --------- --------- -----------
Total MMDS.................... 82,474 111,771 188,893 229,656 52,892 54,199 117,578 93,270
--------- --------- --------- --------------- --------- --------- --------- -----------
CABLE
Sao Paulo................... -- 1,007 13,885 19,575 -- 482 6,546 5,082
Curitiba.................... -- -- 1,244 9,545 -- -- 434 2,712
Foz do Iguacu(c)............ -- -- -- 6,184 -- -- -- 1,325
Camboriu(c)................. -- -- -- 3,949 -- -- -- 436
Florianopolis(c)............ -- -- -- -- -- -- -- --
--------- --------- --------- --------------- --------- --------- --------- -----------
Total Cable................... -- 1,007 15,129 39,253 -- 482 6,980 9,555
--------- --------- --------- --------------- --------- --------- --------- -----------
DBS
C--Band/DIRECTV(d)............ 511 2,075 15,126 47,436 511 1,914 16,873 36,834
--------- --------- --------- --------------- --------- --------- --------- -----------
TOTAL SUBSCRIBERS-OWNED
SYSTEMS..................... 82,985 114,853 219,148 316,345 53,403 56,595 141,431 139,659
--------- --------- --------- --------------- --------- --------- --------- -----------
--------- --------- --------- --------------- --------- --------- --------- -----------
<CAPTION>
AVERAGE
INSTALLATION
FEE FOR THE
YEAR ENDED
DEC. 31,
1995
-----------
<S> <C>
MMDS
Sao Paulo................... $ 180.30
Rio de Janeiro.............. 163.52
Curitiba.................... 122.45
-----------
Total MMDS.................... --
-----------
CABLE
Sao Paulo................... $ 81.97
Curitiba.................... 80.02
Foz do Iguacu(c)............ 150.00
Camboriu(c)................. 150.00
Florianopolis(c)............ 150.00
-----------
Total Cable................... --
-----------
DBS
C--Band/DIRECTV(d)............ $ 586.79
-----------
TOTAL SUBSCRIBERS-OWNED
SYSTEMS..................... --
-----------
-----------
</TABLE>
- ------------------------
(a) Excludes backlog, reconnected and disconnected subscribers.
(b) Includes installations for the nine months ended September 30, 1996.
(c) Average Installation Fee for the period ended September 30, 1996.
(d) DIRECTV service was launched, on a limited basis, in July 1996. The full
list price for initiation of the service is $990.00.
OWNERSHIP
Tevecap is a majority owned subsidiary of Abril, the leading magazine
publishing, printing and distribution company in Latin America. Abril publishes
over 266 weekly, bi-weekly and monthly titles. During 1995, the combined monthly
paid circulation of Abril and its affiliates averaged 15.6 million copies. TVA
benefits from Abril's extensive experience in the business of subscriptions and
distribution, advertising synergies, common research resources and financial
analysis and support. Certain of Tevecap's other shareholders provide the
Company with access to additional international programming and certain
technical and financial expertise. The Company's shareholders have invested, in
aggregate, approximately $288.0 million in the Company. Tevecap's current
ownership is as follows: Abril, 56.5%; Falcon International, 14.2%; Hearst,
10.0%; ABC, 10.0%; and CMIF, 9.3%. Each of Tevecap's corporate shareholders has
agreed, with certain exceptions, to a reorganization of the ownership of
Tevecap. As a result of the proposed reorganization a new Brazilian corporation
would become an 80.0% shareholder in Tevecap and Hearst/ABC would remain a 20.0%
shareholder in Tevecap. The new structure would not result in any change in the
current beneficial equity participation of the Stockholders in Tevecap, and the
transactions establishing the new structure and the new structure itself would
have to conform to the restrictions of the Indenture. As of the date hereof, the
timing of the restructuring is under discussion by the Stockholders. See
"Principal Shareholders."
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DISTRIBUTION OPERATING SYSTEMS
TVA and the Operating Ventures distribute programming through five different
technologies: MMDS, Cable, Ku-Band, C-Band, and UHF. The availability of
multiple distribution technologies enables the Company to exploit the population
and income characteristics, topography and competitive dynamics of each of its
markets.
MMDS
TVA's strategy of rapidly deploying an extensive MMDS network has allowed it
to enter new markets quickly and develop broad geographic coverage which the
Company may expand utilizing signal repeaters. TVA has developed Brazil's
largest MMDS network, and with the Operating Ventures, serves the country's
major metropolitan areas. MMDS systems are typically easier to deploy and
require relatively little capital investment for construction and maintenance as
compared to Cable systems. Programming is transmitted by signals through the air
from microwave transmitters to a small receiving antenna located at a
subscriber's home or dwelling unit. At the subscriber's location, the microwave
signals are converted to frequencies that can pass through a conventional
coaxial cable into a decoder located near a television set. Under recently
passed Brazilian regulations, each MMDS license allows an MMDS operator to
provide service to households in a circular area within a radius of up to 50
kilometers, depending on the technical capability of the operator. It is
expected that expansion into such newly available territory would require
minimal additional capital spending by the Company. However, tall buildings and
other tall structures may block reception of an MMDS signal. See
"Business--Regulatory Framework." MMDS is being used in other emerging pay
television markets such as Venezuela and Hong Kong, and in Mexico, where Cable
has a strong incumbent position.
TVA owns eight MMDS licenses and operates MMDS systems in Sao Paulo, Rio de
Janeiro and Curitiba, which have an aggregate population of approximately 17.4
million. TVA serves 229,656 MMDS subscribers in these three cities. During the
12-month period ended September 30, 1996, TVA averaged approximately 4,000 net
new MMDS subscribers per month. The MMDS systems of TVA offer between 15 to 18
channels of programming. Management intends to increase its channel offerings to
31 soon after the Ministry of Communications grants additional channel rights as
allowed under recently passed regulations. See "Business--Regulatory Framework."
TV Filme, an Operating Venture, operates MMDS systems in Brasilia, Goiania and
Belem and has 62,774 MMDS subscribers. See "Regulatory Framework--MMDS
Regulation." During the 12-month period ended September 30, 1996, the Operating
Ventures averaged approximately 2,700 net new MMDS subscribers per month. In
addition, TVA provides UHF service to 11,453 subscribers in the Sao Paulo
metropolitan area.
CABLE
TVA has recently emphasized the strategic deployment of Cable service and
currently operates Cable systems in Sao Paulo, Curitiba and three other cities.
Cable service involves a broad band network employing radio frequency
transmission through coaxial and/or fiber optic cable. Cable systems consist of
four major parts: a headend, a distribution network, a subscriber network and a
house terminal. The programming is collected from the headend, then processed
and fed into the distribution path consisting of trunk and distribution cable,
which consists of coaxial and/or fiber optic cables. The signal is then fed into
a subscriber network that is either located in an apartment building or a
subscriber's home. Most of the Company's systems are constructed with either 750
MHz or 550 MHz bandwidth capacity, the latter of which is readily upgradeable to
750 MHz bandwidth capacity. The Company's four newly acquired systems in
Curitiba (2), Camboriu and Foz do Iguacu are being upgraded to 550 MHz bandwidth
capacity. The Company's new system in Florianopolis is being constructed to 550
MHz bandwidth capacity. It is expected that this technology will enable the
Company to provide interactive services, including telecommunications in the
future. In addition, the Company's Cable systems generally use addressable
converters, which allow the provision of pay-per-view services
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and enable TVA to upgrade, downgrade or disconnect a subscriber's service from
the headend on short notice.
TVA, through TVA Sistema and TVA Sul, owns eight Cable licenses and operates
Cable systems in Sao Paulo, Curitiba, Camboriu, Florianopolis and Foz do Iguacu,
which have an aggregate population of approximately 11.9 million and 39,253
subscribers. As of September 30, 1996, TVA had deployed approximately 900
kilometers of its Cable network, including 80 kilometers of fiber optic cable,
and passed approximately 270,000 homes. By the end of 1996, the Company added an
additional 890 kilometers to its Cable systems. As part of this build-out plan,
the Company constructed a 281 kilometer fiber optic network, including a 57
kilometer fiber optic loop in Sao Paulo and a 28 kilometer fiber optic network
in Curitiba, and is upgrading or constructing the three recently acquired Cable
systems. As a result of this buildout, by the end of 1996, TVA Cable systems
passed approximately 300,000 homes in Sao Paulo, approximately 118,000 homes in
Curitiba and a total of 494,000 throughout all of the Company's Cable systems.
As of September 30, 1996, Canbras TVA, an Operating Venture, had an existing
Cable network of approximately 151 kilometers, with approximately 22,200 Homes
Passed and approximately 3,614 subscribers. Canbras TVA is constructing Cable
networks in ten cities in the greater Sao Paulo area with a combined population
of over 2.8 million. By comparison, TVA's largest competitor in Sao Paulo for
Cable service had, as of June 30, 1996, a Cable network in Sao Paulo of
approximately 1,225 miles (including approximately 151 miles of fiber optic
cable) with 463,900 Homes Passed. TVA and Canbras TVA currently offer between 31
and 44 analog channels of programming (including off-air channels) on their
Cable systems, depending on the market, and have the capability of offering up
to 78 analog channels. During the 12-month period ended September 30, 1996, TVA
averaged approximately 2,200 net new Cable subscribers per month, and Canbras
TVA, after its first five months of operation ended September 30, 1996, had
3,614 subscribers.
DIRECTV
In July 1996, TVA launched, on a limited basis, Brazil's DIRECTV service,
Brazil's first Ku-Band service. A nationwide rollout of DIRECTV was launched in
November 1996, at which time TVA initiated a publicity campaign supported by a
nationwide network of trained installers. By comparison, DIRECTV, Inc., a unit
of Hughes Electronics, started its DIRECTV service in the United States in June
1994 and had, as of September 30, 1996, approximately 1.9 million subscribers
for this service.
Galaxy Brasil receives programming from GLA, including programming which GLA
purchases from TVA. Additionally, GLA provides scheduling and related services
to Galaxy Brasil for use with DIRECTV. GLA distributes programming to Brazil
through the transmission of an encoded signal via the Galaxy III-R satellite
utilizing 12 transponders to a subscriber's 60 centimeter dish antenna which can
be mounted outside a window or on a rooftop. The signal is then transmitted to
an integrated receiver decoder in the subscriber's home. A single antenna may
serve a single family dwelling or a multifamily dwelling, such as an apartment
building, in which case each apartment needs to be equipped with a decoder. A
unit of Hughes Electronics leases the Galaxy III-R satellite and provides the
use of the satellite and related services to GLA pursuant to a technical service
agreement, the term of which extends until October 31, 2010. GLA, in turn,
charges Galaxy Brasil a royalty on a per subscriber basis for the use of the
satellite transponders and related services. The orbital location of the Galaxy
III-R satellite enables the Company to offer DIRECTV service to substantially
all of the TV Homes in Brazil. However, in the less populated northern and
western regions of Brazil, reception of DIRECTV programming requires a dish
antenna 1.1 meters in diameter and in the western third of Brazil (a sparsely
populated area when compared to the southern and eastern regions) reception may
require an even larger antenna. In addition, tall buildings and other tall
structures may block reception of the DIRECTV programming signal. The Galaxy
III-R satellite was launched in December 1995 and has an expected useful life of
nine years from the date of launch. Hughes Electronics expects to launch within
the next 12 months a second satellite to provide
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<PAGE>
additional transponders for transmission of DIRECTV programming. With DIRECTV
service, TVA provided 49 channels of video programming (including 19
pay-per-view channels) as of September 30, 1996, and is capable of, and expects
to eventually distribute, up to 70 channels of video programming and 30 channels
of audio programming. Since September 30, 1996, the number of channels offered
by the Company with DIRECTV service has increased to 56. In addition, since
September 30, 1996 a competitor has entered the Ku-Band market, but offers only
26 channels of programming (including four pay-per-view channels). TVA owns and
has made a substantial investment in a satellite uplink center for the Brazilian
DIRECTV service in Tambore in greater Sao Paulo (the "Tambore Facility"). The
Tambore Facility is used to uplink programming to the Galaxy III-R satellite.
At the original full installation price of $990, the purchase of DIRECTV
service was affordable only for the affluent Class A households in Brazil.
However, TVA expects to be able to reduce the installation fee after
consummation of the Galaxy Brasil Leasing Facility and the consummation of
financings under the SurFin Credit Facility and additional financings in the
future. Management expects these financing arrangements to enable the Company to
finance the acquisition and lease of antennae decoder boxes and other equipment,
thereby permitting TVA to reduce the initial installation fee and to spread the
expense to subscribers of installing such equipment over time. Management also
expects the cost of decoders and associated equipment to decline as new
manufacturers enter the market and proposed manufacturing facilities in Brazil
open. Accordingly, as the cost of DIRECTV service is reduced, management expects
the purchase of DIRECTV service to become more affordable to a broader segment
of Class ABC Households including Class ABC Households outside the more affluent
urban areas of Brazil. In addition, management expects to offer different tiers
of service, charging different installation and subscription prices for each
tier of service. Such tiered service will also allow the Company to offer
DIRECTV service to a broader segment of Class ABC Households. In any case,
management believes DIRECTV service may be profitable for the Company, even if
purchase of DIRECTV service remains feasible only for affluent Brazilians.
However, no assurances can be given that Galaxy Brasil Leasing Facility and the
SurFin Credit Facility will provide the Company with the ability to reduce the
installation fees for DIRECTV service to the extent necessary to attract less
affluent purchasers, or that DIRECTV service will be attractive to a large
segment of Brazilians whether or not affluent.
C-BAND
TVA has offered C-Band service since 1993, and is the only pay television
operator to deliver a digital C-Band signal in Brazil. TVA's C-Band service
consists of the transmission of a digital encoded signal via the Brasilsat
satellite utilizing four transponders to a satellite antenna 1.1 meters in
diameter located at a subscriber's home, where the signal passes through an
integrated receiver decoder. A single antenna may serve a single family dwelling
or a multifamily dwelling, such as an apartment building, in which case each
apartment needs to be equipped with a decoder. The Brasilsat satellite was
launched in July 1994 and is owned by EMPRESA BRASILEIRA DE TELECOMUNICACOES
(Brazilian Telecommunications Company, or "Embratel"), the Brazilian
Government-owned company authorized to provide satellite telecommunications
services utilizing the SISTEMA BRASILEIRO DE TELECOMUNICACOES POR SATELITE
(Brazilian Satellite Telecommunications System, or "SBTS"). TVA utilizes the
Brasilsat satellite pursuant to three satellite transponder leases that expire
on May 30, 2002, November 20, 2003, and November 24, 2003, respectively. The
orbital location of the Brasilsat satellite enables TVA to provide C-Band
service throughout Brazil with little or no interference. However, tall
buildings and other tall structures may block reception of C-Band programming.
The Brasilsat satellite has an expected useful life of approximately 12 to 15
years from the date of launch.
TVA's C-Band service provides the Company with national coverage via
satellite transmission and a large preinstalled market. As of September 30,
1996, there were approximately 3.7 million parabolic C-Band antennae in use in
Brazil, most of which receive only off-air channels. This installed base
represents the Company's target market for its digital C-Band service and the
Company expects to attract
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these viewers through marketing and promotional initiatives. TVA is able to
deliver 38 channels of programming (including nine SAP channels) in addition to
the off-air channels and currently delivers 26 channels (including nine SAP
channels) as compared to the six channels in addition to the off-air channels
offered by its only significant competitor for this service. TVA provides
service to 41,637 C-Band subscribers throughout much of Brazil. During the
twelve-month period ended September 1996, TVA averaged approximately 2,600 net
new C-Band subscribers per month.
UHF SERVICE
TVA's UHF service is the broadcast of an encoded UHF signal over a
geographic area. TVA provides UHF service only in Sao Paulo and has 11,453
subscribers for such service. TVA's UHF service provides two channels of
programming, HBO Brasil and ESPN Brasil. This service is provided to subscribers
who are unable to receive or have chosen not to have access to other pay
television services. UHF subscribers pay on average approximately $22.80 per
month for this limited service.
RECENT ACQUISITIONS AND LICENSE APPLICATIONS
TVA's expansion into new metropolitan areas is limited by the number of MMDS
and Cable licenses held by TVA. In order to expand, TVA seeks to purchase
existing operations and licenses, form new ventures such as the Operating
Ventures to offer pay television in markets for which TVA does not hold a
license, find new Independent Operators to purchase TVA programming, and, either
individually or along with various partners and affiliated parties, apply for
new MMDS and Cable licenses.
Since January 1996, TVA has purchased four existing Cable systems, two in
Curitiba and one in each of two other cities in southern Brazil, and has
purchased a license to operate a Cable system in a fourth city. As of the
respective dates of their acquisitions, the two systems in Curitiba had a total
of 4,515 subscribers, and the systems in the two other cities had a total of
8,298 subscribers. The four acquired systems had in the aggregate, as of
September 30, 1996, Cable networks comprising approximately 490 kilometers. The
Company is upgrading the operations of the four existing Cable systems and is
constructing a cable system in the fourth city.
In addition, TVA has submitted proposals to the Ministry of Communications
for concessions to provide service in numerous locations, including the 15 state
capitals, currently being evaluated by the Ministry of Communications for pay
television service (none of which currently receive either MMDS or Cable
service). No date has been set for the auction of these concessions, in which
TVA intends to participate either individually or in conjunction with local
partners. See "Business--Regulatory Framework." Management expects the bidding
process for new Cable licenses to begin in 1997.
TVA SISTEMA AND TVA SUL
TVA Sistema and TVA Sul operate the Company's MMDS, Cable and C-Band
businesses. TVA holds a 98.0% equity interest in TVA Sistema, and the estate of
Matias Machline, a Brazilian national, holds the remaining 2.0% equity interest.
The Company holds an 87.0% equity interest in TVA Sul, and Leonardo Petrelli, a
Brazilian national, holds the remaining 13.0%. Pursuant to an Association
Agreement, dated February 15, 1996 (the "TVA Sul Agreement"), for so long as Mr.
Petrelli controls at least 8.0% of the voting capital of TVA Sul, he is allowed
to exercise veto power over a number of decisions relating to TVA Sul,
including: any merger, split, liquidation or dissolution of TVA Sul; any sale,
purchase of or lien on property of over R$50,000 in value; any acquisition or
transfer of any debt of over R$50,000 in value; any guaranty or surety given by
TVA Sul; approval of budget and business plans; approval of dividends of over
25.0% of net profit; and any modifications to TVA Sul's ESTATUTO SOCIAL
(BYLAWS). Mr. Petrelli has irrevocably waived his veto rights and consented to
the execution and delivery by TVA Sul of the Indenture and the Subsidiary
Guarantee by TVA Sul and such other documents and agreements as may be required
under the Indenture and the Subsidiary Guarantee and the performance by TVA Sul
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of its rights and obligations under the Indenture, the Subsidiary Guarantee and
such other documents and agreements to which TVA Sul may be a party pursuant to
the Indenture. The TVA Sul Agreement has a term equal to the longer of 10 years
or the duration of the licenses required to operate TVA Sul, and for equal
successive periods thereafter.
GLA AND GALAXY BRASIL
Pursuant to a Partnership Agreement, dated February 13, 1995 (the "GLA
Agreement"), GLA is managed by a seven-member Executive Committee to which
Hughes Communications GLA ("HCGLA") can appoint four members and each of the
other partners, including Tevecap, can appoint one member as long as such
partner holds at least an eight percent equity interest in GLA. The GLA
Agreement provides for local operating agreements between GLA and local
operators throughout South America, Central America, Mexico and the Caribbean
which will govern the relationship between GLA and such local operator. The GLA
Agreement stipulates that the local operator in Brazil shall be Galaxy Brasil,
100.0% of the equity interest of which is currently owned by Tevecap, but up to
12.5% of which may be purchased by HCGLA and up to 12.5% of which may be
purchased by Darlene Investments, a member of the Cisneros Group. Tevecap, in
turn, has an option to purchase up to 15.0% of the equity interest of the local
operator in Venezuela, all of which is currently owned by Darlene Investments.
The current partners in GLA have also agreed to "seek and maintain" equity
positions in other local operators. The Company has agreed to make capital
contributions under the GLA Agreement of $33.5 million, which amount was paid in
quarterly installments ending on January 1, 1997. The GLA Agreement places
restrictions, including first negotiation, approval and tag-along rights, on the
transfer of capital stock or voting securities of each of the current partners
in GLA and in certain circumstances their parent entities. Management expects
GLA to become a Delaware limited liability company by the end of 1997. The
proposed limited liability company agreement would contain substantially the
same rights and obligations as set forth in the GLA Agreement. In connection
with the conversion of GLA into a limited liability company, it is anticipated
that GLA's uplink facility, CBC, will be transferred to a newly-organized
Delaware limited liability company, to be owned by two units of Hughes
Electronics.
Pursuant to a Local Operating Agreement (the "Local Operating Agreement")
between GLA and Galaxy Brasil, dated March 3, 1995, GLA has agreed to provide to
Galaxy Brasil the exclusive right and ability to supply the DIRECTV service in
Brazil. In accordance with a formula based on the number of subscribers, Galaxy
Brasil is obligated to pay a periodic royalty to GLA. In addition, TVA may not
own or engage in any other Ku-Band service and GLA may not own or engage in any
other pay television service in Brazil. GLA, upon the occurrence of certain
events, has the right to terminate the Local Operating Agreement, or to
terminate Galaxy Brasil's exclusive rights to distribute DIRECTV programming.
Such events include breach of any material obligation of Galaxy Brasil to GLA
and the failure of Galaxy Brasil to meet certain specified performance goals.
See "Description of Certain Indebtedness" and "Risk Factors--Rights to DIRECTV
Programming."
THE OPERATING VENTURES
The Operating Ventures also operate MMDS (TV Filme) or Cable (Canbras TVA)
systems. TVA holds a 36.0% equity interest in each of Canbras TVA Cabo and TV
Cabo Santa Branca (the "Canbras TVA Companies"). Canbras Communications Corp., a
publicly-traded Canadian company ("Canbras"), and Canbras Participacoes Ltda., a
Brazilian company ("Canbras-Par") hold the remaining interests in Canbras TVA
Cabo and Canbras-Par owns the remaining interest in TV Cabo Santa Branca. Bell
Canada International, Inc. ("BCI"), an affiliate of BCE Inc., Canada's largest
telecommunications group, holds a $27.0 million convertible debenture that upon
conversion, would permit BCI to become, inter alia, a majority shareholder of
Canbras-Par. The Canbras Association Agreement provides for each of the Canbras
TVA companies to be governed by a management committee of three members, one of
which TVA has the right to designate. In addition, TVA agreed to supply to the
Canbras TVA companies all
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programming regularly supplied to the Owned Systems at "most favored prices" and
other terms at which programming is provided to the Owned Systems or to third
parties in arm's- length transactions. TVA will continue to provide MMDS
service, where possible, to customers in the Santo Andre and Sao Bernardo
operating area of the Canbras TVA Companies until cable service is available in
these areas. Canbras TVA Cabo and TV Cabo Santa Branca will compensate TVA for
each subscriber that transfers from TVA's MMDS system to a Canbras TVA Cable
system. The Company agreed to grant to Canbras-Par a "right of first refusal" to
participate in Cable licenses that the Company may obtain, directly or
indirectly, and Canbras-Par granted to the Company a similar "right of first
refusal" to participate in Cable licenses acquired by Canbras-Par. The term of
the Canbras Association Agreement is for so long as Canbras-Par or its assignee
owns shares "in companies which have the objective of engaging in the cable TV
business." The Canbras Association Agreement does not specify the terms and
conditions on which any co-investments in Cable licenses are to be made, and
such terms and conditions will be negotiated in good faith, on a case-by-case
basis, in connection with any future cable license investments. See "Risk
Factors--Ownership of Future Cable Television Licenses."
TVA holds a 14.3% equity interest (not including a 2.4% interest which may
be acquired by TVA under an outstanding warrant having a nominal exercise price)
in TV Filme. The remaining interests are held by Warburg, Pincus Investors,
L.P., which currently holds a 41.2% equity interest; members of the Lins family,
Brazilian nationals, who currently hold a 16.2% equity interest; and public
shareholders, who currently hold a 28.3% equity interest. On July 29, 1996, TV
Filme completed a public offering of 2.5 million shares of its common stock in
the United States at an initial price of $10.00 per share. Pursuant to a
programming agreement, TVA provides programming to TV Filme, and TV Filme has
agreed to use 50.0% of the channel capacity of each of its MMDS systems in
Brasilia, Goiania and Belem (the "TV Filme Service Area") to broadcast TVA
programming so long as (i) the quality of TVA programming, in the reasonable
judgment of TV Filme, remains compatible with the taste and standards of TV
Filme's subscribers, (ii) TVA continues to own, directly or indirectly, 10.0% of
TV Filme's common stock and (iii) TVA remains a subsidiary of Abril. Within the
TV Filme Service Area, TVA may not provide TVA programming to any Cable or other
MMDS pay television service provider and TVA may not compete with TV Filme as an
MMDS service provider. TV Filme also has a nonexclusive license to TVA
programming in 19 cities in which TV Filme has pending license applications,
subject to any exclusive license previously granted by TVA to other pay
television service providers in such cities and which exclusive license TVA,
using its best efforts, is unable to renegotiate to allow TVA to provide for TV
Filme to have a nonexclusive license. TVA may not charge TV Filme an amount
greater than the minimum rates charged by TVA to other subscription television
operators, nor may such charges exceed comparable rates for other programming of
a similar nature. The terms of the programming agreement terminate on July 20,
2004. From time to time, in connection with the programming agreement, TV Filme
has agreed to enter into additional agreements with the Company regarding
specified channels. The agreements typically have two year terms and determine
the monthly fees which TV Filme pays for such channels.
PROGRAMMING
TVA
TVA, through its MMDS, Cable and C-Band systems, currently provides a
programming package consisting of 15 to 44 television channels. TVA programming
emphasizes sports, movies, and news with a secondary emphasis on general
entertainment.
With respect to MMDS and Cable service in TVA's market, TVA is currently the
sole provider of ESPN Brasil, HBO Brasil, CMT Brasil, Bravo Brasil, the
Superstation, RTPi and Eurochannel. In addition, as of January 1997, TVA has
exclusive distribution rights to certain of Brazil's most important soccer
championships, including the Brasil Cup, the Brazilian Championship and the Sao
Paulo and Rio de Janeiro State Championships. TVA has entered into two
Programming Ventures, ESPN do Brasil Ltda. ("ESPN Brasil Ltda.") and HBO Brasil
Partners, through which it distributes a large volume of programming
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which management believes is especially important to its subscribers. ESPN
Brasil Ltda. is a joint venture between Tevecap and ESPN Brazil, Inc. (a
subsidiary of ESPN, Inc.), each of which holds a 50.0% equity interest. ESPN,
Inc. is a joint venture between ABC and Hearst. ESPN, Inc. provides the
programming of the US channel ESPN2 to ESPN Brasil Ltda., which packages such
programming with Brazilian and other international content and provides such
packaged programming to TVA. Pursuant to a Quotaholders Agreement, dated June
26, 1995 (the "ESPN Agreement"), ESPN Brasil has the right to transmit "ESPN2
Service" programming as well as all library programming of ESPN. The Company has
the exclusive right to broadcast the programming of ESPN Brasil Ltda. in Sao
Paulo, Rio de Janeiro, Curitiba, Brasilia, Belem and Goiania. The Company also
acts as the exclusive sales representative of ESPN Brasil programming with
respect to sales to other Brazilian pay television providers and receives a
commission in connection therewith. The Company is also the sole advertising
agent for ESPN Brasil until June 1999 and receives a commission on advertising
sales. ESPN Brasil Ltda., in turn, receives on an exclusive basis from the
Company all rights to soccer and other sporting events acquired by the Company
after February 24, 1995. ESPN Brazil, Inc. has the right to terminate the ESPN
Agreement and dissolve ESPN Brasil Ltda. in the event that a Brazilian court
issues a non-appealable decision that the Company did not have the right to
grant these rights to ESPN Brasil. TVA's mandatory capital contributions to ESPN
Brasil Ltda. are subject to a maximum aggregate amount of $5.0 million, whether
in the form of loans or subscriptions for additional quotas. The ESPN Agreement
is effective until June 17, 2045 and automatically renewable for a 50-year
period.
HBO Brasil Partners is a joint venture between TVA, which holds a 33.3%
equity interest, and HBO Ole Partners, which holds the remaining 66.7% equity
interest. HBO Ole Partners is, in turn, a joint venture among Time-Warner, Sony
and Ole Communications, Inc. HBO Brasil Partners has exclusive programming
contracts with Sony, Time-Warner and certain independent programming
distributors. HBO Brasil Partners, through an affiliate, provides the
programming for HBO Brasil to TVA. Pursuant to a Partnership Agreement dated
April 15, 1994 (the "HBO Agreement"), HBO Brasil Partners is managed by a
Partners' Committee comprised of an equal number of agents appointed by TVA and
HBO Ole Partners, the other partner. The HBO Agreement provides for the Company
to enter into an affiliation agreement with HBO Brasil Partners, pursuant to
which the Company pays a monthly fee per subscriber to the partnership.
In addition to the Programming Ventures, TVA has entered into a number of
other programming agreements. Since June 1991, TVA has had a programming
agreement with De Santi & Vallone to broadcast SuperStation programming in
Brazil, with exclusivity in Sao Paulo, Rio de Janeiro, Curitiba, Brasilia, Belem
and Goiania, as well as throughout all of Brazil via C-Band. Through the
SuperStation, TVA provides exclusive attractions from the news departments of
two major US television networks (CBS and NBC) as well as general interest
programming. In December 1996, TVA began transmitting programming from the
History Channel on the SuperStation. TVA acquired the rights to transmit the
History Channel programming through an agreement with A&E Networks Television.
The Bravo Company, a joint venture among NBC and certain other parties, provides
international movies and arts programming for the Bravo Brasil channel on an
exclusive basis to TVA for distribution in Brazil. TVA customizes Bravo Brasil
with the insertion of Brazilian arts and movie programming. Country Music
Television, which is owned by Group W Broadcasting, Inc. and Gaylord
Entertainment Company, provides programming for CMT Brasil, which TVA customizes
with Brazilian content. Pursuant to a Letter of Understanding, dated January 18,
1996, TVA and Country Music Television ("CMT") agreed to form CMT Brasil as a
joint venture entity, in which TVA will hold a 75.0% equity interest and CMT
will hold the remaining 25.0% equity interest. The formation of this joint
venture is still under discussion by the parties. Eurochannel is a channel
assembled exclusively by TVA with programming from the German channel Deutsche
Welle, the Spanish channel Radiotelevision Espanola, European movies, and series
acquired from the BBC. Additionally, pursuant to existing agreements, TVA is
planning, through DIRECTV service, to become the first provider of Cinemax
programming in Brazil (expected by March 1997). TVA also plans to transmit CNA,
a Brazilian news channel to be produced by Abril with programming from SBT, a
Brazilian off-air
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channel. TVA distributes its programming through its own operations and through
sales of programming to the Operating Ventures, Galaxy Latin America, the
Independent Operators and, to a lesser extent, to competing pay television
providers.
In addition, TVA offers non-exclusive programming from major international
subscription television programming providers, including such channels as ESPN
International, CNN, TNT, Fox, and the Discovery Channel.
TVA currently offers subscribers the following channels, among others:
HBO BRASIL is the dominant first-run pay television movie channel in Brazil.
HBO Brasil airs 24 hours a day offering an average of 12 different films per day
with limited commercial slots. All films are either subtitled or dubbed into
Portuguese. In the case of dubbed versions, viewers can listen to the original
soundtrack on an SAP channel. Recently, in some locations, TVA began offering
HBO Brasil2, transmitting HBO Brasil films with a six hour time shift.
ESPN BRASIL, offered exclusively by TVA, began transmission on June 17,
1995. TVA negotiated agreements with the major Brazilian soccer confederations,
providing TVA, as of the 1997 season, exclusive first choice coverage of soccer
games of the Brazilian Soccer Championship, the Sao Paulo State Championship and
the Brazil Cup. ESPN Brasil's programming centers around these exclusive soccer
games and other exclusive Brazilian and international sports entertainment
programs, mixed with programming from ESPN2.
ESPN INTERNATIONAL is the second sports channel offered by TVA, for which
TVA recently signed a new non-exclusive 50-year contract automatically renewable
for another 50-year period. ESPN International offers a number of different
sporting events, which include auto racing, National Football League games,
professional tennis matches, Major League Baseball games, and National
Basketball Association games. ESPN International also currently provides
Portuguese language commentaries exclusively to TVA.
CNN INTERNATIONAL features news and information programming, offering
international news coverage concerning politics, business, financial and
economic developments, 24 hours a day.
TNT is a movie channel which, pursuant to a non-exclusive agreement with
Turner International, Inc., offers the Turner Network Television movie
collection, including over 5,000 classic movie titles from MGM. In addition, TNT
airs children's programming, documentaries and sporting events. The movies
presented by TNT are broadcast in stereo sound and subtitled or dubbed in
Portuguese or Spanish. In the case of dubbed versions, viewers can listen to the
original soundtrack on a SAP channel.
CARTOON NETWORK is an animated cartoon channel targeted to children that
offers programs such as THE FLINTSTONES, THE JETSONS, THE SMURFS, YOGI BEAR and
other classic series.
DISCOVERY BRASIL is comprised of programming shown on the US Discovery
Channel, based on topics in the areas of nature, science and technology,
history, adventure and world cultures.
THE FOX CHANNEL presents movies, as well as programs from the 2,000 titles
in Fox's library. Fox also presents American television series, such as L.A.
LAW, M*A*S*H, and THE SIMPSONS, among many others.
THE SUPERSTATION is a general entertainment channel programmed by a third
party for TVA's distribution in Brazil. This third party has entered into
exclusive contracts with leading American networks for the transmission of
documentary, variety, music and news programming. The SuperStation offers
popular programs, such as THE LATE SHOW WITH DAVID LETTERMAN, E! ENTERTAINMENT
programs, NBC and CBS news, as well as a variety of other programs, including
programming from the History Channel, interviews, and programs on such topics as
food and cooking, travel and fashion.
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EUROCHANNEL is specially assembled and packaged by TVA and offers
subscribers European programming. The channel presents programs from the Spanish
Radiotelevision Espanola, the German Deutsche Welle, the BBC, the news from the
French TF1, as well as a variety of quality European films. News, sports, music
and variety shows are also offered.
MTV BRASIL is a 24-hour channel produced by MTV Brasil, a joint venture
company owned by Abril and an indirect subsidiary of Viacom International. MTV
Brasil is entirely produced in Brazil in Portuguese. MTV Brasil has licensing
agreements with the MTV Network, a division of Viacom International, and
transmits a combination of music and other video clips, cartoons and local
programming.
MTV LATINO presents original programming from MTV Latin America, which
includes music and other video clips and cartoons in Spanish.
CMT BRASIL is a country music channel with programming supplied from the US
version of Country Music Television channel exclusively to TVA and customized
for Brazil with Brazilian country music and local events.
SONY ENTERTAINMENT is primarily a situation-comedy channel, consisting of
Sony's film library, including FRIENDS, SEINFELD, MAD ABOUT YOU and E.R.
THE WARNER CHANNEL is a family entertainment channel, with new and classic
cartoons, children's programs and movies.
BRAVO BRASIL is an arts and movie channel, following the same concept as the
US version of the Bravo channel, showing high quality, cultural events, such as
classical music, jazz, opera, ballet and European movies. TVA inserts local
programming, such as Brazilian music and movies, as well as shows performed in
Brazil by international artists.
RTPI, Radiotelevisao Portuguesa Internacional, is a Portuguese state-owned
general entertainment channel produced and assembled in Portugal, airing music
events, talk shows, movies, news, documentaries, exclusive to TVA.
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TVA's complete channel offerings as of September 1996 were as follows:
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
HBO Brasil.............................................. movie channel
HBO Brasil 2............................................ HBO Brasil with a six-hour time shift
ESPN Brasil............................................. sports channel
ESPN International...................................... sports channel
CNN International....................................... news channel
TNT..................................................... movie channel
Cartoon Network......................................... cartoon channel
Discovery Brasil........................................ science and documentary channel
Fox Channel............................................. movie channel
SuperStation............................................ variety programming channel
Eurochannel............................................. European variety programming channel
MTV Brasil.............................................. music channel
MTV Latino.............................................. music channel
RTPi.................................................... Portugal's state television channel
CMT Brasil.............................................. music channel
TV5..................................................... French variety programming channel
WorldNet................................................ American news and variety channel
RTVE.................................................... Spanish variety channel
Deutsche Welle.......................................... German variety channel
America 2............................................... Argentine variety channel
CV Noticias............................................. Argentine news channel
CV Sports............................................... Argentine sports channel
Canal de Noticias NBC................................... NBC news channel in Spanish
TeleUno................................................. Spanish variety channel
Sony Entertainment...................................... situation comedy channel
The Warner Channel...................................... family entertainment channel
Bravo Brasil............................................ arts and movie channel
Globo................................................... national off-air channel
SBT..................................................... national off-air channel
Gazeta/CNT.............................................. national off-air channel
Bandeirantes............................................ national off-air channel
Record.................................................. national off-air channel
Manchete................................................ national off-air channel
Cultura................................................. national off-air channel
CBI..................................................... local off-air channel
Rede Mulher............................................. local off-air channel
Rede Vida............................................... local off-air channel
TV Senado............................................... local off-air channel
TV Educativa Rio........................................ local off-air channel
</TABLE>
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The following additional channels are under development and are expected to
be offered by TVA to the Brazilian subscription television marketplace.
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Cinemax................................................. movie channel
CNA..................................................... news channel
Mundo................................................... variety channel
E! Entertainment........................................ entertainment news channel
</TABLE>
DIRECTV
The DIRECTV programming package currently offered by Galaxy Brasil as of
September 30, 1996 consisted of 49 video channels (including 19 pay-per-view
channels), certain of which, such as Bravo Brasil and CMT Brasil, are provided
by TVA. Since September 30, 1996, the number of channels offered by Galaxy
Brasil has increased to 56. The Company expects that the number of channels will
increase to approximately 70 video and 30 audio channels in the first quarter of
1997. Programming includes movies, news, athletic events and other programs
available on a pay-per-view basis. The complete DIRECTV service channel
offerings, other than pay-per-view, as of September 1996 were as follows:
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
HBO Brasil.............................................. movie channel
HBO Brasil 2............................................ HBO Brasil with a six-hour time shift
ESPN Brasil............................................. sports channel
ESPN International...................................... sports channel
Eurochannel............................................. European variety programming channel
CMT Brasil.............................................. music channel
MTV Brasil.............................................. music channel
MTV Latino.............................................. music channel
RTPi.................................................... Portugal's state television channel
CNN International....................................... news channel
TNT..................................................... movie channel
Cartoon Network......................................... cartoon channel
Discovery Brasil........................................ science and documentary channel
Sony Entertainment...................................... sit-com channel
Bravo Brasil............................................ art and movie channel
Deutsche Welle.......................................... German variety channel
RTVE.................................................... Spanish variety channel
Tele Uno................................................ Spanish variety channel
Warner Channel.......................................... family entertainment channel
CBS Telenoticias........................................ CBS news channel in Spanish
Bloomberg............................................... business news channel
Multipremier............................................ Mexican movie channel
ZAZ..................................................... Mexican children's programming channel
Travel Channel.......................................... travel programming channel
NHK..................................................... Japanese general entertainment channel
BBC..................................................... U.K. news channel
TVN..................................................... Chilean programming channel
Gazeta/CNT.............................................. national off-air channel
TV Senado............................................... local off-air channel
TV Educativa Rio........................................ local off-air channel
TV Cultura.............................................. local off-air channel
</TABLE>
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Since September 30, 1996, the Company has added the following channels to
the DIRECTV service:
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Nickelodeon............................................. children's programming channel
Discovery Kids.......................................... children's programming channel
Locomotion.............................................. children's programming channel
BBC World............................................... world news channel
TV Chile................................................ Chilean programming channel
Playboy TV.............................................. adult programming channel
AdulTVision............................................. adult programming channel
</TABLE>
OPERATIONS
MARKETING. The Company periodically conducts marketing surveys to gauge
consumer preferences and evaluate new and existing markets. TVA also frequently
evaluates the demographics of the subscribers to its programming, seeking to
provide programming most in demand. In each market, TVA's marketing staff
typically applies one or more of the following programs to attract subscribers:
(i) extensive marketing tied to regional events such as soccer matches, (ii)
neighborhood promotional events featuring large screen broadcasts of its channel
offerings, (iii) direct mailings, (iv) telemarketing, (v) television, billboard,
magazine and newspaper advertisements, (vi) prewiring arrangements with
residential housing developers and (vii) other promotional marketing activities,
including referral programs and promotional gifts.
INSTALLATION. The installation package delivered to a new subscriber
depends upon the type of programming delivery service chosen by the subscriber.
The MMDS installation package features a standard rooftop mount linked to an
antenna and related equipment, including a decoder, located at the subscriber's
location. Cable service requires the installation of a cable line and a decoder
at the subscriber's dwelling. Ku-Band satellite service typically involves
installation of a 60-centimeter dish antenna, which can be mounted outside a
subscriber's window or on the rooftop of a subscriber's building or house,
together with a decoder located at the subscriber's dwelling. As with Ku-Band
service, C-Band service installation includes the installation of a dish
antenna, although of a greater size (1.1 meters in diameter) and a decoder and
related equipment at the subscriber's home. DBS installations at single-family
homes require an entire installation package, while installations at multiple
dwelling units in which drop lines are installed require only a decoder at each
subscriber's location and therefore are less costly to the Company. Once a new
subscriber has requested service, the amount of time a subscriber waits for the
commencement of service depends on several factors, including type of service,
whether the subscriber has access to Cable, whether the subscriber is in a
single family home or multiple dwelling unit, whether the topography of the
surrounding area makes MMDS service viable and whether the subscriber is located
in an area of Brazil that can be reached by C-Band or Ku-Band service. TVA
provides installation service with its own personnel and through local
subcontractors. TVA or such subcontractor attempts to complete installation and
begin service within 30 days of a subscription order.
UPLINK FACILITIES. A major part of the delivery of TVA's DBS service,
whether Ku-Band or C-Band, is the collection of programming and the
transmission, or uplinking, of such programming to the Galaxy III-R satellite
and the Brasilsat satellite, respectively. Upon receipt of programming, the
Company processes, compresses, encrypts, multiplexes (combines with other
channels) and modulates (prepares for transmission to the satellite at a
designated carrier frequency) such programming. The Company uses uplink
facilities of Embratel in Sao Paulo to service its existing C-Band service. TVA
delivers its programming to the Embratel uplink center via microwave
transmission, where it is prepared for transmission to the Brasilsat satellite
using equipment provided by TVA. For its DIRECTV service, the Company has built
the Tambore Facility, an uplink center, for a total cost of approximately $20
million in
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Tambore in the State of Sao Paulo consisting of an uplink antenna and ancillary
equipment. The Tambore Facility has operated since June 1996 and is used to
uplink Brazilian programming to the Galaxy III-R satellite. Through the Galaxy
III-R satellite, programming from Galaxy Brasil is mixed with programming from
the California Broadcast Center (the "CBC") in Long Beach and with programming
provided by members of the Cisneros Group through an uplink facility in
Venezuela and by Grupo Frequencia Modulada Television through its uplink
facility in Mexico, for delivery to subscribers in Brazil and other countries to
which GLA provides DIRECTV service. The Tambore Facility and the uplink
facilities in Venezuela, Mexico and the United States are equipped with full
emergency power generation equipment and other emergency facilities to enable
GLA to avoid signal disruptions. During 1997, management expects that a new
Delaware limited liability company will be established, the principal asset of
which will be GLA's satellite uplink facility. The new company will be owned by
two subsidiaries of Hughes Electronics. In connection with the establishment of
the new company, TVA Communications and Tevecap have agreed, pursuant to the
Indemnification Agreement, to provide certain indemnities in favor of GLA,
Hughes Communications GLA, the newly-established company and its shareholders.
To secure its obligations under the Indemnification Agreement, Tevecap has
agreed to pledge its equity interest in GLA, as well as any future notes or
interest it may hold relating to the uplink facility.
PROGRAMMING FACILITIES. Programming equipment is used to prepare the
programming material for transmission via the Company's MMDS, Cable or DBS
systems, including compression with respect to Cable and Ku-Band service. The
programming equipment inserts commercial or promotional material, if
appropriate, monitors the quality of the picture and sound, and delivers the
material to the multiplexing system. For programming delivered to TVA as taped
material, the programming equipment also compiles the various programming
segments, inserting commercial and promotional material.
COMPRESSION SYSTEM. The Company also uses its programming facilities to
digitize the programming signals used in TVA's Cable and Ku-Band service.
Digital technology permits the compression and transmission of a digital signal
to facilitate multiple channel transmission through a single channel's
bandwidth, thereby giving broadcasters the ability to offer significantly more
channels than is currently the case with analog systems. Digitized signals are
compressed using the MPEG-2 standard. (Moving Pictures Expert Group-2, the
international video compression standard).
CONDITIONAL ACCESS SYSTEM. GLA and News Digital Systems Limited ("NDS"), a
wholly-owned subsidiary of News Corporation, are parties to a System
Implementation and License Agreement. Under the Local Operating Agreement, GLA
provides to Galaxy Brasil the use of the access control system licensed from NDS
and the Smart Cards provided by NDS. The Company expects the access control
system to adequately protect DIRECTV programming from unauthorized access. With
Smart Card technology, it is possible to change the access control system in the
event of a security breach allowing TVA to reestablish security. Management
believes that the ability to take electronic measures and to replace the Smart
Cards will provide an effective means to combat unauthorized programming access.
SUBSCRIBER SERVICE. Management believes that delivering high levels of
subscriber service in installation and maintenance enables it to maintain high
levels of subscriber satisfaction and to maximize subscriber retention. To this
end, TVA attempts to promptly schedule installations, provides a subscriber
service hotline in each of the metropolitan areas in which TVA operates,
attempts to promptly provide response repair service, and attempts to make
follow-up calls to new subscribers shortly after installation to ensure
subscriber satisfaction. TVA seeks to instill a subscriber service focus in all
its employees through ongoing training and has established an intra-company
electronic mail system to provide a forum for employees to exchange ideas
concerning ways to increase subscriber satisfaction. TVA also has various
employee bonus programs linked to measures of subscriber satisfaction. To enable
its employees to provide quicker service, TVA is working to decentralize its
subscriber service operations by opening small service offices throughout TVA's
served markets.
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MANAGEMENT INFORMATION SYSTEMS AND BILLING. Management believes that TVA's
proprietary management information systems enable TVA to deliver superior
subscriber service, monitor subscriber payment patterns and facilitate the
efficient management of each of its operating systems. Management believes that
TVA's billing procedures are an integral part of its strategy to maintain high
levels of subscriber satisfaction and to maximize subscriber retention.
Subscribers select the day of the month on which payment for that month's
service is due, and pay their bills at a bank through direct transfers, which is
the standard payment method in Brazil. After disconnection and the removal of
the delinquent subscribers decoder box, the Company generally offers to
reconnect the delinquent subscribers for a fee of approximately $50.00.
COMPETITION
GENERAL
TVA and the Operating Ventures compete with pay television service providers
using Cable, MMDS and DBS transmission technologies. The Company expects to
continue to face competition from a number of existing and future sources,
including potential competition as a result of new and developing technologies
and the easing of regulation in the pay television industry. TVA believes that
competition is and will continue to be primarily based upon program offerings,
customer satisfaction, quality of the system network and price. Since there is a
very limited history of pay television services in Brazil, there can be no
assurance that, based on the potential size of the Brazilian pay television
industry, the pay television market will be able to sustain a number of
competing pay television providers. The Company and the Operating Ventures also
compete with national broadcast networks and regional and local broadcast
stations. TVA's MMDS and Cable operations and its C-Band satellite service and
Ku-Band satellite service may compete for the same subscribers.
MMDS AND CABLE SERVICE
TVA's principal competitors in Cable service are operations owned or
controlled by Multicanal Participacoes S.A. ("Multicanal"), Net Brasil S.A.
("Net Brasil"), Globo Cabo S.A. ("Globo Cabo") and RBS Participacoes S.A.
("RBS"). Multicanal and Net Brasil operate Cable systems throughout much of
Brazil, including Sao Paulo, Rio de Janeiro, Curitiba and several other large
metropolitan areas. Globo Cabo has Cable systems in approximately 18 cities
including Brasilia. RBS operates Cable services in 19 cities in Brazil and
provides MMDS service in Porto Alegre. Net Brasil also provides MMDS service in
Recife, and has a license to provide MMDS service in Curitiba. Globo
Comunicacoes e Participacoes Ltda. ("Globo Par") and TV Globo, the owners of
Brazil's most popular off-air channels (together, "Globo"), control, or have
significant interests, in each of Multicanal, Net Brasil and Globo Cabo. RBS
also holds an interest in Multicanal. The systems controlled by Multicanal, Net
Brasil, Globo Cabo and RBS offer a similar number of channels of programming at
prices comparable to those charged for TVA's MMDS and Cable Service. Each of
these systems broadcasts programming purchased from TVA as well as from other
services.
DBS SERVICE
Management believes its only competitor in DBS service is Net Sat Servicos
Ltda. ("Net Sat") in which Globo Par also has a controlling interest and whose
other equity holders include News Corporation plc, a subsidiary of The News
Corporation Limited and Grupo Televisa, S.A., of Mexico. TVA offers 26 channels
of programming with its C-Band service, compared to the six channels offered by
Net Sat's C-Band service. However, while monthly charges are comparable and
TVA's digital C-Band service offers more channels, often with better picture
quality, the analog decoder necessary for Net Sat's C-Band service is
significantly less expensive than the digital decoder TVA's subscribers must
purchase. With respect to Ku-Band service, Net Sat uses a satellite which
provides broader coverage of Brazil. The orbital location of the Galaxy III-R
satellite enables GLA to offer DIRECTV service to substantially all of the
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TV Homes in Brazil. However, in the less populated northern and western regions
of Brazil, reception of DIRECTV programming requires a dish antenna up to 1.1
meters in diameter and in the western third of Brazil (a sparsely populated area
when compared to the southern and eastern regions) reception may not be
practical due to the size of the antenna necessary for reception. TVA's Ku-Band
service currently offers 56 channels of programming, including 9 SAP channels
and 19 pay-per-view channels, as compared to the 26 channels of programming,
including 4 pay-per-view channels, offered by Net Sat.
OFF-AIR BROADCAST TELEVISION
Broadcasting services are currently available to substantially all of the
Brazilian population without payment of a subscription fee by six
privately-owned national broadcast television networks and a government-owned
national public television network. The six national broadcast television
networks and their local affiliates currently provide services to nearly all
Brazilian TV Homes without payment of a subscription fee. The national broadcast
television networks and local broadcast stations receive a significant portion
of their revenues from the sale of television advertising, which revenues are
based in part on the audience share and ratings for the networks' programs.
Programming offered by pay television providers, including TVA, directly
competes for audience share and ratings with the programming offered by
broadcast television networks as well as regional and local television
broadcasters. The six national broadcast television networks are Globo, SBT,
Bandeirantes, TV Manchete, TV Record and Gazeta/CNT. The national television
networks utilize one or more satellites to retransmit their signals to their
local affiliates throughout Brazil.
PROGRAMMING SALES
TVA competes with a variety of Brazilian and international programming
providers for sales of its programming to the Operating Ventures and Independent
Operators. In addition, TVA competes with other pay television operators to
purchase programming from some of these Brazilian and international sources.
REGULATORY FRAMEWORK
The subscription television industry in Brazil is subject to regulation by
the Brazilian Ministry of Communications pursuant to the Brazilian
Telecommunications Code of 1962, as amended (the "Telecommunications Code"). The
Ministry of Communications grants concessions for MMDS, Cable, DBS, and UHF
licenses.
MMDS REGULATIONS
GENERAL. The Telecommunications Code empowers the Ministry of
Communications, among other things, to issue, revoke, modify and renew licenses
within the spectrum available to MMDS systems, to approve the assignments and
transfer of control of such licenses, to approve the location of channels that
comprise MMDS systems, to regulate the kind, configuration and operation of
equipment used by MMDS systems, and to impose certain other reporting
requirements on channel license holders and MMDS operators. The licensing and
operation of MMDS channels are currently governed by Rule No. 002/94 ("Rule
002/94"), adopted by Ministry of Communications Administrative Rule No. 043/94
("Rule 043/94"). Under Rule 002/94, MMDS is defined as the special service of
telecommunication which uses microwaves to transmit codified signals to be
received in pre-established points on a contractual basis. On September 9, 1996,
the Ministry of Communications issued Ordinance No. 1,085 ("Ordinance 1085"),
which revised Rule 002/94 and imposed restrictions on the granting and use of
MMDS licenses.
LICENSES. The Ministry of Communications grants licenses and regulates the
use of channels by MMDS operators to transmit video programming, entertainment
services and other information. A
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maximum of 31 MMDS channels (constituting a spectrum bandwidth of 186 MHz) may
be authorized for use in an MMDS market. While licenses are usually granted for
the use of up to 16 channels, depending on technical feasibility and the
existence of competition, the Ministry of Communications can grant a license for
all 31 channels available in one specific area. If the license is for 16 or more
channels, at least two channels must be reserved for educational and cultural
programming. If the license involves less than 15 channels, only one channel
must be reserved for educational and cultural purposes. If a license is for
fewer than 15 channels, there is no obligation to reserve any channel for
educational and cultural purposes. In each of the Company's operating or
targeted markets, up to 31 MMDS channels are available for MMDS (in addition to
any local off-air VHF/UHF channels which are offered).
Any company in which nationals of Brazil own at least 51.0% of the voting
capital is eligible to be granted a license to operate an MMDS service. For
purposes of this regulation, "national" means any native Brazilian or a
naturalized Brazilian who has held Brazilian citizenship for at least ten years.
The license is granted for a renewable period of 15 years. The application for
renewal of a license must be filed with the Ministry of Communications during
the period from 180 to 120 days before the end of the license term. To renew the
license, the license holder must (i) meet applicable legal and regulatory
requirements, (ii) have complied with all legal and contractual obligations
during the term of such license, (iii) meet certain technical and financial
requirements and (iv) provide educational and cultural programming.
Under the most recently promulgated rules of Ordinance 1085, each license
holder and its affiliates may be granted permission to operate MMDS systems in
different areas of Brazil, provided that no holder may be granted licenses for
(i) more than seven municipalities with a population equal to or exceeding
700,000 inhabitants and (ii) more than 12 municipalities with a population
between 300,000 and 700,000 inhabitants. The restrictions only apply to areas in
which the MMDS system operator (or an affiliate thereof) faces no competition
from other pay television services, excluding services that utilize a satellite
to transmit their signal. Ordinance 1085 grants the Ministry of Communications
full discretion to alter or eliminate the restrictions. The term affiliate is
defined by Ordinance 1085 as "(i) any legal entity that directly or indirectly
holds at least 20% of the voting capital of another legal entity or any of two
legal entities under common ownership of at least 20% of their respective voting
capital, (ii) any of two legal entities that have at least one officer or
director in common, (iii) any of two legal entities when, due to a financial
relationship between them, one entity is dependent on the other." The Company
currently controls four MMDS licenses in cities of more than 700,000 inhabitants
(Sao Paulo, Rio de Janeiro, Curitiba and Porto Alegre), but in each such city
TVA has at least one competitor. No assurance can be given as to the number of
licenses that will be granted, if any. Prices for pay television services may be
freely established by the system operator, although the Ministry of
Communications may interfere in the event of abusive pricing. The Ministry of
Communications may impose penalties including fines, suspension or revocation of
the license if the license holder fails to comply with applicable regulations or
becomes legally, technically or financially unable to provide MMDS service. The
Ministry of Communications also may intervene to the extent operators engage in
unfair practices intended to eliminate competition.
The Ministry of Communications awards licenses to use MMDS channels based
upon applications demonstrating that the applicant is qualified to hold the
license, that the proposed market is viable and that the operation of the
proposed channels will not cause impermissible interference to other permitted
channels. After the Ministry of Communications determines that an application
has met these requirements, it publishes a notice requesting comments from all
parties interested in providing the same services in the same or a near area.
Depending on the comments received, the Ministry of Communications may decide to
open a public bid for the service in that area, although it has not done so in
the past. In the case of a public bid, applicants would be evaluated based on a
number of factors including the applicant's proposed schedule for implementing
service aspects of the applicant's community relations, such as involvement of
local residents as stockholders of the applicant, the applicant's commitment to
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local programming and the extent to which the applicant provides free
programming to local cultural and educational institutions. Once an MMDS license
application is granted by the Ministry of Communications, the license holder
must finalize construction and begin operations within 12 months, which period
may be extended by an additional 12 months.
In addition to qualifying under the application process described above, a
license holder must also demonstrate that its proposed signal does not violate
interference standards in the area of another MMDS channel license holder. To
this end, existing license holders are given a 30-day period in which to
ascertain and comment to the Ministry of Communications whether the new license
holder's proposed signal will interfere with existing signals. The area covered
by the services is exclusive to a radius of five to 50 kilometers around the
transmission site, depending on the technical capability of the operator.
On November 28, 1995, the President of Brazil enacted Decree No. 1719, which
provides that all granting of concessions and licenses for the rendering of
commercial telecommunications services in Brazil shall be made through bidding
procedures. As of March 31, 1996, the Ministry of Communications had not granted
any new licenses for the operation of MMDS systems pursuant to such Decree.
OTHER REGULATIONS. MMDS license holders are subject to regulation with
respect to the construction, marketing and lighting of transmission towers
pursuant to the Brazilian Aviation Code and certain local zoning regulations
affecting construction of towers and other facilities. There may also be
restrictions imposed by local authorities. The subscription television industry
also is subject to the Brazilian Consumer Code. The Consumer Code entitles the
purchasers of goods or services to certain rights, including the right to
discontinue a service and obtain a refund if the services are deemed to be of
low quality or not rendered adequately. For instance, in case of a suspension of
the transmission for a given period, the subscriber shall be entitled to a
discount on the monthly fees. Rule No. 002/94 and Ordinance 1085 have certain
provisions relating to consumer rights, including a provision for mandatory
discounts in the event of interruption of service. The Company as of April ,
1997, has not been required to repay any amounts or provide any discounts due to
interruptions of service. However, the Company does refund prepaid installation
service fees, when the Company discovers such service is unavailable for
whatever reason. Due to the regulated nature of the subscription television
industry, the adoption of new, or changes to existing, laws or regulations or
the interpretations thereof may impede the Company's growth and may otherwise
have a material adverse effect on the Company's results of operations and
financial condition. See "Risk Factors--Risk Factors Relating to the
Company--Government Regulation."
CABLE REGULATION
GENERAL. Cable services in Brazil are licensed and regulated by the
Ministry of Communications pursuant to Law No. 8977, enacted by the Brazilian
National Congress on January 6, 1995 ("Law 8977"), and Decree No. 1718, enacted
by the President of Brazil on November 28, 1995 ("Decree 1718"). Until Law 8977
was enacted in 1995, the Brazilian Cable industry had been governed by two
principal regulatory measures since its inception in 1989: Ordinance No. 250,
issued by the Ministry of Communications on December 13, 1989 ("Ordinance 250"),
and its successor, Ordinance No. 36, issued by the Ministry of Communications on
March 21, 1991 ("Ordinance 36"). On September 9, 1996, the Ministry of
Communications issued Ordinance 1086 ("Ordinance 1086") regulating the granting
and use of Cable Licenses.
Ordinance 250 regulated the distribution of television signals ("DISTV") by
physical means (I.E., by Cable) to end-users. DISTV services generally are
limited only to the reception and transmission of signals without any
interference by a DISTV operator with the signal content. Under Ordinance 250,
101 authorizations were granted by the Ministry of Communications to local
operators to commercially exploit DISTV services. Although Ordinance 250 did not
specifically address Cable services, a number of DISTV operators (including the
Company's Cable systems) began to offer Cable services based on DISTV
authorizations.
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By issuing Ordinance 36 in March 1991, the Ministry of Communications
suspended Ordinance 250, although it allowed the DISTV authorizations issued
during the preceding 15 months to remain valid. The Ministry of Communications
submitted proposed regulations relating to Cable services for public comment at
the same time Ordinance 36 was issued. These proposed regulations were never
adopted and no further regulatory action was taken until the enactment of Law
8977 in 1995. Currently Law 8977, together with Decree 1718 (which provides the
implementing procedures for Law 8977) and Ordinance 1086, constitute the
regulatory framework for Cable services in Brazil.
LICENSES. Under Law 8977, a Cable operator must obtain a license from the
Ministry of Communications in order to provide Cable services in Brazil. All
Cable licenses are nonexclusive licenses to provide Cable services in a service
area. Cable licenses are granted by the Ministry of Communications for a period
of 15 years and are renewable for equal and successive periods. Renewal of the
Cable license by the Ministry of Communications is mandatory if the Cable system
operator has (i) complied with the terms of the license grant and applicable
governmental regulations and (ii) agrees to meet certain technical and economic
requirements relating to the furnishing of adequate service to subscribers,
including system modernization standards.
Ordinance 1086 imposes restrictions on the number of areas that can be
served by a Cable television system operator (or an affiliate thereof). Pursuant
to Ordinance 1086, a Cable system operator (or an affiliate thereof) may only
hold licenses with respect to (i) a maximum of seven areas with a population of
700,000 and above and (ii) a maximum of 12 areas with a population of 300,000 or
more and less than 700,000. The restrictions only apply to areas in which the
Cable system operator (or an affiliate thereof) faces no competition from other
pay television services, excluding services that utilize a satellite to transmit
their signal. Ordinance 1086 grants the Ministry of Communications full
discretion to alter or eliminate the restrictions. The term affiliate is defined
by Ordinance 1086 as "(i) any legal entity that directly or indirectly holds at
least 20% of the voting capital of another legal entity or any of two legal
entities under common ownership of at least 20% of their respective voting
capital, (ii) any of two legal entities that have at least one officer or
director in common, (iii) any of two legal entities when, due to a financial
relationship between them, one entity is dependent on the other." The Company
currently controls four Cable licenses in cities of more than 700,000
inhabitants (Sao Paulo and Curitiba), but in each such city TVA has at least one
competitor.
Generally, only legal entities that are headquartered in Brazil and that
have 51.0% of their voting capital by Brazilian-born citizens or persons who
have held Brazilian citizenship for more than 10 years are eligible to receive a
license to operate Cable systems in Brazil. In the event that no private entity
displays an interest in providing Cable services in a particular service area,
the Ministry of Communications may grant the local public telecommunications
operator a license to provide Cable services.
Cable operators that presently provide Cable services under a DISTV
authorization granted under Ordinance 250 are required under Law 8977 to file
applications to have their DISTV authorizations converted into Cable licenses.
Ordinance 1086 grants a one year period from the date a DISTV authorization is
converted into a cable television license for any Cable system operator to
comply with the restrictions. The Company's Cable systems, all of which are
operating under DISTV authorizations, have applied for conversion of their DISTV
authorizations.
Cable licenses for service areas not covered by existing authorizations will
be granted pursuant to a public bidding process administered by the Ministry of
Communications after prior public consultation. All such licenses shall be
nonexclusive licenses. In order to submit a bid for a license, a bidder must
meet certain financial and legal prerequisites. After such prerequisites are
met, a bidder must then submit a detailed bid describing its plan to provide
Cable services in the service area. In the qualification phase of the bidding
process, the Ministry of Communications assigns a number of points to each bid
based on certain weighted criteria, including the degree of ownership of the
bidder by residents of the local service area; the channel capacity of the
proposed system; the timetable for installing the Cable
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system; the timetable for offering subscription programming and amount of such
programming; the time allocated to local public interest programming; the number
of channels allocated to educational and cultural programming; the number of
establishments, such as schools, hospitals and community centers, to which basic
service programming will be offered free of charge; and the proposed basic
subscription rate. After calculating the number of points awarded to each
bidder, the Ministry of Communications will then apply a formula based on the
population of the service area to select the winning bid from among those
bidders that meet certain defined minimum qualifying thresholds. For service
areas with a population of 700,000 or more inhabitants, the qualified bidder
that submits the highest bid for the license will be selected. For service areas
with a population between 300,000 and 700,000 inhabitants, the winning bid is
selected based on the highest product obtained by multiplying the number of
points awarded in the qualification phase and the amount bid for the license.
For service areas with less than 300,000 inhabitants, the winning bid is
selected on the basis of the number of points awarded in the qualification phase
and the payment of a fixed fee.
Once a Cable license is granted, the licensee has an 18 month period from
the date of the license grant to complete the initial stage of the installation
of the Cable system and to commence providing Cable services to subscribers in
the service area. The 18 month period is subject to a single 12 month extension
for cause at the discretion of the Ministry of Communications.
Any transfer of a Cable license is subject to the prior approval of the
Ministry of Communications. A license generally may not be transferred by a
licensee until it has commenced providing Cable services in its service area.
Transfers of shares causing a change in the control of a license or the legal
entity which controls a license also is subject to the prior approval of the
Ministry of Communications. The Ministry of Communications must receive notice
of any change in the capital structure of a licensee, including any transfer of
shares or increase of capital that do not result in a change of control.
A license can be revoked, upon the issue of a judicial decision, in the
event the licensee lacks technical, financial or legal capacity to continue to
operate a Cable system; is under the management of individuals, or under the
control of individuals or corporations who, according to Law 8977, do not
qualify for such positions; has its license transferred, either directly or by
virtue of a change in control, without the prior consent of the Ministry of
Communications; does not start to provide Cable services within the time limit
specified by Law 8977; or suspends its activities for more than thirty
consecutive days without justification, unless previously authorized by the
Ministry of Communications.
CABLE RELATED SERVICE REGULATION
GENERAL. Brazilian telecommunications services are governed primarily by
(i) Article 21 of the Federal Constitution, as amended by Amendment No. 8 of
August 15, 1995 ("Amendment 8"), and (ii) the Telecommunications Code (Law No.
4117 of August 27, 1962, as amended). The Brazilian Government also has issued
detailed regulations covering specific areas of telecommunications services,
including radio broadcasting, paging, trunking, subscription television, Cable
television and cellular telephony. The Ministry of Communications presently is
responsible for the regulation of telecommunications services in Brazil. Prior
to its amendment in 1995, Article 21 of the Federal Constitution required the
Brazilian Government to operate directly, or through concessions granted to
companies whose shares are controlled by the Brazilian Government, all
telephone, telegraph, data transmission and other public telecommunications
services. This constitutional requirement was the basis for the establishment of
the state-owned telephone monopoly, Telebras, which holds controlling interests
in 27 regional telephone operating companies. With the adoption of Amendment 8,
Article 21 was modified to permit the Brazilian Government to operate
telecommunications services either directly or through authorizations,
concessions or permissions granted to private entities. In particular, Amendment
8 removed the constitutional requirement that the Brazilian Government must
either directly operate or control the shares of companies which operate
telecommunications services. Even with the adoption of Amendment 8, the
Brazilian Government still retains broad regulatory powers over
telecommunications
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services. Notwithstanding the existence of the Telebras monopoly, private
companies have been permitted under Brazilian law to provide a number of
telecommunications services other than telephony, including radio broadcasting,
paging, trunking, subscription television and cable television services.
However, fixed public telephony and cellular telephony were exclusively provided
by Telebras through its regional telephone operating companies. While Amendment
8 permits the Brazilian Government to authorize private companies to provide
such services, further action on the part of the Brazilian legislature will be
required before private entities may actually provide fixed telephony services.
HIGH-SPEED CABLE DATA SERVICES. Law 8977 and Decree 1718, among other
things, authorize cable television operators, such as the Company, in addition
to furnishing video and audio signals on their cable networks, to utilize their
networks for the transmission of meteorological, banking, financial, cultural,
prices and other data. This broad grant of authority by the Ministry of
Communications is understood to permit Cable television operators to furnish
services such as interactive home banking and high-speed Cable data services to
subscribers through their cable television networks.
CABLE TELEPHONY. Under present Brazilian law, only Telebras' regional
telephone operating companies are permitted to furnish fixed telephone services
in Brazil. Therefore, absent a change in Brazilian law, the Company would not be
permitted to furnish cable telephony on its network. There are, however, certain
limited regulatory exceptions pursuant to which private entities other than
Telebras and the regional telephone operating companies have been permitted to
provide limited fixed telephony services in Brazil. Under one particular
exception, certain private telephone networks (CENTRAIS PRIVADAS DE COMUTACAO
TELEFONICA or "CPCT") serving "condominiums" (as such term is defined under
Brazilian law) have been permitted to interconnect their private telephone
networks to the public telephone network operated by the local telephone
operating company. A CPCT is comparable to a private branch exchange (PBX) found
in some larger apartment complexes, hotels and businesses in the United States.
Under Brazilian law, the term "condominium" refers to residential and
nonresidential buildings or building complexes that have entered into a legal
association. In practice, a condominium desiring to establish a CPCT will
generally contract with a private service provider to install, operate and
maintain the CPCT and to secure interconnection with the public telephone
network. Ordinance No. 119/90 of the 10 December 1990 ("Ordinance 119"), which
was issued by the predecessor to the Ministry of Communications, sets forth
requirements for the interconnection of CPCTs with the public telephone network.
In general the installation, operation and maintenance of a CPCT does not
require any authorization from the Ministry of Communications or Telebras. In
order to interconnect with the public telephone network, a CPCT must comply with
the requirements set forth in Ordinance 119. Such requirements primarily relate
to meeting technical equipment certification and acceptance standards. Assuming
that such standards are met, the regional telephone operating company is
required under Ordinance 119 to interconnect the CPCT requesting interconnection
to the public telephone network. The Company believes that, under current
Brazilian law, Cable television operators can utilize their Cable television
networks in order to facilitate the installation and operation of a CPCT.
Furthermore, under the authority granted by Ordinance 119, CPCTs may be
interconnected through Cable television networks to the public telephone
network.
SATELLITE SERVICE REGULATION. On October 1, 1991, the Ministry of
Communications enacted Ordinance No. 230 to regulate telecommunications services
via satellite in Brazil ("Ordinance 230"). Under Ordinance 230 any company
authorized to broadcast television by any means is also authorized to broadcast
by satellite transmission. The Company has operated satellite pay-television
services since 1993 through a contract signed with Embratel.
Ordinance No. 281, issued by the Ministry of Communications on November 28,
1995, partially amended Ordinance 230 allowing only companies to which a
concession, permission or authorization had been granted previously by the
Ministry of Communications to provide telecommunications services via satellite.
Companies that were already operating satellite telecommunications services
without
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such authorization were given a period of 60 days to seek such authorization.
The Company applied for such authorization within the 60-day period, and on
April 23, 1996, the Ministry of Communications issued Ordinance No. 87/96
("Ordinance 87"), granting TVA the non-exclusive permission to operate a pay
television service via satellite. Such authorization is valid for a term of
fifteen years, commencing October 26, 1994. Ordinance 87 further provides that
TVA has the obligation to (a) render services continuously and efficiently in
order to fully satisfy users, (b) in an emergency or disaster, render services
to the entities that require services without charge, and (c) meet the technical
adequacy requirements which the Ministry of Communications considers essential
to guarantee fulfillment of the obligations under the permission granted. In
addition, on April 23, 1996, Galaxy Brasil received approval from the Ministry
of Communications, pursuant to Ordinance No. 86/96 ("Ordinance 86"), to operate
satellite services via the Galaxy III-R satellite, leased by Hughes Electronics.
Galaxy Brasil also received approval to operate the corresponding ground
transmission station pursuant to Ordinance 86.
On May 31, 1996, the Ministry of Communications presented Ordinance No. 23
("Ordinance 23") for a 30-day period of public review and comment. Ordinance 23
is a proposed general rule which would govern the granting of licenses to
provide satellite pay television services. Under the proposed rule,
licenseholders would be required to be legal entities at least 51.0% of whose
voting capital is owned by (a) Brazilian citizens who are either born in Brazil
or naturalized for at least ten years or (b) a corporation organized in Brazil
and controlled by Brazilian citizens who are either born in Brazil or
naturalized for at least ten years. Furthermore, licenses would be granted for a
renewable period of ten years, and could be transferred only with prior approval
of the Ministry of Communications. If issued as currently drafted, these
proposed rules will not have a material impact on the Ku-Band and C-Band
operations of TVA.
PROPERTIES
The Company owns most of the assets essential to its operations. The major
fixed assets of the Company are coaxial and fiber optic cable, converters for
subscribers' homes, electronic transmission, receiving, processing and
distribution equipment, microwave equipment and antennae. The Company leases
certain distribution facilities from third parties, including space on utility
poles, roof rights and land leases for the placement of certain of its hub
sights and head ends and space for other portions of its distribution system.
The Company leases its offices from third parties, with the exception of certain
offices of TVA Sul, located in Curitiba, State of Parana, and the offices and
uplink facility for Galaxy Brasil, located in Tambore, Sao Paulo State, all of
which are owned by the Company. The Company also owns its data processing
facilities and test equipment.
EMPLOYEES
TVA had 1,666 employees as of September 30, 1996. TVA utilizes third-party
contract employees in connection with the construction of its broadcast system
network and certain other activities. Substantially all of the employees of TVA
are represented by unions. TVA believes that it has good employee and labor
relations.
LEGAL PROCEEDINGS
The Company is party to certain legal actions arising in the ordinary course
of its business which, individually or in the aggregate, are not expected to
have a material adverse effect on the combined financial position of the
Company. As of September 30, 1996, the Company had reserved approximately $5.9
million as contingent liabilities in connection with certain litigation
contingencies, including a number of claims by persons arising in connection
with the termination of their employment (approximately $1.8 million) and claims
relating to the payment by the Company of certain taxes on imported materials
(approximately $4.1 million). See Note 21 to the Financial Statements of the
Company. As a result of an agreement between the Company and governmental
authorities regarding an installment payment schedule for one such tax (the
IMPOSTO SOBRE CIRCULACAO DE MERCADORIAS E SERVICOS, or
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"ICMS"), the Company reduced its reserve for litigation contingencies to
approximately $4.3 million as of December 31, 1996, which amount includes a
provision for claims described in the succeeding paragraph.
The Company's operating companies are currently defending a lawsuit brought
by the Escritorio Central de Arrecadacao e Distribuicao (Central Collection and
Distribution Office, or "ECAD"), a government-created entity authorized to
enforce copyright laws relating to musical works. ECAD filed a lawsuit in 1993
against all pay-television operators in Brazil seeking to collect royalty
payments in connection with musical works broadcast by the operators. The suit
was filed against TVA in the Tribunal de Justica do Estado de Sao Paulo, the 16
Vara Civil do Estado de Sao Paulo, the Tribunal de Justica do Estado do Parana
and the Tribunal de Justica do Estado de Santa Catarina. The suit was filed
against TV Filme in the Tribunal de Justica do Estado de Goias, the Tribunal de
Justica do Distrito Federal and the Tribunal de Justica do Estado do Para and
against Canbras TVA in the Tribunal de Justica do Estado de Sao Paulo. ECAD is
seeking a judgment award of 2.55% of all past and present revenues generated by
the operators. The Company and all such cable operators are currently in the
process of responding to this suit. Although the Company intends to vigorously
defend this suit, the loss of such suit may have a material adverse effect on
the consolidated financial position of the Company. Based on agreements reached
by ECAD with other Brazilian television operators, however, management believes
that it can reach a negotiated settlement to this suit whereby the Company would
make monthly payments to ECAD in an amount significantly lower than that sought
by ECAD. As of December 31, 1996, the Company had reserved approximately
$770,000 for claims related to the ECAD suit.
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MANAGEMENT
The Company is managed by its CONSELHO DE ADMINISTRACAO ("Board of
Directors"), CONSELHO CONSULTIVO ("Advisory Board") and DIRETORIA ("Committee of
Officers"). Members of the Board of Directors and Committee of Officers are
elected for a two-year period, currently expiring on April 30, 1998. Day-to-day
operations of the Company are managed by the Company's EXECUTIVOS ("Executive
Officers").
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
MEMBER AGE POSITION
- ---------------------------------------------------------------------------------------------- --- -----------
<S> <C> <C>
Robert Civita................................................................................. 60 President
Jose Augusto P. Moreira....................................................................... 53 Member
Robert Hefley Blocker......................................................................... 61 Member
Giancarlo Francesco Civita.................................................................... 33 Member
Thomaz Souza Correa Neto...................................................................... 58 Member
Francisco Savio Couto Pinheiro................................................................ 43 Member
Arnaldo Bonoldi Dutra......................................................................... 44 Member
Sergio Vladimirschi Junior.................................................................... 31 Member
Jose Luis de Salles Freire.................................................................... 48 Member
Jorge Fernando Koury Lopes.................................................................... 46 Member
Oswaldo Leite de Moraes Filho................................................................. 47 Member
</TABLE>
ADVISORY BOARD
<TABLE>
<CAPTION>
MEMBER AGE POSITION
- ---------------------------------------------------------------------------------------------- --- -----------
<S> <C> <C>
Robert Civita................................................................................. 60 President
Jose Augusto P. Moreira....................................................................... 53 Member
Robert Hefley Blocker......................................................................... 61 Member
Claudio Dascal................................................................................ 53 Member
Angelo Silvio Rossi........................................................................... 50 Member
Francisco Savio Couto Pinheiro................................................................ 43 Member
Stephen Vaccaro............................................................................... 42 Member
Marc Nathanson................................................................................ 51 Member
Tully M. Friedman............................................................................. 54 Member
Raymond E. Joslin............................................................................. 60 Member
Herbert A. Granath............................................................................ 68 Member
</TABLE>
COMMITTEE OF OFFICERS
<TABLE>
<CAPTION>
MEMBER AGE POSITION
- ----------------------------------------------------------------------------------------------- --- ----------
<S> <C> <C>
Jose Augusto Pinto Moreira..................................................................... 53 Member
Angelo Silvio Rossi............................................................................ 50 Member
Claudio Cesar D`Emilio......................................................................... 46 Member
Sergio Vladimirschi Junior..................................................................... 31 Member
</TABLE>
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EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
MEMBER AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Gene Musselman....................................... 52 Executive Vice President and Chief Operating Officer
Douglas Duran........................................ 43 Chief Financial Officer
Jose Antonio de Camargo Barros....................... 50 Development Officer
Luis Alberto Villaca Leao............................ 38 Management Information System Officer
Virgilio Jose Carreira Amaral........................ 43 Engineering Officer
Jose Luiz Navarro Frauendorf......................... 51 Operations Officer
Antonio Alberto Teixeira Filho....................... 43 Technology Officer
Roseli Terezinha Parrella............................ 38 Human Resources Officer
Jacques Wladimirski.................................. 35 Galaxy Brasil Officer
Leonardo Petrelli Neto............................... 36 Curitiba Officer
Luiz Eduardo B.P. Rocha.............................. 36 Rio de Janeiro Officer
</TABLE>
ROBERT CIVITA has been President of the Board of Directors since July 1994
and President of the Advisory Board since September 1995. Mr. Civita has been
Chairman and Chief Executive Officer of Abril since 1990 and previously served
as its President for eight years. Mr. Civita attended Columbia University's
graduate program in sociology, and holds a degree in economics, with a minor in
publishing, from the University of Pennsylvania. In 1991 Mr. Civita was elected
"Person of the Year" by the Brazilian American Chamber of Commerce in New York.
Mr. Civita is the father of Giancarlo Francesco Civita.
JOSE AUGUSTO P. MOREIRA has been a member of the Board of Directors since
July 1994, a member of the Advisory Board since September 1995 and a member of
the Committee of Officers since July 1992. Mr. Moreira has been associated with
Abril since 1965, and currently serves as Abril's Vice President of Finance and
Administration. Mr. Moreira has a degree in Economics from the Faculdade de
Economia Sao Luis in Sao Paulo, and participates in the Program for Management
Development at Harvard Business School.
ROBERT HEFLEY BLOCKER has been a member of the Board of Directors since
April 1995 and a member of the Advisory Board since September 1995. Mr. Blocker
was associated with the Chase Manhattan Bank for 22 years, the last nine of
which he served as President Director. Mr. Blocker is currently President and
Managing Partner of Blocker Assessoria de Investimentos e Participacoes S.A., a
consulting firm for national and multinational companies. Mr. Blocker is also a
member of several other Boards of Directors, including those of Arno S.A. and
the American Chamber of Commerce in Sao Paulo.
GIANCARLO FRANCESCO CIVITA has been a member of the Board of Directors since
August 1994. Mr. Civita has been associated with Abril since 1986, and currently
serves as the General Director of MTV Brasil. From 1992 to 1994 Mr. Civita was
the General Director of the Programming Unit at TVA Brasil. Mr. Civita holds an
M.B.A. from Harvard Graduate School of Business Administration, as well as an
undergraduate degree in Social Communication from the Escola Superior de
Propaganda e Marketing in Sao Paulo. Mr. Civita is the son of Robert Civita.
THOMAZ SOUTO CORREA NETO has been a member of the Board of Directors since
November 1995. Mr. Correa is Executive Vice President and Editorial Director of
Abril, and has served as Editor-in-Chief of several of Abril's major magazines.
Mr. Correa is also the President of the Brazilian Publishers Association. Mr.
Correa studied Economics at Universidade MacKenzie.
FRANCISCO SAVIO COUTO PINHEIRO has been a member of the Board of Directors
since September 1995 and a member of the Advisory Board since September 1995.
Mr. Pinheiro is a former Secretary of Communications who has also held posts at
Embratel and Radiobras, the Brazilian government-
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owned broadcasting company. Mr. Pinheiro is currently a consultant and General
Manager of SP Communications. Mr. Pinheiro holds undergraduate and graduate
degrees in Telecommunications.
ARNALDO BONOTRI DUTRA has been a member of the Board of Directors since
April 1996. Mr. Dutra is the Country General Counsel of Banco Chase Manhattan
S.A., an affiliate of The Chase Manhattan Bank. Mr. Dutra is also the legal
advisor to all the Chase companies in Brazil. Mr. Dutra holds a law degree from
the Pontificia Universidade Catolica de Sao Paulo and a master of laws degree
from the Universidade de Sao Paulo.
SERGIO VLADIMIRSCHI JUNIOR has been a member of the Board of Directors since
September 1995 and a member of the Committee of Officers since April 1996. Mr.
Vladimirschi was associated with Drexel Burnham Lambert, where he worked as an
analyst for two years, and is an executive with Fechaduras Brasil S.A., one of
Brazil's leading hardware manufacturers, where he served as Marketing Officer
for seven years. Mr. Vladimirschi holds a B.S. in Finance from the Wharton
School at the University of Pennsylvania. Mr. Vladimirschi is the nephew of Marc
Nathanson.
JOSE LUIS DE SALLES FREIRE has been a member of the Board of Directors since
September 1995. Mr. Freire has been active in the areas of banking, corporate
finance and corporate law, and is a member of the Board of Directors of the
BOLSA DE VALORES DE SAO PAULO (Sao Paulo Stock Exchange). Mr. Freire holds a law
degree from the Universidade de Sao Paulo and a master of laws degree in
Comparative Law from New York University Law School.
JORGE FERNANDO KOURY LOPES has been a member of the Board of Directors since
November 1995. Mr. Lopes holds a law degree from the Faculdade de Direito
Sorocaba and a master of laws degree in Corporate Jurisprudence from New York
University.
OSWALDO LEITE DE MORAES FILHO has been a member of the Board of Directors
since November 1995. Mr. Moraes holds a law degree from the Universidade de Sao
Paulo and a master of laws degree in Corporate Jurisprudence from New York
University. Mr. Moraes is a member of the Instituto Brasileiro de Direitos
Tributarios (Brazilian Tax Law Institute).
ANGELO SILVIO ROSSI has been a member of the Advisory Board since April 1996
and a member of the Committee of Officers since July 1994. Mr. Rossi has been
associated with Abril since 1968, and holds a graduate degree in Economics from
the Fundacao Getulio Vargas, as well as an undergraduate degree in Economics
from Universidade MacKenzie.
STEPHEN VACCARO has been a member of the Advisory Board since April 1996.
Mr. Vaccaro has been a Managing Director of The Chase Manhattan Bank since
February 1990 and is currently responsible for the bank's Media and
Telecommunications business in Latin America. Mr. Vaccaro has been employed by
The Chase Manhattan Bank in various positions since 1977. He is a graduate of
Cornell University with a B.A. in Economics.
MARC NATHANSON has been a member of the Advisory Board since September 1995.
Mr. Nathanson is the Chairman and Chief Executive Officer of Falcon
International and Falcon Holding Group, L.P., one of the largest cable TV
operators in the United States. Mr. Nathanson is a 27 year veteran of the cable
TV industry and a Director and member of the Executive Committee of the National
Cable Television Association. He was appointed by President Clinton and
confirmed by the U.S. Senate for a three year term as a member of the
International Broadcasting Board of Governors of the United States Information
Agency. He holds an M.A. from the University of California and a B.A. from the
University of Denver. Mr. Nathanson is the uncle of Sergio Vladimirschi Junior.
TULLY M. FRIEDMAN has been a member of the Advisory Board since September
1995. Mr. Friedman is a General Partner of Hellman & Friedman. He is currently a
member of the board of directors of: Falcon International Communications LLC,
APL Limited, Levi Strauss & Co., Mattel, Inc., McKesson Corporation and
MobileMedia Corporation. Mr. Friedman is a member of the Executive Committee and
a Trustee of
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the American Enterprise Institute, and a Director of the Stanford Management
Company. Mr. Friedman holds a J.D. from Harvard Law School and a B.A. from
Stanford University.
RAYMOND E. JOSLIN has been a member of the Advisory Board since April 1996.
Mr. Joslin is group head of Hearst Entertainment & Syndication and is a vice
president and member of the board of directors of The Hearst Corporation. Mr.
Joslin has 30 years of experience in the cable communications industry, and
holds executive positions at The A&E Television Networks, The History Channel,
Lifetime Television and ESPN. Mr. Joslin attended the Carnegie Institute of
Technology and Harvard Business School, and holds a B.A. in Economics from
Trinity College.
HERBERT A. GRANATH has been a member of the Advisory Board since April 1996.
Mr. Granath was recently promoted to Chairman, Disney/ABC International
Television; before that he was President of ABC Cable and International
Broadcast Group. Mr. Granath is also the Chairman of the Board of ESPN and A&E
Television Networks. From 1982 to 1993, Mr. Granath served as President of
Capital Cities/ABC Video Enterprises. Mr. Granath holds a B.S. degree from
Fordham University's College of Arts and Sciences. He later did graduate work in
communication arts.
CLAUDIO CESAR D`EMILIO has been a member of the Committee of Officers since
July 1992. Mr. D`Emilio has been associated with Abril since 1975, and currently
holds the position of Finance Officer of Abril. Mr. D`Emilio holds undergraduate
degrees in Corporate Management and Accounting and a master's degree in Finance
from the Universidade de Sao Paulo.
CLAUDIO DASCAL has been a member of the Advisory Board since April 1996. Mr.
Dascal has also been an Executive Vice President of Abril since April 1996. Mr.
Dascal served as Access General Director at Alcatel Standard Electrica in Spain
and Chief Operating Officer of Alcatel Telecommunicacoes in Brazil and Senior
Vice President of Alcatel Access Business Division Worldwide, before joining the
Company. Mr. Dascal holds a degree in Electrical Engineering and Electronics
from the Polytechnic School at the Universidade de Sao Paulo and the IESE of
Navarra University in Madrid, Spain.
GENE MUSSELMAN has been Executive Vice President and Chief Operating Officer
of the Company since January 1996. Mr. Musselman, who is also a Managing
Director of Falcon International, has been involved in the Cable industry since
1974, and has held positions such as Executive Vice President of Hearst
CableVision of California, Inc. and Director of New Business Development for the
Hearst Corporation. Mr. Musselman has also spent five years developing
pay-television systems throughout Eastern Europe. Mr. Musselman holds a master's
degree from Loyola College of Chicago.
DOUGLAS DURAN has been the Chief Financial Officer of the Company since
April 1992. Mr. Duran has 25 years of experience in corporate finance, and has
held positions at Abril such as Manager of Financial Operations and Corporate
Treasury Officer. Mr. Duran holds a degree in Business Administration from
Amador Aguiar College and has completed several extension courses in Finance at
the Universidade de Sao Paulo.
JOSE ANTONIO DE CAMARGO BARROS has been the Development Officer of the
Company since March 1996. Mr. Camargo has extensive experience as a journalist,
administrator and marketing and sales executive. Mr. Camargo has worked at
various Brazilian newspapers as a reporter and editor, and as a director of
marketing and sales at Gazeta Mercantil, Brazil's leading financial newspaper.
Mr. Camargo holds a B.A. in Communication and Arts from the Universidade de Sao
Paulo.
LUIZ ALBERTO VILLACA LEAO has been the Management Information System Officer
of the Company since December 1995. Mr. Leao was associated for six years with
Citibank, N.A. as a vice-president, as well as another six years with Banco Itau
S.A., the third-largest commercial bank in Brazil. Mr. Leao has an undergraduate
degree in Electronic Engineering from the Instituto Tecnologico de Aeronautica
and a master's degree from Carnegie-Mellon University.
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VIRGILIO JOSE CARREIRA AMARAL has been the Engineering Officer of the
Company since February 1995. Mr. Amaral has extensive experience in the field of
broadcasting technology, including 18 years developing and installing television
transmission systems for TV Globo. Mr. Amaral holds a degree in Electronic
Engineering from the Universidade de Sao Paulo.
JOSE LUIZ NAVARRO FRAUENDORF has been the Operations Officer of the Company
since August 1994. Mr. Frauendorf has held technical and executive positions at
various telecommunications-related companies, including Phillips do Brasil and
Digital do Brasil. Mr. Frauendorf holds degrees in Industrial Management from
the Universidade de Sao Paulo and Electronic Engineering from the Escola de
Engenharia Maua.
ANTONIO ALBERTO TEIXEIRA FILHO has been the Technology Officer of the
Company since August 1994. Mr. Teixeira has held various positions in the field
of telecommunications, including that of Division Chief at Light Servicos de
Eletricidade S.A. Mr. Teixeira holds a degree in Electrical/Telecommunication
Engineering.
ROSELI TEREZINHA PARRELLA has been the Human Resources Officer of the
Company since February 1997. Ms. Parrella has been associated with Abril since
1991 and has 16 years of experience in the human resources area, having held
management positions at several multinational companies. Ms. Parrella holds an
undergraduate degree in Psychology from the Pontificia Universidade Catolica de
Sao Paulo and has also studied at Stanford Business School.
JACQUES WLADIMIRSKI has been the Galaxy Brasil Officer of the Company since
February 1996. Mr. Wladimirski has 12 years of experience in business,
marketing, and the development of new companies in Latin America, the United
States and Europe. Mr. Wladimirski holds an undergraduate degree in Corporate
Management from Universidade MacKenzie and a graduate degree in Marketing from
the Fundacao Getulio Vargas.
LEONARDO PETRELLI NETO has been the Curitiba Officer of the Company since
March 1992. Mr. Petrelli has extensive experience in the telecommunication
industry, and is currently a shareholder and officer of TVA Sul and SSC--Sistema
Sul de Comunicacao, a radio and television holding company. Mr. Petrelli holds
degrees in Telecommunications from Grossmont College in San Diego, California
and Cinema from the University of Sound and Arts in Hollywood, California.
LUIZ EDUARDO B. P. ROCHA has been the Rio de Janeiro Officer of the Company
since March 1996. Mr. Rocha has held several high-level positions, such as
Superintendent of Purchasing, at two of the largest department store chains in
Brazil: Lojas Americanas S.A. and Mesbla Lojas de Departamento, with which he
was associated for 11 years. Mr. Rocha holds an undergraduate degree in Civil
Engineering from the Universidade Federal do Rio de Janeiro and a masters degree
in Finance and Marketing from COPPEAD.
COMPENSATION FOR DIRECTORS, OFFICERS AND EXECUTIVE OFFICERS
For the year ended December 31, 1995, the aggregate compensation, including
bonuses, of all Directors, Officers and Executive Officers of the Company was
R$2,317,688. Members of the Board of Directors, the Advisory Board and the
Committee of Officers do not receive a salary from the Company.
For the year ended December 31, 1995, the aggregate amount set aside by the
Company to provide pension, retirement or similar benefits to Directors,
Officers and Executive Officers was approximately $64,000.
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PRINCIPAL SHAREHOLDERS
Tevecap has one class of capital stock, common shares, authorized and
outstanding. As of September 30, 1996, 196,712,855 common shares were
outstanding representing authorized social capital of R$366,000,715. The
following table sets forth as of September 30, 1996, information regarding the
beneficial ownership of Tevecap's common shares:
<TABLE>
<CAPTION>
NUMBER OF COMMON
SHAREHOLDER SHARES OWNED PERCENTAGE
- ------------------------------------------------------------------------------ -------------------- -------------
<S> <C> <C>
Abril S.A..................................................................... 111,075,318 56.47%
Falcon International Communications (Bermuda) L.P.(a)......................... 27,930,827 14.20
Hearst/ABC Video Services II(b)............................................... 34,714,031 17.65
Cable Participacoes Ltda.(b).................................................. 4,628,536 2.35
Chase Manhattan International Finance Ltd.(c)................................. 18,364,122 9.33
All directors and executive officers as a group............................... 21 --(d)
</TABLE>
- ------------------------
(a) A subsidiary of Falcon International Communications L.L.C.
(b) Each of Hearst and ABC indirectly holds a 50.0% equity interest in each of
Hearst/ABC Video Services II and Cable Participacoes Ltda.
(c) 11,496,329 and 6,867,793 of the shares beneficially owned by Chase Manhattan
International Finance Ltd. ("CMIF") are held of record by two wholly-owned
subsidiaries of CMIF (the "Chase Parties"). In December 1995, CMIF sold a
portion of the shares beneficially owned by it to Hearst and ABC.
(d) Less than 1.0%.
The relations among the Company's equity holders are governed by a
Stockholders Agreement (the "Stockholders Agreement"), dated December 6, 1995,
among Tevecap, Robert Civita, Abril, the Chase Parties, Falcon International and
HABC II and CPL (together with HABC II, "Hearst/ABC Parties" and together with
Robert Civita, Abril, the Chase Parties and Falcon International, the
"Stockholders"). The following describes certain terms of the Stockholders
Agreement, as amended.
TRANSFER OF SHARES. Any Stockholder desiring to transfer shares of capital
stock to any third party, including another Stockholder, must first offer such
shares to Tevecap and all of the other Stockholders. Tevecap has the right to
determine first whether to purchase such shares; if Tevecap elects not to
exercise its right to purchase the shares, the other Stockholders may elect to
purchase such shares. If Tevecap or the other Stockholders decide to purchase
the offered shares, all of such shares must be purchased. If neither Tevecap nor
the other Stockholders offer to purchase all of the offered shares, the
Stockholder desiring to sell such shares may sell the shares to any person,
provided that (i) all of the shares are sold simultaneously within six months
after the decision by Tevecap and the Stockholders not to purchase the shares,
(ii) Tevecap has not determined that the person making such purchase is a
stockholder of undesirable character, lacks necessary financial capacity or
competes with the Company, and (iii) the price for sale to such third party is
at least 90.0% of the price offered to the Company and the other Stockholders.
The provisions regarding transfers of shares do not apply to transfers to
certain affiliates of the Stockholders. In addition, the Stockholders have
preference over all other persons or entities to subscribe for new issuances of
capital stock by the Company in proportion to their existing ownership of
capital stock.
EVENT PUT OPTIONS. Upon the occurrence of certain defined "triggering
events" each of the Stockholders, other than Abril, may demand that Tevecap buy
all or a portion of the shares of capital stock of Tevecap held by such
Stockholder, unless the shares of capital stock held by such Stockholder are
publicly registered, listed or traded (collectively referred to as an "Event
Put"). The triggering events are: (i) the amount of capital stock held by such
Stockholder exceeds the amount allowed under any legal restriction to which such
Stockholder may be subject ("Regulatory Put"); (ii) a breach without cure within
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a designated period by Robert Civita, Abril, any of the respective affiliates of
Robert Civita or Abril or Tevecap of any representation, warranty, covenant or
duty made or owed pursuant to the Stockholders Agreement, the Stock Purchase
Agreement, dated August 25, 1995, among Robert Civita, Abril, the Chase Parties,
and certain other parties, or the Stock Purchase Agreement, dated December 6,
1995, among Tevecap, Robert Civita, Abril, HABC Parties, the Chase Parties,
Falcon International and certain other parties; (iii) a breach without cure
within a designated period by Abril of the Abril Credit Facility; (iv) Robert
Civita ceases to directly or indirectly hold without the approval of the
Stockholders 31.258% of the capital stock and voting capital stock of Tevecap or
he ceases to control the voting capital stock held by his affiliates
representing 50% or more of the voting capital stock of Tevecap; (v) the Service
Agreement, dated July 22, 1994, as amended, among Tevecap, Televisao Show Time
Ltda. ("TV Show Time"), TVA Brasil Radioenlaces Ltda. ("TVA Brasil") and Abril,
each of which holds certain licenses covering certain operations of TVA, ceases
to be valid or effective or TV Show Time, TVA Brasil or Abril is liquidated or
dissolved or files voluntarily, or has filed against it involuntarily, any
petition in bankruptcy or (vi) another Stockholder exercises an Event Put, other
than a Regulatory Put. The price to be paid in connection with an Event Put is
set at fair market value determined by appraisal or by a multiple of Tevecap's
most recent quarterly earnings. The Indenture, however, contains restrictions on
the ability of Tevecap to purchase shares of its capital stock. See "Description
of Notes--Certain Covenants-- Limitation on Restricted Payments." Accordingly,
the parties to the Stockholders Agreement have agreed to amend the Stockholders
Agreement prior to the Offering to provide that if the terms of the Indenture
prohibit the Company from purchasing shares that are subject to an Event Put
("Event Put Shares"), in whole or in part, the Company shall not be obligated to
purchase such shares to the extent it is so restricted. However, in such event,
the Company shall, subject to the terms of the Indenture, have the obligation to
issue shares of preferred stock of the Company ("Special Preferred Shares")
should the Tevecap Stockholder elect to convert Event Put Shares to Special
Preferred Shares. The holders of Special Preferred Shares will be entitled to
dividends required by law and a cumulative dividend equal to LIBOR plus a 4.0%
margin, provided that if the terms of the Indenture prohibit the payment of
dividends on the Special Preferred Shares, the Company shall not be obligated to
make such dividend payments to the extent so restricted. However, under the
terms of the Special Preferred Shares such unpaid dividends shall cumulate and
will be paid in full when permissible under the Indenture or when the Indenture
no longer restricts the payment of such dividends. After the payment of all
dividends on the Special Preferred Shares, the Company must use any remaining
profit or reserve to purchase the largest number of Event Put Shares and Special
Preferred Shares, provided that, if the terms of the Indenture prohibit the
purchase of such shares, the Company shall not be obligated to make such
purchases until permitted by the terms of the Indenture.
TIME PUT OPTIONS. In addition, pursuant to the Stockholders Agreement,
Falcon International may demand that Tevecap buy all or any portion of the
shares of capital stock of Tevecap held by Falcon International if such shares
are not publicly registered, listed or traded by September 22, 2002 (the "Falcon
Time Put"). The price to be paid in connection with the Falcon Time Put is fair
market value determined in the same manner as an Event Put. If Tevecap
determines that the terms of the Indenture prohibit it from purchasing such
shares, Tevecap may, subject to the terms of the Indenture, delay the payment of
such purchase price with three annual payments ("Put Annual Payments") or issue
promissory notes denominated in US dollars for the amount of such price ("Put
Promissory Notes"). The Put Promissory Notes would mature three years after
issuance with interest payments due quarterly in arrears. The interest rate on
the Put Promissory Notes would be equal to the rate applicable to US Treasury
obligations of similar maturity plus a margin to be negotiated, with the parties
taking into account the risks associated with the type of obligor, Tevecap's
creditworthiness and investments in Brazil. Under the provisions of the
Stockholders Agreement, as amended, while the Put Promissory Notes are
outstanding, Tevecap may not pay any dividends or make distributions with
respect to its capital stock, including the Special Preferred Shares, should
they exist. To the extent dividends, distributions or payments under the Put
Promissory Notes may be made under the Indenture, payments must
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be made first to satisfy the obligations under the outstanding Put Promissory
Notes. If the terms of the Indenture prohibit the Company from making the Put
Annual Payments, the Company shall not be required to make such payment, but
shall be required to deliver Put Promissory Notes in the principal amount of the
affected Put Annual Payments. If the terms of Indenture prohibit the Company
from making an interest payment required under any Put Promissory Note, the
Company shall not be required to make such payment at such time, provided that
any accrued and unpaid interest shall accumulate and interest on such unpaid
amount shall compound quarterly and the Company shall make payments of interest
as soon as such payment is no longer restricted under the Indenture. Pursuant to
the terms of the proposed amendment to the Stockholders Agreement, payment of
the principal and interest on the Put Promissory Notes would be subordinated to
the prior payment in full of the Notes. See "Description of Notes--Certain
Covenants--Limitation on Restricted Payments" and "--Limitation on
Indebtedness."
REGISTRATION RIGHTS. At any time after December 6, 1997, the Chase Parties,
considered together, the Hearst/ABC Parties or Falcon International may request
that the Company effect the registration of any or all of the capital stock held
by such Stockholder. However, the Company is not obligated to effect more than
one registration requested by a Stockholder in any 12 month period or more than
three registrations requested by a Stockholder in total. Also, the capital stock
that is the subject of the registration demand must be of a certain minimum
amount. In addition, Tevecap must offer each Stockholder other than Abril the
opportunity to register capital stock held by such Stockholder, subject to
standard reductions in amount such Stockholder may register as recommended by
the managing underwriter. Tevecap is obligated to pay all registration expenses
other than underwriting discounts and commissions or transfer taxes, and Tevecap
is only obligated to pay for the fees and expenses of Tevecap's counsel and
accountants.
BOARD OF DIRECTORS AND ADVISORY BOARD. Tevecap is governed by a board of
directors with 11 members. Under the Stockholders Agreement, Abril designates
six members, Falcon International designates two members, the Chase Parties
together designate one member, and Hearst/ABC Parties designates 2 members. The
affirmative vote of members of the board representing the Chase Parties, Falcon
International and Hearst/ABC Parties is required for: acquisition of ownership
interests in other companies; acquisition or liens on equity in other companies
or liens on assets other than in ordinary course and in aggregate less than
$500,000; incurrence of indebtedness of less than one year maturity and in an
amount greater than $1,000,000; incurrence of indebtedness of greater than one
year maturity except trade debt and in an aggregate amount of less than
$500,000; loans on advance payments; non-financial guarantees in aggregate
totalling more than $100,000; transactions with affiliates; and modifications to
Service Agreement. Tevecap must get the approval of Hearst/ABC Parties before
entering into contracts in excess of $1,000,000 in value and making any material
programming decisions. Tevecap must get the approval of Falcon International
before entering into contracts in excess of $1,000,000. Tevecap must get the
approval of each of Hearst/ABC Parties, the Chase Parties and Falcon
International before any corporate restructuring or any public offering of
securities of Tevecap.
REQUIRED DIVIDEND. Tevecap is required by the terms of the Stockholders
Agreement to pay annual dividends equal to the net cash flow of Tevecap or 25.0%
of the net consolidated profit (as defined by Brazilian law) of Tevecap.
However, Tevecap may delay the payment of such dividends to the extent the
payment of such dividends is prohibited by the Indenture, and such dividends
will accumulate and be payable to the extent allowed under the Indenture. See
"Risk Factors--Risks Relating to the Company-- Dividends to Shareholders."
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CERTAIN TRANSACTIONS WITH RELATED PARTIES
OVERVIEW
Tevecap has engaged in a significant number and variety of related party
transactions, including, without limitation, the transactions described below.
Tevecap has not performed any studies or analyses to determine whether the terms
of past transactions with related parties have been equivalent to arm's-length
transactions and cannot state with any certainty the extent to which such
transactions are comparable to those which might have been obtained from a
non-affiliated third party.
TRANSACTIONS AMONG SHAREHOLDERS
On December 6, 1995, Tevecap's shareholders executed a Stock Purchase
Agreement and a Stockholders Agreement relating to the investment of ABC and
Hearst in the Company through Hearst/ ABC Parties. See "Principal Shareholders."
On that date, the Tevecap shareholders also executed a series of
inter-shareholder agreements relating to, among other things, the provision of
services and programming among the shareholders. These agreements supplemented
other existing agreements among Shareholders. The following contracts are the
principal agreements among the Company and the Tevecap shareholders (each of
which, unless specified otherwise, is dated as of December 6, 1995).
GENERAL AND ADVISORY SERVICES
Under an Advisory Services Agreement, each of Hearst, ABC and HABC II has
agreed, upon a request from the Company, to use its reasonable efforts to
arrange for the investors to furnish personnel to provide advisory services to
the Company. To date, the Company and Hearst, ABC and HABC II have not entered
into a supplemental agreement to provide specific personnel or services at a
particular cost.
In addition, on April 1, 1996, Tevecap entered into a separate Advisory
Services Agreement with Falcon International Communications, L.L.C. Pursuant to
this agreement, which has a renewable two-year term, Falcon International
Communications, L.L.C. has agreed to provide a range of advisory services to the
Company, encompassing such areas as accounting, budget and billing procedures,
financial and operation statements, customer, employee and government relations,
the design, purchase and maintenance of equipment and supplies, negotiations
with programmers and other such matters as the Company may reasonably request.
In exchange for such services, the Company has agreed to pay Falcon
International Communications, L.L.C. an annual fee of $200,000, which amount may
be revised on each anniversary of the agreement.
PROGRAMMING
In connection with the investment by Hearst and ABC in Tevecap, Tevecap and
these two parties entered into a Programming Agreement (the "Hearst/ABC
Programming Agreement"). Pursuant to the Hearst/ABC Programming Agreement, each
of Hearst and ABC has agreed to offer first to Tevecap pay programming that
Hearst or ABC (or any subsidiary of which either Hearst or ABC owns at least
80.0% of the outstanding equity interests) intends to license for use in Brazil
in the pay television markets served by TVA. The parties also agreed to consider
future co-production activities which could enhance TVA's business and
competitive position. Tevecap agreed to pay to each of Hearst and ABC such fees
and expenses as are agreed upon at the time such programming or co-production
services are provided. The Hearst/ABC Programming Agreement does not apply to
The Walt Disney Company or its subsidiaries other than ABC and ABC's
subsidiaries. In addition, the Hearst/ABC Programming Agreement does not apply
to the activities of The A&E Television Networks, Lifetime Television and ESPN,
including agreements relating to ESPN Brasil.
OTHER TRANSACTIONS AMONG SHAREHOLDERS
Each of Tevecap's corporate shareholders has entered into a side letter to
the Stock Purchase Agreement and the Stockholders Agreement pursuant to which
each of Abril, Falcon and the Chase
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Parties agreed, with certain exceptions, to exchange all of its respective
shares in Tevecap for a corresponding number of shares of a newly-formed
Brazilian corporation. The new corporation would become an 80.0% shareholder in
Tevecap and Hearst/ABC would remain a 20.0% shareholder in Tevecap, which would
be reorganized as a Brazilian limitada. This new structure would not result in
any change in the current beneficial equity participation of the Stockholders in
Tevecap. In addition, the transactions in establishing the new structure and the
new structure itself would have to conform to the restrictions of the Indenture.
As of the date hereof, the timing of the restructuring is under discussion by
the Stockholders.
TRANSACTIONS AMONG RELATED PARTIES
GENERAL AND ADVISORY SERVICES
TVA Sistema and MTV Brasil have entered into various agreements, dated
August 27, 1996, governing reciprocal services between the Company and MTV
Brasil. The services covered by the agreement include billing, subleasing,
equipment use, administrative, financial, accounting, human resources,
engineering, infrastructure and satellite services. TVA Sistema and Abril have
also entered into an agreement, dated January 1995, with Uniser, a division of
Abril, pursuant to which Uniser provides telecommunications, maintenance, human
resources, travel, legal other services in exchange for a monthly payment of
approximately $20,000.
In addition, pursuant to an agreement dated January 10, 1995, Tevecap has
agreed to provide various financial services to Canbras, in return for which
Tevecap receives a monthly payment of approximately $5,000. Tevecap provides
similar financial services to Galaxy Brasil, in return for which the Company
receives a monthly payment of $5,000 pursuant to an agreement dated March 9,
1995. Tevecap also provides to ESPN Brasil Ltda. financial services, for which
it receives a payment of approximately $7,500 per month, and satellite and other
engineering services, for which it receives a payment of approximately $78,000
per month, pursuant to an agreement dated June 26, 1995.
The Company has also entered into an agreement with SMC Marketing Ltda.
("SMC"), dated September 1, 1995, to provide space, equipment and personnel to
SMC, in return for which the Company receives a monthly payment of approximately
US$29,000.
PUBLISHING AND ADVERTISING
The Company publishes a monthly magazine detailing the Company's programming
options in a given month. In connection with this magazine, TVA Sistema has
entered into an agreement with Abril, dated September 1992, pursuant to which
Abril publishes approximately 300,000 copies of the Company's monthly magazine
in return for a monthly payment of approximately $240,000. The monthly magazine
is distributed in accordance with a distribution agreement, dated September
1992, between the Company and Irmaos Reis, pursuant to which the Company pays
Irmaos Reis approximately $60,000 per month.
TVA Sistema and Abril also have a reciprocal advertising agreement in which
the Company publishes advertisements for Abril in the Company's monthly magazine
in exchange for advertisements for the Company (and third parties through the
Company) in the magazines published by Abril.
In addition, the Company has an agreement with SMC, dated September 1, 1995,
pursuant to which the Company assists SMC in selling advertising, in return for
which the Company receives 25.0% of SMC's advertising revenues.
INSURANCE
TVA currently reimburses TVA Sistema for payments made by TVA Sistema
pursuant to an insurance policy covering the operations of TVA Sistema, TVA
Brasil Abril Video da Amazonia and the former MTV Division of Abril
(collectively, the "Insureds"). TVA Sistema makes such payments pursuant to an
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agreement among the Insureds dated September 30, 1996. The annual premiums paid
by TVA Sistema and reimbursed by the Company amount to approximately $84,000.
ABRIL CREDIT FACILITY
Tevecap has entered, as the borrower, into a revolving credit facility (the
"Abril Credit Facility") with Abril, as the lender. The Abril Credit Facility,
effective December 6, 1995 and valid for a period of 36 months, allows the
Company to draw down amounts not to exceed a maximum aggregate principal amount
of $60,000,000. Since June 1996, Tevecap has from time to time requested, and
Abril has provided, funding in excess of the aggregate maximum principal amount.
The loans provided under the Abril Credit Facility are denominated in reais,
unless the loan is a pass-through loan that Abril has funded in US dollars, in
which case the loan is funded in a real-equivalent amount. Abril has agreed to
use its reasonable commercial efforts to obtain the lowest possible interest
rates for its loans to Tevecap under the Abril Credit Facility. As of October
31, 1996, the aggregate principal amount of loans outstanding under the Abril
Credit Facility was approximately $105.8 million, which was fully repaid to
Abril with the proceeds of the offering of the Old Securities. As of April 10,
1997, the Company had not redrawn any amounts under the Abril Credit Facility.
See Note 11 to the Consolidated Financial Statements of the Company.
OTHER INTERCOMPANY/SHAREHOLDER LOANS
Tevecap has used the proceeds from the Abril Credit Facility to make capital
contributions to TVA Sistema and Galaxy Brasil, as well as to extend loans to
various interrelated companies. The aggregate outstanding amounts under these
loans as of September 30, 1996 were: $12.7 million to TVA Communications; $14.1
million to TVA Sul; $304,000 to Canbras-Par; and $179,000 to Comercial Cabo Sao
Paulo.
In addition to the funding from Abril under the Abril Credit Facility,
Tevecap has received loans from Canbras TVA, which loans, as of September 30,
1996, had an aggregate outstanding amount of $1.7 million. Furthermore, Abril
has received loans from ESPN Brasil Ltda., which loans, as of September 30,
1996, had an aggregate principal outstanding amount of $1.6 million.
In addition, TVA Sistema has made loans to various interrelated companies.
The aggregate principal outstanding amounts under these loans as of September
30, 1996 were $2.8 million to TVA Sul and $126,000 to TV Show Time. TV Show Time
has loans outstanding to Abril, which loans, as of September 30, 1996, had an
aggregate outstanding amount of approximately $2.8 million.
All other Intercompany and shareholder loans outstanding as of September 30,
1996 equalled an aggregate principal amount of approximately $283,000.
ADVANCES OF CAPITAL CONTRIBUTIONS
As of September 30, 1996, the Company had made advance capital contributions
to Canbras TVA of approximately $1.7 million.
SERVICE AGREEMENT WITH LICENSEHOLDERS
Pursuant to a Service Agreement, dated July 22, 1994, as amended, TVA Brasil
and TV Show Time (the "Licenseholders") agreed to transfer to TVA all the rights
and benefits associated with their current and future pay-television licenses,
with the exception of licenses operated by companies in which TVA has minority
interests. While the Licenseholders retained the title to such licenses, the
Licenseholders promised to take all steps necessary to transfer the title of
such licenses to Tevecap. Such steps included the appropriate procedures
required by the Ministry of Communications and any other governmental authority
regulating the transfers. The transfer of the title to such licenses is
currently either pending, subject to approval by the Ministry of Communications,
or waiting for the passage of certain statutory or regulatory waiting periods.
AFFILIATE INTERESTS IN THE OFFERING
The Company will use a portion of the net proceeds of the Offering to repay
the amount currently outstanding under the Abril Credit Facility. See "Use of
Proceeds" and "Description of Certain Indebtedness."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The Company has entered into, or will soon enter into, certain arrangements
for the purpose of obtaining financing for its operations, including the
purchase of decoders for use in its DBS operations and for working capital. Set
forth below is a summary of these arrangements.
The Abril Credit Facility allows the Company to borrow up to $60.0 million
on a revolving basis until December 1998. Since June 1996, the Company has from
time to time requested, and Abril has provided, funds in excess of $60.0
million. The loans are generally denominated in reais and bear interest at a
rate equal to 99.5% of the CDI rate, the Brazilian interbank lending rate,
adjusted at the beginning of each month. During June 1996, the applicable
interest rate was 2.013% per month. As of September 30, 1996, after giving
effect to the Offering and the application of approximately $105.78 million of
the proceeds from the Notes to reduce the amounts outstanding thereunder, the
Company had no amounts outstanding under the Abril Credit Facility. As of April
1, 1997, the Company had not redrawn any amounts under the Abril Credit
Facility. However, the Company will be able to re-borrow the full amount of such
facility, as required.
On December 9, 1996, TVA Sistema, as Borrower, and Tevecap, as Guarantor,
entered into a credit agreement with The Chase Manhattan Bank to finance the
acquisition of C-Band decoders and other related equipment. The Export-Import
Bank of the United States (the "EximBank") will guarantee 85.0% of amounts
borrowed under the credit facility (the "EximBank Facility"). The credit
facility will be made available to TVA on terms customary for credits to
Brazilian companies that are supported by the EximBank, and will bear interest
at LIBOR plus a specified margin. The EximBank Facility is in the amount of
$29,349,780, which will be dispersed in two tranches, the first in the principal
amount of $11,400,000, with a term of 4.5 years, and the second in the principal
amount of $17,949,780, with a term of five years. TVA Sistema's obligations
under the EximBank Facility will be unconditionally guaranteed by Tevecap.
On March , 1997, Galaxy Brasil entered into a five-year, $49.9 million lease
and sale-leaseback facility (the "Galaxy Brasil Leasing Facility") with
Citibank, N.A. Management expects the first fundings under the Galaxy Brasil
Leasing Facility to occur in May 1997. No assurances can be given that such
fundings will occur. Under the Galaxy Brasil Leasing Facility, Galaxy Brasil
obtained financing for the purpose of acquiring dish antennas, decoder boxes and
other equipment for Ku-Band service. The amount financed under the Galaxy Brasil
Leasing Facility bears interest at a margin over LIBOR. The lease payment
obligation of Galaxy Brasil is secured by a pledge of subscriber revenues,
together with a secured guarantee by the partners of GLA. The terms of the
Galaxy Brasil Leasing Facility (i) prohibit the payment of dividends by Galaxy
Brasil if, after giving effect to such payment, Galaxy Brasil's ratio of debt
(including capital lease obligations and guarantees) to tangible net worth would
be greater than three to one (3:1) and (ii) prohibit the incurrence of debt to
third parties and affiliates if such ratio would be greater than four to one
(4:1) and three to one (3:1), respectively. However, Citibank N.A. has provided
exceptions to these provisions to allow the guarantee of the Notes by Galaxy
Brasil.
The partners of GLA severally guarantee the obligations of Galaxy Brasil
under the Galaxy Brasil Leasing Facility, in each case up to a negotiated limit.
The obligations of Tevecap under the guarantee are limited to approximately
$25.5 million of principal and a proportionate share of interest, fees, and
other amounts. The guarantors, including Tevecap, have entered into a
contribution agreement, pursuant to which each partner agrees to contribute to
payments required to be made by any partner under the guaranty. Under the
contribution agreement, the obligations of Tevecap are limited to $25.5 million
of principal and a proportionate share of interest, fees, and other amounts.
Tevecap's obligations under the contribution agreement are secured by a pledge
of its equity interests in GLA and SurFin, as well as by an agreement to pledge
any future debt or equity interests it may hold relating to CBC.
In connection with the operations of GLA and Galaxy Brasil, TVA and the
other members of GLA have formed SurFin Ltd. ("SurFin"), a corporation organized
under the laws of the Bahamas, to provide
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financing to local operating companies for the purchase of equipment provided to
subscribers. TVA owns 20.5% of the capital stock of SurFin. The other (direct
and indirect) shareholders of SurFin Ltd. are affiliates of (i) Hughes
Electronics, with 39.3% of the capital stock, (ii) Darlene Investments, with
20.4% of the capital stock, and (iii) Grupo MVS, with 19.8% of the capital
stock.
On September 24, 1996, SurFin entered into a syndicated credit agreement
with Citicorp USA, Inc., as administrative agent, which establishes a
three-year, $150.0 million revolving credit facility (the "SurFin Credit
Facility"). Proceeds from the SurFin Credit Facility will be used by SurFin to
provide financing to DIRECTV local operating companies in Latin America, which
are (in most cases) affiliates of GLA and/or one or more of GLA's shareholders,
including Galaxy Brasil. Such local operating companies will use the funds
borrowed from SurFin for the purpose of financing the acquisition of dish
antennas, decoder boxes and other equipment for Ku-Band service. Loans under the
SurFin Credit Facility will bear interest, at SurFin's option, at a rate equal
to LIBOR plus a specified margin, or at a rate equal to Citibank's prime rate.
Loans made by SurFin to such local operating companies will bear interest at
rates to be negotiated.
Each of the partners of GLA (other than TVA) has jointly and severally
guaranteed the full amount of the obligations of SurFin under the SurFin Credit
Facility. TVA has also guaranteed the obligations of SurFin to the syndicate of
lenders, but TVA's obligations under such guaranty are limited to $10.5 million
of principal and a proportionate share of interest, fees, and other amounts. The
guarantors, including TVA, have entered into a contribution agreement, setting
forth their obligations to contribute to each other in connection with their
respective obligations under their respective guarantees. Under the contribution
agreement, the obligations of TVA are limited to $10.5 million of principal and
a proportionate share of interest, fees, and other amounts. TVA's obligations
under the contribution agreement are secured by a pledge of its equity interests
in GLA and SurFin, as well as by an agreement to pledge any future debt or
equity interests it may hold relating to CBC. Management expects the SurFin
Credit Facility to facilitate the expansion of GLA by enabling local operating
companies (including, possibly, Galaxy Brasil) to finance the acquisition of
dish antennae decoder boxes and other equipment, thereby permitting subscribers
to spread the expense of installing such equipment over time.
During 1997, management expects that a new Delaware limited liability
company will be established, the principal asset of which will be GLA's uplink
facility, CBC. The new company will be owned by two subsidiaries of Hughes
Electronics. In connection with the establishment of the new company, TVA
Communications and Tevecap have agreed, pursuant to the Indemnification
Agreement, to provide certain indemnities in favor of GLA, Hughes Communications
GLA, the newly-established company and its shareholders. To secure its
obligations under the Indemnification Agreement, Tevecap has agreed to pledge
its equity interest in GLA, as well as any future notes or interests it may hold
relating to CBC.
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DESCRIPTION OF NOTES
GENERAL
The Old Notes were issued and the Exchange Notes are to be issued under an
Indenture, dated as of November 26, 1996 and amended as of March 19, 1997 and
supplemented as of April , 1997 (the "Indenture"), between the Company, the
Guarantors, The Chase Manhattan Bank, as Trustee (the "Trustee") and Chase Trust
Bank, as Paying Agent, a copy of which is available upon request to the Company.
The terms of the Exchange Notes are identical in all material respects to the
terms of the Old Notes, except for certain transfer restrictions and
registration rights relating to the Old Notes and except that, if the Registered
Exchange Offer is not consummated by May 23, 1997, Tevecap will be obligated to
pay each holder of the Old Notes an amount equal to $0.192 per week per $1,000
of the Old Notes until the Registered Exchange Offer is consummated. The
Exchange Notes and the Old Notes are deemed the same class of notes under the
Indenture and are entitled to the benefit thereof. Unless specifically stated
otherwise, this description applies to both the Exchange Notes and the Old
Notes. The statements under this caption relating to the Notes and the Indenture
are summaries and do not purport to be complete, and where reference is made to
particular provisions of the Indenture, such provisions, including the
definitions of certain terms, are incorporated by reference as a part of such
summaries or terms, which are qualified in their entirety by such reference. A
summary of certain defined terms used in the Indenture and referred to in the
following summary description of the Notes is set forth under "Certain
Definitions." The Indenture was amended by Amendment No. 1 to Indenture, dated
as of March 19, 1997, to clarify language in the definition of Permitted Liens
and was supplemented by Supplement to Indenture, dated as of April , 1997, to
provide for TVA Sul Santa Catarina Ltd. to be a Guarantor.
Principal of, premium, if any, and interest on, the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee in New York, New York), except
that, at the option of the Company, payment of interest may be made by check
mailed to the address of the holders as such address appears in the Note
Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
The Notes have been designated for trading in the PORTAL market.
TERMS OF THE NOTES
The Notes will be unsecured, senior obligations of the Company, limited to
$250 million aggregate principal amount, and will mature on November 26, 2004.
Each Note will bear interest at the rate per annum shown on the front cover of
this Prospectus from the date of issuance, or from the most recent date to which
interest has been paid or provided for, payable semiannually in cash on May 26
and November 26 of each year commencing May 26, 1997 to holders of record at the
close of business on the May 1 or November 1 immediately preceding the interest
payment date.
OPTIONAL REDEMPTION
At any time and from time to time prior to November 26, 2000, if the Company
receives Net Cash Proceeds from one or more (i) Significant Equity Offerings or
(ii) sales of the Company's Capital Stock to a Strategic Investor, the Company
may redeem in the aggregate up to $75.0 million principal amount of Notes, at a
redemption price (expressed as a percentage of principal amount) of 112.625%,
plus accrued and unpaid interest, if any, to the redemption date (subject to the
right of holders of record on
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the relevant record date to receive interest due on the relevant interest
payment date); PROVIDED, HOWEVER, that at least $175.0 million aggregate
principal amount of the Notes must remain outstanding after each such
redemption.
ADDITIONAL AMOUNTS
All payments made by the Company or any Guarantor under or with respect to
the Notes or any Guarantee will be made free and clear of and without
withholding or deduction for or on account of any present or future taxes,
duties, assessments or governmental charges of whatever nature imposed or levied
by or on behalf of the Federative Republic of Brazil or Japan or any political
subdivision or taxing authority thereof or therein ("Taxes"), unless the Company
or such Guarantor, as the case may be, is required to withhold or deduct any
amount for or on account of Taxes by law or by the interpretation or
administration thereof. If the Company or any Guarantor is so required to
withhold or deduct any amount for or on account of Taxes from any payment made
under or with respect to the Notes or the Subsidiary Guarantee of such
Guarantor, the Company or such 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 of Notes (including Additional Amounts) after
such withholding or deduction will not be less than the amount the holder would
have received if such Taxes had not been withheld or deducted. Provided,
however, that no such Additional Amounts will be payable with respect to a
payment made to a holder of Notes with respect to any Tax which would not have
been imposed, payable or due (i) but for the fact that the holder or a
beneficial owner of a Note is or was a domiciliary, national or resident of, or
engages or engaged in business, maintains or maintained a permanent
establishment or is or was physically present in Brazil or Japan, or otherwise
has some present or former connection with Brazil or Japan other than the mere
holding of such Notes or the receipt of principal or interest in respect
thereof; (ii) but for the failure of the holder or beneficial owner of Notes to
comply with a request by the Company or any Guarantor to satisfy any
certification, identification or other reporting requirements which the holder
or such beneficial owner is legally entitled to satisfy, whether imposed by
statute, treaty, regulation or administrative practices, concerning the
nationality, residence or connection with Brazil or Japan of such holder or
beneficial owner; or (iii) if, where presentation is required, the presentation
for payment had occurred within 30 days after the date such payment was due and
payable or was provided for, whichever is later. Notwithstanding the preceding
sentence, the limitations on the Company's obligation to pay Additional Amounts
set forth in clause (ii) of the preceding sentence shall not apply if a
certification, identification, or other reporting requirement described in
clause (ii) would be materially more onerous, in form, in procedure or in the
substance of information disclosed, to such Holders or beneficial owners (taking
into account any relevant differences between U.S. and Brazilian law, regulation
or administrative practice) than comparable information or other reporting
requirements imposed under U.S. tax law, regulation (including proposed
regulations) and administrative practice or other reporting requirements imposed
as of the date of this Prospectus under U.S. tax law, regulation (including
proposed regulations) and administrative practice (such as IRS Forms 1001, W-8
and W-9). The obligation of the Company or any Guarantor to pay Additional
Amounts in respect of Taxes shall not apply with respect to (x) any estate,
inheritance, gift, sales, transfer, personal property or any similar Tax or (y)
any Tax which is payable otherwise than by deduction or withholding from
payments made under or with respect to the Notes. The Company and the Guarantor,
as applicable, will (i) make any required withholding or deduction, (ii) remit
the full amount deducted or withheld to the relevant authority (the "Taxing
Authority") in accordance with applicable law, (iii) use their best efforts to
obtain certified copies of tax receipts evidencing the payment of any Taxes so
deducted or withheld from each Taxing Authority imposing such Taxes and (iv) in
the event that such certified copies of tax receipts are obtained, promptly send
such certified copies of tax receipts to the Principal Paying Agent for prompt
forwarding to any holder that has made a written demand therefor of the
Principal Paying Agent. The Company or the Guarantor will attach to each
certified copy a certificate stating (x) that the amount of withholding tax
evidenced by the certified copy was paid in connection with payments in respect
of the principal amount
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of Notes then outstanding and (y) the amount of such withholding tax paid per
US$1,000 of principal amount of the Notes. See "Income Tax
Considerations--United States--Effect of Brazilian Withholding Taxes." If,
notwithstanding the Company's or such Guarantor's efforts to obtain such
receipts, the same are not obtainable, the Company or such Guarantor will
provide to the Principal Paying Agent such other evidence of such payments as
the Company or such Guarantor may reasonably obtain.
At least 30 days prior to each date on which any payment under or with
respect to the Notes is due and payable (unless such obligation to pay
Additional Amounts arises after the 30th day prior to such date, in which case
it shall be promptly thereafter), if the Company or any Guarantor will be
obligated to pay Additional Amounts with respect to such payment, the Company or
such Guarantor will deliver to the Trustee and each Paying Agent an Officers'
Certificate stating the fact that such Additional Amount will be payable and the
amounts so payable and will set forth such other information necessary to enable
the Trustee and each Paying Agent to pay such Additional Amounts to holders of
Notes on the payment date. Each Officers' Certificate shall be relied upon until
receipt of a further Officers' Certificate addressing such matters.
Whenever in the Indenture or in this "Description of Notes" there is
mentioned, in any context, the payment of amounts based upon the payment of
principal, premium, if any, interest or of any other amount payable under or
with respect to any Note, such mention shall be deemed to include mention of the
payment of Additional Amounts as are, were or would be payable in respect
thereof.
REDEMPTION FOR CHANGES IN WITHHOLDING TAXES
The Notes may be redeemed at the option of the Company, in whole but not in
part, at any time prior to maturity if (i) there is any change in or amendment
to the Treaty to Avoid Double Taxation entered into between Brazil and Japan,
approved by Legislative Decree No. 43 dated November 23, 1967, and enacted in
Brazil by Decree No. 61,899 dated December 14, 1967, as amended by Decree No.
81,194 dated January 9, 1978, which has the effect of increasing the rate of tax
applicable under such treaty to a rate exceeding 15.0% of interest payable; or
(ii) as the result of any change in or amendment to the laws, regulations or
rulings of Brazil or Japan or any political subdivision or taxing authority
thereof or therein, or any change in the application or official interpretation
of such laws, regulations or rulings (including the holding of a court of
competent jurisdiction), the Company or any Guarantor has or will become
obligated to pay Additional Amounts (excluding interest and penalties) in excess
of the Additional Amounts that the Company or any Guarantor would be obligated
to pay if Taxes (excluding interest and penalties) were imposed with respect to
such payments of interest at a rate of 15.0%, and such obligation cannot be
avoided by the Company or the Guarantors, as the case may be, taking reasonable
measures available to them, then the Company may, at its option, redeem or cause
the redemption of the Notes, as a whole but not in part, upon not more than 60
nor less than 30 days' notice to the holders of such Notes (with copies to the
Trustee and each Paying Agent) at 100.0% of their principal amount, together
with accrued interest to (but excluding) the date fixed for redemption, plus any
such Additional Amounts payable with respect to such principal amount and
interest as provided under "--Additional Amounts." Prior to the giving of notice
of redemption of the Notes as described herein and as a condition to any such
redemption, the Company will deliver to the Trustee an Officers' Certificate
(together with a copy of the written opinion of counsel to the effect that the
applicable rate has so increased, or the Company or any Guarantor has or will
become so obligated to pay Additional Amounts as a result of such change or
amendment), stating that the Company is entitled to effect such redemption and
setting forth in reasonable detail a statement of facts relating thereto. No
notice of redemption shall be given earlier than 90 days prior to the earliest
date on which the Company or any Guarantor would be obligated to pay such
Additional Amounts were a payment in respect of the Notes then due and, at the
time such notice of redemption is given, such obligation to pay such Additional
Amounts remains in effect.
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SELECTION
In the case of any partial redemption or repurchase, selection of the Notes
for redemption or repurchase will be made by the Trustee on a pro rata basis, by
lot or by such other method as the Trustee in its sole discretion shall deem to
be fair and appropriate, although no Note of $1,000 in original principal amount
or less will be redeemed or repurchased in part. If any Note is to be redeemed
or repurchased in part only, the notice of redemption or repurchase relating to
such Note shall state the portion of the principal amount thereof to be redeemed
or repurchased. A new Note in principal amount equal to the unredeemed or
unrepurchased portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note.
RANKING
The Notes will be unsecured, senior obligations of the Company ranking PARI
PASSU in right of payment with all other existing and future unsecured, senior
Indebtedness of the Company and senior in right of payment to all other existing
and future subordinated Indebtedness of the Company. The Subsidiary Guarantees
will be unsecured, senior obligations of the Guarantors ranking PARI PASSU in
right of payment with all other existing and future unsecured, senior
Indebtedness of the Guarantors and senior in right of payment to all other
existing and future subordinated Indebtedness of the Guarantors. Subject to
certain limitations set forth in the Indenture, the Company and its Subsidiaries
may Incur other senior Indebtedness, including Indebtedness that is secured by
certain assets of the Company and its Subsidiaries. At September 30, 1996, after
giving effect to the sale of the Old Securities and the application of the net
proceeds therefrom, Tevecap would not have had any outstanding senior
Indebtedness Tevecap, other than the Notes (exclusive of unused commitments and
short term debt) and the aggregate principal amount of outstanding senior
Indebtedness of the Guarantors, other than the Subsidiary Guarantees, would have
been $4.6 million (exclusive of unused commitments and short term debt) all of
which ranks pari passu with the Subsidiary Guarantees, but none of which was
secured Indebtedness. As of April 1, 1997, Tevecap did not have any outstanding
senior Indebtedness other than the Notes (exclusive of unused commitments and
short term debt), and the aggregate principal amount of outstanding senior
Indebtedness of the Guarantors was $6.1 million (exclusive of unused commitments
and short term debt) all of which ranks pari passu with the Subsidiary
Guarantees, and none of which is secured. See "Certain Other Indebtedness."
SUBSIDIARY GUARANTEES
Each of the Company's existing and future Restricted Subsidiaries (the
"Guarantors"), as primary obligor and not merely as surety, will jointly and
severally, irrevocably and fully and unconditionally Guarantee, on a senior
basis, the performance and punctual payment when due, whether at Stated
Maturity, by acceleration or otherwise, of all obligations of the Company under
the Indenture and the Notes, whether for principal of or interest on the Notes,
expenses, indemnification or otherwise (all such obligations guaranteed by such
Guarantors being herein called the "Guaranteed Obligations"). Such Guarantors
will agree to pay, in addition to the amount stated above, any and all expenses
(including reasonable counsel fees and expenses) incurred by the Trustee or the
Holders in enforcing any rights under the Subsidiary Guarantees.
Each Subsidiary Guarantee will be limited to an amount not to exceed the
maximum amount that can be Guaranteed, as it relates to such Guarantor, voidable
under applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally. See "Risk
Factors--Fraudulent Conveyance Considerations."
Each Subsidiary Guarantee is a continuing Guarantee and shall (i) remain in
full force and effect until payment in full of all the Guaranteed Obligations,
(ii) be binding upon such Guarantor and (iii) inure
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to the benefit of and be enforceable by the Trustee, the Holders and their
successors, transferees and assigns.
The Indenture provides that, subject to the provisions described in the next
succeeding paragraph, no Guarantor may consolidate or merge with or into
(whether or not such Guarantor is the surviving entity or Person) 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)
assumes all the obligations of such Guarantor under the Subsidiary Guarantee and
the Indenture pursuant to a supplemental indenture, in form satisfactory to the
Trustee, (ii) immediately after such transaction, no Default or Event of Default
exists, (iii) immediately after such transaction, the Company will have
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
the Company immediately preceding such transaction and (iv) the Company will, at
the time of such transaction after giving pro forma effect thereto, be permitted
to Incur at least $1.00 of additional Indebtedness pursuant to paragraph (a)
under "Certain Covenants--Limitation on Indebtedness."
Notwithstanding the preceding paragraph, if no Default exists or would exist
under the Indenture, concurrently with any sale or disposition (by merger or
otherwise) of any Guarantor in accordance with the terms of the Indenture
(including the covenant described under "Certain Covenants--Limitation on Sales
of Assets and Subsidiary Stock") (other than a transaction subject to the
provisions described under "Merger and Consolidation") by the Company or a
Restricted Subsidiary to any Person that is not an Affiliate of the Company or
any of the Restricted Subsidiaries, such Guarantor will automatically and
unconditionally be released from all obligations under its Subsidiary Guarantee;
PROVIDED, HOWEVER, that any such release shall occur only to the extent that all
obligations of such Guarantor under, and all of its guarantees of, and all of
its pledges of assets or other security interests which secure, any other
Indebtedness of the Company shall also terminate upon such release, sale or
transfer.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder will have the right to require the Company to repurchase
all or any part of such holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date):
(i) an event or series of events by which any "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other
than one or more Permitted Holders, is or becomes after the date of issuance
of the Notes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act as in effect on the date of the Indenture), of more
than 35.0% of the total voting power of all Voting Stock of the Company
outstanding;
(ii) (A) another corporation merges into the Company or the Company
consolidates with or merges into any other corporation or (B) the Company
conveys, transfers or leases all or substantially all its assets to any
person or group (other than any conveyance, transfer or lease between the
Company and a Wholly-Owned Subsidiary of the Company), in each case, in one
transaction or a series of related transactions with the effect that a
person or group other than one or more Permitted Holders becomes the
"beneficial owner" of more than 35.0% of all Voting Stock of the Company
then outstanding;
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (or equivalent
governing body) of the Company (together with any new Directors (or
equivalent persons) whose election by the Company's Board of Directors (or
equivalent governing body), or whose nomination for election by such
entity's shareholders, was approved by a vote of a majority of the Directors
(or equivalent persons) then still in office who were either Directors (or
equivalent persons) at the beginning of such period or whose election or
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nomination for election was previously so approved) cease for any reason to
constitute a majority of the Directors (or equivalent persons) then in
office; or
(iv) the Permitted Holders collectively shall fail to beneficially own
at least 35.0% of all Voting Stock of the Company then outstanding.
The Company's other senior Indebtedness may contain prohibitions of certain
events that would constitute a Change of Control. In addition, the exercise by
the Holders of Notes of their right to require the Company to repurchase the
Notes could cause a default under such other senior Indebtedness, even if the
Change of Control itself does not, due to the financial effect of such
repurchases on the Company. Finally, the Company's ability to pay cash to the
Holders of Notes upon a repurchase may be limited by the Company's then existing
financial resources. The consent of the Brazilian Central Bank will be required
prior to the funding of the repurchase of the Notes.
Within 30 days following any Change of Control, unless the Company has
mailed a redemption notice with respect to all the outstanding Notes after such
Change of Control, the Company shall mail a notice to each holder with a copy to
the Trustee stating: (i) that a Change of Control has occurred and that such
holder has the right to require the Company to purchase such holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of Holders of record on a record date to receive interest on the relevant
interest payment date); (ii) the circumstances and relevant facts and financial
information concerning such Change of Control; (iii) the repurchase date (which
shall be no earlier than 30 days nor later than 60 days from the date such
notice is mailed); and (iv) the procedures determined by the Company, consistent
with the Indenture, that a Holder must follow in order to have its Notes
purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
The definition of "Change of Control" includes a disposition of all or
substantially all of the property and assets of the Company and its
Subsidiaries. With respect to the disposition of property or assets, the phrase
"all or substantially all" as used in the Indenture varies according to the
facts and circumstances of the subject transaction, has no clearly established
meaning under New York law (which is the choice of law under the Indenture) and
is subject to judicial interpretation. Accordingly, in certain circumstances
there may be a degree of uncertainty in ascertaining whether a particular
transaction would involve a disposition of "all or substantially all" of the
property or assets of a Person, and therefore it may be unclear as to whether a
Change of Control has occurred and whether the Company is required to make an
offer to repurchase the Notes as described above.
CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
LIMITATION ON INDEBTEDNESS. (a) The Company shall not, and shall not permit
any of its Restricted Subsidiaries to, directly or indirectly, Incur any
Indebtedness, and the Company shall not issue any Disqualified Stock; PROVIDED,
HOWEVER, that the Company and any Restricted Subsidiary may Incur Indebtedness,
and the Company may issue shares of Disqualified Stock, if on the date thereof
the Indebtedness to Annualized Operating Cash Flow Ratio of the Company would
have been less than or equal to (i) 6.5 to 1.0 in the case of Indebtedness
Incurred prior to November 26, 1999 and (ii) 6.0 to 1.0 in the case of
Indebtedness Incurred on and after November 26, 1999, in each case determined on
a pro forma basis.
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(b) The foregoing limitation shall not apply to the Incurrence of: (i)
Indebtedness of the Company or any Restricted Subsidiary under any Senior Credit
Facility or the Abril Credit Facility in an aggregate principal amount at any
one time outstanding not to exceed $50.0 million; (ii) Indebtedness of the
Company to any Restricted Subsidiary and Indebtedness of a Restricted Subsidiary
to the Company or another Restricted Subsidiary; PROVIDED, HOWEVER, that any
subsequent issuance or transfer of any Capital Stock which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent
transfer of such Indebtedness (other than to another Restricted Subsidiary) will
be deemed, in each case, to constitute the Incurrence of such Indebtedness by
the issuer thereof; (iii) Indebtedness represented by the Notes (including the
Subsidiary Guarantees); (iv) Indebtedness outstanding on the Issue Date (other
than Indebtedness described in clause (i), (ii) or (iii) of this paragraph); (v)
Refinancing Indebtedness in respect of Indebtedness of the Company or any
Restricted Subsidiary Incurred pursuant to clauses (i) through (iv) above, this
clause (v), or clause (xiv) below in a principal amount (or, for original issue
discount Indebtedness, the accredited principal thereof) so refinanced; (vi)
Hedging Obligations consisting of Interest Rate Agreements and Currency
Agreements related to Indebtedness otherwise permitted to be Incurred pursuant
to the Indenture or otherwise entered into in the ordinary course of business,
PROVIDED that in each case the notional amount shall not exceed the underlying
obligations or assets; (vii) Guarantees by the Company of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as the Incurrence of
such Indebtedness or obligations by such Restricted Subsidiary is permitted
under the terms of the Indenture; (viii) Indebtedness of Galaxy Brasil in an
aggregate principal amount at any one time outstanding not to exceed the lesser
of (A) an amount equal to the sum of (I) the product of (1) $480.0 multiplied by
(2) the number of Galaxy Brasil Subscribers at the date of Incurrence plus (II)
$20 million and (B) $130.0 million; (ix) Indebtedness of any Special Restricted
Subsidiary if, after giving effect to such Incurrence, the ratio of (A) the
aggregate principal amount of all Indebtedness of such Special Restricted
Subsidiary outstanding as of the date of determination to (B) the total
shareholders' equity (excluding any retained earnings or accumulated deficit) of
such Special Restricted Subsidiary as of the date of determination is less than
or equal to 2:1; (x) Indebtedness of the Company represented by Subordinated
Shareholder Loans in an aggregate principal amount at any one time outstanding
not to exceed $100.0 million; (xi) Indebtedness consisting of performance and
other similar bonds and reimbursement obligations Incurred in the ordinary
course of business securing the performance of contractual, franchise or license
obligations of the Company or a Restricted Subsidiary, or in respect of a letter
of credit obtained to secure such performance; (xii) Indebtedness arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any Restricted
Subsidiary pursuant to such agreements, Incurred in connection with any Asset
Disposition; (xiii) Indebtedness of the Company represented by the SurFin
Guarantee in an aggregate principal amount at any one time outstanding not to
exceed $25.0 million; (xiv) Indebtedness of TVA Sistema under the EximBank
Credit Agreement in an aggregate principal amount at any one time outstanding
not to exceed $30.0 million; (xv) Indebtedness of the Company represented by the
Put Promissory Notes; (xvi) Indebtedness of Galaxy Brasil in an aggregate
principal amount at any one time outstanding not to exceed $25.0 million; and
(xvii) other Indebtedness in an aggregate principal amount which, together with
all other Indebtedness of the Company then outstanding (other than Indebtedness
permitted by clauses (i) through (xvi) above or the preceding paragraph) does
not exceed $50.0 million.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay
any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
the Company) except (1) dividends or distributions payable in its Capital Stock
(other than Disqualified Stock) and (2) dividends or distributions payable
solely to the Company or another Restricted Subsidiary (and, if such Restricted
Subsidiary is not a Wholly-Owned Subsidiary, to its other stockholders on a PRO
RATA basis), (ii) purchase, redeem, retire or otherwise acquire for value any
Capital
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Stock (including options or warrants to acquire such Capital Stock) of the
Company or any Restricted Subsidiary, (iii) purchase, repurchase, redeem, prepay
interest, defease or otherwise acquire or retire for value, prior to scheduled
maturity, scheduled repayment, scheduled interest payment date or scheduled
sinking fund payment, any Subordinated Obligations, or make any cash interest
payment on Subordinated Shareholder Loans or (iv) make any Investment (other
than a Permitted Investment) in any Person (any such dividend, distribution,
purchase, redemption, repurchase, defeasance, other acquisition, retirement,
interest payment or Investment being herein referred to as a "Restricted
Payment"), if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (x) after giving effect to such Restricted Payment, a
Default shall have occurred and be continuing (or would result therefrom); or
(y) the Company could not incur at least an additional $1.00 of Indebtedness
under the covenant described under "Certain Covenants--Limitation on
Indebtedness"; or (z) the aggregate amount of such Restricted Payment and all
other Restricted Payments declared (the amount so expended, if other than in
cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a resolution of the Board of
Directors) or made subsequent to the Issue Date would exceed the sum of: (A) an
amount equal to the Company's Cumulative Operating Cash Flow less 1.6 times the
Company's Cumulative Consolidated Interest Expense; plus (B) the aggregate Net
Cash Proceeds received by the Company from the issue or sale of its Capital
Stock (other than Disqualified Stock) or other cash contributions to its capital
subsequent to the Issue Date (other than an issuance or sale to a Subsidiary of
the Company or an employee stock ownership plan or other trust established by
the Company or any of its Subsidiaries); plus (C) the amount by which
Indebtedness of the Company is reduced on the Company's balance sheet upon
conversion or exchange (other than by a Restricted Subsidiary of the Company)
subsequent to the Issue Date of any Indebtedness of the Company convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash or other property distributed by the Company upon
such conversion or exchange); and plus (D) in the case of the disposition or
repayment of any Investment constituting a Restricted Payment other than an
Investment made pursuant to clause (v) of paragraph (b) below made after the
Issue Date, an amount equal to the lesser of the return of capital with respect
to such Investment and the cost of such Investment, in either case, less the
cost of the disposition of such Investment. For purposes of determining the
amount expended for Restricted Payments, cash distributed shall be valued at the
face amount thereof and property or services distributed or transferred other
than cash shall be valued at its Fair Market Value.
(b) So long as there is no Default or Event of Default continuing, the
provisions of paragraph (a) shall not prohibit: (i) any purchase or redemption
of Capital Stock or Subordinated Obligations of the Company or Capital Stock of
any Restricted Subsidiary made by exchange for, or out of the Net Cash Proceeds
from a substantially concurrent sale (other than to a Restricted Subsidiary of
the Company) of, Capital Stock of the Company (other than Disqualified Stock) or
any purchase of Capital Stock made with Put Promissory Notes; PROVIDED, HOWEVER,
that (A) such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall
be excluded from the calculation of amounts under clause (B) of paragraph (a);
(ii) any purchase or redemption of Subordinated Obligations of the Company made
by exchange for, or out of the proceeds from a substantially concurrent sale of,
Subordinated Obligations of the Company; PROVIDED, HOWEVER, that (A) the final
maturity date of such Subordinated Obligations, determined as of the date of
Incurrence, occurs not earlier than the Stated Maturity of the Notes and (B) the
Average Life of such Subordinated Obligations is equal to or greater than the
Average Life of the Subordinated Obligations being purchased or redeemed; and
PROVIDED, FURTHER, that such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments; (iii) dividends paid within 60
days after the date of declaration if at such date of declaration such dividend
would have complied with this provision; PROVIDED, HOWEVER, that such dividends
shall be included in the calculation of the amount of Restricted Payments; (iv)
Investments in Galaxy Latin America or its Affiliates made subsequent to the
Issue Date in an aggregate amount at any time outstanding not to exceed $15.0
million; (v) Investments
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in a Permitted Business financed with the net proceeds of this Offering as
described under "Use of Proceeds"; and (vi) Minority Investments made subsequent
to the Issue Date constituting a Restricted Payment by the Company or any
Restricted Subsidiary in any Person that operates principally, or has been
formed to operate principally, a Permitted Business in an aggregate amount at
any time outstanding not to exceed $45.0 million.
The Indenture will provide that the Company will be required, as a condition
to the issuance of the Notes, and to thereafter maintain enforceable written
commitments (the Shareholder Commitments") from each shareholder of the Company
agreeing that such shareholder will not exercise its voting rights to receive
mandatory statutory dividends (without limiting such shareholder's right
otherwise to receive dividends pursuant to and in compliance with this covenant
"Limitation on Restricted Payments"), PROVIDED that the Shareholder Commitments
will cease to be effective on the first to occur of (x) the date that shares of
Capital Stock of the Company are issued and listed on a Brazilian or United
States securities exchange in connection with a bona fide public offering of
such shares or the date that any shares of the Capital Stock of the Company are
otherwise effectively listed and traded on any Brazilian or United States
securities exchange, (y) the date that none of the Notes remain outstanding or
(z) the date that such commitment is no longer effective, enforceable or legal
under applicable Brazilian laws and regulations (including without limitation
any construction or interpretation thereof by CVM, any court or any other
governmental authority). The Indenture will provide that the Company will obtain
Shareholder Commitments in connection with any future issuances of Capital Stock
to the extent the Shareholder Commitments would then be effective, enforceable
and legal under the terms of the foregoing proviso. Notwithstanding the
foregoing, but provided it would not render any of the other Shareholder
Commitments unenforceable, the Company need not obtain and/or maintain
Shareholder Commitments from persons that are not shareholders of the Company on
the Issue Date or any Affiliate of any such shareholder to the extent it does
not relate to more than 10.0% of the outstanding shares of Capital Stock of the
Company.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create or permit to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any such Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligation owed to the Company or another
Restricted Subsidiary of the Company, (ii) make any Investment in the Company or
another Restricted Subsidiary of the Company or (iii) transfer any of its
property or assets to the Company or another Restricted Subsidiary of the
Company; except: (A) any encumbrance or restriction pursuant to an agreement in
effect on the date of Issuance of the Notes and described in this Prospectus;
(B) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by a Restricted
Subsidiary prior to the date on which such Restricted Subsidiary was acquired by
the Company (other than Indebtedness Incurred as consideration in, or to provide
all or any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such Restricted
Subsidiary was acquired by the Company) and outstanding on such date; (C) any
encumbrance or restriction with respect to a Restricted Subsidiary pursuant to
an agreement effecting a refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clauses (A) or (B) or this clause (C) or contained in
any amendment to an agreement referred to in clauses (A) or (B) or this clause
(C); PROVIDED, HOWEVER, that the encumbrances and restrictions contained in any
such refinancing agreement or amendment are no less favorable to the holders of
the Notes than encumbrances and restrictions contained in such agreements; (D)
any such customary encumbrance or restriction contained in a security document
creating a Lien permitted under the Indenture to the extent relating to the
property or asset subject to such Lien following a default in respect of the
applicable obligation; (E) in the case of clause (iii), any encumbrance or
restriction (1) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease, license, or
similar contract, or (2) contained in security agreements securing Indebtedness
of a Restricted Subsidiary to the extent such encumbrance
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or restrictions restrict the transfer of the property subject to such security
agreements; (F) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement in effect for the sale or disposition thereof and the
duration of which does not exceed 60 days; or (G) any encumbrance or restriction
contained in an agreement pursuant to which Galaxy Brasil Incurs Indebtedness in
compliance with the terms of the Indenture, PROVIDED, HOWEVER, that the terms of
such encumbrance or restriction are no more restrictive than those contained in
the Equipment Agreements as they exist on the Issue Date.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, make any Asset
Disposition, unless (i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the Fair Market Value of the shares
and assets subject to such Asset Disposition, (ii)(A) at least 75.0% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents or (B) at least 75.0% of the
consideration thereof received by the Company or such Restricted Subsidiary
consists of assets used in connection with a Permitted Business; and (iii) an
amount equal to 100.0% of the Net Available Cash from such Asset Disposition is
applied by the Company (or such Restricted Subsidiary, as the case may be) (A)
FIRST, to the extent the Company elects (or is required by the terms of any
senior Indebtedness of the Company or Indebtedness of a Restricted Subsidiary),
to prepay, repay or purchase such senior Indebtedness, or such Indebtedness of a
Restricted Subsidiary (in each case other than Indebtedness owed to the Company
or an Affiliate of the Company) within 365 days from the later of the date of
such Asset Disposition or the receipt of such Net Available Cash; (B) SECOND, to
the extent of the balance of Net Available Cash after application in accordance
with clause (A), to the extent the Company or such Restricted Subsidiary elects,
to reinvest in Additional Assets (including by means of an Investment in
Additional Assets by a Restricted Subsidiary with Net Available Cash received by
the Company or another Restricted Subsidiary) within 365 days from the later of
the date of such Asset Disposition or the receipt of such Net Available Cash;
(C) THIRD, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B) ("Excess Proceeds"), to make
an offer ("Asset Sale Offer") to purchase Notes pursuant and subject to the
conditions of the Indenture to the Noteholders at a purchase price of 100.0% of
the principal amount thereof plus accrued and unpaid interest to the purchase
date, and (D) FOURTH, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A), (B) and (C), for general
corporate purposes. Notwithstanding the foregoing provisions, the Company and
its Restricted Subsidiaries shall not be required to apply any Net Available
Cash in accordance herewith except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which are not applied in accordance
with this covenant at any time exceed $10 million. Upon completion of any Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
For the purposes of this covenant, the following will be deemed to be cash
or Cash Equivalents: (i) the assumption of Indebtedness (other than Disqualified
Stock) of the Company or any Restricted Subsidiary and the release of the
Company or such Restricted Subsidiary from all liability on such Indebtedness in
connection with such Asset Disposition and (ii) securities received by the
Company or any Restricted Subsidiary of the Company from the transferee that are
promptly converted by the Company or such Restricted Subsidiary into cash at its
face value.
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(iii)(C), the Company will be required to purchase Notes
tendered pursuant to an offer by the Company for the Notes at a purchase price
of 100.0% of their principal amount plus accrued interest to the purchase date
in accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Indenture. If the aggregate purchase price of
the Notes tendered pursuant to the offer is less than the Net Available Cash
allotted to the purchase of the Notes, the Company will apply the remaining Net
Available Cash in accordance with clause (a)(iii)(D) above.
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(c) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to the
Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under the Indenture by virtue thereof.
LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
conduct any transaction (including the purchase, sale, lease or exchange of any
property, or the rendering of any service) with any Affiliate of the Company (an
"Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction are
no less favorable to the Company or such Restricted Subsidiary, as the case may
be, than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate; (ii) in the
event such Affiliate Transaction involves an aggregate amount in excess of $2.0
million, the terms of such transaction have been approved by a majority of the
members of the Board of Directors of the Company and by a majority of the
members of such Board having no personal stake in such Affiliate Transaction, if
any; and (iii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $10.0 million, the Company has received a written opinion
from an independent investment banking firm of nationally recognized standing in
the United States that such Affiliate Transaction is fair to the Company or such
Restricted Subsidiary, as the case may be, from a financial point of view;
PROVIDED that, in the case of an Affiliate Transaction described in clause (ii)
or (iii), the Company shall promptly after consummation thereof deliver an
Officers' certificate to the Trustee certifying as to the compliance by the
Company with clauses (i) and (ii) or (i) and (iii) as the case may be, of this
covenant; and PROVIDED FURTHER that in the case of an Affiliate Transaction with
Galaxy Latin America, the Company or such Restricted Subsidiary shall only be
required to obtain the opinion described in clause (iii) if such Affiliate
Transaction involves an aggregate amount in excess of $20.0 million.
(b) The provisions of the foregoing paragraph (a) will not apply to (i)
transactions with or among the Company and/or any of the Restricted
Subsidiaries; PROVIDED in any such case, no officer, director or beneficial
holder of 5% or more of any class of Capital Stock of the Company shall
beneficially own any Capital Stock of any such Restricted Subsidiary, (ii)
transactions between the Company and any Restricted Subsidiary that are solely
for the benefit of the Company or a Subsidiary Guarantor, (iii) transactions
between or among Unrestricted Subsidiaries, (iv) any dividend permitted by the
covenant described under "Certain Covenants--Limitation on Restricted Payments,"
(v) directors' fees, indemnification and similar arrangements, officers'
indemnification, employee stock option or employee benefit plans, employee
salaries and bonuses or legal fees paid or created in the ordinary course of
business and (vi) transactions and arrangements pursuant to agreements in
existence on the Issue Date and described in the Prospectus. In addition,
paragraph (a) shall not apply (x) to Indebtedness Incurred by the Company from
Abril under the Abril Credit Facility or from shareholders pursuant to
Subordinated Shareholder Loans and (y) to any transaction entered into in
connection with the reorganization of the Company's ownership structure or the
restructuring of its legal form described under "Certain Transactions with
Related Parties--Transactions Among Shareholders" in the Prospectus.
LIMITATION ON LIENS. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist any
Lien, other than Permitted Liens, on any of its property or assets (including
Capital Stock of any Restricted Subsidiary), whether owned on the Issue Date or
thereafter acquired, securing any obligation, unless the obligations due under
the Indenture and the Notes and the Subsidiary Guarantees are secured, on an
equal and ratable basis (or on a senior basis, in the case of Indebtedness
subordinated in right of payment to the Notes or the Subsidiary Guarantees),
with the obligations so secured.
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LIMITATION ON SALES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. The
Company will not (i) sell, and will not permit any Restricted Subsidiary of the
Company to issue, sell or transfer, any Capital Stock of a Restricted Subsidiary
or (ii) permit any Person (other than the Company or a Wholly-Owned Restricted
Subsidiary) to acquire Capital Stock of any Restricted Subsidiary, if in either
case as the result thereof such Restricted Subsidiary would no longer be a
Restricted Subsidiary of the Company, except for (A) Capital Stock issued, sold
or transferred to the Company or a Wholly-Owned Restricted Subsidiary and (B)
Capital Stock issued by a Person prior to the time (1) such Person becomes a
Restricted Subsidiary, (2) such Person merges with or into a Restricted
Subsidiary or (3) a Restricted Subsidiary merges with or into such Person,
PROVIDED, that such Capital Stock was not issued by such Person in anticipation
of the type of transaction contemplated by subclause (1), (2) or (3). This
provision shall not prohibit the Company or any of its Restricted Subsidiaries
from selling or otherwise disposing of all of the Capital Stock of any
Restricted Subsidiary; PROVIDED that any such sale constitutes an Asset
Disposition for purposes of, and the Net Cash Proceeds from any such sale are
applied in accordance with, the covenant described under "Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock."
ADDITIONAL SUBSIDIARY GUARANTEES. The Indenture will provide that if the
Company or any of its Restricted Subsidiaries shall acquire or create another
Restricted Subsidiary after the Issue Date, then such newly acquired or created
Restricted Subsidiary shall execute a Subsidiary Guarantee and deliver an
opinion of counsel, in accordance with the terms of the Indenture.
MERGER AND CONSOLIDATION. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all its assets
to, any Person and the Company will not permit any of its Restricted
Subsidiaries to enter into such a transaction if such transaction, in the
aggregate, would result in the conveyance or transfer of all or substantially
all of the assets of the Company and its Restricted Subsidiaries taken as a
whole, to any Person, unless: (i) the resulting, surviving or transferee Person
(the "Successor Company") is a corporation organized and existing under the laws
of the Federative Republic of Brazil or any State or political subdivision
thereof and the Successor Company (if not the Company) expressly assumes, by
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the Notes
and the Indenture; (ii) immediately after giving effect to such transaction (and
treating any Indebtedness that becomes an obligation of the Successor Company or
any Restricted Subsidiary of the Successor Company as a result of such
transaction as having been Incurred by the Successor Company or such Restricted
Subsidiary at the time of such transaction), no Default shall have occurred and
be continuing; (iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur at least an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under "Certain
Covenants--Limitation on Indebtedness"; (iv) immediately after giving effect to
such transaction, the Successor Company will have Consolidated Net Worth in an
amount which is not less than the Consolidated Net Worth of the Company
immediately prior to such transaction; (v) each Guarantor shall have delivered a
written instrument in form satisfactory to the Trustee confirming its Guarantee;
and (vi) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture; PROVIDED, HOWEVER, that clause (iii) shall not apply to the merger of
Cable Participacoes Ltda., or Hearst/ABC Video Services II, each an entity owned
by The Hearst Corporation and ABC, Inc., or Falcon International Communications
(Bermuda) L.P. with and into the Company in connection with the reorganization
of the Company's ownership structure described under "Certain Transactions with
Related Parties--Transactions Among Shareholders" in the Prospectus.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but the
Company, in the case of a lease of all or substantially all its assets, will not
be released from the obligation to pay the principal of and interest on the
Notes.
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SEC REPORTS. The Indenture will provide that, whether or not the Company
has a class of securities registered under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), following any Exchange Offer or the
effectiveness of any Shelf Registration Statement, the Company shall furnish
without cost to each holder of Notes, the Trustee and the Initial Purchasers and
file with the Commission (whether or not the Company is a public reporting
company at the time): (i) within 140 days after the end of each fiscal year of
the Company, annual reports on Form 20-F (or any successor form) containing the
information required to be contained therein (or required in such successor
form); (ii) within 60 days after the end of each of the first three fiscal
quarters of each fiscal year, reports on Form 6-K (or any successor form)
containing substantially the same information required to be contained therein;
and (iii) promptly from time to time after the occurrence of an event required
to be therein reported, such other reports on Form 6-K (or any successor form)
containing substantially the same information required to be contained in Form
8-K (or required in any successor form). Prior to the effectiveness of the
Exchange Offer Registration Statement with the Commission, the Company will file
with the Trustee and provide the Initial Purchasers, all of the information that
would have been required to have been filed with the Commission pursuant to
clauses (i), (ii) and (iii) above. Each of the reports will be prepared in
accordance with US GAAP consistently applied, will include the amounts of EBITDA
(as defined herein), based on US GAAP financial data and will be prepared in
accordance with the applicable rules and regulations of the Commission. The
Company will agree to use its reasonable best efforts to schedule, disseminate
in a customary manner for public companies information concerning, and conduct a
conference call for holders of Notes to discuss with appropriate senior officers
of the Company the results of operating and financial conditions of the Company
within 30 days of filing any reports described in clause (i) and (ii) above with
the Commission.
LIMITATION ON DESIGNATIONS OF SPECIAL RESTRICTED SUBSIDIARIES. The
Indenture will provide that the Company may designate any Restricted Subsidiary
as a "Special Restricted Subsidiary" under the Indenture (a "Special
Designation") if such Special Restricted Subsidiary engages in, or will engage
principally in, a Permitted Business in a Newly-Licensed Service Area. Such
Special Designation may be revoked at any time if all Indebtedness of such
Special Restricted Subsidiary that is outstanding immediately following such
revocation would, if Incurred at such time, have been permitted to be Incurred
for all purposes under the Indenture. All Special Designations and revocations
thereof must be evidenced by Board Resolutions of the Company delivered to the
Trustee certifying compliance with the foregoing provisions. In any event, a
Special Restricted Subsidiary will remain a Restricted Subsidiary for all
purposes of the Indenture, except that a Special Restricted Subsidiary shall be
treated as an Unrestricted Subsidiary for purposes of calculating Operating Cash
Flow, Consolidated Income Tax Expense, Consolidated Interest Expense and
Consolidated Net Income.
LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES. The Indenture will
provide that the Board of Directors may designate any Subsidiary of the Company
(other than a Guarantor, but including any newly acquired or newly formed
Subsidiary) (a "Designation") to be an Unrestricted Subsidiary if: (a) no
Default shall have occurred and be continuing at the time of or after giving
effect to such Designation; (b) the Company would be permitted under the
Indenture to make an Investment under all applicable provisions of the covenant
described under "Certain Covenants--Limitation on Restricted Payments" at the
time of Designation (assuming the effectiveness of such Designation) in an
amount (the "Designation Amount") equal to the Fair Market Value of such
Subsidiary on such date; and (c) such Subsidiary and its Subsidiaries own no
Capital Stock or Indebtedness of, and hold no Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary (a "Revocation");
PROVIDED, HOWEVER, that immediately after giving effect to such designation (x)
no Default shall have occurred and be continuing and (y) all Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately following
such Revocation would, if Incurred at such time, have been permitted to be
Incurred for all purposes of the Indenture. Any such Designation and Revocation
by the Board of Directors shall be evidenced to the Trustee by promptly filing
with the Trustee
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a copy of the board resolution giving effect thereto and an Officers'
Certificate certifying that such action complied with the foregoing provisions.
LIMITATION ON INVESTMENTS IN UNRESTRICTED SUBSIDIARIES. The Company will
not make, and will not permit its Restricted Subsidiaries to make, any
Investment in Unrestricted Subsidiaries if, at the time thereof, such
Investment, together with the aggregate amount of all Investments previously
made (other than Permitted Investments), would exceed the amount of Restricted
Payments then permitted to be made pursuant to the covenant described under
"Certain Covenants--Limitation on Restricted Payments". Any Investments in
Unrestricted Subsidiaries permitted to be made pursuant to this covenant (i)
will be treated as a Restricted Payment in calculating the amount of Restricted
Payments made by the Company and (ii) may be made in cash or property.
BUSINESS OF THE COMPANY; RESTRICTIONS ON TRANSFERS OF EXISTING
BUSINESS. The Indenture will provide that the Company will not, and will not
permit any of the Restricted Subsidiaries to, be principally engaged in any
business or activity other than a Permitted Business. In addition, the Company
and the Restricted Subsidiaries will not be permitted to, directly or
indirectly, transfer to any Unrestricted Subsidiary (i) any of the licenses,
permits or authorizations used in the Permitted Business of the Company and the
Restricted Subsidiaries on the Issue Date or (ii) any material portion of the
"property and equipment" (as such term is used in the Company's consolidated
financial statements) of the Company or any Restricted Subsidiary used in the
licensed service areas of the Company and the Restricted Subsidiaries as they
exist on the Issue Date; PROVIDED that the Company and the Restricted
Subsidiaries may make Asset Dispositions in compliance with the covenant
described under "Certain Covenants--Limitation on Sales of Assets and Subsidiary
Stock" and pledge property and assets to the extent permitted in the covenant
described under "Certain Covenants--Limitations on Liens."
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due, continued for 30 days, (ii) a default
in the payment of principal or premium, if any, of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, (iii) the failure by the Company or any Restricted
Subsidiary to comply with its obligations under "Certain Covenants--Merger and
Consolidation" above, (iv) the failure by the Company or any Restricted
Subsidiary to comply with any covenants (other than the covenant described under
"Certain Covenants--Merger and Consolidation") or any other agreements contained
in the Indenture for 45 days after notice (in each case, other than a failure to
purchase Notes which shall constitute an Event of Default under clause (ii)
above), (v) Indebtedness of the Company or any Restricted Subsidiary is not paid
within any applicable grace period after failure to pay when due or is
accelerated by the holders thereof because of a default and the total amount of
such Indebtedness unpaid or accelerated exceeds $10.0 million (or the US Dollar
Equivalent) (the "cross acceleration provision"), (vi) certain events of
bankruptcy, insolvency or reorganization of the Company or a Restricted
Subsidiary (the "bankruptcy provisions"), (vii) any judgment or decree for the
payment of money in excess of $10.0 million (or the US Dollar Equivalent) (to
the extent not covered by insurance as acknowledged in writing by the insurer)
is rendered against the Company or a Restricted Subsidiary and such judgment or
decree shall remain undischarged or unstayed for a period of 60 days after such
judgment becomes final and non-appealable (the "judgment default provision"),
(viii) there shall have occurred any seizure, compulsory acquisition,
expropriation or nationalization of material assets of the Company and its
Subsidiaries or (ix) the failure of any Subsidiary Guarantee to be in full force
and effect (except as contemplated by the terms thereof) or the denial or
disaffirmation by any Guarantor of its obligations under the Indenture or any
Subsidiary Guarantee if such default continues for 10 days, unless otherwise
released from such Guarantee obligation pursuant to the Indenture. However, a
default under clause (iv) will not constitute an Event of Default until the
Trustee or the holders of 25.0% in principal amount of the outstanding Notes
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notify the Company of the default and the Company does not cure such default
within the time specified in clause (iv) hereof after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25.0% in principal amount of the outstanding Notes by notice to the
Company may declare the principal of and accrued and unpaid interest on all the
Notes to be due and payable. Upon such a declaration, such principal and accrued
and unpaid interest shall be due and payable immediately. If an Event of Default
relating to certain events of bankruptcy, insolvency or reorganization of the
Company occurs and is continuing, the principal of and accrued and unpaid
interest on all the Notes will become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holders. Under
certain circumstances, the holders of a majority in principal amount of the
outstanding Notes may rescind any such acceleration with respect to the Notes
and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25.0% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction that, in the opinion of the Trustee, is
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the holders of a majority in principal amount of the outstanding
Notes are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust or
power conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other holder or that would
involve the Trustee in personal liability. Prior to taking any action under the
Indenture, the Trustee shall be entitled to indemnification satisfactory to it
in its sole discretion against all losses and expenses caused by taking or not
taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, premium (if any) or interest on any Note, the Trustee may
withhold notice if and so long as a committee of its Trust officers in good
faith determines that withholding notice is in the interests of the Noteholders.
In addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any events which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the holders of a majority in principal amount of the Notes then outstanding
and any past default or compliance with any provisions may be waived with the
consent of the holders of a majority in principal amount of the Notes then
outstanding. However, without the consent of each holder of an outstanding Note
affected, no amendment may, among other things, (i) reduce the amount of Notes
whose holders must consent to an amendment, (ii) reduce the rate of or extend
the time for payment of interest on any Note, (iii) reduce the
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principal of or extend the Stated Maturity of any Note, (iv) reduce the premium
payable upon the redemption or repurchase of any Note or change the time at
which any Note may be redeemed as described under "Optional Redemption" above,
(v) make any Note payable in money other than that stated in the Note, (vi)
amend or modify any of the provisions of the Indenture relating to the ranking
of the Notes or the Subsidiary Guarantees in any manner that adversely affects
the rights of any holder of the Notes, (vii) impair the right of any holder to
receive payment of principal of and interest on such holder's Notes on or after
the due dates therefor or to institute suit for the enforcement of any payment
on or with respect to such holder's Notes, (viii) release any Guarantor from any
of its obligations under its Subsidiary Guarantee or the Indenture, except in
compliance with the terms thereof or (ix) make any change in the amendment
provisions which require each holder's consent or in the waiver provisions.
Without the consent of any holder, the Company and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, to secure the
Notes, to add to the covenants of the Company for the benefit of the Noteholders
or to surrender any right or power conferred upon Company, to make any change
that does not adversely affect the rights of any holder or to comply with any
requirement of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment. After an amendment under the
Indenture becomes effective, the Company is required to mail to the holders a
notice briefly describing such amendment. However, the failure to give such
notice to all the holders, or any defect therein, will not impair or affect the
validity of the amendment.
TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Noteholder to pay any taxes
or other charges required by law. The Company is not required to transfer or
exchange any Note selected for redemption or to transfer or exchange any Note
for a period of 15 days prior to a selection of Notes to be redeemed. The Notes
will be issued in registered form and the registered holder of a Note will be
treated as the owner of such Note for all purposes.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under "--Certain Covenants" (other than the covenant described under
"Certain Covenants--Merger and Consolidation"), the operation of the cross
acceleration provision, the bankruptcy provisions with respect to Restricted
Subsidiaries and the judgment default provision described under "Defaults" above
and the limitations contained in clauses (iii) and (iv) under "Certain
Covenants--Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
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Event of Default specified in clause (iv), (v) and (vi) (with respect only to
Restricted Subsidiaries), or (vii) or (ix) under "Defaults" above or because of
the failure of the Company to comply with clause (iii) or (iv) under "Certain
Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or US
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for U.S. Federal income tax purposes as a result of such
deposit and defeasance and will be subject to U.S. Federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
FOREIGN EXCHANGE RESTRICTIONS; CURRENCY INDEMNITY
Payments in respect of the Notes or any Subsidiary Guarantee shall be made
in US dollars as shall be legal tender at the time of payment for the payment of
public and private debts in that currency. In the event that on any payment date
in respect of the Notes or any Subsidiary Guarantee, any restrictions or
prohibition of access to the Brazilian foreign exchange market exists, the
Company and each Guarantor agree to pay all amounts payable under the Notes in
the currency of such Notes by means of any legal procedure existing in Brazil
(except commencing legal proceedings against the Brazilian Central Bank), on any
due date for payment under the Notes. All costs and taxes payable in connection
with the procedures referred to in this covenant shall be borne by the Company
and the Guarantors.
US dollars are the sole currency of account and payment for all sums payable
by the Company and the Guarantors under or in connection with the Notes and the
Subsidiary Guarantees, including damages. Any amount received or recovered in a
currency other than US 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 and the Guarantors or otherwise) by any holder of a
Note in respect of any sum expressed to be due to it from the Company and the
Guarantors shall only constitute a discharge to the Company and the Guarantors
to the extent of the 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 dollar
amount is less than the dollar amount expressed to be due to the recipient under
any Note, the Company and the Guarantors shall, jointly and severally, indemnify
it against any loss sustained by it as a result. In any event the Company and
the Guarantors shall, jointly and severally, indemnify the recipient against the
cost of making any such purchase. For the purposes of this paragraph, it will be
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 dollars been made with the amount so received in that
other currency on the date of receipt or recovery (or, if a purchase of dollars
on such date had not been practicable, on the first date on which it would have
been practicable, it being required that the need for a change of date be
certified in the manner mentioned above). These indemnities constitute a
separate and independent obligation from other obligations of the Company and
the Guarantors, shall give rise to a separate and independent cause of action,
shall apply irrespective of any indulgence granted by any holder of 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.
ENFORCEABILITY OF JUDGMENTS WITH RESPECT TO THE NOTES AND SUBSIDIARY GUARANTEES
Service of process upon the Company or any Guarantor in an action (other
than an insolvency, liquidation or bankruptcy proceeding or any other proceeding
in the nature of an IN REM or QUASI IN REM
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proceeding) to enforce their obligations under the Indenture, the Notes or the
Subsidiary Guarantees may be obtained within the United States by service upon
CT Corporation System. See "Risk Factors-- Risks Relating to the
Notes--Enforceability of Judgments." Since substantially all of the assets of
the Company and its subsidiaries are outside the United States, any judgment
obtained in the United States against the Company or any Guarantor, including
judgments with respect to the payment of amounts owing with respect to the Notes
or the Subsidiary Guarantees, may not be collectible within the United States.
Judgments for monetary claims obtained in US courts arising out of or in
relation to the obligations of the Company and the Guarantors under the
Indenture and the Notes will be enforceable in Brazil, provided that such
judgment has been previously confirmed by the Brazilian Federal Supreme Court.
In order to be confirmed by the Brazilian Federal Supreme Court of Brazil, such
foreign judgment must meet the following conditions: (a) it must comply with all
formalities required for its enforceability under the laws of the country where
it was issued; (b) it must have been given by a competent court after the proper
service of process on the parties; (c) it must not be subject to appeal; (d) it
must not offend Brazilian national sovereignty, public policy or good morals;
and (e) it must be duly authenticated by a competent Brazilian consulate and be
accompanied by a sworn translation thereof into Portuguese. Notwithstanding the
foregoing, no assurance can be given that such confirmation will be obtained,
that the process described above can be conducted in a timely manner or that a
Brazilian court will enforce such monetary judgment. See "Enforceability of
Civil Liabilities."
Any judgment obtained against the Company or the Guarantors in a court in
Brazil under any Note or under the Indenture will be expressed in the Brazilian
currency equivalent to the US dollar amount of such sum at the commercial
exchange rate of the date at which such judgment is obtained, and such Brazilian
currency amount will be corrected in accordance with the exchange variation
until the judgment holder receives effective payment.
CERTAIN BANKRUPTCY LAW CONSIDERATIONS
Brazilian Bankruptcy Law (Decree-law No. 7,661, of June 21, 1945, the
"Brazilian Bankruptcy Law") establishes two different proceedings for the
resolution of debts of commercial companies which are insolvent or do not pay
their obligations when due; the bankruptcy proceeding ("FALENCIA") and the
reorganization proceeding ("CONCORDATA"). Both proceedings apply to all
unsecured creditors of a company which is declared bankrupt or which is under a
reorganization proceeding. In the event that the Company or any of the
Guarantors is declared bankrupt or enters into a CONCORDATA, the Notes will be
considered general unsecured indebtedness of the Company and the Guarantors and
therefore will be subject to such proceedings.
Under a bankruptcy proceeding (essentially a liquidation proceeding),
payments in respect of the Notes will be subject to an order of priority.
Generally, Brazilian Bankruptcy Law and other applicable rules establish that
claims of employees for wages or indemnity and tax claims have priority over
other claims against the bankrupt estate. Other claims are subject to the
following order of priority: (i) secured credits, (ii) credits with special
privileges over certain assets, (iii) credits with general privilege and (iv)
unsecured credits (including the Notes). Credits in foreign currency are
converted into Brazilian currency on the date the company is declared bankrupt
and are not subject to adjustment in accordance with the exchange variation.
Such amount in Brazilian currency must be monetarily adjusted to account for
inflation (in accordance with the rules applicable from time to time) and bear
no interest.
Under a CONCORDATA proceeding, which is a protection available under the
Brazilian Bankruptcy Law for commercial companies experiencing financial
distress to avoid the declaration of bankruptcy, the company's unsecured credits
existing at the time the CONCORDATA is declared are rescheduled for one of the
periods defined in the law which in virtually all cases is 24 months (in which
event 40.0% of the debt must be paid in the first year). The benefit may be
given by the court without any prior consultation with
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or manifestation by the creditors, so long as the beneficiary demonstrates,
INTER ALIA, that its assets are worth at least 50.0% of its unsecured
indebtedness. The CONCORDATA proceeding has the following basic characteristics:
(i) it only affects unsecured creditors; (ii) it does not affect the day-to-day
management of the company, the other commercial obligations of the company and
the obligations assumed after the date on which the CONCORDATA is declared;
(iii) amounts due in foreign currency subject to the CONCORDATA are converted
into local currency on the date on which the CONCORDATA is accepted by the court
and are not subject to adjustment in accordance with the exchange variation;
(iv) amounts due under the CONCORDATA, either in local currency or converted
into local currency, must be monetarily adjusted to account for inflation (in
accordance with the rules applicable from time to time) and bear interest at the
rate of 12.0% per annum; and (v) a company under CONCORDATA which fails to meet
its rescheduled obligations will be declared bankrupt.
CONSENT TO JURISDICTION AND SERVICE
The Indenture will provide that the Company and the Guarantors will appoint
CT Corporation System as their agent for service of process in any suit, action
or proceeding with respect to the Indenture, the Notes or the Subsidiary
Guarantees and for actions brought under Federal or state securities laws
brought in any Federal or state court located in the City of New York and will
submit to such jurisdiction. See "Risk Factors--Risks Relating to the
Notes--Enforceability of Judgments."
CONCERNING THE TRUSTEE
The Chase Manhattan Bank is to be the Trustee under the Indenture and has
been appointed by the Company as Registrar, and Chase Trust Bank has been
appointed as Paying Agent with regard to the Notes. Affiliates of the Trustee
own approximately 9.3% of the common shares of the Company.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
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CERTAIN DEFINITIONS
For purposes of the following definitions and the Indenture generally, all
calculations and determinations shall be made in accordance with US GAAP and
shall be based upon the consolidated financial statements of the Company and its
Subsidiaries prepared in accordance with US GAAP. For purposes of this
"Description of Notes," the term "Company" means Tevecap S.A. excluding its
Subsidiaries.
"Abril Credit Facility" means the Revolving Credit Agreement, dated December
6, 1995 between the Company and Abril S.A., as lender, as amended, refinanced or
replaced from time to time.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such Person merges with or
into or consolidates with or becomes a Restricted Subsidiary of such specified
Person and (ii) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person, which Indebtedness was not incurred in anticipation of,
and was outstanding prior to, such merger, consolidation or acquisition.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Permitted Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary; PROVIDED, HOWEVER, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Permitted Business.
"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" have meanings correlative to the foregoing. For
purposes of the covenants described under "Certain Covenants-- Limitation on
Sales of Assets and Subsidiary Stock" and "Certain Covenants--Limitation on
Affiliate Transactions", "Affiliate" shall also include any beneficial owner of
shares representing 10.0% or more of the total voting power of the Voting Stock
(on a fully diluted basis) of the Company or of rights or warrants to purchase
such Voting Stock (whether or not currently exercisable) and any Person who
would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof, and for the purposes of the covenant described under "Certain
Covenants--Limitation on Affiliate Transactions" only, shall include (i) Bell
Canada, (ii) Canbras Communications Corp., (iii) Canbras Participacoes Ltda.,
(iv) Canbras TVA Cabo Ltda., (v) TV Cabo Santa Branca Comercio Ltda. and (vi)
Galaxy Latin America.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property,
services or other assets (each referred to for the purposes of this definition
as a "disposition") by the Company or any of its Restricted Subsidiaries
(including any disposition by means of a merger, consolidation or similar
transaction) other than (i) a disposition by a Restricted Subsidiary to the
Company or by the Company or a Restricted Subsidiary to a Wholly-Owned
Restricted Subsidiary, (ii) a disposition of inventory, services or accounts
receivable in the ordinary course of business consistent with market practice,
(iii) a disposition of obsolete or worn out equipment or equipment that is no
longer useful in the conduct of the business of the Company and its Subsidiaries
and that is disposed of in each case in the ordinary course of business, and
(iv) a disposition by Galaxy Brasil of up to 25.0% of its Capital Stock to
Hughes Communications GLA and Darlene Investments, a member of the Cisneros
Group, or their respective affiliates, pursuant to the Galaxy Latin America
Partnership Agreement as it exists on the Issue Date.
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"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"California Broadcast Center" or "CBC" means the California Broadcast Center
LLC, the owner of an uplink center located in Long Beach, California, which
provides certain uplink services to Galaxy Latin America.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock and
Disqualified Stock, but excluding any debt securities convertible into such
equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
"Cash Equivalents" means, at any time, (i) any direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America or the Federative Republic of Brazil (including any
agency or instrumentality thereof) for the payment of which the full faith and
credit of the United States of America or the Federative Republic of Brazil is
pledged and which are not callable or redeemable at the issuer's option, each
with a maturity of 180 days or less from the date of acquisition; (ii)
certificates of deposit, money market deposit accounts and acceptances with a
maturity of 180 days or less from the date of acquisition of any financial
institution that is a Brazilian regulated Bank or a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not
less than $500.0 million (or the US dollar equivalent); and (iii) commercial
paper with a maturity of 180 days or less from the date of acquisition issued by
a corporation that is not an Affiliate of the Company or any of its Subsidiaries
and is organized under the laws of any state of the United States or the
District of Columbia whose debt rating, at the time as of which such investment
is made, is at least "A-1" by Standard & Poor's Corporation or at least "P-1" by
Moody's Investors Service, Inc. or rated at least an equivalent rating category
of another nationally recognized securities rating agency.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Income Tax Expense" means, with respect to any Person, for any
period the aggregate of the federal, state, local and foreign income tax expense
of such Person and its Subsidiaries for such period, on a consolidated basis as
determined in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
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attributable to Capitalized Lease Obligations, (ii) amortization of debt
discount, (iii) capitalized interest, (iv) non-cash interest expenses, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) the net costs associated with
Hedging Obligations (including amortization of fees), (vii) Preferred Stock
dividends in respect of all Preferred Stock of the Company or a Wholly-Owned
Restricted Subsidiary, (viii) interest accruing on any Indebtedness of any other
Person to the extent such Indebtedness is Guaranteed by the Company or any
Restricted Subsidiary and (ix) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there
shall not be included in such Consolidated Net Income: (i) any net income (loss)
of any Person if such Person is not a Restricted Subsidiary, except that (A)
subject to the limitations contained in clause (iv) below, the Company's equity
in the net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained in
clause (iii) below) and (B) the Company's equity in a net loss of any such
Person (other than an Unrestricted Subsidiary) for such period shall be included
in determining such Consolidated Net Income; (ii) any net income (loss) of any
person acquired by the Company or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition; (iii) any net
income (loss) of any Restricted Subsidiary if such Restricted Subsidiary is
subject to restrictions, directly or indirectly, on the payment of dividends or
the making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company, except that (A) subject to the limitations contained
in (iv) below, the Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash that could have been distributed by such
Restricted Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend (subject, in the case of a dividend that could have
been made to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain (but not loss) realized upon the sale or other
disposition of any assets of the Company or its consolidated Subsidiaries which
are not sold or otherwise disposed of in the ordinary course of business and any
gain (but not loss) realized upon the sale or other disposition of any Capital
Stock of any Person; (v) any extraordinary gain or loss; and (vi) the cumulative
effect of a change in accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and the Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii) paid
in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Cumulative Consolidated Interest Expense" means, as of any date of
determination, Consolidated Interest Expense from October 1, 1996 to the end of
the Company's most recently ended full fiscal quarter for which financial
statements are available prior to such date, taken as a single accounting
period.
"Cumulative Operating Cash Flow" means, as of any date of determination,
Operating Cash Flow from October 1, 1996 to the end of the Company's most
recently ended full fiscal quarter for which financial statements are available
prior to such date, taken as a single accounting period.
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"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock of
such Person which 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
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the first anniversary of the
Stated Maturity of the Notes.
"Equipment Agreements" means the Equipment Lease Agreement, dated as of July
30, 1996, between Citibank N.A., as lessor, and Galaxy Brasil, as lessee, and
related agreements, and the Equipment Sale and Leaseback Agreement, dated as of
July 30, 1996, between Citibank N.A., as lessor, and Galaxy Brasil, as lessee,
and related agreements, as each such agreement may be amended, supplemented or
otherwise modified from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"EximBank Credit Agreement" mean the Credit Agreement to be entered into
among the Company, The Chase Manhattan Bank, as lender, and the Export-Import
Bank of the United States, as amended, supplemented or otherwise modified from
time to time.
"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under compulsion to
complete the transaction. The Fair Market Value of any asset or assets shall be
determined by the Board of Directors of the Company, acting in good faith, and
shall be evidenced by a resolution of such Board of Directors provided to the
Trustee; PROVIDED that, solely for purposes of clause (i) of the covenant
described under "Certain Covenants--Limitation on Sales of Assets and Subsidiary
Stock" the Company shall be deemed not to have received Fair Market Value for an
Asset Disposition unless (a) in the event such Asset Disposition involves an
aggregate amount in excess of $2.0 million, the terms of such transaction have
been approved by a majority of the members of the Board of Directors of the
Company and by a majority of the members of such Board having no personal stake
in such Asset Disposition, if any, and (b) in the event such Asset Disposition
involves an aggregate amount in excess of $20.0 million, the Company has
received a written opinion from an independent investment banking firm of
nationally recognized standing in the United States that such Asset Disposition
is fair to the Company or such Restricted Subsidiary, as the case may be, from a
financial point of view (except that no such opinion shall be required in
connection with a public offering of common stock of a Restricted Subsidiary
either (A) registered under the Securities Act and/or (B) registered with the
CVM and listed on the Sao Paulo Stock Exchange or Rio de Janeiro Stock
Exchange).
"Galaxy Brasil" means Galaxy Brasil S.A., a Restricted Subsidiary of the
Company on the Issue Date.
"Galaxy Brasil Subscribers" means, as of any date, the number of subscribers
to the pay television services offered by Galaxy Brasil, excluding subscribers
who have paid an installation fee to Galaxy Brasil at such date but who are
awaiting installation of such services.
"Galaxy Latin America" means Galaxy Latin America, a Delaware general
partnership in which the Company holds a 10% equity interest on the Issue Date.
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"Galaxy Latin America Partnership Agreement" means the Partnership
Agreement, dated February 13, 1995, as in effect on the Issue Date, among Galaxy
Brasil and a unit of Hughes Electronics, a member of the Cisneros Group and a
subsidiary of Grupo MVS.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those 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 approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP as in effect on the Issue Date.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of any other Person (whether arising by virtue
of partnership arrangements, or by agreement 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 of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantor" means any Subsidiary that has issued a Guarantee.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder," "holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" or "incur" means issue, assume, Guarantee, incur or otherwise become
liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a
Person existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto), (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services, which purchase price is due more than six months after the date of
placing such property in service or taking delivery and title thereto or the
completion of such services, (v) all Capitalized Lease Obligations of such
Person and all Attributable Indebtedness of such Person, (vi) all Indebtedness
of other Persons secured by a Lien on any asset of such Person, whether or not
such Indebtedness is assumed by such Person, PROVIDED, HOWEVER, that the amount
of Indebtedness of such Person shall be the lesser of (A) the fair market value
of such asset at such date of determination and (B) the amount of such
Indebtedness of such other Persons, (vii) all Indebtedness of other Persons to
the extent Guaranteed by such Person, (viii) the amount of all obligations of
such Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of the Company, any
Preferred Stock (but excluding, in each case, any accrued dividends) and (ix) to
the extent not otherwise included
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in this definition, Hedging Obligations of such Person; PROVIDED, HOWEVER, that
in no event shall Indebtedness include Trade Payables not overdue or being
contested in good faith. The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date.
"Indebtedness to Annualized Operating Cash Flow Ratio" means, as of any date
of determination, the ratio of (i) the aggregate principal amount of all
outstanding Indebtedness of the Company and its Restricted Subsidiaries as of
such date plus, without duplication, the aggregate liquidation preference or
redemption amount of all Disqualified Stock of the Company (excluding any such
Disqualified Stock (x) held by the Company or a Wholly-Owned Restricted
Subsidiary of the Company or (y) outstanding on the Issue Date), to (ii)
Operating Cash Flow of the Company and its Restricted Subsidiaries for the most
recently ended fiscal quarter for which financial statements are available prior
to such date multiplied by four, determined on a pro forma basis (and after
giving pro forma effect to (A) the incurrence of such Indebtedness and (if
applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred, and the
application of such proceeds occurred, at the beginning of such period; (B) the
incurrence, repayment or retirement of any other Indebtedness by the Company and
its Restricted Subsidiaries since the first day of such period as if such
Indebtedness was incurred, repaid or retired at the beginning of such period
(except that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based upon the average balance of
such Indebtedness at the end of each month during such period); (C) in the case
of Acquired Indebtedness, the related acquisition as if such acquisition had
occurred at the beginning of such period; and (D) any acquisition or disposition
by the Company and its Restricted Subsidiaries (or by any Person that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) of any
company or any business or any assets out of the ordinary course of business, or
any related repayment of Indebtedness, in each case since the first day of such
period, assuming such acquisition or disposition had been consummated on the
first day of such period). For purposes of this definition, whenever pro forma
effect is to be given to a transaction, the pro forma calculation shall be made
in good faith by a responsible financial or accounting officer of the Company.
"Indemnification Agreement" means the Indemnification Agreement to be
entered into among the Company, Galaxy Latin America, Hughes Communications GLA
and affiliates thereof, California Broadcast Center, TVA Communications Ltd.,
Darlene Investments, Inversiones Divtel, D.T., C.A., Grupo Frecuencia Modulada
Television and Grupo MVS.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person) or other extension
of credit (including by way of Guarantee or similar arrangement, but excluding
any debt or extension of credit represented by a bank deposit other than a time
deposit) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition of Capital Stock, Indebtedness or
other similar instruments issued by such Person.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
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"Minority Investment" means any Investment by the Company or any Restricted
Subsidiary in an entity or Person in which the Company or such Restricted
Subsidiary owns or controls 50.0% or less of the total voting power of the
Capital Stock or other equity interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees of any such entity or Person.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred, and all Federal, state, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien upon
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made to any Person owning a beneficial interest in assets subject
to sale or minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition and (iv) the deduction of appropriate amounts
to be provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the assets disposed of in such Asset Disposition and
retained by the Company or any Restricted Subsidiary of the Company after such
Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Newly-Licensed Service Area" means a service area in which (i) such Special
Restricted Subsidiary is licensed to provide any of Cable or MMDS service and
(ii) neither the Company nor any Restricted Subsidiary is then licensed to
provide such Cable or MMDS service in such service area on the Issue Date.
"Officers' Certificate" means a certificate signed by two Officers.
"Operating Cash Flow" means, for any period, the Consolidated Net Income
(Loss) of the Company and its Restricted Subsidiaries for such period, plus,
without duplication, (i) extraordinary net losses and net losses on sales of
assets outside the ordinary course of business during such period, to the extent
such losses were deducted in computing Consolidated Net Income (Loss), plus (ii)
Consolidated Income Tax Expense, and any provision for taxes utilized in
computing the net losses under clause (i) hereof, plus (iii) Consolidated
Interest Expense (income), net, plus (iv) Other nonoperating (expenses) income,
net (v) depreciation, amortization and all other non-cash charges, to the extent
such depreciation, amortization and other non-cash charges were deducted in
computing such Consolidated Net Income (Loss) (including amortization of
goodwill and other intangibles) (other than non-cash charges which require an
accrual or reserve for cash charges in future periods), less (vi) non-cash items
increasing Consolidated Net Income (Loss) of such Person for such period
(excluding any items which represent the reversal of any accrual of, or cash
reserve for, anticipated cash charges in any prior period and excluding the
amortization of deferred sign-on and hook-up fee revenue).
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
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"Permitted Business" means (i) the delivery or distribution of television,
radio, paging or other telecommunications services in Latin America and Portugal
and (ii) any business or activity reasonably related thereto, including, without
limitation, any business conducted by the Company or any Restricted Subsidiary
on the Issue Date, the acquisition, holding or exploitation of any license
relating to the delivery of the services described in clause (i) of this
definition, the development or acquisition of rights to programming for delivery
or distribution in accordance with clause (i) of this definition and any other
business involving voice, data or video telecommunications services.
"Permitted Holders" means each of Abril S.A., Falcon International
Communications LLC, Falcon International Communications L.P., Falcon
International Communications (Bermuda) L.P., The Hearst Corporation, ABC, Inc.
and Chase Manhattan International Finance Ltd. and any entity of which any of
the foregoing, individually or collectively, beneficially owns more than 50.0%
of the Voting Stock.
"Permitted Investment" means (i) an Investment by the Company or any of its
Restricted Subsidiaries in the Company or a Restricted Subsidiary of the Company
or a Person which will, upon making such Investment, become a Restricted
Subsidiary; PROVIDED, HOWEVER, that the primary business of such Restricted
Subsidiary is a Permitted Business; (ii) any Investment in the California
Broadcast Center by the Company or a Restricted Subsidiary in an amount not to
exceed $10.0 million and, upon the repayment in full of such Investment by the
California Broadcast Center to the Company, the Investment of such amount in
Galaxy Latin America; and (iii) Temporary Cash Investments.
"Permitted Liens" means, (i) Liens for taxes, assessments or other
governmental charges not yet delinquent or which are being contested in good
faith and by appropriate proceedings if adequate reserves with respect thereto
are maintained on the books of the Company or such Subsidiary, as the case may
be, in accordance with GAAP; (ii) carriers', warehousemen's, mechanics',
landlords', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business in respect of obligations which are not yet due or
which are bonded or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of the Company or such Restricted Subsidiary, as the case may be, in
accordance with GAAP; (iii) pledges or deposits in connection with workmen's
compensation, unemployment insurance and other social security legislation; (iv)
deposits to secure the performance of bids, tenders, trade or government
contracts (other than for borrowed money), leases, licenses, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
a like nature incurred in the ordinary course of business; (v) judgment or
attachment Liens against the Company or any of its Restricted Subsidiaries not
giving rise to an Event of Default; (vi) Liens arising by operation of law;
(vii) Liens in favor of the Company or any Wholly-Owned Restricted Subsidiary of
the Company; (viii) Liens securing Indebtedness Incurred by the Company in
compliance with to clause (i) of paragraph (b) of the covenant described under
"Certain Covenants--Limitation on Indebtedness"; (ix) Liens on property and
assets (together with accounts receivable arising from such property and assets)
of Galaxy Brasil acquired with the proceeds of Indebtedness Incurred by Galaxy
Brasil in compliance with clause (viii) of paragraph (b) of the covenant
described under "Certain Covenants--Limitation on Indebtedness" or with the
proceeds of other Indebtedness Incurred in compliance with the Indenture,
PROVIDED that such Liens may not secure Indebtedness exceeding an amount equal
to the greater of (A) the amount permitted to be Incurred pursuant to such
clause (viii) and (B) an amount equal to the Operating Cash Flow of Galaxy
Brasil for the four most recent fiscal quarters for which financial statements
are available prior to the date of Incurrence; (x) Liens on real or personal
property of the Company or a Restricted Subsidiary of the Company acquired,
constructed or constituting improvements made after the Issue Date to secure
Purchase Money Indebtedness Incurred after the Issue Date in compliance with the
Indenture; PROVIDED, that (A) such Liens do not extend to any assets other than
the assets so acquired, (B) such Liens shall be created no later than 10 days
after the acquisition of such assets and (C) the principal amount of such
Indebtedness secured by such a Lien does not exceed 80% of such purchase price
or cost of construction or improvement of the property subject to such Lien;
(xi) Liens existing on the Issue Date; (xii) the
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pledge by the Company (A) to the other members of Galaxy Latin America of
warrants and promissory notes the Company holds in the California Broadcast
Center and the Company's equity interest in Galaxy Latin America and SurFin to
secure its obligations under the Equipment Agreements and the contribution
agreements to be entered into in connection with the Equipment Agreements and
the SurFin Guarantee, and the pledge of such warrants and promissory notes in
the California Broadcast Center, and equity interest in Galaxy Latin America to
secure the Company's tax indemnity obligations under the Indemnification
Agreement and (B) to Falcon International of the shares of Capital Stock of the
Company purchased with Put Promissory Notes; and (xiii) Liens to secure
Indebtedness Incurred to extend, renew, refinance or refund (or successive
extensions, renewals, refinancings or refundings), in whole or in part,
Indebtedness secured by any Lien referred to in the foregoing clauses (vii),
(viii), (ix), (x) and (xi) so long as such Lien does not extend to any other
property and the principal amount of Indebtedness so secured is not increased
except as otherwise permitted under the definition of Refinancing Indebtedness.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision hereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the note which is due or overdue or is to become due at the
relevant time.
"Purchase Money Indebtedness" means Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement and other purchase money obligations, in
each case where the maturity of such Indebtedness does not exceed the
anticipated useful life of the asset being financed, and (ii) incurred to
finance the acquisition by the Company or a Restricted Subsidiary of such asset,
including additions or improvements.
"Put Promissory Notes" means any promissory notes which may be issued by the
Company to Falcon International pursuant to the Stockholders Agreement, as
amended, in the event the Indenture prohibits the Company from purchasing shares
of Capital Stock held by such stockholder; PROVIDED that (a) such notes have
been expressly subordinated in right of payment in full to the Notes (including
principal, interest and premium, if any, and as a consequence of any repurchase,
redemption, or other repayment of the Notes, by way of optional redemption,
Asset Sale Offer or Change of Control Offer to the extent any applicable rights
to repayment are exercised by the Noteholders), (b) such notes are not
Guaranteed by any of the Company's Subsidiaries and are not secured by any Lien
on any property or asset of the Company or any Restricted Subsidiary (other than
by the pledge of the shares of Capital Stock of the Company purchased with Put
Promissory Notes), (c) such notes do not have a Stated Maturity of principal or
any redemption or repurchase or other similar provision (upon a default or
otherwise) earlier than a date at least one year after the final Stated Maturity
of the Notes; and (d) such notes bear interest at a rate consistent with the
terms of the Stockholders Agreement, as amended; PROVIDED, FURTHER, that
payments of interest on such notes may be made solely to the extent Restricted
Payments in like amount may then be made in accordance with the covenant
described under "Certain Covenants--Limitation on Restricted Payments," with any
such interest payment being included in the calculation of whether the
conditions of clause (z) of paragraph (a) of such covenant have been met with
respect to any subsequent Restricted Payments.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinances," and "refinanced" shall have
a correlative meaning) any Indebtedness existing on the date
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of the Indenture or Incurred in compliance with the Indenture (including
Indebtedness of the Company that refinances Indebtedness of any Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary) including Indebtedness that
refinances Refinancing Indebtedness, PROVIDED, HOWEVER, that (i) in respect of
Indebtedness having a Stated Maturity after the Stated Maturity of the Notes,
the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being refinanced, (ii) in respect of Indebtedness
having a Stated Maturity prior to the Stated Maturity of the Notes, the
Refinancing Indebtedness bears an interest rate materially lower than that of
the Indebtedness being refinanced, (iii) the Refinancing Indebtedness has an
Average Life at the time such Refinancing Indebtedness is Incurred that is equal
to or greater than the Average Life of the Indebtedness being refinanced, (iv)
such Refinancing Indebtedness is Incurred in an aggregate principal amount (or
if issued with original issue discount, an aggregate issue price) that is equal
to or less than the sum of the aggregate principal amount (or if issued with
original issue discount, the aggregate accredited value) then outstanding of the
Indebtedness being refinanced and (v) the Refinancing Indebtedness shall be
subordinated or PARI PASSU (whichever is applicable) in right of payment to the
Notes to the same extent as the Indebtedness being refinanced is subordinated or
PARI PASSU in right of payment to the Notes; PROVIDED, FURTHER, that Refinancing
Indebtedness shall not include Indebtedness of a Restricted Subsidiary which
refinances Indebtedness of the Company or Indebtedness of the Company or a
Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary. Notwithstanding the foregoing, in the case of Indebtedness
represented by obligations described in clause (iv) of the definition of
"Indebtedness," the re-incurrence of such Indebtedness within 60 days after the
repayment thereof shall be deemed to be Refinancing Indebtedness for purposes of
this definition; PROVIDED, HOWEVER, that it otherwise complies with the terms of
this definition and that the amount of such Indebtedness deemed to be
Refinancing Indebtedness hereunder shall not exceed $50.0 million at any one
time.
"Representative" means any trustee, agent or representative (if any) of an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Person owning such property transfers
such property to another Person and leases it back from such Person.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Senior Credit Facility" means any senior credit facility (whether a term or
a revolving facility) as such credit facility may be amended, modified,
supplemented, restated or replaced from time to time.
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"Significant Equity Offering" means either (i) a public offering of Common
Stock of the Company either (A) registered under the Securities Act and/or (B)
registered with the CVM and listed on the Sao Paulo Stock Exchange or Rio de
Janeiro Stock Exchange or (ii) an offering on behalf of the Company pursuant to
Rule 144A under the Securities Act of Common Stock of the Company to 100 or more
beneficial holders if such Common Stock is thereafter included for trading
privileges in the PORTAL trading system of Nasdaq.
"Special Restricted Subsidiary" means any Restricted Subsidiary of the
Company that has been designated by the Board of Directors, by a Board
Resolution delivered to the Trustee, as a Special Restricted Subsidiary and as
to which there has not been an effective revocation, in each case in accordance
with the covenant under "Certain Covenants--Limitation on Designations of
Special Restricted Subsidiaries."
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable.
"Strategic Investor" means any Person engaged in a Permitted Business that
as of the date of determination has a Total Equity Market Capitalization of at
least $1.0 billion.
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.
"Subordinated Shareholder Loans" means Indebtedness of the Company for money
borrowed from a shareholder beneficially owning at least 5.0% of the issued and
outstanding shares of common stock of the Company (or any Affiliate of such
shareholder), PROVIDED that (A) such Indebtedness (and any refinancing thereof)
has been expressly subordinated in right of payment to the prior payment in full
of all Indebtedness (including principal, interest and premium, if any, under
the Notes and the Indenture) of the Company (including as a consequence of any
repurchase, redemption or other repayment of the Notes, by way of optional
redemption, Asset Sale Offer, or Change of Control Offer to the extent any
applicable rights to repayment are exercised by the Noteholders), (B) such
Indebtedness (and any refinancing thereof) is not Guaranteed by any of the
Company's Subsidiaries and is not secured by any Lien on any property or asset
of the Company or any Restricted Subsidiary, (C) such Indebtedness (and any
refinancing thereof) does not have a Stated Maturity of principal or any
redemption or repurchase or other similar provision (upon a default or
otherwise) earlier than a date at least one year after the final Stated Maturity
of the Notes and (D) such Indebtedness bears interest at a rate consistent with
prevailing market practice for subordinated loans; PROVIDED FURTHER that
payments of interest on such Indebtedness (and any refinancing thereof) may be
made solely to the extent Restricted Payments in like amount may then be made in
accordance with the covenant described under "Certain Covenants--Limitation on
Restricted Payments," with any such interest payment being included in the
calculation of whether the conditions of clause (z) of paragraph (a) of such
covenant have been met with respect to any subsequent Restricted Payments.
"Subsidiary" of any Person means any corporation, association, partnership,
joint venture or other business entity (i) of which more than 50.0% of the total
voting power of shares of Capital Stock or other interests (including
partnership interests) 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 (A) such Person,
(B) such Person and one or more Subsidiaries of such Person or (C) one or more
Subsidiaries of such Person and (ii) which is controlled by such Person. Unless
otherwise specified herein, each reference to a Subsidiary shall refer to a
Subsidiary of the Company.
"Subsidiary Guarantee" means, individually, any Guarantee of payment of the
Notes which may from time to time be executed and delivered by a Subsidiary or
affiliate of the Company pursuant to the
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terms of the Indenture, and, collectively, all such Guarantees. Each such
Subsidiary Guarantee will be in the form prescribed in the Indenture.
"SurFin Guarantee" means the Guarantee, dated as of September 18, 1996, by
the Company in favor of Citicorp USA, Inc. as such guarantee may be amended,
modified, supplemented or restated from time to time.
"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America having capital, surplus and undivided profits
aggregating in excess of $250 million (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act), (iii) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) Investments in commercial paper, maturing not more than 180
days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard and Poor's Ratings Group.
"Total Equity Market Capitalization" of any Person means, as of any date of
determination, the product of (i) the aggregate number of outstanding shares of
Common Stock of such Person on such date (which shall not include any options or
warrants on, or securities convertible or exchangeable into, shares of Common
Stock of such Person) and (ii) the average closing price of such Common Stock
over the 20 consecutive trading days immediately preceding such date. If no such
closing price exists with respect to shares of any such class, the value of such
shares shall be determined by the Board of Directors in good faith and evidenced
by a resolution of the Board of Directors filed with the Trustee.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person (including letters of credit issued in respect
thereof) arising in the ordinary course of business in connection with the
acquisition of either (x) current assets as characterized in accordance with
GAAP or (y) services which are currently expensed in accordance with GAAP.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company (other
than a Guarantor) designated as such pursuant to and in compliance with the
covenant described under "Certain Covenants--Limitation on Designations of
Unrestricted Subsidiaries" and (ii) any Subsidiary of an Unrestricted
Subsidiary.
"US Dollar Equivalent" means, with respect to any monetary amount in a
currency other than the US dollar at any one time for the determination thereof,
the amount of US dollars obtained by converting such foreign currency involved
in such computation into US dollars at the spot rate for the purchase of US
dollars with the applicable foreign currency as quoted by Reuters at
approximately 11:00 a.m. (New York time) on the date not more than two business
days prior to such determination. For purposes of determining whether any
Indebtedness can be incurred (including Permitted Indebtedness), any Investment
can be made and any Affiliate Transaction can be undertaken (a "Tested
Transaction"), the "US Dollar Equivalent" of such Indebtedness, Investment or
Affiliate Transaction shall be determined on the date incurred, made or
undertaken and no subsequent change in the US Dollar Equivalent shall cause such
Tested Transaction to have been incurred, made or undertaken in violation of the
Indenture.
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"US Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly-Owned Subsidiary" means a Subsidiary of the Company, at least 95.0%
of the Capital Stock of which (other than directors' qualifying shares) is owned
by the Company or another Wholly-Owned Subsidiary of the Company.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Exchange Notes will be issued in the form of
one or more registered notes in global form without coupons (each a "Global
Note"). Upon issuance, each Global Note will be deposited with, or on behalf of,
The Depository Trust Company ("DTC") and registered in the name of Cede & Co.,
as nominee of DTC.
Old Notes originally purchased by or transferred to (i) institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) who are not "qualified institutional buyers" (as defined in Rule
144A under the Securities Act and referred to as "QIBs"), (ii) QIBs who elected
to take physical delivery of their certificates instead of holding their
interest in Global Notes, or (iii) any other holders who are not QIBs, which Old
Notes were issued in registered form without coupons (the "Old Certificated
Notes") are exchangeable for Exchange Notes in registered form without coupons
(the "Exchange Certificated Notes").
Interests in the Global Notes will be exchangeable or transferable, as the
case may be, for Exchange Certificated Notes if (i) DTC notifies Tevecap that it
is unwilling or unable to continue as depositary for such Global Notes, or DTC
ceases to be a "Clearing Agency" registered under the Exchange Act, and a
successor depositary is not appointed by Tevecap within 90 days, or (ii) an
Event of Default has occurred and is continuing with respect to such Notes. Upon
the occurrence of any of the events described in the preceding sentence, Tevecap
will cause the appropriate Exchange Certificated Notes to be delivered.
The Depository has advised the Company that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the meaning
of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The Depository was
created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. The Depository's Participants include securities
brokers and dealers (including the Initial Purchasers), banks and trust
companies, clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants") that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly. QIBs who are not Participants may beneficially own
securities held by or on behalf of the Depository only through Participants or
Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Notes, the Depository or its custodian
will credit the accounts of Participants designated by the Initial Purchasers
with an interest in a Global Note and (ii) ownership of the Notes will be shown
on, and the transfer of ownership thereof will be effected only through, records
maintained by the Depository (with respect to the interest of Participants), the
Participants and the Indirect Participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they
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own and that security interests in negotiable instruments can only be perfected
by delivery of certificates representing the instruments. Consequently, the
ability to transfer Notes or to pledge the Notes as collateral will be limited
to such extent.
So long as the Depository or its nominee is the registered owner of a Global
Note, the Depository or such nominee, as the case may be, will be considered the
sole owner or Holder of the Notes represented by such Global Note for all
purposes under the Indenture. Except as provided below, owners of beneficial
interests in a Global Note will not be entitled to have Notes represented by
such Global Note registered in their names, will not receive or be entitled to
receive physical delivery of Certificated Securities, and will not be considered
the owners or holders thereof under the Indenture for any purpose, including
with respect to giving of any directions, instruction or approval to the Trustee
thereunder. As a result, the ability of a person having a beneficial interest in
Notes represented by a Global Note to pledge such interest to persons or
entities that do not participate in the Depository's system or to otherwise take
action with respect to such interest, may be affected by the lack of a physical
certificate evidencing such interest.
Accordingly, each person owning a beneficial interest in a Global Note must
rely on the procedures of the Depository and, if such beneficial owner is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such person owns its interest, to exercise any rights of a Holder
under the Indenture or such Global Note. The Company understands that under
existing industry practice, in the event the Company requests any action of
holders or a person that is an owner of a beneficial interest in a Global Note
desires to take any action that the Depository, as the Holder of such Global
Note, is entitled to take, the Depository would authorize the Participants to
take such action and the Participant would authorize beneficial owners owning
through such Participants to take such action or would otherwise act upon the
instruction of such beneficial owners. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of Notes by the Depository, or for maintaining,
supervising or reviewing any records of the Depository relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest on
any Notes represented by a Global Note registered in the name of the Depository
or its nominee on the applicable record date will be payable by the Trustee to
or at the direction of the Depository or its nominee in its capacity as the
registered Holder of such Global Note representing such Notes under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payment and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of Notes (including principal, premium, if
any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in a Global Note as shown on
the records of the Depository. Payments by the Participants and the Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Participants or the Indirect Participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is no
longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, or (iii) upon the occurrence of certain
other events, then, upon surrender by the Depository of its Global Notes,
Certificated Securities will be issued to each person that the Depository
identifies as the beneficial owner of the Notes represented by the Global Note.
In addition, subject to certain conditions, any person having a beneficial
interest in a Global Note may,
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upon request to the Trustee, exchange such beneficial interest for Certificated
Securities. Upon any such issuance, the Trustee is required to register such
Certificated Securities in the name of such person or persons (or the nominee of
any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depository or any Participant or Indirect Participant in identifying the
beneficial owners of the related Notes and each such person may conclusively
rely on, and shall be protected in relying on, instructions from the Depository
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the Notes to be issued).
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made in immediately available funds. So
long as the Notes are represented by a permanent Global Note or Notes, all
payments of principal, premium, if any, and interest will be made by the Company
in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. So long as the Notes are
represented by a permanent Global Note or Notes registered in the name of the
Depositary or its nominee, except for trades between Euroclear and Cedel
participants, interests in the Notes are expected to trade in the Depositary's
Same-Day Funds Settlement System, and secondary market trading activity in the
Notes will therefore be required by the Depositary to settle in immediately
available funds. No assurance can be given as to the effect, if any, of
settlement in immediately available funds on the trading activity in the Notes.
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INCOME TAX CONSIDERATIONS
BRAZIL
The following is a summary of the material Brazilian income tax consequences
to Tevecap in connection with the sale and repayment of the Notes (including any
interest thereon) and to beneficial owners of the Notes that are non-residents
of Brazil in connection with the purchase, ownership and disposition of such
Notes. This summary is limited to Tevecap and to non-residents of Brazil which
acquire the Notes at the issue price from the Initial Purchasers, and does not
address investors who purchase Notes at a premium or market discount. In
addition, this summary is based on the Brazilian tax regulations as presently in
effect and does not take into account possible future changes in such tax laws.
Prospective purchasers of the Notes are advised to consult their tax advisers as
to the consequences of a purchase and sale of the Notes.
Individuals domiciled in Brazil and Brazilian companies are taxed in Brazil
on the basis of their worldwide income (which includes earnings of Brazilian
companies' foreign subsidiaries, branches and affiliates). The earnings of
branches of foreign companies and non- Brazilian residents in general are taxed
in Brazil only when derived from Brazilian sources. Interest, fees, commissions
and any other income (which for the purposes of this paragraph includes any
deemed income on the difference between the issue price of the Notes and the
price at which the Notes are redeemed) payable by a Brazilian obligor to an
individual, company, entity, trust or organization domiciled outside Brazil is
considered derived from Brazilian sources and is therefore subject to income tax
withheld at the source. Brazilian tax laws expressly authorize the paying source
to pay the income or earnings net of taxes and, therefore, to assume the cost of
the applicable tax. The rate of withholding is 15.0% or such other lower rate as
is provided for in an applicable tax treaty between Brazil and such other
country where the recipient of the payment has its domicile. Notwithstanding the
foregoing, the applicable withholding tax rate for negotiable instruments such
as the Notes was reduced to zero, pursuant to Resolutions 1853 of July 31, 1991
and 644 of October 22, 1980 of the Central Bank, subject to Central Bank
Circular 2661 of February 8, 1996, which restricts such withholding tax
reductions to negotiable instruments having a minimum maturity of 96 months. As
a result, since the Notes have an original maturity of 96 months, such reduction
will apply to payments of interest and other income with respect to the Notes.
If, however, any Note is redeemed prior to November 26, 2004, such reduction
will not apply and, therefore, upon such redemption the Brazilian withholding
tax will be imposed on the amount of interest, fees and commissions paid on such
Notes from the date of issue through the date of redemption. Based on the advice
of its Brazilian tax counsel, Tevecap believes and intends to take the position
for tax reporting purposes that, in the event of any such early redemption to
which such withholding tax applies, so long as the Principal Paying Agent is
located in Japan and payment to the Principal Paying Agent discharges the
obligations of Tevecap to make payments in respect of the Notes, interest and
other income with respect to the Notes will be subject to Brazilian withholding
tax at a rate of 12.5% under the tax treaty in effect between Brazil and Japan.
In any event, under the terms of the Notes, Tevecap would be required to gross
up Noteholders for any Brazilian withholding tax, subject to customary
exceptions. See "Description of the Notes--Additional Amounts." Tevecap has the
right to redeem the Notes at par in the event that it is required to gross up
for Brazilian withholding tax imposed at a rate in excess of 15.0%. See
"Description of the Notes--Redemption for Changes in Withholding Taxes."
Any earnings or capital gains resulting from the sale (whether inside or
outside Brazil) of any Notes by a non-resident of Brazil to another non-resident
of Brazil are not subject to tax in Brazil. Earnings or capital gains resulting
from the sale (whether inside or outside Brazil) of any Notes by a non-resident
of Brazil to a resident of Brazil should not be subject to tax in Brazil,
although the matter is not free from doubt.
On February 8, 1996, the Brazilian Federal Government issued Decree No.
1815, implemented by Portaria No. 28 (as amended from time to time), which
imposed a tax on Brazilian issuers with respect to
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foreign exchange transactions ("IOF Tax") related to the entering into Brazil of
proceeds resulting from foreign loans (including the issuance of securities such
as the Notes). The IOF Tax has varying rates depending on the final maturity of
the transaction as follows: (i) foreign loans with a minimum average maturity of
less than 3 years are subject to a 3.0% IOF Tax; (ii) foreign loans with a
minimum average maturity of 3 years or more but less than 4 years are subject to
a 2.0% IOF Tax; (iii) foreign loans with a minimum average maturity of 4 years
or more but less than 5 years are subject to a 1.0% IOF Tax; and (iv) foreign
loans with a minimum average maturity of 5 years or more are not subject to IOF
Tax. Only Brazilian issuers, and not holders of foreign loans such as the Notes
are liable for payment of IOF Tax.
There is no stamp, transfer or other similar tax in Brazil with respect to
the transfer, assignment or sale or any debt instrument--outside Brazil
(including the Notes).
UNITED STATES
The following is a summary of the material United States Federal income tax
consequences to beneficial owners of the Notes that are citizens or residents of
the United States, corporations, partnerships or other entities created or
organized in or under the laws of the United States or any State thereof, or
estates or trusts the income of which is subject to United States Federal income
taxation regardless of its source, as well as other persons subject to United
States Federal income taxation on a net income basis in respect of the purchase,
ownership and disposition of a Note ("US Holders"). Such tax treatment may vary
depending upon the particular situation of a US Holder. This summary does not
discuss all of the tax consequences that may be relevant to certain types of
investors subject to special treatment under the United States Federal income
tax laws (such as individual retirement accounts and other tax deferred
accounts, banks, securities broker- dealers, life insurance companies,
tax-exempt organizations, foreign persons, persons whose "functional currency"
is other than the US dollar or persons which hold Notes as part of a "straddle"
or "conversion transaction" or otherwise as part of a "synthetic asset") and is
limited to investors which hold Notes as capital assets. In addition, this
summary is limited to US Holders which acquire the Notes at their issue price
from the Initial Purchasers and does not address investors who purchase Notes at
a premium or market discount. This summary is based on the Internal Revenue Code
of 1986, as amended (the "Code"), final, temporary and proposed Treasury
regulations thereunder (the "Regulations"), revenue rulings, court cases, and
other legal authorities as now in effect (or proposed) and as currently
interpreted, and does not take into account possible changes in such tax laws or
other legal authorities or such interpretations. No rulings on any of the issues
discussed below will be sought from the United States Internal Revenue Service
(the "IRS").
PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR TAX
ADVISERS AS TO THE CONSEQUENCES OF A PURCHASE AND SALE OF NOTES, INCLUDING,
WITHOUT LIMITATION, (I) THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
NON-US TAX LAWS TO WHICH THEY MAY BE SUBJECT, AND OF ANY POSSIBLE LEGISLATIVE OR
ADMINISTRATIVE CHANGES IN LAW, (II) THE UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE POSSIBLE DEDUCTION BY THE ISSUER OF BRAZILIAN TAXES (AND OF
THE PAYMENT BY THE ISSUER OF ADDITIONAL AMOUNTS WITH RESPECT THERETO) FROM
PAYMENTS ON THE NOTES, (III) THE AVAILABILITY FOR UNITED STATES FEDERAL INCOME
TAX PURPOSES OF A CREDIT OR DEDUCTION FOR ANY BRAZILIAN TAXES SO DEDUCTED AND
(IV) THE CONSEQUENCES OF PURCHASING THE NOTES AT A PRICE OTHER THAN THEIR ISSUE
PRICE.
INTEREST ON THE NOTES
Interest on the Notes will be taxable to a US Holder as ordinary income at
the time it accrues or is received in accordance with the US Holder's method of
accounting for tax purposes. The amount includible in the income of a US Holder
will be the gross amount of interest, including any Additional Amounts, if any,
payable to holders of Notes (i.e., the amount before deduction of any Brazilian
withholding taxes).
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DISPOSITION OF A NOTE
Generally, any sale, redemption or other taxable disposition of a Note by a
US Holder will result in taxable gain or loss equal to the difference between
(1) the sum of the amount of cash and the fair market value of other property
received with respect to such taxable sale, redemption or other distribution
(other than consideration attributable to accrued interest not previously taken
into account, which consideration would be treated as interest received) and (2)
the US Holder's tax basis in the Note. Any gain or loss upon a sale or other
disposition of a Note will be capital gain or loss (which will be long-term if
the Note is held for more than one year).
EXCHANGE OFFER
The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer
will not be considered a recognition event for United States Federal income tax
purposes and accordingly a US Holder will not recognize taxable gain or loss as
a result thereof. For the purposes of determining the amount and character of
gain or loss upon the subsequent sale or exchange of Exchange Notes, a US Holder
would have the same tax basis and holding period in an Exchange Note as such US
Holder's tax basis and holding period in the Note exchanged therefor.
EFFECT OF BRAZILIAN WITHHOLDING TAXES
It is believed that payments with respect to a Note will not be subject to
Brazilian withholding tax unless the Note is redeemed prior to November 26,
2004. See "--Brazil." In the case of any Note which is so redeemed, withholding
taxes in respect of interest previously paid may be imposed by Brazil at the
time of redemption. Any Brazilian tax withheld generally will be treated as a
foreign income tax that US Holders may elect to deduct in computing their
taxable income or, subject to the limitations on foreign tax credits generally,
to credit against their United States Federal income tax liability. No such
deduction or credit will be available to the extent Brazil pays a subsidy to a
US Holder, a related person or Tevecap, the amount of which is determined
(directly or indirectly) by reference to the amount of the withholding tax.
While Brazil does not have a program or policy of paying such subsidies at
present, it has had programs of that nature in the past and could implement such
programs again in the future. For purposes of determining a US Holder's United
States foreign tax credit, the gain or loss on the sale, redemption or other
taxable disposition of a Note will generally constitute United States source
income. Interest (including any Additional Amounts payable by Tevecap) will
generally constitute foreign source passive income or financial services income
for United States foreign tax credit purposes. However, if a Note is redeemed
prior to November 26, 2004, and payments with respect to the Note are subject to
Brazilian withholding tax imposed at a rate of 5.0% or more, the IRS might
retroactively treat interest paid with respect to the Note as high withholding
tax interest. In any event, because the amount of foreign taxes for which the
foreign tax credit may be taken for the taxable year is generally limited to an
amount equal to the US Holder's United States Federal income tax rate multiplied
by its foreign source income for the taxable year, a US Holder may have
insufficient foreign source income to utilize fully any foreign tax credit
attributable to such Brazilian withholding taxes (but such US Holder may be
entitled to utilize the foreign tax credit attributable to such withholding
taxes for the holders' previous two or succeeding five taxable years, or such
withholding taxes may instead be deductible by the US Holder). A US Holder may
be required to provide the IRS with a certified copy of the receipt evidencing
payment of withholding tax imposed in respect of payments on the Notes (a
"Certified Copy") in order to claim a foreign tax credit in respect of such
withholding tax. A US Holder (or its agent) may obtain a Certified Copy by
providing written demand therefor to the Principal Paying Agent. The Principal
Paying Agent will contact Tevecap, which will provide such Certified Copy to the
Principal Paying Agent for prompt forwarding to the relevant US Holder. Tevecap
will attach to each Certified Copy a certificate stating (x) that the amount of
withholding tax evidenced by the Certified Copy was paid in connection with
payments in respect of
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<PAGE>
the principal amount of Notes then outstanding and (y) the amount of such
withholding tax paid per US$1,000 of principal amount of the Notes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the Notes are outstanding, each DTC
participant or indirect participant holding an interest in a Note on behalf of a
US Holder and each paying agent making payments in respect of a Note will
generally be required to provide the IRS with certain information, including
such US Holder's name, address and taxpayer identification number (either such
US Holder's Social Security number or its employer identification number, as the
case may be), and the aggregate amount of interest and principal paid to such US
Holder during the calendar year. These reporting requirements, however, do not
apply with respect to certain US Holders, including corporations, securities
dealers, other financial institutions, tax-exempt organizations, qualified
pension and profit sharing trusts, individual retirement accounts.
In the event that a US Holder fails to establish its exemption from such
information reporting requirements or is subject to the reporting requirements
described above and fails to supply its correct taxpayer identification number
in the manner required by applicable law, or underreports its tax liability, the
direct or indirect DTC participant holding such interest on behalf of such US
Holder or paying agent making payments in respect of a Note may be required to
"backup" withhold a tax equal to 31.0% of each payment of interest and principal
with respect to the Notes. This backup withholding tax is not an additional tax
and may be credited against the US Holder's United States Federal income tax
liability if the required information is furnished to the IRS.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resales of such Exchange Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. Each of the Company and
the Subsidiary Guarantors has agreed that, for a period of 90 days after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1997, all dealers effecting transactions in the Exchange
Securities may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to the Registered Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such Exchange Securities. Any broker-dealer that resells
Exchange Securities that were received by it for its own account pursuant to the
Registered Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Securities may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange Securities and any commission or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company and the Subsidiary Guarantors have jointly and
severally agreed to pay all expenses incident to the Registered Exchange Offer
(including the expenses of one counsel for the Holders of the Securities) other
than commissions or concessions of any broker-dealers and will indemnify the
Holders of the Securities (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
EXPERTS
The consolidated balance sheets of Tevecap S.A. and subsidiaries as of
December 31, 1995 and 1994 and the related statements of income, changes in
shareholders' equity and cash flows for the two years in the period ended
December 31, 1995 and the combined statements of income, shareholders' equity
and cash flows of the Tevecap S.A. and subsidiaries for the year ended December
31, 1993 have been included herein in reliance on the report of Coopers &
Lybrand, independent public accountants, given on the authority of that firm as
experts in auditing and accounting.
The balance sheets of TVA Sistema De Televisao S.A. as of December 31, 1995
and 1994 and the related statements of income, changes in shareholders' equity
and cash flows for the three years in the period ended December 31, 1995 have
been included herein in reliance on the report of Coopers & Lybrand, independent
public accountants, given on the authority of that firm as experts in auditing
and accounting.
The combined balance sheets of TVA Sul Participacoes S.A. and subsidiaries
as of December 31, 1995 and 1994 and the related statements of income, changes
in shareholders' equity and cash flows for
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<PAGE>
the three years in the period ended December 31, 1995 have been included herein
in reliance on the report of Coopers & Lybrand, independent public accountants,
given on the authority of that firm as experts in auditing and accounting.
The Statements of Revenues and Direct Operating Expenses of TVA Alfa Cabo
Ltda., TCC TV a Cabo Ltda., CCS Camboriu Cable System de Telecommunicacoes
Ltda., TVA Sul Foz do Iguacu Ltda., and TVA Sul Santa Catarina Ltda. for the
three years in the period ended December 31, 1995 have been included herein in
reliance on the reports of Coopers & Lybrand, independent public accountants,
given on the authority of that firm as experts in auditing and accounting.
With respect to the unaudited interim financial information of Tevecap S.A.
and subsidiaries for the nine-months ended September 30, 1995 and 1996, Coopers
& Lybrand reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their report
dated November 21, 1996, states that they did not audit and they do not express
opinions on the aforementioned unaudited interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
Coopers & Lybrand are not subject to the liability provisions of Section 11 of
the Securities Act of 1933 (the "Act") for their report on the aforementioned
unaudited interim condensed financial statements because this report is not a
"report" or a "part" of the registration statement prepared or certified by
Coopers & Lybrand within the meaning of Sections 7 and 11 of the Act.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
Exchange Notes being offered hereby will be passed upon for the Company by Basch
& Rameh--Advogados e Consultores, Sao Paulo, with respect to matters of
Brazilian law, and by Mayer, Brown & Platt, New York, with respect to matters of
United States federal law and New York law. The matters referred to under
"Income Tax Considerations--United States" will be passed upon for the Company
by Mayer, Brown & Platt, New York.
AVAILABLE INFORMATION
Tevecap and the Guarantors have filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form F-4 under the
Securities Act of 1933 (the "Securities Act"), with respect to the Exchange
Securities offered hereby (the "Exchange Offer Registration Statement"). This
Prospectus, which constitutes a part of the Exchange Offer Registration
Statement, does not contain all the information set forth in the Exchange Offer
Registration Statement, certain parts of which have been omitted from the
Prospectus in accordance with the rules and regulations of the Commission. For
further information with respect to Tevecap, the Guarantors and the Exchange
Securities offered hereby, reference is made to the Exchange Offer Registration
Statement, including the exhibits and schedules filed therewith, and the
financial statements and notes filed as a part thereof. Statements made in the
Prospectus concerning the contents of any document referred to herein are not
necessarily complete. With respect to each such document filed with the
Commission as an exhibit to the Exchange Offer Registration Statement, reference
is made to the exhibit for a more complete description of the matter involved,
and each such statement shall be deemed qualified in its entirely by such
reference.
Tevecap is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith is required to file reports with the Commission. All reports and other
information filed by Tevecap, and the Exchange Offer Registration Statement,
including the exhibits and schedules thereto, may be inspected and copied at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
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Illinois 60661. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in New
York, New York, and Chicago, Illinois, at the prescribed rates.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, the Guarantors will become subject to the informational
requirements of the Exchange Act, and in accordance therewith will be required
to file reports and other information with the Commission. The Indenture
provides that, whether or not Tevecap has a class of securities registered under
the Exchange Act, Tevecap shall furnish without cost to each holder of Notes and
file with the Commission (whether or not Tevecap is a public reporting company
at the time), the Trustee and the Initial Purchasers: (i) within 140 days after
the end of each fiscal year of Tevecap, annual reports on Form 20-F (or any
successor form) containing the information required to be contained therein (or
required in such successor form); (ii) within 60 days after the end of each of
the first three fiscal quarters of each fiscal year, reports on Form 6-K (or any
successor form); and (iii) promptly from time to time after the occurrence of
any event required to be therein reported, such other reports on Form 6-K (or
any successor form) containing substantially the same information required to be
contained in Form 8-K (or required in any successor form). Each of the reports
will be prepared in accordance with US GAAP consistently applied and will be
prepared in accordance with the applicable rules and regulations of the
Commission.
As foreign private issuers, Tevecap and the Guarantors are exempt from
certain provisions of the Exchange Act prescribing the furnishing and content of
proxy statements.
PUBLIC DOCUMENTS
The information presented in the section entitled "Annex A--The Federative
Republic of Brazil" is based upon material obtained from the Central Bank of
Brazil, the Sao Paulo and Rio de Janeiro Stock Exchanges, the IBGE and from
other publicly available information referred to therein. The information is
believed to be accurate but has not been independently verified by Tevecap or
any of its advisors in connection with the Offering.
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TEVECAP S.A. AND
SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F- 3
Balance Sheets at September 30, 1996 (unaudited) and December 31, 1995 and 1994...... F- 4
Statements of Operations for the nine months ended September 30, 1996 (unaudited),
and September 30, 1995 (unaudited) and each of the three years ended December 31,
1995............................................................................... F- 6
Statements of Changes in Shareholders' Equity and Statement of Redeemable Common
Stock for the nine months ended September 30, 1996 (unaudited), and September 30,
1995 (unaudited) and each of the three years ended December 31, 1995............... F- 7
Statements of Cash Flows for the nine months ended September 30, 1996 (unaudited) and
September 30, 1995 (unaudited) and each of the three years ended December 31,
1995............................................................................... F- 8
Notes to these Financial Statements.................................................. F-10
</TABLE>
TVA SISTEMA DE TELEVISAO S.A.
CONTENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-42
Balance Sheets at September 30, 1996 (unaudited) and December 31, 1995 and 1994...... F-43
Statements of Operations for the nine months ended September 30, 1996 (unaudited) and
September 30, 1995 (unaudited) and each of the three years ended December 31,
1995............................................................................... F-45
Statements of Changes in Shareholders' Equity for the nine months ended September 30,
1996 (unaudited) and September 30, 1995 (unaudited) and each of the three years
ended December 31, 1995............................................................ F-46
Statements of Cash Flows for the nine months ended September 30, 1996 (unaudited) and
September 30, 1995 (unaudited) and each of the three years ended December 31,
1995............................................................................... F-47
Notes to these Financial Statements.................................................. F-48
</TABLE>
TVA SUL PARTICIPACOES S.A.
AND SUBSIDIARIES
CONTENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-60
Balance Sheets at September 30, 1996 (unaudited) and December 31, 1995 and 1994...... F-61
Statements of Operations for the nine months ended September 30, 1996 (unaudited) and
September 30, 1995 (unaudited) and each of the three years in the period ended
December 31, 1995.................................................................. F-63
Statements of Changes in Shareholders' Equity for the nine months ended September 30,
1996 (unaudited) and September 30, 1995 (unaudited) and each of the three years in
the period ended December 31, 1995................................................. F-64
Statements of Cash Flows for the nine months ended September 30, 1996 (unaudited) and
September 30, 1995 (unaudited) and each of the three years in the period ended
December 31, 1995.................................................................. F-65
Notes to these Financial Statements.................................................. F-67
</TABLE>
TV ALFA CABO LTDA.
CONTENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-76
Statements of Revenues and Direct Operating Expenses................................. F-77
Notes to Statements of Revenues and Direct Operating Expenses........................ F-78
</TABLE>
TCC TV A CABO LTDA.
CONTENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-79
Statements of Revenues and Direct Operating Expenses................................. F-80
Notes to Statements of Revenues and Direct Operating Expenses........................ F-81
</TABLE>
F-1
<PAGE>
CSS CAMBORIU CABLE SYSTEMS DE TELECOMUNICACOES LTDA.
CONTENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-82
Statements of Revenues and Direct Operating Expenses................................. F-83
Notes to Statements of Revenues and Direct Operating Expenses........................ F-84
</TABLE>
TVA SUL FOZ DO IGUACU LTDA.
(FORMERLY TCI TV A CABO IGUACU LTDA.)
CONTENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-85
Statements of Revenues and Direct Operating Expenses................................. F-86
Notes to Statements of Revenues and Direct Operating Expenses........................ F-87
</TABLE>
TVA SUL SANTA CATARINA LTDA.
(FORMERLY TV CABO SERVICOS SANTA CATARINA LTDA.
CONTENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-88
Statements of Revenues and Direct Operating Expenses................................. F-89
Notes to Statements of Revenues and Direct Operating Expenses........................ F-90
</TABLE>
TVA ALFA CABO LTDA.("TV ALFA"); TCC TV A CABO LTDA. ("TCC"); CCS CAMBORIU CABLE
SYSTEM DE TELECOMUNICACOES LTDA. ("CCS");TVA SUL PARANA LTDA.("TVA PARANA); TVA
SUL FOZ DO IGUACU LTDA.("FOZ DO IGUACU");AND, TVA SUL SANTA
CATARINA LTDA ("SSC")
(UNAUDITED FINANCIAL INFORMATION)
CONTENTS
<TABLE>
<S> <C>
Balance Sheets at September 30, 1996 (unaudited)..................................... F-91
Statements of Income for the nine months ended September 30, 1996 (unaudited)........ F-92
Statements of Changes in Shareholders' Equity for the nine months ended September 30,
1996 (unaudited)................................................................... F-93
Statements of Cash Flows for the nine months ended September 30, 1996 (unaudited).... F-94
Notes to these Unaudited Financial Information....................................... F-95
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
TEVECAP S.A.
We have audited the accompanying a) consolidated balance sheets of TEVECAP
S.A. and subsidiaries (the "Company") as of December 31, 1995 and 1994 and the
related consolidated statements of operations, changes in shareholders' equity
and redeemable common stock and cash flows for the two years in the period ended
December 31, 1995; and, b) combined statements of operations, shareholders'
equity and cash flows of the Company for the year ended December 31, 1993, all
expressed in United States dollars. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, a) the consolidated financial position of the Company
as of December 31, 1995 and 1994 and the consolidated results of operations and
cash flows for the two years in the period ended December 31, 1995; and, b) the
combined results of operations and cash flows of the Company for the year ended
December 31, 1993, in conformity with accounting principles generally accepted
in the United States of America.
As discussed in Note 3 to these financial statements, the Company has
retroactively changed its method of accounting for installation equipment costs
and operating costs incurred during the period of constructing their television
systems.
As discussed in Note 4, the previously issued financial statements as of
December 31, 1994 and 1995 and for each of the two years in the period ended
December 31, 1995 have been restated to reflect the reclassification of common
stock subject to redemption separately from equity and the reporting of an
investment on the equity method.
Coopers & Lybrand
Sao Paulo, Brazil
August 23, 1996, except as to the information presented
in Notes 4, 20, 25 and 26 for which the date is February 5, 1997.
F-3
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 (UNAUDITED), AND DECEMBER 31, 1995 AND 1994
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------
1996 1995 1994
-------------- ----------- ---------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents (Note 5).................................... $ 619 $ 24,201 $ 4,644
Accounts receivable, net (Note 6)..................................... 21,645 11,253 7,541
Inventories (Note 7).................................................. 15,840 13,076 5,703
Film exhibition rights (Note 8)....................................... 725 30 1,417
Prepaid and other assets (Note 9)..................................... 2,511 2,968 1,699
Other accounts receivable (Note 10)................................... 2,259 985 384
-------------- ----------- ---------
Total current assets................................................ 43,599 52,513 21,388
-------------- ----------- ---------
Property, plant and equipment (Note 14)................................. 188,063 131,266 51,426
Investments (Note 13)
Equity affiliates..................................................... 6,231 3,462 1,856
Cost basis investees.................................................. 16,371 11,240 39
Concessions, net...................................................... 18,743 7,978 2,035
Loans to related companies (Note 11).................................... 15,793 6,732 1,019
Other................................................................... 2,354 3,657 2,678
-------------- ----------- ---------
Total assets........................................................ $ 291,154 $ 216,848 $ 80,441
-------------- ----------- ---------
-------------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 (UNAUDITED), AND DECEMBER 31, 1995, 1994
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------
1996 1995 1994
-------------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term bank loans (Note 15).................................... $ 5,441 -- --
Film suppliers..................................................... 5,738 $ 5,892 $ 6,586
Other suppliers.................................................... 51,055 52,078 15,109
Taxes payable other than income taxes.............................. 8,205 6,171 1,290
Accrued payroll and related liabilities............................ 7,777 4,571 2,935
Advance payments received from subscribers......................... 7,473 3,986 1,030
Other accounts payable (Note 16)................................... 3,683 3,272 1,624
-------------- ------------ ------------
Total current liabilities........................................ 89,372 75,970 28,574
-------------- ------------ ------------
Long-term liabilities
Loans from related companies (Note 11)............................. 91,926 586 --
Loans from shareholders (Note 17).................................. 4,607 3,086 2,864
Provision for claims (Note 21)..................................... 5,854 3,763 1,075
Liability to fund equity investee (Note 13)........................ -- 2,169 584
Deferred hook up fee revenue....................................... 2,943 -- --
-------------- ------------ ------------
Total long-term liabilities...................................... 105,330 9,604 4,523
-------------- ------------ ------------
Commitments and contingencies (Note 19)
Minority interest.................................................... 2,198 -- --
Redeemable common stock, no par value, 85,637,516, 85,637,516 and
22,992,650 shares issued and outstanding........................... 163,225 149,534 19,754
Shareholders' equity
Common stock, no par value, 111,075,339 shares issued and
outstanding (Note 20)............................................ 142,495 142,495 142,495
Accumulated deficit................................................ (211,466) (160,755) (114,905)
-------------- ------------ ------------
Total shareholders' equity....................................... (68,971) (18,260) 27,590
-------------- ------------ ------------
Total liabilities and shareholders' equity....................... $ 291,154 $ 216,848 $ 80,441
-------------- ------------ ------------
-------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND SEPTEMBER 30, 1995
(UNAUDITED) AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------------ -------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993
(CONSOLIDATED) (CONSOLIDATED) (CONSOLIDATED) (CONSOLIDATED) (COMBINED)
-------------- -------------- -------------- -------------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues
Monthly subscriptions........... $ 85,301 $ 41,296 $ 62,496 $ 27,976 $ 12,544
Installation.................... 39,396 17,995 26,045 6,997 4,350
Advertising..................... 5,362 5,505 8,377 5,727 2,099
Indirect programming............ 5,278 2,114 2,866 1,626 530
Other........................... 5,295 2,194 2,226 1,446 369
Revenue taxes................... (8,881) (5,171) (7,506) (872) (371)
-------------- -------------- -------------- -------------- -----------
Net revenue............... 131,751 63,933 94,504 42,900 19,521
-------------- -------------- -------------- -------------- -----------
Direct operating expenses
Payroll and benefits............ 19,467 8,868 12,520 8,022 6,079
Programming..................... 25,477 14,105 21,609 12,133 18,156
Transponder lease cost.......... 6,575 5,357 7,568 1,555 1,262
Technical assistance............ 4,923 3,913 5,152 1,622 1,773
Vehicle rentals................. 1,252 1,114 1,732 788 597
TVA magazine.................... 4,680 2,164 3,318 1,430 725
Other costs..................... 13,183 6,758 10,127 3,109 1,187
-------------- -------------- -------------- -------------- -----------
75,557 42,279 62,026 28,659 29,779
-------------- -------------- -------------- -------------- -----------
Selling, general and
administrative expenses
Payroll and benefits............ 21,521 15,790 21,627 14,241 10,945
Advertising and promotion....... 12,794 5,882 11,122 3,540 2,205
Rent............................ 2,323 770 1,073 656 847
Other administrative expenses... 9,989 4,557 6,673 2,206 2,265
Other general expenses.......... 7,083 3,788 6,407 3,727 3,695
-------------- -------------- -------------- -------------- -----------
53,710 30,787 46,902 24,370 19,957
-------------- -------------- -------------- -------------- -----------
Allowance for obsolescence........ 2,493 -- -- -- --
Depreciation...................... 17,436 8,657 12,848 6,177 4,813
Amortization...................... 1,111 208 420 -- --
-------------- -------------- -------------- -------------- -----------
Operating loss............ (18,556) (17,998) (27,692) (16,306) (35,028)
-------------- -------------- -------------- -------------- -----------
Interest income................... 3,650 1,360 3,118 21,806 5,369
Interest expense.................. (10,125) (12,493) (17,745) (16,413) (8,492)
Translation (loss) gain........... 243 (41) (339) (914) 788
Equity in (losses) income of
affiliates...................... (6,642) (2,084) (3,672) 383 --
Other nonoperating (expenses)
income, net..................... (7,018) 3,267 4,389 (1,273) (557)
-------------- -------------- -------------- -------------- -----------
Loss before income taxes
and minority interest... (38,448) (27,989) (41,941) (12,717) (37,920)
Income taxes (Note 12).......... (105) -- -- -- --
-------------- -------------- -------------- -------------- -----------
Net loss before minority
interest........................ (38,553) (27,989) (41,941) (12,717) (37,920)
Minority interest................. 1,533 572 871 720 292
-------------- -------------- -------------- -------------- -----------
Net loss.................. $ (37,020) $ (27,417) $ (41,070) $ (11,997) $ (37,628)
-------------- -------------- -------------- -------------- -----------
-------------- -------------- -------------- -------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
TEVECAP S.A AND
SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND
STATEMENT OF REDEEMABLE COMMON STOCK
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
SEPTEMBER 30, 1995 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
REDEEMABLE
PAID-IN TOTAL COMMON
CAPITAL ACCUMULATED SHAREHOLDERS STOCK
(NOTE 19) DEFICIT EQUITY (NOTE 19)
----------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992 (combined)................ $ 10,797 $ (65,280) $ (54,483) --
Net loss for the year.................................. -- (37,628) (37,628) --
----------- ------------- ------------- ------------
Balance at December 31, 1993 (combined)............ 10,797 (102,908) (92,111) --
----------- ------------- ------------- ------------
Capital contributed on:
June 30, 1994........................................ 131,698 -- 131,698 --
July 25, 1994........................................ -- -- -- $ 19,754
Net loss for the period................................ -- (11,997) (11,997) --
----------- ------------- ------------- ------------
Balance at December 31, 1994 (consolidated).......... 142,495 (114,905) 27,590 19,754
----------- ------------- ------------- ------------
Capital contributed on:
September 22, 1995................................... -- -- -- 2,000
September 25, 1995................................... -- -- -- 8,000
September 26, 1995................................... -- -- -- 40,000
December 8, 1995..................................... -- -- -- 75,000
Net loss for the period................................ -- (41,070) (41,070) --
Accretion related to Redeemable Common Stock........... -- (4,780) (4,780) 4,780
----------- ------------- ------------- ------------
Balance at December 31, 1995 (consolidated).......... 142,495 (160,755) (18,260) 149,534
Net loss for the period (unaudited).................... -- (37,020) (37,020) --
Accretion related to Redeemable Common Stock........... -- (13,691) (13,691) 13,691
----------- ------------- ------------- ------------
Balance at September 30, 1996 (consolidated)......... $ 142,495 $ (211,466) $ (68,971) $ 163,225
----------- ------------- ------------- ------------
----------- ------------- ------------- ------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED):
Balance at December 31, 1994 (consolidated).......... $ 142,495 $ (114,905) $ 27,590 19,754
Capital contributed on:
September 22, 1995................................... -- -- -- 2,000
September 25, 1996................................... -- -- -- 8,000
September 26, 1995................................... -- -- -- 40,000
Net loss for the period (unaudited).................... -- (27,417) (27,417) --
----------- ------------- ------------- ------------
Balance at September 30, 1995 (consolidated)......... $ 142,495 $ (142,322) $ 173 $ 69,754
----------- ------------- ------------- ------------
----------- ------------- ------------- ------------
</TABLE>
On June 30, 1994 the paid in capital of the entities previously under common
control was transferred to Tevecap in exchange for shares in Tevecap.
Accordingly, the paid in capital of the combined entities became that of
Tevecap.
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED), AND SEPTEMBER 30, 1995
(UNAUDITED) AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF
U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993
CONSOLIDATED CONSOLIDATED CONSOLIDATED CONSOLIDATED COMBINED
------------- ------------- ------------- ------------- ------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................... $ (37,020) $ (27,417) $ (41,070) $ (11,997) $ (37,628)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES:
Depreciation........................... 17,436 8,657 12,848 6,141 5,081
Amortization........................... 1,111 208 420 -- --
Allowance for exhibition costs......... -- -- 827 -- --
Allowance for doubtful accounts........ 3,040 -- 2,196 848 --
Allowance for obsolescence............. 2,493 -- -- -- --
Provision for claims................... 2,091 2,411 2,688 864 (131)
Minority interest...................... (1,533) (571) (871) (721) (292)
Disposal and write-off of fixed
assets............................... 1,163 -- 341 662 --
Equity in losses (earnings) of
affiliates........................... 6,642 2,084 3,672 (383) --
CHANGES IN OPERATING ASSETS AND
LIABILITIES:
Film exhibition rights................. (695) 213 560 (114) 4,843
Accounts receivable.................... (13,432) (4,899) (5,908) (7,007) (181)
Prepaid and other assets............... 457 (1,496) (1,269) (1,364) 113
Other accounts receivable.............. (1,188) (947) (601) (199) (90)
Other.................................. 5,168 856 -- (2,450) (221)
Accrued Interest....................... 4,700 9,509 9,241 723 8,368
Inventories............................ (5,257) (6,716) (7,373) (2,383) (533)
Legal deposits......................... (134) (953) (108) (154) (415)
Suppliers.............................. (1,177) 14,807 36,275 5,309 40
Taxes payable other than income
taxes................................ 2,034 466 4,881 685 167
Accrued payroll and related
liabilities.......................... 3,206 2,681 1,636 1,454 140
Advances received from subscribers..... 3,487 (127) 2,956 (496) 1,415
Deferred accounts payable.............. 2,943 -- -- -- --
Other accounts payable................. (920) 2,333 1,648 1,341 144
------------- ------------- ------------- ------------- ------------
Net cash (used in) provided by
operating activities............... (5,385) 1,099 22,989 (9,707) (19,180)
------------- ------------- ------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets................... (72,538) (52,987) (93,029) (22,369) (11,379)
Loans to related companies................. (22,669) (3,501) (7,967) (3,482) (1,811)
Cash received on loans to affiliated
companies................................ 13,608 1,981 2,591 4,481 --
Acquisiton of businesses, net of cash
acquired................................. (13,490) (8,398) (6,393) (2,035) --
Investments in equity and cost
investments.............................. (16,711) (5,636) (14,863) (929) --
------------- ------------- ------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED), AND SEPTEMBER 30, 1995
(UNAUDITED) AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF
U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------------- ------------------------------------------
1996 1995 1995 1994 1993
CONSOLIDATED CONSOLIDATED CONSOLIDATED CONSOLIDATED COMBINED
------------- ------------- ------------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash used in investing
activities......................... (111,800) (68,541) (119,661) (24,334) (13,190)
------------- ------------- ------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term bank loans...................... $ 5,441 $ -- $ -- $ -- $ --
Capital contributions...................... -- 49,998 125,000 151,452 --
Repayments of loans from shareholders...... -- -- -- (3,082) --
Loans from shareholders.................... 1,522 -- -- -- 3,299
Loans to shareholders...................... -- -- -- -- (3,298)
Loans from related companies............... 116,178 103,284 131,860 96,986 106,023
Repayments of loans from related
companies................................ (29,538) (90,445) (140,631) (186,755) (67,056)
Repayments of loans from banks............. -- -- -- (19,935) (6,620)
------------- ------------- ------------- ------------- ------------
Net cash provided by financing
activities......................... 93,603 62,837 116,229 38,666 32,348
------------- ------------- ------------- ------------- ------------
Net (decrease) increase in cash and cash
equivalents................................ (23,582) (4,605) 19,557 4,625 (22)
Cash and cash equivalents at beginning of the
period..................................... 24,201 4,644 4,644 19 41
------------- ------------- ------------- ------------- ------------
Cash and cash equivalents at end of
the period......................... $ 619 $ 39 $ 24,201 $ 4,644 $ 19
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
SUPPLEMENTAL CASH DISCLOSURE:
Cash paid for interest..................... $ -- $ 2,435 $ 8,390 $ 16,413 $ 1,183
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
SUPPLEMENTAL NON CASH FINANCING ACTIVITIES:
Accrued interest on related company loans
refinanced as principal balance.......... $ 4,684 $ 7,027 $ 9,355 $ -- $ 8,225
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
DETAILS OF ACQUISITIONS:
Fair value of assets acquired.............. 14,895 -- -- -- --
Liabilities assumed........................ (1,330) -- -- -- --
------------- ------------- ------------- ------------- ------------
Cash paid.................................. 13,565 -- -- -- --
Less: cash acquired........................ (75) -- -- -- --
------------- ------------- ------------- ------------- ------------
Net cash paid for acquisitions............. $ 13,490 -- -- -- --
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS
1. THE COMPANY AND ITS PRINCIPAL OPERATIONS
The accompanying financial statements have been prepared to reflect the
consolidated results of TEVECAP S.A. and its subsidiaries (the "Company") and
the combined results of commonly controlled entities which became subsidiaries
of TEVECAP S.A. ("Tevecap") on June 30, 1994 (see Note 2.1).
TEVECAP is a holding company, the subsidiaries of which render services
related to wireless cable and cable and parabolic antenna television systems,
including marketing and advertising, production, distribution and licensing of
domestic and foreign television programs. The Company has wireless cable channel
rights primarily in major urban markets in Brazil.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant policies followed in the preparation of the accompanying
consolidated and combined financial statements are described below:
2.1 BASIS OF PRESENTATION; CONSOLIDATION AND COMBINED
A) BASIS OF PRESENTATION
The consolidated and combined financial statements are presented in US
Dollars and have been prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP), which differ in
certain respects from accounting principles applied by the Company in its local
currency financial statements, which are prepared in accordance with accounting
principles generally accepted in Brazil ("Brazilian GAAP").
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
financial statement dates and the reported amount of revenues and expenses
during the reporting periods. Since management's judgment involves making
estimates concerning the likelihood of future events, the actual results could
differ from those estimates which will have a positive or negative effect on
future period results.
B) CONSOLIDATION AS OF AND FOR THE TWO YEARS ENDED DECEMBER 31, 1995
On June 30, 1994, Tevecap was established as a holding company for certain
entities which were under common control. Subsequent to this date, additional
entities were formed under, or acquired by Tevecap, as described elsewhere in
these financial statements. Accordingly, the financial statements as of and for
the year ended December 31, 1994 and thereafter are prepared on a consolidated
basis.
The consolidated financial statements include the accounts of all
majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated on consolidation.
C) COMBINED PRESENTATION FOR THE YEAR ENDED DECEMBER 31, 1993
The combined financial statements for the year ended December 31, 1993,
reflect the results of certain entities which were under common control and
which were acquired by Tevecap on June 30, 1994.
All significant intercompany balances have been eliminated on combination.
2.2 ACCOUNTING RECORDS
As required by Brazilian Law, and in accordance with local accounting
practices, the accounting records of the Company are maintained in Brazilian
currency (REAL). In order to present the financial
F-10
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
statements in conformity with accounting principles generally accepted in the
United States of America, the Company maintains additional accounting records
which are used solely for this purpose.
2.3 CURRENCY REMEASUREMENT
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
52, "Foreign Currency Transactions," the United States dollar has been assumed
to be the functional currency as Brazil is a "hyperinflationary" country. As
such, the local accounts of the Company are translated into United States
dollars as follows:
- Nonmonetary assets and liabilities are translated at historical rates. All
other assets and liabilities are translated at the official rate of
exchange of R$1.022 to US$1 in effect on September 30, 1996; R$0.973 to
US$1 in effect on December 31, 1995; and, R$0.846 to US$1 on December 31,
1994.
- Income and expenses are translated at the average exchange rates in effect
each month, except for those related to assets and liabilities which are
translated at historical exchange rates, and deferred income taxes, which
are translated at the current rate. Translation gains/losses are
recognized in the income statement.
2.4 CONSOLIDATED FINANCIAL STATEMENTS
The Company's consolidated operating subsidiaries included in the
consolidated financial statements are:
<TABLE>
<CAPTION>
OWNERSHIP INTEREST AS OF
-------------------------------
<S> <C> <C>
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------------- --------------
OWNED SYSTEMS:
TVA Sistema de Televisao S.A........................... 98.00% 98.00%
TVA Sul Participacoes S.A.............................. 87.00% --
TVA Sul Parana Ltda.(a), (b)......................... 87.00% 80.00%
TVA Sul Santa Catarina Ltda. (b)..................... 87.00% --
TVA Sul Foz do Iguacu Ltda. (b)...................... 87.00% --
TCC TV a Cabo Ltda. (b).............................. 100.00% --
TV Alfa Cabo Ltda. (b)............................... 100.00% --
CCS Camboriu Cable Systems de Telecomunicacoes
Ltda................................................. 52.20% --
Galaxy Brasil S.A...................................... 100.00% 100.00%
LICENSE SUBSIDIARY:
Comercial Cabo TV Sao Paulo Ltda. (c).................. 100.00% 100.00%
PROGRAMMING VENTURES:
TVA Communications Ltd 100.00% 100.00%
TVA Communications Aruba N.V. 100.00% --
</TABLE>
- ------------------------
(a) In August 1996, TVA Curitiba Servicos Telecomunicacoes Ltda. changed its
name to TVA Parana Ltda. ("Parana"). The Company's initial investment in
Parana together with its contributions of $18,963 relating to the
acquisition of 27,212,345 shares during the nine months ended September 30,
1996, was in excess of the Company's share of the book value of Parana after
the contribution. This resulted in a loss of $2,727.
F-11
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
2.4 CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(b) One common share in each of these entities is owned by a Brazilian National
pursuant to local legislative requirements.
(c) 0.00149% of the common shares in this entity are owned by the controlling
shareholder of the parent company pursuant to local legislative
requirements.
2.5 ACQUISITIONS
During the nine month period ending September 30, 1996 (unaudited), the
Company acquired control of the following entities which were accounted for
under the purchase method of accounting: i) In February 1996, the Company
acquired TVA Sul Santa Catarina ("TVA SSC"); ii) In March 1996, the Company
acquired TCC TV a Cabo Ltda. ("TCC") and TV Alfa Cabo Ltda. ("TV Alfa"); and
iii) In May 1996, the Company acquired TVA Sul Foz do Iguacu Ltda ("TVA SF") and
CCS Camboriu Cable Systems de Telecomunicacoes Ltda. ("CCS"). In each case, the
excess of the purchase price over the fair value of assets acquired represents
the value of concessions of certain television stations. These concessions are
being amortized on a straight line basis over 10 years.
The operating results of these acquired businesses, which hold licenses to
operate cable TV, have been included in the consolidated statements of
operations from the dates of acquisition.
The purchase prices have been allocated to the assets purchased and the
liabilities assumed based upon the fair values on the dates of acquisition, as
follows:
<TABLE>
<CAPTION>
TVA SSC TVA SF CCS TCC TV ALFA
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current assets, other than cash.............................. $ -- $ 23 $ 4 $ 51 $ 5
Property, plant and equipment................................ 25 319 2,101 238 176
Other assets................................................. -- 3 -- -- --
Concessions.................................................. 45 5,348 1,424 2,629 2,429
Other liabilities............................................ (55) (377) (84) (127) (687)
----------- --------- --------- --------- ---------
Purchase price, net of cash received......................... $ 15 $ 5,316 $ 3,445 $ 2,791 $ 1,923
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Total purchase price......................................... $ 15 $ 5,326 $ 3,445 $ 2,841 $ 1,939
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
</TABLE>
The Company is unable to present pro forma results as if the acquisitions
had taken place at the beginning of 1995 and 1996 because, although management
attempted to obtain such information from the owners, it was not available.
These entities were acquired for the purpose of expanding the cable TV system
penetration of the Company. The assets purchased will be operated under the
Company's management, using the Company's programming and employees.
2.6 CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as cash and cash in banks and
investments in interest-bearing securities and are carried at cost plus accrued
interest. Short-term investments with original maturities of three months or
less at the time of purchase are considered cash equivalents.
2.7 FINANCIAL INSTRUMENTS
In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," information is provided about the fair value of certain financial
instruments for which it is practicable to estimate that value.
F-12
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
2.7 FINANCIAL INSTRUMENTS (CONTINUED)
For the purposes of SFAS No. 107, the estimated fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
The carrying values of the Company's financial instruments as of September 30,
1996, December 31, 1995 and December 31, 1994 approximate management's best
estimate of their estimated fair values. The following methods and assumptions
were used to estimate the fair value of each class of financial instrument for
which it is practicable to estimate that value:
- The fair value of certain financial assets carried at cost, including
cash, accounts receivable, other accounts receivables, and certain other
short-term assets is considered to approximate their respective carrying
value due to their short-term nature.
- The fair value of payables to film suppliers and other suppliers, other
accounts payable, loans to related companies and certain other short-term
liabilities are considered to approximate their respective carrying values
due to their short-term nature.
- The fair value of loans from related companies approximates their
respective carrying values as interest on these loans is at market rates.
2.8 ACCOUNTS RECEIVABLE
Accounts receivable are stated at their estimated realizable values. An
allowance for doubtful accounts is established on the basis of an analysis of
the accounts receivable, in light of the risks involved, and is considered
sufficient to cover any losses incurred in realization of credits.
2.9 INVENTORIES
Inventories consist of materials and supplies and imports in transit.
Materials and supplies are used to provide service to new customers, and to
ensure continuity of service to existing customers. Imports in transit represent
materials purchased from foreign countries that have not yet been received.
Inventories are stated at the lower of cost or market. Cost is determined
principally under the average cost method.
An allowance for obsolescence has been established on the basis of an
analysis of slow-moving materials and supplies.
2.10 FILM EXHIBITION RIGHTS AND PROGRAM LICENSING
Film exhibition rights and program licensing costs are deferred and
recognized as the films and/or programs are exhibited. The allowance for
exhibition expiration is determined based on management's estimate of the
Company's capacity to telecast the films and projected revenue streams.
2.11 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated using the
straight-line method, over the remaining useful lives, as described in Note 14.
2.12 ADVERTISING
Advertising revenues are recognized, and the production cost of commercials
and programming are charged to expense, when the commercial is telecast.
F-13
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
2.13 RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS
Management reviews long-lived assets, primarily the Company's licenses and
its property and equipment to be held and used in the business, for the purposes
of determining and measuring impairment on a recurring basis or when events or
changes in circumstances indicate that the carrying value of an asset or group
of assets may not be recoverable. Assets are grouped and evaluated for possible
impairment at the level of each cable television system; impairment is assessed
on the basis of the forecasted undiscounted cash flows of the businesses over
the estimated remaining lives of the assets related to those systems. A
write-down of the carrying value of the assets or group of assets to estimated
fair value will be made, when appropriate.
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be disposed of", from January 1,
1996, and the effect on the consolidated financial statements as a result of the
adoption was not significant.
2.14 SUBSCRIPTIONS
Installation fees are recognized as revenue on the equipment installation
date to the extent of direct selling costs incurred. The remainder is deferred
and amortized to income over the estimated average period that subscribers are
expected to remain connected to the system. Subscription revenues are recognized
as earned on an accrual basis.
2.15 LICENSES
Televisao Show Time Ltda. ("TV Show Time") and TVA Brasil Radioenlaces Ltda.
("TVA Brasil") hold certain licenses covering certain operations of the Company.
The use of such licenses is provided to the Company, for a nominal fee, under a
Service Agreement dated July 22, 1994, as amended, among Tevecap, TV Show Time,
TVA Brasil and Abril.
Pursuant to the Service Agreement, TV Show Time and TVA Brasil have agreed
to transfer the licenses, which are carried at nil value, to Tevecap at nominal
cost.
2.16 ACCOUNTING FOR SALES OF STOCK BY SUBSIDIARIES
Gains or losses arising from the sale of shares by subsidiaries are
recognized in the profit and loss account as non-operating income to the extent
that the net book value of the shares owned by the parent after the sale exceeds
or is lower than the net book value per share immediately prior to the sale of
the shares by the subsidiary.
2.17 FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
The unaudited consolidated financial statements as of September 30, 1996 and
for the nine months ended September 30, 1996 and 1995 have been derived from the
Company's records and reflect all
F-14
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial data.
3. ACCOUNTING CHANGES
To more appropriately account for the cost of (i) installation equipment and
(ii) operating costs incurred during the period of constructing their television
systems, the Company has restated all prior year amounts as compared to those
previously reported by the separate combined and consolidating entities:
(i) Installation equipment
The Company has changed the estimated useful life of installation
equipment to five years. The costs of such equipment had previously been
accounted for as period costs.
(ii) Operating costs incurred during the period of construction of
television systems
The Company has changed its policy of deferring operating costs during
the period of construction of its television systems, to treat such costs
as period costs.
4. RESTATEMENT
The Company's financial statements as of and for the two years in the period
ended December 31, 1995 and as of and for the nine months ended September 30,
1996 (unaudited) have been restated to reflect the reclassification of common
stock subject to redemption separately from equity. See also Note 20.
In addition, the Company's financial statements as of and for the two years
in the period ended December 31, 1995 and as of and for the nine months ended
September 30, 1996 (unaudited) have been restated to reflect the recognition of
the Company's share in the earnings and losses of HBO Brasil Partners after the
date of acquisition. The Company holds a 33.33% interest in this partnership.
Historically, such interest was accounted for at cost as financial information
on the performance of the venture was unavailable. In January 1997, the Company
received audited financial statements covering the two years in the period
ending December 31, 1995.
The Company's financial statements for the nine months ended September 30,
1996 (unaudited) have also been restated to reflect the consolidation of
subsidiaries previously treated as advances for investments. The net impact of
this change on the result for this period was a loss of $555,000.
F-15
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
4. RESTATEMENT (CONTINUED)
The following summarizes the impact on previously issued financial
statements resulting from the adjustments as of and for the two years in the
period ended December 31, 1995 and as of and for the nine months ended September
30, 1996 (unaudited):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------------------------- ----------------------------- -----------------------------
AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY
REPORTED AS RESTATED REPORTED AS RESTATED REPORTED AS RESTATED
-------------- ------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEETS
Equity affiliates.. 5,946 6,231 2,352 3,462 1,856 1,856
Advances payments
for investments... 16,683 -- 3,117 -- -- --
Liability to fund
equity investee... -- -- 2,169 2,169 4 584
Redeemable Common
Stock............. -- 163,225 -- 149,534 -- 19,754
Common Stock....... 287,962 142,495 287,962 142,495 162,962 142,495
STATEMENTS OF
OPERATIONS
Equity in (losses)
income of
affiliates........ (5,817) (6,642) (2,245) (3,672) 963 383
Net loss........... (35,460) (37,020) (39,643) (41,070) (13,500) (11,997)
Accretion related
to Redeemable
Common Stock...... -- 13,691 -- 4,780 -- --
</TABLE>
5. CASH AND CASH EQUIVALENTS
At September 30, 1996, December 31, 1995 and 1994, cash was comprised of:
<TABLE>
<CAPTION>
1996 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Cash on hand and in banks..................................................... $ 609 $ 640 $ 178
Short-term investments........................................................ 10 23,561 4,466
------------ --------- ---------
$ 619 $ 24,201 $ 4,644
------------ --------- ---------
------------ --------- ---------
</TABLE>
F-16
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
6. ACCOUNTS RECEIVABLE
At September 30, 1996, December 31, 1995 and 1994, accounts receivable were
comprised of:
<TABLE>
<CAPTION>
1996 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Subscriptions................................................................. $ 6,521 $ 5,154 $ 1,879
Installation fees............................................................. 10,425 4,637 1,686
Advertising & programming..................................................... 2,359 1,810 1,560
Barter........................................................................ 4,977 2,989 3,627
Others........................................................................ 200 70 --
Allowance for doubtful accounts............................................... (2,837) (3,407) (1,211)
------------ --------- ---------
$ 21,645 $ 11,253 $ 7,541
------------ --------- ---------
------------ --------- ---------
</TABLE>
7. INVENTORIES
At September 30, 1996, December 31, 1995 and 1994, inventories were
comprised of:
<TABLE>
<CAPTION>
1996 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Materials and supplies........................................................ $ 16,660 $ 10,913 $ 4,985
Imports in transit............................................................ 1,673 2,163 718
Allowance for obsolescence.................................................... (2,493) -- --
------------ --------- ---------
$ 15,840 $ 13,076 $ 5,703
------------ --------- ---------
------------ --------- ---------
</TABLE>
8. FILM EXHIBITION RIGHTS
At September 30, 1996, December 31, 1995 and 1994, film exhibition rights
were comprised of:
<TABLE>
<CAPTION>
1996 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Exhibition rights.............................................................. $ 1,887 $ 1,192 $ 1,752
Allowance for exhibition expiration............................................ (1,162) (1,162) (335)
------------ --------- ---------
$ 725 $ 30 $ 1,417
------------ --------- ---------
------------ --------- ---------
</TABLE>
9. PREPAID AND OTHER ASSETS
At September 30, 1996, December 31, 1995 and 1994, prepaid expenses were
comprised of:
<TABLE>
<CAPTION>
1996 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Advances to suppliers.......................................................... $ 1,124 $ 2,078 $ 977
Prepaid TVA magazine publishing expenses....................................... 845 562 379
Prepaid meals and transportation............................................... 189 171 197
Others......................................................................... 353 157 146
------------ --------- ---------
$ 2,511 $ 2,968 $ 1,699
------------ --------- ---------
------------ --------- ---------
</TABLE>
F-17
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
10. OTHER ACCOUNTS RECEIVABLE
At September 30, 1996, December 31, 1995 and 1994, other accounts receivable
were comprised of:
<TABLE>
<CAPTION>
1996 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Advances to employees.............................................................. $ 805 $ 491 $ 58
Accounts receivable from related companies (Note 11)............................... 953 389 281
Others............................................................................. 501 105 45
------------ --------- ---------
$ 2,259 $ 985 $ 384
------------ --------- ---------
------------ --------- ---------
</TABLE>
11. RELATED-PARTY TRANSACTIONS
The following tables summarize the transactions between the Company and
related companies at September 30, 1996 (unaudited) and December 31, 1995, and
1994 and for the nine month periods ended September 30, 1996 (unaudited) and
1995 (unaudited) and the three years ended December 31, 1995:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1995 1994
AT SEPTEMBER 30, --------- ---------
-----------------
1996
-----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Abril S.A.
Loans payable ................................................. $ 90,205 $ 39 --
ESPN do Brasil Ltda
Loans receivable .............................................. -- 3,913 --
Accounts payable .............................................. -- 963 --
Canbras TV a Cabo Ltda
Loans receivable .............................................. 3,000 815 $ 33
Accounts payable .............................................. 1,721 -- --
Canbras Partcipacoes
Loans receivable .............................................. 304 -- --
HBO Partners
Loans receivable .............................................. 1,792 -- --
Aico
Loans receivable .............................................. 7,930 -- --
TV Aico
Loans receivable .............................................. 1,640 -- --
</TABLE>
F-18
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
11. RELATED-PARTY TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTH PERIOD
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- -------------------------------
1996 1995 1995 1994 1993
----------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Abril S.A.
Net interest expense.................................... $ 4,684 $ 9,461 $ 9,324 -- --
ESPN do Brasil Ltda
Programming costs....................................... 2,560 851 646 -- --
Net interest expense.................................... -- -- 330 -- --
Abril Communications Ltda
Net interest expense.................................... -- -- -- -- $ 8,379
</TABLE>
The Abril S.A. and other related company loans receivable are denominated in
REAIS and are subject to monetary restatement plus interest charges at the
market rate which was 1.79% per month in September 1996 (3.44% per month in
December 1995).
The loans payable to Abril S.A. are pursuant to a revolving credit facility.
This facility, effective December 31, 1995, is valid for a period of 36 months.
Additionally, Abril S.A. provided a guarantee in the amount of $28,847 on
September 30, 1996, for equipment imported by Galaxy Brasil S.A., TVAST, TV
Filme and TVA Parana.
The Company and Falcon International Communications Services Inc., one of
the Company's shareholders, signed a consulting service agreement on April 1,
1996 related to the Company's operations and technologies. Initially, the
duration of this agreement is two years, renewable every subsequent two-year
period thereafter. The payment for the consulting services amounts to $200 per
annum.
12. DEFERRED INCOME TAX
The tax effects of temporary differences that give rise to a significant
portion of the deferred tax asset and deferred tax liability at September 30,
1996 and at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Deferred tax assets:
Net operating loss carryforwards........................................... $ 37,981 $ 33,964 $ 22,764
Deferred charges........................................................... 7,485 7,720 11,818
Deferred hook-up fee revenue............................................... 1,030 -- --
Others..................................................................... 1,015 175 920
----------- --------- ---------
Total gross deferred tax asset......................................... 47,511 41,859 35,502
----------- --------- ---------
Less, valuation allowance................................................ (42,610) (34,568) (28,913)
----------- --------- ---------
Net deferred tax asset....................................................... 4,901 7,291 6,589
Deferred tax liability:
Inflationary profit........................................................ -- -- (4,107)
Installation costs......................................................... (4,901) (7,291) (2,482)
----------- --------- ---------
Total gross deferred tax liability..................................... (4,901) (7,291) (6,589)
----------- --------- ---------
Net deferred tax asset................................................... $ -- $ -- $ --
----------- --------- ---------
----------- --------- ---------
</TABLE>
F-19
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
12. DEFERRED INCOME TAX (CONTINUED)
The Company has a limited operating history and has generated losses since
its inception. The valuation allowance has been established in accordance with
the requirements of SFAS No. 109 and relates to the amount of net operating loss
carryforwards in excess of net taxable temporary differences.
As of September 30, 1996, the Company has unexpirable accumulated tax losses
of $118,569.
The consolidated and combined income tax credit was different from the
amount computed using the Brazilian statutory income tax for the reasons set
forth in the following table:
<TABLE>
<CAPTION>
DECEMBER, 31
SEPTEMBER 30, ------------------------------------
1996 1995 1994 1993
-------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Loss before income taxes and minority interest............ $ 38,448 $ 41,941 $ 12,717 $ 37,920
Statutory income tax rate................................. 30.56% 30.56% 43.0% 35.2%
-------------- ------------ ---------- ----------
11,750 12,817 5,468 13,348
Profit on intercompany transaction not eliminated on
fiscal books............................................ -- -- -- (7,762)
Expiration of tax losses.................................. -- -- -- (691)
Increase (decrease) in the income tax rate................ -- (8,639) 3,373 --
Monetary correction net of unallowable amortization....... (1,129) 308 -- --
Monetary correction of deferred charges................... (905) 1,342 4,899 3,003
Translation rate difference on exhibition rights.......... -- 381 (476) --
Monetary correction over U.S. Dollar on tax losses........ -- -- 1,668 --
Others.................................................... (1,779) (554) (1,964) (620)
-------------- ------------ ---------- ----------
Net income tax benefit for the period..................... 7,937 5,655 12,968 7,278
Increase in valuation allowance........................... (8,042) (5,655) (12,968) (7,278)
-------------- ------------ ---------- ----------
$ (105) $ -- $ -- $ --
-------------- ------------ ---------- ----------
-------------- ------------ ---------- ----------
</TABLE>
Income tax payable represents amounts owing by subsidiaries calculated on a
unitary basis.
F-20
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
13. INVESTMENTS
Investments at September 30, 1996, December 31, 1995 and 1994 were comprised
of:
<TABLE>
<CAPTION>
PERCENTAGE
OF CONTROL 1996 1995 1994
------------- ----------- --------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
Equity basis investments:
TV Filme, Inc. ............................................... 14.3(a) $ 4,628 $ 2,352 $ 1,856
ESPN Brasil Ltda.............................................. 50 1,234 -- --
Canbras TV a Cabo............................................. 36 84 -- --
HBO Brasil Partners........................................... 33 285 1,110 --
----------- --------- ---------
$ 6,231 $ 3,462 $ 1,856
----------- --------- ---------
----------- --------- ---------
Liability to Fund Joint Venture and Equity Investee:
ESPN Brasil Ltda.............................................. 50 $ -- $ (2,009) --
Canbras TV a Cabo............................................. -- (160) (4)
HBO Brasil Partners........................................... -- -- (580)
----------- --------- ---------
$ -- $ (2,169) $ (584)
----------- --------- ---------
----------- --------- ---------
Cost Basis Investments:
Galaxy Latin America.......................................... 10 $ 16,320 $ 11,220 $ --
Others........................................................ 51 20 39
----------- --------- ---------
$ 16,371 $ 11,240 $ 39
----------- --------- ---------
----------- --------- ---------
Concessions, net:
Stations in south of Brazil................................... $ 11,876 $ -- $ --
Ype Radio e Televisao Ltda Concessions........................ 6,363 6,363 --
Comercial Cabo Ltda........................................... 1,970 1,970 1,970
Other......................................................... 65 65 65
Amortization.................................................. (1,531) (420) --
----------- --------- ---------
$ 18,743 $ 7,978 $ 2,035
----------- --------- ---------
----------- --------- ---------
</TABLE>
- ------------------------
(a) Accounted for under the equity method because the Company has one seat out
of six on the Board of Directors, is dependent on the Company for a
substantial portion of its revenue and has an option to acquire an
additional 2% interest.
On February 3, 1995, an agreement was signed between Tevecap, Hughes (GLA
Inc./USA), Inversiones Divtel (ODC Cisneiros/Venezuela) and Multivision
(MVS/Mexico) for the incorporation of Galaxy Latin America in August 1995. On
March 3, 1995, the operational agreement between Galaxy Latin America and
Tevecap was formalized with the purchase of 10% of the shares of Galaxy Latin
America for $7,194. On March 9, 1995, Galaxy Brasil S.A. was created, with 99.5%
of the shares held by Tevecap. Galaxy Brasil S.A. provides distribution services
of multichannel TV programs to all national regions. The transmission commenced
February 1996. Galaxy Latin America will charge Galaxy Brasil for the use of a
satellite.
The ESPN Brasil joint venture was formed in June 1995, with Tevecap and ESPN
International each holding 50% of ESPN Brasil's shares. Operations commenced on
June 15, 1995, and the objective of
F-21
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
13. INVESTMENTS (CONTINUED)
ESPN Brasil is the transmission of ESPN's international sport programs.
Condensed financial information of the joint venture as of and for the nine
month period ended September 30, 1996 and as of and for the year ended December
31, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current Assets.......................................................... $ 3,546 $ 2,905
Non-current Assets...................................................... 2,163 262
Current Liabilities..................................................... 3,241 3,272
Long-Term Liabilities................................................... -- 3,913
Revenues................................................................ 8,538 4,748
Gross Losses............................................................ (9,536) (2,884)
Loss before Taxes....................................................... (10,330) (4,020)
Net Loss................................................................ (10,330) (4,020)
</TABLE>
On April 3, 1995, Tevecap acquired 49% of the common shares and 49% of the
preferred shares of Ype Radio e Televisao Ltda., for $6,363, obtaining the
concession of certain television channels. The concessions are being amortized
over 10 years.
In previous years the Company acquired Comercial Cabo Ltda., obtaining the
concessions for certain television channels and other minor investments. The
consessions are being amortized over ten years.
F-22
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
14. PROPERTY, PLANT AND EQUIPMENT
At September 30, 1996, December, 31, 1995 and 1994, property, plant and
equipment were comprised of:
<TABLE>
<CAPTION>
ANNUAL
DEPRECIATION
RATE
% 1996 1995 1994
------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Machinery and Equipment.................................... 10 $ 46,613 $ 37,877 $ 25,512
Converters................................................. 10 76,067 36,485 10,809
Leasehold Improvements..................................... 25 5,449 1,830 1,477
Furniture and Fixtures..................................... 10 2,136 1,226 704
Premises................................................... 10 2,286 1,116 559
Vehicles................................................... 20 1,404 457 161
Software................................................... 20 2,646 1,529 472
Tools...................................................... 10 715 621 439
Reception Equipment........................................ 20 65,470 45,711 19,265
Cable Plant................................................ 10 11,482 6,513 --
Building................................................... 4 8,326 342 155
----------- ----------- ----------
222,594 133,707 59,553
Accumulated Depreciation................................... (41,448) (23,373) (10,184)
Telephone Line Use Rights.................................. 2,219 1,453 787
Trademarks, Patents and Others............................. 164 577 186
Fixed Assets in Transit.................................... 3,779 18,902 1,084
Others..................................................... 755 -- --
----------- ----------- ----------
$ 188,063 $ 131,266 $ 51,426
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
15. SHORT-TERM BANK LOANS
Short-term bank loans at September 30, 1996 represent the refinancing of
certain supplier payables. The average short-term interest rate on such loans is
LIBOR plus 1.5%.
16. OTHER ACCOUNTS PAYABLE
At September 30, 1996, December, 31, 1995 and 1994, other accounts payable
were comprised of:
<TABLE>
<CAPTION>
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Accounts payable to related companies (Note 11)................................ $ 252 $ 1,122 $ 13
Advertising.................................................................... 1,088 427 851
Importation expenses payable................................................... 667 599 86
Others......................................................................... 1,676 1,124 674
----------- --------- ---------
$ 3,683 $ 3,272 $ 1,624
----------- --------- ---------
----------- --------- ---------
</TABLE>
F-23
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
17. LOANS FROM SHAREHOLDERS
Loans from shareholders at September 30, 1996, December 31, 1995 and 1994,
were comprised of:
<TABLE>
<CAPTION>
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Roberto Civita................................................................. $ 2,490 $ 2,616 $ 2,455
Maricla I. R. Rossi............................................................ 59 61 58
Edgard Silvio Faria............................................................ 175 184 174
Angelo Silvio Rossi............................................................ 42 45 42
Leonardo Petrelli.............................................................. 1,841 180 135
----------- --------- ---------
$ 4,607 $ 3,086 $ 2,864
----------- --------- ---------
----------- --------- ---------
</TABLE>
Interest on loans from shareholders is based on the UFIR (Fiscal Reference
Unit) variation which was 0% during the nine-month period ended September 30,
1996 (22.46% in December 1995).
18. INSURANCE
The Company maintains insurance coverage for its fixed assets and
inventories in an amount considered sufficient to cover the risks involved.
19. LEASED ASSETS AND COMMITMENTS
The Company has entered into film distribution contracts and licensing
agreements with film producers for programming for future periods. Such
contracts and agreements, which range in life from 1 to 9 years with the
exception of a specific contract with ESPN which has a life of 50 years, require
a per-subscriber fee to be paid by the Company on a monthly basis.
The Company has funding commitments related to Galaxy Latin America, TV
Filme, ESPN Brasil Ltda., HBO Brasil Partners, Canbras TVA and CNBC of
approximately $26,992 which must be met prior to December, 1997.
The Company has rented its office space until the year 2001. At December 31,
1995 future minimum rental payments applicable to operating leases in respect of
this space aggregate approximately $4,874 as follows:
<TABLE>
<S> <C>
1996............................................................... $ 1,588
1997............................................................... 769
1998............................................................... 663
1999............................................................... 643
2000............................................................... 608
2001............................................................... 603
---------
Total.............................................................. $ 4,874
---------
---------
</TABLE>
F-24
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
19. LEASED ASSETS AND COMMITMENTS (CONTINUED)
At December 31, 1995, the Company had contractual commitments with Embratel
for transponder use until the year 2003. Based on the contract provisions, these
commitments are currently estimated to aggregate approximately $52,361, as
follows:
<TABLE>
<S> <C>
1996.............................................................. $ 8,302
1997.............................................................. 8,302
1998.............................................................. 8,302
1999.............................................................. 8,035
2000.............................................................. 7,768
2001.............................................................. 7,768
2002.............................................................. 3,884
---------
Total............................................................. $ 52,361
---------
---------
</TABLE>
20. COMMON STOCK
Common stock at September 30, 1996, December 31, 1995 and 1994, was
comprised of:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------ ------------------------
US$ SHARES US$ SHARES US$ SHARES
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Common stock subject to
redemption....................... 144,754 85,637,516 144,754 85,637,516 19,754 22,992,650
--------- ------------- --------- ------------- --------- -------------
--------- ------------- --------- ------------- --------- -------------
Paid-in capital.................... 142,495 111,075,339 142,495 111,075,339 142,495 111,075,339
--------- ------------- --------- ------------- --------- -------------
--------- ------------- --------- ------------- --------- -------------
</TABLE>
(a) COMMON STOCK SUBJECT TO REDEMPTION
As at September 30, 1996 and December 31, 1995, 43.5% of the common stock of
Tevecap was subject to an Event Put i.e. a "triggering event" under the
Stockholders Agreement pursuant to which each of the shareholders (other that
Abril) may, in certain circumstances, demand that Tevecap purchase all or a
portion of its shares, unless the shares of capital stock held by such
Stockholder are publicly registered, listed or traded. In addition, as at
September 30, 1996 and December 31, 1995, 14.2% of these shares are also subject
to Time Put whereby, pursuant to the Stockholders Agreement, Falcon
International may demand that Tevecap buy all or a portion of their shares of
capital stock held in Tevecap if such shares are not publicly registered, listed
or traded by September 22, 2002.
For purposes of the Event Put, triggering events are: (i) the amount of the
capital stock held by a stockholder with an Event Put exceeds the amount allowed
under any legal restriction to which such Stockholder may be subject
("Regulatory Put"); (ii) a breach without cure within a designated period by
certain specified entities/individuals of any representation, warranty, covenant
or duty made or owed pursuant to certain agreements; (iii) a breach without cure
within a designated period by Abril of the Abril Credit Facility; (iv) the
controlling shareholder of Abril ceases to directly or indirectly hold a
specified percentage of Tevecap without the approval of the Stockholders or
ceases to control the voting capital stock held by his affiliates representing
50% or more of the voting capital stock of Tevecap; (v) the Service Agreement as
amended, among Tevecap, TV Show Time, TVA Brasil and Abril ceases to be valid or
effective or TV Show Time, TVA Brasil and Abril is liquidated or dissolved or
files voluntarily, or has filed
F-25
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
20. COMMON STOCK (CONTINUED)
against it involuntarily, any petition in bankruptcy; or (vi) another
Stockholder exercises an Event Put other than a Regulatory Put.
The Company's management believes that the probability of occurrence of the
triggering events which would permit any of its shareholders to exercise its
Event Put is remote. However, a company that is public in the United States, and
which therefore is required to register its securities with the United States
Securities and Exchange Commission (the "SEC"), is required for accounting
purposes to present redeemable equity securities separately from shareholders'
equity, if redemption of such securities is beyond the control of the
registrant. That presentation is required even if the likelihood of redemption
is remote.
As the Company's financial statements are to be included in a registration
statement to be filed with the SEC, the presentation of redeemable common stock
separately from shareholders' equity differs from the presentation of such stock
in the Company's previously issued financial statements.
The Common Shares subject to the Time Put are redeemable at fair value
determined by appraisal or by a multiple of the Company's most recent quarterly
earnings. The Company has recorded an accretion on these shares to fair market
value of $4,780 and $13,691 with respect to the year ended December 31, 1995 and
the nine months ended September 30, 1996.
(b) PAID-IN CAPITAL
Paid-in capital represents registered common shares without par value.
The Company's shareholders are entitled to minimum dividends of 25% of net
income for the year, adjusted according to Corporation Law. As the Company has
not recorded net income since its inception, no such dividends are payable.
21. LITIGATION CONTINGENCIES
Certain claims and lawsuits arising in the ordinary course of business have
been filed or are pending against the Company which were not recognized in the
financial statements. The Company has also recorded provisions related to
certain claims in amounts that management considers to be adequate after
considering a number of factors including (but not limited to) the views of
legal counsel, the nature of the claims and the prior experience of the Company.
In management's opinion, all contingencies have been adequately provided for
or are without merit, or are of such kind that if disposed of unfavorably, would
not have a material adverse effect on the financial position or future results
of operations of the Company.
22. PENSION PLAN
In April 1996, the Company became a co-sponsor of the private pension entity
named Abrilprev Sociedade de Previdencia Privada, the primary objective of which
is to grant employees benefits other than those provided by Social Security. The
plan is optional to all employees of the sponsoring entities. Abrilprev operates
as a Defined Contribution Plan. Company contributions are made based on a fixed
percentage applied to the payroll of the sponsoring entities based on actuarial
calculations. Plan expenses amounted to $263 in 1996.
23. WORKING CAPITAL DEFICIENCY
The Company's consolidated financial statements for the period ended
September 30, 1996 were prepared on a going concern basis which contemplates the
realization of assets and settlement of
F-26
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
23. WORKING CAPITAL DEFICIENCY (CONTINUED)
liabilities and commitments in the normal course of business. The Company
incurred net losses of $37,020, $41,070 and $11,997 and cash (used in)/provided
by operating activities was $(5,385), $22,989 and $(9,474) for the nine months
ended September 30, 1996 and the two years in the period ended December 31,
1995, respectively. In addition, the Company had negative working capital of
$45,773 at September 30, 1996. The continuation of the Company as a going
concern is dependent upon its ability to generate sufficient cash from
operations and financing activities. In this regard, managements' plans include:
(i) raising additional debt financing through a private placement of Senior
Notes; (ii) entering into a credit agreement for a total of $29,350 with a Bank;
and, (iii) entering into a five-year $49,900 sale leaseback of certain assets.
The financial statements do not include any adjustments related to the
recoverability and classification of recorded amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
24. SUPPLEMENTARY INFORMATION--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
DEFERRED
ALLOWANCE FOR ALLOWANCE FOR TAXATION
DOUBTFUL ALLOWANCE FOR EXHIBITION VALUATION PROVISION
ACCOUNTS OBSOLESCENCE EXPIRATION ALLOWANCE FOR CLAIMS
-------------- -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1993 (combined)............. $ 363 $ 91 $ 3,367 $ 15,251 210
Additions Charged to expense............. 848 -- -- -- 920
Reduction................................ -- (91) (3,032) 12,968 (55)
------- ------- ------- ----------- -----------
Balance at December 31, 1994
(consolidated)......................... 1,211 -- 335 28,219 1,075
Additions Charged to expense............. 2,196 -- 827 5,655 2,688
------- ------- ------- ----------- -----------
Balance at December 31, 1995
(consolidated)......................... 3,407 -- 1,162 33,874 3,763
Additions Charged to expense
(unaudited)............................ 3,040 2,493 -- 7,937 1,940
Reduction (unaudited).................... (3,610) -- -- -- --
------- ------- ------- ----------- -----------
Balance at September 30, 1996 (unaudited)
(consolidated)......................... $ 2,837 $ 2,493 $ 1,162 $ 41,811 $ 5,703
------- ------- ------- ----------- -----------
------- ------- ------- ----------- -----------
</TABLE>
25. SUBSEQUENT EVENTS.
The Company generated additional debt financing of approximately $241,200
(net proceeds) in November, 1996 through a private placement of $250 million
12 5/8% Senior Notes issued to certain qualified institutional buyers. These
proceeds were used to repay short term loans from affiliated companies. It is
management's intention to use the remaining proceeds for capital expenditures,
investments and other general corporate purposes. In addition, management
entered into a credit agreement for a total of $29,350 with a Bank.
26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES
Tevecap conducts a significant portion of its business through subsidiaries.
The $250 million 12 5/8% Senior Notes issued to certain qualified institutional
buyers in November, 1996 are jointly and severally, irrevocably and fully and
unconditionally guaranteed, on a senior basis, by all of Tevecap's direct and
indirect subsidiaries except for TVA Communications Aruba N.A. and TVA TCG
Sistema TV.
F-27
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
Presented below is condensed consolidating and combined financial
information for: i) Tevecap on a parent company only basis; ii) the Wholly-Owned
Guarantor Subsidiaries; iii) the Majority-Owned Guarantor Subsidiaries; iv)
Non-Guarantor Subsidiaries; v) Eliminations; and, vi) Consolidated Tevecap S.A.
and Subsidiaries.
The equity method has been used by Tevecap, the Wholly-Owned Guarantor
Subsidiaries and the Majority-Owned Guarantor Subsidiaries with respect to
investments in their subsidiaries.
The following sets forth the Wholly-Owned Guarantor Subsidiaries, the
Majority-Owned Guarantor Subsidiaries and the Non-Guarantor Subsidiaries:
A) WHOLLY OWNED GUARANTOR SUBSIDIARIES
TVA Communications Ltd.
Galaxy Brasil S.A.
Comercial Cabo TV Sao Paulo Ltda.
B) MAJORITY-OWNED GUARANTOR SUBSIDIARIES
TVA Sistema de Televisao S.A.
TVA Sul Participacoes S.A.
TVA Parana Ltda.
TVA Alfa Cabo Ltda.
CCS Camboriu Cable System de Telecomunicacoes Ltda.
TCC TV a Cabo Ltda.
TVA Sul Foz do Iguacu Ltda.
TVA Sul Santa Catarina Ltda.
C) NON-GUARANTOR SUBSIDIARIES
TVA Communications Aruba N.A
TVA TCG Sistema de Televisao de Porto Alegre S.A.
Separate financial statements for TVA Sistema de Televisao S.A. have been
presented as of September 30, 1996 (unaudited) and 1995 (unaudited) and December
31, 1995 and 1994, and the related statements of operations, changes in
shareholders' equity and cash flows for the nine months ended September 30, 1996
(unaudited) and 1995 (unaudited) and the three years in the period ended
December 31, 1995.
Separate consolidated and combined financial statements for TVA Sul
Partipacoes S.A. have also been presented as of September 30, 1996 and 1995
(unaudited) and December 31, 1995 and 1994, and the related statements of
operations, changes in shareholders' equity and cash flows for the nine months
ended September 30, 1996 (unaudited) and 1995 (unaudited) and the three years in
the period ended December 31, 1995.
Unaudited financial information has also been included for TVA Alfa Cabo
Ltda., CCS Camboriu Cable System de Telecomunicacoes Ltda, TVA Sul Santa
Catarina Ltda., TCC TV a Cabo Ltda, TVA Sul Parana Ltda, and TVA Sul Foz do
Iguacu Ltda of as and for the nine months ended September 30, 1996.
Separate financial statements for the Wholly-Owned Guarantor Subsidiaries
have not been presented based on management's determination that they do not
provide additional information that is material to investors.
F-28
<PAGE>
TEVECAP S.A. AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AT SEPTEMBER 30, 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
MAJORITY- NON-
PARENT WHOLLY-OWNED OWNED GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash
equivalents........... $ 1 $ 26 $ 592 -- -- $ 619
Accounts receivable,
net................... -- 2,922 18,909 -- $ (186) 21,645
Accounts receivable from
related companies..... -- -- 2,639 -- (2,639) --
Inventories............. -- -- 15,840 -- 15,840
Film exhibition
rights................ -- -- 725 -- -- 725
Prepaid and other
assets................ -- 284 2,227 -- -- 2,511
Other accounts
receivable............ 117 -- 1,950 -- 192 2,259
----------- --------------- ------------ ----- ------------ -------------
Total current assets...... 118 3,232 42,882 -- (2,633) 43,599
----------- --------------- ------------ ----- ------------ -------------
Property, plant and
equipment............... -- 33,552 154,255 -- 256 188,063
Investments
Equity affiliates....... 22,685 240 -- $ 285 (16,979) 6,231
Cost basis investees.... -- 16,371 -- -- -- 16,371
Concessions, net........ 7,348 -- 11,395 -- -- 18,743
Loans to related
companies............... 344,272 16,125 2,953 -- (347,557) 15,793
Other..................... -- -- 2,642 -- (288) 2,354
----------- --------------- ------------ ----- ------------ -------------
Total assets.............. $ 374,423 $ 69,520 $ 214,127 $ 285 $ (367,201) $ 291,154
----------- --------------- ------------ ----- ------------ -------------
----------- --------------- ------------ ----- ------------ -------------
</TABLE>
F-29
<PAGE>
TEVECAP S.A. AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AT SEPTEMBER 30, 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
MAJORITY- NON-
PARENT WHOLLY-OWNED OWNED GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short term bank loan.... -- -- $ 5,441 -- -- $ 5,441
Film suppliers.......... -- 18,544 $ (12,806) 5,738
Other suppliers......... -- $ 14,757 36,298 -- -- 51,055
Taxes payable other than
income taxes.......... -- 1,338 6,867 -- -- 8,205
Accrued payroll and
related liabilities... -- 623 7,154 -- -- 7,777
Advance payments
received from
subscribers........... -- -- 7,473 -- -- 7,473
Other accounts payable.. $ 790 25 4,341 -- (1,473) 3,683
----------- -------------- ------------ ------------- ------------ -------------
Total current
liabilities......... 790 16,743 86,118 -- (14,279) 89,372
----------- -------------- ------------ ------------- ------------ -------------
Long-term liabilities
Loans from related
companies............. 91,324 44,274 291,695 -- (335,367) 91,926
Loans from
shareholders.......... -- -- 4,607 -- -- 4,607
Provision for claims.... -- -- 5,854 -- -- 5,854
Deferred hook up fee.... -- 2,943 -- -- -- 2,943
Liability to Fund Equity
investee.............. 160,484 -- -- -- (160,484) --
----------- -------------- ------------ ------------- ------------ -------------
Total long-term
liabilities......... 251,808 47,217 302,156 -- (495,851) 105,330
----------- -------------- ------------ ------------- ------------ -------------
Commitments and
contingencies
Minority interest......... -- -- 1,361 -- 837 2,198
Redeemable common stock,
no par value............ 144,754 -- -- -- -- 144,754
Shareholders' equity
Paid-in capital......... 142,495 22,251 35,267 $ 3,117 (60,635) 142,495
Accumulated deficit..... (165,424) (16,691) (210,775) (2,832) 202,727 (192,995)
----------- -------------- ------------ ------------- ------------ -------------
Total shareholders'
equity.............. (22,929) 5,560 (175,508) 285 142,092 (50,500)
----------- -------------- ------------ ------------- ------------ -------------
Total liabilities and
shareholders'
equity.............. $ 374,423 $ 69,520 $ 214,127 $ 285 $ (367,201) $ 291,154
----------- -------------- ------------ ------------- ------------ -------------
----------- -------------- ------------ ------------- ------------ -------------
</TABLE>
F-30
<PAGE>
TEVECAP S.A. AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
MAJORITY- NON-
PARENT WHOLLY-OWNED OWNED GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues
Monthly subscriptions......... -- $ 501 $ 84,800 -- -- $ 85,301
Installation.................. -- 3,200 36,196 -- -- 39,396
Advertising................... -- -- 5,362 -- -- 5,362
Indirect programming.......... -- -- 5,278 -- -- 5,278
Other......................... -- 1 5,294 -- -- 5,295
Revenue taxes................. -- (508) (8,373) -- -- (8,881)
----------- -------------- ------------- ------------- ------------ -------------
Net revenue................. -- 3,194 128,557 -- -- 131,751
----------- -------------- ------------- ------------- ------------ -------------
Direct operating expenses
Payroll and benefits.......... -- 2,100 17,367 -- -- 19,467
Programming................... -- -- 25,477 -- -- 25,477
Transponder lease cost........ -- 4 6,571 -- -- 6,575
Technical assistance.......... -- -- 4,923 -- -- 4,923
Vehicle rentals............... -- -- 1,252 -- -- 1,252
TVA magazine.................. -- -- 4,680 -- -- 4,680
Other costs................... -- 3,006 10,177 -- -- 13,183
----------- -------------- ------------- ------------- ------------ -------------
-- 5,110 70,447 -- -- 75,557
----------- -------------- ------------- ------------- ------------ -------------
Selling, general and
administrative expenses
Payroll and benefits.......... -- 525 20,996 -- -- 21,521
Advertising and promotion..... -- 1,761 11,033 -- -- 12,794
Rent.......................... -- -- 2,323 -- -- 2,323
Other administrative
expenses.................... $ 463 1,871 7,655 -- -- 9,989
Other general expenses........ -- -- 7,083 -- -- 7,083
----------- -------------- ------------- ------------- ------------ -------------
463 4,157 49,090 -- -- 53,710
Allowance for obsolescence...... -- -- 2,493 -- -- 2,493
Depreciation.................... -- 1,059 16,377 -- -- 17,436
Amortization.................... 630 -- 481 -- -- 1,111
----------- -------------- ------------- ------------- ------------ -------------
Operating loss.............. (1,093) (7,132) (10,331) -- -- (18,556)
Interest income................. 358 8 5,779 -- $ (2,495) 3,650
Interest expense................ (6,095) (890) (5,635) -- 2,495 (10,125)
Translation (loss) gain......... 275 (168) 136 -- -- 243
Equity in (losses) income of
affiliates.................... (26,703) (825) -- $ (825) 21,711 (6,642)
Other nonoperating (expenses)
income, net................... (3,382) (1,689) (1,947) -- -- (7,018)
----------- -------------- ------------- ------------- ------------ -------------
Loss before income taxes and
minority interest......... (36,640) (10,696) (11,998) (825) 21,711 (38,448)
Income taxes.................... -- -- (105) -- -- (105)
----------- -------------- ------------- ------------- ------------ -------------
Net loss before minority
interest...................... (36,640) (10,696) (12,103) (825) 21,711 (38,553)
Minority interest............... -- -- (14) -- 1,547 1,533
----------- -------------- ------------- ------------- ------------ -------------
Net loss.................... $ (36,640) $ (10,696) $ (12,117) $ (825) $ 23,258 $ (37,020)
----------- -------------- ------------- ------------- ------------ -------------
----------- -------------- ------------- ------------- ------------ -------------
</TABLE>
F-31
<PAGE>
TEVECAP S.A. AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
MAJORITY- NON-
PARENT WHOLLY-OWNED OWNED GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------------- ------------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss...................... $ (36,640) $ (10,696) $ (12,117) $ (825) $ 23,258 $ (37,020)
ADJUSTMENTS TO RECONCILE NET
LOSS TO NET CASH (USED IN)
PROVIDED BY OPERATING
ACTIVITIES:
Depreciation................ -- 1,059 16,377 -- -- 17,436
Amortization................ 630 -- 481 -- -- 1,111
Allowance for exhibition
costs..................... -- -- -- -- -- --
Allowance for doubtful
accounts.................. -- -- 3,040 -- -- 3,040
Allowance for obsolescence.. -- -- 2,493 -- -- 2,493
Provision for claims........ -- -- 2,091 -- -- 2,091
Minority interest........... -- -- -- -- (1,533) (1,533)
Disposal and write-off of
fixed assets.............. -- -- 1,163 -- -- 1,163
Equity in losses (earnings)
of affiliates............. 6,682 825 -- 825 (1,690) 6,642
CHANGES IN OPERATING ASSETS AND
LIABILITIES:
Film exhibition rights...... -- -- (695) -- -- (695)
Accounts receivable......... -- (2,922) (10,696) -- 186 (13,432)
Prepaid and other assets.... -- -- 686 -- (229) 457
Other accounts receivable... (115) (228) (3,013) -- 2,168 (1,188)
Other....................... -- -- 190 -- 4,978 5,168
Accrued Interest............ 5,461 (491) (1,675) -- 1,405 4,700
Inventories................. -- -- (5,257) -- (5,257)
Legal deposits.............. -- -- (306) -- 172 (134)
Suppliers................... -- 8,898 (891) -- (9,184) (1,177)
Taxes payable other than
income taxes.............. -- 243 1,791 -- -- 2,034
Accrued payroll and related
liabilities............... -- 555 2,651 -- -- 3,206
Advances received from
subscribers............... -- -- 3,487 -- -- 3,487
Deferred hook up fee........ -- 2,943 -- -- -- 2,943
Other accounts payable...... 13 (235) 184 -- (882) (920)
----------- -------------- ------------- ------ ------------ -------------
Net cash (used in) provided by
operating activities.......... (23,969) (49) (16) -- 18,649 (5,385)
----------- -------------- ------------- ------ ------------ -------------
</TABLE>
F-32
<PAGE>
TEVECAP S.A. AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
<TABLE>
<CAPTION>
MAJORITY- NON-
PARENT WHOLLY-OWNED OWNED GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------------- ------------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of fixed assets...... -- (21,956) (50,835) -- 253 (72,538)
Loans to related companies.... (77,586) (10,700) (1,468) -- 67,085 (22,669)
Cash received on loans to
affiliated companies........ 3,333 1,474 9,315 -- (514) 13,608
Purchase of concessions....... 13,490 -- (13,490) -- (13,490) (13,490)
Investments in equity and cost
investments................. (24,474) (5,100) -- -- 12,863 (16,711)
----------- -------------- ------------- ------ ------------ -------------
Net cash used in investing
activities.................... (85,237) (36,282) (56,478) -- 67,197 (111,800)
----------- -------------- ------------- ------ ------------ -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Short term bank loans......... -- -- 5,441 -- -- 5,441
Capital contributions......... -- 16,036 18,964 -- (35,000) --
Repayments of loans from
shareholders................ -- -- (162) -- 1,684 1,522
Loans from shareholders....... -- 3,963 1,822 -- (5,785) --
Loans from related companies.. 126,227 17,349 38,232 -- (65,630) 116,178
Repayments of loans from
related companies........... (40,466) (1,003) (9,315) -- 21,246 (29,538)
Minority interest............. -- -- 1,361 -- (1,361) --
----------- -------------- ------------- ------ ------------ -------------
Net cash provided by financing
activities.................... 85,761 36,345 56,343 -- (84,846) 93,603
----------- -------------- ------------- ------ ------------ -------------
Net (decrease) increase in cash
and cash equivalents (23,445) 14 (151) -- -- (23,582)
Cash and cash equivalents at
beginning of the period....... 23,446 12 743 -- -- 24,201
----------- -------------- ------------- ------ ------------ -------------
Cash and cash equivalents at end
of the period................. $ 1 $ 26 $ 592 $ -- $ -- $ 619
----------- -------------- ------------- ------ ------------ -------------
----------- -------------- ------------- ------ ------------ -------------
SUPPLEMENTAL CASH DISCLOSURE:
Cash paid for interest........ -- -- -- -- -- --
----------- -------------- ------------- ------ ------------ -------------
----------- -------------- ------------- ------ ------------ -------------
SUPPLEMENTAL NON CASH FINANCING
ACTIVITIES:
Accrued interest on related
company loans refinanced as
principal balance........... 4,684 -- 1,272 -- (1,272) 4,684
----------- -------------- ------------- ------ ------------ -------------
----------- -------------- ------------- ------ ------------ -------------
DETAILS OF ACQUISITIONS:
Fair value of assets
acquired.................... -- -- 14,895 -- -- --
Liabilities assumed........... -- -- (1,330) -- -- --
----------- -------------- ------------- ------ ------------ -------------
Cash paid..................... -- -- (13,565) -- -- --
Less: cash acquired........... -- -- (75) -- -- --
Net cash paid for
acquisitions................ -- -- $ 13,490 -- -- --
----------- -------------- ------------- ------ ------------ -------------
----------- -------------- ------------- ------ ------------ -------------
</TABLE>
F-33
<PAGE>
TEVECAP S.A. AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AT DECEMBER 31, 1995
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
MAJORITY - NON-
PARENT WHOLLY-OWNED OWNED GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash
equivalents........... $ 23,446 $ 12 $ 743 -- -- $ 24,201
Accounts receivable,
net................... -- -- 11,253 -- -- 11,253
Inventories............. -- -- 13,076 -- -- 13,076
Film exhibition
rights................ -- -- 30 -- -- 30
Prepaid and other
assets................ -- 55 2,913 -- -- 2,968
Other accounts
receivable............ 2 -- 1,490 -- $ (507) 985
----------- --------------- ------------ ------------- ------------ -------------
Total current
assets.............. 23,448 67 29,505 $ -- (507) 52,513
----------- --------------- ------------ ------------- ------------ -------------
Property, plant and
equipment............... -- 11,492 120,350 -- (576) 131,266
Investments
Equity affiliates....... 7,252 1,110 -- 1,110 (6,010) 3,462
Cost basis investees.... 15 11,225 -- -- -- 11,240
Concessions, net........ 7,978 -- -- -- -- 7,978
Loans to related
companies............... 281,034 6,786 10,480 -- (291,568) 6,732
Other..................... -- -- 1,568 -- 2,089 3,657
----------- --------------- ------------ ------------- ------------ -------------
Total assets.......... $ 319,727 $ 30,680 $ 161,903 $ 1,110 $ (296,572) $ 216,848
----------- --------------- ------------ ------------- ------------ -------------
----------- --------------- ------------ ------------- ------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Film suppliers.......... -- -- $ 9,512 -- $ (3,620) $ 5,892
Other suppliers......... -- $ 5,859 46,219 -- -- 52,078
Taxes payable other than
income taxes.......... -- 1,095 5,076 -- -- 6,171
Accrued payroll and
related liabilities... -- 68 4,503 -- -- 4,571
Advance payments
received from
subscribers........... -- -- 3,986 -- -- 3,986
Other accounts payable.. $ 169 273 2,830 -- -- 3,272
----------- --------------- ------------ ------------- ------------ -------------
Total current
liabilities......... 169 7,295 72,126 $ -- (3,620) 75,970
----------- --------------- ------------ ------------- ------------ -------------
Long-term liabilities
Loans from related
companies............. 585 23,174 265,282 -- (288,455) 586
Loans from
shareholders.......... -- -- 3,086 -- -- 3,086
Provision for claims.... -- -- 3,763 -- -- 3,763
Liability to Fund Equity
investee.............. 160,508 -- -- -- (158,339) 2,169
----------- --------------- ------------ ------------- ------------ -------------
Total long-term
liabilities......... 161,093 23,174 272,131 -- (446,794) 9,604
----------- --------------- ------------ ------------- ------------ -------------
Redeemable common stock,
no par value............ 144,754 -- -- -- -- 144,754
Shareholders' equity
Paid-in capital......... 142,495 6,214 17,017 3,117 (26,348) 142,495
Accumulated deficit..... (128,784) (6,003) (199,371) (2,007) 180,190 (155,975)
----------- --------------- ------------ ------------- ------------ -------------
Total shareholders'
equity.............. 13,711 211 (182,354) 1,110 153,842 (13,480)
----------- --------------- ------------ ------------- ------------ -------------
Total liabilities and
shareholders'
equity.............. $ 319,727 $ 30,680 $ 161,903 $ 1,110 $ (296,572) $ 216,848
----------- --------------- ------------ ------------- ------------ -------------
----------- --------------- ------------ ------------- ------------ -------------
</TABLE>
F-34
<PAGE>
TEVECAP S.A. AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
WHOLLY- MAJORITY- NON-
PARENT OWNED OWNED GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues
Monthly subscriptions......................... -- -- $ 62,496 -- -- $ 62,496
Installation.................................. -- -- 26,045 -- -- 26,045
Advertising................................... -- -- 8,377 -- -- 8,377
Indirect programming.......................... -- -- 2,866 -- -- 2,866
Other......................................... -- -- 2,226 -- -- 2,226
Revenue taxes................................. -- -- (7,506) -- -- (7,506)
---------- ------------ ------------ ------------ ------------ -------------
Net revenue................................. $ -- $ -- 94,504 $ -- $ -- 94,504
---------- ------------ ------------ ------------ ------------ -------------
Direct operating expenses
Payroll and benefits.......................... -- 315 12,205 -- -- 12,520
Programming................................... -- -- 21,609 -- -- 21,609
Transponder lease cost........................ -- -- 7,568 -- -- 7,568
Technical assistance.......................... -- -- 5,152 -- -- 5,152
Vehicle rentals............................... -- 7 1,725 -- -- 1,732
TVA magazine.................................. -- -- 3,318 -- -- 3,318
Other costs................................... -- 705 9,422 -- -- 10,127
---------- ------------ ------------ ------------ ------------ -------------
-- 1,027 60,999 -- -- 62,026
---------- ------------ ------------ ------------ ------------ -------------
Selling, general and administrative expenses
Payroll and benefits.......................... -- -- 21,627 -- -- 21,627
Advertising and promotion..................... -- 62 11,060 -- -- 11,122
Rent.......................................... -- 18 1,055 -- -- 1,073
Other administrative expenses................. 198 202 6,273 -- -- 6,673
Other general expenses........................ -- 4 6,403 -- -- 6,407
---------- ------------ ------------ ------------ ------------ -------------
198 286 46,418 -- -- 46,902
---------- ------------ ------------ ------------ ------------ -------------
Depreciation.................................... -- 127 12,721 -- -- 12,848
Amortization.................................... 420 -- -- -- -- 420
---------- ------------ ------------ ------------ ------------ -------------
Operating loss.............................. (618) (1,440) (25,634) -- -- (27,692)
---------- ------------ ------------ ------------ ------------ -------------
Interest income................................. 6,772 350 7,965 -- (11,969) 3,118
Interest expense................................ (15,273) (1,226) (13,215) -- 11,969 (17,745)
Translation loss................................ (28) (151) (160) -- -- (339)
Equity in (losses) of affiliates................ (27,316) (1,427) -- (1,427) 26,498 (3,672)
Other nonoperating (expenses) income, net....... (477) 811 4,055 -- -- 4,389
---------- ------------ ------------ ------------ ------------ -------------
Loss before income taxes and minority
interest.................................. (36,940) (3,083) (26,989) (1,427) 26,498 (41,941)
Income taxes -- -- -- -- -- --
---------- ------------ ------------ ------------ ------------ -------------
Net loss before minority interest............... (36,940) (3,083) (26,989) (1,427) 26,498 (41,941)
Minority interest............................... -- -- -- -- 871 871
---------- ------------ ------------ ------------ ------------ -------------
Net loss.................................... $ (36,940) $ (3,083) $ (26,989) $ (1,427) $ 27,369 $ (41,070)
---------- ------------ ------------ ------------ ------------ -------------
---------- ------------ ------------ ------------ ------------ -------------
</TABLE>
F-35
<PAGE>
TEVECAP S.A. AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
WHOLLY- MAJORITY- NON-
PARENT OWNED OWNED GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS
----------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss......................................... $ (36,940) $ (3,083) $ (26,989) $ (1,427) $ 27,369
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
(USED IN) PROVIDED BY OPERATING ACTIVITIES:
Depreciation................................. -- 127 12,721 -- --
Amortization................................. 420 -- -- -- --
Allowance for exhibition costs............... -- -- 827 -- --
Allowance for doubtful accounts.............. -- -- 2,196 -- --
Provision for claims......................... -- -- 2,688 -- --
Minority interest............................ -- -- -- -- (871)
Disposal and write-off of fixed assets....... -- 4,352 474 -- (4,485)
Equity in losses (earnings) of affiliates.... 27,316 (1,427) -- 1,427 (23,644)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Film exhibition rights....................... -- -- 560 -- --
Accounts receivable.......................... -- -- (5,908) -- --
Prepaid and other assets..................... -- (55) (1,214) -- --
Other accounts receivable.................... (2) -- (599) -- --
Accrued Interest............................. 8,473 244 5,395 -- (4,871)
Inventories.................................. -- 333 (7,706) -- --
Legal deposits............................... -- -- (108) -- --
Suppliers.................................... -- 5,385 34,004 -- (3,114)
Taxes payable other than income taxes........ -- 1,095 3,786 -- --
Accrued payroll and related liabilities...... -- 68 1,568 -- --
Deferred accounts payable.................... -- -- 2,956 -- --
Other accounts payable....................... 3 273 1,372 -- --
----------- ------------- ------------- ------------- ------------
Net cash (used in) provided by operating
activities............................... (730) 7,312 26,023 -- (9,616)
----------- ------------- ------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets....................... -- (11,619) (86,470) -- 5,060
Loans to related companies..................... (115,498) (6,709) (8,220) -- 122,460
Cash received on loans to related companies.... 34,220 -- 26 -- (31,655)
Purchase of concessions........................ (6,393) -- -- -- --
Investments in equity and cost investments..... (4,382) (13,763) -- (3,117) 6,399
----------- ------------- ------------- ------------- ------------
Net cash used in investing activities...... (92,053) (32,091) (94,664) (3,117) 102,264
----------- ------------- ------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions.......................... 125,000 2,154 -- 3,117 (5,271)
Repayments of loans from shareholders.......... -- 2,154 -- -- (2,154)
Loans from related companies................... 131,858 22,848 97,218 -- (120,064)
Repayments of loans from related companies..... (140,629) (2,365) (32,477) -- 34,840
----------- ------------- ------------- ------------- ------------
Net cash provided by financing
activities............................... 116,229 24,791 64,741 3,117 (92,649)
----------- ------------- ------------- ------------- ------------
Net increase (decrease) in cash and cash
equivalents.................................... 23,446 12 (3,901) -- --
Cash and cash equivalents at beginning of the
period......................................... -- -- 4,644 -- --
----------- ------------- ------------- ------------- ------------
Cash and cash equivalents at end of the
period................................... $ 23,446 $ 12 $ 743 $ -- $ --
----------- ------------- ------------- ------------- ------------
----------- ------------- ------------- ------------- ------------
SUPPLEMENTAL CASH DISCLOSURE:
Cash paid for interest......................... $ 8,390 $ -- $ 2,708 $ -- $ (2,708)
----------- ------------- ------------- ------------- ------------
----------- ------------- ------------- ------------- ------------
SUPPLEMENTAL NON-CASH FINANCINGactivities:
Accrued interest on related company loans
refinanced as principal balance.............. $ 9,355 $ 34 $ 4,754 $ -- $ (4,788)
----------- ------------- ------------- ------------- ------------
----------- ------------- ------------- ------------- ------------
<CAPTION>
CONSOLIDATED
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss......................................... $ (41,070)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
(USED IN) PROVIDED BY OPERATING ACTIVITIES:
Depreciation................................. 12,848
Amortization................................. 420
Allowance for exhibition costs............... 827
Allowance for doubtful accounts.............. 2,196
Provision for claims......................... 2,688
Minority interest............................ (871)
Disposal and write-off of fixed assets....... 341
Equity in losses (earnings) of affiliates.... 3,672
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Film exhibition rights....................... 560
Accounts receivable.......................... (5,908)
Prepaid and other assets..................... (1,269)
Other accounts receivable.................... (601)
Accrued Interest............................. 9,241
Inventories.................................. (7,373)
Legal deposits............................... (108)
Suppliers.................................... 36,275
Taxes payable other than income taxes........ 4,881
Accrued payroll and related liabilities...... 1,636
Deferred accounts payable.................... 2,956
Other accounts payable....................... 1,648
-------------
Net cash (used in) provided by operating
activities............................... 22,989
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets....................... (93,029)
Loans to related companies..................... (7,967)
Cash received on loans to related companies.... 2,591
Purchase of concessions........................ (6,393)
Investments in equity and cost investments..... (14,863)
-------------
Net cash used in investing activities...... (119,661)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions.......................... 125,000
Repayments of loans from shareholders.......... --
Loans from related companies................... 131,860
Repayments of loans from related companies..... (140,631)
-------------
Net cash provided by financing
activities............................... 116,229
-------------
Net increase (decrease) in cash and cash
equivalents.................................... 19,557
Cash and cash equivalents at beginning of the
period......................................... 4,644
-------------
Cash and cash equivalents at end of the
period................................... $ 24,201
-------------
-------------
SUPPLEMENTAL CASH DISCLOSURE:
Cash paid for interest......................... $ 8,390
-------------
-------------
SUPPLEMENTAL NON-CASH FINANCINGactivities:
Accrued interest on related company loans
refinanced as principal balance.............. $ 9,355
-------------
-------------
</TABLE>
F-36
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 1994
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
WHOLLY- MAJORITY-
PARENT OWNED OWNED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.............. -- -- $ 4,644 -- $ 4,644
Accounts receivable, net............... -- -- 7,541 -- 7,541
Inventories............................ -- $ 333 5,370 -- 5,703
Film exhibition rights................. -- -- 1,417 -- 1,417
Prepaid and other assets............... -- -- 1,699 -- 1,699
Other accounts receivable.............. -- -- 891 $ (507) 384
----------- ------------- ------------ ------------ -------------
Total current assets................. $ -- 333 21,562 (507) 21,388
----------- ------------- ------------ ------------ -------------
Property, plant and equipment............ -- 4,352 47,074 -- 51,426
Investments............................ -- -- -- -- --
Equity affiliates...................... 3,664 -- -- (1,808) 1,856
Cost basis investees................... 39 -- -- -- 39
Concessions, net....................... 2,035 -- -- -- 2,035
Loans to related companies............... 196,504 33 103 (195,621) 1,019
Other.................................... -- -- 1,357 1,321 2,678
----------- ------------- ------------ ------------ -------------
Total assets......................... $ 202,242 $ 4,718 $ 70,096 $ (196,615) $ 80,441
----------- ------------- ------------ ------------ -------------
----------- ------------- ------------ ------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Film suppliers......................... -- -- $ 7,093 $ (507) $ 6,586
Other suppliers........................ -- $ 474 14,635 -- 15,109
Taxes payable other than income
taxes................................ -- -- 1,290 -- 1,290
Accrued payroll and related
liabilities.......................... -- -- 2,935 -- 2,935
Advance payments received from
subscribers.......................... -- -- 1,030 -- 1,030
Other accounts payable................. $ 166 -- 1,458 -- 1,624
----------- ------------- ------------ ------------ -------------
Total current liabilities............ 166 474 28,441 (507) 28,574
----------- ------------- ------------ ------------ -------------
Long-term liabilities
Loans from related companies........... -- 2,436 193,082 (195,518) --
Loans from shareholders................ -- -- 2,864 -- 2,864
Provision for claims................... -- -- 1,075 -- 1,075
Liability to Fund Equity investee...... 131,672 -- -- (131,088) 584
----------- ------------- ------------ ------------ -------------
Total long-term liabilities.......... 131,672 2,436 197,021 (326,606) 4,523
----------- ------------- ------------ ------------ -------------
Redeemable common stock, no par value.... 19,754 -- -- -- 19,754
Shareholders' equity
Paid-in capital........................ 142,495 1,823 17,017 (18,840) 142,495
Accumulated deficit.................... (91,845) (15) (172,383) 149,338 (114,905)
----------- ------------- ------------ ------------ -------------
Total shareholders' equity........... 50,650 1,808 (155,366) 130,498 27,590
----------- ------------- ------------ ------------ -------------
----------- ------------- ------------ ------------ -------------
Total liabilities and shareholders'
equity........................... $ 202,242 $ 4,718 $ 70,096 $ (196,615) $ 80,441
----------- ------------- ------------ ------------ -------------
----------- ------------- ------------ ------------ -------------
</TABLE>
F-37
<PAGE>
TEVECAP S.A. AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
MAJORITY-
PARENT OWNED
COMPANY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Gross revenues
Monthly subscriptions.................................. -- $ 27,976 -- $ 27,976
Installation........................................... -- 6,997 -- 6,997
Advertising............................................ -- 5,727 -- 5,727
Indirect programming................................... -- 1,626 -- 1,626
Other.................................................. -- 1,446 -- 1,446
Revenue taxes.......................................... -- (872) -- (872)
---------- ------------ ------------ -------------
Net revenue........................................ $ -- 42,900 $ -- 42,900
---------- ------------ ------------ -------------
Direct operating expenses
Payroll and benefits................................... -- 8,022 -- 8,022
Programming............................................ -- 12,133 -- 12,133
Transponder lease cost................................. -- 1,555 -- 1,555
Technical assistance................................... -- 1,622 -- 1,622
Vehicle rentals........................................ -- 788 -- 788
TVA magazine........................................... -- 1,430 -- 1,430
Other costs............................................ -- 3,109 -- 3,109
---------- ------------ ------------ -------------
-- 28,659 -- 28,659
---------- ------------ ------------ -------------
Selling, general and administrative expenses
Payroll and benefits................................... -- 14,241 -- 14,241
Advertising and promotion.............................. -- 3,540 -- 3,540
Rent................................................... -- 656 -- 656
Other administrative expenses.......................... -- 2,206 -- 2,206
Other general expenses................................. 143 3,584 -- 3,727
---------- ------------ ------------ -------------
143 24,227 -- 24,370
---------- ------------ ------------ -------------
Depreciation............................................. -- 6,177 -- 6,177
Operating loss........................................... (143) (16,163) (16,306)
---------- ------------ ------------ -------------
Interest income.......................................... 64,360 8,479 (51,033) 21,806
Interest expense......................................... (5,279) (62,166) 51,032 (16,413)
Translation loss......................................... (231) (683) -- (914)
Equity in (losses) income of affiliates.................. (61,063) -- 61,446 383
Other nonoperating expenses, net......................... (1,228) (45) -- (1,273)
---------- ------------ ------------ -------------
Loss before income taxes and minority interest......... (3,584) (70,578) 61,445 (12,717)
Income taxes (Note 11)
---------- ------------ ------------ -------------
Net loss before minority interest........................ (3,584) (70,578) 61,445 (12,717)
Minority interest........................................ -- -- 720 720
---------- ------------ ------------ -------------
Net loss............................................... $ (3,584) $ (70,578) $ 62,165 $ (11,997)
---------- ------------ ------------ -------------
---------- ------------ ------------ -------------
</TABLE>
F-38
<PAGE>
TEVECAP S.A. AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
WHOLLY- MAJORITY-
PARENT OWNED OWNED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS
----------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................... $ (3,584) -- $ (70,578) $ 62,165
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN)
PROVIDED BY OPERATING ACTIVITIES:
Depreciation................................................ -- -- 6,141 --
Allowance for doubtful accounts............................. -- -- 848 --
Provision for claims........................................ -- -- 864 --
Minority interest........................................... -- -- -- (721)
Disposal and write-off of fixed assets...................... -- -- 662 --
Equity in losses (earnings) of affiliates................... 61,063 -- -- (61,446)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Film exhibition rights...................................... -- -- (114) --
Accounts receivable......................................... -- -- (7,007) --
Prepaid and other assets.................................... -- -- (1,364) --
Other accounts receivable................................... -- -- (706) 507
Other....................................................... -- -- (2,683) (233)
Accrued Interest............................................ (74,306) -- 57,221 17,808
Inventories................................................. -- $ (333) (2,050) --
Legal deposits.............................................. -- -- (154) --
Suppliers................................................... -- 474 5,342 (507)
Taxes payable other than income taxes....................... -- -- 685 --
Accrued payroll and related liabilities..................... -- -- 1,454 --
Advances received from subscribers.......................... -- -- (496) --
Other accounts payable...................................... 166 -- 1,175 --
----------- ------------- ------------- ------------
Net cash (used in) provided by operating activities..... (16,661) 141 (10,761) 17,574
----------- ------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets.................................... -- (4,362) (18,007) --
Loans to related companies.................................. (148,622) (33) (2,098) 147,271
Cash received on loans to related companies................. 5,997 -- 4,019 (5,535)
Purchase of concessions..................................... (2,035) -- -- --
Investments in equity and cost investments.................. (929) -- -- --
----------- ------------- ------------- ------------
Net cash used in investing activities................... (145,589) (4,395) (16,086) 141,736
----------- ------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions....................................... 162,250 1,808 7,588 (20,194)
Repayments of loans from shareholders....................... -- -- (3,082) --
Loans from related companies................................ -- 2,446 225,581 (131,041)
Repayments of loans from related companies.................. -- -- (178,680) (8,075)
Repayments of loans from banks.............................. -- -- (19,935) --
----------- ------------- ------------- ------------
Net cash provided by financing activities............... 162,250 4,254 31,472 (159,810)
----------- ------------- ------------- ------------
Net increase in cash and cash equivalents..................... -- -- 4,625 --
Cash and cash equivalents at beginning of the period.......... -- -- 19 --
----------- ------------- ------------- ------------
Cash and cash equivalents at end of the period.......... $ -- $ -- $ 4,644 $ --
----------- ------------- ------------- ------------
----------- ------------- ------------- ------------
SUPPLEMENTAL CASH DISCLOSURE:
Cash paid for interest...................................... $ 16,413 $ -- $ 8,583 $ (8,583)
----------- ------------- ------------- ------------
----------- ------------- ------------- ------------
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:
Accrued interest on related company loans refinanced as
principal balance......................................... $ -- $ -- $ 56,427 $ (56,427)
----------- ------------- ------------- ------------
----------- ------------- ------------- ------------
<CAPTION>
CONSOLIDATED
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................... $ (11,997)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN)
PROVIDED BY OPERATING ACTIVITIES:
Depreciation................................................ 6,141
Allowance for doubtful accounts............................. 848
Provision for claims........................................ 864
Minority interest........................................... (721)
Disposal and write-off of fixed assets...................... 662
Equity in losses (earnings) of affiliates................... (383)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Film exhibition rights...................................... (114)
Accounts receivable......................................... (7,007)
Prepaid and other assets.................................... (1,364)
Other accounts receivable................................... (199)
Other....................................................... (2,450)
Accrued Interest............................................ 723
Inventories................................................. (2,383)
Legal deposits.............................................. (154)
Suppliers................................................... 5,309
Taxes payable other than income taxes....................... 685
Accrued payroll and related liabilities..................... 1,454
Advances received from subscribers.......................... (496)
Other accounts payable...................................... 1,341
-------------
Net cash (used in) provided by operating activities..... (9,707)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets.................................... (22,369)
Loans to related companies.................................. (3,482)
Cash received on loans to related companies................. 4,481
Purchase of concessions..................................... (2,035)
Investments in equity and cost investments.................. (929)
-------------
Net cash used in investing activities................... (24,334)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions....................................... 151,452
Repayments of loans from shareholders....................... (3,082)
Loans from related companies................................ 96,986
Repayments of loans from related companies.................. (186,755)
Repayments of loans from banks.............................. (19,935)
-------------
Net cash provided by financing activities............... 38,666
-------------
Net increase in cash and cash equivalents..................... 4,625
Cash and cash equivalents at beginning of the period.......... 19
-------------
Cash and cash equivalents at end of the period.......... $ 4,644
-------------
-------------
SUPPLEMENTAL CASH DISCLOSURE:
Cash paid for interest...................................... $ 16,413
-------------
-------------
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:
Accrued interest on related company loans refinanced as
principal balance......................................... $ --
-------------
-------------
</TABLE>
F-39
<PAGE>
TEVECAP S.A. AND
SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
MAJORITY-
OWNED
SUBSIDIARIES ELIMINATIONS COMBINED
------------ ------------ -------------
<S> <C> <C> <C>
Gross revenues
Monthly subscriptions.............................................. $ 12,544 -- $ 12,544
Installation....................................................... 4,350 -- 4,350
Advertising........................................................ 2,099 -- 2,099
Indirect programming............................................... 530 -- 530
Other.............................................................. 369 -- 369
Revenue taxes...................................................... (371) -- (371)
------------ ------------ -------------
Net revenue...................................................... 19,521 $ -- 19,521
------------ ------------ -------------
Direct operating expenses
Payroll and benefits............................................... 6,079 -- 6,079
Programming........................................................ 18,156 -- 18,156
Transponder lease cost............................................. 1,262 -- 1,262
Technical assistance............................................... 1,773 -- 1,773
Vehicle rentals.................................................... 597 -- 597
TVA magazine....................................................... 725 -- 725
Other costs........................................................ 1,187 -- 1,187
------------ ------------ -------------
29,779 -- 29,779
------------ ------------ -------------
Selling, general and administrative expenses
Payroll and benefits............................................... 10,945 -- 10,945
Advertising and promotion.......................................... 2,205 -- 2,205
Rent............................................................... 847 -- 847
Other administrative expenses...................................... 2,265 -- 2,265
Other general expenses............................................. 3,695 -- 3,695
------------ ------------ -------------
19,957 -- 19,957
------------ ------------ -------------
Depreciation......................................................... 4,813 -- 4,813
------------ ------------ -------------
Operating loss................................................... (35,028) -- (35,028)
Interest income...................................................... 5,369 -- 5,369
Interest expense..................................................... (8,492) -- (8,492)
Translation gain..................................................... 788 -- 788
Other nonoperating expenses, net..................................... (557) -- (557)
------------ ------------ -------------
Loss before income taxes and minority interest................... (37,920) -- (37,920)
Income taxes..................................................... -- -- --
------------ ------------ -------------
Net loss before minority interest.................................... (37,920) -- (37,920)
Minority interest.................................................... -- 292 292
------------ ------------ -------------
Net loss......................................................... $ (37,920) 292 $ (37,628)
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-40
<PAGE>
TEVECAP S.A. AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED COMBINED CASH FLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
MAJORITY-
OWNED
SUBSIDIARIES ELIMINATIONS COMBINED
------------- --------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................... $ (37,920) $ 292 $ (37,628)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES:
Depreciation..................................................... 5,081 -- 5,081
Provision for claims............................................. (131) -- (131)
Minority interest................................................ -- (292) (292)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Film exhibition rights........................................... 4,843 -- 4,843
Accounts receivable.............................................. (181) -- (181)
Prepaid and other assets......................................... 113 -- 113
Other accounts receivable........................................ (90) -- (90)
Other............................................................ (221) -- (221)
Accrued Interest................................................. 8,368 -- 8,368
Inventories...................................................... (533) -- (533)
Legal deposits................................................... (415) -- (415)
Suppliers........................................................ 40 -- 40
Taxes payable other than income taxes............................ 167 -- 167
Accrued payroll and related liabilities.......................... 140 -- 140
Advances received from subscribers............................... 1,415 -- 1,415
Other accounts payable........................................... 144 -- 144
------------- ------ -------------
Net cash used in operating activities.......................... (19,180) -- (19,180)
------------- ------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets........................................... (11,379) -- (11,379)
Loans to related companies......................................... (1,811) -- (1,811)
------------- ------ -------------
Net cash used in investing activities.......................... (13,190) -- (13,190)
------------- ------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans from shareholders............................................ 3,299 -- 3,299
Loans to shareholders.............................................. (3,298) -- (3,298)
Loans from related companies....................................... 106,023 -- 106,023
Repayments of loans from related companies......................... (67,056) -- (67,056)
Repayments of loans from banks..................................... (6,620) -- (6,620)
------------- ------ -------------
Net cash provided by financing activities...................... 32,348 -- 32,348
------------- ------ -------------
Net (decrease) increase in cash and cash equivalents................. (22) -- (22)
Cash and cash equivalents at beginning of the period................. 41 -- 41
------------- ------ -------------
Cash and cash equivalents at end of the period................. $ 19 $ -- $ 19
------------- ------ -------------
------------- ------ -------------
SUPPLEMENTAL CASH DISCLOSURE:
Cash paid for interest............................................. $ 1,183 $ -- $ 1,183
------------- ------ -------------
------------- ------ -------------
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:
Accrued interest on related company loans refinanced as principal
balance.......................................................... $ 8,225 $ -- $ 8,225
------------- ------ -------------
------------- ------ -------------
</TABLE>
F-41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
TVA SISTEMA DE TELEVISAO S.A.
We have audited the accompanying balance sheets of TVA SISTEMA DE TELEVISAO
S.A. (the "Company") as of December 31, 1995 and 1994, and the related
statements of operations, changes in shareholders' equity and cash flows for the
three years in the period ended December 31, 1995, all expressed in United
States dollars. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TVA SISTEMA DE TELEVISAO
S.A. as of December 31, 1995 and 1994, and the related results of their
operations and cash flows for the three years in the period ended December 31,
1995, in conformity with accounting principles generally accepted in the United
States of America.
As discussed in Note 3 to financial statements, the Company has
retroactively changed its method of accounting for installation equipment costs
and operating costs incurred during the period of constructing their television
systems.
Coopers & Lybrand
Sao Paulo, Brazil
August 23, 1996
F-42
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
BALANCE SHEETS
SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 AND 1994
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------
1996 1995 1994
-------------- ----------- ---------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents (Note 4).................................... $ 178 $ 698 $ 4,644
Accounts receivable, net (Note 5)..................................... 18,160 11,221 7,541
Accounts receivable from related companies (Note 9)................... 2,639 945 707
Inventories (Note 6).................................................. 14,464 13,076 5,370
Film exhibition rights (Note 7)....................................... 725 30 1,417
Prepaid and other assets (Note 8)..................................... 1,639 2,845 1,654
Other accounts receivable............................................. 834 543 177
-------------- ----------- ---------
Total current assets................................................ 38,639 29,358 21,510
-------------- ----------- ---------
Property, plant and equipment (Note 12)................................. 140,706 118,884 46,877
Loans to related companies (Note 9)..................................... 2,953 10,480 --
Other................................................................... 1,665 1,559 1,452
-------------- ----------- ---------
Total assets........................................................ $ 183,963 $ 160,281 $ 69,839
-------------- ----------- ---------
-------------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements
F-43
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
BALANCE SHEETS
AT SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 AND 1994
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER --------------------------
30, 1996 1995 1994
-------------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term bank loans (Note 13)..................................... $ 5,441 -- --
Film suppliers...................................................... 18,544 $ 9,512 $ 7,093
Other suppliers..................................................... 35,546 46,123 14,532
Taxes payable other than income taxes............................... 6,659 5,020 1,261
Accrued payroll and related liabilities............................. 6,549 4,250 2,795
Advance payments received from subscribers.......................... 7,473 3,986 1,031
Other accounts payable (Note 14).................................... 1,913 1,828 1,402
-------------- ------------ ------------
Total current liabilities....................................... 82,125 70,719 28,114
-------------- ------------ ------------
Long-term liabilities
Loans from shareholders (Note 10)................................... 2,767 2,906 2,729
Loans from related companies (Note 9)............................... 274,719 254,802 187,196
Provision for claims (Note 18)...................................... 5,704 3,763 1,075
-------------- ------------ ------------
Total long-term liabilities..................................... 283,190 261,471 191,000
-------------- ------------ ------------
Commitments and contingencies (Note 18)
Shareholders' equity
Common shares, no par value, 6,980,764 shares issued and outstanding
(Note 17)......................................................... 16,303 16,303 16,303
Accumulated deficit................................................. (197,655) (188,212) (165,578)
-------------- ------------ ------------
Total shareholders' equity...................................... (181,352) (171,909) (149,275)
-------------- ------------ ------------
Total liabilities and shareholders' equity...................... $ 183,963 $ 160,281 $ 69,839
-------------- ------------ ------------
-------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements
F-44
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
SEPTEMBER 30, 1995 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------ ----------------------------------
1996 1995 1995 1994 1993
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Gross revenues
Monthly subscriptions................................. $ 76,588 $ 39,106 $ 59,263 $ 26,584 $ 12,147
Installation.......................................... 35,377 17,995 26,045 6,997 4,350
Advertising........................................... 5,362 5,505 8,377 5,721 2,099
Indirect programming.................................. 5,278 2,114 2,866 1,626 628
Other................................................. 5,229 2,194 2,226 1,446 271
Revenue taxes......................................... (8,065) (5,018) (7,280) (801) (352)
----------- ----------- ---------- ---------- ----------
Net revenue......................................... 119,769 61,896 91,497 41,573 19,143
----------- ----------- ---------- ---------- ----------
Direct operating expenses
Payroll and benefits.................................. 14,600 7,742 10,749 7,017 5,152
Programming........................................... 24,336 14,105 21,609 12,133 18,156
Transponder lease cost................................ 6,571 5,357 7,568 1,555 1,262
Technical assistance.................................. 4,219 3,753 4,937 1,607 1,692
Vehicle rentals....................................... 1,014 941 1,478 767 525
TVA magazine.......................................... 4,522 2,164 3,318 1,430 725
Other costs........................................... 9,047 5,961 9,190 2,677 932
----------- ----------- ---------- ---------- ----------
64,309 40,023 58,849 27,186 28,444
----------- ----------- ---------- ---------- ----------
Selling, general and administrative expenses
Payroll and benefits.................................. 20,032 15,396 21,089 14,034 10,699
Advertising and promotion............................. 10,711 5,702 10,793 3,540 2,163
Rent.................................................. 2,165 688 941 656 837
Other administrative expenses......................... 6,535 4,134 5,981 2,205 2,265
Other general expenses................................ 6,752 3,522 5,917 2,782 3,697
----------- ----------- ---------- ---------- ----------
46,195 29,442 44,721 23,217 19,661
----------- ----------- ---------- ---------- ----------
Allowance for obsolescence.............................. 2,493 -- -- -- --
Depreciation............................................ 15,980 8,544 12,535 6,141 4,793
----------- ----------- ---------- ---------- ----------
Operating loss...................................... (9,208) (16,113) (24,608) (14,971) (33,755)
----------- ----------- ---------- ---------- ----------
Interest income......................................... 5,612 5,388 7,800 8,298 5,331
Interest expense........................................ (3,894) (6,724) (9,687) (59,598) (7,997)
Translation gain (loss)................................. 236 14 (167) (662) 506
Other nonoperating (expenses) income, net............... (2,189) 3,032 4,028 (45) (557)
----------- ----------- ---------- ---------- ----------
Loss before income taxes and minority interest...... (9,443) (14,403) (22,634) (66,978) (36,472)
Income taxes (Note 11) -- -- -- -- --
----------- ----------- ---------- ---------- ----------
Net loss............................................ $ (9,443) $ (14,403) $ (22,634) $ (66,978) $ (36,472)
----------- ----------- ---------- ---------- ----------
----------- ----------- ---------- ---------- ----------
</TABLE>
F-45
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
AND SEPTEMBER 30, 1995 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
PAID-IN
CAPITAL ACCUMULATED
(NOTE 17) DEFICIT TOTAL
---------- ------------- ------------
<S> <C> <C> <C>
Balance at December 31, 1992............................................ $ 10,797 $ (62,128) $ (51,331)
Net loss for the year................................................... -- (36,472) (36,472)
---------- ------------- ------------
Balance at of December 31, 1993..................................... 10,797 (98,600) (87,803)
Capital contributed on:
February 28, 1994..................................................... 5,432 -- 5,432
April 4, 1994......................................................... 74 -- 74
Net loss for the year................................................... (66,978) (66,978)
---------- ------------- ------------
Balance at December 31, 1994...................................... 16,303 (165,578) (149,275)
Net loss for the year................................................... -- (22,634) (22,634)
---------- ------------- ------------
Balance at December 31, 1995...................................... 16,303 (188,212) (171,909)
Net loss for the period (unaudited)..................................... -- (9,443) (9,443)
---------- ------------- ------------
Balance at September 30, 1996 (unaudited)......................... $ 16,303 $ (197,655) $ (181,352)
---------- ------------- ------------
---------- ------------- ------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995:
Balance at December 31, 1994...................................... $ 16,303 $ (165,578) $ (149,275)
Net loss for the period (unaudited)..................................... -- (14,403) (14,403)
---------- ------------- ------------
Balance at September 30, 1995 (unaudited)......................... $ 16,303 $ (179,981) $ (163,678)
---------- ------------- ------------
---------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-46
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
AND SEPTEMBER 30, 1995 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------ -------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993
----------- ----------- --------- --------- ---------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (9,443) $ (14,403) $ (22,634) $ (66,978) $ (36,472)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN)
PROVIDED BY OPERATING ACTIVITIES:
Depreciation.............................................. 15,980 8,544 12,535 6,141 4,793
Allowance for exhibition costs............................ -- -- 827 -- --
Allowance for doubtful accounts........................... 3,040 -- 2,196 848 --
Allowance for obsolescence................................ 2,493 -- -- -- --
Provision for claims...................................... 1,941 2,411 2,688 865 (133)
Minority interest......................................... -- -- -- -- (331)
Loss on disposal of fixed assets.......................... 368 -- 474 629 --
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Film exhibition rights.................................... (695) 213 560 (114) 4,843
Accounts receivable....................................... (9,979) (4,899) (5,876) (7,007) (181)
Prepaid and other assets.................................. 1,206 949 (1,191) (1,330) 117
Other accounts receivable................................. (1,985) (2,854) (604) (712) (77)
Other..................................................... 200 (507) -- (600) 107
Accrued Interest.......................................... (2,974) (48) 356 54,019 7,994
Inventories............................................... (3,881) (7,049) (7,706) (2,050) (533)
Legal deposits............................................ (306) (83) (107) (149) (413)
Suppliers................................................. (1,545) 16,057 34,010 5,270 46
Taxes payable other than income taxes..................... 1,639 448 3,759 662 161
Accrued payroll and related liabilities................... 2,299 2,468 1,453 1,394 123
Advances received from subscribers........................ 3,487 1,005 2,955 (495) 1,415
Other accounts payable.................................... 85 999 426 1,128 148
----------- ----------- --------- --------- ---------
Net cash provided by (used in) operating activities..... 1,930 3,251 24,121 (8,479) (18,393)
----------- ----------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets.................................... (38,170) (56,332) (85,016) (17,938) (11,061)
Loans to affiliated companies............................... (508) (7,633) (8,220) (2,098) (1,811)
Cash received on loans to related companies................. 9,315 26 26 3,942
----------- ----------- --------- --------- ---------
Net cash used in investing activities................... (29,363) (63,939) (93,210) (16,094) (12,872)
----------- ----------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term bank loans....................................... 5,441 -- -- -- --
Capital contributions....................................... -- -- -- 5,506 --
Repayments of loans from shareholders....................... -- -- -- (3,082) --
Loans from shareholders..................................... -- -- -- -- 3,298
Loans to shareholders....................................... -- -- -- -- (3,298)
Loans from related companies................................ 21,472 71,785 89,000 227,188 104,863
Repayments of loans from related companies.................. -- (15,734) (23,857) (180,477) (67,002)
Repayments of loans from banks.............................. -- -- -- (19,935) (6,620)
----------- ----------- --------- --------- ---------
Net cash provided by financing activities............... 26,913 56,051 65,143 29,200 31,241
----------- ----------- --------- --------- ---------
Net (decrease) increase in cash and cash equivalents.......... (520) (4,637) (3,946) 4,627 (24)
Cash and cash equivalents at beginning of the period.......... 698 4,644 4,644 17 41
----------- ----------- --------- --------- ---------
Cash and cash equivalents at end of the period.......... $ 178 $ 7 $ 698 $ 4,644 $ 17
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
SUPPLEMENTAL CASH DISCLOSURE:
Cash paid for interest...................................... $ -- $ -- $ -- $ 8,583 $ --
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:
Accrued interest on related company loans refinanced
as principal balance........................................ $ -- $ 1,597 $ 2,468 $ 54,158 $ 7,862
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-47
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
NOTES TO THE FINANCIAL STATEMENTS
1. THE COMPANY AND ITS PRINCIPAL OPERATIONS
The Company renders services related to wireless cable and cable and
parabolic antenna television systems, including marketing and advertising,
production, distribution and licensing of domestic and foreign television
programs. The Company has wireless cable channel rights primarily in major urban
markets in Brazil.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant policies followed in the preparation of the accompanying
financial statements are described below:
2.1 BASIS OF PRESENTATION
The financial statements are presented in US Dollars and have been prepared
in accordance with accounting principles generally accepted in the United States
of America (U.S. GAAP), which differ in certain respects from accounting
principles applied by the Company in its local currency financial statements,
which are prepared in accordance with accounting principles generally accepted
in Brazil ("Brazilian GAAP").
The Company was formed on July 31, 1993 by transferring net assets, at book
value, from TVA Brasil, an entity under common control. Results for the year
ended December 31, 1993 include those of TVA Brasil for the period from January
1, 1993 to July 31, 1993 and those of TVA Sistema, therafter.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
financial statement dates and the reported amount of revenues and expenses
during the reporting periods. Since management's judgment involves making
estimates concerning the likelihood of future events, the actual results could
differ from those estimates which will have a positive or negative effect on
future period results.
2.2 ACCOUNTING RECORDS
As required by Brazilian Law, and in accordance with local accounting
practices, the accounting records of the Company are maintained in Brazilian
currency (REAL). In order to present the financial statements in conformity with
U.S. GAAP, the Company maintains additional accounting records which are used
solely for this purpose.
2.3 CURRENCY REMEASUREMENT
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
52, "Foreign Currency Transactions", the United States dollar has been assumed
to be the functional currency as Brazil is a "hyperinflationary" country. As
such, the local accounts of the Company are translated into United States
dollars as follows:
- Nonmonetary assets and liabilities are translated at historical rates. All
other assets and liabilities are translated at the official rate of
exchange of R$1.022 to US$1 in effect on September 30, 1996; R$0.973 to
US$1 in effect on December 31, 1995; and, R$0.846 to US$1 on December 31,
1994.
- Income and expenses are translated at the average exchange rates in effect
each month, except for those related to assets and liabilities which are
translated at historical exchange rates, and
F-48
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2.3 CURRENCY REMEASUREMENT (CONTINUED)
deferred income taxes, which are translated at the current rate.
Translation gains/losses are recognized in the income statement.
2.4 CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as cash and cash in banks and
investments in interest-bearing securities and are carried at cost plus accrued
interest. Short-term investments with original maturities of three months or
less at the time of purchase are considered cash equivalents.
2.5 FINANCIAL INSTRUMENTS
In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," information is provided about the fair value of certain financial
instruments for which it is practicable to estimate that value.
For the purposes of SFAS No. 107, the estimated fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
The carrying values of the Company's financial instruments as of September 30,
1996, December 31, 1995 and December 31, 1994 approximate management's best
estimate of their estimated fair values. The following methods and assumptions
were used to estimate the fair value of each class of financial instrument for
which it is practicable to estimate that value:
- The fair value of certain financial assets carried at cost, including
cash, accounts receivable, other accounts receivable, and certain other
short-term assets is considered to approximate their respective carrying
value due to their short-term nature.
- The fair value of payables to film suppliers and other suppliers, other
accounts payable, loans to related companies and certain other short-term
liabilities is considered to approximate their respective carrying value
due to their short-term nature.
- The fair value of loans from related companies approximates their
respective carrying values, as interest on these loans is at market rates.
2.6 ACCOUNTS RECEIVABLE
Accounts receivable are stated at their estimated realizable values. An
allowance for doubtful accounts is established on the basis of an analysis of
the accounts receivable, in light of the risks involved, and is considered
sufficient to cover any losses incurred in realization of credits.
2.7 INVENTORIES
Inventories consist of materials and supplies and imports in transit.
Materials and supplies are used to provide service to new customers, and to
ensure continuity of service to existing customers. Imports in transit represent
materials purchased from foreign countries that have not yet been received.
Inventories are stated at the lower of cost or market. Cost is determined
principally under the average cost method. An allowance for obsolescence has
been established on the basis of an analysis of slow-moving materials and
supplies.
F-49
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2.8 FILM EXHIBITION RIGHTS AND PROGRAM LICENSING
Film exhibition rights and program licensing costs are deferred and
recognized as the films and/or programs are exhibited. The allowance for
exhibition expiration is determined based on management's estimate of the
Company's capacity to telecast the films and projected revenue streams.
2.9 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated using the
straight-line method, over the remaining useful lives, as described in Note 12.
2.10 ADVERTISING
Advertising revenues are recognized, and the production cost of commercials
and programming are charged to expense, when the commercial is telecast.
2.11 RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS
Management reviews long-lived assets, primarily the Company's licenses and
its property and equipment to be held and used in the business, for the purposes
of determining and measuring impairment on a recurring basis or when events or
changes in circumstances indicate that the carrying value of an asset or group
of assets may not be recoverable. Assets are grouped and evaluated for possible
impairment at the level of each cable television system; impairment is assessed
on the basis of the forecasted undiscounted cash flows of the businesses over
the estimated remaining lives of the assets related to those systems. A
write-down of the carrying value of the assets or group of assets to estimated
fair value will be made, when appropriate.
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be disposed of", from January 1,
1996 and the effect on the financial statements as a result of the adoption was
not significant.
2.12 SUBSCRIPTIONS
Installation fees are recognized as revenue on the equipment installation
date to the extent of direct selling costs incurred. Subscription revenues are
recognized as earned on an accrual basis.
2.13 LICENSES
Televisao Show Time Ltda. ("TV Show Time") and TVA Brasil Radioenlaces Ltda.
("TVA Brasil") hold certain licenses covering certain operations of the Company.
The use of such licenses is provided to the Company, for a nominal fee, under a
Service Agreement dated July 22, 1994, as amended, among TEVECAP, TV Show Time,
TVA Brasil and Abril.
Pursuant to the Service Agreement, TV Show Time and TVA Brasil have agreed
to transfer the licenses, which are carried at nil value, to TEVECAP at nominal
cost.
F-50
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2.14 FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
The unaudited financial statements for the nine months ended September 30,
1996 and 1995 have been derived from the Company's records and reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial data.
3. ACCOUNTING CHANGES
To more appropriately account for the cost of (i) installation equipment and
(ii) operating costs incurred during the period of constructing their television
systems, the Company has restated all prior-year amounts as compared to those
previously reported by the separate combining entities:
(i) Installation equipment
The Company has changed the estimated useful life of installation
equipment to five years. The costs of such equipment had previously been
accounted for as period costs.
(ii) Operating costs incurred during the period of construction of
television systems
The Company has changed its policy of deferring operating costs during
the period of construction of its television systems, to treat such costs
as period costs.
4. CASH AND CASH EQUIVALENTS
At September 30, 1996 (unaudited), December 31, 1995 and 1994, cash was
comprised of:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, --------------------
1996 1995 1994
------------------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Cash on hand and in banks................................................... $ 129 $ 582 $ 178
Short-term investments...................................................... 49 116 4,466
----- --------- ---------
$ 178 $ 698 $ 4,644
----- --------- ---------
----- --------- ---------
</TABLE>
5. ACCOUNTS RECEIVABLE
At September 30, 1996 (unaudited), December 31, 1995 and 1994, accounts
receivable were comprised of:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, --------------------
1996 1995 1994
----------------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Subscriptions........................................................... $ 5,978 $ 5,154 $ 1,879
Installation fees....................................................... 7,508 4,605 1,686
Advertising & programming............................................... 2,359 1,810 1,560
Barter.................................................................. 4,976 2,989 3,627
Others.................................................................. 176 70 --
Allowance for doubtful accounts......................................... (2,837) (3,407) (1,211)
-------- --------- ---------
$ 18,160 $ 11,221 $ 7,541
-------- --------- ---------
-------- --------- ---------
</TABLE>
F-51
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
6. INVENTORIES
At September 30, 1996 (unaudited), December 31, 1995 and 1994, inventories
were comprised of:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, --------------------
1996 1994 1995
----------------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Materials and supplies.................................................. $ 15,284 $ 10,913 $ 4,652
Imports in transit...................................................... 1,673 2,163 718
Allowance for obsolescence.............................................. (2,493) -- --
-------- --------- ---------
$ 14,464 $ 13,076 $ 5,370
-------- --------- ---------
-------- --------- ---------
</TABLE>
7. FILM EXHIBITION RIGHTS
At September 30, 1996 (unaudited), December 31, 1995 and 1994, film
exhibition rights were comprised of:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, --------------------
1996 1995 1994
----------------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Exhibition rights........................................................ $ 1,887 $ 1,192 $ 1,752
Allowance for exhibition expiration...................................... (1,162) (1,162) (335)
------- --------- ---------
$ 725 $ 30 $ 1,417
------- --------- ---------
------- --------- ---------
</TABLE>
8. PREPAID AND OTHER ASSETS
At September 30, 1996, December 31, 1995 and 1994, prepaid expenses were
comprised of:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, --------------------
1996 1995 1994
----------------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Advances to suppliers..................................................... $ 470 $ 2,022 $ 954
Prepaid TVA magazine publishing expenses.................................. 822 562 379
Prepaid meals and transportation.......................................... 189 147 186
Others.................................................................... 158 114 135
------- --------- ---------
$ 1,639 $ 2,845 $ 1,654
------- --------- ---------
------- --------- ---------
</TABLE>
9. RELATED-PARTY TRANSACTIONS
The following tables summarize the transactions between the Company and
related companies at September 30, 1996 (unaudited) and December 31, 1995, 1994
and for the nine month periods ended
F-52
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
9. RELATED-PARTY TRANSACTIONS (CONTINUED)
September 30, 1996 (unaudited) and 1995 (unaudited) and the three years in the
period ended December 31, 1995:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, ------------------------
1996 1995 1994
----------------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
TVA Parana
Loans receivable.................................................. $ 2,878 $ 10,480
Accounts receivable............................................... 1,546
TV Cabo Santa Catarina
Loans receivable.................................................. 75
Tevecap S.A
Loans payable..................................................... 270,014 249,885 $ 187,196
Coml. Cabo
Loans payable..................................................... 4,705 4,917
HBO Brasil
Accounts receivable............................................... 786 507 507
Televisao Abril Ltda.
Accounts receivable............................................... 178
ESPN Brasil Ltda.
Accounts receivable............................................... 438
Accounts payable.................................................. 29 510
Editora Abril S.A.
Accounts payable.................................................. 78 108
Others
Accounts receivable............................................... 129 200
Accounts payable.................................................. 7 9
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Tevecap
Net interest expense.................................. $ 1,299 $ 1,595 $ 2,465 $ 54,143 $ 831
Abril Comunicacoes
Net interest expense.................................. 8,505
Abrilpar
Net interest expense.................................. 78
Coml. Cabo
Net interest expense.................................. 256
TV Cabo Santa Catarina
Net interest income................................... (8)
ESPN do Brasil Ltda.
Programming (income) costs, net....................... (2,576) (851) 646
TVA Parana
Net interest income................................... (1,272) (1,661) (2,286)
</TABLE>
F-53
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
9. RELATED-PARTY TRANSACTIONS (CONTINUED)
The related company loans are denominated in REAIS and are subject to
monetary restatement plus interest charges at the market rate which was 1.79%
per month in September 1996 (3.44% per month in December 1995).
The Company's parent, TEVECAP S.A. ("Tevecap"), and Falcon International
Communications Services Inc., one of Tevecap's shareholders, signed a consulting
service agreement on April 1, 1996 related to the Company's operations and
technologies. Initially, the duration of this agreement is two years, renewable
every subsequent two-year period thereafter. The payment for the consulting
services amounts to $200 per annum.
10. LOANS FROM SHAREHOLDERS
Loans from shareholders at September 30, 1996, December 31, 1995 and 1994,
were comprised of:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER --------------------
30, 1996 1995 1994
-------------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Roberto Civita............................................................... $ 2,490 $ 2,616 $ 2,455
Maricla I. Rossi............................................................. 59 61 58
Edgard Silvio Faria.......................................................... 175 184 174
Angelo Silvio Rossi.......................................................... 43 45 42
------- --------- ---------
$ 2,767 $ 2,906 $ 2,729
------- --------- ---------
------- --------- ---------
</TABLE>
Interest on loans from shareholders is based on the Ufir (Fiscal Reference
Unit), the variation of which was 0% during the nine-month period ended
September 30, 1996 (unaudited) (22.46% in December 1995).
F-54
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
11. DEFERRED INCOME TAX
The tax effects of temporary differences that give rise to a significant
portion of the deferred tax asset and deferred tax liability at September 30,
1996 (unaudited) and at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER ----------------------
30, 1996 1995 1994
-------------- ---------- ----------
<S> <C> <C> <C>
(UNAUDITED)
Deferred tax assets:
Net operating loss carryforwards....................................... $ 25,751 $ 24,267 $ 20,937
Deferred charges....................................................... 5,649 7,238 11,818
Others................................................................. 976 165 796
-------------- ---------- ----------
Total gross deferred tax asset..................................... 32,376 31,670 33,551
Less, valuation allowance................................................ (27,720) (24,693) (26,962)
-------------- ---------- ----------
Net deferred tax asset................................................... 4,656 6,977 6,589
Deferred tax liability:
Inflationary profit.................................................... -- -- (4,107)
Installation costs..................................................... (4,656) (6,977) (2,482)
-------------- ---------- ----------
Total gross deferred tax liability................................. (4,656) (6,977) (6,589)
-------------- ---------- ----------
Net deferred tax asset................................................... $ -- $ -- $ --
-------------- ---------- ----------
-------------- ---------- ----------
</TABLE>
The Company has a limited operating history and has generated losses since
its inception. The valuation allowance has been established in accordance with
the requirements of SFAS No. 109 and relates to the amount of net operating loss
carryforwards in excess of net taxable temporary differences. As of September
30, 1996, the Company has unexpirable accumulated tax losses of $84,264.
F-55
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
11. DEFERRED INCOME TAX (CONTINUED)
Income tax was different from the amount computed using the Brazilian
statutory income tax for the reasons set forth in the following table:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------
1996 1995 1994 1993
-------------- --------- ---------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
Loss before income taxes and minority interest............... $ 9,447 $ 22,635 $ 66,979 $ 36,473
Statutory income tax rate.................................... 30.56% 30.56% 43.0% 35.2%
------- --------- ---------- ---------
2,887 6,917 28,801 12,838
Profit on intercompany transaction not eliminated on fiscal
books...................................................... -- -- -- (7,834)
(Decrease) increase in the income tax rate................... -- (7,800) 3,161 --
Monetary correction of deferred charges...................... -- 1,342 (19,031) 3,003
Translation rate difference on exhibition rights............. -- 381 -- --
Others....................................................... 140 1,429 198 (1,311)
------- --------- ---------- ---------
Income tax benefit for the period............................ 3,027 2,269 13,129 6,696
Increase in valuation allowance.............................. (3,027) (2,269) (13,129) (6,696)
------- --------- ---------- ---------
$ -- $ -- $ -- $ --
------- --------- ---------- ---------
------- --------- ---------- ---------
</TABLE>
F-56
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12. PROPERTY, PLANT AND EQUIPMENT
At September 30, 1996, December, 31, 1995 and 1994, property, plant and
equipment were comprised of:
<TABLE>
<CAPTION>
ANNUAL
DEPRECIATION AT DECEMBER 31,
RATE AT SEPTEMBER 30, -----------------------
% 1996 1995 1994
----------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Machinery and Equipment............................... 10 $ 31,608 $ 29,598 $ 21,095
Converters............................................ 10 63,588 36,485 10,809
Leasehold Improvements................................ 25 1,950 1,795 1,463
Furniture and Fixtures................................ 10 1,239 1,032 626
Premises.............................................. 10 1,232 1,066 551
Vehicles.............................................. 20 1,013 442 147
Software.............................................. 20 2,379 1,360 388
Tools................................................. 10 621 621 439
Reception Equipment................................... 20 62,159 44,508 19,265
Cable Plant........................................... 10 8,178 7,089 --
Building.............................................. 4 -- 342 155
----------------- ----------- ----------
173,967 124,338 54,938
Accumulated Depreciation.............................. (39,120) (23,114) (10,105)
Telephone Line Use Rights............................. 1,718 1,370 773
Trademarks, Patents and Others........................ 165 164 186
Fixed Assets in Transit............................... 3,285 16,126 1,085
Others................................................ 691 -- --
----------------- ----------- ----------
$ 140,706 $ 118,884 $ 46,877
----------------- ----------- ----------
----------------- ----------- ----------
</TABLE>
13. SHORT-TERM BANK LOANS
Short-term bank loans at September 30, 1996 represent the refinancing of
certain supplier payables. The average short-term interest rate on such loans is
Libor Plus 1.5%.
14. OTHER ACCOUNTS PAYABLE
At September 30, 1996 (unaudited), December, 31, 1995 and 1994, other
accounts payable were comprised of:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER --------------------
30, 1996 1995 1994
-------------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Accounts payable to related Companies (Note 9)............................... $ 114 $ 627 $ 13
Advertising.................................................................. 751 427 851
Importation expenses payable................................................. 580 328 86
Others....................................................................... 468 446 452
------- --------- ---------
$ 1,913 $ 1,828 $ 1,402
------- --------- ---------
------- --------- ---------
</TABLE>
F-57
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
15. INSURANCE
The Company maintains insurance coverage for its fixed assets and
inventories in an amount considered sufficient to cover the risks involved.
16. LEASED ASSETS AND COMMITMENTS
The Company has entered into film distribution contracts and licensing
agreements with film producers for programming for future periods. Such
contracts and agreements, which range in life from 1 to 9 years with the
exception of a specific contract with ESPN, which has a life of 50 years,
require a per-subscriber fee to be paid by the Company on a monthly basis.
The Company has rented its office space until the year 2001. At December 31,
1995, future minimum rental payments applicable to operating leases in respect
of this space aggregate approximately $4,874 as follows:
<TABLE>
<S> <C>
1996............................................................... $ 1,588
1997............................................................... 769
1998............................................................... 663
1999............................................................... 643
2000............................................................... 608
2001............................................................... 603
---------
Total.............................................................. 4,874
---------
---------
</TABLE>
At December 31, 1995, the Company had contractual commitments with Embratel
for transponder use until the year 2003. Based on estimated to aggregate
approximately $52,361, as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 8,302
1997.............................................................. 8,302
1998.............................................................. 8,302
1999.............................................................. 8,035
2000.............................................................. 7,768
2001.............................................................. 7,768
2002.............................................................. 3,884
---------
Total............................................................. $ 52,361
---------
---------
</TABLE>
17. PAID-IN CAPITAL
Paid-in capital represents registered common shares without par value.
The Company's shareholders are entitled to minimum dividends of 25% of net
income for the year, adjusted according to Corporation Law. As the Company has
not recorded net income since its inception, no such dividends are payable.
18. LITIGATION CONTINGENCIES
Certain claims and lawsuits arising in the ordinary course of business have
been filed or are pending against the Company which were not recognized in the
financial statements. The Company has also recorded provisions related to
certain claims in amounts that management considers to be adequate after
considering a number of factors including (but not limited to) the views of
legal counsel, the nature of the claims and the prior experience of the Company.
F-58
<PAGE>
TVA SISTEMA DE TELEVISAO S.A.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
18. LITIGATION CONTINGENCIES (CONTINUED)
In management's opinion, all contingencies have been adequately provided for
or are without merit, or are of such kind that if disposed of unfavorably, would
not have a material adverse effect on the financial position or future results
of operations of the Company.
19. PENSION PLAN
In April 1996, the Company became a co-sponsor of the private pension entity
named Abrilprev Sociedade de Previdencia Privada, the primary objective of which
is to grant employees benefits other than those provided by Social Security. The
plan is optional to all employees of the sponsoring entities. Abrilprev operates
as a Defined Contribution Plan. Company contributions are made based on a fixed
percentage applied to the payroll of the sponsoring entities based on actuarial
calculations. Plan expenses amounted to $263 in 1996.
20. WORKING CAPITAL DEFICIENCY
The Company's financial statements for the period ended September 30,1996
were prepared on a going concern basis which contemplates the realization of
assets and settlement of liabilities and commitments in the normal course of
business. The company incurred net losses of $9,433, $22,634 and $66,978 for the
nine months ended September 30,1996 and the two years in the period ended
December 31,1995 respectively. In addition, the Company had negative working
capital of $44,319 at September 30,1996.
The Company is endeavoring to reverse its pattern of losses and effectively
meet its liquidity needs through increasing the revenue base and other means.
In the event that these steps prove to be inadequate to maintain Sistema's
operating cash flow, the Company's principal shareholder, Tevecap, intends to
maintain the company as a going concern. Tevecap's support may be in the form of
cash advances, loans, equity infusions or external guarantees.
21. SUPPLEMENTARY INFORMATION--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
DEFERRED
ALLOWANCE ALLOWANCE FOR TAXATION PROVISION
FOR DOUBTFUL ALLOWANCE FOR EXHIBITION VALUATION FOR
ACCOUNTS OBSOLESCENCE EXPIRATION ALLOWANCE CLAIMS
------------ --------------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1993................................. $ 363 $ 91 $ 3,367 $ 13,833 $ 210
Additions Charged to Expense...................... 848 -- -- 13,129 920
Reduction......................................... -- (91) (3,032) -- (55)
------------ ------- ------- --------- -----------
Balance at December 31, 1994...................... 1,211 -- 335 26,962 1,075
Additions Charged to Expense...................... 2,196 -- 827 (2,269) 2,688
------------ ------- ------- --------- -----------
Balance at December 31, 1995...................... 3,407 -- 1,162 24,693 3,763
Additions Charged to Expense...................... 3,040 2,493 -- 3,027 1,940
Reduction......................................... (3,610) -- -- -- --
------------ ------- ------- --------- -----------
Balance at September 30, 1996..................... $ 2,837 $ 2,493 $ 1,162 $ 27,720 $ 5,703
------------ ------- ------- --------- -----------
------------ ------- ------- --------- -----------
</TABLE>
F-59
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
TVA SUL PARTICIPACOES S.A.
We have audited the accompanying combined balance sheets of TVA SUL
PARTICIPACOES S.A., and subsidiaries (the "Company") as of December 31, 1995 and
1994, and the related combined statements of operations, changes in
shareholders' equity and cash flows for the three years in the period ended
December 31, 1995, all expressed in United States dollars. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of TVA SUL
PARTICIPACOES S.A., and subsidiaries as of December 31, 1995 and 1994, and the
related combined results of their operations and cash flows for the three years
in the period ended December 31, 1995, in conformity with accounting principles
generally accepted in the United States of America.
Coopers & Lybrand
Sao Paulo, Brazil
August 23, 1996
F-60
<PAGE>
TVA SUL PARTICIPACOES S.A.
AND SUBSIDIARIES
BALANCE SHEETS
AT SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 AND 1994
(IN THOUSANDS OF US. DOLLARS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, ---------------------------
1996 1995 1994
(CONSOLIDATED) (COMBINED) (COMBINED)
----------------- ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents (Note 3).............................. $ 414 $ 45 --
Accounts receivable, net (Note 4)............................... 749 32 --
Inventories..................................................... 1,376 -- --
Prepaid and other assets (Note 5)............................... 588 68 $ 45
Other accounts receivable (Note 6).............................. 1,116 2 7
-------- ------------ -----
Total current assets........................................ 4,243 147 52
Property, plant and equipment, net (Note 9)....................... 13,549 1,466 198
Concessions, less accumulated amortization ($481)................. 11,395 -- --
Other............................................................. 977 9 8
-------- ------------ -----
Total assets................................................ $ 30,164 $ 1,622 $ 258
-------- ------------ -----
-------- ------------ -----
</TABLE>
The accompanying notes are an integral part of these financial statements
F-61
<PAGE>
TVA SUL PARTICIPACOES S.A.
AND SUBSIDIARIES
BALANCE SHEETS
AT SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 AND 1994
(IN THOUSANDS OF US. DOLLARS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, --------------------------
1996 1995 1994
(CONSOLIDATED) (COMBINED) (COMBINED)
----------------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Suppliers....................................................... $ 751 $ 97 $ 103
Taxes payable other than income taxes........................... 208 56 29
Accrued payroll and related liabilities......................... 605 253 140
Other accounts payable.......................................... 990 18 56
Accounts payable to related companies (Note 7).................. 1,438 983 --
-------- ------------ ------------
Total current liabilities................................... 3,992 1,407 328
-------- ------------ ------------
Long-term liabilities
Loans from related companies (Note 7)........................... 16,976 10,480 5,886
Loans from shareholders......................................... 1,840 180 135
Other........................................................... 151 -- --
-------- ------------ ------------
Total long-term liabilities................................. 18,967 10,660 6,021
-------- ------------ ------------
Minority interest................................................. 1,361 -- --
Shareholders' equity
Paid in capital (Note 11)....................................... 18,964 1 1
Accumulated deficit............................................. (13,120) (10,446) (6,092)
-------- ------------ ------------
Total shareholders' equity.................................. 5,844 (10,445) (6,091)
-------- ------------ ------------
Total liabilities and shareholders' equity.................. $ 30,164 $ 1,622 $ 258
-------- ------------ ------------
-------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-62
<PAGE>
TVA SUL PARTICIPACOES S.A.
AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND SEPTEMBER 30, 1995
(UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF US. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993
(CONSOLIDATED) (COMBINED) (COMBINED) (COMBINED) (COMBINED)
--------------- ------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues
Monthly subscriptions......................... $ 8,212 $ 2,189 $ 3,233 $ 1,392 $ 397
Installation.................................. 819 -- -- -- --
Advertising................................... -- -- -- 6 --
Other......................................... 65 -- -- -- --
Revenue taxes................................. (308) (153) (227) (71) (19)
------- ------------ ------------ ------------ ------------
Net revenue................................. 8,788 2,036 3,006 1,327 378
------- ------------ ------------ ------------ ------------
Direct operating expenses
Payroll and benefits.......................... 2,767 1,073 1,456 1,005 927
Programming................................... 1,141 -- -- -- --
Technical assistance.......................... 704 160 215 15 81
Vehicle rentals............................... 239 173 247 21 72
TVA magazine.................................. 158 -- -- -- --
Other costs................................... 1,129 181 232 432 253
------- ------------ ------------ ------------ ------------
6,138 1,587 2,150 1,473 1,333
------- ------------ ------------ ------------ ------------
Selling, general and administrative expenses
Payroll and benefits.......................... 964 393 538 207 246
Advertising and promotion..................... 322 174 267 -- 42
Rent.......................................... 158 82 114 -- 10
Other administrative expenses................. 1,120 206 292 1 --
Other general expenses........................ 331 266 486 802 --
------- ------------ ------------ ------------ ------------
2,895 1,121 1,697 1,010 298
------- ------------ ------------ ------------ ------------
Depreciation.................................... 397 112 186 36 20
Amortization.................................... 481 -- -- -- --
------- ------------ ------------ ------------ ------------
Operating loss.............................. (1,123) (784) (1,027) (1,192) (1,273)
------- ------------ ------------ ------------ ------------
Interest income................................. 167 133 165 181 38
Interest expense................................ (1,741) (2,195) (3,527) (2,568) (495)
Translation gain (loss)......................... (100) (11) 8 (22) 282
Other nonoperating (expenses) income, net....... 242 -- 27 -- --
------- ------------ ------------ ------------ ------------
Loss before income taxes and minority
interest.................................. (2,555) (2,857) (4,354) (3,601) (1,448)
Income taxes (Note 8)........................... (105) -- -- -- --
------- ------------ ------------ ------------ ------------
Net loss before minority interest........... (2,660) (2,857) (4,354) (3,601) (1,448)
Minority interest............................... (14) -- -- -- --
------- ------------ ------------ ------------ ------------
Net loss.................................... (2,674) (2,857) (4,354) (3,601) (1,448)
------- ------------ ------------ ------------ ------------
------- ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-63
<PAGE>
TVA SUL PARTICIPACOES S.A.
AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
SEPTEMBER 30, 1995 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND
1993
(IN THOUSANDS OF US. DOLLARS)
<TABLE>
<CAPTION>
PAID-IN
CAPITAL ACCUMULATED
(NOTE 11) DEFICIT TOTAL
--------- ------------- ----------
<S> <C> <C> <C>
Balance at December 31, 1992 (Combined)................................... $ 1 $ (1,043) $ (1,042)
Net loss for the year..................................................... -- (1,448) (1,448)
--------- ------------- ----------
Balance at December 31, 1993 (Combined)........................... 1 (2,491) (2,490)
Net loss for the year..................................................... -- (3,601) (3,601)
--------- ------------- ----------
Balance at December 31, 1994 (Combined)........................... 1 (6,092) (6,091)
Net loss for the year..................................................... -- (4,354) (4,354)
--------- ------------- ----------
Balance as of December 31, 1995 (Combined)........................ 1 (10,446) (10,445)
Capital contributed on:
April 30, 1996 (unaudited).............................................. 14,865 -- 14,865
August 30, 1996 (unaudited)............................................. 4,098 -- 4,098
Net loss for the period (unaudited)....................................... -- (2,674) (2,674)
--------- ------------- ----------
Balance at September 30, 1996 (Consolidated) (unaudited).......... $ 18,964 $ (13,120) $ 5,844
--------- ------------- ----------
--------- ------------- ----------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995:
Balance at December 31, 1994 (Combined)................................... $ 1 $ (6,092) $ (6,091)
Net loss for the period (unaudited)....................................... -- (2,857) (2,857)
--------- ------------- ----------
Balance at September 30, 1995 (Combined).................................. $ 1 $ (8,949) $ (8,948)
--------- ------------- ----------
--------- ------------- ----------
</TABLE>
- ------------------------
In September 1996, the paid in capital of the entities previously under common
control was transferred by Tevecap S.A. to TVA Sul Participacoes S.A in exchange
for shares in TVA Sul Participacoes S.A. Accordingly, the paid in capital of the
combined entities became that of TVA Sul Participacoes S.A.
The accompanying notes are an integral part of these financial statements
F-64
<PAGE>
TVA SUL PARTICIPACOES S.A.
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
SEPTEMBER 30, 1995 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND
1993
(IN THOUSANDS OF US. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------------- ----------------------------------------
1996 1995 1995 1994 1993
(CONSOLIDATED) (COMBINED) (COMBINED) (COMBINED) (COMBINED)
--------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................... $ (2,674) $ (2,857) $ (4,354) $ (3,601) $ (1,448)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
(USED IN) PROVIDED BY OPERATING ACTIVITIES:
Depreciation................................ 397 112 186 36 20
Amortization................................ 481 -- -- -- --
Provision for claims........................ 151 -- -- -- --
Disposal of fixed assets.................... 795 (6) (15) 4
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable......................... (717) -- (32) -- --
Prepaid and other assets.................... (520) (12) (23) (34) (4)
Other accounts receivable................... (1,028) (18) 5 6 (13)
Accrued Interest............................ 1,299 1,695 2,331 2,328 454
Inventories................................. (1,376) -- -- -- --
Other assets................................ (10) (13) (1) (5) (3)
Suppliers................................... 654 (20) (6) 72 (5)
Taxes payable other than income taxes....... 152 17 27 22 7
Accrued payroll and related liabilities..... 352 192 113 59 18
Other accounts payable...................... 99 280 945 47 (6)
--------------- ------------ ------------ ------------ ------------
Net cash used in operating activities... (1,945) (630) (809) (1,085) (976)
--------------- ------------ ------------ ------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of fixed assets...................... (12,665) (1,074) (1,454) (69) (54)
Loans to related companies.................... (960) -- -- -- --
Acquisition of businesses, net of cash
acquired.................................... (13,490) -- -- -- --
--------------- ------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities............................ (27,115) (1,074) (1,454) (69) (54)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions......................... 18,963 -- -- -- --
Repayments of loans from shareholders......... (162) -- -- -- --
Loans from shareholders....................... 1,822 -- -- -- --
Loans from related companies.................. 16,760 7,633 8,220 1,152 1,086
Repayments of loans from related companies.... (9,315) (5,912) (5,912) -- (54)
Minority Interest............................. 1,361
--------------- ------------ ------------ ------------ ------------
Net cash provided by financing
activities............................ 29,429 1,721 2,308 1,152 1,032
--------------- ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents................................... 369 17 45 (2) 2
Cash and cash equivalents at beginning of the
period........................................ 45 -- -- 2 --
--------------- ------------ ------------ ------------ ------------
Cash and cash equivalents at end of the
period................................ $ 414 $ 17 $ 45 $ -- $ 2
--------------- ------------ ------------ ------------ ------------
--------------- ------------ ------------ ------------ ------------
</TABLE>
The acompanying notes are an integral part of these financial statements
F-65
<PAGE>
TVA SUL PARTICIPACOES S.A.
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
SEPTEMBER 30, 1995 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND
1993
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993
(CONSOLIDATED) (COMBINED) (COMBINED) (COMBINED) (COMBINED)
--------------- ----------- ------------ ------------ ------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL CASH DISCLOSURE:
Cash paid for interest................. $ -- $ 2,708 $ 2,708 $ -- $ --
--------------- ----------- ------------ ------------ ------------
--------------- ----------- ------------ ------------ ------------
SUPPLEMENTAL NON-CASH FINANCING
ACTIVITIES:
Accrued interest on related company
loans refinanced as principal
balance.............................. $ 1,272 $ 1,659 $ 2,286 $ 2,269 $ 439
--------------- ----------- ------------ ------------ ------------
--------------- ----------- ------------ ------------ ------------
DETAILS OF ACQUISITIONS:
Fair value of assets acquired.......... 14,895 -- -- -- --
Liabilities assumed.................... (1,330) -- -- -- --
--------------- ----------- ------------ ------------ ------------
Cash paid.............................. 13,565 -- -- -- --
Less: cash acquired.................... (75) -- -- -- --
--------------- ----------- ------------ ------------ ------------
Net cash paid for acquisitions......... 13,490 -- -- -- --
--------------- ----------- ------------ ------------ ------------
--------------- ----------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-66
<PAGE>
TVA SUL PARTICIPACOES S.A.
AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS
1. THE COMPANY AND ITS PRINCIPAL OPERATIONS
The accompanying financial statements reflect the consolidated results of
operations of TVA Sul Participacoes S.A and its subsidiaries (the "Company") and
the combined results of commonly controlled entities which became subsidiaries
of TVA Sul Participacoes S.A. in September, 1996 (see Note 2.1).
TVA Sul Participacoes S.A is a holding company, the subsidiaries of which
render services related to wireless cable and cable television systems,
including marketing and advertising, production, distribution and licensing of
domestic and foreign television programs. The Company has wireless cable channel
rights primarily in major urban markets in the South of Brazil.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant policies followed in the preparation of the accompanying
consolidated and combined financial statements are described below:
2.1 BASIS OF PRESENTATION; COMBINED AND CONSOLIDATION
A) BASIS OF PRESENTATION
The combined and consolidated financial statements are presented in US
Dollars and have been prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP), which differ in
certain respects from accounting principles applied by the Company in its local
currency financial statements, which are prepared in accordance with accounting
principles generally accepted in Brazil ("Brazilian GAAP").
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
financial statement dates and the reported amount of revenues and expenses
during the reporting periods. Since management's judgment involves making
estimates concerning the likelihood of future events, the actual results could
differ from those estimates which will have a positive or negative effect on
future period results.
B) CONSOLIDATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
TVA Sul Participacoes S.A was incorporated on March 3, 1996 as a holding
company for certain entities which were under common control. Accordingly, the
financial statements as of and for the nine months ended September 30, 1996
(unaudited) are prepared on a consolidated basis.
The consolidated financial statements include the accounts of all
majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated on consolidation.
C) COMBINED PRESENTATION FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER
31, 1995 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
The combined financial statements for the three years in the period ended
December 31, 1995 and the nine months ended September 30, 1995 (unaudited),
reflect the results of TVA Parana (formerly TVA Curitiba Servicos
Telecomunicacoes Ltda.).
F-67
<PAGE>
TVA SUL PARTICIPACOES S.A.
AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
2.2 ACCOUNTING RECORDS
As required by Brazilian Law, and in accordance with local accounting
practices, the accounting records of the Company are maintained in Brazilian
currency (REAIS). In order to present the financial statements in conformity
with accounting principles generally accepted in the United States of America,
the Company maintains additional accounting records which are used solely for
this purpose.
2.3 CURRENCY REMEASUREMENT
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
52, "Foreign Currency Transactions", the United States dollar has been assumed
to be the functional currency as Brazil is a "hyperinflationary" country. As
such, the local accounts of the Company are translated into United States
dollars as follows:
- Nonmonetary assets and liabilities are translated at historical rates. All
other assets and liabilities are translated at the official rate of
exchange of R$1.022 to US$1 in effect on September 30, 1996; R$0.973 to
US$1 in effect on December 31, 1995; and, R$0.846 to US$1 on December 31,
1994.
- Income and expenses are translated at the average exchange rates in effect
each month, except for those related to assets and liabilities which are
translated at historical exchange rates, and deferred income taxes, which
are translated at the current rate. Translation gains/losses are
recognized in the income statement.
2.4 CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as cash and cash in banks and
investments in interest-bearing securities and are carried at cost plus accrued
interest. Short-term investments with original maturities of three months or
less at the time of purchase are considered cash equivalents.
2.5 COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
The Company's combined and consolidated operating subsidiaries included in
the financial statements are:
<TABLE>
<CAPTION>
OWNERSHIP INTEREST AT
----------------------------------------
<S> <C> <C>
DECEMBER 31,1995
SEPTEMBER 30,1996 AND 1994
(CONSOLIDATED) (COMBINED)
------------------- -------------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
TVA Sul Parana Ltda. (a), (b)........................................... 100.00% 80.00%
TVA Sul Santa Catarina Ltda (b)......................................... 99.50% --
TVA Sul Foz do Iguacu Ltda (b).......................................... 100.00% --
CCS Camboriu Cable System de Telecomunicacoes Ltda...................... 60.00% --
TCC TV a Cabo Ltda. (b)................................................. 100.00% --
TV Alfa Cabo Ltda. (b).................................................. 100.00% --
</TABLE>
- ------------------------
(a) In August 1996, TVA Curitiba Sevicos Telecommunications Ltda. changed its
name to TVA Parana Ltda ("Parana"). The Company's capital contribution of
$18,963 relating to the acquisition of 27,712,345 shares during the nine
months ended September 30, 1996 (unaudited) to the equity of
F-68
<PAGE>
TVA SUL PARTICIPACOES S.A.
AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
2.5 COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Parana was in excess of the Company's share of the book value prior to the
contribution, resulting in a loss of $2,727.
(b) One common share in each of these entities is owned by a Brazilian National
pursuant to local legislation.
2.6 ACQUISITIONS
During the nine month period ending September 30, 1996 (unaudited), the
Company acquired the entities described below which were accounted for under the
purchase method of accounting: i) In February 1996, the Company acquired control
of TVA Sul Santa Catarina ("TVA SSC"); ii) In March 1996, the Company acquired
control of TCC TV a Cabo Ltda. ("TCC") and TV Alfa Cabo Ltda. ("TV Alfa") ; and
iii) In May 1996, the Company acquired control of TVA Sul Foz do Iguacu Ltda
("TVA SF") and CCS Camboriu Cable Systems de Telecomunicacoes Ltda. ("CCS"). In
each case, the excess of the purchase price over the fair value of the net
assets acquired represents the value of concessions of certain television
stations. These concessions are being amortized on a straight line basis over 10
years.
The operating results of these acquired businesses, which hold licenses to
operate cable TV, have been included in the consolidated statement of income
from the dates of acquisition.
The purchase prices have been allocated to the assets purchased and the
liabilities assumed based upon the fair values on the dates of acquisition, as
follows:
<TABLE>
<CAPTION>
TVA SSC TVA SF CCS TCC TV ALFA
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current assets, other than cash..................................... $ -- 23 $ 4 $ 51 $ 5
Property, plant and equipment....................................... 25 319 2,101 238 176
Other assets........................................................ -- 3 -- -- --
Concessions......................................................... 45 5,348 1,424 2,629 2,429
Other liabilties.................................................... (55) (377) (84) (127) (687)
----- --------- --------- --------- ---------
Purchase price, net of cash received................................ $ 15 5,316 $ 3,445 $ 2,791 $ 1,923
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
Total purchase price................................................ $ 15 $ 5,326 $ 3,445 $ 2,841 $ 1,939
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
</TABLE>
The Company is unable to present pro forma results as if the acquisitions
had taken place at the beginning of 1995 and 1996 because, although management
attempted to obtain such information from the owners, it was not available.
These entities were acquired for the purpose of expanding the cable TV system
penetration of the Company and that of its parent, TEVECAP S.A. ("Tevecap"). The
assets purchased will be operated under Tevecap's management, using Tevecap and
the Company's programming and employees.
2.7 FINANCIAL INSTRUMENTS
In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," information is provided about the fair value of certain financial
instruments for which it is practicable to estimate that value.
F-69
<PAGE>
TVA SUL PARTICIPACOES S.A.
AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
2.7 FINANCIAL INSTRUMENTS (CONTINUED)
For the purposes of SFAS No. 107, the estimated fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
The carrying values of the Company's financial instruments as of September 30,
1996 (unaudited), December 31, 1995 and December 31, 1994 approximate
management's best estimate of their estimated fair values. The following methods
and assumptions were used to estimate the fair value of each class of financial
instrument for which it is practicable to estimate that value:
- The fair value of certain financial assets carried at cost, including
cash, accounts receivable, other accounts receivable, and certain other
short-term assets is considered to approximate their respective carrying
value due to their short-term nature.
- The fair value of payables to suppliers, other accounts payable, loans to
related companies and certain other short-term liabilities is considered
to approximate their respective carrying value due to their short-term
nature.
- The fair value of loans from related companies approximates their
respective carrying values as interest on these loans is at market rates.
2.8 ACCOUNTS RECEIVABLE
Accounts receivable are stated at their estimated realizable values. An
allowance for doubtful accounts will be established on the basis of an analysis
of the accounts receivable, in light of the risks involved, in an amount
sufficient to cover any losses incurred in realization of credits when
necessary.
2.9 INVENTORIES
Inventories consist of materials and supplies used to provide service to new
customers, and to ensure continuity of service to existing customers.
Inventories are stated at the lower of cost or market. Cost is determined
principally under the average cost method.
2.10 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated using the
straight-line method, over the remaining useful lives, as described in Note 9.
2.11 RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS
Management reviews long-lived assets, primarily the Company's concessions
and its property and equipment to be held and used in the business, for the
purposes of determining and measuring impairment on a recurring basis or when
events or changes in circumstances indicate that the carrying value of an asset
or group of assets may not be recoverable. Assets are grouped and evaluated for
possible impairment at the level of each cable television system; impairment is
assessed on the basis of the forecasted undiscounted cash flows of the
businesses over the estimated remaining lives of the assets related to those
systems. A write-down of the carrying value of the assets or group of assets to
estimated fair value will be made, when appropriate.
F-70
<PAGE>
TVA SUL PARTICIPACOES S.A.
AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
2.11 RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS
(CONTINUED)
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be disposed of", from January 1,
1996 and the effect on the financial statements as a result of the adoption was
not significant.
2.12 SUBSCRIPTIONS
Installation fees are recognized as revenue on the equipment installation
date to the extent of direct selling costs incurred. Subscription revenues are
recognized as earned on an accrual basis.
2.13 ACCOUNTING FOR SALES OF STOCK BY SUBSIDIARIES
Gains or losses arising from the sale of previously unissued shares to an
unrelated party by a subsidiary are recognized in the profit and loss account as
non-operating income to the extent that the net book value of the shares owned
by the parent after the sale exceeds or is lower than the net book value per
share immediately prior to the sale of the shares by the subsidiary.
2.14 FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
The unaudited financial statements for the nine months ended September 30,
1996 and 1995 have been derived from the Company's records and reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial data.
3. CASH AND CASH EQUIVALENTS
At September 30, 1996 (unaudited), December 31, 1995 and 1994, cash and cash
equivalents were comprised of:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, ----------------------
1996 1995 1994
------------------- ----- ---------
<S> <C> <C> <C>
(UNAUDITED)
Cash on hand and in banks............................... $ 380 $ 45 --
Short-term investments.................................. 34 -- --
----- --- ---------
$ 414 $ 45 --
----- --- ---------
----- --- ---------
</TABLE>
4. ACCOUNTS RECEIVABLE
At September 30, 1996 (unaudited), December 31, 1995 and 1994, accounts
receivable were comprised of:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, ----------------------
1996 1995 1994
------------------- ----- ---------
<S> <C> <C> <C>
(UNAUDITED)
Subscriptions........................................... $ 286 -- --
Installation fees....................................... 329 $ 32 --
Others.................................................. 134 -- --
----- --- ---------
$ 749 $ 32 --
----- --- ---------
----- --- ---------
</TABLE>
F-71
<PAGE>
TVA SUL PARTICIPACOES S.A.
AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
5. PREPAID AND OTHER ASSETS
At September 30, 1996 (unaudited), December 31, 1995 and 1994, prepaid
expenses were comprised of:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, ------------------------
1996 1995 1994
------------------- ----- -----
<S> <C> <C> <C>
(UNAUDITED)
Advances to suppliers.................................. $ 544 $ 22 $ 23
Prepaid meals and transportation....................... 32 20 11
Others................................................. 12 26 11
----- --- ---
$ 588 $ 68 $ 45
----- --- ---
----- --- ---
</TABLE>
6. OTHER ACCOUNTS RECEIVABLE
At September 30, 1996 (unaudited), December 31, 1995 and 1994, other
accounts receivable were comprised of:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, ------------------------
1996 1995 1994
----------------- ----- -----
<S> <C> <C> <C>
(UNAUDITED)
Advances to employees.................................. $ 119 -- $ 7
Accounts receivable from Related Companies (Note 7).... 765 -- --
Others................................................. 232 $ 2 --
--
------- ---
$ 1,116 $ 2 $ 7
--
--
------- ---
------- ---
</TABLE>
7. RELATED-PARTY TRANSACTIONS
The following tables summarize the transactions between the Company and
related companies at September 30, 1996 (unaudited) and December 31, 1995, 1994
and for the nine month periods ended September 30, 1996 (unaudited) and 1995
(unaudited) and the three years in the period ended December 31, 1995 :
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
----------------- --------------------
<S> <C> <C> <C>
1996 1995 1994
----------------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
TVA Sistema
Loans payable................................. $ 2,877 $ 10,480 --
Accounts Payable.............................. 1,438 983 --
Tevecap S.A.
Loans payable................................. 14,099 -- $ 5,886
</TABLE>
F-72
<PAGE>
TVA SUL PARTICIPACOES S.A.
AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
7. RELATED-PARTY TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993
--------- ----------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tevecap
Net interest expense............... $ -- $ -- $ -- $ (2,269) $ (439)
TVA Sistema de Televisao S.A.
Net interest expense............... (1,272) (1,659) (2,286) -- --
</TABLE>
The related company loans are denominated in reais and are subject to
monetary restatement plus interest charges at the market rate which was 1.79%
per month in September 1996 (3.44% per month in December 1995).
8. DEFERRED INCOME TAX
The tax effects of temporary differences that give rise to a significant
portion of the deferred tax asset and deferred tax liability at September 30,
1996 (unaudited) and at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, --------------------
1996 1995 1994
----------------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Deferred tax assets:
Net operating loss carryforwards...................................... $ 4,057 $ 3,425 $ 2,509
Others................................................................ 38 11 61
-------- --------- ---------
Total gross deferred tax asset.................................... 4,095 3,436 2,570
Less, valuation allowance............................................. (3,850) (3,122) (2,570)
-------- --------- ---------
Net deferred tax asset.................................................. 245 314 --
Deferred tax liability:
Installation costs.................................................... (245) (314) --
-------- --------- ---------
Total gross deferred tax liability................................ (245) (314) --
-------- --------- ---------
Net deferred tax asset.................................................. $ -- $ -- $ --
-------- --------- ---------
-------- --------- ---------
</TABLE>
The Company has a limited operating history and has generated losses since
its inception. The valuation allowance has been established in accordance with
the requirements of SFAS No. 109 and relates to the amount of net operating loss
carryforwards in excess of net taxable temporary differences.
As of September 30, 1996 (unaudited), the Company has unexpirable
accumulated tax losses of $13,276.
F-73
<PAGE>
TVA SUL PARTICIPACOES S.A.
AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
8. DEFERRED INCOME TAX (CONTINUED)
The combined income tax credit was different from the amount computed using
the Brazilian statutory income tax for the reasons set forth in the following
table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C> <C>
NINE MONTHS
ENDED
SEPTEMBER 30,
1996 1995 1994 1993
--------------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Loss before income taxes and minority
interest................................... $ 2,555 $ 4,354 $ 3,601 $ 1,448
Statutory income tax rate.................... 30.56% 30.56% 43.0% 35.2%
------- --------- --------- ---------
781 1,331 1,548 509
Increase (decrease) in the income tax rate... -- (753) 212 --
Others....................................... (158) (26) (116) 157
------- --------- --------- ---------
Net income tax benefit for the period........ 623 552 1,644 666
Increase in valuation allowance.............. (728) (552) (1,644) (666)
------- --------- --------- ---------
$ (105) $ -- $ -- $ --
------- --------- --------- ---------
------- --------- --------- ---------
</TABLE>
Income tax payable represents amounts owing by subsidiaries calculated on an
unitary basis.
9. PROPERTY, PLANT AND EQUIPMENT
At September 30, 1996 (unaudited), December, 31, 1995 and 1994, property,
plant and equipment were comprised of:
<TABLE>
<CAPTION>
ANNUAL
DEPRECIATION AT DECEMBER 31,
RATE AT SEPTEMBER 30, --------------------
% 1996 1995 1994
----------------- --------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
Machinery and Equipment...................................... 10 $ 1,436 172 $ 112
Converters................................................... 10 3,532 -- --
Leasehold Improvements....................................... 25 3,499 35 14
Furniture and Fixtures....................................... 10 567 164 78
Premises..................................................... 10 23 3 3
Vehicles..................................................... 20 129 15 14
Software..................................................... 20 80 45 31
Tools........................................................ 10 86 -- --
Reception Equipment.......................................... 20 4,170 1,203 --
Cable Plant.................................................. 10 1,440 -- --
Building..................................................... 4 355 -- --
-------- --------- ---------
15,317 1,637 252
Accumulated Depreciation..................................... (2,056) (254) (68)
Telephone Line Use Rights.................................... 158 83 14
Fixed Assets in Transit...................................... 130 -- --
-------- --------- ---------
$ 13,549 $ 1,466 $ 198
-------- --------- ---------
-------- --------- ---------
</TABLE>
F-74
<PAGE>
TVA SUL PARTICIPACOES S.A.
AND SUBSIDIARIES
NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED)
10. INSURANCE
The Company maintains insurance coverage for its fixed assets and
inventories in an amount considered sufficient to cover the risks involved.
11. PAID-IN CAPITAL
Paid-in capital at September 30, 1996 (unaudited), December 31, 1995 and
1994, was comprised of:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------ -----------
US$ SHARES US$ SHARES US$
--------- ------------- --- ----------- ---
<S> <C> <C> <C> <C> <C>
TVA Parana..................................................... -- -- $ 1 1,000 $ 1
-- --
-- --
--------- ------------- -----
--------- ------------- -----
TVA Sul Participacoes S.A. .................................... $ 18,964 18,470,825 -- -- --
-- --
-- --
--------- ------------- -----
--------- ------------- -----
<CAPTION>
SHARES
-----------
<S> <C>
TVA Parana..................................................... 1,000
-----
-----
TVA Sul Participacoes S.A. .................................... --
-----
-----
</TABLE>
Paid-in capital represents registered common shares without par value.
The Company's shareholders are entitled a minimum dividend of 25% of net
income for the year, adjusted according to Corporation Law. As the Company has
not recorded net income since its inception, no such dividends are payable.
12. SUPPLEMENTARY INFORMATION--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
DEFERRED TAXATION
VALUATION
ALLOWANCE
-----------------
<S> <C>
December 31, 1993.......................................................... $ 926
Additions Charged to Expense............................................... 1,644
Reduction.................................................................. --
-------
Balance at December 31, 1994............................................... 2,570
Additions Charged to Expense............................................... 552
-------
Balance at December 31, 1995............................................... 3,122
Additions Charged to Expense............................................... 490
Reduction.................................................................. --
-------
Balance at September 30, 1996.............................................. $ 3,612
-------
-------
</TABLE>
F-75
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
TV ALFA CABO LTDA.
We have audited the accompanying statements of revenues and direct operating
expenses of TV ALFA CABO LTDA. (the "Company") for each of the three years in
the period ended December 31, 1995, all expressed in United States dollars.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the revenues and direct operating expenses of TV ALFA
CABO LTDA., for each of the three years in the period ended December 31, 1995,
in conformity with accounting principles generally accepted in the United States
of America.
Coopers & Lybrand
Sao Paulo, Brazil
March 31, 1997
F-76
<PAGE>
TV ALFA CABO LTDA.
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Sales................................................................ $ 803 $ 347 $ 80
Cost of Sales........................................................ (457) (232) (71)
--------- --------- ---
346 115 9
--------- --------- ---
Administrative and Selling Expenses.................................. (605) (131) (9)
Depreciation......................................................... (19) (17) (14)
--------- --------- ---
Sales insufficient to cover direct operating expenses................ $ (278) $ (33) $ (14)
--------- --------- ---
--------- --------- ---
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE>
TV ALFA CABO LTDA.
NOTES TO THE STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
1. THE COMPANY AND ITS PRINCIPAL OPERATIONS
The Company renders services related to cable television system. The Company
has cable channel rights in Curitiba in the South of Brazil.
2. BASIS OF PRESENTATION
The accompanying statements of revenues and direct operating expenses (the
"financial statements") were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission for inclusion in
a registration statement on Form F-4. Accordingly, certain expenses which may
not be comparable to the expenses expected to be incurred in the future
operations of the Company have been excluded. Such expenses consist of interest
expenses (net), translation gains (losses), other nonoperating expenses and
income taxes.
The financial statements are presented in US Dollars and have been prepared
in accordance with accounting principles generally accepted in the United States
of America (U.S. GAAP), which differ in certain respects from accounting
principles applied by the Company in its local currency financial statements,
which are prepared in accordance with accounting principles generally accepted
in Brazil ("Brazilian GAAP").
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
financial statement dates and the reported amount of revenues and expenses
during the reporting periods. Since management's judgment involves making
estimates concerning the likelihood of future events, the actual results could
differ from those estimates which will have a positive or negative effect on
future period results.
2.1 ACCOUNTING RECORDS
As required by Brazilian Law, and in accordance with local accounting
practices, the accounting records of the Company are maintained in Brazilian
currency (REAL). In order to present the financial statements in conformity with
accounting principles generally accepted in the United States of America, the
Company maintains additional accounting records which are used solely for this
purpose.
2.2 CURRENCY REMEASUREMENT
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
52, "Foreign Currency Transactions", the United States dollar has been assumed
to be the functional currency as Brazil is a "hyper inflationary" country. As
such, the local accounts of the Company are translated into United States
dollars as follows:
- Income and expenses are translated at the average exchange rates in effect
each month, except for those related to assets and liabilities which are
translated at historical exchange rates.
2.3 SUBSCRIPTIONS
Installation fees are recognized as revenue on the equipment installation
date to the extent of direct selling costs incurred. Subscription revenues are
recognized as earned on an accrual basis.
2.4 DEPRECIATION OF FIXED ASSETS
Depreciation has been determined following the straight line method based on
the estimated useful lives of assets.
F-78
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
TCC TV A CABO LTDA.
We have audited the accompanying statements of revenues and direct operating
expenses of TCC TV A CABO LTDA. (the "Company") for each of the three years in
the period ended December 31, 1995, all expressed in United States dollars.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the revenues and direct operating expenses of TCC TV A
CABO LTDA., for each of the three years in the period ended December 31, 1995,
in conformity with accounting principles generally accepted in the United States
of America.
Coopers & Lybrand
Sao Paulo, Brazil
March 31, 1997
F-79
<PAGE>
TCC TV A CABO LTDA.
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Sales................................................................ $ 729 $ 392 $ 313
Cost of Sales........................................................ (187) (161) (180)
--------- --------- ---------
542 231 133
--------- --------- ---------
Administrative and Selling Expenses.................................. (397) (216) (120)
Depreciation......................................................... (21) (19) (17)
--------- --------- ---------
Sales in excess of (insufficient to cover ) direct operating
expenses........................................................... $ 124 $ (4) $ (4)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE>
TCC TV A CABO LTDA.
NOTES TO THE STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
1. THE COMPANY AND ITS PRINCIPAL OPERATIONS
The Company renders services related to cable television system. The Company
has cable channel rights in Curitiba in the South of Brazil.
2. BASIS OF PRESENTATION
The accompanying statements of revenues and direct operating expenses (the
"financial statements") were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission for inclusion in
a registration statement on Form F-4. Accordingly, certain expenses which may
not be comparable to the expenses expected to be incurred in the future
operations of the Company have been excluded. Such expenses consist of interest
expenses (net), translation gains (losses), other nonoperating expenses and
income taxes.
The financial statements are presented in US Dollars and have been prepared
in accordance with accounting principles generally accepted in the United States
of America (U.S. GAAP), which differ in certain respects from accounting
principles applied by the Company in its local currency financial statements,
which are prepared in accordance with accounting principles generally accepted
in Brazil ("Brazilian GAAP").
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
financial statement dates and the reported amount of revenues and expenses
during the reporting periods. Since management's judgment involves making
estimates concerning the likelihood of future events, the actual results could
differ from those estimates which will have a positive or
negative effect on future period results.
2.1 ACCOUNTING RECORDS
As required by Brazilian Law, and in accordance with local accounting
practices, the accounting records of the Company are maintained in Brazilian
currency (REAL). In order to present the financial statements in conformity with
accounting principles generally accepted in the United States of America, the
Company maintains additional accounting records which are used solely for this
purpose.
2.2 CURRENCY REMEASUREMENT
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
52, "Foreign Currency Transactions", the United States dollar has been assumed
to be the functional currency as Brazil is a "hyper inflationary" country. As
such, the local accounts of the Company are translated into United States
dollars as follows:
- Income and expenses are translated at the average exchange rates in effect
each month, except for those related to assets and liabilities which are
translated at historical exchange rates.
2.3 SUBSCRIPTIONS
Installation fees are recognized as revenue on the equipment installation
date to the extent of direct selling costs incurred. Subscription revenues are
recognized as earned on an accrual basis.
2.4 DEPRECIATION OF FIXED ASSETS
Depreciation has been determined following the straight line method based on
the estimated useful lives of assets.
F-81
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA.
We have audited the accompanying statements of revenues and direct operating
expenses of CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA. (the "Company")
for each of the three years in the period ended December 31, 1995, all expressed
in United States dollars. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the revenues and direct operating expenses of CCS
CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA., for each of the three years in
the period ended December 31, 1995, in conformity with accounting principles
generally accepted in the United States of America.
Coopers & Lybrand
Sao Paulo, Brazil
March 31, 1997
F-82
<PAGE>
CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA.
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994 1993
-------------- --------- ---------
<S> <C> <C> <C>
Sales....................................................... $ 1245 $ 528 $ 212
Cost of Sales............................................... (460) (330) (258)
-------------- --------- ---------
785 198 (46)
-------------- --------- ---------
Administrative and Selling Expenses......................... (399) (240) (75)
Depreciation................................................ (8) (5) (3)
-------------- --------- ---------
Sales in excess of (insufficient to cover ) direct operating
expenses.................................................. $ 378 $ (47) $ (124)
-------------- --------- ---------
-------------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE>
CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA.
NOTES TO THE STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
1. THE COMPANY AND ITS PRINCIPAL OPERATIONS
The Company renders services related to cable television system. The Company
has cable channel rights in Camboriu in the South of Brazil.
2. BASIS OF PRESENTATION
The accompanying statements of revenues and direct operating expenses (the
"financial statements") were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission for inclusion in
a registration statement on Form F-4. Accordingly, certain expenses which may
not be comparable to the expenses expected to be incurred in the future
operations of the Company have been excluded. Such expenses consist of interest
expenses (net), translation gains (losses), other nonoperating expenses and
income taxes.
The financial statements are presented in US Dollars and have been prepared
in accordance with accounting principles generally accepted in the United States
of America (U.S. GAAP), which differ in certain respects from accounting
principles applied by the Company in its local currency financial statements,
which are prepared in accordance with accounting principles generally accepted
in Brazil ("Brazilian GAAP").
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
financial statement dates and the reported amount of revenues and expenses
during the reporting periods. Since management's judgment involves making
estimates concerning the likelihood of future events, the actual results could
differ from those estimates which will have a positive or negative effect on
future period results.
2.1 ACCOUNTING RECORDS
As required by Brazilian Law, and in accordance with local accounting
practices, the accounting records of the Company are maintained in Brazilian
currency (REAL). IN ORDER TO PRESENT THE FINANCIAL STATEMENTS IN CONFORMITY WITH
ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA, THE
COMPANY MAINTAINS ADDITIONAL ACCOUNTING RECORDS WHICH ARE USED SOLELY FOR THIS
PURPOSE.
2.2 CURRENCY REMEASUREMENT
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
52, "Foreign Currency Transactions", the United States dollar has been assumed
to be the functional currency as Brazil is a "hyper inflationary" country. As
such, the local accounts of the Company are translated into United States
dollars as follows:
- Income and expenses are translated at the average exchange rates in effect
each month, except for those related to assets and liabilities which are
translated at historical exchange rates.
2.3 SUBSCRIPTIONS
Installation fees are recognized as revenue on the equipment installation
date to the extent of direct selling costs incurred. Subscription revenues are
recognized as earned on an accrual basis.
2.4 DEPRECIATION OF FIXED ASSETS
Depreciation has been determined following the straight line method based on
the estimated useful lives of assets.
F-84
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
TVA SUL FOZ DO IGUACU LTDA.
We have audited the accompanying statements of revenues and direct operating
expenses of TVA SUL FOZ DO IGUACU LTDA. (the "Company") for each of the three
years in the period ended December 31, 1995, all expressed in United States
dollars. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the revenues and direct operating expenses of TVA SUL
FOZ DO IGUACU LTDA., for each of the three years in the period ended December
31, 1995, in conformity with accounting principles generally accepted in the
United States of America.
Coopers & Lybrand
Sao Paulo, Brazil
March 31, 1997
F-85
<PAGE>
TVA SUL FOZ DO IGUACU LTDA.
(FORMERLY TCI TV A CABO IGUACU LTDA.)
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Sales................................................................ $ 866 $ 504 $ 257
Cost of Sales........................................................ (669) (330) (154)
--------- --------- ---------
197 174 103
--------- --------- ---------
Administrative and Selling Expenses.................................. (14) (49) (1)
Depreciation......................................................... (39) (23) (17)
--------- --------- ---------
Sales in excess of direct operating expenses......................... $ 144 $ 102 $ 85
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-86
<PAGE>
TVA SUL FOZ DO IGUACU LTDA.
(FORMERLY TCI TV A CABO IGUACU LTDA.)
NOTES TO THE STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
1. THE COMPANY AND ITS PRINCIPAL OPERATIONS
The Company renders services related to cable television system. The Company
has cable channel rights in Foz do Iguacu in the South of Brazil.
2. BASIS OF PRESENTATION
The accompanying statements of revenues and direct operating expenses (the
"financial statements") were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission for inclusion in
a registration statement on Form F-4. Accordingly, certain expenses which may
not be comparable to the expenses expected to be incurred in the future
operations of the Company have been excluded. Such expenses consist of interest
expenses (net), translation gains (losses), other nonoperating expenses and
income taxes.
The financial statements are presented in US Dollars and have been prepared
in accordance with accounting principles generally accepted in the United States
of America (U.S. GAAP), which differ in certain respects from accounting
principles applied by the Company in its local currency financial statements,
which are prepared in accordance with accounting principles generally accepted
in Brazil ("Brazilian GAAP").
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
financial statement dates and the reported amount of revenues and expenses
during the reporting periods. Since management's judgment involves making
estimates concerning the likelihood of future events, the actual results could
differ from those estimates which will have a positive or negative effect on
future period results.
2.1 ACCOUNTING RECORDS
As required by Brazilian Law, and in accordance with local accounting
practices, the accounting records of the Company are maintained in Brazilian
currency (REAL). In order to present the financial statements in conformity with
accounting principles generally accepted in the United States of America, the
Company maintains additional accounting records which are used solely for this
purpose.
2.2 CURRENCY REMEASUREMENT
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
52, "Foreign Currency Transactions", the United States dollar has been assumed
to be the functional currency as Brazil is a "hyper inflationary" country. As
such, the local accounts of the Company are translated into United States
dollars as follows:
- Income and expenses are translated at the average exchange rates in effect
each month, except for those related to assets and liabilities which are
translated at historical exchange rates.
2.3 SUBSCRIPTIONS
Installation fees are recognized as revenue on the equipment installation
date to the extent of direct selling costs incurred. Subscription revenues are
recognized as earned on an accrual basis.
2.4 DEPRECIATION OF FIXED ASSETS
Depreciation has been determined following the straight line method based on
the estimated useful lives of assets.
F-87
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
TVA SUL SANTA CATARINA LTDA.
We have audited the accompanying statement of revenues and direct operating
expenses of TVA SUL SANTA CATARINA LTDA. (the "Company") for the year ended
December 31, 1995, expressed in United States dollars. This financial statement
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and direct operating expenses of TVA SUL
SANTA CATARINA LTDA., for the year ended December 31, 1995, in conformity with
accounting principles generally accepted in the United States of America.
Coopers & Lybrand
Sao Paulo, Brazil
March 31, 1997
F-88
<PAGE>
TVA SUL SANTA CATARINA LTDA.
(FORMERLY TV CABO SERVICOS SANTA CATARINA LTDA.)
STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
---------------
<S> <C>
Sales......................................................................... $ --
Cost of Sales................................................................. --
-----
--
-----
Administrative and Selling Expenses........................................... (5)
Depreciation.................................................................. --
-----
Direct operating expenses in excess of sales.......................... $ (5)
-----
-----
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-89
<PAGE>
TVA SUL SANTA CATARINA LTDA
(FORMERLY TV CABO SERVICOS SANTA CATARINA LTDA.)
NOTES TO THE STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
1. THE COMPANY AND ITS PRINCIPAL OPERATIONS
The Company started its operations in November 1995 rendering services
related to cable television system. The Company has cable channel rights in
Florianopolis in the South of Brazil.
2. BASIS OF PRESENTATION
The accompanying statement of revenues and direct operating expenses (the
"financial statement") was prepared for the purpose of complying with the rules
and regulations of the Securities and Exchange Commission for inclusion in a
registration statement on Form F-4. Accordingly, certain expenses which may not
be comparable to the expenses expected to be incurred in the future operations
of the Company have been excluded. Such expenses consist of interest expenses
(net), translation gains (losses), and other nonoperating expenses.
The financial statement is presented in US Dollars and has been prepared in
accordance with accounting principles generally accepted in the United States of
America (U.S. GAAP), which differ in certain respects from accounting principles
applied by the Company in its local currency financial statement, which is
prepared in accordance with accounting principles generally accepted in Brazil
("Brazilian GAAP").
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
financial statement dates and the reported amount of revenues and expenses
during the reporting periods. Since management's judgment involves making
estimates concerning the likelihood of future events, the actual results could
differ from those estimates which will have a positive or negative effect on
future period results.
2.1 ACCOUNTING RECORDS
As required by Brazilian Law, and in accordance with local accounting
practices, the accounting records of the Company are maintained in Brazilian
currency (REAL). In order to present the financial statements in conformity with
accounting principles generally accepted in the United States of America, the
Company maintains additional accounting records which are used solely for this
purpose.
2.2 CURRENCY REMEASUREMENT
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
52, "Foreign Currency Transactions", the United States dollar has been assumed
to be the functional currency as Brazil is a "hyper inflationary" country. As
such, the local accounts of the Company are translated into United States
dollars as follows:
- Income and expenses are translated at the average exchange rates in effect
each month, except for those related to assets and liabilities which are
translated at historical exchange rates.
F-90
<PAGE>
TV ALFA, TCC, CCS, TVA PARANA, FOZ DO
IGUACU AND SSC
BALANCE SHEET AT SEPTEMBER 30, 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
FOZ DO
TV ALFA TCC CCS SSC IGUACU
----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
<CAPTION>
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents(Note 3)........................... $ 19 $ 162 $ 68 $ -- $ 50
Accounts receivable, net (Note 4)........................... 124 45 3 12 22
Inventories................................................. -- 44 78 54 81
Prepaid and other assets (Note 5)........................... -- 9 -- 128 55
Other accounts receivable (Note 6).......................... 294 45 53 12 169
----------- --------- --------- --------- -----
Total current assets.................................... 437 305 202 206 377
Property, plant and equipment (Note 8)........................ 160 225 3,491 750 316
Loans to related companies (Note 7)........................... -- -- -- -- 42
Other......................................................... -- -- -- -- 3
----------- --------- --------- --------- -----
Total assets.................................................. $ 597 $ 530 $ 3,693 $ 956 $ 738
----------- --------- --------- --------- -----
----------- --------- --------- --------- -----
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>
Current liabilities
Suppliers................................................... $ 117 $ 102 $ 98 $ 64 $ 10
Taxes payable other than income taxes....................... 106 42 34 1 19
Accrued payroll and related liabilities..................... 14 -- 18 33 69
Other accounts payable (Note 9)............................. 82 2 141 -- 337
----------- --------- --------- --------- -----
Total current liabilities............................... 319 146 291 98 435
----------- --------- --------- --------- -----
Long-term liabilities
Loans from related companies (Note 7)....................... 497 -- -- 1,669 83
Loans from shareholders..................................... -- -- -- -- --
Other....................................................... -- -- -- -- --
----------- --------- --------- --------- -----
Total long-term liabilities............................. 497 -- -- 1,669 83
----------- --------- --------- --------- -----
Shareholders' equity
Paid in capital............................................. 344 47 4,012 1 5
Accumulated deficit......................................... (563) 337 (610) (812) 215
----------- --------- --------- --------- -----
Total shareholders' equity.............................. (219) 384 3,402 (811) 220
----------- --------- --------- --------- -----
Total liabilities and shareholders' equity.............. $ 597 $ 530 $ 3,693 $ 956 $ 738
----------- --------- --------- --------- -----
----------- --------- --------- --------- -----
<CAPTION>
TVA
PARANA
----------
<S> <C>
ASSET
<S> <C>
Current assets
Cash and cash equivalents(Note 3)........................... $ 114
Accounts receivable, net (Note 4)........................... 543
Inventories................................................. 1,119
Prepaid and other assets (Note 5)........................... 396
Other accounts receivable (Note 6).......................... 543
----------
Total current assets.................................... 2,715
Property, plant and equipment (Note 8)........................ 10,856
Loans to related companies (Note 7)........................... --
Other......................................................... 931
----------
Total assets.................................................. $ 14,502
----------
----------
LIABILITIES AND SHAR
<S> <C>
Current liabilities
Suppliers................................................... $ 360
Taxes payable other than income taxes....................... 471
Accrued payroll and related liabilities..................... 6
Other accounts payable (Note 9)............................. 1,866
----------
Total current liabilities............................... 2,703
----------
Long-term liabilities
Loans from related companies (Note 7)....................... 5,223
Loans from shareholders..................................... 27
Other....................................................... 151
----------
Total long-term liabilities............................. 5,401
----------
Shareholders' equity
Paid in capital............................................. 18,964
Accumulated deficit......................................... (12,566)
----------
Total shareholders' equity.............................. 6,398
----------
Total liabilities and shareholders' equity.............. $ 14,502
----------
----------
</TABLE>
The accompanying notes are an integral part of the Unaudited Financial
Information
F-91
<PAGE>
TVA ALFA, TCC, CCS, TVA PARANA, FOZ DO
IGUACU AND SSC
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
TV FOZ DO
ALFA TCC CCS SSC IGUACU
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Gross revenues
Monthly subscriptions............................................ $ 768 $ 625 $ 642 $ 16 $ 784
Installation..................................................... 6 -- -- 7 50
Other............................................................ -- 2 29 -- --
Revenue taxes.................................................... (20) (17) (17) -- (15)
--------- --------- --------- --------- -----
Net revenue.................................................... 754 610 654 23 819
--------- --------- --------- --------- -----
Direct operating expenses
Payroll and benefits............................................. -- 3 91 82 94
Programming...................................................... 159 146 155 -- 271
Technical assistance............................................. -- -- -- 44 --
Vehicle rentals.................................................. -- -- -- -- --
TVA magazine..................................................... 2 -- -- -- 20
Other costs...................................................... -- 40 101 567 59
--------- --------- --------- --------- -----
161 189 347 693 444
--------- --------- --------- --------- -----
Selling, general and administrative expenses
Payroll and benefits............................................. 143 4 77 -- 116
Advertising and promotion........................................ -- 3 14 -- 16
Rent............................................................. 35 13 4 45 --
Other administrative expenses.................................... 33 42 77 -- 53
Other general expenses........................................... 52 -- -- -- 5
--------- --------- --------- --------- -----
263 62 172 45 190
--------- --------- --------- --------- -----
Depreciation....................................................... 22 -- 75 17 20
--------- --------- --------- --------- -----
Operating income/(loss)........................................ 308 359 60 (732) 165
--------- --------- --------- --------- -----
Interest income.................................................... 14 2 12 -- 4
Interest expense................................................... (8) (12) (7) -- (1)
Translation (loss) gain............................................ (43) (128) (13) (49) 113
Other nonoperating income, net..................................... -- -- -- -- --
--------- --------- --------- --------- -----
Loss before income taxes....................................... 271 221 52 (781) 281
Income taxes (Note 10)............................................. -- (48) (18) -- (39)
--------- --------- --------- --------- -----
Net income (loss).............................................. 271 173 34 (781) 242
--------- --------- --------- --------- -----
--------- --------- --------- --------- -----
<CAPTION>
TVA
PARANA
---------
<S> <C>
Gross revenues
Monthly subscriptions............................................ $ 5,377
Installation..................................................... 756
Other............................................................ 34
Revenue taxes.................................................... (239)
---------
Net revenue.................................................... 5,928
---------
Direct operating expenses
Payroll and benefits............................................. 2,497
Programming...................................................... 410
Technical assistance............................................. 660
Vehicle rentals.................................................. 239
TVA magazine..................................................... 136
Other costs...................................................... 362
---------
4,304
---------
Selling, general and administrative expenses
Payroll and benefits............................................. 624
Advertising and promotion........................................ 244
Rent............................................................. 106
Other administrative expenses.................................... 915
Other general expenses........................................... 274
---------
2,163
---------
Depreciation....................................................... 263
---------
Operating income/(loss)........................................ (802)
---------
Interest income.................................................... 135
Interest expense................................................... (1,713)
Translation (loss) gain............................................ 18
Other nonoperating income, net..................................... 242
---------
Loss before income taxes....................................... (2,120)
Income taxes (Note 10)............................................. --
---------
Net income (loss).............................................. (2,120)
---------
---------
</TABLE>
The accompanying notes are an integral part of the Unaudited Financial
Information
F-92
<PAGE>
TV ALFA, TCC, CCS, TVA PARANA, FOZ DO
IGUACU AND SSC
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
TVA PARANA
------------------------------------
<S> <C> <C> <C>
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
--------- ------------- ----------
Balance at January 1, 1996................................................ $ 1 $ (10,446) $ (10,445)
Capital contributed on:
April 30, 1996.......................................................... 14,865 -- 14,865
August 30, 1996......................................................... 4,098 -- 4,098
Net loss for the period................................................... -- (2,120) (2,120)
--------- ------------- ----------
Balance at September 30, 1996......................................... $ 18,964 (12,566) (6,398)
--------- ------------- ----------
--------- ------------- ----------
<CAPTION>
SSC
------------------------------------
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
--------- ------------- ----------
<S> <C> <C> <C>
Balance at February 28, 1996.............................................. $ 1 $ (31) $ (30)
Net loss for the period................................................... -- (781) (781)
--------- ------------- ----------
Balance at September 30, 1996......................................... $ 1 (812) (811)
--------- ------------- ----------
--------- ------------- ----------
</TABLE>
<TABLE>
<CAPTION>
TV ALFA TCC
------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
PAID-IN ACCUMULATED PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL CAPITAL DEFICIT
--------- --------------- --------- ----------- ---------------
Balance at March 30, 1996............................ $ 344 $ (834) $ (490) $ 47 $ 164
Net loss for the period.............................. -- 271 271 -- 173
--------- ------ --------- --- -----
Balance at September 30, 1996.................... $ 344 (563) (219) 47 337
--------- ------ --------- --- -----
--------- ------ --------- --- -----
<CAPTION>
CCS FOZ DO IGUACU
------------------------------------- ----------------------------
PAID-IN ACCUMULATED PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL CAPITAL DEFICIT
--------- --------------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at May 30, 1996.............................. $ 4,012 $ (644) $ 3,368 $ 5 $ (27)
Net loss for the period.............................. -- 34 34 -- 242
--------- ------ --------- --- -----
Balance at September 30, 1996.................... $ 4,012 (610) 3,402 5 215
--------- ------ --------- --- -----
--------- ------ --------- --- -----
<CAPTION>
<S> <C>
TOTAL
---------
Balance at March 30, 1996............................ $ 211
Net loss for the period.............................. 173
---------
Balance at September 30, 1996.................... 384
---------
---------
TOTAL
---------
<S> <C>
Balance at May 30, 1996.............................. $ (22)
Net loss for the period.............................. 242
---------
Balance at September 30, 1996.................... 220
---------
---------
</TABLE>
The accompanying notes are an integral part of the Unaudited Financial
Information
F-93
<PAGE>
TV ALFA, TCC, CCS, TVA PARANA, FOZ DO
IGUACU AND SSC
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
TV FOZ DO
ALFA TCC CCS SSC IGUACU
----------- --------- ----- --------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................... $ 271 $ 173 $ 34 $ (781) $ 242
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN)
PROVIDED BY OPERATING ACTIVITIES:
Depreciation............................................. -- 13 75 14 20
Amortization............................................. 22 -- -- -- --
Provision for claims..................................... -- -- -- -- --
Disposal and write-off of fixed assets................... -- -- -- -- --
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable...................................... (123) (45) (3) (12) (22)
Prepaid and other assets................................. 1 -- -- (125) (32)
Other accounts receivable................................ (291) (44) (46) (12) (169)
Accrued interest......................................... -- -- -- -- --
Inventories.............................................. -- (2) (78) (54) (81)
Legal Deposits...........................................
Suppliers................................................ (111) (5) 8 64 10
Taxes payable other than income taxes.................... 14 38 11 1 19
Accrued payroll and related liabilities.................. (124) (13) (7) 33 47
Advances received from subscribers....................... (45) -- -- -- --
Other accounts payable................................... (102) (2) 139 -- (18)
----------- --------- --- --------- -----------
Net cash (used in) operating activities................ (488) 113 133 (872) 16
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of fixed assets................................... (6) -- (65) (742) (17)
Loans to related companies................................. -- -- -- -- (42)
Goodwill................................................... -- -- -- -- --
----------- --------- --- --------- -----------
Net cash provided by (used in) investing activities.... (6) -- (65) (742) (59)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions...................................... -- -- -- -- --
Repayments of loans from shareholders...................... -- -- -- -- --
Loans from shareholders.................................... -- -- -- -- --
Loans from related companies............................... 497 -- -- 1,614 83
Repayment of loans from related companies.................. -- -- -- -- --
----------- --------- --- --------- -----------
Net cash provided by financing activiites.............. 497 -- -- 1,614 83
----------- --------- --- --------- -----------
Net increase (decrease) in cash and cash equivalents......... 3 113 68 -- 40
Cash and cash equivalents at beginning of year............... 16 49 -- -- 10
----------- --------- --- --------- -----------
Cash and cash equivalents at end of year............... $ 19 $ 162 $ 68 $ -- $ 50
----------- --------- --- --------- -----------
----------- --------- --- --------- -----------
SUPPLEMENTAL CASH DISCLOSURE:
Cash paid for interest..................................... $ -- $ -- $ -- $ -- $ --
----------- --------- --- --------- -----------
----------- --------- --- --------- -----------
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:
Accrued interest on related company loans refinanced as
principal balance........................................ $ -- $ -- $ -- $ -- $ --
----------- --------- --- --------- -----------
----------- --------- --- --------- -----------
<CAPTION>
TVA
PARANA
---------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................... $ (2,120)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN)
PROVIDED BY OPERATING ACTIVITIES:
Depreciation............................................. 263
Amortization............................................. --
Provision for claims..................................... 151
Disposal and write-off of fixed assets................... 795
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable...................................... (511)
Prepaid and other assets................................. (328)
Other accounts receivable................................ (541)
Accrued interest......................................... 1,281
Inventories.............................................. (1,119)
Legal Deposits........................................... (4)
Suppliers................................................ 263
Taxes payable other than income taxes.................... (50)
Accrued payroll and related liabilities.................. 218
Advances received from subscribers....................... --
Other accounts payable................................... 864
---------
Net cash (used in) operating activities................ (838)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of fixed assets................................... (10,448)
Loans to related companies................................. (918)
Goodwill................................................... --
---------
Net cash provided by (used in) investing activities.... (11,366)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions...................................... 18,963
Repayments of loans from shareholders...................... (162)
Loans from shareholders.................................... --
Loans from related companies............................... 2,786
Repayment of loans from related companies.................. (9,314)
---------
Net cash provided by financing activiites.............. 12,273
---------
Net increase (decrease) in cash and cash equivalents......... 69
Cash and cash equivalents at beginning of year............... 45
---------
Cash and cash equivalents at end of year............... $ 114
---------
---------
SUPPLEMENTAL CASH DISCLOSURE:
Cash paid for interest..................................... $ --
---------
---------
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:
Accrued interest on related company loans refinanced as
principal balance........................................ $ 1,272
---------
---------
</TABLE>
The accompanying notes are an integral part of the Unaudited Financial
Information
F-94
<PAGE>
TV ALFA, TCC, CCS, TVA PARANA, FOZ DO
IGUACU AND SSC
NOTES TO UNAUDITED FINANCIAL INFORMATION
1. PRINCIPAL OPERATIONS
The accompanying Unaudited Financial Information reflects the results of
operations of Alfa Cabo Ltda. ("TV Alfa"), CCS Camboriu Cable System De
Telecomunicacoes Ltda. ("CCS"), TVA Sul Parana Ltda. ("TVA Parana"), TVA Sul Foz
Do Iguacu Ltda.("Foz do Iguacu") and, TVA Sul Santa Catarina Ltda. ("SSC"), all
subsidiaries of TVA Sul Participacoes S.A ("the Subsidiaries").
These subsidiaries render services related to wireless cable and cable
television systems, including marketing and advertising, production,
distribution and licensing of domestic and foreign television programs. The
Company has wireless cable channel rights primarily in major urban markets in
the South of Brazil.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant policies followed in the preparation of the accompanying
Unaudited Financial Information are described below:
2.1 BASIS OF PRESENTATION
The accompanying Unaudited Financial Information are presented in U.S.
Dollars and have been prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP), which differ in
certain respects from accounting principles applied by the Company in its local
currency financial statements, which are prepared in accordance with accounting
principles generally accepted in Brazil ("Brazilian GAAP").
The Unaudited financial information has been derived from the Company's
records and reflects all adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial information.
The preparation of Condensed Financial Information requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
Financial Information dates and the reported amount of revenues and expenses
during the reporting periods. Since management's judgment involves making
estimates concerning the likelihood of future events, the actual results could
differ from those estimates which will have a positive or negative effect on
future period results.
2.2 ACCOUNTING RECORDS
As required by Brazilian Law, and in accordance with local accounting
practices, the accounting records of the Subsidiaries are maintained in
Brazilian currency (reais). In order to present the Financial Information in
conformity with accounting principles generally accepted in the United States of
America, the subsidiaries maintain additional accounting records which are used
solely for this purpose.
2.3 CURRENCY REMEASUREMENT
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
52, "Foreign Currency Transactions", the United States dollar has been assumed
to be the functional currency as Brazil is
F-95
<PAGE>
TV ALFA, TCC, CCS, TVA PARANA, FOZ DO
IGUACU AND SSC
NOTES TO UNAUDITED FINANCIAL INFORMATION
2.3 CURRENCY REMEASUREMENT (CONTINUED)
a "hyperinflationary" country. As such, the local Financial Information of the
Subsidiaries is translated into United States dollars as follows:
- Nonmonetary assets and liabilities are translated at historical rates. All
other assets and liabilities are translated at the official rate of
exchange of R$1,022 to US$1 in effect on September 30, 1996.
- Income and expenses are translated at the average exchange rates in effect
each month, except for those related to assets and liabilities which are
translated at historical exchange rates, and deferred income taxes, which
are translated at the current rate. Translation gains/losses are
recognized in the income statement.
2.4 CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as cash and cash in banks and
investments in interest-bearing securities and are carried at cost plus accrued
interest. Short-term investments with original maturities of three months or
less at the time of purchase are considered cash equivalents.
2.5 FINANCIAL INSTRUMENTS
In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," information is provided about the fair value of certain financial
instruments for which it is practicable to estimate that value.
For the purposes of SFAS No. 107, the estimated fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
The carrying values of the Subsidiarys' financial instruments as of September
30, 1996 (unaudited) approximate management's best estimate of their estimated
fair values. The following methods and assumptions were used to estimate the
fair value of each class of financial instrument for which it is practicable to
estimate that value:
- The fair value of certain financial assets carried at cost, including
cash, accounts receivable, other accounts receivable, and certain other
short-term assets is considered to approximate their respective carrying
value due to their short-term nature.
- The fair value of payables to suppliers, other accounts payable, loans to
affiliated companies and certain other short-term liabilities is
considered to approximate their respective carrying value due to their
short-term nature.
- The fair value of loans from affiliated companies approximates their
respective carrying values as interest on these loans is at market rates.
2.8 ACCOUNTS RECEIVABLE
Accounts receivable are stated at their estimated realizable values. An
allowance for doubtful accounts will be established on the basis of an analysis
of the accounts receivable, in light of the risks involved, in an amount
sufficient to cover any losses incurred in realization of credits when
necessary.
F-96
<PAGE>
TV ALFA, TCC, CCS, TVA PARANA, FOZ DO
IGUACU AND SSC
NOTES TO UNAUDITED FINANCIAL INFORMATION
2.9 INVENTORIES
Inventories consist of materials and supplies used to provide service to new
customers, and to ensure continuity of service to existing customers.
Inventories are stated at the lower of cost or market. Cost is determined
principally under the average cost method.
2.10 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated using the
straight-line method, over the remaining useful lives, as described in Note 8.
2.11 RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS
Management reviews long-lived assets, primarily the Subsidiaries property
and equipment to be held and used in the business, for the purposes of
determining and measuring impairment on a recurring basis or when events or
changes in circumstances indicate that the carrying value of an asset or group
of assets may not be recoverable. Assets are grouped and evaluated for possible
impairment at the level of each cable television system; impairment is assessed
on the basis of the forecasted undiscounted cash flows of the businesses over
the estimated remaining lives of the assets related to those systems. A
write-down of the carrying value of the assets or group of assets to estimated
fair value will be made, when appropriate.
The subsidiaries adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be disposed of", from January 1,
1996, and the effect on the Unaudited Financial Information as a result of the
adoption was not significant.
2.12 SUBSCRIPTIONS
Installation fees are recognized as revenue on the equipment installation
date to the extent of direct selling costs incurred. Subscription revenues are
recognized as earned on an accrual basis.
3. CASH AND CASH EQUIVALENTS
At September 30, 1996 (unaudited) cash and cash equivalents were comprised
of:
<TABLE>
<CAPTION>
FOZ DO
TV ALFA TCC CCS SSC IGUACU
----------- --------- ----- --------- -----------
<S> <C> <C> <C> <C> <C>
Cash on hand and in banks............................................. $ 13 $ 160 $ 68 $ -- $ 50
Short-term investments................................................ 6 2
--- --------- --- --------- ---
$ 19 $ 162 $ 68 $ -- $ 50
--- --------- --- --------- ---
--- --------- --- --------- ---
<CAPTION>
TVA
PARANA
-----------
<S> <C>
Cash on hand and in banks............................................. $ 91
Short-term investments................................................ 23
-----
$ 114
-----
-----
</TABLE>
F-97
<PAGE>
TV ALFA, TCC, CCS, TVA PARANA, FOZ DO
IGUACU AND SSC
NOTES TO UNAUDITED FINANCIAL INFORMATION
4. ACCOUNTS RECEIVABLE
At September 30, 1996 (unaudited) accounts receivable, net, were comprised
of:
<TABLE>
<CAPTION>
TV ALFA TCC CCS SSC
----------- ----- ----- -----
<S> <C> <C> <C> <C>
Subscriptions............................................................ $ -- $ 45 $ -- $ 10
Installation fees........................................................ 4 -- -- 2
Other.................................................................... 120 -- 3 --
----- --- --- ---
$ 124 $ 45 $ 3 $ 12
----- --- --- ---
----- --- --- ---
<CAPTION>
FOZ DO TVA
IGUACU PARANA
----------- -----------
<S> <C> <C>
Subscriptions............................................................ $ 22 $ 209
Installation fees........................................................ -- 323
Other.................................................................... -- 11
--- -----
$ 22 $ 543
--- -----
--- -----
</TABLE>
5. PREPAID AND OTHER ASSETS
At September 30, 1996 (unaudited) prepaid expenses were comprised of:
<TABLE>
<CAPTION>
TV ALFA TCC CCS SSC
----------- ----- ----- ---------
<S> <C> <C> <C> <C>
Advances to suppliers................................................... $ -- $ 8 $ -- $ 126
Prepaid meals and transportation........................................ -- -- -- --
Other................................................................... -- 1 -- 2
--
--- --- ---------
$ -- $ 9 $ -- $ 128
--
--
--- --- ---------
--- --- ---------
<CAPTION>
FOZ DO TVA
IGUACU PARANA
----------- -----------
<S> <C> <C>
Advances to suppliers................................................... $ 46 $ 364
Prepaid meals and transportation........................................ -- 32
Other................................................................... 9 --
--- -----
$ 55 $ 396
--- -----
--- -----
</TABLE>
6. OTHER ACCOUNTS RECEIVABLE
At September 30, 1996 (unaudited) other accounts receivable were comprised
of:
<TABLE>
<CAPTION>
TV ALFA TCC CCS SSC
----------- ----- ----- -----
<S> <C> <C> <C> <C>
Advances to employees.................................................... $ -- $ -- $ 32 $ --
Accounts receivable from related Company................................. 294 -- 21 11
Other.................................................................... -- 45 -- 1
----- --- --- ---
$ 294 $ 45 $ 53 $ 12
----- --- --- ---
----- --- --- ---
<CAPTION>
FOZ DO TVA
IGUACU PARANA
----------- -----------
<S> <C> <C>
Advances to employees.................................................... $ 5 $ 82
Accounts receivable from related Company................................. 164 461
Other.................................................................... -- --
----- -----
$ 169 $ 543
----- -----
----- -----
</TABLE>
F-98
<PAGE>
TV ALFA, TCC, CCS, TVA PARANA, FOZ DO
IGUACU AND SSC
NOTES TO UNAUDITED FINANCIAL INFORMATION
7. RELATED-PARTY TRANSACTIONS
The following tables summarize the transactions between the Subsidiaries and
related companies at and for the nine months ended September 30, 1996
(unaudited):
<TABLE>
<CAPTION>
FOZ DO TVA
TVA ALFA IGUACU SSC PARANA
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
TVA BRASIL
Loans payable.......................................... -- -- $ 1,584 --
TEVECAP
Loans payable.......................................... -- -- 85 --
TVA SISTEMA
Loans payable.......................................... -- -- -- $ 2,877
TVA PARANA
Loans receivable....................................... -- $ 42 -- --
TVA SUL
Loans payable.......................................... 497 63 -- 2,346
CCS CAMBORIU
Loans payable.......................................... -- 20 -- --
</TABLE>
The related company loans are denominated in reais and are subject to
monetary restatement plus interest charges at the market rate which was 1.79%
per month in September 1996.
8. PROPERTY, PLANT AND EQUIPMENT
At September 30, 1996 (unaudited) property, plant and equipment were
comprised of:
<TABLE>
<CAPTION>
FOZ DO
TV ALFA TCC CCS SSC IGUACU
----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Machinery and equipment......................................... $ -- $ 81 $ 26 $ 156 $ 73
Converters...................................................... -- 29 -- 66 --
Leasehold improvements.......................................... -- -- 3,447 2 --
Furniture and fixtures.......................................... 270 2 56 25 17
Premises........................................................ -- 3 6 --
Vehicles........................................................ -- -- 19 51 20
Software........................................................ -- -- 8 12 15
Tools........................................................... -- -- 2 -- --
Reception equipment............................................. -- -- -- -- --
Cable plant..................................................... -- 186 -- 396 280
Building........................................................ -- -- -- -- --
----------- --------- --------- --------- -----------
270 301 3,558 714 405
----------- --------- --------- --------- -----------
Accumulated depreciation........................................ (110) (76) (77) (16) (110)
Telephone line use rights....................................... -- -- 10 -- 9
Fixed asset in transit.......................................... -- -- -- -- --
Other........................................................... -- -- -- 52 12
----------- --------- --------- --------- -----------
$ 160 $ 225 $ 3,491 $ 750 $ 316
----------- --------- --------- --------- -----------
----------- --------- --------- --------- -----------
<CAPTION>
TVA
PARANA
----------
<S> <C>
Machinery and equipment......................................... $ 1,100
Converters...................................................... 5,684
Leasehold improvements.......................................... 52
Furniture and fixtures.......................................... 197
Premises........................................................ 14
Vehicles........................................................ 39
Software........................................................ 45
Tools........................................................... 84
Reception equipment............................................. 4,170
Cable plant..................................................... 578
Building........................................................ 355
----------
12,318
----------
Accumulated depreciation........................................ (1,667)
Telephone line use rights....................................... 139
Fixed asset in transit.......................................... 66
Other........................................................... --
----------
$ 10,856
----------
----------
</TABLE>
F-99
<PAGE>
TV ALFA, TCC, CCS, TVA PARANA, FOZ DO
IGUACU AND SSC
NOTES TO UNAUDITED FINANCIAL INFORMATION
9. OTHER ACCOUNTS PAYABLE
At September 30, 1996 (unaudited) other accounts payable were comprised of:
<TABLE>
<CAPTION>
FOZ DO
TV ALFA TCC CCS SSC IGUACU
----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Accounts payable to related companies............................... $ -- $ -- $ 138 $ -- $ 3
Advertising......................................................... -- -- 1 -- --
Other............................................................... 82 2 2 334
----- --------- --------- --------- -----
$ 82 $ 2 $ 141 $ -- $ 337
----- --------- --------- --------- -----
----- --------- --------- --------- -----
<CAPTION>
TVA
PARANA
---------
<S> <C>
Accounts payable to related companies............................... $ 1,438
Advertising......................................................... --
Other............................................................... 428
---------
$ 1,866
---------
---------
</TABLE>
10. INCOME TAXES
The subsidiaries income tax was different from the amount computed using the
Brazilian statutory income tax for the reasons set forth in the following table:
<TABLE>
<CAPTION>
FOZ DO TVA
TV ALFA TCC CCS SSC IGUACU PARANA
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income tax....................... 271 221 51 (781) 283 (2,120)
Statutory income tax rate............................. 30.56% 30.56% 30.56% 30.56% 30.56% 30.56%
--------- --------- --------- --------- --------- ---------
83 67 16 (239) 86 (648)
Utilization of tax loss carryforwards................. (83) -- -- -- (54) --
Others................................................ -- (19) 2 35 7 158
--------- --------- --------- --------- --------- ---------
-- 48 18 (204) 39 (490)
Increase in valuation allowance....................... -- -- -- 204 -- 490
--------- --------- --------- --------- --------- ---------
$ -- $ 48 $ 18 -- $ 39 --
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
11. INSURANCE
The Subsidiaries maintain insurance coverage for their fixed assets and
inventories in an amount considered sufficient to cover the risks involved.
12. PAID-IN CAPITAL
Paid-in capital at September 30, 1996 (unaudited) was comprised of:
<TABLE>
<CAPTION>
FOZ DO TVA
TV ALFA TCC CCS SSC IGUACU PARANA
--------- --------- ----------- ----- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
US$......................................... 344 47 4,012 1 4,771 18,964
--------- --------- ----------- --- ----- -------------
--------- --------- ----------- --- ----- -------------
Shares...................................... 278,000 250,000 4,850,000 200 5,000 27,712,345
--------- --------- ----------- --- ----- -------------
--------- --------- ----------- --- ----- -------------
</TABLE>
F-100
<PAGE>
ANNEX A
THE FEDERATIVE REPUBLIC OF BRAZIL
THE INFORMATION SET FORTH BELOW IS BASED ON MATERIAL OBTAINED FROM VARIOUS
SOURCES BELIEVED TO BE ACCURATE BUT HAS NOT BEEN INDEPENDENTLY VERIFIED.
GENERAL
GEOGRAPHY AND DEMOGRAPHY. Brazil is the fifth largest country in the world
and the largest country in Latin America, occupying approximately 3.3 million
square miles and 60% of South America's land mass.
Brazil's population in 1995 was approximately 157 million, the sixth largest
in the world. The population is currently growing at a rate of approximately
1.9% per year and is expected to reach 172 million by the end of this century.
Brazil is comprised of 26 states and the federal district in which Brasilia,
the capital, is located. The largest cities in Brazil are Sao Paulo and Rio de
Janeiro with metropolitan area populations of 10.2 million and 5.7 million,
respectively. Brasilia, Belem, Belo Horizonte, Curitiba, Fortaleza, Porto
Alegre, Recife and Salvador also have populations of more than one million each.
GOVERNMENT. Brazil is a federative republic with a representative form of
federal government. In October 1988, a new constitution was enacted, and the
presidential form of government consisting of three independent branches
executive, legislative and judicial was maintained. The constitutional review
prescribed by the Constitution of 1988 was initiated by the Brazilian National
Congress ("Congress") in October 1993 and resulted in the creation of the Social
Emergency Fund outlined below and the reduction of the presidential term from
five years to four years. See Appendix B, "The Brazilian Economy." In addition,
on April 21, 1993, a national referendum was held to decide whether Brazil
should continue as a presidential republic or should become a parliamentary
republic or parliamentary monarchy. Brazilians voted to continue the current
presidential republic form of government.
Executive power is vested in the President, who is elected by popular vote
for a term of four years and currently cannot be reelected for successive terms.
The President has the power to appoint Ministers and to appoint other executives
in selected administrative and political posts. The presidential powers are
limited by the Constitution. Under certain circumstances, the President may
issue provisional measures which, to be effective beyond 30 days, need the
approval of the Brazilian Congress. The legislative branch is composed of a
Senate consisting of 81 Senators elected for eight-year terms, and a Chamber of
Deputies consisting of 513 Deputies elected for four-year terms. Senators and
Deputies are elected directly by popular vote. The judicial branch is headed by
the Federal Supreme Court, which is, in constitutional matters, the court of
final appeal from both federal and state courts. The judicial branch also
includes the Superior Court of Justice and various lower federal courts. On the
state level, executive power is vested in Governors who are elected for
four-year terms; legislative power is vested in State Deputies who are also
elected for four years. Judicial power is vested in state courts; however,
judicial proceedings in which the Federal Government is involved must be
submitted to federal courts sitting in each state.
RECENT POLITICAL HISTORY. The Brazilian military ruled the country from
1964 to 1985, when a series of political reforms were enacted culminating in the
reintroduction of direct elections for President and the convening of a
Constitutional Assembly to adopt a new Brazilian Constitution. During this
period, Brazil solidified its position as one of the 10 largest economies in the
world in terms of gross domestic product ("GDP") with an industrial base focused
on exports.
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<PAGE>
On December 17, 1989, Fernando Collor de Mello became the first President of
Brazil elected by direct popular vote since 1960. Elections were held in late
1990 for state governorships, one-third of the federal Senate and all of the
federal Chamber of Deputies. As a result of these elections, the Brazilian
Democratic Movement Party, which had won a majority in the federal legislature
and most of the state governorships in the 1986 elections, lost its majority in
the legislature as many of its seats were lost to several other parties.
On September 29, 1992, Brazil's lower house of Congress voted to authorize
the Senate to begin an impeachment trial against President Collor based on
corruption charges. At that time, the members of the President's cabinet
submitted their resignations. According to Brazilian law, Mr. Collor was
required to step down from office for a period of 180 days while the trial
proceeded. During this 180-day period, Vice President Itamar Franco became
acting President while the Senate decided whether to convict or to acquit the
President. On December 29, 1992, Mr. Collor submitted his official resignation
as President of Brazil. Consequently, Mr. Franco, as elected Vice President,
assumed the position of President for the remainder of Mr. Collor's term in
office, which concluded on January 1, 1995.
General elections were held on October 3, 1994 to elect a new President, all
state governors, and to renew the federal Chamber of Deputies and the federal
Senate. Fernando Henrique Cardoso (who served as Finance Minister under Mr.
Franco's administration and is generally viewed as the architect of the Real
Plan), representing the Partido Social Democrata Brasileiro (the Brazilian
Social Democratic Party or the "PSDB"), was elected in the first round with 54%
of the valid vote. Luis Inacio da Silva, of the Worker's Party, was his closest
contender. Mr. Cardoso's presidential campaign received a strong boost from the
rapid fall in the rate of inflation which followed the introduction of the new
currency in July 1994. See Appendix B, "The Brazilian Economy."
Since his election Mr. Cardoso has appointed Mr. Pedro Malan, the former
President of the Central Bank of Brazil, as the new Finance Minister. In May
1995, the President of the Central Bank, Mr. Persio Arida resigned and in June
1995 Mr. Gustavo Loyola was appointed as the new President of the Central Bank.
President Cardoso has indicated that the overriding goals of his economic
policies will be to continue the effort to combat inflation while negotiating
with Congress for permanent fiscal reforms.
THE CARDOSO ADMINISTRATION
Mr. Cardoso took office on January 1, 1995, and has concentrated his efforts
on two main issues: making structural reforms and completing the anti-inflation
program. Those efforts have demanded extensive political negotiations with the
various parties in and outside the Government.
The objectives of the structural reforms are to provide the Government with
a sound fiscal budget by revamping the tax and social security systems, and to
enhance and create incentives to stimulate private sector participation in
former Government monopolies such as telecommunications, oil and infrastructure
in general.
AMENDMENTS TO BRAZILIAN CONSTITUTION
On August 15, 1995, four amendments to the Brazilian Constitution were
approved by Congress which allow greater competition in the Brazilian economy:
(i) Constitutional Amendment no. 5/95 altered Article 25, paragraph 2 of the
Constitution by extinguishing the monopoly over pipeline distribution of gas;
(ii) Constitutional Amendment no. 6/95 altered Article 175, paragraph 1 and
Article 170, item IX of the Constitution by removing the distinction between
Brazilian companies capitalized from domestic sources (capital nacional) and
those capitalized from foreign sources (capital estrangeiro) and granting both
types of company mineral exploration rights; (iii) Constitutional Amendment no.
7/95 altered Article 78 of the Constitution by permitting foreign vessels to
engage in inland and coastal shipping; and
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<PAGE>
(iv) Constitutional Amendment no. 8/95 altered Article 21 items XI and XII(a) of
the Constitution by opening the telecommunications sector to private sector
companies.
On November 9, 1995, Congress enacted Constitutional Amendment no. 9 which
altered Article 177 of the Brazilian Constitution allowing the Republic to
contract state owned or private companies in order to carry out, in accordance
with a law which has not yet been enacted, certain oil-related activities, such
as (i) prospecting for and exploitation of deposits of oil and natural gas; (ii)
refining of national or foreign oil; imports and exports of oil, natural gas and
its basic by-products; (iii) oceanic transportation of crude oil of national
origin or of basic oil by-products produced in Brazil; and (iv) pipeline
transportation of crude oil, its by-products and natural gas of any origin.
Presently, Congress is discussing a constitutional amendment proposing
changes in the social security system, which is considered to be one of Brazil's
greatest fiscal problems. The proposed changes are aimed at stabilizing the
system's financial condition through modifications in the pension benefit
structure, increases in mandatory contributions, changes in retirement criteria,
and the elimination of certain privileges such as the federal civil servant
retirement plan. The Cardoso administration has also sent to Congress a
proposal, presently being discussed by a special commission in the Chamber of
Deputies, for administrative reforms aimed at increasing management efficiency
and extinguishing the job stability presently granted to public sector
employees, thereby allowing a reduction of payroll expenses.
In addition, the Government has stated that it intends to propose a new tax
system which would attempt to simplify and enhance the efficiency of the current
tax structure. The proposed system would shift allocations from the Government
to the states and municipalities, in order to reduce the allocation of
expenditures on the federal level. In addition, the proposed system would lower
taxes on investments and exports from their current levels.
A-3
<PAGE>
ANNEX B
THE BRAZILIAN ECONOMY
THE INFORMATION SET FORTH BELOW IS BASED ON MATERIAL OBTAINED FROM VARIOUS
SOURCES BELIEVED TO BE ACCURATE BUT HAS NOT BEEN INDEPENDENTLY VERIFIED.
RECENT PERFORMANCE
Throughout the 1980s and into the early 1990s, the Brazilian economy
experienced periods of high inflation and recession. Recently, however, the
Brazilian economy has shown improvement in a number of areas. Gross domestic
product ("GDP") grew in constant real terms by 4.2% in 1995, 5.9% in 1994 and
4.2% in 1993, compared with a decrease of 0.8% in 1992. Industrial production
increased by 2.0% in 1995, 7.0% in 1994 and 6.9% in 1993, compared with declines
of 3.8%, 1.8% in 1992 and 1991, respectively. In 1995, the service sector
experienced an overall growth rate of 5.7% in real terms as a result of
increases in retail services of 7.4%, transportation of 3.9% and communications
of 24.3%.
Exports in 1995 increased by 6.8% over 1994 while imports grew by 50.4% in
the same period. The trade balance presented a deficit of the equivalent of
US$3.2 billion in 1995 compared to a surplus of the equivalent of US$10.6
billion in 1994. Through July 1996, the trade balance has shown a modest US$600
million (0.1% of GDP) deficit, compared to a US$4.3 billion deficit during the
same period in 1995. For the first seven months of the year, export growth has
exceeded that of 1995, while the growth of imports has lagged behind that of the
previous year, thereby narrowing the trade deficit.
Brazil registered significant growth in international currency reserves in
1995, despite the instability which followed the Mexican peso crisis. After a
sharp decline in the first four months of the year, an increase in foreign
capital inflows was registered which replenished reserves to the equivalent of
US$51.8 billion at year-end 1995, up from US$38.8 billion at year-end 1994 and
US$32.2 billion at year-end 1993. By July 31, 1996, reserves totaled more than
the equivalent of US$58 billion. After a fine-tuning of the management of the
foreign exchange rate regime during 1994, the Central Bank has pursued a policy
of gradually depreciating the currency against the dollar. In 1995, the real
fell in value against the US dollar from R$0.844 to R$0.972 per US dollar and
has since depreciated to 1.015 on August 23, 1996, reflecting this policy of
gradual depreciation.
In 1995, Brazil experienced an average monthly rate of inflation of 1.75%,
as measured by the FIPE (Foundation for Economic Research) consumer price index.
In the period from January 1994 through June 1994, average monthly inflation, as
measured by the FIPE, was 43.75%, but declined to 2.86% in the period from July
1994 through December 1994. This reduction resulted from the implementation of
the third phase of the Real Plan and occurred without the price, wage or asset
freezing mechanisms previously utilized in prior stabilization programs. See
"Real Plan and Current Economic Policy."
The sharp decline of inflation during the second half of 1994 contributed to
a considerable recovery of domestic demand and coincided with a significant
acceleration of the growth rate of the Brazilian economy. The twelve-month GDP
growth rate increased to 7.7% in the second quarter of 1995 from 4.1% in the
second quarter of 1994. As a result, the trade balance deteriorated and
government was forced to implement deflationary measures which reduced GDP
growth to 4.2% in the fourth quarter of 1995.
B-1
<PAGE>
The following table sets forth selected Brazilian economic indicators for
the years indicated:
SELECTED BRAZILIAN ECONOMIC INDICATORS
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
THE ECONOMY
Gross domestic product ("GDP"):.......................... $ 330.7 328.2 341.7 355.6 370.5
(in billions of constant 1994 REAIS(a)
(in billions of dollars)(b)............................ 436.8 449.9 484.9 528.0 650.0
Real GDP growth (decline)(a)............................. 0.3% (0.8)% 4.2% 5.9% 4.2%
Population (millions).................................... 147.1 149.4 151.6 153.7 156.6
GDP per capita (in US$)(c)............................... $ 2,970.0 3,012.0 3,199.0 3,435.0 4,151.0
Unemployment rate(d)..................................... 4.83% 5.76% 5.31% 5.06% 4.7%
Consumer price increase (FIPE) (rate of change)(e)....... 458.6% 1,129.4% 2,491.0% 941.3% 23.1%
Nominal devaluation rate(f).............................. 528.5% 1,059.0% 2,532.5% 613.4% 15.0%
Domestic real interest rate(g)........................... 6.7% 30.2% 7.1% 24.8% 33.4%
Balance of payments (in billions of dollars):
Exports.................................................. $ 31.6 35.8 38.6 43.5 46.5
Imports.................................................. 21.0 20.6 25.3 33.1 49.6
Current account.......................................... (1.4) 6.1 (0.6) (1.5) N.A.
Capital account.......................................... 0.8 10.3 10.7 9.2 N.A.
Change in total reserves(h).............................. (0.6) 14.4 8.4 6.6 13
Total official reserves.................................. 9.4 23.8 32.2 38.8 51.8
PUBLIC FINANCE
Primary surplus (deficit) as % of GDP(i)................. 2.9 1.6 2.3 5.1 0.4
Real interest expense as % of GDP........................ (1.6) (4.6) (2.4) (3.7) 5.4
Operational surplus (deficit) as % of GDP(j)............. (.2) (2.8) (1.2) 1.3 (5.0)
PUBLIC DEBT (in billions of US dollars)
Gross internal debt (nominal)(k)......................... 71.6 97.6 101.0 191.3 256.4
Gross external debt (nominal)(l)......................... 100.8 99.6 104.5 118.2 130.9
Net Public debt.......................................... 144.3 150.6 149.4 181.5 217.1
Internal............................................... 52.9 74.8 84.0 128.9 176.3
External............................................... 91.4 75.8 65.4 52.6 40.9
</TABLE>
- ------------------------
Notes:
(a) Calculated based upon constant average 1994 REAIS.
(b) Converted to dollars based on the weighted average exchange rate for each
year.
(c) Not adjusted for purchasing parity.
(d) Average annual unemployment rate of the metropolitan regions of Belo
Horizonte, Porto Alegre, Recife, Rio de Janeiro, Salvador and Sao Paulo.
(e) The FIPE index is one indicator of inflation. While many inflation
indicators are used in Brazil, the FIPE is calculated by the Foundation for
Economic Research at the University of Sao Paulo, an independent research
organization, and is one of the most widely utilized indices.
(f) Year on year percentage devaluation of the REAL against the US dollar (sell
side).
(g) Brazilian federal treasury securities deflated by the GPI-DS., General Price
Index-Domestic Supply calculated by the Getulio Vargas Foundation.
(h) Because of the impact of "Errors and omissions" and adjustments for
valuation/devaluation of other currencies against the US dollar,
monetization/demonetization of gold and reclassified assets, figures
regarding changes in total reserves do not reflect the sum of the "Current
account" and the "Capital account." See "Balance of Payments and Foreign
Trade--Balance of Payments."
(i) The primary surplus results represent Government revenues less
expenditures, excluding interest expenditures on public debt.
(j) The operational balance reflects the consolidated fiscal balance less
interest expenditures, adjusted for the effects of inflation.
(k) Consolidated debt, calculated as the gross internal debt less credits
between governmental entities.
(l) Gross external debt less total reserves.
SOURCES: IBGE; GETULIO VARGAS FOUNDATION; CENTRAL BANK.
B-2
<PAGE>
REAL PLAN AND CURRENT ECONOMIC POLICY
In December 1993, the Federal Government announced a stabilization program,
known as the Real Plan, aimed at curtailing inflation and building a foundation
for sustained economic growth. The Real Plan was designed to address persistent
deficits in the Federal Government's accounts, expansive credit policies and
widespread, backward-looking indexation.
The Real Plan was formulated as a three-stage process: the first stage
included a fiscal adjustment proposal for 1994, consisting of a combination of
spending cuts and an increase in tax rates and collections intended to eliminate
a budget deficit originally projected at US$22.0 billion (4.2% of GDP). Elements
of the proposal included (i) cuts in current expenditures and investment through
the transfer of some activities from the Federal Government to the states and
municipalities, (ii) establishment of the Emergency Social Fund ("ESF"),
financed by reductions in constitutionally mandated transfers of Federal
Government revenues to the states and municipalities, to ensure financing of
social welfare spending by the Federal Government, (iii) a prohibition on sales
of public bonds by the Federal Government except to refinance existing debt and
for certain expenditures and investment, (iv) new taxes, including a new levy on
financial transactions and (v) recovery of mandatory Social Security
Contributions ("COFINS"), due to judicial acknowledgment that such contributions
were permissible under the Constitution.
The centerpiece of the first stage of the Real Plan was the creation in 1994
of the ESF, the mandate for which has been renewed for the current year through
1997. The ESF enables the Federal Government to temporarily break certain
constitutionally mandated links between revenue and expenditure. Pursuant to
this amendment, 20.0% of Federal Government revenues otherwise earmarked for
specific purposes were released and deposited into the ESF to ensure financing
of social welfare spending by the Federal Government for 1994 and 1995. In
adopting this constitutional amendment, however, Congress did not modify the
existing provisions requiring the Federal Government to share a significant
portion of its revenues with the States and municipalities.
The second stage of the Real Plan, initiated on March 1, 1994, began the
process of reform of the Brazilian monetary system. Brazil's long history of
high inflation had led to the continuous and systematic deterioration of the
domestic currency, which no longer served as a store of value and had lost its
utility as a unit of account. Because inflation had reduced dramatically the
information content of prices quoted in local currency, economic agents had
included in their contracts a number of mechanisms for indexation and
denomination of obligations in Indexed units of account. The process of
rehabilitation of the national currency began with the creation and
dissemination of the UNIDADE REAL DE VALOR (the Unit of Real Value, or "URV") as
a unit of account. The second stage of the Real Plan was designed to eliminate
the indexation of prices to prior inflation and link indexation to the URV, a
unit of account.
The introduction of the URV was premised on the theory that a reference unit
with a nominal value corrected frequently and based on the best estimate of
current inflation would express values more realistically than traditional
indexing methods. The URV, therefore, was calculated daily based on estimates
drawn from three price indices: the National Consumer Price Index (Extended)
developed by the IBGE; the General Price Index (Market) calculated by the FGV
and the Consumer Price Index developed by the Institute of Economic Research
Foundation ("FlPE"). The URV index was designed to track the loss in the
purchasing power of the CRUZEIRO REAL, the legal currency at the time.
The third stage of the Real Plan began on July 1, 1994, with the
introduction of the REAL as Brazil's currency. All contracts denominated in URVs
were automatically converted into REAIS at a conversion rate of one to one, and
the URV, together with the CRUZEIRO REAL, ceased to exist (although the CRUZEIRO
REAL was generally accepted until August 31, 1994). Just after its introduction,
the REAL appreciated significantly; the REAIS/US dollar exchange rate (sell
side) in the commercial market, set at 1.00 REAL/1.00 US dollar when the REAL
was introduced, stood at 0.846 REAIS/US dollar on December 31, 1994. In March
1995, the government adopted an exchange rate band and since then a policy to
avoid further exchange rate
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<PAGE>
overvaluation has been followed. The REAL/US dollar exchange rate was set at
0.973 on December 31, 1995 (sell side), which meant a devaluation of 15% of the
REAL against the US dollar. On August 23, 1996 the REAL/US rate was set at 1.015
(sell side).
In the beginning of 1995, in an effort to control the burgeoning rate of
economic activity which followed the sharp decline in inflation, the Federal
Government took several measures to control monetary growth, including strict
credit control and a significant increase in real interest rates. In the third
quarter of 1995 the economy returned to a level of sustainable economic growth
and credit control was partially released while interest rates began to fall.
Finally, in order to consolidate the Real Plan the Federal Government has
introduced a series of proposals to reform the Constitution that will provide
the structural changes necessary for long-term economic stability.
The five "economic order" amendments proposed by the government have been
approved by Congress and are now awaiting implementing regulatory legislation.
These amendments eliminate the Federal Government's monopoly in the areas of
telecommunications, distribution of natural gas, oil and coastal and fluvial
shipping and change the definition of what constitutes a Brazilian company to
any company registered in Brazil. The extension of the ESF until June 1997 was
also approved early in 1996. The social security reform and the administrative
reform are presently being considered for approval by Congress.
The Federal Government has stated that it intends to propose several other
amendments to Brazilian legislation to further consolidate the Real Plan.
GROSS DOMESTIC PRODUCT
Brazil's economic growth has fluctuated greatly in recent years. The average
real growth rate of GDP during the six-year period from 1990 to 1995 was 1.5%,
but real GDP growth was negative in both 1990, when it declined by 4.4%, and
1992, when it declined by 0.8%. During this period, the services and agriculture
sectors grew at average rates of 2.3% and 2.8%, respectively, while the
industrial sector increased by 0.2%. During 1993, the Brazilian economy
recovered: real GDP grew by 4.2%, the industrial sector grew by 6.9% and the
services sector grew by 3.5%. Agriculture was the only principal sector to
decline during 1993, by 1%. In 1994, the agricultural sector recovered,
registering a growth rate of 8.1%, due primarily to the record grain harvest,
which reached 75.2 million tons. In 1994, the industrial and services sectors
grew at rates of 7.0% and 4.1%, respectively, and GDP grew 5.9%. In 1995,
overall GDP growth was 4.2%, with agriculture and services growing 5.9% and
5.7%, respectively, and industry growing 2%.
B-4
<PAGE>
The following table sets forth Brazil's real GDP for each of the years
indicated:
REAL GROWTH (DECLINE) OF GDP PER SECTORS (% OF CHANGE)
<TABLE>
<CAPTION>
1991 1992 1993 1994
--------- ----- --------- ---------
<S> <C> <C> <C> <C>
Total GDP................................................................... 0.3 (0.8) 4.2 5.9
Agriculture................................................................. 2.8 5.4 (1.0) 8.1
Industry.................................................................... (1.8) (3.8) 6.9 7.0
Mining.................................................................... 0.9 0.8 0.6 4.7
Manufacture
Building.................................................................. (3.5) (6.6) 4.8 6.1
Public Utilities.......................................................... 4.3 1.6 3.7 2.4
Services.................................................................... 1.6 0.0 3.5 4.1
Retail Sales.............................................................. 0.0 (2.5) 6.7 5.9
Transportation............................................................ 2.5 2.4 4.2 4.3
Communication............................................................... 19.6 5.7 10.7 13.6
Financial Institutions...................................................... (8.0) (4.6) (2.2) (2.8)
Public Administration....................................................... 1.6 1.5 1.5 1.4
<CAPTION>
1995
---------
<S> <C>
Total GDP................................................................... 4.2
Agriculture................................................................. 5.9
Industry.................................................................... 2.0
Mining.................................................................... 3.1
Manufacture
Building.................................................................. 0.1
Public Utilities.......................................................... 7.5
Services.................................................................... 5.7
Retail Sales.............................................................. 7.4
Transportation............................................................ 3.9
Communication............................................................... 24.3
Financial Institutions...................................................... (7.4)
Public Administration....................................................... 1.4
</TABLE>
- ------------------------
SOURCE: IBGE and Central Bank.
PRIVATIZATION PROGRAM
The Federal Government, directly or through various state-owned enterprises,
owns many companies and controls a major portion of activities in the mining and
oil and gas sectors. Energy production, rail transport, postal services and
telecommunications are all directly or indirectly controlled by the Federal
Government. The public sector grew very rapidly during the 1970s and continues
to play a significant role in Brazil's economy.
To reduce its participation in the economy, the Federal Government has
engaged in the privatization of certain State enterprises. The objectives of the
privatization program are (i) to reduce the role of the State in the economy and
allocate more resources to social investment, (ii) to reduce the public sector
debt, (iii) to encourage increased competition and thereby raise the standards
and efficiency of Brazilian industry and (iv) to strengthen the capital markets
and promote wider share ownership. As originally presented, the PLANO REAL
contemplated constitutional amendments which would permit private participation
in the State-controlled petroleum and telecommunication sectors and in other
areas that had constitutionally mandated monopolies, such as pipeline
distribution of gas and the shipping industry. These amendments were not adopted
during the constitutional review that concluded on May 31, 1994, but the
amendments were presented to Congress again in 1995 and all have been approved.
A council directly subordinate to the President (the CONSELHO NACIONAL DE
DESESTATIZACAO or "Privatization Council") along with BNDES are responsible for
administering the privatization program. To date, privatizations have, for the
most part, been effected through share auctions conducted on Brazil's stock
exchanges.
As of February 29, 1996, a total of 42 State enterprises had been
privatized, and several minority interests held by Government companies had been
sold for nominal consideration (consisting of Brazilian currency or devalued
debt issued by the Federal Government, its agencies or State- controlled
enterprises and redeemable at face value) totaling US$9.6 billion.
For 1996, plans are to privatize electric utilities and rail transport
services companies. In February 1995, the LEI DE CONCESSOES DE SERVICOS PUBLICOS
("Public Services Concessions Law") was enacted permitting investment in the
electricity sector by private companies or individuals. In addition,
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<PAGE>
on July 7, 1995, Congress approved Law No. 9074, which permits independent,
third-party producers of electricity to compete with the State monopolies. The
President has also sent to Congress a constitutional amendment that would allow
the private sector to build and operate hydroelectric plants. Within the
electricity sector, priority is being given to the privatization of Light S.A.,
the auction of which took place in May 1996. Escelsa, the other distribution
company owned by the Federal Government, was privatized on July 11, 1995. During
the first quarter of 1997, the government plans to privatize the Companhia Vale
do Rio Doce ("CVRD") conglomerate, one of the largest corporations in Brazil and
the largest explorer of iron ore in the world.
Several Brazilian labor unions have opposed certain of the privatization
measures proposed by the Federal Government, but the Federal Government has to
date been able to move forward with its program despite such opposition.
In addition to the privatization program, the Federal Government has sought
to reduce the regulation of economic activity generally. Important developments
in this regard include the trade liberalization and the termination of most
price controls. The Federal Government has also acted to deregulate certain
segments of the economy, including fuel and oil derivatives, airlines, shipping
and steel, and is introducing measures designed to increase competition in areas
such as highway maintenance and transportation, areas which were previously
controlled, in most cases, by Government enterprises.
PRICES
Brazil has experienced high and chronic inflation for many years, which
hindered investment and economic growth and contributed to income inequality.
Inflation and certain Federal Government measures taken to combat inflation have
had significant negative effects on the Brazilian economy generally, on the
fiscal accounts of the Federal Government and on its ability to service its
external debt. See "Public Finance" and "Public Debt."
B-6
<PAGE>
The following table sets forth consumer price increases in the city of Sao
Paulo, as measured by the FIPE price index.
<TABLE>
<CAPTION>
FIPE CONSUMER PRICES
--------------------------
<C> <S> <C> <C>
TRAILING
PERIOD MONTHLY 12 MONTHS(A)
- ----------- ----------- -------------
1989 December....................................................................... 1,635.90%
1990 December....................................................................... 1,639.10
1991 December....................................................................... 458.60
1992 December....................................................................... 1,129.50
1993 December....................................................................... 2,490.10
1994 December....................................................................... 941.30
1995 January........................................................................ 0.80 648.10
February....................................................................... 1.32 448.50
March.......................................................................... 1.93 293.89
April.......................................................................... 2.64 176.49
May............................................................................ 1.97 94.31
June........................................................................... 2.66 32.32
July........................................................................... 3.72 28.33
August......................................................................... 1.43 27.67
September...................................................................... 0.74 27.57
October........................................................................ 1.48 25.48
November....................................................................... 1.14 23.19
December....................................................................... 1.21 23.14
1996 January........................................................................ 1.82 24.39
February....................................................................... 0.40 23.26
March.......................................................................... 0.23 21.20
April.......................................................................... 1.62 20.00
May............................................................................ 1.34 19.26
June........................................................................... 1.41 17.81
July........................................................................... 1.31 15.07
</TABLE>
- ------------------------
Notes:
(a) Annual figures for each month from January 1995 represent trailing 12-month
inflation rates.
SOURCE: Institute for Economic Research (FIPE).
Throughout the 1980s Brazil experienced periods of severe inflation. In
1986, President Jose Sarney's government endeavored to confront the problem with
the Cruzado Plan, which sought to end inflation via a general price and wage
freeze and the introduction of a new currency. The plan succeeded in bringing
down inflation for the year to 68.1% as measured by the FIPE index of consumer
prices in Sao Paulo and was very popular for a time. The Cruzado Plan, however,
eventually created serious distortions in the economy as well as shortages and
finally failed, resulting in renewed high inflation.
From 1987 through 1990, annual inflation rates rose from a year-end low of
367.2% in 1987 to close 1990 at 1,639.1% for the year. The new government of
President Fernando Collor de Mello tried a number of plans to ameliorate the
situation but, after some success at first with inflation falling to 458.6% in
1991, failed to stabilize prices.
During the planning stages of the current Real Plan in 1993, inflation rose
to levels around 30% per month and 2,490.1% for the year. In the implementation
of the Real Plan in mid-1993, the Unit of Real Value ("URV") was implemented as
a general price and wage index that would peg real prices to the value of the
dollar and adjusted based on depreciation of the currency as well as inflation.
This served to
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<PAGE>
downplay the effects of inflation to the public since both prices and wages
would be adjusted automatically to compensate. This allowed the nominal
currency, the CRUZEIRO REAL to become de-linked from price expectations allowing
inflation measured in the nominal currency to reach 50% per month while the real
value of wages and prices were kept constant by the URV.
Since the implementation of the third phase of the Real Plan, including the
introduction of the real, in July 1994, the rate of inflation has decreased
significantly. See "Real Plan and Current Economic Policy." The high monthly
rates of inflation experienced in the first half of 1994 have fallen to single
digits. Residual inflation from the end of the first six months of 1994 resulted
in a monthly inflation rate of approximately 5.5% for July. The gradual decline
of the impact of these factors resulted in decreasing inflation rates, reaching
1.55% for the month of September. In October and November, the inflation rate
moved upward approximately one percentage point due to seasonal factors,
accentuated by a long period of drought in the producer regions. In December,
the inflation rate dropped to 0.57% as the supply of farm products normalized.
In January 1995, the inflation rate reached 1.36% impacted by rises in natural
resource products prices and costs of building. Less intense upwards movement in
these factors caused the rate of inflation to decrease to 1.15% in February
1995. The inflation rate reached 1.8% and 2.3% in March and April 1995,
respectively. The acceleration in the rate of inflation was caused primarily by
the increase in industrial prices, housing and clothing costs. After another
decline in May to 0.4%, inflation rose to 2.62% and 2.24% in June and July 1995,
respectively. This acceleration resulted from a rise in public transport fares.
In September and October a sharp decline in farm product prices reduced
inflation significantly. In January 1996, the increase in inflation was caused
by a rise in electricity and telephone prices.
BALANCE OF PAYMENTS AND FOREIGN TRADE
GENERAL
Like other countries in Latin America, Brazil's balance of payments
deteriorated in the early 1980s as the result of a series of adverse economic
developments. These developments were further exacerbated by rising US dollar
interest rates, which increased the cost of servicing Brazil's external debt and
led to current account deficits, the debt crisis and curtailment of Brazil's
access to international financial markets.
Since 1992, however, Brazil has experienced an increase in capital inflows,
as foreign investments, have surged. Net direct investments increased to over
US$2.9 billion from in 1995, from US$1.7 billion in 1994 and US$901 million in
1990. For the period of January 1996 through June 1996, foreign direct
investment totaled US $4.5 billion. Foreign reserves edged up during the 1990s.
From December 31, 1990 to December 31, 1995, the foreign reserves maintained by
the Central Bank increased by 451%, totaling US$51.8 billion at December 31,
1995, which covered approximately 13 months of imports of goods, or 8 months of
imports of goods and services.
Since 1990, the Federal Government's economic policies have increased the
importance of the external sector of the economy. Recent reforms directly
affecting the external sector include a reduction in import tariffs, the
negotiation of the Mercosul free trade agreement among Brazil, Argentina,
Uruguay and Paraguay, the liberalization of certain foreign exchange
transactions and the liberalization of foreign investment regulations.
B-8
<PAGE>
BALANCE OF PAYMENTS
The following table sets forth information regarding Brazil's balance of
payments for each of the years indicated:
BALANCE OF PAYMENTS
IN US$ MILLION
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
--------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
CURRENT ACCOUNT..................................... $ (1,407) $ 6,143 $ (592) $ (1,689) $ (17,784)
Trade balance..................................... 10,579 15,239 13,307 10,466 (3,157)
Exports......................................... 31,620 35,793 38,563 43,545 46,506
Imports......................................... 21,041 20,554 25,256 33,079 49,663
Services (net).................................... (13,542) (11,339) (15,585) (14,743) (18,600)
Interest.......................................... (8,621) (7,253) (8,280) (5,668) (8,158)
Other............................................. (4,921) (4,086) (7,305) (8,405) (10,442)
Unilateral transfers.............................. 1,558 2,243 1,686 2,568 3,973
Revenues........................................ 1,599 2,315 1,792 2,751 4,224
Expenditures.................................... 43 72 106 183 251
CAPITAL ACCOUNT..................................... (4,148) 25,271 10,115 14,294 29,820
Investment (net).................................. 170 2,972 6,170 8,131 4,670
Reinvestment...................................... 365 175 100 83 200
Financing......................................... 2,026 13,258 2,380 1,939 2,641
Foreign......................................... 2,125 13,191 2,625 2,389 3,487
Brazilian....................................... (99) 67 (245) (450) (845)
Amortizations..................................... (7,830) (8,572) (9,978) (50,411) (11,026)
Paid............................................ (7,830) (7,147) (9,288) (11,001) (11,026)
Refinanced (incl. Paris Club)................... 0 1,425 (710) (39,410) 0
Currency loans.................................... 964 17,577 11,659 53,802 34,403
Short-term...................................... (3,033) 2,602 869 909 19,667
Long-term....................................... 3,997 14,975 10,790 52,893 14,736
Other capital..................................... 157 (139) (215) 750 (1,068)
ERRORS AND OMISSIONS................................ 876 (1,386) (1,119) 334 1,444
SURPLUS (DEFICIT)................................... (4,679) 30,028 8,404 12,939 13,480
FINANCING........................................... 4,679 (30,028) (8,404) (12,939) (13,480)
Assets (increase)................................. 369 (14,670) (8,709) (7,215) (12,919)
Use of IMF credit................................. (590) (406) (495) (129) (47)
Short-term liabilities............................ 4,900 (14,952) 800 (5,593) (514)
Arrears........................................... 5,621 (14,259) 1,133 (5,535) (510)
Others............................................ (721) (699) (333) 58 (4)
</TABLE>
In 1995, Brazil's balance of payments registered a surplus of US$13.5
billion. In 1994 and 1993 the surplus in Brazil's balance of payments reached
US$12.9 billion and US$8.4 billion, respectively.
After recording a US$6.1 billion current account surplus in 1992, Brazil
registered a US$592 million Current account deficit in 1993. Among the factors
that led to that decline were reductions of 12.7% and 24.8% in the trade surplus
and the net inflow of Unilateral transfers, respectively, and an increase of
37.4% in the service deficit, reflecting an increase both in external debt
service costs and expenses related to other services. In 1994, the Current
account registered a deficit of US$1.7 billion due to a decrease of 21.3% in the
trade surplus. The reduction in the trade surplus resulted from a 31.0% increase
in imports, which totaled US$33.1 billion, caused by a significant increase in
imports of consumer goods and capital goods as a result of the Real Plan.
Exports increased by 12.9% in 1994, totaling US$43.6 billion. In 1995 the
Current account turned sharply negative as imports grew 50.1% while exports grew
B-9
<PAGE>
by a mere 6.8%. This growth in imports was primarily the result of an
appreciation of the real and the release of pent-up demand from the stability in
the new currency. Overall trade balance figures for 1995 showed a deficit of
US$3.2 billion, with exports of US$46.5 billion and imports of US$49.7 billion.
Despite the development of a the first trade deficit in many years, Brazil's
Capital account surplus grew to a record US$29.8 billion.
Brazil's Capital account includes direct investments, portfolio investments
and short, medium and long-term indebtedness. The Capital account has registered
a surplus since 1992 and in 1995 the surplus climbed 108.6% to reach US$29.8
billion. In 1994, the Capital account rose to US$14.3 billion mainly as a result
of the Brady program which resulted in a 361.4% increase in Currency loans to
US$52.9 billion. During 1995, although Currency loans declined when compared to
the previous year, the rise in short-term inflows by US$18.8 billion was still
impressive when compared to 1993. Overall Currency loans totaled US$34.4 billion
in 1995.
FOREIGN TRADE
The following table sets forth certain details regarding Brazil's foreign
trade for the years indicated:
PRINCIPAL FOREIGN TRADE INDICATORS
<TABLE>
<CAPTION>
1991 1992 1993 1994
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Exports as % of GDP........................................... 7.2% 8.0% 8.0% 8.2%
Imports as % of GDP........................................... 4.8 4.6 5.3 6.2
Trade balance as % of GDP..................................... 2.4 3.4 2.7 2.0
Growth (decline) in foreign trade(a).......................... 1.1 7.0 13.7 19.7
Exports: % increase (decrease)(b)............................. 0.7 13.2 7.8 12.9
Imports: % increase (decrease)(b)............................. 1.8 (2.3) 24.0 30.2
Trade balance: % change from prior period..................... (1.6) 44.0 (13.9) (20.8)
Exports/Imports(c)............................................ 1.5x 1.7x 1.5x 1.3x
<CAPTION>
1995
-------------
<S> <C>
Exports as % of GDP........................................... 7.0%
Imports as % of GDP........................................... 8.0
Trade balance as % of GDP..................................... (0.5)
Growth (decline) in foreign trade(a).......................... 25.5
Exports: % increase (decrease)(b)............................. 7.0
Imports: % increase (decrease)(b)............................. 50.0
Trade balance: % change from prior period..................... (131)
Exports/Imports(c)............................................ 0.94x
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
EXPORTS:
US$ in millions................................. $ 31,620 $ 35,793 $ 38,563 $ 43,545 $ 46,506
1,000 tons...................................... 165,974 167,295 182,323 194,880 N.A.
% change from period(d)......................... (1.3)% 0.8% 9.0% 6.9% N.A.
IMPORTS:
US$ in millions................................. $ 21,041 $ 20,554 $ 25,256 $ 33,079 $ 49,663
1,000 tons...................................... 63,278 68,057 77,813 84,819 N.A.
% change from prior period(d)................... 10.7% 7.6% 14.7% 8.6% N.A.
Trade balance..................................... $ 10,579 $ 15,239 $ 13,307 $ 10,466 $ (3,157)
</TABLE>
- ------------------------
Notes:
(a) Percentage change in exports and imports from previous year.
(b) Percentage change from previous year.
(c) Exports divided by imports.
(d) Percentage change in volume, by weight.
SOURCE: Central Bank
Overall trade flows in 1995 totaled a record US$96.2 billion, representing
an increase of 25.5% over those of the previous year.
In addition to maintaining an export financing program, PROEX, which in 1991
replaced the previous FINEX program, the Federal Government has adopted a series
of measures aimed at promoting foreign trade. The Federal Government has
attempted to encourage domestic competition by liberalizing imports through the
elimination of certain non-tariff restrictions, such as the list of goods with
B-10
<PAGE>
respect to which the issuance of import licenses had been suspended, the
requirement that traders submit their import requirements to the Federal
Government in advance and the linking of certain imports to exports.
In 1991, the Federal Government announced a schedule for tariff reductions
for a three-year period ending in January 1994, aimed at attaining rates varying
from zero to 40%, with an average tariff of 14.2%. As of February 1992, further
tariff reductions were made, with adjustments every nine months instead of at
one-year intervals. Accordingly, the reduction in tariffs to an average rate of
16.8% from 20.8% originally scheduled for January 1, 1993 was implemented on
October 1, 1992. The Federal Government implemented the last set of scheduled
tariff reductions on July 1, 1993, when the average duty and the maximum tariff
were reduced to 14.2% and 40%, respectively.
The Federal Government also reduced tariffs to moderate domestic price
increases to support the Real Plan. In September and October 1994 it implemented
significant new tariff reductions, covering over 5,000 products and reducing the
average tariff to 11.32%. In September 1996, the government removed the ICMS
export tax. This tax was applied to a broad range of mostly primary goods and
its removal is expected to boost export competitiveness.
Average tariffs are also being reduced as a result of Brazil's
implementation of a schedule of preferences from its current tariffs applicable
to imports from Mercosul countries. The preference, which was a 75% reduction
from otherwise applicable rates during the second half of 1993 and 82% during
the first half of 1994, was raised to 89% beginning on July 1, 1994 and to 100%
beginning on January 1, 1995, although certain products were excepted from this
discount. In December 1994, the four member countries of Mercosul established
January 1, 1995 as the date for the implementation of the Common External Tariff
("CET"), intended to transform the region into a customs union. The CET ranges
from 0.0% to a maximum of 20.0%, but each member country was allowed a list of
300 exceptions (399 in the case of Paraguay) to the CET. The products on each
country's list of exceptions have tariffs varying from the CET, but such tariffs
are scheduled to be reduced automatically each year until 2001, at which time
such tariffs will equal the CET rates. The introduction of the CET has raised
Brazil's average tariffs slightly, to 11.99%.
In February 1995, the Minister of Finance increased the import tariff on
passenger cars to 32.0% from 20.0%, with a scheduled reduction of 2.0 percentage
points each year until reaching 20.0% again in 2001. In addition, in order to
reduce the current account deficit, in March 1995, the Minister of Finance
increased to 70.0% the import tariff on roughly 100 durable consumer goods,
including passenger cars (but not utility vehicles), home appliances and
electric and electronic equipment, to be in effect for a period of one year. In
May 1995, the tariff on utility vehicles was raised to 70.0%. In April 1995,
approximately 20 of such durable goods had their tariffs reduced to a range
between 40.0% and 63.0% to meet the tariff level established in GATT
negotiations. Passenger cars and utility vehicles will also have their maximum
tariffs reduced to 63.0% as of January 1, 1997, 49% as of January 1, 1998, 35%
as of January 1, 1999 and 20% as of January 1, 2000, which is the CET level. A
recent agreement with the European Union, Japan and the Republic of Korea will
result in a reduction to 30% in the import tariff on up to 50,000 vehicles per
year.
Brazil's list of exceptions to the CET was published in April 1995 revised
in May 1995, encompassing 460 products (including those that had their tariffs
increased in March and May 1995), some of which are expected to remain on the
list until 2001, while others of which may be withdrawn or have their tariffs
altered in order to assure domestic supply or to prevent domestic speculative
price movements.
Brazil is a signatory to the Final Act of the GATT Uruguay Round, pursuant
to which it is committed to staged reductions in tariffs beginning in 1995, over
five years with respect to industrial products and over ten years with respect
to agricultural products.
B-11
<PAGE>
FOREIGN INVESTMENT
Foreign investment in Brazil has traditionally focused on direct investment
in the manufacturing sector. Beginning in 1991, foreign investment increased
substantially, surpassing the levels reached during the period from 1973 to
1982, before the debt crisis. In 1994, net foreign direct investment increased
by more than US$1 billion, to reach US$1.7 billion, while the net portfolio
investment decreased US$1.9 billion, reaching US$11.6 billion. Figures indicate
that in 1995 net foreign direct investment reached US$3.0 billion while net
portfolio investment was US$4.8 billion.
The following table sets forth information regarding foreign investment in
Brazil for each of the years indicated.
FOREIGN INVESTMENT IN BRAZIL (IN US$)
<TABLE>
<CAPTION>
INFLOWS OUTFLOWS NET INFLOWS
----------------------------------- ------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PORTFOLIO(A) DIRECT(B) TOTAL PORTFOLIO(A) DIRECT(B) TOTAL PORTFOLIO(A) DIRECT(B)
----------- ----------- --------- ----------- ------------- --------- ----------- -----------
1990................. 824 1,131 1,955 245 230 475 579 901
1991................. 4,187 1,095 5,282 378 123 601 3,809 972
1992................. 9,930 1,749 11,709 2,594 189 2,763 7,366 1,580
1993................. 23,554 1,302 24,854 10,019 580 10,599 13,451 722
1994................. 32,621 2,356 30,265 21,046 618 21,664 11,575 1,738
1995................. 25,559 3,285 25,844 17,806 315 18,121 4,753 2,970
<CAPTION>
<S> <C>
TOTAL
---------
1990................. 1,480
1991................. 4,781
1992................. 8,946
1993................. 14,173
1994................. 9,837
1995................. 7,723
</TABLE>
- ------------------------
Notes:
(a) Includes bonds, commercial paper and notes, except those related to external
debt restructuring bonds.
(b) Includes reinvestment of earnings.
SOURCE: Central Bank.
In March 1995, the Federal Government eased certain restrictions on foreign
lending and investment in response to the deterioration in the current account.
Such measures included the reduction of the IOF on foreign capital inflows, if
over a certain maturity, to 0.0% from 7.0% on loans, to 5.0% from 9.0% on
investments in foreign capital fixed income funds and to 0.0% from 1.0% on
portfolio investments. In August 1995, responding to the strong capital inflows
of the end of the second quarter of 1995, the government increased restrictions
on foreign lending and investments. The IOF charged on bonds and loans issued
abroad was increased to 5% and the IOF charged on fixed income funds was
increased to 7%. In February 1996, the Government increased to 3 years the
minimum term for the issuance of bonds, and in October 1996 established the
following IOF charges:
(i) 3% for loans with a minimum maturity of less than 3 years;
(ii) 2% for loans with a minimum maturity of or in excess of 3 years but
less than 4 years;
(iii) 1% for loans with a minimum maturity of or in excess of 4 years
but less than 5 years; and
(iv) 0% for loans with a minimum maturity of or in excess of 5 years.
PUBLIC FINANCE
CONSOLIDATED PUBLIC SECTOR FISCAL PERFORMANCE
The consolidated public sector is comprised of the Federal Government, the
several State enterprises, and State and local governments. In turn, the Federal
Government consolidates the accounts of the National Treasury, the social
security system, and the income and loss statement of the Central Bank, but not
the proceeds from privatization. With the adoption of several important
structural reforms in recent years, the Federal Government has established as
its objective a substantial improvement in the fiscal performance of the
consolidated public sector as measured by the operational results.
Brazil reports its fiscal balance using two principal measures, all of which
are calculated according to the official statistical guidelines of the IMF:
B-12
<PAGE>
- PRIMARY BALANCE, which is the financial balance less net borrowing costs
of the Federal Government.
- OPERATIONAL BALANCE, which is similar to primary balance but excludes the
inflationary component of interest payments on domestic debt of the
non-financial public sector. This balance is the primary balance plus
accrued real interest on the external and domestic debt. This balance is
used to correct the distortions which affect the measurement of public
finances in an inflationary environment.
Brazil generated a consolidated primary surplus in each year from 1990 to
1995. However, real interest expense (both domestic and external) on the public
debt accounted for the operational deficits registered during most of the
period. In 1994, a significant increase in tax revenues, due to the reduction in
inflation and to the economic boom, increased the primary surplus to 5.1% of GDP
while the real interest expense on the public debt reached 3.7% of GDP.
Consequently, Brazil posted an operational surplus of 1.1% of GDP in 1994
compared with a deficit of 2.2% in 1992 and a surplus of 0.2% in 1993. In 1995,
the operational deficit reached 4.95% of GDP due to real interest expenses which
totaled 5.4% of GDP while in the primary concept a surplus of 0.45% of GDP was
registered.
Set forth below are the public sector borrowing requirements since 1990:
PUBLIC SECTOR BORROWING REQUIREMENTS HISTORICAL SUMMARY(A)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SELECTED ECONOMIC INDICATORS(b)
Real GDP growth (decline).......................................... 0.2% (0.8)% 4.2% 5.9% 4.2%
Monetary base (end of period) change............................... 291.2 991.3 1,953.2 308 22.60
Real interest rate(c).............................................. 6.7 30.1 7.1 24.8 33.5
PUBLIC FINANCE(d)
Financial result................................................... (24.4)% (44.3)% (58.4)% (44.4)% 7.4%
Primary result..................................................... 3.0 2.4 2.6 5.1 0.4
Real interest...................................................... (1.6) (4.6) (2.4) (3.7) (5.4)
Domestic........................................................... 0.4 (3.2) (0.9) (3.0) (4.7)
External........................................................... (2.0) (1.4) (1.5) (0.7) (0.7)
Operational result................................................. 1.4 (2.2) 0.2 1.1 (5.0)
Domestic financing................................................. 3.7 (3.3) 0.2 2.4 7.8
External financing................................................. 0.0 2.8 2.4 2.7 (3.3)
Issue of money..................................................... (2.3) (2.7) (2.4) (4.1) 0.5
</TABLE>
- ------------------------
Notes:
(a) Surplus (deficit).
(b) Deflated by official government deflator.
(c) Implicit real interest rate on public sector internal debt.
(d) All figures expressed as a percentage of GDP.
SOURCE: Central Bank.
PUBLIC DEBT
GENERAL
Public sector debt ("public debt") in Brazil consists of the internal and
external debt of the Federal Government, State and local governments and public
sector enterprises. Pursuant to the Constitution, the Brazilian Senate is vested
with powers to establish, upon a request by the President, (i) global limits for
the consolidated debt of the Government, States, and municipalities, (ii) the
terms and conditions of the internal and external financial transactions of the
Federal Government, including public sector enterprises, at all levels of
government, and (iii) the terms and conditions for guarantees of the Government
of any internal and external financial transaction. Furthermore, any external
financial transaction entered into at any level of government must be authorized
by the Senate.
B-13
<PAGE>
The following table sets forth the consolidated gross and net debt of the
public sector as at December 31 for each of the years 1991 through 1995:
PUBLIC SECTOR DEBT
IN US$ MILLION
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED GROSS PUBLIC SECTOR DEBT(a)........ $ 172,371 $ 196,733 $ 205,460 $ 309,530 $ 387,340
Internal...................................... 71,557 97,159 100,990 91,340 256,420
External(b)................................... 100,834 99,574 104,470 118,190 130,920
BY SECTOR, FEDERAL GOVERNMENT AND CENTRAL BANK
Gross debt.................................... 99,904 120,105 124,820 203,840 247,920
Internal...................................... 33,965 52,039 57,160 126,600 170,650
Securities debt............................. 11,561 36,403 42,060 71,400 116,340
Other debt(c)............................. 22,404 15,636 15,100 55,200 54,310
External...................................... 65,939 69,663 67,660 74,240 77,270
Credits
Internal.................................... (41,480) (49,128) (48,810) (87,060) (104,270)
Public sector(d).......................... (26,179) (27,697) (34,440) (30,780) (32,830)
Other(e).................................. (15,301) (21,431) (14,470) (56,280) (71,440)
External(f)................................. (9,406) (23,754) (32,210) (38,810) (51,260)
STATE AND LOCAL GOVERNMENT
Gross debt.................................... 29,098 39,263 43,540 63,520 81,750
Internal.................................... 24,887 34,861 38,940 61,380 79,350
External.................................... 4,211 4,402 4,600 2,140 2,400
Credits
Internal.................................... (1,103) (1,843) (1,370) (2,990) (4,580)
Public sector(d).......................... 0 0 0 0 0
Other(e).................................. (1,103) (1,843) 1,370 (2,990) (4,580)
External(f)................................. 0 0 0 0 0
STATE ENTERPRISES
Gross debt.................................... 69,568 65,062 64,650 46,140 51,730
Internal.................................... 38,884 39,549 39,330 34,140 39,250
External.................................... 30,684 25,510 25,320 11,980 12,480
Credits
Internal.................................... (935) (1,131) (1,240) (3,183) (4,150)
Public sector(d).......................... (692) (870) (1,090) (2,735) (3,800)
Other(e).................................. (243) (261) (15) (45) (35)
External(f)................................. 0 0 0 0 0
NET PUBLIC SECTOR DEBT(g)....................... 144,286 150,594 149,390 181,500 217,140
Internal...................................... 52,858 74,776 84,000 128,900 176,250
External...................................... 91,428 75,818 65,390 52,600 40,890
</TABLE>
- ------------------------
Notes:
(a) Consolidated gross public sector debt consolidates debts between public
sector entities.
(b) Includes short-term debt obligations.
(c) Includes monetary base, CRUZADOS NOVOS in accounts frozen under the Collor
Plan, compulsory deposits required upon release of frozen accounts, other
deposits of the financial system with the Central Bank and federal
securities that can be used in the national privatization program.
(d) Internal public sector credits owed by other public sector entities. These
amounts are consolidated into the consolidated gross public sector debt
amounts above.
(e) Other internal credits consist primarily of deposits at private sector
financial institutions.
(f) External credits are equivalent to the Federal Government's international
reserves. The external credits of the Federal Government and Central Bank
include collateral acquired in connection with the April 1994 debt
restructuring.
(g) Net public sector debt is consolidated gross public sector debt less
aggregate credits of the Federal Government and Central Bank, State and
local governments and state enterprises (excluding internal public sector
credits that have been excluded from the consolidated gross public sector
debt).
SOURCE: Central Bank.
B-14
<PAGE>
In 1994, net public sector debt was approximately US$182 billion, of which
US$129 billion represented domestic indebtedness. Net public debt in 1995
reached US$217 billion, an increase of 20% from the December 1994 figure. This
result was mainly due to a 36.7% rise in the net internal debt which is related
to a significant increase registered by the federal security debt. The rise of
net public debt is also attributable in large part to the substantial increase
in the net debt of State and local governments, which stood at US$60.5 billion
in 1994 and US$77.2 billion in 1995. On the other hand, in the same period, net
external debt decreased by 22% to US$41 billion due a significant accumulation
of international reserves.
EXTERNAL DEBT
As of December 31, 1995, Brazilian foreign debt was US$159 billion.
Approximately US$125 billion of the total represented medium and long-term debt,
of which US$25 billion was owned to foreign commercial banks, US$32 billion to
international entities and government agencies, US$54 billion to bond holders
and US$14 billion to suppliers and other creditors. Most of the commercial bank
debt was denominated in US dollars and bore interest at floating rates. The
"Brady Plan"-type debt restructuring of April 1994 substantially altered
Brazil's external debt profile. While the interest arrears were capitalized, the
restructuring reduced previously outstanding principal obligations by about US$4
billion. See "Public Debt--Debt Crisis and Restructuring."
The following table sets forth details of Brazil's public sector external
debt by type of borrower for each of the years indicated:
PUBLIC SECTOR EXTERNAL DEBT BY TYPE OF BORROWER(A)
(US DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Public sector.......................................... 94,627 93,437 90,613 87,330 87,455
Registered(a)........................................ 75,423 86,669 83,515 86,864 87,168
Non registered....................................... 19,204 6,768 7,098 466 287
Private sector......................................... 29,283 42,512 55,113 60,965 71,550
Registered(a)........................................ 17,573 24,166 30,755 32,804 42,145
Non registered....................................... 11,710 18,346 24,358 28,161 29,405
Total.................................................. 123,910 135,949 145,726 148,295 159,005
External debt/% of GDP................................. 28.35% 31.11% 33.35% 33.93% 42.97%
</TABLE>
- ------------------------------
Notes:
(a) Debt with an original maturity of one year or more.
SOURCE: Central Bank.
DEBT CRISIS AND RESTRUCTURING
With the inception of the debt crisis in 1982, voluntary lending to Brazil
by commercial banks ceased. With its foreign reserves in decline, Brazil
struggled to make debt service payments by achieving substantial trade
surpluses. Emergency lending by commercial banks and multilateral organizations
in 1983 and 1984, together with rescheduling of outstanding commercial bank
debt, helped to stem the loss of reserves. In 1983, the IMF undertook to provide
Brazil with R$2 billion of Special Drawing Rights ("SDRs") (approximately US$4.6
billion, as at December 31, 1982) over a three-year period, and commercial bank
creditors agreed to reschedule US$4.5 billion in principal payments and provide
US$4.4 billion in new money. Agreement was also reached with the country's
foreign governmental (Paris Club) creditors that year, resulting in the
restructuring of 95% of Brazil's principal and interest obligations falling due
during the period from August 31, 1983 through December 31, 1984, as well as
arrearages relating to the period from January 1, 1983 through July 1, 1983 in
the aggregate amount of approximately US$3 billion. In 1984, commercial bank
creditors agreed to an additional rollover of
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US$5.2 billion in principal and a new money facility for US$6.5 billion in
additional funds. Brazil's subsequent inability to meet all of the lending
conditions established by the IMF led to a succession of new letters of intent
and periodic suspensions of IMF disbursements.
Brazil did not seek new money from commercial banks in a 1986 debt
rescheduling covering approximately US$16 billion of 1985 and 1986 medium and
long-term maturities and approximately US$15 billion of short-term trade and
interbank lines. A sharp drop in reserves in 1986 as a result of a large capital
account deficit and a sizable current account shortfall led the Federal
Government to declare a moratorium on principal and interest payments to
commercial banks in February 1987.
1988 FINANCING PLAN
In September 1988, Brazil's bank creditors agreed, among other things, to
reschedule approximately US$61 billion over a 20-year period pursuant to a
Multi-Year Deposit Facility Agreement ("MYDFA") and to provide an additional
US$5.2 billion in new money pursuant to a Parallel Financing Agreement (a
syndicated term loan), a Commercial Bank Co-financing Agreement (a parallel
co-financing with certain World Bank project and sector loans), a New Money
Trade Deposit Facility Agreement (to be used for medium-term trade finance
starting one year after original disbursement) and 1988 New Money Bonds.
Approximately US$1 billion of Brazil Investment Bonds were also issued as part
of this package, and approximately US$15 billion of short-term lines were
extended. The deal was accompanied by an IMF standby arrangement of US$1.44
billion agreed in August 1988. The IMF suspended disbursements in 1989, however,
because of the Federal Government's inability to meet public-sector deficit
targets. As a result, the third tranche (US$600 million) of the US$5.2 billion
new money package was not disbursed. With reserves once again under pressure,
the Federal Government imposed new limitations on interest payments to holders
of external commercial bank debt in July 1989.
Brazil initiated formal negotiations with commercial bank creditors in
August 1990. As of January 1991, the Federal Government permitted the full
payment of external debts owed by private sector and financial institution
borrowers and the servicing of 30.0% of interest payments due and payable by
public sector obligors. Following the promulgation of CMN Resolution 1,812, as
of April 1, 1991, the treatment previously accorded to private sector debt was
extended to the external debt obligations of Petrobras and CVRD and their
subsidiaries. In April 1991, Brazil and the Bank Advisory Committee ("BAC"),
consisting of approximately 20 of Brazil's largest commercial bank creditors,
reached agreement on the treatment of approximately US$9.1 billion in interest
arrears accrued on Brazil's external commercial bank debt up to December 31,
1990. Under the agreement, the commercial banks received US$2 billion of such
amount in 1991, and the remainder of such past due interest was exchanged for
approximately US$7.1 billion aggregate principal amount of IDU Bonds on November
20, 1992 and March 18, 1993.
1992 ARRANGEMENTS WITH IMF AND PARIS CLUB
In January 1992, Brazil reached agreement with the IMF on a standby facility
of 1.5 billion SDR (approximately US$2 billion). Of this amount, 75.0% was to
have entered the country in the form of new money, while the remaining 25.0% was
to have been used to finance the acquisition of collateral for the proposed
restructuring of Brazil's medium and long-term public sector indebtedness
described below. The standby arrangement was subsequently suspended, however,
because of Brazil's inability to meet agreed performance criteria targets,
leaving 1.37 billion SDR undrawn as of the August 31, 1993 facility expiration
date.
On February 26, 1992, Brazil reached agreement with Paris Club creditors for
the rescheduling of debt owed to other governments and governmental agencies
totaling US$12.1 billion. The agreement required Brazil to make approximately
US$4.1 billion in debt service payments in 1992 and 1993 and provided for the
rescheduling of approximately US$11 billion over a 14-year period, with a grace
period of three years. Although Brazil has completed bilateral agreements
implementing the February 1992 accord with all countries except Italy, debt
relief for some maturities was conditional on continued
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performance under the IMF standby facility, and Brazil continues to discuss the
impact, if any, of this condition with some countries.
1992 FINANCING PLAN
On July 9, 1992, Brazil and the BAC reached an agreement-in-principle on the
restructuring of Brazil's medium and long- term public sector indebtedness owed
to commercial banks, as well as on a parallel arrangement for interest arrears
accrued in respect of such indebtedness since January 1, 1991. Pursuant to that
agreement, on April 15, 1994, Brazil issued approximately US$43.1 billion
principal amount of bonds to holders of certain medium and long-term public
sector debt ("Eligible Debt") of Brazil or guaranteed by Brazil owed to
commercial banks and certain other private sector creditors in consideration for
the tender by such holders of their Eligible Debt and interest arrears accrued
in respect thereof since January 1, 1991 ("Eligible Interest"). The bonds were
issued pursuant to exchange agreements, implementing the Republica Federativa do
Brazil 1992 Financing Plan (the "Financing Plan"), which provided for the
restructuring of approximately US$41.6 billion of Eligible Debt and arrangements
for approximately US$5.5 billion of Eligible Interest. The Financing Plan was a
"Brady Plan"-type restructuring, the term coined for debt restructuring based on
the policy articulated by US Treasury Secretary Nicholas Brady in a speech
before the Third World Debt Conference in March 1989. The Brady Plan advocated
restructuring which would, among other things, (i) exchange debt for freely
transferable bonds, (ii) result in significant reductions in the level of debt
and the rate of interest payable thereon, and (iii) collateralize some types of
new bonds with the pledge of US Treasury zero-coupon obligations.
Holders of Eligible Debt exchanged their Eligible Debt for the following
types of bonds: (i) Par Bonds ("Par Bonds"), (ii) Discount Bonds ("Discount
Bonds"), (iii) Front-Loaded Interest Reduction Bonds ("FLIRBs"), (iv)
Front-Loaded Interest Reduction with Capitalization Bonds ("C-Bonds"), and (v) a
combination of New Money Bonds ("New Money Bonds"), and Debt Conversion Bonds
("Debt Conversion Bonds"). Eligible Interest was exchanged (after giving effect
to certain interest rate adjustments and cash interest payments made by Brazil
pursuant to the Financing Plan) for EI Bonds (the "EI Bonds"). The Par Bonds,
Discount Bonds, FLIRBs, C-Bonds, New Money Bonds, Debt Conversion Bonds and EI
Bonds are referred to herein collectively as the "Brady Bonds." Subject to their
respective terms, each of the Brady Bonds is eligible for use as currency in the
Brazilian privatization program.
The Financing Plan produced a reduction of US$4 billion in the stock of
Eligible Debt: the US$11.20 billion allocated to Discount Bonds will result in
the issuance of US$7.28 billion of such bonds (assuming the exchange of Phase-In
Bonds for Discount Bonds). In addition, the Federal Government estimates that
the Financing Plan will generate another US$4 billion in interest savings over
the 30-year repayment period. Upon completion of the phased delivery of
collateral (scheduled for April 15, 1996), Brazil will have defeased
approximately US$17.8 billion of its external debt in the form of Par and
Discount Bonds. The total cost of collateral to the Republic will be
approximately US$3.9 billion, of which US$2.8 billion was delivered on April 15,
1994 from the Republic's own resources; the Republic subsequently delivered
US$251.9 million of collateral as scheduled on 17th October, 1994 and US$237.1
million as scheduled on April 18, 1995.
At the Republic's option, the Brady Bonds may be redeemed at par in whole or
in part prior to their maturity. The EI Bonds and New Money Bonds also include a
mandatory redemption provision under which the Republic is required to redeem
the EI Bonds and New Money Bonds at par if the Republic prepays certain
obligations.
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ANNEX C
GLOSSARY
ABC: ABC, Inc., formerly known as "Capital Cities/ABC, Inc."
ABC CLASS HOUSEHOLDS: The highest three classes of Brazilian households
based upon the achievement of a total of 10 points or higher on the
classification scale used by the Associacao Brasileira de Anunciantes (Brazilian
Advertisers Association) to determine a household's socio-economic class, which
ranges from A to E depending on the education level of the head of the
household, the possession by the household of certain items of material comfort,
including automobiles, television sets and other household items, and the hiring
of domestic servants by the household.
ABRIL: Abril S.A., the leading magazine publishing, printing and
distribution company in Latin America.
ABRIL CREDIT FACILITY: A revolving credit facility, dated December 6, 1995,
between Tevecap, as the borrower, and Abril, as the lender.
BBC: British Broadcasting Corporation.
BCE: BCE, Inc., an affiliate of Bell Canada Inc., Canada's largest
telecommunications group.
BCI: Bell Canada International, Inc., an affiliate of BCE.
BNDES: Banco National de Desenolvimento Economico e Social, the national
development bank owned by the Brazilian Government.
BRASILSAT: A satellite operated by Embratel through which the Company
provides C-Band service.
C-BAND: A satellite transmission system which provides a signal on the "c"
bandwidth.
CABLE: A Cable network employs electromagnetic transmission over coaxial
and/or fiber-optic cable to transmit multiple channels carrying images, sound
and data between a central facility and individual customers' television sets.
Networks may allow one-way (from a headend to a residence and/or business) or
two-way transmission from a headend to a residence and/or business with a data
return path for the headend.
CABLE LICENSE: A license that is granted by the applicable governing body
pursuant to its authority under the communications laws of a particular country
for the purpose of providing Cable services for a specific franchise/license
area.
CANBRAS: Canbras Communications Corp., a Canadian corporation.
CANBRAS ASSOCIATION AGREEMENT: Association Agreement dated June 14, 1995,
among Tevecap, TVA Sistema, the Canbras TVA Companies, Canbras and Canbras-Par.
CANBRAS TVA COMPANIES: Canbras TVA Cabo and TV Cabo Santa Branca.
CANBRAS TVA CABO: Canbras TVA Cabo Ltda., a Brazilian limitada.
CANBRAS TVA: The operations of Canbras TVA Cabo and TV Cabo Santa Branca, in
each of which Tevecap holds a 36.0% equity interest and Canbras Par holds a
64.0% equity interest.
CANBRAS-PAR: Canbras Participacoes, Ltda., a Brazilian limitada wholly-owned
by Canbras.
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CBC: California Broadcasting Center, an uplink center for GLA located in
Long Beach, California.
CBS: CBS, Inc.
CENTRAL BANK: Central Bank of Brazil (Banco Central do Brasil)
CHASE PARTIES: Two wholly owned subsidiaries of CMIF through which CMIF
holds its equity interest in Tevecap.
CHURN: With respect to a pay television system for a given period, the
quotient expressed as a percentage of (i) the number of subscribers disconnected
from such system less the number of formerly disconnected subscribers
reconnected to the system divided by (ii) the number of subscribers to the
system as of the beginning of the period plus the number of subscribers added to
the system.
CISNEROS GROUP: Cisneros Group of Companies, which holds a 10% interest in
GLA through Darlene Investments.
CMIF: Chase Manhattan International Finance Ltd., an affiliate of The Chase
Manhattan Bank which holds a 9.3% interest in Tevecap through two wholly owned
subsidiaries.
COAXIAL CABLE: Cable consisting of a central conductor surrounded by and
insulated from another conductor. It is the standard material used in
traditional Cable systems. Signals are transmitted through it at different
frequencies, giving greater channel capacity than is possible with twisted pair
cable, but less than is allowed by optical fiber.
COMERCIAL CABO SAO PAULO: Comercial Cabo TV Sao Paulo Ltda., a Brazilian
limitada in which Tevecap holds a 99% equity interest.
COMPANY: Tevecap, together with its consolidated subsidiaries.
CONSOLIDATED FINANCIAL STATEMENTS: The audited and unaudited consolidated
financial statements of Tevecap and its subsidiaries and the notes thereto
included herein.
CPL: Cable Participacoes Ltda., a Brazilian limitada, jointly owned by
Hearst and ABC, which limitada holds a 2.35% equity interest in Tevecap.
CPCT: Centrais Privadas de Comutacao Telefonica, certain private telephone
networks comparable to private branch exchanges (PBX) found in larger apartment
complexes, hotels and businesses in the United States.
CVM: Comissao de Valores Mobiliarios, the securities commission of Brazil.
DARLENE INVESTMENTS: Darlene Investments, LLC, a Cayman Islands limited
liability company which is part of the Cisneros Group of Companies.
DBS: Direct broadcast satellite service, operating in C-Band or Ku-Band
width, by which television programming is transmitted to individual dwellings,
each served by a single satellite dish.
DBS SYSTEMS: Ku-Band and C-Band operations of Galaxy Brasil and TVA Sistema,
respectively.
DE SANTI & VALLONE: De Santi & Vallone Antennas & Telecommunications
Consultants.
DIRECTV: Brazil's first digital Ku-Band service, which is operated by Galaxy
Brasil and Galaxy Latin America.
DISTV: The distribution of television signals by physical means (i.e., by
Cable) to end users, generally limited to signals without interference by a
DISTV operator with the signal content.
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EMBRATEL: Empresa Brasileira de Telecommunicacoes, the Brazilian
government-owned company authorized to provide satellite telecommunications
services utilizing the Sistema Brasiliero de Telecomunicacoes por Satelite
(Brazilian Satellite Telecommunications System).
EQUITY SUBSCRIBERS: Subscribers to the Operating Ventures adjusted for the
Company's equity ownership in the Operating Ventures.
ESPN: ESPN, Inc., in which ABC has an 80.0% equity interest and Hearst has a
20.0% equity interest.
ESPN AGREEMENT: Quotaholders Agreement, dated June 26, 1995, among Tevecap,
TVA Sistema, ESPN Brazil, Inc. and ESPN Brasil Ltda.
ESPN BRASIL: Programming provided by ESPN Brasil Ltda.
ESPN BRAZIL, INC.: A Delaware corporation wholly owned by ESPN.
ESPN BRASIL LTDA.: ESPN do Brasil Ltda., a Brazilian limitada in which
Tevecap holds a 50.0% equity interest and ESPN Brazil, Inc., holds a 50.0%
equity interest.
EVENT PUT: A triggering event under the Stockholders Agreement pursuant to
which each of the Stockholders (other than Abril) may, in certain circumstances,
demand that Tevecap purchase all or a portion of its shares.
EXIMBANK: The Export-Import Bank of the United States.
EXIMBANK FACILITY: A credit facility, dated December 9, 1996, among TVA
Sistema, as Borrower, Tevecap, as Guarantor, and The Chase Manhattan Bank, N.A.,
as lender. The EximBank will guarantee 85% of amounts borrowed under the
EximBank Facility.
FALCON INTERNATIONAL: Falcon International Communications (Bermuda L.P.), a
subsidiary of Falcon International Communications, L.L.C., a Delaware limited
liability company.
FALCON TIME PUT: A provision of the Stockholders Agreement pursuant to which
Falcon International may, in certain circumstances, demand that Tevecap purchase
all or a portion of the shares held by Falcon International.
FIBER-OPTIC CABLE: Cable made of glass fibers through which signals are
transmitted as pulses of light. Fiber-optic cable has the capacity for a large
number of channels.
FOX: Twentieth Century Fox Television International.
GALAXY BRASIL: Galaxy Brasil S.A., a wholly-owned subsidiary of Tevecap
which operates Brazil's first Ku-Band system.
GALAXY BRASIL LEASING FACILITY: An anticipated five-year, $49.9 million
lease and sale-leaseback facility to be entered into by Galaxy Brasil, as
lessee, and Citibank, N.A., as lessor.
GALAXY LATIN AMERICA: A Delaware limited liability company the members of
which are Hughes Communications GLA, which holds a 60.0% equity interest,
Darlene Investments, which holds a 20.0% equity interest, TVA Communications,
which holds a 10% equity interest, and Grupo Frecuencia Modulada Television,
which holds a 10.0% equity Interest.
GALAXY III-R: A satellite owned and operate by Hughes Communications through
which Galaxy Brasil provides DIRECTV service.
GLA: Galaxy Latin America.
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GLA AGREEMENT: Partnership Agreement, dated February 13, 1995 among the GLA
partners.
GLOBO: Globo Par and TV Globo, the owners of a number of Brazil's over the
air channels.
GLOBO CABO: Globo Cabo S.A., a Cable service provider in Brazil.
GLOBO PAR: Globo Comunicacoes e Participacoes Ltda.
GRUPO MIDIA: Grupo de Midia Sao Paulo.
GRUPO FRECUENCIA MODULADA TELEVISION: Grupo Frecuencia Modulada Television,
S.A. de C.V., a Mexican corporation wholly owned by Grupo MVS.
GRUPO MVS: Grupo MVS, S.A. de C.V., a Mexican corporation.
GUARANTORS: Tevecap's Restricted Subsidiaries (as defined in the Indenture).
HABC II: Hearst/ABC Video Services II, a Delaware general partnership
jointly owned by Hearst and ABC, which partnership holds a 17.65% equity
interest in Tevecap.
HBO BRASIL: Programming provided by HBO Brasil Partners.
HBO BRASIL PARTNERS: HBO Brasil Partners Ltd., a joint venture between TVA,
which holds a 33% equity interest, and HBO Ole Partners, which holds a 66.7%
equity interest.
HBO OLE PARTNERS: A partnership among Time Warner Entertainment Company,
L.P., SPE Latin American Acquisition Corporation and Ole Communications, Inc.
HEADEND: A collection of hardware, typically including satellite receivers,
modulators, amplifiers and videocassette playback machines. Signals, when
processed, are then combined for distribution within the Cable network.
HEARST: The Hearst Corporation.
HEARST/ABC PARTIES: HABC II and CPL.
HEARST/ABC PROGRAMMING AGREEMENT: Programming Agreement, dated December 6,
1995, among Tevecap, Hearst and ABC.
HOMES PASSED: Homes that can be connected to a Cable distribution system
without further extension of the distribution network.
HUGHES COMMUNICATIONS: Hughes Communications, Inc.
HUGHES COMMUNICATIONS GLA: Hughes Communications GLA, Inc., a California
corporation, wholly-owned by Hughes Communications, that holds a 60.0% equity
interest in GLA.
HUGHES ELECTRONICS: Hughes Electronics Corporation.
IBGE: Instituto Brasileiro de Geografia e Estatistica.
IBOPE: Instituto Brasileiro de Opiniao Publica e Estatistica.
INDEMNIFICATION AGREEMENT: Indemnification Agreement to be entered into
among the Company, GLA, Hughes Communications and affiliates thereof, CBC, TVA
Communications, Darlene Investments, Inversiones Divtel, D.T., C.A., Grupo
Frecunencia Modulada Television and Grupo MVS.
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INDENTURE: The indenture to be executed by Tevecap, Tevecap's subsidiaries,
Chase Manhattan Bank Trustee Ltd., as trustee, and Chase Manhattan Trust &
Banking Co. (Japan) Ltd., as paying agent in connection with the Notes.
INDEPENDENT OPERATORS: Independent pay television system operators to which
TVA sells programming.
INITIAL PURCHASERS: Chase Securities Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, Bear Stearns & Co. Inc. and Bozano, Simonsen Securities
Inc.
INTERACTIVE SERVICES: Services commonly referred to as pay-on-demand,
shop-at-home, video games, ATM services, or such other interactive services as
video phone and telephony which can be more easily provided with the development
of high-capacity hybrid fiber optic/coaxial distribution networks.
IRMAOS REIS: Distribuidora Irmaos Reis S.A., a Brazilian corporation in
which Abril holds a 30.5% equity interest.
KU-BAND: A satellite transmission system which provides a signal over the
"ku" bandwidth.
LICENSE SUBSIDIARIES: Companies that hold pay television licenses covering
the operation of certain of the Owned Systems.
LOCAL OPERATING AGREEMENT: Local Operating Agreement, dated March 3, 1995,
between GLA and Tevecap.
LOS: An unobstructed "Line of Sight" from any of the Company's MMDS headends
to a subscriber's antenna.
MGM: Metro Goldwyn Mayer, Inc.
MINISTRY OF COMMUNICATIONS: The Brazilian Ministry of Communications,
authorized to regulate the Brazilian subscription television industry pursuant
to the Brazilian Telecommunications Code of 1962.
MMDS (MULTI-CHANNEL MULTI-POINT DISTRIBUTION SYSTEM): A one-way radio
transmission of television channels over microwave frequencies from a fixed
station transmitting to multiple receiving facilities located at fixed points.
MMDS LICENSE: A license that is granted by the applicable governing body
pursuant to its authority under the communications laws of a particular country
for the purpose of providing MMDS services for a specific franchise/license
area.
MTV BRASIL: MTV Brasil Ltda., a Brazilian LIMITADA in which Abril holds a
50.0% equity interest and Viasem Brasil Holdings Ltda. (an indirect subsidiary
of Viacom International) holds the remaining 50% equity interest.
MULTICANAL: Multicanal Participacoes S.A., a Cable service provider in
Brazil.
NBC: National Broadcasting Company, Inc.
NDS: News Digital Systems Limited, a wholly-owned subsidiary of News
Corporation.
NET BRASIL: Net Brasil S.A., a Cable and MMDS service provider in Brazil.
NET SAT: Net Sat Servicos Ltda., TVA's prospective competitor in DBS
Service, in which Globo Par has a controlling interest and whose other equity
holders include News Corporation, a subsidiary of The News Corporation Limited,
and Grupo Televisa, S.A. of Mexico.
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NEWS CORPORATION: News Corporation plc.
OPERATING VENTURES: Canbras TVA and TV Filme, two of TVA's minority-owned
ventures.
OWNED SYSTEMS: TVA Sistema, TVA Sul and Galaxy Brasil.
PANAMSAT: PanAmSat Corporation, the current owner and operator of the
PAS-III satellite.
PAY-PER-VIEW: Payment made for individual programs rather than a monthly
subscription for a whole channel or group of channels. Currently only offered in
Brazil by TVA through DIRECTV, and envisioned as a means of providing certain
popular sporting events or major motion pictures for which customers may be
prepared to make a special payment.
PENETRATION RATE: The measurement of the take-up of Cable services. The
penetration rate as of a given date is calculated by dividing the number of
subscribers connected to a system on such date by the total number of homes
passed in such system.
PROGRAMMING VENTURES: HBO Brasil Partners and ESPN Brasil Ltda.
RBS: RBS Participacoes S.A., a Cable and MMDS service provider in Brazil.
REAL PLAN: A Brazilian Government stabilization program, announced in
December 1993, aimed at curtailing inflation and building a foundation for
sustained economic growth.
REGISTRATION RIGHTS AGREEMENT: The Registration Rights Agreement pursuant to
which Tevecap and the Guarantors agree to file with the United States Securities
and Exchange Commission the Exchange Offer Registration Statement on an
appropriate form under the Securities Act with respect to an offer to exchange
the Notes for Exchange Notes.
REGULATORY PUT: A provision in the Stockholders Agreement pursuant to which
an Event Put is triggered if the amount of capital stock held by a Stockholder
(other than Abril) exceeds the amount allowed under an appropriate legal
restriction.
REVENUE PER SUBSCRIBER: Total revenue derived from a subscriber television
system divided by the average number of subscribers for that period.
SAP: Second Audio Programming, which provides the option of audio in a
second language for the programming on channels for which it is offered.
SBT: TVSBT--Canal 4 de Sao Paulo S.A., a Brazilian national off-air channel.
SECURITIES ACT: United States Securities Act of 1933, as amended.
SMART CARD: Encoded card placed in a decoder used for Ku-Band service. The
Smart Card is used to regulate access to Ku-Band services.
SMC: SMC Marketing Ltda., a Brazilian limitada, wholly owned by HBO
Partners, that distributes HBO programming in Brazil.
SONY: Sony Pictures Entertainment, Inc.
STOCKHOLDERS: HABC II, CPL, Robert Civita, Abril, the Chase Parties and
Falcon International.
STOCKHOLDERS AGREEMENT: Stockholders Agreement, dated December 6, 1995,
among the Stockholders.
SUBSIDIARY GUARANTEES: Guarantees executed by each of Tevecap's Restricted
Subsidiaries (as defined in the Indenture).
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SURFIN: SurFin Ltd., a corporation organized under the laws of the Bahamas,
the (direct and indirect) shareholders of which are Tevecap, holding 20.5%,
DIRECTV International Inc., a subsidiary of Hughes Communications, holding
39.3%, Darlene Investments, holding 20.4%, and Grupo Frecuencia Modulada
Television, holding 19.8%.
SURFIN CREDIT FACILITY: A three year $150.0 million credit facility between
SurFin and Citicorp USA, Inc., as administrative agent, under a syndicated
credit agreement, dated September 24, 1996.
TAMBORE FACILITY: TVA's Ku-Band uplink center located in the city of Tambore
in greater Sao Paulo.
TELECOMMUNICATIONS CODE: The Brazilian Telecommunications Code of 1962, as
amended.
TELEPHONY: The provision of telephone service.
TEVECAP: Tevecap S.A.
TIME WARNER: Time Warner Entertainment Company, L.P.
TRUNK: The "transportation" component within a Cable and/or broadband
network architecture that carries the system product to the distribution portion
of the architecture, which in turn goes to customers' homes.
TV CABO SANTA BRANCA: TV Cabo Santa Branca Comercio Ltda., a Brazilian
limitada, in which Tevecap holds a 36% equity interest and Canbras Par holds a
64.0% equity interest.
TV FILME: TV Filme, Inc., a Delaware corporation in which Tevecap currently
holds a 14.3% equity interest, Warburg, Pincus Investors, L.P. currently holds a
41.2% equity interest, members of the Lins family currently hold a 16.2% equity
interest, and public stockholders currently hold a 28.3% equity interest. Upon
exercise of a warrant with a nominal exercise price, Tevecap's ownership
interest will increase to 16.7%.
TV FILME SERVICE AREA: Brasilia, Belem and Goiania.
TV GROUP: The operations of TVA excluding the operations and results of
Galaxy Brasil.
TV HOMES: The number of households in a given area possessing at least one
television set.
TV SHOW TIME: Televisao Show Time Ltda., a Brazilian limitada in which the
estate of Matias Machline and an associate currently hold a 53.0% equity
interest and in which the remaining 47.0% is currently held by various Abril
shareholders.
TVA: Tevecap S.A. and its consolidated subsidiaries and affiliates.
TVA BRASIL: TVA Brasil Radioenlaces S.A., a Brazilian corporation in which
the estate of Matias Machline currently holds a 50.0% equity interest and in
which the remaining 50.0% is currently held by various Abril shareholders.
TVA COMMUNICATIONS: TVA Communications Ltd., a British Virgin Islands
company wholly-owned by Tevecap, through which Tevecap holds a 10.0% equity
interest in Galaxy Latin America.
TVA CURITIBA: TVA Curitiba Servicos em Telecommunicacoes Ltda., a Brazilian
limitada in which Tevecap held an 80.0% equity interest and Leonardo Petrelli
held a 20.0% equity interest prior to TVA Curitiba's merger into TVA Parana
Ltda. and the reorganization of TVA Parana Ltda. as a subsidiary of TVA Sul
Participacoes S.A. in October 1996.
TV GLOBO: A provider of off-air programming in Brazil and an affiliate of
Globo.
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TVA SISTEMA: TVA Sistema de Televisao S.A., a Brazilian corporation in which
Tevecap holds a 98.0% equity interest and the estate of Matias Machline holds a
2.0% equity interest.
TVA SUL: The operations of TVA Parana Ltda., TVA Alfa Cabo Ltda., TVA Cabo
Camboriu Ltda., TCC TV a Cabo Ltda. and TVA Cabo Foz do Iguacu Ltda., which are
wholly-owned subsidiaries of TVA Sul Participacoes S.A., a Brazilian corporation
in which Tevecap holds an 87.0% equity interest and Leonardo Petrelli Neto holds
the remaining 13.0% equity interest.
UHF: Broadcast of a television signal at an ultra-high frequency over a
given geographical area.
VCR: Video cassette recorders.
VIACOM INTERNATIONAL: Viacom International (Netherlands B.V.).
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Purchase Agreement, Registration Rights Agreement and Stockholders
Agreement (included as Exhibits 10.1, 10.2 and 10.3 to this Registration
Statement, respectively) provide for the indemnification under certain
circumstances of directors, officers and controlling persons of the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ----------------------------------------------------------------------------------------------------
<C> <C> <S>
*3.1 -- Articles of Incorporation of Tevecap S.A. (English translation including amendments)
*3.2 -- Memorandum of the Organizational Shareholders' Meeting and By-laws of TVA Sistema de Televisao S.A.
(English translation including amendments)
*3.3 -- Memorandum and Articles of Association of TVA Communications Ltd.
*3.4 -- Memorandum of General Meeting of Association and By-laws of Galaxy Brasil S.A. (English translation
including amendments)
*3.5 -- Memorandum of General Meeting of Association and By-laws of TVA Sul Participacoes S.A. (English
translation including amendments)
*3.6 -- Articles of Incorporation of Comercial Cabo TV Sao Paulo Ltda. (English translation including
amendments)
*3.7 -- Articles of Incorporation of TVA Parana S.A. (English translation including amendments)
*3.8 -- Articles of Incorporation of TVA Alfa Cabo Ltda. (English translation including amendments)
*3.9 -- Articles of Incorporation of CCS Camboriu Cable System de Telecommunicacoes Ltda. (English
translation including amendments)
*3.10 -- Articles of Incorporation of TCC TV a Cabo Ltda. (including English translation)
*3.11 -- Articles of Incorporation of TVA Sul Foz do Iguacu Ltda. (English translation including amendments)
**3.12 -- Articles of Incorporation of TVA Sul Santa Catarina Ltda. (English translation)
4.1 -- Indenture dated as of November 26, 1996, as amended, among Tevecap S.A., the Subsidiary Guarantors
and The Chase Manhattan Bank, as Trustee (including exhibits)
*4.2 -- Forms of Notes (included in Exhibit 4.1)
*4.3 -- Forms of Guarantees (included in Exhibit 4.1)
5.1 -- Form of opinion of Basch & Rameh, Brazilian counsel to certain of the Registrants, as to the
legality of the Notes and Guarantees of Guarantors incorporated under the Federative Republic of
Brazil
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ----------------------------------------------------------------------------------------------------
<C> <C> <S>
5.2 -- Form of opinion of Mayer, Brown & Platt, U.S. counsel to the Registrants, as to the legality of the
Notes and the Guarantees
5.3 -- Form of opinion of Harney, Westwood & Riegels, British Virgin Islands counsel to TVA Communications
Ltd. as to the legality of the Guarantee of TVA Communications Ltd.
8.1 -- Form of opinion of Mayer, Brown & Platt, U.S. counsel to the Registrants, as to certain U.S. tax
matters
*10.1 -- Purchase Agreement dated as of November 21, 1996 among Tevecap S.A., the Guarantors and the Initial
Purchasers
*10.2 -- Registration Rights Agreement dated as of November 26, 1996, among Tevecap S.A., the Guarantors and
the Initial Purchasers
10.3 -- Stockholders Agreement, dated December 6, 1995, among Tevecap S.A., Robert Civita, Abril S.A.,
Falcon International Communications (Bermuda L.P.), Hearst/ABC Video Services II, Cable
Participacoes Ltda., Harpia Holdings Limited and Curupira Holdings Limited (including amendments)
*10.4 -- Side Letter, dated December 6, 1995, among Abril S.A., Falcon International Communications (Bermuda
L.P.), Hearst/ABC Video Services II, Cable Participacoes Ltda., Harpia Holdings Limited and Curupira
Holdings Limited
*10.5 -- Revolving Credit Facility, dated December 6, 1995, between Tevecap S.A. and Abril S.A.
*10.6 -- Credit Facility, dated December 9, 1996, among Tevecap S.A., TVA Sistema de Televisao S.A., The
Chase Manhattan Bank and the Export-Import Bank of the United States
*10.7 -- Association Agreement, dated February 15, 1996, among Tevecap S.A., TVA Sistema de Televisao S.A.,
TVA Brasil Radioenlaces Ltda., Leonardo Petrelli Neto, TV Delta de Curitiba Ltda., TV Cabo Servicos
Santa Catarina Ltda., TV Cabo Servicos Parana Ltda. and TVA Curitiba Servicos em Telecomunicacoes
Ltda. (including English Translation)
*10.8 -- Services Agreement, dated July 22, 1994, among TVA Brasil Radioenlaces Ltda., Televisao Show Time
Ltda., Abril S.A. and Tevecap S.A. (English translation including amendments)
21.1 -- Subsidiaries of Tevecap S.A.
23.1 -- Consent of Coopers & Lybrand Auditores Independentes
23.2 -- Consent of Basch & Rameh (included in Exhibit 5.1)
23.3 -- Consent of Mayer, Brown & Platt re: its opinion as to the legality of the Notes and the Guarantees
(included in Exhibits 5.2 and 8.1)
23.5 -- Consent of Harney, Westwood & Riegels (included in Exhibit 5.3)
*24.1 -- Powers of Attorney for Tevecap S.A. and each of the Guarantors (included in signature pages to the
Registration Statement)
25.1 -- Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of The Chase
Manhattan Bank, as Trustee on Form T-1
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ----------------------------------------------------------------------------------------------------
<C> <C> <S>
*99.1 -- Authorization of the Central Bank authorizing the issuance of the Notes (English translation)
99.2 -- Form of Letter of Transmittal
99.3 -- Form of Notice of Guaranteed Delivery
99.4 -- Form of Letter to Clients
99.5 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
ITEM 22. UNDERTAKINGS
Each of the undersigned Registrants hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Each of the undersigned Registrants hereby undertakes (i) to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means; and (ii) to arrange or provide for a
facility in the U.S. for the purpose of responding to such requests.
Each of the undersigned Registrants hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction that was not
the subject of and included in the registration statement when it became
effective.
No Registrant has entered into any arrangement or understanding with any
person to distribute the securities to be received in the Registered Exchange
Offer and to the best of each Registrant's information and belief, each person
participating in the Exchange Offer is acquiring the securities in its ordinary
course of business and has no arrangement or understanding with any person to
participate in the distribution of the securities to be received in the
Registered Exchange Offer. In this regard, the registrant will make each person
participating in the Registered Exchange Offer aware (through the Exchange Offer
Prospectus or otherwise) that if the Registered Exchange Offer is being
registered for the purpose of secondary resales, any securityholder using the
exchange offer to participate in a distribution of the securities to be acquired
in the Registered Exchange Offer (1) could not rely on the staff position
enunciated in Exxon Capital Holdings Corporation (available May 13, 1988) or
similar letters and (2) must comply with registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. The registrant acknowledges that such a secondary resale
II-3
<PAGE>
transaction should be covered by an effective registration statement containing
the selling securityholder information required by Item 507 of Regulation S-K.
Each of the Registrants hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
undersigned undertake that such reoffering prospectus will contain the
information called for by the applicable registration form who respect to
reofferings by persons who may be deemed to be underwriters, in addition to the
information called for by the other Items of the applicable form.
Each of the undersigned Registrants hereby undertakes that every prospectus:
(i) that is filed pursuant to the immediately preceding paragraph or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Each of the undersigned Registrants hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(2) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus file with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(3) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Tevecap S.A., has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sao Paulo,
the Federative Republic of Brazil, on this 11th day of April, 1997.
Tevecap S.A.
By *
-----------------------------------------
Jose Augusto P. Moreira
Officer
By *
-----------------------------------------
Claudio Cesar D'Emilio
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 11, 1997.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ ---------------------------
<S> <C>
/s/ GENE MUSSELMAN Chief Operating Officer
- ------------------------------ (Principal Executive
GENE MUSSELMAN Officer)
* Chief Financial Officer
- ------------------------------ (Principal Financial and
DOUGLAS DURAN Accounting Officer)
* Director
- ------------------------------
ROBERT CIVITA
* Director
- ------------------------------
JOSE AUGUSTO P. MOREIRA
* Director
- ------------------------------
ROBERT HEFLEY BLOCKER
* Director
- ------------------------------
GIANCARLO FRANCESCO CIVITA
* Director
- ------------------------------
THOMAZ SOUTO CORREA NETTO
* Director
- ------------------------------
FRANCISCO SAVIO COUTO PINHEIRO
* Director
- ------------------------------
ARNALDO BONOTRI DUTRA
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ ---------------------------
<S> <C>
* Director
- ------------------------------
SERGIO VLADIMIRSCHI JUNIOR
* Director
- ------------------------------
JOSE LUIS DE SALLES FREIRE
* Director
- ------------------------------
JORGE FERNANDO KOURY LOPES
* Director
- ------------------------------
OSWALDO LEITE DE MORAES FILHO
/s/ DOUGLAS DURAN
------------------------------
Name: Douglas Duran, as
By: Attorney-in-Fact
/s/ GENE MUSSELMAN
------------------------------
Name: Gene Musselman, as
Attorney-in-Fact
By:
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
TVA Sistema de Televisao S.A., has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April,
1997.
TVA Sistema de Televisao S.A.
By *
-----------------------------------------
Robert Civita
President
By *
-----------------------------------------
Jose Augusto P. Moreira
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 11, 1997.
NAME TITLE
- ------------------------------ ---------------------------
* President
- ------------------------------ (Principal Executive
ROBERT CIVITA Officer)
* Financial Director
- ------------------------------ (Principal Financial and
JOSE AUGUSTO P. MOREIRA Accounting Officer)
* Director
- ------------------------------
GIANCARLO FRANCESCO CIVITA
* Director
- ------------------------------
VICTOR CIVITA
/s/ DOUGLAS DURAN
------------------------------
Name: Douglas Duran, as
By: Attorney-in-Fact
/s/ GENE MUSSELMAN
------------------------------
Name: Gene Musselman, as
Attorney-in-Fact
By:
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
TVA Communications, Ltd., has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April,
1997.
TVA Communications, Ltd.
By *
-----------------------------------------
Robert Civita
Officer
By *
-----------------------------------------
Jose Augusto P. Moreira
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 11, 1997.
NAME TITLE
- ------------------------------ ---------------------------
* President
- ------------------------------ (Principal Executive
ROBERT CIVITA Officer)
* Financial Officer
- ------------------------------ (Principal Financial and
JOSE AUGUSTO P. MOREIRA Accounting Officer)
* Officer
- ------------------------------
ANGELO SILVIO ROSSI
* Officer
- ------------------------------
PLACIDO LORIGGIO
/s/ DOUGLAS DURAN
------------------------------
Name: Douglas Duran, as
By: Attorney-in-Fact
/s/ GENE MUSSELMAN
------------------------------
Name: Gene Musselman, as
Attorney-in-Fact
By:
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Galaxy Brasil S.A., has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Sao
Paulo, the Federative Republic of Brazil, on this 11th day of April, 1997.
Galaxy Brasil S.A.
By *
-----------------------------------------
Jose Augusto P. Moreira
President
By *
-----------------------------------------
Claudio Cesar D'Emilio
Financial Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 11, 1997.
NAME TITLE
- ------------------------------ ---------------------------
* President
- ------------------------------ (Principal Executive
JOSE AUGUSTO P. MOREIRA Officer)
* Financial Director
- ------------------------------ (Principal Financial and
CLAUDIO CESAR D'EMILIO Accounting Officer)
* Administrative Director
- ------------------------------
ANGELO SILVIO ROSSI
/s/ DOUGLAS DURAN
------------------------------
Name: Douglas Duran, as
By: Attorney-in-Fact
/s/ GENE MUSSELMAN
------------------------------
Name: Gene Musselman, as
Attorney-in-Fact
By:
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
TVA Sul Participacoes S.A., has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April,
1997.
TVA Sul Participacoes S.A.
By *
-----------------------------------------
Douglas Duran
Director
By *
-----------------------------------------
Leonardo Petrelli
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 11, 1997.
NAME TITLE
- ------------------------------ ---------------------------
* Director
- ------------------------------ (Principal Executive
JOSE AUGUSTO P. MOREIRA Officer)
* Director
- ------------------------------ (Principal Financial and
DOUGLAS DURAN Accounting Officer)
* Director
- ------------------------------
LEONARDO PETRELLI
/s/ DOUGLAS DURAN
------------------------------
Name: Douglas Duran, as
By: Attorney-in-Fact
/s/ GENE MUSSELMAN
------------------------------
Name: Gene Musselman, as
Attorney-in-Fact
By:
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Comercial Cabo TV Sao Paulo Ltda., has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April,
1997.
Comercial Cabo TV Sao Paulo Ltda.
By *
-----------------------------------------
Jose Augusto P. Moreira
Financial Director
By *
-----------------------------------------
Claudio Cesar D'Emilio
Financial Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 11, 1997.
NAME TITLE
- ------------------------------ ---------------------------
* Financial Director
- ------------------------------ (Principal Executive
JOSE AUGUSTO P. MOREIRA Officer)
* Financial Director
- ------------------------------ (Principal Financial and
CLAUDIO CESAR D'EMILIO Accounting Officer)
/s/ DOUGLAS DURAN
------------------------------
Name: Douglas Duran, as
By: Attorney-in-Fact
/s/ GENE MUSSELMAN
------------------------------
Name: Gene Musselman, as
Attorney-in-Fact
By:
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
TVA Parana Ltda., has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Sao
Paulo, the Federative Republic of Brazil, on this 11th day of April, 1997.
TVA Parana Ltda.
By *
-----------------------------------------
Douglas Duran
Director
By *
-----------------------------------------
Leonardo Petrelli
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 11, 1997.
NAME TITLE
- ------------------------------ ---------------------------
* Director
- ------------------------------ (Principal Executive
JOSE AUGUSTO P. MOREIRA Officer)
* Director
- ------------------------------ (Principal Financial and
DOUGLAS DURAN Accounting Officer)
* Director
- ------------------------------
LEONARDO PETRELLI
/s/ DOUGLAS DURAN
------------------------------
Name: Douglas Duran, as
By Attorney-in-Fact
/s/ GENE MUSSELMAN
------------------------------
Name: Gene Musselman, as
Attorney-in-Fact
By;
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
TVA Alfa Cabo Ltda., has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Sao
Paulo, the Federative Republic of Brazil, on this 11th day of April, 1997.
TVA Alfa Cabo Ltda.
By *
-----------------------------------------
Douglas Duran
Director
By *
-----------------------------------------
Leonardo Petrelli
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 11, 1997.
NAME TITLE
- ------------------------------ ---------------------------
* Director
- ------------------------------ (Principal Executive
JOSE AUGUSTO P. MOREIRA Officer)
* Director
- ------------------------------ (Principal Financial and
DOUGLAS DURAN Accounting Officer)
* Director
- ------------------------------
LEONARDO PETRELLI
/s/ DOUGLAS DURAN
------------------------------
Name: Douglas Duran, as
By: Attorney-in-Fact
/s/ GENE MUSSELMAN
------------------------------
Name: Gene Musselman, as
Attorney-in-Fact
By:
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
CCS Camboriu Cable System de Telecomunicacoes Ltda., has duly caused this
Registration Statement thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Sao Paulo, the Federative Republic of
Brazil, on this 11th day of April, 1997.
CCS Camboriu Cable System de Telecomunicacoes
Ltda.
By *
-----------------------------------------
Douglas Duran
Director
By *
-----------------------------------------
Leonardo Petrelli
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 11, 1997.
NAME TITLE
- ------------------------------ ---------------------------
* Director
- ------------------------------ (Principal Executive
DOUGLAS DURAN Officer)
* Director
- ------------------------------ (Principal Financial and
LEONARDO PETRELLI Accounting Officer)
/s/ DOUGLAS DURAN
------------------------------
Name: Douglas Duran, as
By: Attorney-in-Fact
/s/ GENE MUSSELMAN
------------------------------
Name: Gene Musselman, as
Attorney-in-Fact
By:
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
TCC TV a Cabo Ltda., has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Sao
Paulo, the Federative Republic of Brazil, on this 11th day of April, 1997.
TCC TV a Cabo Ltda.
By *
-----------------------------------------
Douglas Duran
Director
By *
-----------------------------------------
Leonardo Petrelli
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 11, 1997.
NAME TITLE
- ------------------------------ ---------------------------
* Director
- ------------------------------ (Principal Executive
JOSE AUGUSTO P. MOREIRA Officer)
* Director
- ------------------------------ (Principal Financial and
DOUGLAS DURAN Accounting Officer)
* Director
- ------------------------------
LEONARDO PETRELLI
/s/ DOUGLAS DURAN
------------------------------
Name: Douglas Duran, as
By: Attorney-in-Fact
/s/ GENE MUSSELMAN
------------------------------
Name: Gene Musselman, as
Attorney-in-Fact
By:
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
TVA Sul Foz do Iguacu Ltda., has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April,
1997.
TVA Sul Foz do Iguacu Ltda.
By *
-----------------------------------------
Douglas Duran
Director
By *
-----------------------------------------
Leonardo Petrelli
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 11, 1997.
NAME TITLE
- ------------------------------ ---------------------------
* Director
- ------------------------------ (Principal Executive
JOSE AUGUSTO P. MOREIRA Officer)
* Director
- ------------------------------ (Principal Financial and
DOUGLAS DURAN Accounting Officer)
* Director
- ------------------------------
LEONARDO PETRELLI
/s/ DOUGLAS DURAN
------------------------------
Name: Douglas Duran, as
By: Attorney-in-Fact
/s/ GENE MUSSELMAN
------------------------------
Name: Gene Musselman, as
Attorney-in-Fact
By:
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
TVA Sul Santa Catarina Ltda., has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April,
1997.
TVA Sul Santa Catarina Ltda.
By /s/ DOUGLAS DURAN
-----------------------------------------
Douglas Duran
Director
By /s/ LEONARDO PETRELLI
-----------------------------------------
Leonardo Petrelli
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Gene Musselman, Douglas Duran and Jose
Augusto P. Moreira (each an "Authorized Agent") to be its lawful attorney in
name and in fact (with full power to any two of them to act jointly) to sign any
or all amendments (including post-effective amendments) to this Registration
Statement and to file the same with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, granting unto
any two said Authorized Agents, acting jointly, 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 to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said Authorized Agents
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 11, 1997.
NAME TITLE
- ------------------------------ ---------------------------
/s/ JOSE AUGUSTO P. MOREIRA Director
- ------------------------------ (Principal Executive
JOSE AUGUSTO P. MOREIRA Officer)
/s/ DOUGLAS DURAN Director
- ------------------------------ (Principal Financial and
DOUGLAS DURAN Accounting Officer)
/s/ LEONARDO PETRELLI Director
- ------------------------------
LEONARDO PETRELLI
II-17
<PAGE>
SIGNATURE OF AUTHORIZED UNITED STATES REPRESENTATIVE
Pursuant to the Securities Act of 1933, the undersigned certifies that it is
the duly authorized United States representative of each of Tevecap S.A., TVA
Sistema de Televisao S.A., TVA Communications Ltd., Galaxy Brasil S.A., TVA Sul
Participacoes S.A., Comercial Cabo TV Sao Paulo Ltda., TVA Parana Ltda., TVA
Alfa Cabo Ltda., CCS Camboriu Cable System de Telecomunicacoes Ltda., TCC TV a
Cabo Ltda., TVA Sul Foz do Iguacu Ltda. and TVA Sul Santa Catarina Ltda., and
has signed this Registration Statement on this 11th day of April, 1997.
T-Cap, Inc.
(Authorized U.S. Representative)
By /s/ DOUGLAS DURAN
-----------------------------------------
Douglas Duran
Secretary
II-18
<PAGE>
Exhibit 4.1
<PAGE>
Execution Copy
================================================================================
TEVECAP S.A.
12-5/8% Senior Notes due 2004
=========================================
INDENTURE
Dated as of November 26, 1996
=========================================
THE CHASE MANHATTAN BANK,
Trustee
CHASE TRUST BANK,
Principal Paying Agent
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- -------
310(a)(1) .............................. 7.10
(a)(2) .............................. 7.10
(a)(3) .............................. N.A.
(a)(4) .............................. N.A.
(b) .............................. 7.8; 7.10
(c) .............................. N.A.
311(a) .............................. 7.11
(b) .............................. 7.11
(c) .............................. N.A.
312(a) .............................. 7.1
(b) .............................. 11.3
(c) .............................. 11.3
313(a) .............................. 7.6
(b)(1) .............................. N.A.
(b)(2) .............................. 7.6
(c) .............................. 7.6
(d) .............................. 7.6
314(a) .............................. 4.2
4.17; 11.2
(b) .............................. N.A.
(c)(1) .............................. 11.4
(c)(2) .............................. 11.4
(c)(3) .............................. N.A.
(d) .............................. N.A.
(e) .............................. 11.5
(f) .............................. 4.17
315(a) .............................. 7.1
(b) .............................. 7.5; 11.2
(c) .............................. 7.1
(d) .............................. 7.1
(e) .............................. 6.11
316(a)(last sentence)........................... 11.6
(a)(1)(A) .............................. 6.5
(a)(1)(B) .............................. 6.4
(a)(2) .............................. N.A.
(b) .............................. 6.7
317(a)(1) .............................. 6.8
(a)(2) .............................. 6.9
<PAGE>
(b) .............................. 2.8
318(a) .............................. 11.1
N.A. means Not Applicable.
- ----------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I Definitions and Incorporation by Reference.................1
SECTION 1.1. Definitions.............................................1
SECTION 1.2. Other Definitions......................................25
SECTION 1.3. Incorporation by Reference of Trust Indenture Act......25
SECTION 1.4. Rules of Construction..................................26
ARTICLE II The Securities............................................26
SECTION 2.1. Title and Terms; Form..................................26
SECTION 2.2. Denominations..........................................28
SECTION 2.3. Execution, Authentication, Delivery and Dating.........28
SECTION 2.4. Temporary Securities...................................30
SECTION 2.5. Registration, Registration of Transfer and Exchange....31
SECTION 2.6. Mutilated, Destroyed, Lost and Stolen Securities.......34
SECTION 2.7. Payment of Interest; Interest Rights Preserved.........34
SECTION 2.8. Paying Agents; Discharge of Payment Obligations;
Indemnity of Holders................................36
SECTION 2.9. Persons Deemed Owners..................................37
SECTION 2.10. Cancellation...........................................37
SECTION 2.11. Computation of Interest................................38
SECTION 2.12. Legal Holidays.........................................38
SECTION 2.13. CUSIP and CINS Numbers.................................38
SECTION 2.14. Book-Entry Provisions for Global Securities............39
SECTION 2.15. Special Transfer Provisions............................41
SECTION 2.16. Money for Security Payments To be Held in Trust........44
SECTION 2.17 Securityholder Lists...................................46
SECTION 2.18 Outstanding Securities.................................46
ARTICLE III Redemption................................................47
SECTION 3.1. Notices to Trustee.....................................47
SECTION 3.2. Selection of Securities To Be Redeemed.................47
SECTION 3.3. Notice of Redemption...................................47
SECTION 3.4. Effect of Notice of Redemption.........................48
SECTION 3.5. Deposit of Redemption Price............................49
SECTION 3.6. Securities Redeemed in Part............................49
- i -
<PAGE>
Page
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ARTICLE IV Covenants.................................................49
SECTION 4.1. Payment of Securities..................................49
SECTION 4.2. SEC Reports............................................50
SECTION 4.3. Limitation on Indebtedness.............................51
SECTION 4.4. Limitation on Restricted Payments......................53
SECTION 4.5. Limitation on Restrictions on Distributions from
Restricted Subsidiaries.............................55
SECTION 4.6. Limitation on Sales of Assets and Subsidiary Stock.....56
SECTION 4.7. Limitation on Affiliate Transactions...................59
SECTION 4.8. Change of Control......................................60
SECTION 4.9. Limitation on Liens.................................61
SECTION 4.10. Limitation on Sales of Capital Stock of Restricted
Subsidiaries........................................62
SECTION 4.11. Limitation on Designations of Special Restricted
Subsidiaries........................................62
SECTION 4.12. Limitation on Designations of Unrestricted
Subsidiaries........................................63
SECTION 4.13. Limitations on Investments in Unrestricted
Subsidiaries........................................63
SECTION 4.14. Business of the Company; Restrictions on Transfers of
Existing Business...................................64
SECTION 4.15. Payment of Additional Amounts..........................64
SECTION 4.16. Shareholder Commitments................................67
SECTION 4.17. Compliance Certificate.................................68
SECTION 4.18. Further Instruments and Acts...........................68
SECTION 4.19. Maintenance of Office or Agency........................68
ARTICLE V Successor Company.........................................69
SECTION 5.1. When Company May Merge or Transfer Assets..............69
ARTICLE VI Defaults and Remedies.....................................71
SECTION 6.1. Events of Default......................................71
SECTION 6.2. Acceleration...........................................74
SECTION 6.3. Other Remedies.........................................74
SECTION 6.4. Waiver of Past Defaults................................74
SECTION 6.5. Control by Majority....................................75
SECTION 6.6. Limitation on Suits....................................75
SECTION 6.7. Rights of Holders to Receive Payment...................76
SECTION 6.8. Collection Suit by Trustee.............................76
SECTION 6.9. Trustee May File Proofs of Claim.......................76
- ii -
<PAGE>
Page
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SECTION 6.10. Priorities.............................................76
SECTION 6.11. Undertaking for Costs..................................77
ARTICLE VII Trustee...................................................77
SECTION 7.1. Duties of Trustee......................................77
SECTION 7.2. Rights of Trustee......................................78
SECTION 7.3. Individual Rights of Trustee...........................79
SECTION 7.4. Trustee's Disclaimer...................................79
SECTION 7.5. Intentionally Omitted..................................79
SECTION 7.6. Reports by Trustee to Holders..........................79
SECTION 7.7. Compensation and Indemnity.............................80
SECTION 7.8. Replacement of Trustee.................................81
SECTION 7.9. Successor Trustee by Merger............................82
SECTION 7.10. Eligibility; Disqualification..........................82
SECTION 7.11. Preferential Collection of Claims Against Company......83
ARTICLE VIII Discharge of Indenture; Defeasance........................83
SECTION 8.1. Discharge of Liability on Securities; Defeasance.......83
SECTION 8.2. Conditions to Defeasance...............................84
SECTION 8.3. Application of Trust Money.............................86
SECTION 8.4. Repayment to Company...................................86
SECTION 8.5. Indemnity for U.S. Government Obligations..............86
SECTION 8.6. Reinstatement..........................................87
ARTICLE IX Amendments................................................87
SECTION 9.1. Without Consent of Holders.............................87
SECTION 9.2. With Consent of Holders................................88
SECTION 9.3. Compliance with Trust Indenture Act....................89
SECTION 9.4. Revocation and Effect of Consents and Waivers..........89
SECTION 9.5. Notation on or Exchange of Securities..................90
SECTION 9.6. Trustee To Sign Amendments.............................90
ARTICLE X Subsidiary Guarantee......................................90
SECTION 10.1. Subsidiary Guarantee...................................90
SECTION 10.2. Limitation on Liability................................92
SECTION 10.3. Successors and Assigns.................................93
SECTION 10.4. No Waiver..............................................93
SECTION 10.5. Right of Contribution..................................93
- iii -
<PAGE>
SECTION 10.6. No Subrogation.........................................94
SECTION 10.7. Additional Subsidiary Guarantors.......................94
SECTION 10.8. Modification...........................................94
ARTICLE XI Miscellaneous.............................................95
SECTION 11.1. Trust Indenture Act Controls...........................95
SECTION 11.2. Notices................................................95
SECTION 11.3. Communication by Holders with other Holders............96
SECTION 11.4. Certificate and Opinion as to Conditions Precedent.....97
SECTION 11.5. Statements Required in Certificate or Opinion..........97
SECTION 11.6. When Securities Disregarded............................97
SECTION 11.7. Rules by Trustee, Paying Agent and Registrar...........98
SECTION 11.8. Legal Holidays.........................................98
SECTION 11.9. Governing Law..........................................98
SECTION 11.10. No Recourse Against Others.............................98
SECTION 11.11. Successors.............................................98
SECTION 11.12. Multiple Originals.....................................98
SECTION 11.13. Variable Provisions....................................99
SECTION 11.14. Qualification of Indenture.............................99
SECTION 11.15. Table of Contents; Headings............................99
SECTION 11.16. Agent for Service; Submission to Jurisdiction; Waiver
of Immunities.......................................99
SECTION 11.17. Currency of Account; Conversion of Currency;
Foreign Exchange Restrictions......................100
EXHIBIT A Form of Initial Security
EXHIBIT B Form of Exchange Security
EXHIBIT C Form of Certificate to be Delivered in Connection with
Transfers to Non-QIB Institutional Accredited Investors
EXHIBIT D Form of Certificate to be Delivered in Connection with
Transfers Pursuant to Regulation S
EXHIBIT E Form of Certificate for Transfer from Offshore
Global Security to U.S. Global Security
- iv -
<PAGE>
INDENTURE, dated as of November 26, 1996, among TEVECAP S.A., a
sociedad anonima organized under the laws of the Federative Republic of Brazil
(the "Company"), the Subsidiary Guarantors (as defined herein), The Chase
Manhattan Bank, a New York banking corporation (the "Trustee") and Chase Trust
Bank, as Principal Paying Agent.
Each of the Company and the Subsidiary Guarantors agrees as follows
for the benefit of the other parties hereto and for the equal and ratable
benefit of the Holders of the Company's 125/8% Senior Notes due 2004 (the
"Initial Securities") and, if and when issued in exchange for Initial Securities
as provided in the Registration Rights Agreement (as hereinafter defined), the
Company's 125/8% Senior Notes due 2004 (the "Exchange Securities" and, together
with the Initial Securities, the "Securities"):
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.1. Definitions.
"Abril Credit Facility" means the Revolving Credit Facility, dated
December 6, 1995, between the Company and Abril S.A., as lender, as amended,
refinanced or replaced from time to time.
"Acquired Indebtedness" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such Person merges
with or into or consolidates with or becomes a Restricted Subsidiary of such
specified Person and (ii) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person, which Indebtedness was not incurred in
anticipation of, and was outstanding prior to, such merger, consolidation or
acquisition.
"Additional Amounts" shall have the meaning specified in Section
4.15(a) hereof.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Permitted Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary; provided, however, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Permitted Business.
<PAGE>
2
"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" have meanings correlative to the foregoing. For
purposes of Sections 4.6 and 4.7, "Affiliate" shall also include any beneficial
owner of shares representing 10.0% or more of the total voting power of the
Voting Stock (on a fully diluted basis) of the Company or of rights or warrants
to purchase such Voting Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof, and for the purposes of Section 4.7 only, shall include
(i) Bell Canada, (ii) Canbras Communications Corp., (iii) Canbras Participacoes
Ltda., (iv) Canbras TVA Cabo Ltda., (v) TV Cabo Santa Branca Comercio Ltda. and
(vi) Galaxy Latin America.
"Asset Disposition" means any sale, lease, transfer, issuance or
other disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property,
services or other assets (each referred to for the purposes of this definition
as a "disposition") by the Company or any of its Restricted Subsidiaries
(including any disposition by means of a merger, consolidation or similar
transaction) other than (i) a disposition by a Restricted Subsidiary to the
Company or by the Company or a Restricted Subsidiary to a Wholly-Owned
Restricted Subsidiary, (ii) a disposition of inventory, services or accounts
receivable in the ordinary course of business consistent with market practice,
(iii) a disposition of obsolete or worn out equipment or equipment that is no
longer useful in the conduct of the business of the Company and its Subsidiaries
and that is disposed of in each case in the ordinary course of business, and
(iv) a disposition by Galaxy Brasil of up to 25.0% of its Capital Stock to
Hughes Communications GLA and Darlene Investments, a member of the Cisneros
Group, or their respective affiliates, pursuant to the Galaxy Latin America
Partnership Agreement as it exists on the Issue Date.
"Attributable Indebtedness" in respect of a Sale/ Leaseback
Transaction means, as at the time of determination, the present value
(discounted at the interest rate borne by the Securities, compounded annually)
of the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of the date of determination, with respect
to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of the numbers of years from the date of determination
to the dates of each successive
<PAGE>
3
scheduled principal payment of such Indebtedness or redemption or similar
payment with respect to such Preferred Stock multiplied by the amount of such
payment by (ii) the sum of all such payments.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board of
Directors.
"Business Day" means each day which is not a Legal Holiday.
"California Broadcast Center" means the California Broadcast Center
LLC, the owner of an uplink center located in Long Beach, California, which
provides certain uplink services to Galaxy Latin America.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock and Disqualified Stock, but excluding any debt securities convertible into
such equity.
"Capitalized Lease Obligations" means an obligation that is required
to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP, and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under such
lease prior to the first date such lease may be terminated without penalty.
"Cash Equivalents" means, at any time, (i) any direct obligations
(or certificates representing an ownership interest in such obligations) of the
United States of America or the Federative Republic of Brazil (including any
agency or instrumentality thereof) for the payment of which the full faith and
credit of the United States of America or the Federative Republic of Brazil is
pledged and which are not callable or redeemable at the issuer's option, each
with a maturity of 180 days or less from the date of acquisition; (ii)
certificates of deposit, money market deposit accounts and acceptances with a
maturity of 180 days or less from the date of acquisition of any financial
institution that is a Brazilian regulated Bank or a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not
less than $500.0 million (or the US dollar equivalent); and (iii) commercial
paper with a maturity of 180 days or less from the date of acquisition issued by
a corporation that is not an Affiliate of the Company or any of its Subsidiaries
and is organized under the laws of any state of the United States or the
District of Columbia whose debt rating, at the time as of which such investment
is made, is at least "A-1" by Standard & Poor's Corporation or at least "P-1" by
Moody's Investors Service, Inc. or rated
<PAGE>
4
at least an equivalent rating category of another nationally recognized
securities rating agency.
"Change of Control" means the occurrence of any of the following
events:
(i) an event or series of events by which any "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one
or more Permitted Holders, is or becomes after the date of issuance of the
Securities the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act as in effect on the date of this Indenture), of more than 35.0% of
the total voting power of all Voting Stock of the Company outstanding;
(ii) (A) another corporation merges into the Company or the Company
consolidates with or merges into any other corporation or (B) the Company
conveys, transfers or leases all or substantially all its assets to any person
or group (other than any conveyance, transfer or lease between the Company and a
Wholly-Owned Subsidiary of the Company), in each case, in one transaction or a
series of related transactions with the effect that a person or group other than
one or more Permitted Holders becomes the "beneficial owner" of more than 35.0%
of all Voting Stock of the Company then outstanding;
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (or equivalent
governing body) of the Company (together with any new Directors (or equivalent
persons) whose election by the Company's Board of Directors (or equivalent
governing body), or whose nomination for election by such entity's shareholders,
was approved by a vote of a majority of the Directors (or equivalent persons)
then still in office who were either Directors (or equivalent persons) at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Directors (or equivalent persons) then in office; or
(iv) the Permitted Holders collectively shall fail to beneficially own at
least 35.0% of all Voting Stock of the Company then outstanding.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" or "SEC" means the United States Securities and
Exchange Commission, as from time to time constituted, or if at any time after
the execution of this Indenture such Commission is not existing and performing
the applicable duties now assigned to it, then the body or bodies performing
such duties at such time.
<PAGE>
5
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by any two of its Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer, President or a Vice
President or its Secretary or an Assistant Secretary, and delivered to the
Trustee.
"Consolidated Income Tax Expense" means, with respect to any Person,
for any period the aggregate of the federal, state, local and foreign income tax
expense of such Person and its Subsidiaries for such period, on a consolidated
basis as determined in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent incurred by the Company or its Restricted Subsidiaries, (i) interest
expense attributable to Capitalized Lease Obligations, (ii) amortization of debt
discount, (iii) capitalized interest, (iv) non-cash interest expenses, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) the net costs associated with
Hedging Obligations (including amortization of fees), (vii) Preferred Stock
dividends in respect of all Preferred Stock of the Company or a Wholly-Owned
Restricted Subsidiary, (viii) interest accruing on any Indebtedness of any other
Person to the extent such Indebtedness is Guaranteed by the Company or any
Restricted Subsidiary and (ix) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income
(loss) of the Company and its consolidated Subsidiaries; provided, however, that
there shall not be included in such Consolidated Net Income: (i) any net income
(loss) of any Person if such Person is not a Restricted Subsidiary, except that
(A) subject to the limitations contained in clause (iv) below, the Company's
equity in the net income of any such Person for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person (other than an Unrestricted Subsidiary) for such
period shall be included in determining such Consolidated Net Income; (ii) any
net income (loss) of any person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income (loss) of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject
<PAGE>
6
to the limitations contained in (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash that could have
been distributed by such Restricted Subsidiary during such period to the Company
or another Restricted Subsidiary as a dividend (subject, in the case of a
dividend that could have been made to another Restricted Subsidiary, to the
limitation contained in this clause) and (B) the Company's equity in a net loss
of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income; (iv) any gain (but not loss) realized
upon the sale or other disposition of any assets of the Company or its
consolidated Subsidiaries which are not sold or otherwise disposed of in the
ordinary course of business and any gain (but not loss) realized upon the sale
or other disposition of any Capital Stock of any Person; (v) any extraordinary
gain or loss; and (vi) the cumulative effect of a change in accounting
principles.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and the Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii) paid
in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at 450 West 33rd Street, 15th floor, New York, NY 10001-2697, Attention: Global
Trust Services - International Service Delivery.
"Cumulative Consolidated Interest Expense" means, as of any date of
determination, Consolidated Interest Expense from October 1, 1996 to the end of
the Company's most recently ended full fiscal quarter for which financial
statements are available prior to such date, taken as a single accounting
period.
"Cumulative Operating Cash Flow" means, as of any date of
determination, Operating Cash Flow from October 1, 1996 to the end of the
Company's most recently ended full fiscal quarter for which financial statements
are available prior to such date, taken as a single accounting period.
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement as to
which such Person is a party or a beneficiary.
<PAGE>
7
"CVM" means the Comissao de Valores Mobiliarios, the equivalent of
the Commission in Brazil.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees and
their respective successors.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock of such Person which 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 (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the first anniversary of the
Stated Maturity of the Securities.
"Equipment Agreements" means the Equipment Lease Agreement, dated as
of July 30, 1996, between Citibank N.A., as lessor, and Galaxy Brasil, as
lessee, and related agreements, and the Equipment Sale and Leaseback Agreement,
dated as of July 30, 1996, between Citibank N.A., as lessor, and Galaxy Brasil,
as lessee, and related agreements, as each such agreement may be amended,
supplemented or otherwise modified from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"EximBank Credit Agreement" mean the Credit Agreement to be entered
into among the Company, The Chase Manhattan Bank, as lender, and the
Export-Import Bank of the United States, as amended, supplemented or otherwise
modified from time to time.
"Fair Market Value" means, with respect to any asset, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of which is under
compulsion to complete the transaction. The Fair Market Value of any asset or
assets shall be determined by the Board of Directors of the Company, acting in
good faith, and shall be evidenced by a resolution of such Board of Directors
provided to the Trustee; provided that, solely for purposes of Section 4.6(a)(i)
the Company shall be deemed not to have received Fair Market Value for an Asset
Disposition unless (a) in the event such Asset Disposition involves an aggregate
amount in excess of $2.0 million, the terms of such transaction have been
approved by a majority of the members of the Board of Directors of the Company
and by a majority of the members of such Board having no personal stake in such
Asset Disposition, if any, and (b) in the event such Asset
<PAGE>
8
Disposition involves an aggregate amount in excess of $20.0 million, the Company
has received a written opinion from an independent investment banking firm of
nationally recognized standing in the United States that such Asset Disposition
is fair to the Company or such Restricted Subsidiary, as the case may be, from a
financial point of view (except that no such opinion shall be required in
connection with a public offering of common stock of a Restricted Subsidiary
either (A) registered under the Securities Act and/or (B) registered with the
CVM and listed on the Sao Paulo Stock Exchange or Rio de Janeiro Stock
Exchange).
"Galaxy Brasil" means Galaxy Brasil S.A., a Restricted Subsidiary of
the Company on the Issue Date.
"Galaxy Brasil Subscribers" means, as of any date, the number of
subscribers to the pay television services offered by Galaxy Brasil, excluding
subscribers who have paid an installation fee to Galaxy Brasil at such date but
who are awaiting installation of such services.
"Galaxy Latin America" means Galaxy Latin America, a Delaware
general partnership in which the Company holds a 10% equity interest on the
Issue Date.
"Galaxy Latin America Partnership Agreement" means the Partnership
Agreement, dated February 13, 1995, as in effect on the Issue Date, among Galaxy
Brasil and a unit of Hughes Electronics, a member of the Cisneros Group and a
subsidiary of Grupo MVS.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time, including those 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 approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
this Indenture shall be computed in conformity with GAAP as in effect on the
Issue Date.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation of any other Person (whether arising
by virtue of partnership arrangements, or by agreement 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 of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term
<PAGE>
9
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the Security Registrar's books.
"Incur" or "incur" means issue, assume, Guarantee, incur or
otherwise become liable for; provided, however, that any Indebtedness or Capital
Stock of a Person existing at the time such person becomes a Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be
incurred by such Subsidiary at the time it becomes a Subsidiary. The term
"Incurrence" when used as a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto), (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services, which purchase price is due more than six months after the date of
placing such property in service or taking delivery and title thereto or the
completion of such services, (v) all Capitalized Lease Obligations of such
Person and all Attributable Indebtedness of such Person, (vi) all Indebtedness
of other Persons secured by a Lien on any asset of such Person, whether or not
such Indebtedness is assumed by such Person, provided, however, that the amount
of Indebtedness of such Person shall be the lesser of (A) the fair market value
of such asset at such date of determination and (B) the amount of such
Indebtedness of such other Persons, (vii) all Indebtedness of other Persons to
the extent Guaranteed by such Person, (viii) the amount of all obligations of
such Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of the Company, any
Preferred Stock (but excluding, in each case, any accrued dividends) and (ix) to
the extent not otherwise included in this definition, Hedging Obligations of
such Person; provided, however, that in no event shall Indebtedness include
Trade Payables not overdue or being contested in good faith. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date.
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10
"Indebtedness to Annualized Operating Cash Flow Ratio" means, as of
any date of determination, the ratio of (i) the aggregate principal amount of
all outstanding Indebtedness of the Company and its Restricted Subsidiaries as
of such date plus, without duplication, the aggregate liquidation preference or
redemption amount of all Disqualified Stock of the Company (excluding any such
Disqualified Stock (x) held by the Company or a Wholly-Owned Restricted
Subsidiary of the Company or (y) outstanding on the Issue Date), to (ii)
Operating Cash Flow of the Company and its Restricted Subsidiaries for the most
recently ended fiscal quarter for which financial statements are available prior
to such date multiplied by four, determined on a pro forma basis (and after
giving pro forma effect to (A) the incurrence of such Indebtedness and (if
applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred, and the
application of such proceeds occurred, at the beginning of such period; (B) the
incurrence, repayment or retirement of any other Indebtedness by the Company and
its Restricted Subsidiaries since the first day of such period as if such
Indebtedness was incurred, repaid or retired at the beginning of such period
(except that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based upon the average balance of
such Indebtedness at the end of each month during such period); (C) in the case
of Acquired Indebtedness, the related acquisition as if such acquisition had
occurred at the beginning of such period; and (D) any acquisition or disposition
by the Company and its Restricted Subsidiaries (or by any Person that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) of any
company or any business or any assets out of the ordinary course of business, or
any related repayment of Indebtedness, in each case since the first day of such
period, assuming such acquisition or disposition had been consummated on the
first day of such period). For purposes of this definition, whenever pro forma
effect is to be given to a transaction, the pro forma calculation shall be made
in good faith by a responsible financial or accounting officer of the Company.
"Indemnification Agreement" means the Indemnification Agreement to
be entered into among the Company, Galaxy Latin America, Hughes Communications
GLA and affiliates thereof, California Broadcast Center, TVA Communications
Ltd., Darlene Investments, Inversiones Divtel, D.T., C.A., Grupo Frecuencia
Modulada Television and Grupo MVS.
"Indenture" means this Indenture as amended or supplemented from
time to time.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act.
<PAGE>
11
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect advance,
loan (other than advances to customers in the ordinary course of business that
are recorded as accounts receivable on the balance sheet of such Person) or
other extension of credit (including by way of Guarantee or similar arrangement,
but excluding any debt or extension of credit represented by a bank deposit
other than a time deposit) or capital contribution to (by means of any transfer
of cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person.
"Issue Date" means the date on which the Initial Securities are
originally issued.
"Legal Holiday" has the meaning ascribed in Section 11.8.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Minority Investment" means any Investment by the Company or any
Restricted Subsidiary in an entity or Person in which the Company or such
Restricted Subsidiary owns or controls 50.0% or less of the total voting power
of the Capital Stock or other equity interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees of any such entity or Person.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred, and all Federal, state, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in
<PAGE>
12
accordance with the terms of any Lien upon such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset Disposition, or
by applicable law, be repaid out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments required to be made to any Person
owning a beneficial interest in assets subject to sale or minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Disposition
and (iv) the deduction of appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
assets disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary of the Company after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Newly-Licensed Service Area" means a service area in which (i) such
Special Restricted Subsidiary is licensed to provide any of Cable or MMDS
service and (ii) neither the Company nor any Restricted Subsidiary is then
licensed to provide such Cable or MMDS service in such service area on the Issue
Date.
"Non-U.S. person" means a person who is not a U.S. person, as
defined in Regulation S.
"Offering Memorandum" means the Offering Memorandum dated November
21, 1996 relating to the Initial Securities.
"Officer" means the President, Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer, any Vice President, the Treasurer or
the Secretary of the Company, as applicable.
"Officers' Certificate" means a certificate signed by two Officers.
"Offshore Global Security" shall have the meaning set forth in
Section 2.1 hereof.
"Offshore Physical Security" shall have the meaning set forth in
Section 2.1 hereof.
"Operating Cash Flow" means, for any period, the Consolidated Net
Income (Loss) of the Company and its Restricted Subsidiaries for such period,
plus, without
<PAGE>
13
duplication, (i) extraordinary net losses and net losses on sales of assets
outside the ordinary course of business during such period, to the extent such
losses were deducted in computing Consolidated Net Income (Loss), plus (ii)
Consolidated Income Tax Expense, and any provision for taxes utilized in
computing the net losses under clause (i) hereof, plus (iii) Consolidated
Interest Expense (income), net, plus (iv) Other nonoperating (expenses) income,
net (v) depreciation, amortization and all other non-cash charges, to the extent
such depreciation, amortization and other non-cash charges were deducted in
computing such Consolidated Net Income (Loss) (including amortization of
goodwill and other intangibles) (other than non-cash charges which require an
accrual or reserve for cash charges in future periods), less (vi) non-cash items
increasing Consolidated Net Income (Loss) of such Person for such period
(excluding any items which represent the reversal of any accrual of, or cash
reserve for, anticipated cash charges in any prior period and excluding the
amortization of deferred sign-on and hook-up fee revenue).
"Opinion of Counsel" means a written opinion from legal counsel who
is acceptable to the Trustee. The counsel may be an employee of or counsel to
the Company or the Trustee.
"Paying Agent" means any person authorized by the Company to pay the
principal, premium, if any, interest (or Additional Amounts) on any Securities
on behalf of the Company. The Company may so authorize a principal Paying Agent
and one or more co-Paying Agents.
"Permitted Business" means (i) the delivery or distribution of
television, radio, paging or other telecommunications services in Latin America
and Portugal and (ii) any business or activity reasonably related thereto,
including, without limitation, any business conducted by the Company or any
Restricted Subsidiary on the Issue Date, the acquisition, holding or
exploitation of any license relating to the delivery of the services described
in clause (i) of this definition, the development or acquisition of rights to
programming for delivery or distribution in accordance with clause (i) of this
definition and any other business involving voice, data or video
telecommunications services.
"Permitted Holders" means each of Abril S.A., Falcon International
Communications LLC, Falcon International Communications L.P., Falcon
International Communications (Bermuda) L.P., The Hearst Corporation, ABC, Inc.
and Chase Manhattan International Finance Ltd. and any entity of which any of
the foregoing, individually or collectively, beneficially owns more than 50.0%
of the Voting Stock.
"Permitted Investment" means (i) an Investment by the Company or any
of its Restricted Subsidiaries in the Company or a Restricted Subsidiary of the
Company or a Person which will, upon making such Investment, become a Restricted
Subsidiary; provided,
<PAGE>
14
however, that the primary business of such Restricted Subsidiary is a Permitted
Business; (ii) any Investment in the California Broadcast Center by the Company
or a Restricted Subsidiary in an amount not to exceed $10.0 million and, upon
the repayment in full of such Investment by the California Broadcast Center to
the Company, the Investment of such amount in Galaxy Latin America; and (iii)
Temporary Cash Investments.
"Permitted Liens" means, (i) Liens for taxes, assessments or other
governmental charges not yet delinquent or which are being contested in good
faith and by appropriate proceedings if adequate reserves with respect thereto
are maintained on the books of the Company or such Subsidiary, as the case may
be, in accordance with GAAP; (ii) carriers', warehousemen's, mechanics',
landlords', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business in respect of obligations which are not yet due or
which are bonded or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of the Company or such Restricted Subsidiary, as the case may be, in
accordance with GAAP; (iii) pledges or deposits in connection with workmen's
compensation, unemployment insurance and other social security legislation; (iv)
deposits to secure the performance of bids, tenders, trade or government
contracts (other than for borrowed money), leases, licenses, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
a like nature incurred in the ordinary course of business; (v) judgment or
attachment Liens against the Company or any of its Restricted Subsidiaries not
giving rise to an Event of Default; (vi) Liens arising by operation of law;
(vii) Liens in favor of the Company or any Wholly-Owned Restricted Subsidiary of
the Company; (viii) Liens securing Indebtedness Incurred by the Company in
compliance with Section 4.3(b)(i); (ix) Liens on property and assets (together
with accounts receivable arising from such property and assets) of Galaxy Brasil
acquired with the proceeds of Indebtedness Incurred by Galaxy Brasil in
compliance with Section 4.3(b)(viii) or with the proceeds of other Indebtedness
Incurred in compliance with this Indenture, provided that such Liens may not
secure Indebtedness exceeding an amount equal to the greater of (A) the amount
permitted to be Incurred pursuant to Section 4.3(b)(viii) and (B) an amount
equal to the Operating Cash Flow of Galaxy Brasil for the four most recent
fiscal quarters for which financial statements are available prior to the date
of Incurrence; (x) Liens on real or personal property of the Company or a
Restricted Subsidiary of the Company acquired, constructed or constituting
improvements made after the Issue Date to secure Purchase Money Indebtedness
Incurred after the Issue Date in compliance with the Indenture; provided, that
(A) such Liens do not extend to any assets other than the assets so acquired,
(B) such Liens shall be created no later than 10 days after the acquisition of
such assets and (C) the principal amount of such Indebtedness secured by such a
Lien does not exceed 80% of such purchase price or cost of construction or
improvement of the property subject to such Lien; (xi) Liens existing on the
Issue Date; (xii) the pledge by the Company (A) to the other members of Galaxy
Latin America of warrants and promissory notes it holds in the California
Broadcast Center to
<PAGE>
15
secure its obligations under the Equipment Agreements and the contribution
agreement to be entered into in connection with the SurFin Guarantee and the
pledge of such warrants and promissory notes, together with the equity interest
it holds of Galaxy Latin America, to secure its tax indemnity obligations under
the Indemnification Agreement and (B) to Falcon International of the shares of
Capital Stock of the Company purchased with Put Promissory Notes; and (xiii)
Liens to secure Indebtedness Incurred to extend, renew, refinance or refund (or
successive extensions, renewals, refinancings or refundings), in whole or in
part, Indebtedness secured by any Lien referred to in the foregoing clauses
(vii), (viii), (ix), (x) and (xi) so long as such Lien does not extend to any
other property and the principal amount of Indebtedness so secured is not
increased except as otherwise permitted under the definition of Refinancing
Indebtedness.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision hereof or any other entity.
"Physical Security" shall have the meaning set forth in Section 2.1
hereof.
"Predecessor Security" means, with respect to any particular
Security, every previous Security evidencing all or a portion of the same debt
as that evidenced by such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 2.6 hereof in
exchange for a mutilated Security or in lieu of a lost, destroyed or stolen
Security shall be deemed to evidence the same debt as the mutilated, lost,
destroyed or stolen Security.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Security means the principal of the Security plus
the premium, if any, payable on the Security which is due or overdue or is to
become due at the relevant time.
"Purchase Money Indebtedness" means Indebtedness (i) consisting of
the deferred purchase price of property, conditional sale obligations,
obligations under any title retention agreement and other purchase money
obligations, in each case where the maturity of such Indebtedness does not
exceed the anticipated useful life of the asset being financed, and (ii)
incurred to finance the acquisition by the Company or a Restricted Subsidiary of
such asset, including additions or improvements.
<PAGE>
16
"Put Promissory Notes" means any promissory notes which may be
issued by the Company to Falcon International pursuant to the Stockholders
Agreement, as amended, in the event the Indenture prohibits the Company from
purchasing shares of Capital Stock held by such stockholder; provided that (a)
such notes have been expressly subordinated in right of payment in full to the
Securities (including principal, interest and premium, if any, and as a
consequence of any repurchase, redemption, or other repayment of the Securities,
by way of optional redemption, Asset Sale Offer or Change of Control Offer to
the extent any applicable rights to repayment are exercised by the
Securityholders), (b) such notes are not Guaranteed by any of the Company's
Subsidiaries and are not secured by any Lien on any property or asset of the
Company or any Restricted Subsidiary (other than by the pledge of the shares of
Capital Stock of the Company purchased with Put Promissory Notes), (c) such
notes do not have a Stated Maturity of principal or any redemption or repurchase
or other similar provision (upon a default or otherwise) earlier than a date at
least one year after the final Stated Maturity of the Securities; and (d) such
notes bear interest at a rate consistent with the terms of the Stockholders
Agreement, as amended; provided, further, that payments of interest on such
notes may be made solely to the extent Restricted Payments in like amount may
then be made in accordance with Section 4.4, with any such interest payment
being included in the calculation of whether the conditions of Section 4.4(a)(z)
have been met with respect to any subsequent Restricted Payments.
"QIB" means any "qualified institutional buyer" (as defined under
the Securities Act).
"Redemption Date" means the date specified by the Company in a
notice delivered pursuant to Section 3.3 as the date on which the Company has
elected to redeem Securities pursuant to paragraph 5 or 6 of the Securities.
"Refinancing Indebtedness" means Indebtedness that is Incurred to
refund, refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and "refinanced"
shall have a correlative meaning) any Indebtedness existing on the date of the
Indenture or Incurred in compliance with the Indenture (including Indebtedness
of the Company that refinances Indebtedness of any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness, provided, however, that (i) in respect of Indebtedness
having a Stated Maturity after the Stated Maturity of the Securities, the
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being refinanced, (ii) in respect of Indebtedness
having a Stated Maturity prior to the Stated Maturity of the Securities, the
Refinancing Indebtedness bears an interest rate materially lower than that of
the Indebtedness being refinanced, (iii) the Refinancing Indebtedness has an
Average Life at the time such Refinancing Indebtedness is Incurred that is equal
to or greater than the Average Life of the Indebtedness being refinanced, (iv)
such Refinancing Indebtedness is
<PAGE>
17
Incurred in an aggregate principal amount (or if issued with original issue
discount, an aggregate issue price) that is equal to or less than the sum of the
aggregate principal amount (or if issued with original issue discount, the
aggregate accredited value) then outstanding of the Indebtedness being
refinanced and (v) the Refinancing Indebtedness shall be subordinated or pari
passu (whichever is applicable) in right of payment to the Securities to the
same extent as the Indebtedness being refinanced is subordinated or pari passu
in right of payment to the Securities; provided, further, that Refinancing
Indebtedness shall not include Indebtedness of a Restricted Subsidiary which
refinances Indebtedness of the Company or Indebtedness of the Company or a
Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary. Notwithstanding the foregoing, in the case of Indebtedness
represented by obligations described in clause (iv) of the definition of
"Indebtedness," the re-incurrence of such Indebtedness within 60 days after the
repayment thereof shall be deemed to be Refinancing Indebtedness for purposes of
this definition; provided, however, that it otherwise complies with the terms of
this definition and that the amount of such Indebtedness deemed to be
Refinancing Indebtedness hereunder shall not exceed $50.0 million at any one
time.
"Registered Exchange Offer" shall have the meaning set forth in the
Registration Rights Agreement.
"Registration Rights Agreement" means the Exchange and Registration
Rights Agreement, dated November 26, 1996 among the Company, the Subsidiary
Guarantors, Chase Securities Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, Bear, Stearns & Co. Inc. and Bozano, Simonsen Securities, Inc. (the
"Initial Purchasers").
"Regulation S" means Regulation S under the Securities Act.
"Restricted Subsidiary" means any Subsidiary of the Company that is
not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Person owning such property
transfers such property to another Person and leases it back from such Person.
"Securities" means the Securities issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
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18
"Securities Custodian" means the custodian with respect to the
Global Securities (as appointed by the Depositary), or any successor Person
thereto and shall initially be the Trustee.
"Senior Credit Facility" means any senior credit facility (whether a
term or a revolving facility) as such credit facility may be amended, modified,
supplemented, restated or replaced from time to time.
"Shareholder Commitments" shall have the meaning specified in
Section 4.16 hereof.
"Shelf Registration Statement" has the meaning ascribed thereto in
the Registration Rights Agreement.
"Significant Equity Offering" means either (i) a public offering of
Common Stock of the Company either (A) registered under the Securities Act
and/or (B) registered with the CVM and listed on the Sao Paulo Stock Exchange or
Rio de Janeiro Stock Exchange or (ii) an offering on behalf of the Company
pursuant to Rule 144A under the Securities Act of Common Stock of the Company to
100 or more beneficial holders if such Common Stock is thereafter included for
trading privileges in the PORTAL trading system of Nasdaq.
"Special Restricted Subsidiary" means any Restricted Subsidiary of
the Company that has been designated by the Board of Directors, by a Board
Resolution delivered to the Trustee, as a Special Restricted Subsidiary and as
to which there has not been an effective revocation, in each case in accordance
with Section 4.11.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable.
"Stockholders Agreement" means the Stockholders Agreement dated
December 6, 1995, by and among the Company, Robert Civita, Abril S.A., Harpia
Holdings Limited, Curupia Holdings Limited, Falcon International Communications
Ltd., Hearst/ABC Video Services II and Cable Participacoes Ltda, as it has been
amended to date.
"Strategic Investor" means any Person engaged in a Permitted
Business that as of the date of determination has a Total Equity Market
Capitalization of at least $1.0 billion.
<PAGE>
19
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement.
"Subordinated Shareholder Loans" means Indebtedness of the Company
for money borrowed from a shareholder beneficially owning at least 5.0% of the
issued and outstanding shares of common stock of the Company (or any Affiliate
of such shareholder), provided that (A) such Indebtedness (and any refinancing
thereof) has been expressly subordinated in right of payment to the prior
payment in full of all Indebtedness (including principal, interest and premium,
if any, under the Securities and this Indenture) of the Company (including as a
consequence of any repurchase, redemption or other repayment of the Securities,
by way of optional redemption, Asset Sale Offer, or Change of Control Offer to
the extent any applicable rights to repayment are exercised by the
Securityholders), (B) such Indebtedness (and any refinancing thereof) is not
Guaranteed by any of the Company's Subsidiaries and is not secured by any Lien
on any property or asset of the Company or any Restricted Subsidiary, (C) such
Indebtedness (and any refinancing thereof) does not have a Stated Maturity of
principal or any redemption or repurchase or other similar provision (upon a
default or otherwise) earlier than a date at least one year after the final
Stated Maturity of the Securities and (D) such Indebtedness bears interest at a
rate consistent with prevailing market practice for subordinated loans (as
certified to the Trustee in an Officers' Certificate); provided further that
payments of interest on such Indebtedness (and any refinancing thereof) may be
made solely to the extent Restricted Payments in like amount may then be made in
accordance with Section 4.4, with any such interest payment being included in
the calculation of whether the conditions of Section 4.4(a)(z) have been met
with respect to any subsequent Restricted Payments.
"Subsidiary" of any Person means any corporation, association,
partnership, joint venture or other business entity (i) of which more than 50.0%
of the total voting power of shares of Capital Stock or other interests
(including partnership interests) 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 (A) such
Person, (B) such Person and one or more Subsidiaries of such Person or (C) one
or more Subsidiaries of such Person and (ii) which is controlled by such Person.
Unless otherwise specified herein, each reference to a Subsidiary shall refer to
a Subsidiary of the Company.
"Subsidiary Guarantors" means each Subsidiary of the Company in
existence on the Issue Date and each Restricted Subsidiary created or acquired
by the Company after the Issue Date and which becomes a party hereto pursuant to
Section 10.7.
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20
"Subsidiary Guarantee" means the Guarantee of the Securities by the
Subsidiary Guarantors set forth in Article X, a notation of which shall be
endorsed on the Securities in the form attached hereto as part of Exhibits A and
B.
"SurFin Guarantee" means the Guarantee, dated as of September 18,
1996, by the Company in favor of Citicorp USA, Inc. as such guarantee may be
amended, modified, supplemented or restated from time to time.
"Taxes" means any tax, duty, levy, impost, assessment or other
governmental charge (including penalties, interest and any other liabilities
related thereto) imposed or levied by or on behalf of a Taxing Authority.
"Taxing Authority" means the government of the Federative Republic
of Brazil or of Japan or any state of the Federative Republic of Brazil or of
Japan or any political subdivision or territory or possession of the government
of the Federative Republic of Brazil or of Japan or any jurisdiction in which
the Company or a Subsidiary Guarantor is engaged in business for tax purposes or
is resident for withholding tax purposes or, in all such instances, any
authority or agency therein or thereof having power to tax.
"Temporary Cash Investments" means any of the following: (i) any
Investment in direct obligations of the United States of America or any agency
thereof or obligations Guaranteed by the United States of America or any agency
thereof, (ii) Investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital, surplus and undivided
profits aggregating in excess of $250 million (or the foreign currency
equivalent thereof) and whose long-term debt, or whose parent holding company's
long-term debt, is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act), (iii) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clause (i) above entered into with a bank meeting the qualifications described
in clause (ii) above, (iv) Investments in commercial paper, maturing not more
than 180 days after the date of acquisition, issued by a corporation (other than
an Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard and Poor's Ratings Group.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date of this Indenture.
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21
"Total Equity Market Capitalization" of any Person means, as of any
date of determination, the product of (i) the aggregate number of outstanding
shares of Common Stock of such Person on such date (which shall not include any
options or warrants on, or securities convertible or exchangeable into, shares
of Common Stock of such Person) and (ii) the average closing price of such
Common Stock over the 20 consecutive trading days immediately preceding such
date. If no such closing price exists with respect to shares of any such class,
the value of such shares shall be determined by the Board of Directors in good
faith and evidenced by a resolution of the Board of Directors filed with the
Trustee.
"Trade Payables" means, with respect to any Person, any accounts
payable or any indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person (including letters of credit issued in
respect thereof) arising in the ordinary course of business in connection with
the acquisition of either (x) current assets as characterized in accordance with
GAAP or (y) services which are currently expensed in accordance with GAAP.
"Transfer Restricted Securities" means Securities that bear or are
required to bear the Restricted Securities legend set forth in Exhibit A hereof.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or
any other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
(other than a Subsidiary Guarantor) designated as such pursuant to and in
compliance with Section 4.12 and (ii) any Subsidiary of an Unrestricted
Subsidiary.
"US Dollar Equivalent" means, with respect to any monetary amount in
a currency other than the US dollar at any one time for the determination
thereof, the amount of US dollars obtained by converting such foreign currency
involved in such computation into US dollars at the spot rate for the purchase
of US dollars with the applicable foreign currency as quoted by Reuters at
approximately 11:00 a.m. (New York time) on the date not more than two business
days prior to such determination. For purposes of determining whether any
Indebtedness can be incurred (including Permitted Indebtedness), any Investment
can be made and any Affiliate Transaction can be undertaken (a "Tested
Transaction"), the
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22
"US Dollar Equivalent" of such Indebtedness, Investment or Affiliate Transaction
shall be determined on the date incurred, made or undertaken and no subsequent
change in the US Dollar Equivalent shall cause such Tested Transaction to have
been incurred, made or undertaken in violation of the Indenture.
"U.S. Global Security" shall have the meaning set forth in Section
2.1 hereof.
"US Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"U.S. Physical Security" shall have the meaning set forth in Section
2.1 hereof.
"Voting Stock" of a corporation means all classes of Capital Stock
of such corporation then outstanding and normally entitled to vote in the
election of directors.
"Wholly-Owned Subsidiary" means a Subsidiary of the Company, at
least 95.0% of the Capital Stock of which (other than directors' qualifying
shares) is owned by the Company or another Wholly-Owned Subsidiary of the
Company.
SECTION 1.2. Other Definitions.
Defined in
----------
Term Section
"Affiliate Transaction".................................. 4.7
"Agent Member"........................................... 2.14(a)
"Bankruptcy Law"......................................... 6.1
"covenant defeasance option"............................. 8.1(b)
"Custodian".............................................. 6.1
"Event of Default"....................................... 6.1
"Global Security"........................................ 2.1
"legal defeasance option"................................ 8.1(b)
"Restricted Payment"..................................... 4.4
"Security Register"...................................... 2.5
"Security Registrar"..................................... 2.5
"Successor Company"...................................... 5.1
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23
SECTION 1.3. Incorporation by Reference of Trust Indenture Act. This
Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee"
means the Trustee.
"obligor" on the indenture securities means the Company and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by the TIA reference to another statute or defined by SEC rule have
the meanings assigned to them by such definitions.
SECTION 1.4. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
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24
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof that
would be shown on a balance sheet of the issuer dated such date prepared
in accordance with GAAP; and
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to such
Preferred Stock, whichever is greater.
ARTICLE II
The Securities
SECTION 2.1. Title and Terms; Form. The aggregate principal amount
of Securities which may be authenticated and delivered under this Indenture is
limited to US$250,000,000 in aggregate principal amount of Initial Securities
and Exchange Securities, except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Securities
pursuant to Section 2.3, 2.4, 2.5, 2.6, 3.6, 4.6, 4.8 or 9.5.
The Securities shall be known and designated as the "125/8 Senior
Notes due 2004" of the Company. The final Stated Maturity of the Securities
shall be November 26, 2004, and the Securities shall bear interest at the rate
of 125/8% per annum (as adjusted pursuant to the Registration Rights Agreement)
from the Issue Date or from the most recent interest payment date to which
interest has been paid, as the case may be, payable semi-annually on May 26 and
November 26, in each year, commencing on May 26, 1997, until the principal
thereof is paid or duly provided for. Interest on any overdue principal,
interest (to the extent lawful) or premium, if any, shall be payable on demand.
The Exchange Securities may be issued only in exchange for a like
principal amount of Initial Securities pursuant to the Registered Exchange
Offer.
Initial Securities offered and sold in reliance on Rule 144A shall
be issued initially in the form of one or more global securities (the "U.S.
Global Security") and Initial Securities offered and sold in reliance on
Regulation S shall be issued initially in the form of one or more global
securities (the "Offshore Global Security" and together with the U.S. Global
Security, the "Global Securities"), each substantially in the form set forth in
Exhibit A hereof, deposited with the Trustee, as custodian of the Depositary,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal
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25
amount of any Global Security may from time to time be increased or decreased by
adjustments made on the Register maintained by the Security Registrar, as herein
provided.
Initial Securities which are offered and sold to Institutional
Accredited Investors which are not QIBs (excluding Non-U.S. persons) shall be
issued in the form of permanent certificated Securities in registered form (the
"U.S. Physical Securities"). Securities issued pursuant to Section 2.14 in
exchange for interests in the U.S. Global Security shall be in the form of U.S.
Physical Securities. Securities issued in exchange for interests in the Offshore
Global Security pursuant to Section 2.14 shall be in the form of permanent
certificated Securities in registered form (the "Offshore Physical Securities"
and together with the U.S. Physical Securities, the "Physical Securities").
Physical Securities shall be in substantially the form set forth in
Exhibit A and Exhibit B hereof excluding the Global Securities Legend.
The principal of, premium, if any, and interest (and any Additional
Amounts) on Global Securities shall be payable to the Depositary or its nominee,
as the case may be, as the sole registered owner and the sole holder of the
Global Securities represented thereby. The principal of, premium, if any, and
interest on Physical Securities shall be payable at the office or agency of the
Company maintained for such purpose in The City of New York, or at such other
office or agency of the Company as may be maintained for such purpose; provided,
however, that at the option of the Company interest may be paid by check mailed
to the addresses of the persons entitled thereto as such addresses shall appear
on the Security Register.
During the period beginning on the later of the Issue Date and the
last date on which the Company or any Affiliate of the Company was the owner of
an Initial Security (or any Predecessor Security) and ending on the date three
years (or such shorter period of time as permitted by Rule 144(k) under the
Securities Act or any successor provision thereunder) from any such date, any
Initial Security issued or owned during the period set forth above, as the case
may be, and any Security issued upon registration of transfer of, or in exchange
for, or in lieu of, such Initial Security, shall be deemed a "Transfer
Restricted Security" and shall be subject to the restrictions on transfer
provided in the legend set forth on the face of the form of Initial Security in
Exhibit A; provided, however, that the term "Transfer Restricted Security" shall
not include (a) any Initial Security which is issued upon transfer of, or in
exchange for, any Security which is not a Transfer Restricted Security or (b)
any Initial Security as to which such restrictions on transfer have been
terminated in accordance with Section 2.5, (c) any Exchange Security issued
pursuant to the Registered Exchange Offer or (d) any Exchange Security covered
by a Shelf Registration Statement. Any Transfer Restricted Security shall bear
the legend set forth on the face of the Initial Security in Exhibit A (the
"Private Placement Legend").
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26
SECTION 2.2. Denominations. The Securities shall be issuable only in
registered form without coupons and only in denominations of US$1,000 and any
integral multiple thereof.
SECTION 2.3. Execution, Authentication, Delivery and Dating. The
Securities shall be executed on behalf of the Company by the manual or facsimile
signature of any two of its Chief Executive Officer, Chief Operating Officer,
Chief Financial Officer, its President, one of its Executive Vice Presidents,
its Secretary, Assistant Secretary or General Counsel.
Securities bearing the manual or facsimile signature of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices on the date of such Securities.
At any time and from time to time upon or after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a Company Order for
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as
provided in this Indenture and not otherwise. On Company Order, the Trustee or
an authenticating agent shall authenticate for original issue Exchange
Securities in an aggregate principal amount not to exceed US$250,000,000;
provided that such Exchange Securities shall be issuable only upon the valid
surrender for cancellation of Initial Securities of a like aggregate principal
amount in accordance with the Registered Exchange Offer pursuant to the
Registration Rights Agreement. In each case, the Trustee shall be entitled to
receive an Officers' Certificate and an Opinion of Counsel of the Company that
it may reasonably request in connection with such authentication of Securities.
Such order shall specify the amount of Securities to be authenticated and the
date on which the original issue of Securities is to be authenticated. The
aggregate principal amount of Securities outstanding at any time may not exceed
US$250,000,000 except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Securities
pursuant to Section 2.1.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for in Exhibit
A and Exhibit B hereto duly executed by the Trustee by manual signature of an
authorized representative, and such certificate upon any Security shall be
conclusive evidence, and the only evidence, that such Security has been duly
authenticated and delivered hereunder.
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27
In case the Company, pursuant to Article V, shall be consolidated,
amalgamated, merged with or into any other Person or shall convey, transfer or
lease substantially all of its properties and assets to any Person, and the
successor Person resulting from such consolidation, amalgamation or surviving
such merger, or into which the Company shall have been merged, or the Person
which shall have received a conveyance, transfer or lease as aforesaid, shall
have executed an indenture supplemental hereto with the Trustee pursuant to
Article V, any of the Securities authenticated or delivered prior to such
consolidation, amalgamation, merger, conveyance, transfer or lease may, from
time to time, at the request of the successor Person, be exchanged for other
Securities executed in the name of the successor Person with such changes in
terminology and form as may be appropriate, but otherwise in substance of like
tenor as the Securities surrendered for such exchange and of like principal
amount; and the Trustee, upon Company Order of the successor Person, shall
authenticate and deliver replacement Securities as specified in such request for
the purpose of such exchange. If such Securities shall at any time be
authenticated and delivered in any new name of a successor Person pursuant to
this Section 2.3 in exchange or substitution for or upon registration of
transfer of any Securities, such successor Person, at the option of the Holders
but without expense to them, shall provide for the exchange of all Securities at
the time Outstanding for Securities authenticated and delivered in such new
name.
The Trustee may appoint an authenticating agent to authenticate
Securities on behalf of the Trustee if directed to do so by a Company Order.
Each reference in this Indenture to authentication by the Trustee includes
authentication by each such agent. An authenticating agent has the same rights
as any Security Registrar or Paying Agent to deal with the Company and its
Affiliates.
If any of the Securities are to be issued in the form of one or more
Global Securities, then the Company shall execute and the Trustee shall
authenticate and deliver one or more Global Securities that (i) shall be in
minimum denominations of US$1,000 or integral multiples thereof, (ii) shall be
registered in the name of the Depositary for such Global Security or Securities
or the nominee of such Depositary, (iii) shall be delivered to the Trustee as
Securities Custodian for such Depositary and (iv) shall bear the Global
Securities legend in substantially the form set forth in Exhibit A and Exhibit
B.
SECTION 2.4. Temporary Securities. Pending the preparation of
definitive Securities, the Company may execute, and upon Company Order the
Trustee shall authenticate and deliver, temporary Securities. Temporary
Securities may be printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as
<PAGE>
28
the Officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay but in no event
later than the date that the Registered Exchange Offer is consummated. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 4.19, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Securities of authorized denominations. Until so
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
SECTION 2.5. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the Trustee
a register (the register maintained in such office and in any other office or
agency designated pursuant to Section 4.19 being herein sometimes referred to as
the "Security Register") in which, subject to such reasonable regulations as the
Security Registrar may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Trustee is hereby initially
appointed "Security Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at the
office or agency of the Company designated pursuant to Section 4.19, the Company
shall, subject to the terms of this Indenture, execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities of any authorized denomination or
denominations, of a like aggregate principal amount.
At the option of the Holder, subject to the terms of this Indenture,
Securities in certificated form may be exchanged for other Securities of any
authorized denomination or denominations, of a like aggregate principal amount,
upon surrender of the Securities to be exchanged at such office or agency.
Whenever any Securities are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Securities which
the Holder making the exchange is entitled to receive.
If an Initial Security is a U.S. Physical Security, then as provided
in this Indenture and subject to the limitations herein set forth, the Holder,
provided it is a QIB, may exchange such Security for a book-entry security by
instructing the Trustee to arrange for such Initial Security to be represented
by a beneficial interest in a Global Security.
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29
All Securities issued upon any registration of transfer or exchange
of Securities including, without limitation, any exchange pursuant to the
Registered Exchange Offer, shall be the valid obligations of the Company,
evidencing the same indebtedness, and entitled to the same benefits under this
Indenture, as the Securities surrendered upon such registration of transfer or
exchange and no such transfer or exchange shall constitute a repayment of any
obligation nor create any new obligations of the Company.
Every Security presented or surrendered for registration of
transfer, or for exchange or redemption shall (if so required by the Company or
the Security Registrar) be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing.
Every Transfer Restricted Security shall be subject to the
restrictions on transfer set forth in Section 2.1 and Section 2.15 and shall
bear the Private Placement Legend and the Holder of each Transfer Restricted
Security, by such Holder's acceptance thereof, agrees to be bound by such
restrictions on transfer.
The restrictions imposed by Section 2.1 and Section 2.15 upon the
transferability of any particular Transfer Restricted Security shall cease and
terminate (a) in the case of an Offshore Global Security or an Offshore Physical
Security, on the 41st day after the Issue Date or (b) in the case of a U.S.
Global Security or a U.S. Physical Security, on (x) the later of November 26,
1999 or three years (or such shorter period of time as permitted by Rule 144(k)
under the Securities Act or any successor provision thereunder) after the later
of the Issue Date or the last date on which the Company or any Affiliate of the
Company was the owner of such Transfer Restricted Security (or any predecessor
of such Restricted Security) or (y) (if earlier) if and when such Restricted
Security has been sold pursuant to an effective registration statement under the
Securities Act or, unless the Holder thereof is an affiliate of the Company
within the meaning of Rule 144 (or such successor provision), transferred
pursuant to Rule 144 or Rule 904 under the Securities Act (or any successor
provision). Any Transfer Restricted Security as to which such restrictions on
transfer shall have expired in accordance with their terms or shall have
terminated may, upon surrender of such Transfer Restricted Security for exchange
to the Trustee or any transfer agent in accordance with the provisions of this
Section 2.5, be exchanged for a new Security, of like series, tenor and
aggregate principal amount, which shall not bear the restrictive legend required
hereby and shall thereafter be deemed not to be a Restricted Security for any
purpose under this Indenture. The Company shall inform the Trustee in writing of
the effective date of any registration statement registering any Transfer
Restricted Securities under the Securities Act.
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30
No service charge shall be made to a Holder for any registration of
transfer or exchange or redemption of Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 2.3, 2.4, 3.6, 4.6, 4.8 or
9.5 not involving any transfer.
The Company shall not be required (a) to issue, register the
transfer of or exchange any Security during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of the Securities
selected for redemption under Section 3.2 and ending at the close of business on
the day of such mailing, or (b) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of Securities being redeemed in part.
Any Holder of a Global Security shall, by acceptance of such Global
Security, agree that transfers of beneficial interests in such Global Security
may be effected only through a book-entry system maintained by the Holder of
such Global Security (or its agent), and that ownership of a beneficial interest
in the Security shall be required to be reflected in a book-entry.
When Securities are presented to the Security Registrar with a
request to register the transfer or to exchange them for an equal principal
amount of Securities of other authorized denominations, the Security Registrar
shall register the transfer or make the exchange as requested if its
requirements for such transactions are met. To permit registrations of transfers
and exchanges, the Company shall execute and the Trustee shall authenticate
Securities at the Security Registrar's request.
SECTION 2.6. Mutilated, Destroyed, Lost and Stolen Securities. If
(a) any mutilated Security is surrendered to the Trustee, or (b) the Company and
the Trustee receive evidence to their satisfaction of the destruction, loss or
theft of any Security, and there is delivered to the Company, each Subsidiary
Guarantor and the Trustee, such security or indemnity, in each case, as may be
required by them to save each of them harmless from any loss which any of them
may suffer if a Security is replaced, then, in the absence of notice to the
Company, any Subsidiary Guarantor or the Trustee that such Security has been
acquired by a bona fide purchaser, the Company shall execute and upon a Company
Order the Trustee shall authenticate and deliver, in exchange for any such
mutilated Security or in lieu of any such destroyed, lost or stolen Security, a
replacement Security of like tenor and principal amount, bearing a number not
contemporaneously outstanding.
Upon the issuance of any replacement Securities under this Section,
the Company may require the payment of a sum sufficient to cover any tax or
other
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31
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every replacement Security issued pursuant to this Section in lieu
of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company and each Subsidiary Guarantor,
whether or not the destroyed, lost or stolen Security shall be at any time
enforceable by anyone, and shall be entitled to all benefits of this Indenture
equally and proportionately with any and all other Securities duly issued
hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.7. Payment of Interest; Interest Rights Preserved.
Interest, including any liquidated damages payable pursuant to the Registration
Rights Agreement relating to the Securities, on any Security (and any Additional
Amounts payable in respect thereof) which is payable, and is punctually paid or
duly provided for, on any interest payment date shall be paid to the person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the regular record date for such interest.
Any interest on any Security (and any Additional Amounts payable in
respect thereof) which is payable, but is not punctually paid or duly provided
for, on any interest payment date and interest (and any Additional Amounts
payable in respect thereof) on such defaulted interest at the then applicable
interest rate borne by the Securities, to the extent lawful (such defaulted
interest and interest thereon herein collectively called "Defaulted Interest")
shall forthwith cease to be payable to the Holder on the regular record date;
and such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in subsection (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest
to the persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
special record date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid
on each Security and the date of the proposed payment, and at the same
time the Company shall deposit with the Trustee an amount of money equal
to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such
deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of
<PAGE>
32
the persons entitled to such Defaulted Interest as provided in this
paragraph (a). Thereupon the Trustee shall fix a special record date for
the payment of such Defaulted Interest which shall be not more than 15
days and not less than 10 days prior to the date of the proposed payment
and not less than 10 days after the receipt by the Trustee of the notice
of the proposed payment. The Trustee shall promptly notify the Company in
writing of such special record date. In the name and at the expense of the
Company, the Trustee shall cause notice of the proposed payment of such
Defaulted Interest and the special record date therefor to be mailed,
first-class postage prepaid, to each Holder at its address as it appears
in the Security Register, not less than 10 days prior to such special
record date. Notice of the proposed payment of such Defaulted Interest and
the special record date therefor having been so mailed, such Defaulted
Interest shall be paid to the persons in whose names the Securities (or
their respective Predecessor Securities) are registered on such special
record date and shall no longer be payable pursuant to the following
subsection (b).
(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after written notice given
by the Company to the Trustee of the proposed payment pursuant to this
subsection (b), such payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 2.8. Paying Agents; Discharge of Payment Obligations;
Indemnity of Holders. (a) The Company may from time to time appoint one or more
Paying Agents and may designate a Paying Agent as Principal Paying Agent under
this Indenture and the Securities. By its execution and delivery of this
Indenture, the Company hereby initially designates and appoints Chase Trust Bank
as Principal Paying Agent. Subject to Section 2.16, the Company may act as
Paying Agent.
(b) Unless the Company shall be acting as Paying Agent as provided
in Section 2.16, the Company shall, by 10:00 A.M. New York time, no later than
one Business Day prior to each interest payment date or principal payment date
on any Securities (whether on maturity, redemption or otherwise) (each, a
"Payment Date"), deposit with the Principal Paying Agent in immediately
available funds a sum sufficient to pay such principal, any premium, and
interest when so becoming due (including any Additional Amounts). The Company
shall cause the bank through which such payment is to be made to supply to the
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33
Principal Paying Agent by 10:00 A.M. (New York time) two Business Days prior to
the due date for any such payment an irrevocable confirmation (by tested telex
or authenticated SWIFT MT 100 Message) of its intention to make such payment.
The Principal Paying Agent shall arrange with all Paying Agents for the payment,
from funds furnished by the Company or any Subsidiary Guarantor to the Trustee
pursuant to this Indenture, of the principal, and premium, if any, and interest
(including Additional Amounts, if any) on the Securities and of the compensation
of such Paying Agents for their services as such. All Paying Agents will hold in
trust, for the benefit of Holders or the Trustee, all money held by such Paying
Agent for the payment of principal, or premium if any, of or interest on the
Securities and shall notify the Trustee of any default by the Company in making
any such payment. The Company at any time may require a Paying Agent to pay all
money held by it to the Trustee and to account for any funds disbursed by it.
Upon complying with this Section 2.8 and the applicable provisions of Section
2.16, the Paying Agents shall have no further liability for the money delivered
to the Trustee.
(c) Any payment to be made in respect of the Securities or
Subsidiary Guarantees by the Company or any Subsidiary Guarantor to or to the
order of a Paying Agent shall be in satisfaction pro tanto of the obligations of
the Company under the Securities. The Company shall indemnify the Holders
against any failure on the part of any Paying Agent to pay any sum due in
respect of the Securities and shall pay such sum to the Trustee on demand. This
indemnity constitutes a separate and independent obligation from the other
obligations of the Company under the Securities, shall give rise to a separate
and independent cause of action, will apply irrespective of any waiver granted
by the Trustee and/or any holder of Securities and shall continue in full force
and effect despite any judgment, order, claim, or proof for a liquidated amount
in respect of any sum due under the Indenture, the Securities or any judgment or
order.
SECTION 2.9. Persons Deemed Owners. Prior to and at the time of due
presentment for registration of transfer, the Company, the Trustee and any agent
of the Company or the Trustee may treat the person in whose name any Security is
registered in the Security Register as the owner of such Security for the
purpose of receiving payment of principal of, premium, if any, and (subject to
Section 2.7) interest on such Security and for all other purposes whatsoever,
whether or not such Security shall be overdue, and neither the Company, the
Trustee nor any agent of the Company or the Trustee shall be affected by notice
to the contrary.
SECTION 2.10. Cancellation. All Securities surrendered for payment,
redemption, registration of transfer or exchange shall be delivered to the
Trustee and, if not already cancelled, shall be promptly cancelled by it. The
Company and any Subsidiary Guarantor may at any time deliver to the Trustee for
cancellation any Securities previously authenticated and delivered hereunder
which the Company or such Subsidiary Guarantor may
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34
have acquired in any manner whatsoever, and all Securities so delivered shall be
promptly cancelled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities cancelled as provided in this Section 2.10,
except as expressly permitted by this Indenture. All cancelled Securities held
by the Trustee shall be destroyed and certification of their destruction
delivered to the Company unless by a Company Order the Company shall direct that
the cancelled Securities be returned to it. The Trustee shall provide the
Company a list of all Securities that have been cancelled from time to time as
requested by the Company.
SECTION 2.11. Computation of Interest. Interest on the Securities
shall be computed on the basis of a 360-day year of twelve 30-day months.
SECTION 2.12. Legal Holidays. In any case where any interest payment
date, Redemption Date, date established for the payment of Defaulted Interest or
Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal, premium, if any, or interest need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the interest payment date, Redemption Date, date
established for the payment of Defaulted Interest or at the Stated Maturity, as
the case may be, and no interest shall accrue with respect to such payment for
the period from and after such interest payment date, Redemption Date, date
established for the payment of Defaulted Interest or Stated Maturity, as the
case may be, to the next succeeding Business Day.
SECTION 2.13. CUSIP and CINS Numbers. The Company in issuing the
Securities may use a "CUSIP" and/or a "CINS" number (if then generally in use),
and if so, the Trustee may use the CUSIP and CINS numbers in notices of
redemption or exchange as a convenience to Holders; provided, however, that any
such notice may state that no representation is made as to the correctness or
accuracy of the CUSIP or CINS number printed in the notice or on the Securities,
and that reliance may be placed only on the other identification numbers printed
on the Securities. All Exchange Securities shall bear identical CUSIP numbers.
The Company shall promptly notify the Trustee in writing of any change in the
CUSIP or CINS number of either series of Securities.
SECTION 2.14. Book-Entry Provisions for Global Securities. (a) Each
Global Security shall (i) be registered in the name of the Depositary for such
Global Security or the nominee of such Depositary, (ii) be delivered to the
Trustee as Securities Custodian for such Depositary and (iii) bear the Global
Securities legend as set forth in Exhibit A and Exhibit B.
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35
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depositary, or the Trustee as its custodian, or
under such Global Security, and the Depositary may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Security 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 Depositary or shall impair, as between
the Depositary and its Agent Members, the operation of customary practices
governing the exercise of the rights of a holder of any Security.
(b) Transfers of a Global Security shall be limited to transfers of
such Global Security in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in a
Global Security may be transferred in accordance with the rules and procedures
of the Depositary and the provisions of Section 2.15. Beneficial owners may
obtain Physical Securities in exchange for their beneficial interests in a
Global Security upon request in accordance with the Depositary's and the
Security Registrar's procedures (x) in the case of the Offshore Global Security,
at any time on or after the 41st day following the Issue Date, and (y) in the
case of the U.S. Global Security, at any time. In addition, Physical Securities
shall be issued in exchange for a Global Security if (i) the Depositary notifies
the Company that it is unwilling or unable to continue as Depositary for a
Global Security or the Depositary ceases to be a "clearing agency" registered
under the Exchange Act and, in each case, a successor depository is not
appointed by the Company within 90 days of such notice or such cessation, as the
case may be or (ii) an Event of Default has occurred and is continuing with
respect to any Securities represented by a Global Security and Holders who hold
more than 25% in aggregate principal amount of the Securities at the time
outstanding represented by such Global Security advise the Trustee through the
Depositary in writing that the continuation of a book-entry system through the
Depositary (or a successor thereto) with respect to such Global Security is no
longer required and the Security Registrar has received a request from the
Depositary to issue Physical Securities.
(c) Any beneficial interest in one of the Global Securities that is
transferred to a person who takes delivery in the form of an interest in the
other Global Security will, upon transfer, cease to be an interest in such
Global Security and become an interest in the other Global Security and,
accordingly, will thereafter be subject to all transfer restrictions, if any,
and other procedures applicable to beneficial interests in such other Global
Security for as long as it remains such an interest.
(d) In connection with any transfer of a portion of the beneficial
interest in a Global Security to beneficial owners pursuant to subsection (b) of
this Section, the Security
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36
Registrar shall reflect on its books and records the date and a decrease in the
principal amount of a Global Security in an amount equal to the principal amount
of the beneficial interest in a Global Security to be transferred, and the
Company shall execute, and the Trustee shall authenticate and deliver, one or
more Physical Securities of like tenor and amount.
(e) In connection with the transfer of an entire Global Security to
beneficial owners thereof pursuant to subsection (b) of this Section, such
Global Security shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall authenticate
and deliver, to each beneficial owner identified by the Depositary in exchange
for its beneficial interest in such Global Security, an equal aggregate
principal amount of Physical Securities of authorized denominations.
(f) Any U.S. Physical Security delivered in exchange for an interest
in the U.S. Global Security pursuant to subsection (b) or subsection (d) of this
Section shall, except as otherwise provided by paragraph (a)(i)(x) or paragraph
(e) of Section 2.15, bear the Private Placement Legend.
(g) The registered holder of a Global Security may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
(h) QIBs that are beneficial owners of interests in a Global
Security may receive U.S. Physical Securities (which shall bear the Private
Placement Legend if required by Section 2.1) in accordance with the procedures
of the Depositary. In connection with the execution, authentication and delivery
of such Physical Securities, the Security Registrar shall reflect on its books
and records a decrease in the principal amount of the relevant Global Security
equal to the principal amount of the U.S. Physical Securities, and the Company
shall execute and the Trustee shall authenticate and deliver one or more U.S.
Physical Securities having an equal aggregate principal amount.
SECTION 2.15. Special Transfer Provisions. (a) Transfers to Non- QIB
Institutional Accredited Investors. The following provisions shall apply with
respect to the registration of any proposed transfer of a Transfer Restricted
Security to any Institutional Accredited Investor which is not a QIB (excluding
Non-U.S. persons):
(i) The Security Registrar shall register the transfer of any
Initial Security, whether or not such Security bears the Private Placement
Legend, if (x) the requested transfer is subsequent to a date which is
three years after the later of the Issue Date and the last date on which
the Company or any of its Affiliates was the
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37
owner of such Security or (y) the proposed transferee has delivered to the
Security Registrar a certificate substantially in the form of Exhibit C
hereto.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Security seeking to transfer a U.S.
Physical Security to another person, upon receipt by the Security
Registrar of (x) the documents, if any, required by paragraph (i) and (y)
instructions given in accordance with the Depositary's and the Security
Registrar's procedures therefor, the Security Registrar shall reflect on
its books and records the date and a decrease in the principal amount of
the U.S. Global Security in an amount equal to the principal amount of the
beneficial interest in the U.S. Global Security to be transferred, and the
Company shall execute, and the Trustee shall authenticate and deliver, one
or more U.S.
Physical Certificates of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Transfer Restricted
Security to a QIB (other than a Non-U.S. person);
(i) If the Security to be transferred consists of (x) U.S.
Physical Securities, the Security Registrar shall register the transfer if
such transfer is being made by a proposed transferor who has checked the
box provided for on the form of Initial Security stating, or has otherwise
advised the Company and the Security Registrar in writing, that the sale
has been made in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form of
Initial Security stating, or has otherwise advised the Company and the
Security Registrar in writing, that it is purchasing the Initial Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account are QIBs within the
meaning of Rule 144A, and that it is aware that the sale to it is being
made in reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule
144A or has determined not to request such information and that it is
aware that the transferor is relying upon the foregoing representations in
order to claim the exemption from registration provided by Rule 144A or
(y) an interest in the U.S. Global Security, the transfer of such interest
may be effected only through the book-entry system maintained by the
Depositary.
(ii) If the proposed transferee is an Agent Member, and the Initial
Security to be transferred consists of Physical Securities, upon receipt
by the Security Registrar of instructions given in accordance with the
Depositary's and the Security Registrar's procedures therefor, the
Security Registrar shall reflect on its books and records the date and an
increase in the principal amount of the U.S. Global Security
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in an amount equal to the principal amount of the Physical Securities to
be transferred, and the Trustee shall cancel the Physical Securities so
transferred.
(c) Transfers of Interests in the Offshore Global Security or
Offshore Physical Securities to U.S. Persons. The following provisions shall
apply with respect to any transfer of interests in the Offshore Global Security
or Offshore Physical Securities to U.S. Persons:
(i) prior to the removal of the Private Placement Legend from the
Offshore Global Security or Offshore Physical Securities pursuant to
Section 2.1 and Section 2.5, transfers by an owner of a beneficial
interest in the Offshore Global Security to a transferee who takes
delivery of such interest through the U.S. Global Security will be made
only upon receipt by the Trustee of a written certification from the
transferor in the form of Exhibit E to the effect that such transfer is
being made to a person who the transferor reasonable believes is a QIB
within the meaning of Rule 144A in a transaction meeting the requirements
of Rule 144A; and
(ii) after such removal, the Security Registrar shall register the
transfer of any such Security without requiring any additional
certification.
(d) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to any transfer of an Initial Security to a
Non-U.S. Person:
(i) The Security Registrar shall register any proposed transfer to
any Non-U.S. Person if the Security to be transferred is a U.S. Physical
Security or an interest in the U.S. Global Security only upon receipt of a
certificate substantially in the form of Exhibit D from the proposed
transferor.
(ii) (x) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Security, upon receipt by the
Security Registrar of (1) the documents required by paragraph (i) of this
paragraph (d) and (2) instructions in accordance with the Depositary's and
the Security Registrar's procedures, the Security Registrar shall reflect
on its books and records the date and a decrease in the principal amount
of the U.S. Global Security in an amount equal to the principal amount of
the beneficial interest in the U.S. Global Security to be transferred, and
(y) if the proposed transferee is an Agent Member, upon receipt by the
Security Registrar of instructions given in accordance with the
Depositary's and the Security Registrar's procedures, the Security
Registrar shall reflect on its books and records the date and an increase
in the principal amount of the Offshore Global Security in an amount equal
to the principal amount of the U.S. Physical Securities or the U.S. Global
Security, as the case may be, to be transferred, and the Trustee shall
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39
cancel the Physical Security so transferred or decrease the principal
amount of the U.S. Global Security, as the case may be.
(e) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the Security
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Security Registrar shall deliver only Securities
that bear the Private Placement Legend unless either (i) the Private Placement
Legend is no longer required pursuant to Section 2.1 and Section 2.5, or (ii)
there is delivered to the Security Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(f) General. By its acceptance of any Security, or any beneficial
interest in any Global Security, bearing the Private Placement Legend, each
Holder of such Security or beneficial interest acknowledges the restrictions on
transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture. The Security Registrar shall not register a transfer of any
Security unless such transfer complies with the restrictions on transfer of such
Security set forth in this Indenture. In connection with any transfer of
Securities to an Institutional Accredited Investor, each such Holder or
beneficial owner agrees by its acceptance of the Securities to furnish the
Security Registrar or the Company such certifications, legal opinions or other
information as such Person may reasonably require to confirm that such transfer
is being made pursuant to an exemption from, or a transaction not subject to,
the registration requirements of the Securities Act; provided that the Security
Registrar shall not be required to determine (but may rely on a determination
made by the Company with respect to) the sufficiency of any such certifications,
legal opinions or other information.
The Security Registrar shall retain copies of all letters, notices
and other written communications received pursuant to Section 2.14 or this
Section 2.15. The Company shall have the right to inspect and make copies of all
such letters, notices or other written communications at any reasonable time
upon the giving of reasonable written notice to the Security Registrar.
SECTION 2.16. Money for Security Payments To be Held in Trust. If
the Company shall at any time act as its own Paying Agent, it shall, on or
before each due date of the principal of, premium, if any, or interest on, any
of the Securities, segregate and hold in trust for the benefit of the Holders
entitled thereto a sum sufficient to pay the principal, premium, if any, or
interest so becoming due until such sums shall be paid to such persons
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40
or otherwise disposed of as herein provided, and shall promptly notify the
Trustee of its action or failure so to act.
If the Company is not acting as Paying Agent, the Company shall, on
the Business Day prior to each due date of the principal of, premium, if any, or
interest on, any Securities, deposit with a Paying Agent a sum in immediately
available funds sufficient to pay the principal, premium, if any, or interest so
becoming due in the manner set forth in Section 2.8, such sum to be held in
trust for the benefit of the Holders entitled to such principal, premium or
interest, and (unless such Paying Agent is the Trustee) the Company shall
promptly notify the Trustee of such action or any failure so to act.
If the Company is not acting as Paying Agent, the Company shall
cause each Paying Agent other than the Trustee to execute and deliver to the
Trustee an instrument in which such Paying Agent shall agree with the Trustee,
subject to the provisions of this Section 2.16, that such Paying Agent shall:
(a) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on Securities in trust for the benefit of the
Holders entitled thereto until such sums shall be paid to such Holders or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company or any
Subsidiary Guarantors (or any other obligor upon the Securities) in the
making of any payment of principal of, premium, if any, or interest on the
Securities;
(c) at any time during the continuance of any such Default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all aspects with the
provisions of this Indenture relating to their duties, rights and
liabilities of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
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41
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, or interest on any Security and remaining unclaimed for two years after
such principal, premium, if any, or interest has become due and payable shall be
paid to the Company upon receipt of a Company Request therefor, or (if then held
by the Company) shall be discharged from such trust; and the Holder of such
Security shall 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 as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
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 shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining shall be repaid to the Company.
SECTION 2.17 Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders. If the Trustee is not the
Security Registrar, the Company shall furnish to the Trustee, in writing 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 reasonably require of the names and addresses of
Securityholders.
SECTION 2.18 Outstanding Securities. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. A Security does not cease to be outstanding because
the Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.6, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance
with this Indenture, on a redemption date or maturity date money sufficient to
pay all principal and interest payable on that date with respect to the
Securities (or portions thereof) to be redeemed or maturing, as the case may be,
and the Paying Agent is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture, then on
and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
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42
ARTICLE III
Redemption
SECTION 3.1. Notices to Trustee. If the Company elects to redeem
Securities pursuant to paragraph 5 or paragraph 6 of the Securities, it shall
notify the Trustee in writing of the redemption date and the principal amount of
Securities to be redeemed.
The Company shall give each notice to the Trustee provided for in
this Section at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate from the Company to the effect that such redemption will comply with
the conditions herein. If fewer than all the Securities are to be redeemed, the
record date relating to such redemption shall be selected by the Company and set
forth in the related notice given to the Trustee, which record date shall be not
less than 15 days after the date of such notice.
SECTION 3.2. Selection of Securities To Be Redeemed. If fewer than
all the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed pro rata or by lot or by a method that complies with applicable
legal and securities exchange requirements, if any, and that the Trustee
considers fair and appropriate and in accordance with methods generally used at
the time of selection by fiduciaries in similar circumstances. The Trustee shall
make the selection from outstanding Securities not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000. Securities and portions
of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of
$1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be redeemed.
SECTION 3.3. Notice of Redemption. At least 30 days but not more
than 60 days before a date for redemption of Securities, the Company shall mail
a notice of redemption by first-class mail to each Holder of Securities to be
redeemed. A copy of such notice shall be delivered to the Trustee.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
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(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts of the particular Securities to
be redeemed;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment
pursuant to the terms of this Indenture, interest on Securities (or
portion thereof) called for redemption ceases to accrue on and after the
redemption date;
(7) the CUSIP number, if any, printed on the Securities being
redeemed;
(8) 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
Securities; and
(9) the paragraph of the Securities pursuant to which the Securities
are being redeemed.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
SECTION 3.4. Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date;
provided that if the redemption date is after a regular record date and on or
prior to the interest payment date, the accrued interest shall be payable to the
Securityholder of the redeemed Securities registered on the relevant record
date. Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
SECTION 3.5. Deposit of Redemption Price. By at least 10:00 a.m.
(New York City time) on the Business Day prior to the date on which any
principal of or interest on any Security is due and payable, the Company shall
deposit with the Paying Agent (or, if the Company or a Subsidiary is the Paying
Agent, shall segregate and hold in trust) money sufficient to pay the redemption
price of and accrued interest on all Securities to be redeemed on that date
other than Securities or portions of Securities called for redemption which are
owned by the Company or a Subsidiary and have been delivered by the Company or
such Subsidiary to the Trustee for cancellation.
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If the Company complies with the preceding paragraph, then, unless
the Company defaults in the payment of such redemption price, interest on the
Securities to be redeemed will cease to accrue on and after the applicable
redemption date, whether or not such Securities are presented for payment.
SECTION 3.6. Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in a principal amount to the unredeemed portion of the Security
surrendered.
ARTICLE IV
Covenants
SECTION 4.1. Payment of Securities. The Company shall promptly pay
the principal of and interest and any Additional Amounts payable in respect
thereof on the Securities on the dates and in the manner provided in the
Securities and in this Indenture. Principal and interest shall be considered
paid on the date due if on such date the Trustee or the Paying Agent holds in
accordance with this Indenture money sufficient to pay all principal, premium,
if any, and interest then due (and any Additional Amounts) and the Trustee or
the Paying Agent, as the case may be, is not prohibited from paying such money
to the Securityholders on that date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
Notwithstanding anything to the contrary contained in this
Indenture, the Company may, to the extent it is required to do so by law, deduct
or withhold income or other similar taxes imposed by the United States of
America from principal or interest payments hereunder.
SECTION 4.2. SEC Reports. (a) At its own expense, subject to Section
4.2(b), the Company shall supply without cost to each Holder of the Securities
and file with the Trustee within fifteen days after the Company is required to
file the same with the Commission, copies of the annual reports and quarterly
reports and of the information, documents and other reports which the Company
may be required to file with the Commission pursuant to Section 13(a), 13(c) or
15(d) of the Exchange Act. The Company shall also comply with the other
provisions of Section 314(a) of the Trust Indenture Act.
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45
(b) Whether or not the Company has a class of securities registered
under the Exchange Act, following any Exchange Offer or the effectiveness of any
Shelf Registration Statement, the Company shall furnish without cost to each
Holder of Securities and file with the Commission (whether or not the Company is
a public reporting company at the time), the Trustee and the Initial Purchasers:
(i) within 140 days after the end of each fiscal year of the Company, annual
reports on Form 20-F (or any successor form) containing the information required
to be contained therein (or required in such successor form); (ii) within 60
days after the end of each of the first three fiscal quarters of each fiscal
year, reports on Form 6-K (or any successor form) containing substantially the
same information required to be contained therein; and (iii) promptly from time
to time after the occurrence of an event required to be therein reported, such
other reports on Form 6-K (or any successor form) containing substantially the
same information required to be contained in Form 8-K (or required in any
successor form). Each of the reports shall be prepared in accordance with U.S.
GAAP consistently applied and shall be prepared in accordance with the
applicable rules and regulations of the Commission. Prior to the effectiveness
of the Exchange Offer Registration Statement (as defined in the Registration
Rights Agreement) with the Commission, the Company shall file with the Trustee
and provide the Initial Purchasers all of the information that would have been
required to have been filed with the Commission pursuant to clauses (i), (ii)
and (iii) of this Section 4.2(b). Each report pursuant to this Section 4.2(b)
shall be prepared in accordance with U.S. GAAP consistently applied, shall
include the amounts of EBITDA and adjusted EBITDA for all periods covered by
such report and shall be prepared in accordance with the applicable rules and
regulations of the Commission. The Company shall use its reasonable best efforts
to schedule, disseminate in a customary manner for public companies information
concerning, and conduct a conference call for Holders to discuss with
appropriate senior officers of the Company the results of operating and
financial conditions of the Company within 30 days of filing any reports
described in clause (i) and (ii) with the Commission.
(c) At any time when the Company is not subject to Section 13 or
15(d) of the Security Exchange Act of 1934, upon the request of a Holder of a
Security, the Company shall promptly furnish or cause to be furnished such
information as is specified pursuant to Rule 144A(d)(4) under the Securities Act
(or any successor provision thereto) to such Holder or to a prospective
purchaser of such Security designated by such Holder, as the case may be, in
order to permit compliance by such Holder with Rule 144A under the Securities
Act.
SECTION 4.3. Limitation on Indebtedness. (a) The Company shall not,
and shall not permit any of its Restricted Subsidiaries to, directly or
indirectly, Incur any Indebtedness, and the Company shall not issue any
Disqualified Stock; provided, however, that the Company and any Restricted
Subsidiary may Incur Indebtedness, and the Company may issue shares of
Disqualified Stock, if on the date thereof the Indebtedness to Annualized
Operating Cash Flow Ratio of the Company would have been less than or equal to
(i) 6.5 to
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46
1.0 in the case of Indebtedness Incurred prior to November 26, 1999 and (ii) 6.0
to 1.0 in the case of Indebtedness Incurred on and after November 26, 1999, in
each case determined on a pro forma basis.
(b) Notwithstanding Section 4.3(a), the Company and its Restricted
Subsidiaries may Incur the following Indebtedness: (i) Indebtedness of the
Company or any Restricted Subsidiary under any Senior Credit Facility or the
Abril Credit Facility in an aggregate principal amount at any one time
outstanding not to exceed $50.0 million; (ii) Indebtedness of the Company to any
Restricted Subsidiary and Indebtedness of a Restricted Subsidiary to the Company
or another Restricted Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of
such Indebtedness (other than to another Restricted Subsidiary) will be deemed,
in each case, to constitute the Incurrence of such Indebtedness by the issuer
thereof; (iii) Indebtedness represented by the Securities (including the
Subsidiary Guarantees); (iv) Indebtedness outstanding on the Issue Date (other
than Indebtedness described in clause (i), (ii) or (iii) of this Section 4.3(b);
(v) Refinancing Indebtedness in respect of Indebtedness of the Company or any
Restricted Subsidiary Incurred pursuant to clauses (i) through (iv) above, this
clause (v), or clause (xiv) below in a principal amount (or, for original issue
discount Indebtedness, the accreted principal thereof) so refinanced; (vi)
Hedging Obligations consisting of Interest Rate Agreements and Currency
Agreements related to Indebtedness otherwise permitted to be Incurred pursuant
to this Indenture or otherwise entered into in the ordinary course of business,
provided that in each case the notional amount shall not exceed the underlying
obligations or assets; (vii) Guarantees by the Company of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as the Incurrence of
such Indebtedness or obligations by such Restricted Subsidiary is permitted
under the terms of the Indenture; (viii) Indebtedness of Galaxy Brasil in an
aggregate principal amount at any one time outstanding not to exceed the lesser
of (A) an amount equal to the sum of (I) the product of (1) $480.0 multiplied by
(2) the number of Galaxy Brasil Subscribers at the date of Incurrence plus (II)
$20 million and (B) $130.0 million; (ix) Indebtedness of any Special Restricted
Subsidiary if, after giving effect to such Incurrence, the ratio of (A) the
aggregate principal amount of all Indebtedness of such Special Restricted
Subsidiary outstanding as of the date of determination to (B) the total
shareholders' equity (excluding any retained earnings or accumulated deficit) of
such Special Restricted Subsidiary as of the date of determination is less than
or equal to 2:1; (x) Indebtedness of the Company represented by Subordinated
Shareholder Loans in an aggregate principal amount at any one time outstanding
not to exceed $100.0 million; (xi) Indebtedness consisting of performance and
other similar bonds and reimbursement obligations Incurred in the ordinary
course of business securing the performance of contractual, franchise or license
obligations of the Company or a Restricted Subsidiary, or in respect of a letter
of credit obtained to secure such performance; (xii) Indebtedness arising from
agreements providing for indemnification,
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47
adjustment of purchase price or similar obligations, or from Guarantees or
letters of credit, surety bonds or performance bonds securing any obligations of
the Company or any Restricted Subsidiary pursuant to such agreements, Incurred
in connection with any Asset Disposition; (xiii) Indebtedness of the Company
represented by the SurFin Guarantee in an aggregate principal amount at any one
time outstanding not to exceed $25.0 million; (xiv) Indebtedness of TVA Sistema
under the EximBank Credit Agreement in an aggregate principal amount at any one
time outstanding not to exceed $30.0 million; (xv) Indebtedness of the Company
represented by the Put Promissory Notes; (xvi) Indebtedness of Galaxy Brasil in
an aggregate principal amount at any one time outstanding not to exceed $25.0
million; and (xvii) other Indebtedness in an aggregate principal amount which,
together with all other Indebtedness of the Company then outstanding (other than
Indebtedness permitted by Section 4.3(a) or Section 4.3(b)(i) through (xvi))
does not exceed $50.0 million.
SECTION 4.4. Limitation on Restricted Payments. (a) The Company
shall not, and shall not permit any Restricted Subsidiary, directly or
indirectly, to (i) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving the Company) except (1) dividends or
distributions payable in its Capital Stock (other than Disqualified Stock) and
(2) dividends or distributions payable solely to the Company or another
Restricted Subsidiary (and, if such Restricted Subsidiary is not a Wholly-Owned
Subsidiary, to its other stockholders on a pro rata basis), (ii) purchase,
redeem, retire or otherwise acquire for value any Capital Stock (including
options or warrants to acquire such Capital Stock) of the Company or any
Restricted Subsidiary, (iii) purchase, repurchase, redeem, prepay interest,
defease or otherwise acquire or retire for value, prior to scheduled maturity,
scheduled repayment, scheduled interest payment date or scheduled sinking fund
payment, any Subordinated Obligations, or make any cash interest payment on
Subordinated Shareholder Loans or (iv) make any Investment (other than a
Permitted Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement, interest
payment or Investment being herein referred to as a "Restricted Payment"), if at
the time the Company or such Restricted Subsidiary makes such Restricted
Payment: (x) after giving effect to such Restricted Payment, a Default shall
have occurred and be continuing (or would result therefrom); or (y) the Company
could not incur at least an additional $1.00 of Indebtedness under Section
4.3(a); or (z) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared (the amount so expended, if other than in cash, to
be determined in good faith by the Board of Directors, whose determination shall
be conclusive and evidenced by a resolution of the Board of Directors) or made
subsequent to the Issue Date would exceed the sum of: (A) an amount equal to the
Company's Cumulative Operating Cash Flow less 1.6 times the Company's Cumulative
Consolidated Interest Expense; plus (B) the aggregate Net Cash Proceeds received
by the Company from the issue or sale of its Capital Stock (other than
Disqualified Stock) or other cash contributions to its capital subsequent to the
Issue Date (other than an issuance or sale to
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48
a Subsidiary of the Company or an employee stock ownership plan or other trust
established by the Company or any of its Subsidiaries); plus (C) the amount by
which Indebtedness of the Company is reduced on the Company's balance sheet upon
conversion or exchange (other than by a Restricted Subsidiary of the Company)
subsequent to the Issue Date of any Indebtedness of the Company convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash or other property distributed by the Company upon
such conversion or exchange); and plus (D) in the case of the disposition or
repayment of any Investment constituting a Restricted Payment other than an
Investment made pursuant to Section 4.4(b)(v) made after the Issue Date, an
amount equal to the lesser of the return of capital with respect to such
Investment and the cost of such Investment, in either case, less the cost of the
disposition of such Investment. For purposes of determining the amount expended
for Restricted Payments, cash distributed shall be valued at the face amount
thereof and property or services distributed or transferred other than cash
shall be valued at its Fair Market Value.
(b) So long as there is no Default or Event of Default continuing,
the provisions of Section 4.4(a) shall not prohibit: (i) any purchase or
redemption of Capital Stock or Subordinated Obligations of the Company or
Capital Stock of any Restricted Subsidiary made by exchange for, or out of the
Net Cash Proceeds from a substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of, Capital Stock of the Company (other
than Disqualified Stock) or any purchase of Capital Stock made with Put
Promissory Notes; provided, however, that (A) such purchase or redemption shall
be excluded in the calculation of the amount of Restricted Payments and (B) the
Net Cash Proceeds from such sale shall be excluded from the calculation of
amounts under clause (B) of Section 4.4(a); (ii) any purchase or redemption of
Subordinated Obligations of the Company made by exchange for, or out of the
proceeds from a substantially concurrent sale of, Subordinated Obligations of
the Company; provided, however, that (A) the final maturity date of such
Subordinated Obligations, determined as of the date of Incurrence, occurs not
earlier than the Stated Maturity of the Securities and (B) the Average Life of
such Subordinated Obligations is equal to or greater than the Average Life of
the Subordinated Obligations being purchased or redeemed; and provided, further,
that such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments; (iii) dividends paid within 60 days after the
date of declaration if at such date of declaration such dividend would have
complied with this provision; provided, however, that such dividends shall be
included in the calculation of the amount of Restricted Payments; (iv)
Investments in Galaxy Latin America or its Affiliates made subsequent to the
Issue Date in an aggregate amount at any time outstanding not to exceed $15.0
million; (v) Investments in a Permitted Business financed with the net proceeds
of the offering of the Securities pursuant to the Offering Memorandum; and (vi)
Minority Investments made subsequent to the Issue Date constituting a Restricted
Payment by the Company or any Restricted Subsidiary in any
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49
Person that operates principally, or has been formed to operate principally, a
Permitted Business in an aggregate amount at any time outstanding not to exceed
$45.0 million.
SECTION 4.5. Limitation on Restrictions on Distributions from
Restricted Subsidiaries. The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, create or permit to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any such
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness or other obligation owed to the
Company or another Restricted Subsidiary of the Company, (ii) make any
Investment in the Company or another Restricted Subsidiary of the Company or
(iii) transfer any of its property or assets to the Company or another
Restricted Subsidiary of the Company; except: (A) any encumbrance or restriction
pursuant to an agreement in effect on the Issue Date; (B) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness Incurred by a Restricted Subsidiary prior to the
date on which such Restricted Subsidiary was acquired by the Company (other than
Indebtedness Incurred as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary was acquired
by the Company) and outstanding on such date; (C) any encumbrance or restriction
with respect to a Restricted Subsidiary pursuant to an agreement effecting a
refinancing of Indebtedness Incurred pursuant to an agreement referred to in
clauses (A) or (B) or this clause (C) or contained in any amendment to an
agreement referred to in clauses (A) or (B) or this clause (C); provided,
however, that the encumbrances and restrictions contained in any such
refinancing agreement or amendment are no less favorable to the Holders of the
Securities than encumbrances and restrictions contained in such agreements; (D)
any such customary encumbrance or restriction contained in a security document
creating a Lien permitted under this Indenture to the extent relating to the
property or asset subject to such Lien following a default in respect of the
applicable obligation; (E) in the case of clause (iii), any encumbrance or
restriction (1) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease, license, or
similar contract, or (2) contained in security agreements securing Indebtedness
of a Restricted Subsidiary to the extent such encumbrance or restrictions
restrict the transfer of the property subject to such security agreements; (F)
any restriction with respect to a Restricted Subsidiary imposed pursuant to an
agreement in effect for the sale or disposition thereof and the duration of
which does not exceed 60 days; or (G) any encumbrance or restriction contained
in an agreement pursuant to which Galaxy Brasil Incurs Indebtedness in
compliance with the terms of this Indenture, provided, however, that the terms
of such encumbrance or restriction are no more restrictive than those contained
in the Equipment Agreements as they exist on the Issue Date.
SECTION 4.6. Limitation on Sales of Assets and Subsidiary Stock. (a)
The Company shall not, and shall not permit any Restricted Subsidiary to, make
any Asset
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50
Disposition, unless (i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the Fair Market Value of the shares
and assets subject to such Asset Disposition, (ii)(A) at least 75.0% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents or (B) at least 75.0% of the
consideration thereof received by the Company or such Restricted Subsidiary
consists of assets used in connection with a Permitted Business; and (iii) an
amount equal to 100.0% of the Net Available Cash from such Asset Disposition is
applied by the Company (or such Restricted Subsidiary, as the case may be) (A)
first, to the extent the Company elects (or is required by the terms of any
senior Indebtedness of the Company or Indebtedness of a Restricted Subsidiary),
to prepay, repay or purchase such senior Indebtedness, or such Indebtedness of a
Restricted Subsidiary (in each case other than Indebtedness owed to the Company
or an Affiliate of the Company) within 365 days from the later of the date of
such Asset Disposition or the receipt of such Net Available Cash; (B) second, to
the extent of the balance of Net Available Cash after application in accordance
with clause (A), to the extent the Company or such Restricted Subsidiary elects,
to reinvest in Additional Assets (including by means of an Investment in
Additional Assets by a Restricted Subsidiary with Net Available Cash received by
the Company or another Restricted Subsidiary) within 365 days from the later of
the date of such Asset Disposition or the receipt of such Net Available Cash;
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B) ("Excess Proceeds"), to make
an offer ("Asset Sale Offer") to purchase Securities pursuant and subject to the
conditions of this Indenture to the Holders at a purchase price of 100.0% of the
principal amount thereof plus accrued and unpaid interest to the purchase date,
and (D) fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), for general corporate
purposes. Notwithstanding the foregoing provisions, the Company and its
Restricted Subsidiaries shall not be required to apply any Net Available Cash in
accordance herewith except to the extent that the aggregate Net Available Cash
from all Asset Dispositions which are not applied in accordance with this
covenant at any time exceed $10 million. Upon completion of any Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero.
For the purposes of this covenant, the following will be deemed to
be cash or Cash Equivalents: (i) the assumption of Indebtedness (other than
Disqualified Stock) of the Company or any Restricted Subsidiary and the release
of the Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition and (ii) securities
received by the Company or any Restricted Subsidiary of the Company from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash at its face value.
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51
(b) In the event of an Asset Disposition that requires the purchase
of Securities pursuant to Section 4.6(a)(iii)(C), the Company will be required
to purchase Securities tendered pursuant to an offer by the Company for the
Securities at a purchase price of 100.0% of their principal amount plus accrued
interest to the purchase date in accordance with the procedures (including
prorating in the event of oversubscription) set forth in Section 4.6(c). If the
aggregate purchase price of the Securities tendered pursuant to the offer is
less than the Net Available Cash allotted to the purchase of the Securities, the
Company will apply the remaining Net Available Cash in accordance with Section
4.6(a)(iii)(D).
(c) (1) Promptly, and in any event within 10 days after the Company
is required to make an Asset Sale Offer, the Company shall deliver to the
Trustee and send, by first-class mail to each Holder, a written notice stating
that the Holder may elect to have his Securities purchased by the Company either
in whole or in part (subject to prorating as hereinafter described in the event
the Asset Sale Offer is oversubscribed) in integral multiples of $1,000 of
principal amount, at the applicable purchase price. The notice shall specify a
purchase date not less than 30 days nor more than 60 days after the date of such
notice (the "Purchase Date").
(2) Not later than the date upon which such written notice of an
Asset Sale Offer is delivered to the Trustee and the Holders, the Company shall
deliver to the Trustee an Officers' Certificate setting forth (i) the amount of
the Asset Sale Offer (the "Offer Amount"), (ii) the allocation of the Net
Available Cash from the Asset Dispositions as a result of which such Asset Sale
Offer is being made and (iii) the compliance of such allocation with the
provisions of Section 4.6(a). Upon the expiration of the period (the "Offer
Period") for which the Asset Sale Offer remains open, the Company shall deliver
to the Trustee for cancellation the Securities or portions thereof which have
been properly tendered to and are to be accepted by the Company. The Trustee
shall, on the Purchase Date, mail or deliver payment to each tendering Holder in
the amount of the purchase price of the Securities tendered by such Holder to
the extent such funds are available to the Trustee.
(3) Holders electing to have a Security purchased will be required
to surrender the Security, with an appropriate form duly completed, to the
Company at the address specified in the notice prior to the expiration of the
Offer Period. Each Holder will be entitled to withdraw its election if the
Trustee or the Company receives, not later than one Business Day prior to the
expiration of the Offer Period, a telegram, telex, facsimile transmission or
letter from such Holder setting forth the name of such Holder, the principal
amount of the Security or Securities which were delivered for purchase by such
Holder and a statement that such Holder is withdrawing his election to have such
Security or Securities purchased. If at the expiration of the Offer Period the
aggregate principal amount of
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52
Securities surrendered by Holders exceeds the Offer Amount, the Company shall
select the Securities to be purchased on a pro rata basis (with such adjustments
as may be deemed appropriate by the Company so that only Securities in
denominations of $1,000, or integral multiples thereof, shall be purchased).
Holders whose Securities are purchased only in part will be issued new
Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.
(d) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section 4.6. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.6, the Company will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this Indenture by virtue thereof.
SECTION 4.7. Limitation on Affiliate Transactions. (a) The Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into or conduct any transaction (including the purchase, sale,
lease or exchange of any property, or the rendering of any service) with any
Affiliate (an "Affiliate Transaction") unless: (i) the terms of such Affiliate
Transaction are no less favorable to the Company or such Restricted Subsidiary,
as the case may be, than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an Affiliate;
(ii) in the event such Affiliate Transaction involves an aggregate amount in
excess of $2.0 million, the terms of such transaction have been approved by a
majority of the members of the Board of Directors and by a majority of the
members of such Board having no personal stake in such Affiliate Transaction, if
any; and (iii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $10.0 million, the Company has received a written opinion
from an independent investment banking firm of nationally recognized standing in
the United States that such Affiliate Transaction is fair to the Company or such
Restricted Subsidiary, as the case may be, from a financial point of view;
provided that, in the case of an Affiliate Transaction described in clause (ii)
or (iii) of this Section 4.7(a), the Company shall promptly after consummation
thereof deliver an Officers' Certificate to the Trustee certifying as to the
compliance by the Company with clauses (i) and (ii) or (i) and (iii) as the case
may be, of this Section 4.7(a); and provided, further, that in the case of an
Affiliate Transaction with Galaxy Latin America, the Company or such Restricted
Subsidiary shall only be required to obtain the opinion described in clause
(iii) of this Section 4.7(a) if such Affiliate Transaction involves an aggregate
amount in excess of $20.0 million.
(b) The provisions of Section 4.7(a) will not apply to: (i)
transactions with or among the Company and/or any of the Restricted
Subsidiaries; provided in any such case, no officer, director or beneficial
holder of 5% or more of any class of Capital Stock of the
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53
Company shall beneficially own any Capital Stock of any such Restricted
Subsidiary, (ii) transactions between the Company and any Restricted Subsidiary
that are solely for the benefit of the Company or a Subsidiary Guarantor, (iii)
transactions between or among Unrestricted Subsidiaries, (iv) any dividend
permitted by Section 4.4, (v) directors' fees, indemnification and similar
arrangements, officers' indemnification, employee stock option or employee
benefit plans, employee salaries and bonuses or legal fees paid or created in
the ordinary course of business and (vi) transactions and arrangements pursuant
to agreements in existence on the Issue Date, including, without limitation, the
exercise of registration rights pursuant to the Stockholders' Agreement. In
addition, Section 4.7(a) shall not apply to: (x) Indebtedness Incurred by the
Company from Abril under the Abril Credit Facility or from shareholders pursuant
to Subordinated Shareholder Loans and (y) any transaction entered into in
connection with the reorganization of the Company's ownership structure pursuant
to which certain of the Company's stockholders have agreed to exchange all of
their respective shares in the Company for a corresponding number of shares of a
newly-formed Brazilian corporation which would become an 80% stockholder of the
Company and pursuant to which Hearst/ABC Video Services II would remain a 20%
stockholder of the Company, which would be reorganized as a Brazilian limitada.
SECTION 4.8. Change of Control. (a) Upon the occurrence of a Change
of Control, each Holder shall have the right to require that the Company
repurchase all or any part of such Holder's Securities at a purchase price in
cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of Holders of
record on the relevant record date to receive interest on the relevant interest
payment date), such repurchase to be made in accordance with Section 4.8(b).
(b) Within 30 days following any Change of Control, unless the
Company has mailed a redemption notice with respect to all the outstanding
Securities in connection with such Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such Holder has
the right to require the Company to purchase such Holder's Securities at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to
the right of Holders of record on a record date to receive interest on the
relevant interest payment date);
(2) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(3) the procedures determined by the Company, consistent with this
Section, that a Holder must follow in order to have its Securities
purchased.
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54
(c) Holders electing to have a Security purchased will be required
to surrender the Security, with an appropriate form duly completed, to the
Company at the address specified in the notice at least three Business Days
prior to the purchase date. Each Holder will be entitled to withdraw its
election if the Company receives, not later than one Business Day prior to the
purchase date, a telegram, telex, facsimile transmission or letter from such
Holder setting forth the name of such Holder, the principal amount of the
Security or Securities which were delivered for purchase by such Holder and a
statement that such Holder is withdrawing his election to have such Security or
Securities purchased.
(d) On the purchase date, all Securities purchased by the Company
under this Section shall be delivered to the Trustee for cancellation, and the
Company shall pay the purchase price plus accrued and unpaid interest, if any,
to the Holders entitled thereto.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section 4.8. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.8, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Indenture by virtue thereof.
SECTION 4.9. Limitation on Liens. The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or permit to
exist any Lien, other than Permitted Liens, on any of its property or assets
(including Capital Stock of any Restricted Subsidiary), whether owned on the
Issue Date or thereafter acquired, securing any obligation, unless the
obligations due under this Indenture and the Securities and the Subsidiary
Guarantees are secured, on an equal and ratable basis (or on a senior basis, in
the case of Indebtedness subordinated in right of payment to the Securities or
the Subsidiary Guarantees), with the obligations so secured.
SECTION 4.10. Limitation on Sales of Capital Stock of Restricted
Subsidiaries. The Company will not (i) sell, and will not permit any Restricted
Subsidiary of the Company to issue, sell or transfer, any Capital Stock of a
Restricted Subsidiary or (ii) permit any Person (other than the Company or a
Wholly-Owned Restricted Subsidiary) to acquire Capital Stock of any Restricted
Subsidiary, if in either case as the result thereof such Restricted Subsidiary
would no longer be a Restricted Subsidiary of the Company, except for (A)
Capital Stock issued, sold or transferred to the Company or a Wholly-Owned
Restricted Subsidiary and (B) Capital Stock issued by a Person prior to the time
(1) such Person becomes a Restricted Subsidiary, (2) such Person merges with or
into a Restricted Subsidiary or (3) a Restricted Subsidiary merges with or into
such Person, provided, that such Capital Stock was not issued by such Person in
anticipation of the type of transaction contemplated
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55
by subclause (1), (2) or (3). This Section 4.10 shall not prohibit the Company
or any of its Restricted Subsidiaries from selling or otherwise disposing of all
of the Capital Stock of any Restricted Subsidiary; provided that any such sale
constitutes an Asset Disposition for purposes of, and the Net Cash Proceeds from
any such sale are applied in accordance with, Section 4.6.
SECTION 4.11. Limitation on Designations of Special Restricted
Subsidiaries. The Company may designate any Restricted Subsidiary as a "Special
Restricted Subsidiary" under this Indenture (a "Special Designation") if such
Special Restricted Subsidiary engages in, or will engage principally in, a
Permitted Business in a Newly-Licensed Service Area. Such Special Designation
may be revoked at any time if all Indebtedness of such Special Restricted
Subsidiary that is outstanding immediately following such revocation would, if
Incurred at such time, have been permitted to be Incurred for all purposes under
this Indenture. All Special Designations and revocations thereof must be
evidenced by Board Resolutions of the Company delivered to the Trustee
certifying compliance with the foregoing provisions. In any event, a Special
Restricted Subsidiary will remain a Restricted Subsidiary for all purposes of
this Indenture, except that a Special Restricted Subsidiary shall be treated as
an Unrestricted Subsidiary for purposes of calculating Operating Cash Flow,
Consolidated Income Tax Expense, Consolidated Interest Expense and Consolidated
Net Income.
SECTION 4.12. Limitation on Designations of Unrestricted
Subsidiaries. (a) The Board of Directors may designate any Subsidiary of the
Company (other than a Subsidiary Guarantor, but including any newly acquired or
newly formed Subsidiary) as an "Unrestricted Subsidiary" under this Indenture (a
"Designation") only if:
(i) no Default shall have occurred and be continuing at the time of
or after giving effect to such Designation;
(ii) the Company would be permitted under this Indenture to make an
Investment under all applicable provisions of Section 4.4 at the time of
Designation (assuming the effectiveness of such Designation) in an amount
(the "Designation Amount") equal to the Fair Market Value of such
Subsidiary on such date; and
(iii) such Subsidiary and its Subsidiaries own no Capital Stock or
Indebtedness of, and hold no Lien on any property of, the Company or any
other Subsidiary of the Company that is not a Subsidiary of the Subsidiary
so designated.
(b) In addition, the Company may revoke any Designation of a
Subsidiary as an Unrestricted Subsidiary (a "Revocation") if:
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56
(i) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of this
Indenture.
All Designations and Revocations shall be evidenced by Board
Resolutions of the Company delivered to the Trustee certifying compliance with
the foregoing provisions.
SECTION 4.13. Limitations on Investments in Unrestricted
Subsidiaries. The Company will not make, and will not permit its Restricted
Subsidiaries to make, any Investment in Unrestricted Subsidiaries if, at the
time thereof, such Investment, together with the aggregate amount of all
Investments previously made (other than Permitted Investments), would exceed the
amount of Restricted Payments then permitted to be made pursuant to Section 4.4.
Any Investments in Unrestricted Subsidiaries permitted to be made pursuant to
this covenant (i) will be treated as a Restricted Payment in calculating the
amount of Restricted Payments made by the Company and (ii) may be made in cash
or property.
SECTION 4.14. Business of the Company; Restrictions on Transfers of
Existing Business. The Company will not, and will not permit any of the
Restricted Subsidiaries to, be principally engaged in any business or activity
other than a Permitted Business. In addition, the Company and the Restricted
Subsidiaries will not be permitted to, directly or indirectly, transfer to any
Unrestricted Subsidiary (i) any of the licenses, permits or authorizations used
in the Permitted Business of the Company and the Restricted Subsidiaries on the
Issue Date or (ii) any material portion of the "property and equipment" (as such
term is used in the Company's consolidated financial statements) of the Company
or any Restricted Subsidiary used in the licensed service areas of the Company
and the Restricted Subsidiaries as they exist on the Issue Date; provided that
the Company and the Restricted Subsidiaries may make Asset Dispositions in
compliance with Section 4.6 and pledge property and assets to the extent
permitted by Section 4.9.
SECTION 4.15. Payment of Additional Amounts. (a) All payments made
by the Company or any Subsidiary Guarantor under or with respect to the
Securities or any Guarantee shall be made free and clear of and without
withholding or deduction for or on account of any present or future Taxes
imposed or levied by or on behalf of any Taxing Authority of the Federative
Republic of Brazil or of Japan, unless the Company or such Subsidiary Guarantor,
as the case may be, is required to withhold or deduct any amount for or on
account of Taxes by law or by the interpretation or administration thereof. If
the Company or any Subsidiary Guarantor is required to withhold or deduct any
amount for or on account of Taxes imposed by a Taxing Authority of the
Federative Republic of Brazil or
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57
of Japan from any payment made under or with respect to the Securities or any
Guarantee of such Subsidiary Guarantor, the Company or such Subsidiary
Guarantor, as the case may be, shall pay such additional amounts ("Additional
Amounts") as may be necessary so that the net amount received by each Holder of
Securities (including Additional Amounts) after such withholding or deduction
shall not be less than the amount the Holder would have received if such Taxes
had not been withheld or deducted. No such Additional Amounts shall be payable
with respect to a payment made to a Holder of Securities (an "Excluded Holder")
with respect to any Tax which would not have been imposed, payable or due: (i)
but for the fact that the Holder (or where the Holder is an estate, nominee,
trust, partnership or corporation, any fiduciary, settlor, beneficiary, member
or shareholder) is or was a domiciliary, national or resident of, engages in or
engaged in business in, maintains or maintained a permanent establishment or
physically present in, Brazil or Japan or otherwise has some present or former
connection with Brazil or Japan; (ii) but for the failure to comply with a
request by the Company or any Subsidiary Guarantor to satisfy any certification,
identification or other reporting requirements, whether imposed by statute,
treaty, regulation or administrative practices, concerning nationality,
residence or connection with Brazil or Japan; or (iii) if, where presentation is
required, the presentation for payment had occurred within 30 days after the
date such payment was due and payable or was provided for, whichever is later.
Notwithstanding the preceding sentence, the limitations on the Company's
obligation to pay Additional Amounts set forth in clause (ii) of the preceding
sentence shall not apply if a certification, identification, or other reporting
requirement described in clause (ii) would be materially more onerous, in form,
in procedure or in the substance of information disclosed, to such Holders or
beneficial owners (taking into account any relevant differences between U.S. and
Brazilian law, regulation or administrative practice) than comparable
information or other reporting requirements imposed under U.S. tax law,
regulation (including proposed regulations) and administrative practice or other
reporting requirements imposed as of the date of the Offering Memorandum under
U.S. tax law, regulation (including proposed regulations) and administration
practice (such as IRS Forms 1001, W-8 and W-9). The obligation to pay Additional
Amounts in respect of Taxes shall not apply to (a) any estate, inheritance,
gift, sales, transfer, personal property or any similar Tax or (b) any Tax which
is payable otherwise than by deduction or withholding from payments made under
or with respect to the Securities. The Company or the Subsidiary Guarantor, as
applicable, shall (i) make such withholding or deduction, (ii) remit the full
amount deducted or withheld to the relevant authority (the "Taxing Authority")
in accordance with applicable law, (iii) use their best efforts to obtain
certified copies of tax receipts evidencing the payment of any Taxes so deducted
or withheld from each Taxing Authority imposing such Taxes and (iv) in the event
that such certified copies of tax receipts are obtained, promptly send such
certified copies of tax receipts to the Paying Agent for prompt forwarding to
any holder that has made a written demand therefor of the Paying Agent. The
Company and the Subsidiary Guarantor, as applicable, shall use their best
efforts to obtain certified copies of tax receipts evidencing the payment of any
Taxes so
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58
deducted or withheld from each Taxing Authority imposing such Taxes. In the
event that such a receipt is obtained, a Holder may obtain such a certified copy
by providing written demand therefor to the Paying Agent. The Paying Agent shall
contact the Company or such Subsidiary Guarantor, which shall provide such
certified copy to the Paying Agent for prompt forwarding to the Holder, the
Company or the Subsidiary Guarantor and shall attach to each certified copy a
certificate stating (x) that the amount of withholding tax evidenced by the
certified copy was paid in connection with payments in respect of the principal
amount of Securities then outstanding and (y) the amount of such withholding tax
per U.S.$1,000 of principal amount of the Securities. If, notwithstanding the
Company's or such Subsidiary Guarantor's efforts to obtain such receipts, the
same are not obtainable, the Company or such Subsidiary Guarantor will provide
to the Paying Agent other evidence of such payments by the Company or such
Subsidiary Guarantor.
(b) The Company or such Subsidiary Guarantor, as the case may be,
shall indemnify and hold harmless each Holder of Securities (other than an
Excluded Holder) and upon written request of each holder of Securities (other
than an Excluded Holder), reimburse each such Holder, for the amount of (i) any
such Taxes so levied or imposed and paid by such Holder as a result of payments
made under or with respect to the Securities, (ii) any liability (including
penalties, interest and expenses) arising under or with respect to the foregoing
clause (i), and (iii) any Taxes so levied or imposed with respect to any
reimbursement under the foregoing clauses (i) or (ii), so that the net amount
received by such Holder after such reimbursement shall not be less than the net
amount the Holder would have received if Taxes on such reimbursement had not
been imposed, but excluding any Taxes on such Holder's net income. Neither
Additional Amounts nor amounts required to be reimbursed under the preceding
sentence shall be payable for or on account of (A) any estate, inheritance,
gift, sale, transfer, personal property or similar Taxes; or (B) any Taxes that
are imposed or withheld by reason of the failure by such holder to comply within
45 days of a written request of the Company or the Subsidiary Guarantor
addressed to such holder or (if it is not possible for the Company or the
Subsidiary Guarantor to furnish such request at a time that would allow at least
45 days for compliance) such shorter period reasonable in the circumstances as
may be necessary to enable the Company or the Subsidiary Guarantor to comply
with requests from any Taxing Authority: (x) to provide information concerning
the nationality, residence or identity of such holder; or (y) to make any
declaration or other similar claim or satisfy any information or reporting
requirement, which, in the case of either clause (x) or (y) above, is required
or imposed by statute, treaty, regulation or administrative practice of a Taxing
Authority as a precondition to exemption from all or any part of such Taxes.
(c) At least 30 days prior to each date on which any payment under
or with respect to the Securities is due and payable (unless such obligation to
pay Additional Amounts arises after the 30th day prior to such date, in which
case it shall be promptly
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59
thereafter), if the Company or any Subsidiary Guarantor shall be obligated to
pay Additional Amounts with respect to such payment, the Company or such
Subsidiary Guarantor shall deliver to the Trustee and each Paying Agent an
Officers' Certificate stating the fact that such Additional Amounts shall be
payable and shall specify by country the amounts to be payable and shall set
forth such other information necessary to enable the Trustee and each Paying
Agent to pay such Additional Amounts to Holders on the payment date. Each
Officers' Certificate shall be relied upon until receipt of a further Officers'
Certificate addressing such matters. The Company and any such Subsidiary
Guarantor shall indemnify the Trustee and any Paying Agent for, and hold them
harmless against, any loss, liability or expense reasonably incurred without
negligence or bad faith on their part arising out of or in connection with
actions taken or omitted by any of them in reliance on any Officers' Certificate
furnished pursuant to this Section. Whenever in this Indenture there is
mentioned, in any context, the payment of principal, premium, if any, interest
or any other amount payable under or with respect to any Security, such mention
shall be deemed to include mention of the payment of Additional Amounts provided
for in this Section 4.15, to the extent that, in such context, Additional
Amounts are, were or would be payable in respect thereof pursuant to the
provisions of this Section 4.15 and express mention of the payment of Additional
Amounts in any provisions hereof shall not be construed as excluding Additional
Amounts in those provisions hereof where such express mention is not made.
(d) The obligations of the Company and the Subsidiary Guarantors
under this Section 4.15 shall survive the termination of this Indenture and the
payment of all other amounts under or with respect to the Securities.
SECTION 4.16. Shareholder Commitments. The Company shall maintain
enforceable written commitments (the "Shareholder Commitments") from each
shareholder of the Company agreeing that such shareholder will not exercise its
voting rights to receive mandatory statutory dividends (without limiting such
shareholder's right otherwise to receive dividends pursuant to and in compliance
with Section 4.4), provided that the Shareholder Commitments will cease to be
effective on the first to occur of (x) the date that shares of Capital Stock of
the Company are issued and listed on a Brazilian or United States securities
exchange in connection with a bona fide public offering of such shares or the
date that any shares of the Capital Stock of the Company are otherwise
effectively listed and traded on any Brazilian or United States securities
exchange, (y) the date that none of the Securities remain outstanding or (z) the
date that such commitment is no longer effective, enforceable or legal under
applicable Brazilian laws and regulations (including without limitation any
construction or interpretation thereof by CVM, any court or any other
governmental authority). The Company will obtain Shareholder Commitments in
connection with any future issuances of Capital Stock to the extent the
Shareholder Commitments would then be effective, enforceable and legal under the
terms of the foregoing proviso. Notwithstanding the foregoing, but provided it
would not render any of the other Shareholder Commitments
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60
unenforceable, the Company need not obtain and/or maintain Shareholder
Commitments from persons that are not shareholders of the Company on the Issue
Date or any Affiliate of any such shareholder to the extent it does not relate
to more than 10.0% of the outstanding shares of Capital Stock of the Company.
SECTION 4.17. Compliance Certificate. The Company shall deliver to
the Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as Officers of the Company they would normally have
knowledge of any Default or Event of Default and whether or not the signers know
of any Default or Event of Default that occurred during such period. If they do,
the certificate shall describe the Default or Event of Default, its status and
what action the Company is taking or proposes to take with respect thereto. The
Company also shall comply with TIA ss. 314(a)(4).
SECTION 4.18. Further Instruments and Acts. Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.19. Maintenance of Office or Agency. The Company shall
maintain in The City of New York an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration or transfer or exchange and where notices and demands to or upon
the Company in respect of the Securities and this Indenture may be served. The
office of the Trustee at its Corporate Trust Office shall be such office or
agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more of such purposes. The Company shall give
prompt written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes, and may from time
to time rescind such designation; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in The City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and any change in the location of any such other office or agency.
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61
ARTICLE V
Successor Company
SECTION 5.1. When Company May Merge or Transfer Assets. The Company
shall not consolidate with or merge with or into, or convey, transfer or lease
all or substantially all its assets to, any Person and the Company will not
permit any of its Restricted Subsidiaries to enter into such a transaction if
such transaction, in the aggregate, would result in the conveyance or transfer
of all or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole, to any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a corporation organized and existing under the laws of
the Federative Republic of Brazil or any State or political subdivision
thereof and the Successor Company (if not the Company) shall expressly
assume, by an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of the
Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Restricted Subsidiary as a result of such transaction as
having been Incurred by the Successor Company or such Restricted
Subsidiary at the time of such transaction), no Default or Event of
Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to incur an additional $1.00 of
Indebtedness pursuant to Section 4.3(a);
(iv) immediately after giving effect to such transaction, the
Successor Company will have Consolidated Net Worth in an amount which is
not less than the Consolidated Net Worth of the Company immediately prior
to such transaction;
(v) each Subsidiary Guarantor shall have delivered a written
instrument in form satisfactory to the Trustee confirming its Subsidiary
Guarantee; and
(vi) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture;
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provided, however, that clause (iii) shall not apply to the merger of Cable
Participacoes Ltda., or Hearst/ABC Video Services II, each an entity owned by
The Hearst Corporation and ABC, Inc., or Falcon International Communications
(Bermuda) L.P. with and into the Company in connection with the reorganization
of the Company's ownership structure pursuant to which certain of the Company's
stockholders have agreed to exchange all of their respective shares in the
Company for a corresponding number of shares of a newly-formed Brazilian
corporation which would become an 80% stockholder of the Company and pursuant to
which Hearst/ABC Video Services II would remain a 20% stockholder of the
Company, which would be reorganized as a Brazilian limitada.
The Successor Company shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under this Indenture, but the
predecessor, the Company, in the case of a lease of all or substantially all its
assets shall not be released from the obligation to pay the principal of and
interest on the Securities.
Notwithstanding clauses (ii) and (iii) of the first sentence of this
Section 5.1: (1) any Subsidiary of the Company may consolidate with, merge into
or transfer all or part of its properties and assets to the Company; and (2) the
Company may merge with an Affiliate incorporated solely for the purpose of
reincorporating the Company in another jurisdiction to realize tax or other
benefits.
ARTICLE VI
Defaults and Remedies
SECTION 6.1. Events of Default. An "Event of Default" occurs if:
(1) the Company defaults in any payment of interest on any Security
when the same becomes due and payable and such default continues for a
period of 30 days;
(2) the Company defaults in the payment of the principal or premium,
if any, of any Security when the same becomes due and payable at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise;
(3) the Company or any Restricted Subsidiary fails to comply with
Section 5.1;
(4) the Company or any Restricted Subsidiary fails to comply with
Section 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13,
4.14, 4.15 or 4.16 (in each case other than a failure to repurchase
Securities when required pursuant to
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63
Section 4.6 or 4.8 which failure shall constitute an Event of Default
under Section 6.1(2)) and such failure continues for 45 days after the
notice specified below;
(5) the Company or any Restricted Subsidiary fails to comply with
any of its agreements in the Securities or this Indenture (other than
those referred to in (1), (2), (3) or (4) above) and such failure
continues for 45 days after the notice specified below;
(6) Indebtedness of the Company or any Restricted Subsidiary is not
paid within any applicable grace period after failure to pay when due or
is accelerated by the holders thereof because of a default and the total
amount of such unpaid or accelerated Indebtedness exceeds $10.0 million or
the US Dollar Equivalent;
(7) the Company or a Restricted Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in
an involuntary case;
(C) consents to the appointment of a Custodian of it or for
any substantial part of its property; or
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Restricted
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Restricted
Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any
Restricted Subsidiary;
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64
or any similar relief is granted under any foreign laws and the order,
decree or relief remains unstayed and in effect for 60 days;
(9) any judgment or decree for the payment of money in excess of
$10.0 million or the US Dollar Equivalent (to the extent not covered by
insurance as acknowledged in writing by the insurer) is rendered against
the Company or any Restricted Subsidiary and such judgment or decree
remains undischarged or unstayed for a period of 60 days after such
judgment becomes final and non-appealable;
(10) there shall have occurred any seizure, compulsory acquisition,
expropriation or nationalization of material assets of the Company and its
Subsidiaries; or
(11) any Subsidiary Guarantee fails to be in full force and effect
(except as contemplated by the terms thereof) or the denial or
disaffirmation by any Subsidiary Guarantor of its obligations under the
Indenture or any Subsidiary Guarantee if such default continues for 10
days, unless otherwise released from such Guarantee obligation pursuant to
the Indenture.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Decree Law No. 7661, of June 21,
1945, or any other Brazilian law relating to, or Title 11, United States Code,
or any similar United States Federal or state law relating to, bankruptcy,
insolvency, receivership, winding-up, liquidation, reorganization, "concordata"
or relief of debtors. The term "Custodian" means any receiver, trustee,
assignee, liquidator, custodian "sindico," "comissario" or similar official
under any Bankruptcy Law.
Notwithstanding the foregoing, a Default under clause (4) or (5) of
this Section 6.1 will not constitute an Event of Default until the Trustee or
the Holders of at least 25% in principal amount of the outstanding Securities
notify the Company of the Default and the Company does not cure such Default
within the time specified in said clause (4) or (5) after receipt of such
notice. Such notice must specify the Default, demand that it be remedied and
state that such notice is a "Notice of Default".
If a Default occurs and is continuing and is known to the Trustee,
the Trustee must mail to each holder notice of the Default within 90 days after
it occurs. Except in the case of a Default under clause (1) or (2) (including
Additional Amounts) of this Section 6.1,
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65
the Trustee may withhold notice if and so long as a committee of its Trust
Officers in good faith determines that withholding notice is in the interests of
the Securityholders. In addition, the Company is required to deliver to the
Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year.
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clauses (4), (5), (6), (9) or (11) of this Section
6.1.
SECTION 6.2. Acceleration. If an Event of Default (other than an
Event of Default specified in Section 6.1(7), (8) or (10) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in outstanding principal amount of the Securities by
notice to the Company and the Trustee, may declare the principal of and accrued
and unpaid interest on all the Securities (and all Additional Amounts payable
thereon) to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an Event of Default specified
in Section 6.1(7), (8) or (10) with respect to the Company occurs, the principal
of and accrued and unpaid interest on all the Securities (and any Additional
Amounts) shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Securityholders. The
Holders of a majority in principal amount of the Securities by notice to the
Trustee may rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of acceleration. No such rescission shall affect any
subsequent Default or Event of Default or impair any right consequent thereto.
SECTION 6.3. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Securityholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.4. Waiver of Past Defaults. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may waive an
existing Default or
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Event of Default and its consequences except (i) a Default or Event of Default
in the payment of the principal of or interest on a Security or (ii) a Default
or Event of Default in respect of a provision that under Section 9.2 cannot be
amended without the consent of each Securityholder affected. When a Default or
Event of Default is waived, it is deemed cured, but no such waiver shall extend
to any subsequent or other Default or Event of Default or impair any consequent
right.
SECTION 6.5. Control by Majority. The Holders of a majority in
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.1, that the Trustee determines is unduly prejudicial to the
rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
SECTION 6.6. Limitation on Suits. A Securityholder may not pursue
any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in outstanding principal amount of
the Securities make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security
or indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the Securities
do not give the Trustee a direction inconsistent with the request during
such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights
of another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.7. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal of
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and interest on the Securities held by such Holder, on or after the respective
due dates expressed in the Securities, or to bring suit for the enforcement of
any such payment on or after such respective dates, shall 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(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.7.
SECTION 6.9. Trustee May File Proofs of Claim. The Trustee may 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 and the Securityholders
allowed in any judicial proceedings relative to the Company, its Subsidiaries or
their respective creditors or properties and, unless prohibited by law or
applicable regulations, may vote on behalf of the Holders in any election of a
trustee in bankruptcy or other Person performing similar functions, and any
Custodian in any such judicial proceeding is hereby authorized by each Holder to
make 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 it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 7.7.
SECTION 6.10. Priorities. If the Trustee collects any money or
property pursuant to this Article VI, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.7;
SECOND: to Securityholders for amounts due and unpaid on the
Securities for principal and interest (including Additional Amounts),
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Securities for principal and interest,
respectively; and
THIRD: to the Company.
The Trustee may fix a record date and payment date for any payment
to Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
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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 Trustee, a 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 pursuant to Section 6.7 or a suit by Holders of more
than 10% in outstanding principal amount of the Securities.
ARTICLE VII
Trustee
SECTION 7.1. Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) 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 certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of
this Section;
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(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall 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.
(d) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(e) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(f) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.2. Rights of Trustee. (a) The Trustee may rely and shall
be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, note or other paper or 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 require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
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(e) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
SECTION 7.3. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Security Registrar,
co-registrar or co-paying agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.4. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in this Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.5. Intentionally Omitted.
SECTION 7.6. Reports by Trustee to Holders. As promptly as
practicable after each May 15 beginning with the May 15 following the date of
this Indenture, and in any event prior to July 15 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of such May 15 that
complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b).
The Trustee shall also transmit by mail all reports required by TIA ss. 313(c).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.7. Compensation and Indemnity. The Company shall pay to
the Trustee from time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of--pocket expenses, disbursements and advances
incurred or made by it, including costs of collection, costs of preparing and
reviewing reports, certificates and other documents, costs of preparation and
mailing of notices to Securityholders and reasonable costs of counsel retained
by the Trustee in connection with the delivery of an Opinion of Counsel or
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otherwise, in addition to the compensation for its services. Such expenses shall
include the reasonable compensation and expenses, disbursements and advances of
the Trustee's agents, counsel, accountants and experts. The Company shall
indemnify the Trustee against any and all loss, liability or expense (including
reasonable attorneys' fees) incurred by it in connection with the administration
of this trust and the performance of its duties hereunder, including the costs
and expenses of enforcing this Indenture (including this Section 7.7) and of
defending itself against any claims (whether asserted by any Securityholder, the
Company or otherwise). The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee may have separate counsel and the Company
shall pay the fees and expenses of such counsel. The Company need not reimburse
any expense or indemnify against any loss, liability or expense incurred by the
Trustee through the Trustee's own wilful misconduct, negligence or bad faith.
Any Paying Agent, Security registrar, co-registrar and co-paying agent shall
have the same rights as to compensation and indemnity as set forth for the
Trustee in this Section.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities. The Trustee's right to
receive payment of any amounts due under this Section 7.7 shall not be
subordinate to any other liability or indebtedness of the Company.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.1(7) or (8) with respect to
the Company, the expenses are intended to constitute expenses of administration
under any Bankruptcy Law.
SECTION 7.8. Replacement of Trustee. The Trustee may resign at any
time by so notifying the Company. The Holders of a majority in principal amount
of the Securities may remove the Trustee by so notifying the Trustee and may
appoint a successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee otherwise becomes incapable of acting.
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If the Trustee resigns or is removed by the Company or by the
Holders of a majority in principal amount of the Securities and such Holders do
not reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall, upon payment of its
charges, promptly transfer all property held by it as Trustee to the successor
Trustee, subject to the lien provided for in Section 7.7.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Securities may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.7 shall continue for the
benefit of the retiring or removed Trustee.
SECTION 7.9. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture, any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor to the Trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have.
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SECTION 7.10. Eligibility; Disqualification. The Trustee shall at
all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a
combined capital and surplus of at least $100 million as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
ss. 310(b); provided, however, that there shall be excluded from the operation
of TIA ss. 310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship
listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be
subject to TIA ss. 311(a) to the extent indicated.
ARTICLE VIII
Discharge of Indenture; Defeasance
SECTION 8.1. Discharge of Liability on Securities; Defeasance. (a)
When (i) the Company delivers to the Trustee all outstanding Securities (other
than Securities replaced pursuant to Section 2.6) for cancellation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article III hereof
and the Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity or upon redemption all outstanding Securities (other than Securities
replaced pursuant to Section 2.6), including interest thereon to maturity or
such redemption date, and if in either case the Company pays all other sums
payable hereunder by the Company, then this Indenture shall, subject to Section
8.1(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
(accompanied by an Officers' Certificate and an Opinion of Counsel stating that
all conditions precedent specified herein relating to the satisfaction and
discharge of this Indenture have been complied with) and at the cost and expense
of the Company.
(b) Subject to Sections 8.1(c) and 8.2, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture and
all obligations of the Subsidiary Guarantors under the Subsidiary Guarantee and
this Indenture ("legal defeasance option") or (ii) its obligations under
Sections 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14,
4.16, 5.1(iii), 5.1(iv), 5.1(v) and 5.1(vi) and the operation of Sections
6.1(4), 6.1(5), 6.1(6), 6.1(7) (but only with respect to a Restricted
Subsidiary), 6.1(8) (but only with respect to a Restricted Subsidiary), 6.1(9)
and 6.1(11) ("covenant
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defeasance option"). The Company may exercise its legal defeasance option
notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the Company
exercises its covenant defeasance option, payment of the Securities may not be
accelerated because of an Event of Default specified in Sections 6.1(4), 6.1(5),
6.1(6), 6.1(7) (but only with respect to a Restricted Subsidiary), 6.1(8) (but
only with respect to a Restricted Subsidiary) and 6.1(9) or because of the
failure of the Company to comply with Section 5.1(iii), 5.1(iv), 5.1(v) and
5.1(vi).
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
(c) Notwithstanding the provisions of Sections 8.1(a) and (b), the
Company's obligations in Sections 2.5, 2.6, 2.7, 2.8, 2.16, 2.17, 4.1, 4.15,
4.19, 7.7, 7.8, 8.4, 8.5 and 8.6 shall survive until the Securities have been
paid in full. For the purpose of applying Section 4.15, if the Trustee is
required by law or by the administration or interpretation thereof to withhold
or deduct any amount for or on account of Taxes from any payment made from a
defeasance trust, such payment shall be deemed to have been made by the Company
and the Company shall be deemed to have been so required to deduct or withhold
such amount. Thereafter, the Company's obligations in Sections 7.7, 8.4 and 8.5
shall survive.
SECTION 8.2. Conditions to Defeasance. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal of, premium,
if any, and interest on the Securities (including any Additional Amounts
thereon) to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Securities to maturity or redemption, as the case may be;
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(3) the Company shall have delivered to the Trustee an Opinion of
Counsel, subject to certain customary qualifications, to the effect that
(i) the funds so deposited will not be subject to any rights of any other
holders of Indebtedness of the Company, and (ii) the funds so deposited
will not be subject to avoidance under applicable Bankruptcy Law;
(4) the deposit does not constitute a default under any other
agreement binding on the Company;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or
is qualified as, a regulated investment company under the Investment
Company Act of 1940;
(6) in the case of the legal defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) since the date of this Indenture there
has been a change in the applicable Federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Securityholders will not recognize income, gain or loss
for Federal income tax purposes as a result of such 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;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders will not recognize income, gain or loss for Federal income
tax purposes as a result of such covenant defeasance and will be subject
to Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred;
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel in the United States, the Federative Republic of
Brazil and such other jurisdiction as the Trustee may request, each
stating that all conditions precedent to the defeasance and discharge of
the Securities and this Indenture as contemplated by this Article VIII
have been complied with; and
(9) The Company shall have delivered to the Trustee an Opinion of
Counsel in Brazil reasonably acceptable to the Trustee to the effect that
the Holders of the Outstanding Securities will not recognize income, gain
or loss for Brazilian federal or state income tax or other tax purposes as
a result of such defeasance or covenant defeasance, as applicable, and
will be subject to Brazilian federal and state income tax
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and other tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance or covenant
defeasance, as applicable, had not occurred. Notwithstanding anything to
the contrary in this Indenture, this condition may not be waived by any
Holder or the Trustee;
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article III.
SECTION 8.3. Application of Trust Money. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to this
Article VIII. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities.
SECTION 8.4. Repayment to Company. The Trustee and the Paying Agent
shall promptly turn over to the Company upon request any excess money or
securities held by them upon payment of all the obligations under this
Indenture.
Subject to any applicable abandoned property law, the Trustee and
the Paying Agent shall pay to the Company upon request any money held by them
for the payment of principal of or interest on the Securities that remains
unclaimed for two years, and, thereafter, Securityholders entitled to the money
must look to the Company for payment as general creditors.
SECTION 8.5. Indemnity for U.S. Government Obligations. The Company
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 8.6. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with this
Article VIII by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the obligations of the Company and the
Subsidiary Guarantors under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to this Article VIII
until such time as the Trustee or Paying Agent is permitted to apply all such
money or U.S. Government Obligations in accordance with this Article VIII;
provided, however, that, if the Company has made any payment of interest on or
principal of any Securities because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent.
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ARTICLE IX
Amendments
SECTION 9.1. Without Consent of Holders. The Company and the Trustee
may amend this Indenture or the Securities without notice to or consent of any
Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article V;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to add guarantees with respect to the Securities or to secure
the Securities;
(5) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(6) to comply with any requirements of the SEC in connection with
qualifying this Indenture under the TIA;
(7) to make any change that does not adversely affect the rights of
any Securityholder; or
(8) to provide for the issuance of the Exchange Securities, which
will have terms substantially identical in all material respects to the
Initial Securities (except that the transfer restrictions contained in the
Initial Securities will be modified or eliminated, as appropriate), and
which will be treated, together with any outstanding Initial Securities,
as a single issue of securities.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
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SECTION 9.2. With Consent of Holders. The Company and the Trustee
may amend this Indenture or the Securities without notice to any Securityholder
but with the written consent of the Holders of at least a majority in principal
amount of the Securities. However, without the consent of each Securityholder
affected, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Security or reduce any Additional Amounts in respect thereof;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption or repurchase of
any Security or change the time at which any Security may or shall be
redeemed or repurchased in accordance with this Indenture;
(5) make any Security payable in money other than that stated in the
Security;
(6) modify or amend in any manner adverse to the Holders the terms
and conditions of the obligation of the Company for the due and punctual
payment of the principal of or interest on Securities;
(7) modify or amend in any manner adverse to the Holders the terms
and conditions of the obligation of the Company for the due and punctual
payment of the principal of or interest on Securities;
(8) make any change in Section 6.4 or 6.7 or the second sentence of
this Section 9.2;
(9) release any Subsidiary Guarantor from any of its obligations
under its Subsidiary Guarantee or this Indenture; or
(10) amend or modify the provisions of Section 4.15.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such
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notice to all Securityholders, or any defect therein, shall not impair or affect
the validity of an amendment under this Section.
SECTION 9.3. Compliance with Trust Indenture Act. Every amendment to
this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents and Waivers. A
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any such
Holder or subsequent Holder may revoke the consent or waiver as to such Holder's
Security or portion of the Security if the Trustee receives the notice of
revocation before the date the amendment or waiver becomes effective. After an
amendment or waiver becomes effective, it shall bind every Securityholder.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated proxies), and only
those Persons, shall be entitled to give such consent or to revoke any consent
previously given or to take any such action, whether or not such Persons
continue to be Holders after such record date. No such consent shall become
valid or effective more than 120 days after such record date.
SECTION 9.5. Notation on or Exchange of Securities. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.6. Trustee To Sign Amendments. The Trustee may, but need
not, sign any amendment authorized pursuant to this Article IX if the amendment
adversely affects the rights, duties, liabilities or immunities of the Trustee.
In signing any amendment the Trustee shall be entitled to receive indemnity
reasonably satisfactory to it and to receive, and (subject to Section 7.1) shall
be fully protected in relying upon, an Officers' Certificate
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and an Opinion of Counsel stating that such amendment is authorized or permitted
by this Indenture.
ARTICLE X
Subsidiary Guarantee
SECTION 10.1. Subsidiary Guarantee. The Subsidiary Guarantors
hereby, jointly and severally, unconditionally and irrevocably, Guarantee to
each Holder and to the Trustee and its successors and assigns, as a principal
obligor and not merely as a surety, (a) the full and punctual payment of
principal of and interest on the Securities when due, whether at maturity, by
acceleration, by redemption or otherwise, and all other monetary obligations of
the Company under this Indenture (including obligations to the Trustee) and the
Securities and (b) the full and punctual performance within applicable grace
periods of all other obligations of the Company under this Indenture and the
Securities (all the foregoing being hereinafter collectively called the
"Obligations"). The Subsidiary Guarantors further agree that the Obligations may
be extended or renewed, in whole or in part, without notice or further assent
from the Subsidiary Guarantors, and that the Subsidiary Guarantors will remain
bound under this Article X notwithstanding any extension or renewal of any
Obligation.
The Subsidiary Guarantors waive presentation to, demand of, payment
from and protest to the Company of any of the Obligations and also waive notice
of protest for nonpayment. The Subsidiary Guarantors waive notice of any default
under the Securities or the Obligations. The obligations of the Subsidiary
Guarantors hereunder shall not be affected by (a) the failure of any Holder or
the Trustee to assert any claim or demand or to enforce any right or remedy
against the Company or any other Person under this Indenture, the Securities or
any other agreement or otherwise; (b) any extension or renewal of any
Obligation; (c) any rescission, waiver, amendment, modification or supplement of
any of the terms or provisions of this Indenture (other than this Article X),
the Securities or any other agreement; (d) the release of any security held by
any Holder or the Trustee for the Obligations or any of them; (e) the failure of
any Holder or Trustee to exercise any right or remedy against any other
guarantor of the Obligations; or (f) any change in the ownership of the Company.
The Subsidiary Guarantors further agree that their Guarantees herein
constitute a guarantee of payment, performance and compliance when due (and not
a guarantee of collection) and waive any right to require that any resort be had
by any Holder or the Trustee to any security held for payment of the
Obligations.
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The obligations of the Subsidiary Guarantors hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including any claim of waiver, release, surrender, alteration or compromise, and
shall not be subject to any defense, setoff, counterclaim, recoupment or
termination whatsoever or by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of the Subsidiary Guarantors herein
shall not be discharged or impaired or otherwise affected by the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any remedy
under this Indenture, the Securities or any other agreement, by any waiver or
modification of any thereof, by any default, failure or delay, willful or
otherwise, in the performance of the Obligations, or by any other act or thing
or omission or delay to do any other act or thing which may or might in any
manner or to any extent vary the risk of the Subsidiary Guarantors or would
otherwise operate as a discharge of the Subsidiary Guarantors as a matter of law
or equity.
The Subsidiary Guarantors further agree that their Guarantees herein
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any Obligation is rescinded or must
otherwise be restored by any Holder or the Trustee upon the bankruptcy or
reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against the
Subsidiary Guarantors by virtue hereof, upon the failure of the Company to pay
any Obligation when and as the same shall become due, whether at maturity, by
acceleration, by redemption or otherwise, or to perform or comply with any other
Obligation, the Subsidiary Guarantors hereby promise to and will, upon receipt
of written demand by the Trustee, forthwith pay, or cause to be paid, in cash,
to the Holders or the Trustee an amount equal to the sum of (i) the unpaid
principal amount of such Obligations, (ii) accrued and unpaid interest on such
Obligations (but only to the extent not prohibited by law) and (iii) all other
monetary Obligations of the Company to the Holders and the Trustee.
The Subsidiary Guarantors agree that, as between the Subsidiary
Guarantors, on the one hand, and the Holders and the Trustee, on the other hand,
(x) the maturity of the Obligations guaranteed hereby may be accelerated as
provided in Article VI for the purposes of the Guarantee herein, notwithstanding
any stay, injunction or other prohibition preventing such acceleration in
respect of the Obligations guaranteed hereby, and (y) in the event of any
declaration of acceleration of such Obligations as provided in Article VI, such
Obligations (whether or not due and payable) shall forthwith become due and
payable by the Subsidiary Guarantors for the purposes of this Section.
<PAGE>
82
The Subsidiary Guarantors also agree to pay any and all costs and
expenses (including reasonable attorneys' fees) incurred by the Trustee or any
Holder in enforcing any rights under this Section.
SECTION 10.2. Limitation on Liability. Any term or provision of this
Indenture to the contrary notwithstanding, the maximum, aggregate liability of
each Subsidiary Guarantor hereunder shall not exceed the maximum amount that can
be guaranteed by such Subsidiary Guarantor under applicable federal and state
laws relating to insolvency of debtors.
SECTION 10.3. Successors and Assigns. This Article X shall be
binding upon the Subsidiary Guarantors and their successors and assigns and
shall enure to the benefit of the successors and assigns of the Trustee and the
Holders 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 Securities shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions of this
Indenture.
(b) Notwithstanding the foregoing, all obligations of a Subsidiary
Guarantor under this Article X shall be automatically and unconditionally
released and discharged upon any sale, exchange or transfer to any Person which
is not a Subsidiary of the Company, of all or substantially all of the assets of
such Subsidiary Guarantor or all of the Capital Stock of such Subsidiary
Guarantor owned by the Company or any Subsidiary; provided that (i) such sale,
exchange or transfer is not prohibited by this Indenture and (ii) all
obligations of such Subsidiary Guarantor in respect of the Bank Indebtedness and
under all of its Guarantees of, and in respect of all liens on its assets
securing, Indebtedness of the Company are also released and discharged upon such
sale, exchange or transfer.
SECTION 10.4. No Waiver. Neither a failure nor a delay on the part
of either the Trustee or the Holders in exercising any right, power or privilege
under this Article X shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Trustee and the
Holders herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which either may have under this Article X at law,
in equity, by statute or otherwise.
SECTION 10.5. Right of Contribution. Each Subsidiary Guarantor
hereby agrees that to the extent that a Subsidiary Guarantor shall have paid
more than its proportionate share of any payment made hereunder, such Subsidiary
Guarantor shall be entitled to seek and receive contribution from and against
any other Subsidiary Guarantor hereunder who has not paid its proportionate
share of such payment. Each Subsidiary
<PAGE>
83
Guarantor's right of contribution shall be subject to the terms and conditions
of Section 10.6. The provisions of this Section shall in no respect limit the
obligations and liabilities of any Subsidiary Guarantor to the Trustee and the
Securityholders and each Subsidiary Guarantor shall remain liable to the Trustee
and the Securityholders for the full amount guaranteed by such Subsidiary
Guarantor hereunder.
SECTION 10.6. No Subrogation. Notwithstanding any payment or
payments made by any of the Subsidiary Guarantors hereunder, no Subsidiary
Guarantor shall be entitled to be subrogated to any of the rights of the Trustee
or any Securityholder against the Company or any other Subsidiary Guarantor or
any collateral security or guarantee or right of offset held by the Trustee or
any Securityholder for the payment of the Obligations, nor shall any Subsidiary
Guarantor seek or be entitled to seek any contribution or reimbursement from the
Company or any other Subsidiary Guarantor in respect of payments made by such
Subsidiary Guarantor hereunder, until all amounts owing to the Trustee and the
Securityholders by the Company on account of the Obligations are paid in full.
If any amount shall be paid to any Subsidiary Guarantor on account of such
subrogation rights at any time when all of the Obligations shall not have been
paid in full, such amount shall be held by such Subsidiary Guarantor in trust
for the Trustee and the Securityholders, segregated from other funds of such
Subsidiary Guarantor, and shall, forthwith upon receipt by such Subsidiary
Guarantor, be turned over to the Trustee in the exact form received by such
Subsidiary Guarantor (duly indorsed by such Subsidiary Guarantor to the Trustee,
if required), to be applied against the Obligations.
SECTION 10.7. Additional Subsidiary Guarantors. Concurrently with
the creation or acquisition by the Company or any of its Restricted Subsidiaries
of any Restricted Subsidiary, the Company, such newly created or acquired
Restricted Subsidiary and the Trustee shall execute and deliver a supplement to
this Indenture providing that such Subsidiary will be a Subsidiary Guarantor
hereunder. Each such supplement shall be accompanied by an opinion of counsel
and each in a form reasonably satisfactory to the Trustee.
SECTION 10.8. Modification. No modification, amendment or waiver of
any provision of this Article X, nor the consent to any departure by the
Subsidiary Guarantors therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Trustee, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on the Subsidiary Guarantors in any case shall
entitle the Subsidiary Guarantors to any other or further notice or demand in
the same, similar or other circumstances.
SECTION 10.9. Waiver of Brazilian Law Benefits. Each Subsidiary
Guarantor hereby expressly waives all benefits set forth in the following
provisions of
<PAGE>
84
Brazilian law: articles 1491, 1494, 1498, 1499, 1500 and 1503 of the Brazilian
Civil Code, articles 261 and 262 of the Brazilian Commercial Code and article
595 of the Brazilian Civil Procedure Code.
ARTICLE XI
Miscellaneous
SECTION 11.1. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the provision required by
the TIA shall control.
SECTION 11.2. Notices. Any notice or communication shall be in
writing and delivered in person or mailed by first-class mail addressed as
follows:
if to the Company or to the Subsidiary Guarantors:
Tevecap S.A.
Rua da Rocio, 313-11th
CEP 04552-904
Sao Paulo, SP
Brazil
Tel: 011-55-11-829-7049
Fax: 011-55-11-828-8770
Attention: Douglas Duran
with a copy to:
Tevecap S. A.
Av. Otaviano Alves da Lima 4-400
02901-00 (Freguesia do O)
Sao Paulo, SP
Brazil
Attention: Jose Augusto
P. Moreira
Tel: 011-55-11-256-3022
Fax: 011-55-11-231-1392
and
<PAGE>
85
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019
Attention: Peter V. Darrow
Tel: 212-506-2500
Fax: 212-262-1910
if to the Trustee or the Paying Agent:
The Chase Manhattan Bank
450 West 33rd Street, 15th floor
New York, New York 10001-2697
Attention: Global Trust Services --
International Service Delivery
if to the Principal Paying Agent:
Chase Trust Bank
13th floor, Akasaka Park Building
2-20 Akasaka 5-chome
Minato-Ku
Tokyo 107
Japan
Attention: Head of Administration
& Planning Group
The Company, any of the Subsidiary Guarantors, or the Trustee by
notice to the other may designate additional or different addresses for
subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be
mailed to the Securityholder at the Securityholder's address as it appears on
the registration books of the Security Registrar and shall be sufficiently given
if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
<PAGE>
86
SECTION 11.3. Communication by Holders with other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Security Registrar and anyone else
shall have the protection of TIA ss. 312(c).
SECTION 11.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 11.5. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) 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;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 11.6. When Securities Disregarded. In determining whether
the Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities 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
<PAGE>
87
shall be disregarded and deemed not to be outstanding, except that, for the
purpose of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Securities which the Trustee knows are
so owned shall be so disregarded. Also, subject to the foregoing, only
Securities outstanding at the time shall be considered in any such
determination.
SECTION 11.7. Rules by Trustee, Paying Agent and Registrar. The
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Security Registrar and the Paying Agent may make reasonable rules for their
functions.
SECTION 11.8. Legal Holidays. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions are not required to be open in the
State of New York, Tokyo, Japan or Sao Paulo, Brazil. If a payment date is a
Legal Holiday, payment shall be made on the next succeeding day that is not a
Legal Holiday, and no interest shall accrue for the intervening period. If a
regular record date is a Legal Holiday, the record date shall not be affected.
SECTION 11.9. Governing Law. This Indenture and the Securities shall
be governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 11.10. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION 11.11. Successors. All agreements of the Company and the
Subsidiary Guarantors in this Indenture and the Securities shall bind their
respective successors. All agreements of the Trustee in this Indenture shall
bind its successors.
SECTION 11.12. Multiple Originals. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 11.13. Variable Provisions. The Company initially appoints
the Trustee as Paying Agent and Security Registrar and custodian with respect to
any Global Securities.
<PAGE>
88
SECTION 11.14. Qualification of Indenture. The Company shall qualify
this Indenture under the TIA in accordance with the terms and conditions of the
Registration Rights Agreement and shall pay all reasonable costs and expenses
(including attorneys' fees for the Company, the Trustee and the Holders)
incurred in connection therewith, including, but not limited to, costs and
expenses of qualification of the Indenture and the Securities and printing this
Indenture and the Securities. The Trustee shall be entitled to receive from the
Company any such Officers' Certificates, Opinions of Counsel or other
documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
SECTION 11.15. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
SECTION 11.16. Agent for Service; Submission to Jurisdiction; Waiver
of Immunities. By the execution and delivery of this Indenture or any amendment
or supplement hereto, each of the Company and each Subsidiary Guarantor, (i)
acknowledges that it has, by separate written instrument, designated and
appointed CT Corporation System, currently located at 1633 Broadway, New York,
New York 10019, 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
Securities, this Indenture or any Subsidiary Guarantee (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 CT Corporation System 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 CT
Corporation System shall be deemed in every respect effective service of process
upon the Company or any such Subsidiary Guarantor, as the case may be, in any
such suit, action or proceeding. The Company and each Subsidiary Guarantor
further agree 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 CT Corporation System in full force and effect so
long as this Indenture shall be in full force and effect; provided that the
Company and each Subsidiary Guarantor may and shall (to the extent CT
Corporation System 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 11.16 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 (x) counsel for the Company and the
Subsidiary Guarantors or (y) a corporate service company which acts as agent for
service of process for
<PAGE>
89
other persons in the ordinary course of its business and 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 11.16. 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, 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 and the Subsidiary Guarantors appointed
and acting in accordance with this Section 11.16.
To the extent that the Company or any Subsidiary Guarantor 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 and each Subsidiary Guarantor hereby irrevocably
waives such immunity in respect of its obligations under this Indenture, the
Securities and the Subsidiary Guarantees, to the extent permitted by law.
SECTION 11.17. 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 and the Subsidiary Guarantors under
or in connection with the Securities, the Subsidiary Guarantees 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 and the Subsidiary Guarantors or otherwise) by any
Holder of the Securities in respect of any sum expressed to be due to it from
the Company and the Subsidiary Guarantors shall only constitute a discharge to
the Company and the Subsidiary Guarantors to the extent of the 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 recover (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 dollar amount is less than the dollar amount
expressed to be due to the recipient under the Securities, the Company and the
Subsidiary Guarantors shall, jointly and severally, indemnify it against any
loss sustained by it as a result as set forth in Section 11.17(b). In any event,
the Company and the Subsidiary Guarantors shall, jointly and severally,
indemnify the recipient against the cost of making any such purchase. For the
purposes of this Section 11.17, it will be sufficient for the holder of a
Security to certify in a satisfactory manner (indicating sources of information
used) that it would have suffered a loss had an actual purchase of dollars been
made with the amount so received in that other currency on the date of receipt
or recovery (or, if a purchase of dollars on such date had not been practicable,
on the first date on which it would have been practicable, it being required
that the need for a change of date be certified in the manner mentioned above).
The indemnities set forth in this 11.17 constitute separate and independent
cause of action, shall
<PAGE>
90
apply irrespective of any indulgence granted by any Holder of the Securities and
shall continue in full force and effect despite any other judgment, order, claim
or proof for a liquidated amount in respect of any sum due under the Securities.
(b) The Company and each Subsidiary Guarantor covenants and agrees
that the following provisions shall apply to conversion of currency in the case
of the Securities, the Guarantees and this Indenture:
(i) (A) 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 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).
(B) 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
or the relevant Subsidiary Guarantor, as the case may be, 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.
(ii) In the event of the winding-up of the Company or any Subsidiary
Guarantor at any time while any amount or damages owing under the
Securities, the Subsidiary Guarantees and this Indenture, or any judgment
or order rendered in respect thereof, shall remain outstanding, the
Company or the relevant Subsidiary Guarantor, as the case may be, shall
indemnify and hold the Holders 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 Securities, the Subsidiary Guarantees
and this Indenture (other than under this Subsection (b)(ii)) 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)(ii), the final date for the filing of proofs of claim in
the winding-up of the Company or the relevant Subsidiary Guarantor, as the
case may be, shall 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 or the
relevant Subsidiary Guarantor, as the case may be, may be ascertained for
such winding-up prior to payment by the liquidator or otherwise in respect
thereto.
<PAGE>
91
(iii) The obligations contained in Subsections (a), (b)(i)(B),
(b)(ii) and (b)(v) of this Section 11.17 shall constitute separate and
independent obligations from the other Indenture obligations of the
Company and the Subsidiary Guarantors, shall give rise to separate and
independent causes of action against the Company and each Subsidiary
Guarantor, shall apply irrespective of any waiver or extension granted by
any Holder or the Trustee or either of them from time to time and shall
continue in full force and effect notwithstanding any judgment or order or
the filing of any proof of claim in the winding-up of the Company or any
Subsidiary Guarantor for a liquidated sum in respect of amounts due
hereunder (other than under Subsection (b)(ii) above) or under any such
judgment or order. Any such deficiency as aforesaid shall be deemed to
constitute a loss suffered by the Holders 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 relevant Subsidiary Guarantor or the liquidator or
otherwise or any of them. In the case of Subsection (b)(ii) 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.
(iv) The term "rate(s) of exchange" shall mean the rate of exchange
quoted by Reuters at 10:00 a.m. (New York 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
Securities or any Subsidiary Guarantee, any restrictions or prohibition of
access to the Brazilian foreign exchange market exists, the Company and each
Subsidiary Guarantor agrees to pay all amounts payable under the Securities and
the Guarantees in the currency of the Securities by means of any legal procedure
existing in Brazil (except commencing legal proceedings against the Central Bank
of Brazil), on any due date for payment under the Securities, for the purchase
of the currency of such Securities. All costs and taxes payable in connection
with the procedures referred to in this Section 11.17 shall be borne by the
Company and the Subsidiary Guarantors.
<PAGE>
92
IN WITNESS WHEREOF, the parties have caused this Indenture to be
duly executed as of the date first written above.
<PAGE>
93
TEVECAP S.A.
By: ____________________________
Name:
Title:
By: ____________________________
Name:
Title:
TVA SISTEMA DE TELEVISAO S.A.
By: ____________________________
Name:
Title:
By: ____________________________
Name:
Title:
TVA COMMUNICATIONS LTD.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
GALAXY BRASIL S.A.
By: ______________________________
Name:
Title:
By: ______________________________
<PAGE>
94
Name:
Title:
<PAGE>
95
TVA SUL PARTICIPACOES S.A.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
COMERCIAL CABO TV SAO PAULO LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
TVA PARANA LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
TVA ALPHA CABO LTDA.
By: ______________________________
Name:
Title:
<PAGE>
96
By: ______________________________
Name:
Title:
<PAGE>
97
CCS CAMBORIU CABLE SYSTEM DE
TELECOMUNICACOES LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
TCC TV A CABO LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
TVA SUL FOZ DO IGUACU LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
<PAGE>
98
THE CHASE MANHATTAN BANK
By: ______________________________
Name:
Title:
CHASE TRUST BANK
By: ______________________________
Name:
Title:
<PAGE>
99
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this ____ day of November, 1996, 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 Chase Manhattan Bank, 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.
..............................................
[NOTARIAL SEAL]
<PAGE>
100
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this ____ day of November, 1996, before me, a notary public
within and for said county, personally appeared _____________________, to me
personally known who being duly sworn, did say that he is the attorney-in-fact
of Chase Trust Bank, 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.
..............................................
[NOTARIAL SEAL]
<PAGE>
EXHIBIT A
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, 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 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 SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND
<PAGE>
2
THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER
OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE ISSUER,
(B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QIB" AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QIB TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE
UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E)
TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS
OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN
EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION
WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER,
SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF
AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM, AND IN EACH CASE, ONLY IF A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE ISSUER AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
<PAGE>
No. [___] Principal Amount $[______________]
CUSIP NO.
12-5/8% Senior Note due 2004
Tevecap S.A., a sociedad anonima organized under the laws of the
Federative Republic of Brazil promises to pay to [___________], or registered
assigns, the principal sum of [__________________] Dollars on November 26, 2004
or such other amount as is shown on the Register on such date in respect of the
Notes.
Interest Payment Dates: May 26 and November 26.
Record Dates: May 1 and November 1.
Additional provisions of this Security are set forth on the other
side of this Security.
Dated: November 26, 1996 TEVECAP S.A.
By ______________________________________
Name:
Title:
By ______________________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
THE CHASE MANHATTAN BANK
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
<PAGE>
2
by_____________________________
Authorized Signatory
<PAGE>
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
12-5/8% Senior Note due 2004
1. Interest
Tevecap S.A., a sociedad anonima organized under the laws of the
Federative Republic of Brazil (such entity and its successors and assigns under
the Indenture hereinafter referred to, being herein called the "Company")
promises to pay interest on the principal amount of this Security at the rate
per annum shown above.
The Company will pay interest semiannually on May 26 and November 26
of each year, commencing on May 26, 1997. Interest on the Securities will accrue
from the most recent date to which interest has been paid on the Securities or,
if no interest has been paid, from November 26, 1996. The Company shall pay
interest on overdue principal or premium, if any, at the rate borne by the
Securities to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment
By at least 10:00 a.m. (New York City time) on the Business Day
prior to the date on which any principal of or interest on any Security is due
and payable, the Company shall irrevocably deposit with the Trustee or the
Paying Agent money sufficient to pay such principal, premium, if any, and/or
interest. The Company will pay interest (except defaulted interest) to the
Persons who are registered Holders of Securities at the close of business on the
May 1 or November 1 next preceding the interest payment date even if Securities
are cancelled, repurchased or redeemed after the record date and on or before
the interest payment date. Holders must surrender Securities to a Paying Agent
to collect principal payments. The Company will pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal and
interest by check payable in such money. It may mail an interest check to a
Holder's registered address. Any such interest not punctually paid, or duly
provided for, and interest on such defaulted interest at the then applicable
interest rate borne by the Securities, to the extent lawful, shall forthwith
cease to be payable to the Holder on a regular record date, and may be paid to
the person in whose name this Security (or one or more Predecessor Securities)
is registered at the close of business on a special record date for the payment
of such defaulted interest to be fixed by the Trustee, notice of which shall be
given to Holders of Securities not less than 10 days prior to such special
record date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by the
Depositary or any such clearing agency or exchange, all as
<PAGE>
2
more fully provided in such Indenture. In addition, the Company (i) will pay to
the Holder of this Security such Additional Amounts as may become payable under
Section 4.15 of the Indenture and (ii) may be obligated to pay liquidated
damages pursuant to certain provisions of the Registration Rights Agreement.
3. Paying Agent and Registrar
Initially, The Chase Manhattan Bank, a New York corporation
("Trustee"), will act as Paying Agent and Security Registrar. Initially, Chase
Trust Bank will act as Principal Paying Agent. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice to any
Securityholder. The Company may act as Paying Agent, Security Registrar or
co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of
November 26, 1996 (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), among the Company, the
Subsidiary Guarantors named therein (the "Subsidiary Guarantors") and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Capitalized terms used herein and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured senior obligations of the
Company limited to $250.0 million aggregate principal amount (subject to Section
2.6 of the Indenture). This Security is one of the Initial Securities referred
to in the Indenture. The Securities include the Initial Securities and any
Exchange Securities issued in exchange for the Initial Securities pursuant to
the Indenture and the Registration Rights Agreement. The Initial Securities and
the Exchange Securities are treated as a single class of securities under the
Indenture. The Indenture imposes certain limitations on the Incurrence of
Indebtedness by the Company and its Subsidiaries, the payment of dividends and
other distributions on the Capital Stock of the Company and its Subsidiaries,
the purchase or redemption of Capital Stock of the Company and Capital Stock of
such Subsidiaries, certain purchases or redemptions of Subordinated Obligations,
the sale or transfer of assets and Capital Stock of Subsidiaries, the issuance
or sale of Capital Stock of Subsidiaries, the business activities and
investments of the Company and its Subsidiaries and transactions with
Affiliates. In addition, the Indenture limits the
<PAGE>
3
ability of the Company and its Subsidiaries to restrict distributions and
dividends from Subsidiaries.
To guarantee the due and punctual payment of the principal and
interest, if any, on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture, the Subsidiary Guarantors have
unconditionally guaranteed such obligations on a senior basis pursuant to the
terms of the Indenture.
5. Optional Redemption
At any time or from time to time prior to November 26, 2000, the
Company may redeem in the aggregate up to $75.0 million principal amount of the
Securities with the proceeds of one or more (i) Significant Equity Offerings or
(ii) sales of the Company's Capital Stock to a Strategic Investor, at a
redemption price (expressed as a percentage of principal amount) of 112.625%
plus accrued and unpaid interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date); provided, however, that after giving
effect to such redemption, at least $175.0 million principal amount of the
Securities remain outstanding.
6. Tax Redemption
The Securities may be redeemed at the option of the Company, in
whole but not in part, at any time prior to maturity if (A) there is any change
in or amendment to the Treaty to Avoid Double Taxation entered into between
Brazil and Japan, approved by Legislative Decree No. 43 dated November 23, 1967,
and enacted in Brazil by Decree No. 61,899 dated December 14, 1967, as amended
by Decree No. 81,194 dated January 9, 1978, which has the effect of increasing
the rate of tax applicable under such treaty to a rate exceeding 15.0% of
interest payable; or (B) as the result of any change in or amendment to the
laws, regulations or rulings of Brazil or Japan or any political subdivision or
taxing authority thereof or therein, or any change in the application or
official interpretation of such laws, regulations or rulings (including the
holding of a court of competent jurisdiction), the Company or any Subsidiary
Guarantor has or will become obligated to pay Additional Amounts (excluding
interest and penalties) in excess of the Additional Amounts that the Company or
any Subsidiary Guarantor would be obligated to pay if Taxes (excluding interest
and penalties) were imposed with respect to such payments of interest at a rate
of 15.0% and such obligation cannot be avoided by the Company or the Subsidiary
Guarantors, as the case may be, taking reasonable measures available to them,
then the Company may, at its option,
<PAGE>
4
redeem or cause the redemption of the Securities, as a whole but not in part,
upon not more than 60 nor less than 30 days' notice given in the manner set
forth in Section 3.3 of the Indenture to the Holders (with copies to the Trustee
and each Paying Agent) at 100% of their principal amount, together with accrued
interest to (but excluding) the date fixed for redemption, plus any such
Additional Amounts payable with respect to such principal amount and interest.
Prior to the giving of notice of redemption of the Securities as described
herein and as a condition to any such redemption, the Company will deliver to
the Trustee an Officers' Certificate (together with a copy of a written Opinion
of Counsel to the effect that the applicable rate has so increased, or the
Company or any Subsidiary Guarantor has or will become so obligated to pay
Additional Amounts as a result of such change or amendment), stating that the
Company is entitled to effect such redemption and setting forth in reasonable
detail a statement of facts relating thereto. No notice of redemption shall be
given earlier than 90 days prior to the earliest date on which the Company or
any Subsidiary Guarantor would be obligated to pay such Additional Amounts were
a payment in respect of the Securities then due and, at the time such notice of
redemption is given, such obligation to pay such Additional Amounts remains in
effect.
7. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations of principal
amount larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000. If money sufficient to pay the redemption price of and accrued and
unpaid interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
8. Put Provisions
Upon a Change of Control, any Holder of Securities will have the
right to cause the Company to repurchase all or any part of the Securities of
such Holder at a repurchase price equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of repurchase as provided
in, and subject to the terms of, the Indenture.
<PAGE>
5
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of principal amount of $1,000 and whole multiples of $1,000. A
Holder may transfer or exchange Securities in accordance with the Indenture. The
Security Registrar may require a Holder, among other things, to furnish
appropriate endorsements or transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Security Registrar need not
register the transfer of or exchange of any Securities selected for redemption
(except, in the case of a Security to be redeemed in part, the portion of the
Security not to be redeemed) during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of the Securities
selected for redemption and ending at the close of business on the day of such
mailing.
10. Persons Deemed Owners
The registered holder of this Security may be treated as the owner
of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request. After any such payment, Holders entitled to the money
must look only to the Company and not to the Trustee for payment.
12. Defeasance
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the
Securities and the Indenture if the Company deposits with the Trustee money or
U.S. Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount of the outstanding Securities
and (ii) any default or noncompliance with any
<PAGE>
6
provision may be waived with the written consent of the Holders of a majority in
principal amount of the outstanding Securities. Subject to certain exceptions
set forth in the Indenture, without the consent of any Securityholder, the
Company, the Subsidiary Guarantors and the Trustee may amend the Indenture or
the Securities to cure any ambiguity, omission, defect or inconsistency, or to
comply with Article 5 of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated Securities, or to add
guarantees with respect to the Securities or to secure the Securities, or to add
additional covenants or surrender rights and powers conferred on the Company for
the benefit of the Securityholders, or to comply with any requirements of the
SEC in connection with qualifying the Indenture under the Act, or to make any
change that does not adversely affect the rights of any Securityholder, or to
provide for the issuance of Exchange Securities.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph 5
of the Securities, upon required repurchase, upon declaration or otherwise;
(iii) failure by the Company or any Restricted Subsidiary to comply with other
agreements in the Indenture or the Securities, in certain cases subject to
notice and lapse of time; (iv) certain accelerations (including failure to pay
within any grace period after payment is due) of other indebtedness of the
Company or its Restricted Subsidiaries if the amount accelerated (or so unpaid)
exceeds $10.0 million or the US Dollar Equivalent; (v) certain events of
bankruptcy or insolvency with respect to the Company or any Restricted
Subsidiary; (vi) the seizure, compulsory acquisition, expropriation or
nationalization of material assets of the Company or its Subsidiaries; (vii) the
failure of any Subsidiary Guarantee to be in full force or the denial or
disaffirmation by any Subsidiary Guarantor of its obligation under the Indenture
or Guarantee; and (viii) certain final, non-appealable judgments or decrees for
the payment of money in excess of $10.0 million or the US Dollar Equivalent. If
an Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the Securities may declare all the Securities
to be due and payable immediately (including all Additional Amounts thereon).
Certain events of bankruptcy or insolvency are Events of Default which will
result in the Securities being due and payable immediately upon the occurrence
of such Events of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing
<PAGE>
7
Default or Event of Default (except a Default or Event of Default in payment of
principal or interest) if it determines that withholding notice is in their
interest.
15. Trustee Dealings with the Company
Subject to certain limitations set forth in the Indenture, the
Trustee under the Indenture, in its individual or any other capacity, may become
the owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its affiliates and may otherwise deal
with the Company or its affiliates with the same rights it would have if it were
not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or any Subsidiary Guarantor shall not have any liability for any
obligations of the Company or any Subsidiary Guarantor under the Securities or
the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent acting on its behalf) manually signs the
certificate of authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants
in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act).
<PAGE>
8
19. CUSIP and CINS Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP and/or CINS
numbers to be printed on the Securities and has directed the Trustee to use such
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
20. Governing Law
This Security shall be governed by, and construed in accordance
with, the laws of the State of New York but without giving effect to applicable
principles of conflicts of law to the extent that the application of the laws of
another jurisdiction would be required thereby.
21. Additional Amounts
The Company will pay to the Holders of Securities such Additional
Amounts as may become payable under Section 4.15 of the Indenture.
22. Conversion of Currency
U.S. dollars are the sole currency of account and payment for all
sums payable by the Company and the Subsidiary Guarantors under or in connection
with the Securities, the Subsidiary Guarantees or the Indenture, including
damages. The Company and each Subsidiary Guarantor have agreed that the
provisions of Section 11.17 of the Indenture shall apply to conversion of
currency in the case of the Securities, the Subsidiary Guarantees and the
Indenture. Among other things, Section 11.17 specifies that if there is a change
in the rate of exchange prevailing between the Business Day before the day on
which a judgment is given or an order or 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 or the relevant Subsidiary Guarantor, as the case may
be, 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. In the event that on any payment
date in respect of the Securities or any guarantee, any restrictions or
prohibition of access to the Brazilian foreign exchange market exists, the
Company and each Subsidiary Guarantor agrees to pay all amounts payable under
the Securities and the Subsidiary Guarantees in the
<PAGE>
9
currency of the Securities by means of any legal procedure existing in Brazil
(except commencing legal proceedings against the Central Bank of Brazil), on any
due date for payment under the Securities, for the purchase of the currency of
such Securities. All costs and taxes payable in connection with the procedures
referred to in this paragraph shall be borne by the Company and the Subsidiary
Guarantors.
23. Agent for Service; Submission to Jurisdiction; Waiver of Immunities
The Company and each Subsidiary Guarantor have appointed CT
Corporation System, currently located at 1633 Broadway, New York, New York
10019, 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, this
Security, the Indenture or any Subsidiary Guarantee (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 have agreed that there shall, at all time, be at least one agent
for service of process for the Company and the Subsidiary Guarantors appointed
and acting in accordance with the provisions of Section 11.16 of the Indenture
relating to agent for service of process. To the extent that the Company or any
Subsidiary Guarantor 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 and each
Subsidiary Guarantor have irrevocably waived such immunity in respect of its
obligations under the Indenture, this Security and the Subsidiary Guarantee, to
the extent permitted by law.
The Company will furnish to any Securityholder upon
written request and without charge to the Securityholder a copy of
the Indenture which has in it the text of this Security in larger
type.
Requests may be made to: Tevecap S.A.
Attention of Chief Financial Officer
<PAGE>
10
[FORM OF NOTATION ON NOTE RELATING TO GUARANTEE]
For value received, the undersigned hereby unconditionally guarantees, as
principal obligor and not merely as a surety, to the Holder of this Security,
the cash payments in United States dollars of principal, premium, if any, and
interest on this Security (and including Additional Amounts payable thereon) in
the amounts and at the times when due, together with interest on the overdue
principal, premium, if any, and interest, if any, on this Security, if lawful,
and the payment or performance of all other obligations of the Company under the
Indenture or the Securities, to the Holder of this Security and the Trustee, all
in accordance with and subject to the terms and conditions of this Security and
the Indenture, including Article X of the Indenture. Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Indenture,
dated as of November 26, 1996, among the Company, the Subsidiary Guarantors, The
Chase Manhattan Bank, as Trustee, and Chase Trust Bank, as Principal Paying
Agent, as amended or supplemented.
The obligations of the undersigned to the Holders of Securities and to the
Trustee are expressly set forth in Article X of the Indenture and reference is
hereby made to the Indenture for the precise terms of the Guarantee.
IN WITNESS WHEREOF, each Subsidiary Guarantor has caused this endorsement
to be duly executed.
November 26, 1996
TVA SISTEMA DE TELEVISAO S.A.
By: ____________________________
Name:
Title:
By: ____________________________
Name:
Title:
TVA COMMUNICATIONS LTD.
By: ______________________________
Name:
<PAGE>
11
Title:
By: ______________________________
Name:
Title:
GALAXY BRASIL S.A.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
TVA SUL PARTICIPACOES S.A.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
COMERCIAL CABO TV SAO PAULO LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
<PAGE>
12
TVA PARANA LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
TVA ALPHA CABO LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
<PAGE>
13
CCS CAMBORIU CABLE SYSTEM DE
TELECOMUNICACOES LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
TCC TV A CABO LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
TVA SUL FOZ DO IGUACU LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
Date: ____________________ Your Signature: ___________________
Signature Guarantee: ______________________________________
(Signature must be guaranteed)
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), covering resales of this
Security (which effectiveness shall not have been suspended or terminated at the
date of the transfer) and (ii) the later of November 26, 1999, or the date three
years (or such shorter period of time as permitted by Rule 144(k) under the
Securities Act or any successor provision thereunder) after the later of the
date of issuance appearing on the face of this Security and the last date on
which the Company or an affiliate of the Company was the owner of this Security
(or any Predecessor Security), the undersigned confirms that it has not utilized
any general solicitation or general advertising in connection with the transfer
and that:
[Check One]
[ ] (a) this Security is being transferred in compliance with the
exemption from registration under the Securities Act provided by
Rule 144A thereunder.
or
<PAGE>
2
[ ] (b) this Security is being transferred other than in accordance
with (a) above and documents, including a transferee certificate
substantially in the form attached hereto, are being furnished which
comply with the conditions of transfer set forth in this Security
and the Indenture.
If neither of the foregoing boxes is checked and, in the case of (b) above, if
the appropriate document is not attached or otherwise furnished to the Trustee,
the Trustee or Security Registrar shall not be obligated to register this
Security in the name of any person other than the Holder hereof unless and until
the conditions to any such transfer of registration set forth herein and in
Section 2.14 of the Indenture shall have been satisfied.
______________________________________________________________________________
Date:____________ Your signature: ______________________________________
(Sign exactly as your name appears on the
other side of this Security)
By:___________________________________
NOTICE: To be executed by an
executive officer
Signature Guarantee:________________________
TO BE COMPLETED BY PURCHASER IF (a) IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A (including the information
specified in Rule 144A(d)(4)) or has determined not to request such information
and that it is aware that the transferor is relying upon the undersigned's
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.
Dated:________________________ _________________________________________
NOTICE: To be executed by an
executive officer
<PAGE>
3
[The Transferee Certificates (Exhibits C and D to the Indenture)
will be attached to the Initial Security]
<PAGE>
4
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box:
|_|
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.6 or 4.8 of the Indenture, state the amount in
principal amount (must be integral multiple of $1,000): $
Date: __________ Your Signature ____________________________
(Sign exactly as your name appears on the
other side of the Security)
Signature Guarantee: _______________________________________
(Signature must be guaranteed)
<PAGE>
EXHIBIT B
[FORM OF FACE OF EXCHANGE SECURITY]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, 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 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 SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
<PAGE>
6
No. [___] Principal Amount $[______________]
CUSIP NO.
12-5/8% Senior Note due 2004
Tevecap S.A., a sociedad anonima organized under the laws of the
Federative Republic of Brazil promises to pay to [___________], or registered
assigns, the principal sum of [__________________] Dollars on November 26, 2004
or such other amount as is shown on the Register on such date in respect of this
Note.
Interest Payment Dates: May 26 and November 26.
Record Dates: May 1 and November 1.
Additional provisions of this Security are set forth on the other
side of this Security.
Dated: November 26, 1996 TEVECAP S.A.
By ___________________________________
Name:
Title:
By ___________________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
THE CHASE MANHATTAN BANK
as Trustee, certifies
<PAGE>
7
that this is one of
the Securities referred
to in the Indenture.
by_________________________
Authorized Signatory
<PAGE>
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY]
12-5/8% Senior Note due 2004
1. Interest
Tevecap S.A., a sociedad anonima organized under the laws of the
Federative Republic of Brazil (such entity and its successors and assigns under
the Indenture hereinafter referred to, being herein called the "Company")
promises to pay interest on the principal amount of this Security at the rate
per annum shown above.
The Company will pay interest semiannually on May 26 and November 26
of each year, commencing on May 26, 1997. Interest on the Securities will accrue
from the most recent date to which interest has been paid on the Securities or,
if no interest has been paid, from November 26, 1996. The Company shall pay
interest on overdue principal or premium, if any, at the rate borne by the
Securities to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment
By at least 10:00 a.m. (New York City time) on the Business Day
prior to the date on which any principal of or interest on any Security is due
and payable, the Company shall irrevocably deposit with the Trustee or the
Paying Agent money sufficient to pay such principal, premium, if any, and/or
interest. The Company will pay interest (except defaulted interest) to the
Persons who are registered Holders of Securities at the close of business on the
May 1 or November 1 next preceding the interest payment date even if Securities
are cancelled, repurchased or redeemed after the record date and on or before
the interest payment date. Holders must surrender Securities to a Paying Agent
to collect principal payments. The Company will pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal and
interest by check payable in such money. It may mail an interest check to a
Holder's registered address. Any such interest not punctually paid, or duly
provided for, and interest on such defaulted interest at the then applicable
interest rate borne by the Securities, to the extent lawful, shall forthwith
cease to be payable to the Holder on a regular record date, and may be paid to
the person in whose name this Security (or one or more Predecessor Securities)
is registered at the close of business on a special record date for the payment
of such defaulted interest to be fixed by the Trustee, notice of which shall be
given to Holders of Securities not less than 10 days prior to such special
record date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by the
Depositary or any such clearing agency or exchange, all as
<PAGE>
2
more fully provided in such Indenture. In addition, the Company will pay to the
Holder of this Security such Additional Amounts as may become payable under
Section 4.15 of the Indenture.
3. Paying Agent and Registrar
Initially, The Chase Manhattan Bank, a New York corporation
("Trustee"), will act as Paying Agent and Security Registrar. Initially, Chase
Trust Bank will act as Principal Paying Agent. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice to any
Securityholder. The Company may act as Paying Agent, Security Registrar or
co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of
November 26, 1996 (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), among the Company, the
Subsidiary Guarantors named therein (the "Subsidiary Guarantors") and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Capitalized terms used herein and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured senior obligations of the
Company limited to $250.0 million aggregate principal amount (subject to Section
2.6 of the Indenture). This Security is one of the Initial Securities referred
to in the Indenture. The Securities include the Initial Securities and any
Exchange Securities issued in exchange for the Initial Securities pursuant to
the Indenture and the Registration Rights Agreement. The Initial Securities and
the Exchange Securities are treated as a single class of securities under the
Indenture. The Indenture imposes certain limitations on the Incurrence of
Indebtedness by the Company and its Subsidiaries, the payment of dividends and
other distributions on the Capital Stock of the Company and its Subsidiaries,
the purchase or redemption of Capital Stock of the Company and Capital Stock of
such Subsidiaries, certain purchases or redemptions of Subordinated Obligations,
the sale or transfer of assets and Capital Stock of Subsidiaries, the issuance
or sale of Capital Stock of Subsidiaries, the business activities and
investments of the Company and its Subsidiaries and transactions with
Affiliates. In addition, the Indenture limits the ability of the Company and its
Subsidiaries to restrict distributions and dividends from Subsidiaries.
<PAGE>
3
To guarantee the due and punctual payment of the principal and
interest, if any, on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture, the Subsidiary Guarantors have
unconditionally guaranteed such obligations on a senior basis pursuant to the
terms of the Indenture.
5. Optional Redemption
At any time or from time to time prior to November 26, 2000, the
Company may redeem in the aggregate up to $75.0 million principal amount of the
Securities with the proceeds of one or more (i) Significant Equity Offerings or
(ii) sales of the Company's Capital Stock to a Strategic Investor, at a
redemption price (expressed as a percentage of principal amount) of 112.625%
plus accrued and unpaid interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date); provided, however, that after giving
effect to such redemption, at least $175.0 million principal amount of the
Securities remain outstanding.
6. Tax Redemption
The Securities may be redeemed at the option of the Company, in
whole but not in part, at any time prior to maturity if (A) there is any change
in or amendment to the Treaty to Avoid Double Taxation entered into between
Brazil and Japan, approved by Legislative Decree No. 43 dated November 23, 1967,
and enacted in Brazil by Decree No. 61,899 dated December 14, 1967, as amended
by Decree No. 81,194 dated January 9, 1978, which has the effect of increasing
the rate of tax applicable under such treaty to a rate exceeding 15.0% of
interest payable; or (B) as the result of any change in or amendment to the
laws, regulations or rulings of Brazil or Japan or any political subdivision or
taxing authority thereof or therein, or any change in the application or
official interpretation of such laws, regulations or rulings (including the
holding of a court of competent jurisdiction), the Company or any Subsidiary
Guarantor has or will become obligated to pay Additional Amounts (excluding
interest and penalties) in excess of the Additional Amounts that the Company or
any Subsidiary Guarantor would be obligated to pay if Taxes (excluding interest
and penalties) were imposed with respect to such payments of interest at a rate
of 15.0% and such obligation cannot be avoided by the Company or the Subsidiary
Guarantors, as the case may be, taking reasonable measures available to them,
then the Company may, at its option, redeem or cause the redemption of the
Securities, as a whole but not in part, upon not more than 60 nor less than 30
days' notice given in the manner set forth in Section 3.3 of the Indenture to
the Holders (with copies to the Trustee and each Paying Agent) at 100% of their
<PAGE>
4
principal amount, together with accrued interest to (but excluding) the date
fixed for redemption, plus any such Additional Amounts payable with respect to
such principal amount and interest. Prior to the giving of notice of redemption
of the Securities as described herein and as a condition to any such redemption,
the Company will deliver to the Trustee an Officers' Certificate (together with
a copy of a written Opinion of Counsel to the effect that the applicable rate
has so increased, or the Company or any Subsidiary Guarantor has or will become
so obligated to pay Additional Amounts as a result of such change or amendment,
stating that the Company is entitled to effect such redemption and setting forth
in reasonable detail a statement of facts relating thereto. No notice of
redemption shall be given earlier than 90 days prior to the earliest date on
which the Company or any Subsidiary Guarantor would be obligated to pay such
Additional Amounts were a payment in respect of the Securities then due and, at
the time such notice of redemption is given, such obligation to pay such
Additional Amounts remains in effect.
7. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations of principal
amount larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000. If money sufficient to pay the redemption price of and accrued and
unpaid interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
8. Put Provisions
Upon a Change of Control, any Holder of Securities will have the
right to cause the Company to repurchase all or any part of the Securities of
such Holder at a repurchase price equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of repurchase as provided
in, and subject to the terms of, the Indenture.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of principal amount of $1,000 and whole multiples of $1,000. A
Holder may transfer or exchange Securities in accordance with the Indenture. The
Security Registrar may require a
<PAGE>
5
Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Security Registrar need not register the transfer of or exchange
of any Securities selected for redemption (except, in the case of a Security to
be redeemed in part, the portion of the Security not to be redeemed) during a
period beginning at the opening of business 15 days before the mailing of a
notice of redemption of the Securities selected for redemption and ending at the
close of business on the day of such mailing.
10. Persons Deemed Owners
The registered holder of this Security may be treated as the owner
of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request. After any such payment, Holders entitled to the money
must look only to the Company and not to the Trustee for payment.
12. Defeasance
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the
Securities and the Indenture if the Company deposits with the Trustee money or
U.S. Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount of the outstanding Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount of the
outstanding Securities. Subject to certain exceptions set forth in the
Indenture, without the consent of any Securityholder, the Company, the
Subsidiary Guarantors and the Trustee may amend the Indenture or the Securities
to cure any ambiguity, omission, defect or inconsistency, or to comply with
Article 5 of the Indenture, or to provide for uncertificated
<PAGE>
6
Securities in addition to or in place of certificated Securities, or to add
guarantees with respect to the Securities or to secure the Securities, or to add
additional covenants or surrender rights and powers conferred on the Company for
the benefit of the Securityholders, or to comply with any requirements of the
SEC in connection with qualifying the Indenture under the Act, or to make any
change that does not adversely affect the rights of any Securityholder, or to
provide for the issuance of Exchange Securities.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph 5
of the Securities, upon required repurchase, upon declaration or otherwise;
(iii) failure by the Company or any Restricted Subsidiary to comply with other
agreements in the Indenture or the Securities, in certain cases subject to
notice and lapse of time; (iv) certain accelerations (including failure to pay
within any grace period after payment is due) of other indebtedness of the
Company or its Restricted Subsidiaries if the amount accelerated (or so unpaid)
exceeds $10.0 million or the US Dollar Equivalent; (v) certain events of
bankruptcy or insolvency with respect to the Company or any Restricted
Subsidiary; (vi) the seizure, compulsory acquisition, expropriation or
nationalization of material assets of the Company or its Subsidiaries; (vii) the
failure of any Subsidiary Guarantee to be in full force or the denial or
disaffirmation by any Subsidiary Guarantor of its obligation under the Indenture
or Guarantee; and (viii) certain final, non-appealable judgments or decrees for
the payment of money in excess of $10.0 million or the US Dollar Equivalent. If
an Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the Securities may declare all the Securities
to be due and payable immediately (including all Additional Amounts thereon).
Certain events of bankruptcy or insolvency are Events of Default which will
result in the Securities being due and payable immediately upon the occurrence
of such Events of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default or
Event of Default (except a Default or Event of Default in payment of principal
or interest) if it determines that withholding notice is in their interest.
15. Trustee Dealings with the Company
<PAGE>
7
Subject to certain limitations set forth in the Indenture, the
Trustee under the Indenture, in its individual or any other capacity, may become
the owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its affiliates and may otherwise deal
with the Company or its affiliates with the same rights it would have if it were
not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or any Subsidiary Guarantor shall not have any liability for any
obligations of the Company or any Subsidiary Guarantor under the Securities or
the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent acting on its behalf) manually signs the
certificate of authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants
in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act).
19. CUSIP and CINS Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP and/or CINS
numbers to be printed on the Securities and has directed the Trustee to use such
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
<PAGE>
8
20. Governing Law
This Security shall be governed by, and construed in accordance
with, the laws of the State of New York but without giving effect to applicable
principles of conflicts of law to the extent that the application of the laws of
another jurisdiction would be required thereby.
21. Additional Amounts
The Company will pay to the Holders of Securities such Additional
Amounts as may become payable under Section 4.15 of the Indenture.
22. Conversion of Currency
U.S. dollars are the sole currency of account and payment for all
sums payable by the Company and the Subsidiary Guarantors under or in connection
with the Securities, the Subsidiary Guarantees or the Indenture, including
damages. The Company and each Subsidiary Guarantor have agreed that the
provisions of Section 11.17 of the Indenture shall apply to conversion of
currency in the case of the Securities, the Subsidiary Guarantees and the
Indenture. Among other things, Section 11.17 specifies that if there is a change
in the rate of exchange prevailing between the Business Day before the day on
which a judgment is given or an order or 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 or the relevant Subsidiary Guarantor, as the case may
be, 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. In the event that on any payment
date in respect of the Securities or any guarantee, any restrictions or
prohibition of access to the Brazilian foreign exchange market exists, the
Company and each Subsidiary Guarantor agrees to pay all amounts payable under
the Securities and the Subsidiary Guarantees in the currency of the Securities
by means of any legal procedure existing in Brazil (except commencing legal
proceedings against the Central Bank of Brazil), on any due date for payment
under the Securities, for the purchase of the currency of such Securities. All
costs and taxes payable in connection with the procedures referred to in this
paragraph shall be borne by the Company and the Subsidiary Guarantors.
23. Agent for Service; Submission to Jurisdiction; Waiver of Immunities
<PAGE>
9
The Company and each Subsidiary Guarantor have appointed CT
Corporation System, currently located at 1633 Broadway, New York, New York
10019, 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, this
Security, the Indenture or any Subsidiary Guarantee (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 have agreed that there shall, at all time, be at least one agent
for service of process for the Company and the Subsidiary Guarantors appointed
and acting in accordance with the provisions of Section 11.16 of the Indenture
relating to agent for service of process. To the extent that the Company or any
Subsidiary Guarantor 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 and each
Subsidiary Guarantor have irrevocably waived such immunity in respect of its
obligations under the Indenture, this Security and the Guarantee, to the extent
permitted by law.
The Company will furnish to any Securityholder upon
written request and without charge to the Securityholder a copy of
the Indenture which has in it the text of this Security in larger
type.
Requests may be made to: Tevecap S.A.
Attention of Chief Financial Officer
<PAGE>
10
[FORM OF NOTATION ON NOTE RELATING TO GUARANTEE]
For value received, the undersigned hereby unconditionally guarantees, as
principal obligor and not merely as a surety, to the Holder of this Security,
the cash payments in United States dollars of principal, premium, if any, and
interest on this Security (and including Additional Amounts payable thereon) in
the amounts and at the times when due, together with interest on the overdue
principal, premium, if any, and interest, if any, on this Security, if lawful,
and the payment or performance of all other obligations of the Company under the
Indenture or the Securities, to the Holder of this Security and the Trustee, all
in accordance with and subject to the terms and conditions of this Security and
the Indenture, including Article X of the Indenture. Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Indenture,
dated as of November 26, 1996, among the Company, the Subsidiary Guarantors, The
Chase Manhattan Bank, as Trustee, and Chase Trust Bank, as Principal Paying
Agent, as amended or supplemented.
The obligations of the undersigned to the Holders of Securities and to the
Trustee are expressly set forth in Article X of the Indenture and reference is
hereby made to the Indenture for the precise terms of the Guarantee.
IN WITNESS WHEREOF, each Subsidiary Guarantor has caused this endorsement
to be duly executed.
November 26, 1996
TVA SISTEMA DE TELEVISAO S.A.
By: ____________________________
Name:
Title:
By: ____________________________
Name:
Title:
TVA COMMUNICATIONS LTD.
By: ______________________________
Name:
<PAGE>
11
Title:
By: ______________________________
Name:
Title:
GALAXY BRASIL S.A.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
TVA SUL PARTICIPACOES S.A.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
COMERCIAL CABO TV SAO PAULO LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
<PAGE>
12
TVA PARANA LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
TVA ALPHA CABO LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
<PAGE>
13
CCS CAMBORIU CABLE SYSTEM DE
TELECOMUNICACOES LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
TCC TV A CABO LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
TVA SUL FOZ DO IGUACU LTDA.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
________________________________________________________________________________
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
________________________________________________________________________________
Date: _______________ Your Signature ____________________
Signature Guarantee: ____________________________________
(Signature must be guaranteed)
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Security.
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box:
|_|
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.6 or 4.8 of the Indenture, state the amount in
principal amount (must be integral multiple of $1,000): $
Date: _______________ Your
Signature: _________________________
(Sign exactly as your name appears on the other side of the
Security)
Signature
Guarantee: _______________________________________
(Signature must be guaranteed)
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS TO
NON-QIB INSTITUTIONAL ACCREDITED INVESTORS
TEVECAP S.A.
THE CHASE MANHATTAN BANK
c/o The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, NY 10001-2697
Attention: Global Trust Services --
International Service Delivery
Re: Tevecap S.A. (the "Company")
125/8% Senior Notes
due 2004 (the "Securities")
Ladies and Gentlemen:
This certificate is delivered to request a transfer of $ principal
amount of the 12-5/8% Senior Notes due 2004 (the "Notes") of Tevecap, S.A. (the
"Company").
Upon transfer, the Notes would be registered in the name of the new
beneficial owner as follows:
Name: ___________________________________
Address: ________________________________
Taxpayer ID Number: _____________________
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933 (the "Securities
Act")) purchasing for our own account or for the account of such an
institutional "accredited investor," at least
C-1
<PAGE>
2
$250,000 principal amount of the Notes, and we are acquiring the Notes not with
a view to, or for offer or sale in connection with, any distribution in
violation of the Securities Act. We have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risk of our investment in the Notes and invest in or purchase securities similar
to the Notes in the normal course of our business. We and any accounts for which
we are acting are each able to bear the economic risk of our or its investment.
2. We understand that the Notes have not been registered under the
Securities Act and, unless so registered, may not be sold except as permitted in
the following sentence. We agree on our own behalf and on behalf of any investor
account for which we are purchasing Notes to offer, sell or otherwise transfer
such Notes prior to the date which is three years after the later of the date of
original issue and the last date on which the Company or any affiliate of the
Company was the owner of such Notes (or any predecessor thereto) (the "Resale
Restriction Termination Date") only (a) to the Company, (b) pursuant to a
registration statement which has been declared effective under the Securities
Act, (c) in a transaction complying with the requirements of Rule 144A under the
Securities Act, to a person we reasonably believe is a qualified institutional
buyer under Rule 144A (a "QIB") that purchases for its own account or for the
account of a QIB and to whom notice is given that the transfer is being made in
reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the
United States within the meaning of Regulation S under the Securities Act, (e)
to an institutional "accredited investor" within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act that is purchasing for its own account
or for the account of such an institutional "accredited investor", in each case
in a minimum principal amount of Notes of $250,000 or (f) pursuant to any other
available exemption from the registration requirements of the Securities Act,
subject in each of the foregoing cases to any requirement of law that the
disposition of our property or the property of such investor account or accounts
be at all times within our or their control and in compliance with any
applicable state securities laws. The foregoing restrictions on resale will not
apply subsequent to the Resale Restriction Termination Date. If any resale or
other transfer of the Notes is proposed to be made pursuant to clause (e) above
prior to the Resale Restriction Termination Date, the transferor shall deliver a
letter from the transferee substantially in the form of this letter to the
Company and the Trustee, which shall provide, among other things, that the
transferee is an institutional "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring
such Notes for investment purposes and not for distribution in violation of the
Securities Act. Each purchaser acknowledges that the Company and the Trustee
reserve the right prior to any offer, sale or other transfer prior to the Resale
Termination Date of the Notes pursuant to clauses (d), (e) or (f) above to
require the delivery of an opinion of counsel, certifications and/or other
information satisfactory to the Company and the Trustee.
TRANSFEREE:_____________________
C-2
<PAGE>
3
BY______________________________
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH
TRANSFERS PURSUANT TO REGULATION S
TEVECAP S.A.
THE CHASE MANHATTAN BANK N.A.
c/o The Chase Manhattan Bank
450 West 33rd Street, 15th floor
New York, NY 10001-2692
Attention: Corporate Trust Administration
Re: Tevecap S.A. (the "Company") 125/8%
Senior Notes due 2004 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of US$__________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933, as amended, and, accordingly, we represent that:
(1) the offer of the Securities was not made to a U.S. Person;
(2) either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside in the
United States or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
D-1
<PAGE>
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933, as amended.
In addition, if the sale is made during a restricted period and the provisions
of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are applicable thereto, we
confirm that such sale has been made in accordance with the applicable
provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may be.
You are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby. Terms used in this certificate have the meanings set
forth in Regulation S.
________________________________________
[Name of Transferor]
By:_____________________________________
Name:
Title:
Address:
Date:___________________________________
Upon transfer, the Notes should be registered in the name of the new beneficial
owner as follows:
Name:___________________________________________________________________________
Address_________________________________________________________________________
Taxpayer ID Number:_____________________________________________________________
<PAGE>
EXHIBIT E
FORM OF TRANSFER CERTIFICATE FOR
TRANSFER FROM OFFSHORE GLOBAL
SECURITY NOT BEARING A SECURITIES
ACT LEGEND TO U.S. GLOBAL BEARING A
SECURITIES ACT LEGEND (PRIOR TO
40TH DAY AFTER LATER OF COMMENCEMENT
OF OFFERING OF THE NOTES AND THE CLOSING DATE)
Tevecap S.A.
The Chase Manhattan Bank
c/o The Chase Manhattan Bank
450 West 33rd Street, 16th Floor
New York, New York 10001
Attention: Global Trust Services-
International Service Delivery
Re: Tevecap S.A. 125/8 Senior
Notes Due 2004 (the "Senior Notes")
Ladies & Gentlemen:
Reference is hereby made to the Indenture, dated November 26, 1996
(the "Indenture") among Tevecap S.A. (the "Company"), The Chase Manhattan Bank,
as Trustee and Chase Trust Bank, as Principal Paying Agent. Capitalized terms
used but not defined herein will have the meanings given to them in the
Indenture.
This letter relates to US$______ principal amount of Notes which are
held in the form of a beneficial interest in the Offshore Global Security (CINS
No. _______________) with the Depositary in the name of the undersigned.
The undersigned has requested transfer of such beneficial interest
in the Notes to a Person who will take delivery thereof in the form of a
beneficial interest in the U.S. Global Security (Cusip No.
_________________________). In connection with such transfer, the undersigned
does hereby confirm that such transfer has been effected in accordance with the
transfer restrictions set forth in the Indenture and the Notes and pursuant
<PAGE>
to and in accordance with Rule 144A under the U.S. Securities Act of 1933, as
amended, and accordingly, the undersigned represents that:
1. the Notes are being transferred to a transferee that the
undersigned reasonably believes is purchasing the Notes for its own
account or one or more accounts with respect to which the transferee
exercises sole investment discretion; and
2. the transferee and any such account is a "qualified institutional
buyer" within the meaning of Rule 144A, in a transaction meeting the
requirements of Rule 144A and in accordance with any applicable securities
laws of any state of the United States or any other jurisdiction.
[NAME OF UNDERSIGNED]
By:
Name:
Title:
Dated: ______________________
<PAGE>
----------------------------------------------------------------------------
TEVECAP S.A.
12 5/8 Senior Notes due 2004
----------------------------
AMENDMENT NO. 1 TO INDENTURE
Dated as of March 19, 1997
----------------------------
THE CHASE MANHATTAN BANK,
Trustee
----------------------------------------------------------------------------
<PAGE>
THIS AMENDMENT NO. 1, DATED MARCH 19, 1997, TO INDENTURE, dated as of
November 26, 1996 (this "Amendment No. 1"), is among TEVECAP S.A., the
Subsidiary Guarantors, The Chase Manhattan Bank, as Trustee and Chase Trust
Bank, as Principal Paying
Agent.
WITNESSETH:
WHEREAS, the Company and the Subsidiary Guarantors have heretofore executed
and delivered to the Trustee an Indenture, dated as of November 26, 1996, among
the Company, the Subsidiary Guarantors, the Trustee and Chase Trust Bank, as
Principal Paying Agent (the "Indenture"), under which the Securities in the
aggregate principal amount of $250,000,000 were issued and are outstanding.
WHEREAS, in accordance with Section 9.1(1) and (7) of the Indenture the
Company has requested that the Indenture be amended. The Company and each of
the Subsidiary Guarantors are authorized to enter into this Amendment No. 1 by
resolution of the board of directors of the Company or such Subsidiary
Guarantor, and simultaneously herewith the Trustee has received Opinions of
Counsel and Officers' Certificates stating that the execution of this Amendment
No. 1 is authorized or permitted by the Indenture.
NOW, THEREFORE:
For and in consideration of the premises it is mutually covenanted and
agreed as follows:
ARTICLE I
SECTION 10.1. The definition of "Permitted Liens" is amended by amending
and restating clause (xii) of such definition to read in its entirety as
follows:
"(xii) the pledge by the Company (A) to the other members of Galaxy
Latin America of warrants and promissory notes the Company holds in the
California Broadcast Center and the Company's equity interest in Galaxy
Latin America and SurFin to secure the Company's obligations under the
Equipment Agreements and the contribution agreements to be entered into in
connection with the Equipment Agreements and the SurFin Guarantee, and the
pledge of such warrants and promissory notes in the California Broadcast
Center and equity interest in Galaxy Latin America to secure the Company's
tax indemnity obligations under the Indemnification Agreement and (B) to
Falcon International of the shares of Capital Stock of the Company
purchased with the Put Promissory Notes; and"
<PAGE>
ARTICLE II
SECTION 20.2 EFFECTIVE DATE OF AMENDMENT NO. 1. This Amendment No. 1 will
be effective upon the date first written above.
SECTION 20.3 INDENTURE RATIFIED. Except as set forth herein, the
Indenture is in all respects ratified and confirmed, and all the terms,
provisions and conditions thereof shall be and remain in full force and effect.
SECTION 20.4 COUNTERPARTS. This Amendment No. 1 may be executed in any
number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
SECTION 20.5 TRUSTEE NOT RESPONSIBLE. The recitals contained herein shall
be taken as the statements of the Company and the Trustee assumes no
responsibility for their correctness. The Trustee enters into this Amendment
No.1 in reliance on the Officers' Certificates and Opinions of Counsel, as
provided for in Sections 11.4 and 11.5 of the Indenture.
SECTION 20.6 DEFINITIONS AND TERMS. Unless otherwise defined herein, all
initially capitalized terms used herein shall have the meanings assigned to such
terms in the Indenture.
SECTION 20.7 GOVERNING LAW. This Amendment No. 1 shall be governed by and
construed in accordance with the law of the State of New York.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be duly executed as of the date first above written.
TEVECAP S.A.
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
TVA SISTEMA DE TELEVISAO S.A.
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
TVA COMMUNICATIONS LTD.
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
-3-
<PAGE>
GALAXY BRASIL S.A.
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
TVA SUL PARTICIPACOES S.A.
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
COMERCIAL CABO TV SAO PAULO LTDA.
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
-4-
<PAGE>
TVA SUL PARANA LTDA.
(f/k/a "TVA PARANA LTDA.")
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
TVA ALFA CABO LTDA.
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
CCS CAMBORIU CABLE SYSTEM DE
TELECOMUNICACOES LTDA.
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
-5-
<PAGE>
TCC TV A CABO LTDA.
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
TVA SUL FOZ DO IGUACU LTDA.
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
THE CHASE MANHATTAN BANK
By:____________________________________
Name:
Title:
CHASE TRUST BANK
By:____________________________________
Name:
Title:
-6-
<PAGE>
Exhibit 5.1
[LETTERHEAD OF BASCH & RAMEH]
Re: Tevecap S.A.
US$250,000,000 12 5/8% Senior Notes due 2004
Exchange Offer
Dear Sirs:
We have acted as Brazilian counsel for (i) Tevecap S.A. (the "Company"), a
sociedade anonima (corporation) organized and existing under the laws of the
Federative Republic of Brazil ("Brazil"), and (ii) TVA Sistema de Televisao S.A.
("TVA Sistema"), Galaxy Brasil S.A. ("Galaxy Brasil"), TVA Sul Participacoes
S.A. ("TVA Sul"), Commercial Cabo TV Sao Paulo Ltda. ("CCTV"), TVA Parana Ltda.
("TVA Parana), TVA Alpha Cabo Ltda. ("TVA Alpha"), CCS Camboriu Cable Systems de
Telecommunicacoes Ltda. ("CCS Camboriu"), TCC TVA Cabo Ltda. ("TCC"), TVA Sul
Santa Catarina Ltda. ("TVA Sul Santa Catarina"), TVA Foz do Iguacu Ltda. ("TVA
Foz do Iguacu" and together with TVA Sistema, Galaxy Brasil, TVA Sul, CCTV, TVA
Parana, TVA Alpha, CCS Camboriu, TCC and TVA Sul Santa Catarina, the "Brazilian
Guarantors") in connection with the filing by the Company and the Subsidiary
Guarantors with the Securities and Exchange Commission (the "Commission") of a
registration statement (the "Registration Statement") on Form F-4 under the
Securities Act of 1933, as amended, relating to the proposed issuance, in
exchange for US$250,000,000 aggregate principal amount of the Company's 12 5/8%
Senior Notes due 2004 (the "Old Notes"), together with the Subsidiary Guarantees
of the Old Notes (such Subsidiary Guarantees, together with the Old Notes, the
"Old Securities") of US$250,000,000 aggregate principal amount of the Company's
12 5/8% Senior Notes due 2004 (the "Exchange Notes") together with the
Subsidiary Guarantees of the Exchange Notes (such Subsidiary Guarantees,
together with the Exchange Notes, the "Exchange Securities"). The Exchange
Securities are to be issued pursuant to an indenture dated as of November 26,
1996, as amended and supplemented to date (the "Indenture"), among the Company,
the Subsidiary Guarantors, The Chase Manhattan Bank, N.A., as trustee (the
"Trustee") and Chase Trust Bank, as principal paying agent (the "Principal
Paying Agent"). Capitalized terms used herein and not otherwise defined therein
have the meanings ascribed thereto in the Indenture.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary or appropriate for purposes of
this opinion, including the Indenture, the forms of the Exchange Securities, the
Registration Statement, the Articles of Incorporation and the Estatuto Social
(By-laws) or the Contrato Social (Charter), as the case may be, of the Company
and of each of the Brazilian Guarantors.
-1-
<PAGE>
In making our examination and in giving the opinions set forth below, we
have assumed, without independent verification of any kind, the following:
(i) the genuineness of all signatures on all documents we have reviewed;
(ii) the authenticity of all such documents submitted to us as originals;
(iii) the conformity of the originals of all documents submitted to us as
certified or photostatic copies; and
(iv) the due authority of the parties (other than the Company and the
Brazilian Guarantors) executing and authenticating such documents.
The opinions expressed below relate solely to the laws of Brazil as
currently in effect and we have made no investigation of and express no opinion
in relation to the laws of any jurisdiction other than those of Brazil. In
expressing the opinion as to the enforceability of the Subsidiary Guarantees
below, we have assumed the due authorization, execution and delivery thereof by
the Trustee, the Principal Paying Agent and the Subsidiary Guarantors that are
not incorporated under the laws of Brazil.
Based upon the foregoing, we are of the opinion that:
(1) Each of the Company and the Brazilian Guarantors is a sociedade
anonima or a sociedade por quotas de responsabilidade limitada, as the case may
be, duly organized and validly existing under the laws of Brazil;
(2) All necessary corporate action has been taken by the Company and the
Brazilian Guarantors to authorize the execution and delivery of the Indenture;
(3) The Indenture has been duly executed and delivered by the Company and
the Brazilian Guarantors;
(4) All necessary corporate action has been taken by the Company to
authorize the issuance, execution and delivery of the Exchange Securities; and
(5) Each of the Subsidiary Guarantees provided by the Brazilian
Guarantors, upon the execution of the Subsidiary Guarantees endorsed thereon in
accordance with the provisions of the Indenture and when the Exchange Notes with
such Subsidiary Guarantees endorsed thereon are delivered in exchange for the
Old Notes pursuant to the Exchange and Registration Rights Agreement, will
constitute a valid and binding obligation of the respective Brazilian Guarantor
enforceable against such Brazilian Guarantor in accordance with its terms
(subject in each case to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and other similar laws affecting creditors'
rights generally from time to time in effect); and the Exchange Notes, when duly
issued and authenticated in accordance with the provisions of the Indenture
-2-
<PAGE>
and delivered in exchange for the Old Notes pursuant to the Exchange and
Registration Rights Agreement, will constitute valid and binding obligations of
the Company and the Brazilian Guarantors enforceable against the Company and the
Brazilian Guarantors in accordance with their terms (subject in each case to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally from time
to time in effect).
We hereby consent to the filing of this opinion as part of the
Registration Statement and to the use of our name therein and in the related
Prospectus under the captions "Enforceability of Civil Liabilities," "Risk
Factors" and "Legal Matters".
Very truly yours,
BASCH & RAMEH
By:______________________________
Tevecap, S.A.
TVA Sistema de Televisao S.A.
Galaxy Brasil S.A.
TVA Sul Participacoes S.A.
Commercial Cabo TV Sao Paulo Ltda.
TVA Parana Ltda.
TVA Alpha Cabo Ltda.
CCS Camboriu Cable Systems de Telecommunicacoes Ltda.
TCC TVA Cabo Ltda.
TVA Sul Santa Catarina Ltda.
TVA Foz do Iguacu Ltda.
-3-
<PAGE>
Exhibit 5.2
[LETTERHEAD OF MAYER, BROWN & PLATT]
April __, 1997
Tevecap S.A.
US$250,000,000 12 5/8% Senior Notes due 2004
Exchange Offer
Ladies and Gentlemen:
We have acted as United States counsel for (i) Tevecap S.A., a Brazilian
corporation (the "Company"), and (ii) TVA Sistema de Televisao S.A., TVA
Communications, Ltd., Galaxy Brasil S.A., TVA Sul Participacoes S.A., Commercial
Cabo TV Sao Paulo Ltda., TVA Parana Ltda., TVA Alpha Cabo Ltda., CCS Camboriu
Cable Systems de Telecommunicacoes Ltda., TCC TVA Cabo Ltda., TVA Sul Santa
Catarina Ltda. and TVA Foz do Iguacu Ltda. (collectively, the "Subsidiary
Guarantors"), in connection with the filing by the Company and the Subsidiary
Guarantors with the Securities and Exchange Commission (the "Commission") of a
registration statement (the "Registration Statement") on Form F-4 under the
Securities Act of 1933, as amended, relating to the proposed issuance, in
exchange for US$250,000,000 aggregate principal amount of the Company's 12 5/8%
Senior Notes due 2004 (the "Old Notes"), together with the Subsidiary Guarantees
of the Old Notes (such Subsidiary Guarantees, together with the Old Notes, the
"Old Securities") of US$250,000,000 aggregate principal amount of the Company's
12 5/8% Senior Notes due 2004 (the "Exchange Notes"), together with the
Subsidiary Guarantees of the Exchange Notes (such Subsidiary Guarantees,
together with the Exchange Notes, the "Exchange Securities"). The Exchange Notes
are to be issued pursuant to an indenture dated as of November 26, 1996 (the
"Indenture"), among the Company, the Subsidiary Guarantors, The Chase Manhattan
Bank, N.A., as trustee (the "Trustee") and Chase Trust Bank, as principal paying
agent (the "Principal Paying Agent"). Capitalized terms used herein and not
otherwise defined herein have the meanings ascribed thereto in the Indenture.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary or appropriate for purposes of
this opinion, including the Indenture, the Exchange and Registration Rights
Agreement dated as of November 26, 1996 (the "Registration Rights Agreement"),
among the Company, the Subsidiary Guarantors and the Initial Purchasers, the
forms of the Exchange Securities and the Registration Statement.
In rendering the opinions contained herein, we have assumed (a) the due
authorization, execution and delivery of each of the Indenture, the Registration
Rights Agreement, the
<PAGE>
Exchange Securities by each of the parties thereto, (b) that each of such
parties has the legal power to act in the respective capacity or capacities in
which it is to act thereunder, (c) the authenticity of all documents submitted
to us as originals, (d) the conformity to the original documents of all
documents submitted to us as copies and (e) the genuineness of all signatures on
all documents submitted to us.
Based on the foregoing, we are of the opinion that (i) the Subsidiary
Guarantees, upon the execution of the Exchange Notes with the Subsidiary
Guarantees, endorsed thereon in accordance with the provisions of the Indenture
and when the Exchange Notes with the Subsidiary Guarantees endorsed thereon are
delivered in exchange for the Old Notes pursuant to the Registration Rights
Agreement, will constitute valid and binding obligations of the Subsidiary
Guarantors enforceable against the Subsidiary Guarantors in accordance with
their terms (subject in each case to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other similar laws affecting
creditors' rights generally from time to time in effect and to general
principles of equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, regardless of whether considered in
a proceeding in equity or at law); and (ii) the Exchange Notes, when duly issued
and authenticated in accordance with the provisions of the Indenture and
delivered in exchange for the Old Notes pursuant to the Registration Rights
Agreement, will constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms (subject in each
case to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws affecting creditors' rights generally
from time to time in effect and to general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing, regardless of whether considered in a proceeding in equity or at law).
We are admitted to practice in the State of New York and we do not express
any opinion with respect to matters governed by any laws other than the laws of
the State of New York and the federal laws of the United States of America. To
the extent that the laws of the Federative Republic of Brazil or the British
Virgin Islands are relevant to the opinions expressed herein, we have relied
exclusively on the opinions of Basch & Rameh, Brazilian counsel for the Company
and the Subsidiary Guarantors incorporated under the laws of the Federal
Republic of Brazil, and Harney, Westwood & Riegels, British Virgin Islands
counsel for TVA Communications, Ltd., which are being delivered to you and filed
with the Commission as exhibits to the Registration Statement.
We know that we may be referred to as counsel who has passed upon the
legality of the issuance of the Exchange Notes on behalf of the Company in the
Registration Statement filed
2
<PAGE>
with the Commission, and we hereby consent to such use of our name in said
Registration Statement and to the filing of this opinion with said Registration
Statement, as Exhibit 5.2 thereto.
Very truly yours,
Tevecap, S.A.
TVA Sistema de Televisao S.A.
TVA Communications, Ltd.
Galaxy Brasil S.A.
TVA Sul Participacoes S.A.
Commercial Cabo TV Sao Paulo Ltda.
TVA Parana Ltda.
TVA Alpha Cabo Ltda.
CCS Camboriu Cable Systems de Telecommunicacoes Ltda.
TCC TVA Cabo Ltda.
TVA Sul Santa Catarina Ltda.
TVA Foz do Iguacu Ltda.
3
<PAGE>
Exhibit 5.3
[LETTERHEAD OF HARNEY, WESTWOOD & RIEGELS]
___ April, 1997
TVA Communications, Ltd.
c/o Tevecap S.A.
Rua do Rocio, 313
Sao Paulo, SP 04552-904
Brazil
Dear Sirs,
RE: TEVECAP S.A.
US$250,000,000 12 5/8% SENIOR NOTES DUE 2004 - EXCHANGE OFFER
We have acted as special British Virgin Islands counsel for TVA Communications,
Ltd. (the "Company"), a British Virgin Islands corporation, in connection with
the filing by Tevecap S.A. ("Tevecap") and certain Subsidiary Guarantors
(including the Company) with the Securities and Exchange Commission (the
"Commission") of a registration statement (the "Registration Statement") on Form
F-4 under the Securities Act of 1933, as amended, relating to the proposed
issuance, in exchange for US$250,000,000 aggregate principal amount of Tevecap's
12 5/8% Senior Notes due 2004 (the "Old Notes"), together with the Subsidiary
Guarantees of the Old Notes (such Subsidiary Guarantees, together with the Old
Notes, the "Old Securities"), of US$250,000,000 aggregate principal amount of
Tevecap's 12 5/8% Senior Notes due 2004 (the "Exchange Notes"), together with
the Subsidiary Guarantees of the Exchange Notes (such Subsidiary Guarantees,
together with the Exchange Notes, the "Exchange Securities"). The Exchange
Securities are to be issued pursuant to an indenture dated as of November 26,
1996 (the "Indenture"), among Tevecap, the Subsidiary Guarantors, The Chase
Manhattan Bank, N.A., as trustee (the "Trustee") and Chase Trust Bank, as
principal paying agent (the "Principal Paying Agent"). Capitalized terms used
herein and not otherwise defined herein have the meanings ascribed thereto in
the Indenture.
In that connection, we have examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents, corporate records and other
instruments as we have deemed necessary or appropriate for purposes of this
opinion, including the Indenture, the form of the Subsidiary Guarantee to be
executed by the Company, the Registration Statement and the respective
Memorandum and Articles of Association and Certificate of Incorporation of the
Company.
<PAGE>
TVA Communications, Ltd.
Page 2
___ April, 1997
In making our examination and in giving the opinions set forth below, we have
assumed, without independent verification of any kind, the following:
(i) the genuineness of all signatures on all documents we have reviewed;
(ii) the authenticity of all such documents submitted to us as originals;
(iii) the conformity to the original instruments of all documents submitted to
us as certified or photostatic copies;
(iv) the due authority of the parties (other than the Company) executing and
authenticating such documents;
(v) the legal validity, enforceability and binding nature of the Indenture,
the Subsidiary Guarantees and the Exchange Notes against all parties
thereto under the laws of New York by which those documents are expressed
to be governed; and
(vi) the truth, accuracy, completeness and currency of all statements of fact
made and contained in the Indenture, Subsidiary Guarantees and Exchange
Notes, save as hereinafter opined upon, and in all corporate documents and
resolutions submitted to and examined and relied upon by us in connection
with this opinion.
The opinions expressed below relate solely to the laws of the British Virgin
Islands as currently in effect and we have made no investigation of and express
no opinion in relation to the laws of any jurisdiction other than those of the
British Virgin Islands. In expressing the opinion as to the enforceability of
the Subsidiary Guarantees below, we have assumed the due authorization,
execution and delivery thereof by the Trustee as well as by the Subsidiary
Guarantors that are not incorporated under the laws of the British Virgin
Islands, and due delivery of the Subsidiary Guarantee by the Company.
Based upon the foregoing, we are of the opinion that:
1. The company is a corporation duly organized and validly existing under the
laws of the British Virgin Islands;
2. All necessary corporate action has been taken by the Company to authorize
the execution and delivery of the Indenture and the Indenture has been
duly executed and delivered by the Company.
<PAGE>
TVA Communications, Ltd.
Page 3
___ April, 1997
3. All necessary corporate action has been taken by the Company to authorize
the issuance, execution and delivery of the Subsidiary Guarantee; and
4. The Subsidiary Guarantee provided by the Company, upon the execution of
the Exchange Notes with such Subsidiary Guarantee endorsed thereon in
accordance with the provisions of the Indenture and when the Exchange
Notes with such Subsidiary Guarantee endorsed thereon are delivered in
exchange for the Old Notes pursuant to the Exchange and Registration
Rights Agreement, will constitute valid and binding obligations of the
Company in accordance with its terms (subject in each case to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer
and other similar laws affecting creditors' rights generally from time to
time in effect); and the Exchange Notes, when duly issued and
authenticated in accordance with the provisions of the Indenture and
delivered in exchange for the Old Notes pursuant to the Exchange and
Registration Rights Agreement, will constitute valid and binding
obligations of the Company enforceable against the Company in accordance
with their terms (subject in each case to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and other
similar laws affecting creditors' rights generally from time to time in
effect).
We hereby consent to the filing of this opinion as part of the Registration
Statement and to the use of our name therein.
Very truly yours,
HARNEY, WESTWOOD & RIEGELS
<PAGE>
Exhibit 8.1
[LETTERHEAD OF MAYER, BROWN & PLATT]
April __, 1997
Tevecap S.A.
US$250,000,000 12 5/8% Senior Notes due 2004
Exchange Offer
Ladies and Gentlemen:
We have acted as United States counsel for (i) Tevecap S.A., a Brazilian
corporation (the "Company"), and (ii) TVA Sistema de Televisao S.A., TVA
Communications, Ltd., Galaxy Brasil S.A., TVA Sul Participacoes S.A., Commercial
Cabo TV Sao Paulo Ltda., TVA Parana Ltda., TVA Alpha Cabo Ltda., CCS Camboriu
Cable Systems de Telecommunicacoes Ltda., TCC TVA Cabo Ltda., TVA Sul Santa
Catarina Ltda. and TVA Foz do Iguacu Ltda. (collectively, the "Subsidiary
Guarantors"), in connection with the filing by the Company and the Subsidiary
Guarantors with the Securities and Exchange Commission (the "Commission") of a
registration statement (the "Registration Statement") on Form F-4 under the
Securities Act of 1933, as amended, relating to the proposed issuance, in
exchange for US$250,000,000 aggregate principal amount of the Company's 12 5/8%
Senior Notes due 2004 (the "Old Notes"), together with the Subsidiary Guarantees
of the Old Notes (such Subsidiary Guarantees, together with the Old Notes, the
"Old Securities") of US$250,000,000 aggregate principal amount of the Company's
12 5/8% Senior Notes due 2004 (the "Exchange Notes"), together with the
Subsidiary Guarantees of the Exchange Notes (such Subsidiary Guarantees,
together with the Exchange Notes, the "Exchange Securities"). The Exchange Notes
are to be issued pursuant to an indenture dated as of November 26, 1996 (the
"Indenture"), among the Company, the Subsidiary Guarantors, The Chase Manhattan
Bank, N.A., as trustee (the "Trustee") and Chase Trust Bank, as principal paying
agent (the "Principal Paying Agent"). Capitalized terms used herein and not
otherwise defined herein have the meanings ascribed thereto in the Indenture.
We hereby confirm that the statements set forth in the prospectus (the
"Prospectus") forming a part of the Registration Statement under the subheading
"United States" to the heading "Income Tax Considerations" accurately describe
the material Federal income tax consequences to holders of the Exchange Notes
issued pursuant to the Prospectus.
<PAGE>
We know that we are referred to under the heading "Legal Matters" in the
Prospectus, and we hereby consent to such use of our name therein and to the use
of this opinion for filing with the Registration Statement as Exhibit 8.1
thereto.
Very truly yours,
Tevecap, S.A.
TVA Sistema de Televisao S.A.
TVA Communications, Ltd.
Galaxy Brasil S.A.
TVA Sul Participacoes S.A.
Commercial Cabo TV Sao Paulo Ltda.
TVA Parana Ltda.
TVA Alpha Cabo Ltda.
CCS Camboriu Cable Systems de Telecommunicacoes Ltda.
TCC TVA Cabo Ltda.
TVA Sul Santa Catarina Ltda.
TVA Foz do Iguacu Ltda.
<PAGE>
Exhibit 10.3
<PAGE>
- --------------------------------------------------------------------------------
STOCKHOLDERS AGREEMENT
among
TEVECAP S.A.,
MR. ROBERT CIVITA,
ABRILCAP COMERCIO E PARTICIPACOES LTDA.,
HARPIA HOLDINGS LIMITED,
CURUPIRA HOLDINGS LIMITED,
FALCON INTERNATIONAL COMMUNICATIONS LTD.,
HEARST/ABC VIDEO SERVICES II
and
TVA PARTICIPACOES LTDA.
DATED DECEMBER 6, 1995
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
Clause 1. DEFINITIONS...................................................2
Clause 2. SHARES SUBJECT TO THIS AGREEMENT.............................10
Clause 3. SUBSCRIPTION AND PAYMENT FOR THE COMPANY'S
CAPITAL STOCK................................................10
Clause 4. TRANSFER OF SHARES...........................................11
Clause 5. NEW ISSUANCES OF SHARES......................................18
Clause 6. HARPIA AND CURUPIRA PUT OPTION...............................20
Clause 7. FALCON'S PUT OPTIONS.........................................26
Clause 7A. THE INVESTOR ENTITIES' PUT OPTION............................31
Clause 8. PUT COORDINATION.............................................35
Clause 9. PUT POSTPONEMENT.............................................36
Clause 10. CALL OPTIONS.................................................43
Clause 11. THE COMPANY'S BOARD OF DIRECTORS.............................51
Clause 12. RESOLUTIONS OF THE BOARD OF DIRECTORS AND
STOCKHOLDERS.................................................53
Clause 13. GENERAL MEETING RESOLUTIONS..................................59
Clause 14. RIGHT TO ATTENDANCE, TO INFORMATION AND TO
INSPECTION...................................................61
Clause 15. ADVISORY BOARD...............................................63
Clause 16. STOCKHOLDERS' AND THE COMPANY'S OTHER
COVENANTS....................................................64
Clause 17. TAG ALONG RIGHTS.............................................66
Clause 18. REGISTRATION RIGHTS..........................................68
<PAGE>
Page
----
Clause 19. NON-COMPETE PROVISIONS.......................................77
Clause 20. CONFIDENTIALITY..............................................82
Clause 21. DURATION OF THE AGREEMENT....................................83
Clause 22. MISCELLANEOUS PROVISIONS.....................................83
<PAGE>
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT (this "Agreement") is made and entered into as
of the 6th day of December, 1995, by and among:
(1) TEVECAP S.A., a corporation organized under the laws of the Federative
Republic of Brazil, with its principal place of business in Sao Paulo, SP,
Brazil, at Rua do Rocio 313, Cj. 101 (parte) CGCMF Nr. 57.574.170/0001-05
(the "Company");
(2) Mr. ROBERT CIVITA, a Brazilian citizen, married, editor, bearer of the ID
Card Nr. 1.666.785 and CPF Nr. 006.890.178-04, domiciled in Sao Paulo, SP,
Brazil, at Rua Escocia, 253, apt. 11, Brazil ("Mr. Civita");
(3) ABRILCAP COMERCIO PARTICIPACOES LTDA., a limited liability company
organized under the laws of the Federative Republic of Brazil, with its
principal place of business in Sao Paulo, SP, Brazil, at Rua do Rocio,
313, Cj. 101 (parte), CGCMF Nr. 00.156.494/0001-06 (part) ("Abrilcap");
(4) HARPIA HOLDINGS LIMITED, a company duly organized and validity existing in
accordance with the laws of the Cayman Islands, having its registered
office at c/o Maples & Calder, Attorneys-at-Law, P.O. Box 309, George
Town, Grand Cayman, Cayman Islands, British West Indies ("Harpia");
(5) CURUPIRA HOLDINGS LIMITED, a company duly organized and validly existing
in accordance with the laws of the Cayman Islands, having its registered
office at c/o Maples & Calder, Attorneys-at-Law, P.O. Box 309, George
Town, Grand Cayman, Cayman Islands, British West Indies ("Curupira");
(6) FALCON INTERNATIONAL COMMUNICATIONS LTD., a company limited by shares duly
organized and validly existing in accordance with the laws of Bermuda,
having its registered office in Bermuda ("Falcon");
(7) HEARST/ABC VIDEO SERVICES II, a general partnership organized under the
laws of Delaware, with its principal place of business at 959 Eighth
Avenue, New York, NY 10019 ("Hearst/ABC Video"); and
(8) TVA PARTICIPACOES LTDA., a limited liability company organized under the
laws of the Federative Republic of Brazil, with its principal place of
business in Sao Paulo, SP, Brazil, at Rua do Rocio 313, CGCMF Nr.
00921404/0001-18 ("Hearst/ABC Limitada" and, collectively with Hearst/ABC
Video, the "Investor Entities" and individually an "Investor Entity").
WHEREAS, prior to July 22, 1994, Mr. Civita and Abrilcap were the only
holders of the Company's equity;
<PAGE>
2
WHEREAS, pursuant to a Stock Subscription Agreement dated July 22, 1994
(the "Subscription Agreement"), Harpia and Curupira subscribed for certain
Shares (as defined herein);
WHEREAS, on August 24, 1995, pursuant to a Stock Purchase Agreement among
the Company, Mr. Civita, Abrilcap, Harpia, Curupira and Falcon Parent (as
defined below) (the "Old Stock Purchase Agreement"), Falcon Parent agreed to
subscribe for certain Shares directly or through an affiliate;
WHEREAS, simultaneously with the execution hereof, the Company is issuing
and Hearst/ABC Video is subscribing for and purchasing certain Shares pursuant
to the terms of the Stock Purchase Agreement (as defined below);
WHEREAS, simultaneously with the execution hereof, Harpia is agreeing to
sell and Hearst/ABC Limitada is agreeing to purchase certain Shares pursuant to
the terms of the HC Stock Purchase Agreement (as defined below); and
WHEREAS, upon such subscription, Mr. Civita, Abrilcap, Harpia, Curupira,
Falcon and the Investor Entities (collectively, together with holders of Shares
that from to time become parties hereto, referred to as "Stockholders" and
individually as a "Stockholder") are the holders of all of the outstanding
shares of capital stock of the Company (except as set forth in Clause 11.5
below),
NOW, THEREFORE, the Stockholders having resolved to execute this
Stockholders Agreement in accordance with the requirements of Article 118 of Law
No. 6.404, of December 15, 1976, other applicable legislation and the following
terms and conditions, do agree as follows:
Clause 1. DEFINITIONS
In this Agreement, any reference to:
"Abril Agreement" means the letter agreement dated of even date herewith
between Abril S.A. and the parties hereto regarding the assumption by
Abril S.A. of certain put obligations of the Company;
"Abril Credit Agreement" means the credit agreement dated of even date
herewith between Abril S.A. and the Company;
"Advisory Services Agreement" means the Advisory Services Agreement dated
the date hereof among the Company, Hearst and CCABC;
"Affiliates" bears the meaning ascribed to it in Clause 4.8;
<PAGE>
3
the "Board" means the Company's Board of Directors as duly elected from
time to time;
"Brazilian GAAP" bears the meaning ascribed to it in Clause 14.2;
the "Business" means (i) pay television distribution activities
(including, but not limited to, MMDS, LMDS, DTH, direct wire transmission
(including but not limited to coaxial or fiber optic cable), VHF, UHF or
other over-the-air transmission or broadcasting), (ii) all activities
(whether creation, development, production, purchase, sale, licensing,
distribution or otherwise) relating to programming susceptible to any
means of television distribution, (iii) all activities authorized by the
Permits (including activities relating to pay television or not) belonging
to or required hereby to be transferred to the Company, its Subsidiaries,
and the License Holders, including any extensions or modifications of such
Permits, and (iv) telephony, in each case as transacted by the Company or
its Subsidiaries now or at any time in the future, provided that the
Business shall expressly exclude MTV Brasil unless and until MTV Brasil is
incorporated into the Company in accordance with the terms of the MTV
Option set forth in the Stock Purchase Agreement or otherwise;
"Business Day" means any day on which banks in New York City and Sao Paulo
are not authorized or required to be closed;
"Business Plan" means a business plan approved by the Board, for the
Company and its Subsidiaries collectively, and shall include the annual
operating and capital budget for the Company for the fiscal year in
question;
"Call Notice" bears the meaning ascribed to it in Clause 10.2;
"Call Option" bears the meaning ascribed to it in Clause 10.1;
"Call Price" bears the meaning ascribed to it in Clause 10.4;
"Call Purchaser" bears the meaning ascribed to it in Clause 10.1;
"Call Seller" bears the meaning ascribed to it in Clause 10.1;
"CCABC" means Capital Cities/ABC, Inc., a Delaware corporation having an
office at 77 West 66th Street, New York, New York 10023;
"CCABC Partner" means Brazil Cable Investments, Inc., a Delaware
corporation having an office at 77 West 66th Street, New York, New York
10023 and an indirect wholly-owned subsidiary of CCABC;
"Chase" bears the meaning ascribed to it in Clause 19.1;
<PAGE>
4
"Commission" bears the meaning ascribed to it in Clause 18.1(ii);
"Controlling Stockholder" means, with respect to any entity at any
particular time, any other person that directly, or indirectly through one
or more subsidiaries, controls or has the power to control the affairs and
policies of such entity, whether by ownership of share capital, contract,
ability to appoint a controlling number of board members or otherwise
(which shall not include, in itself, an individual acting as an officer or
director or, in the case of a limited liability company, a manager of such
entity, unless such individual otherwise exercises control, whether
through ownership of share capital, contract, ability to appoint a
controlling number of board members or otherwise, and does not simply
manage, such entity).
"Cumulative Dividends" bears the meaning ascribed to it in Clause 9.3;
"Date of the Event Put Payment" bears the meaning ascribed to it in Clause
9.1;
"Date of the Falcon Put Payment" bears the meaning ascribed to it in
Clause 7.3(i);
"Date of the HC Put Payment" bears the meaning ascribed to it in Clause
6.9;
"Date of the Investor Put Payment" bears the meaning ascribed to it in
Clause 7A.3;
"Date of Transfer" bears the meaning ascribed to it in Clause 10.3;
"Demand Registration Statement" bears the meaning ascribed to it in Clause
18.1(ii);
"Disney" bears the meaning ascribed to it in Clause 19.7;
"Earnings" bears the meaning ascribed to it in Clause 6.3;
"ESPN Brazil Agreements" bears the meaning ascribed to it in Clause 19.7;
"Event Put" bears the meaning ascribed to it in Clause 9.1;
"Event Put Party" bears the meaning ascribed to it in Clause 9.1;
"Event Put Price" bears the meaning ascribed to in Clause 6.3;
"Excluded Agreements" bears the meaning ascribed to it in Clause 19.7;
"Falcon Call Option" bears the meaning ascribed to it in Clause 10.1;
<PAGE>
5
"Falcon Event Put Option" bears the meaning ascribed to it in Clause
7.1(i)(B);
"Falcon Parent" bears the meaning ascribed to in Clause 7.1;
"Falcon Parent Investors" bears the meaning ascribed to it in Clause
7.1(i).
"Falcon Put Notice" bears the meaning ascribed to it in Clause 7.3;
"Falcon Put Party" bears the meaning ascribed to it in Clause 7.1;
"Falcon Put Shares" bears the meaning ascribed to it in Clause 7.1(i)(A);
"Falcon Time Put Option" bears the meaning ascribed to it in Clause
7.1(i)(A);
"Falcon Triggering Event" bears the meaning ascribed to it in Clause 7.2;
"Fixed Assets" means, as to any person, any assets owned by such person
other than (a) cash, (b) cash equivalents, and (c) readily marketable
securities (other than securities of issuers for which a public offering
has occurred after the time that such person acquired such securities);
"Foreign Stockholder" means Falcon, the Investor Entities or an Affiliate
or a transferee of any of them;
"Funding Date" bears the meaning ascribed to it in Clause 10.10(ii);
"HC Call Option" bears the meaning ascribed to it in Clause 10.1;
"HC Entities" shall mean Harpia and Curupira or an Affiliate of either;
"HC Put Notice" bears the meaning ascribed to it in Clause 6.4;
"HC Put Option" bears the meaning ascribed to it in Clause 6.1;
"HC Put Party" bears the meaning ascribed to it in Clause 6.1;
"HC Put Shares" bears the meaning ascribed to it in Clause 6.1;
"HC Stock Purchase Agreement" bears the meaning ascribed to it in Clause
7A.1;
"HC Triggering Event" bears the meaning ascribed to it in Clause 6.2;
"Hearst" means The Hearst Corporation, a Delaware corporation having an
office at 959 Eighth Avenue, third floor, New York, New York 10019;
<PAGE>
6
"Hearst Partner" means Hearst Brazil, Inc., a Delaware corporation having
an office at 959 Eighth Avenue, third floor, New York, New York 10019 and
a wholly-owned subsidiary of Hearst;
"Institutional Investor" means an institutional or financial investor
(such as a venture capital firm or fund, pension plan, financial or
governmental institution or the like) which purchases or holds equity
interests in Falcon or Falcon Parent (or any Affiliate of Falcon that is
then a Stockholder) principally for investment purposes;
"Investor Programming Agreement" means the Programming Agreement dated as
of the date hereof among Hearst, CCABC and the Company;
"Investor Put Notice" bears the meaning ascribed to it in Clause 7A.3;
"Investor Put Option" bears the meaning ascribed to it in Clause 7A.1;
"Investor Put Party" bears the meaning ascribed to it in Clause 7A.1;
"Investor Put Shares" bears the meaning ascribed to it in Clause 7A.3;
"Investor Triggering Event" bears the meaning ascribed to it in Clause
7A.2;
"License Holders" means Televisao Showtime Ltda., TVA Brasil Radioenlaces
Ltda. and Abril S.A. (for so long as Abril S.A. shall hold any of the
Permits or assets listed in Schedules 3.12(i) and 4.11 of the Stock
Purchase Agreement, respectively, or any Permit acquired by Abril S.A.
pursuant to the terms of Clause 6.1(b) of the Stock Purchase Agreement);
"Mandatory Dividend" bears the meaning ascribed to it in Clause 9.5;
"MMDS", "DTH" "VHF", "LMDS" AND "UHF" mean the following technologies
respectively: (i) Multi-Channel Multi-Point Distribution System; (ii)
Direct-to-Home satellite program delivery (whether by C-band, Ku-band or
other frequency); (iii) Very High Frequency transmission, (iv) Local
Multipoint Distribution System; and (v) Ultra High Frequency transmission;
"MTV Brasil" means from time to time all of the combined interest of Mr.
Civita and Abrilcap and their Affiliates in Music Television Network
business operated under a license or licenses granted by MTV Networks, a
division of Viacom International, Inc., whether distributed by UHF or
otherwise, and all assets (including transmission and broadcasting
equipment) and rights used or held in connection therewith that are not
otherwise used or held in part in connection with the Business and all
duties and liabilities pertaining to such business (including those that
also pertain to the Business), but excludes any permit or license issued
by the
<PAGE>
7
Government of Brazil (or any subdivision or ministry thereof) for public
broadcasting (radio difusao);
"Old Stock Purchase Agreement" bears the meaning ascribed to it in the
preamble first above;
"Option Agreement" bears the meaning ascribed to it in Clause 4.11;
"Participant Purchase Price" means the product of (A) the Event Put Price
times (B) a fraction the numerator of which is that number of Put Shares
that the Participating Stockholder purchases and the denominator of which
is the total number of Put Shares;
"Participating Stockholder" means a Stockholder which acquires HC Put
Shares pursuant to Clause 6.11, Falcon Put Shares pursuant to Clause 7.5
or Investor Put Shares pursuant to Clause 7A.4;
"Permits" means licenses, permits, consents, authorizations, franchises,
ordinances, registrations, certificates, agreements or other rights or
applications filed with, granted by or entered into by any governmental or
regulatory authority;
"Permitted Disclosee" bears the meaning ascribed to it in Clause 20;
"person" means any natural person, partnership, association, trust,
corporation or other entity whatsoever;
"Potential Purchasers" bears the meaning ascribed to it in Clause 4.2;
"Potential Subscription Purchasers" bears the meaning ascribed to it in
Clause 5.2;
"Preferred Voting Shares" bears the meaning ascribed to it in Clause 9.3;
"Proposed Price" bears the meaning ascribed to it in Clause 4.2;
"Proposed Subscription Price" bears the meaning ascribed to in Clause 5.2;
"Pro Rata Share" bears the meaning ascribed to it in Clause 4.4(ii);
"Public Offering" means a bona fide offering of securities to the public
in connection with which such securities are registered under the U.S.
Securities Act of 1933, as amended.
"Put Postponement" bears the meaning ascribed to it in Clause 9.1;
<PAGE>
8
"Put Shares" means HC Put Shares, Falcon Put Shares or Investor Put
Shares, as the context requires;
"Real" or "Reais" means, from time to time, the official currency of
Brazil;
"Reais Equivalent" means the amount in Brazilian currency equivalent to
U.S. Dollars as determined by the application of the selling rate divulged
by the Central Bank of Brazil under the SISBACEN Data System, Transaction
PTAX-800, Option 5, Currency 220, or any successor to such rate divulged
by the Central Bank of Brazil;
"Securities Act" bears the meaning ascribed to it in Clause 18.1(v)(b);
"Service Agreement" means the agreement entered into on July 22, 1994, as
amended on August 24, 1995 and the date hereof, between the License
Holders and the Company providing for the irrevocable transfer to the
Company and its Subsidiaries of all rights, powers and monopolies granted
by or inherent to the Permits, including those described in Schedule
3.12(i) to the Stock Purchase Agreement and the unrestricted right to use
the assets listed in Schedule 4.11 to the Stock Purchase Agreement, in
each case free of charge, such Service Agreement having been filed with
the 3rd Public Registry of Titles and Documents in the City of Sao Paulo;
"Share Equivalents" means securities of any kind issued by an entity which
are convertible into or exchangeable for any shares of any class of such
entity's securities or options, warrants or other rights granted by such
entity to purchase or subscribe for any shares of any class of such
entity's securities or securities convertible into or exchangeable for
shares of any class of such entity's securities and shall also include any
contractual or other interest providing for an equity-like payment,
irrespective of whether such contractual or other interest constitutes an
ownership interest;
"Shareholder Group" bears the meaning ascribed to it in Clause 12.3(ii);
"Shares" bears the meaning ascribed to it in Clause 2;
"Special Preferred Shares" bears the meaning ascribed to it in Clause 9.3;
"Stock Purchase Agreement" means the Stock Purchase Agreement dated
concurrently herewith among the Company, Mr. Civita, Abrilcap, Hearst/ABC
Video, Harpia, Curupira, Falcon and Falcon Parent;
"Stockholder" or "Stockholders" bears the meaning ascribed to it in the
preamble first above;
<PAGE>
9
"Stockholder Parent Company" means, with respect to a Stockholder, any
person (a) which directly, or indirectly through one or more subsidiaries,
owns or controls the majority of the voting capital stock or equivalent
ownership of such Stockholder or otherwise has the right to control the
management of such Stockholder and (b) 50% or more of the fair market
value of the Fixed Assets of such person consist of, either directly or
through one or more subsidiaries, Shares owned by such Stockholder or any
other Stockholder of which such person is a Stockholder Parent Company;
provided that (i) Falcon Parent shall not be deemed to be a Stockholder
Parent Company of Falcon after the Funding Date if, on the Funding Date,
U.S.$50,000,000 is less than one-half of the total capital commitments
(including previously made contributions) made by Falcon Parent Investors
in Falcon Parent and (ii) in no event shall any Falcon Parent Investor or
other holder of equity in Falcon Parent (or, with respect to such Falcon
Parent Investor or other holder of equity, any person described in clause
(a) of this definition) be or be deemed to be a Stockholder Parent
Company.
"Subject Shares" bears the meaning ascribed to it in Clause 18.1(i)(a);
"Subscription Rights" bears the meaning ascribed to it in Clause 5.1;
"Subscription Transfer Notice" bears the meaning ascribed to it in Clause
5.2;
"Subsidiary" means, with respect to any person at any particular time, any
other person whose affairs and policies such person, directly or
indirectly, controls or has the power to control, whether by ownership of
share capital, contract, ability to appoint board members or otherwise;
"Target Effective Date" bears the meaning ascribed to it in Clause
18.1(ii)(a);
"Target Effective Period" bears the meaning ascribed to it in Clause
18.1(ii)(a);
"Target Filing Date" bears the meaning ascribed to it in Clause
18.1(ii)(a);
"Terms of Offer" bears the meaning ascribed to it in Clause 4.2;
"Third Appraiser" bears the meaning ascribed to it in Clause 6.5;
"Time Put Decision Period" shall have the meaning ascribed to it in Clause
9.7(i);
"Time Put Price" bears the meaning ascribed to it in Clause 7.3(i);
"Total Time Put Shares" bears the meaning ascribed to it in Clause 9.8(i);
"Transfer Notice" bears the meaning ascribed to it in Clause 4.2;
<PAGE>
10
"U.S. Dollars" or "Dollars" or "US$" means from time to time the official
currency of the United States of America; and
"U.S. GAAP" bears the meaning ascribed to it in Clause 6.3(b).
Clause 2. SHARES SUBJECT TO THIS AGREEMENT
All shares of the Company's capital stock (the "Shares") owned by the
Stockholders on the date hereof or which may be owned by the Stockholders
in the future, including, without limitation, by means of subscription,
acquisition, bonus, distribution, split or reverse split shall be subject
to this Agreement, unless otherwise expressly excluded in the context.
Shares held by directors of the Company and their alternates in accordance
with Clause 11.5 shall be considered Shares held by the respective
Stockholder that appointed each director or alternate. In addition, as
provided in Clause 18.1(i)(b) below, Subject Shares that are registered
and publicly sold shall not be entitled to the benefits of, or subject to
the obligations in, this Agreement.
Clause 3. SUBSCRIPTION AND PAYMENT FOR THE COMPANY'S CAPITAL STOCK
3.1 The capital stock of the Company, in the amount of R$______________, is
divided into and represented by 196,712,853 Shares, all of them comprising
registered common stock, without par value and with equal voting rights;
each Share is entitled to one vote.
3.2 As of the date hereof:
Mr. Robert Civita holds 1 Share;
Abrilcap holds 111,075,321 Shares representing 56.47% (rounded to
the second decimal) of the voting capital stock of the Company;
Harpia holds 11,496,328 Shares representing 5.84% (rounded to the
second decimal) of the voting capital stock of the Company and, upon
consummation of the closing under the HC Stock Purchase Agreement,
Harpia will hold 6,867,792 Shares representing 3.49% (rounded to the
second decimal) of the voting capital stock of the Company;
Curupira holds 11,496,328 Shares representing 5.84% (rounded to the
second decimal) of the voting capital stock of the Company;
<PAGE>
11
Falcon holds 27,930,827 Shares representing 14.20% (rounded to the
second decimal) of the voting capital stock of the Company;
Hearst/ABC Video holds 34,714,029 Shares representing 17.65%
(rounded to the second decimal) of the voting capital stock of the
Company;
Hearst/ABC Limitada holds no Shares and, upon consummation of the
closing under the HC Stock Purchase Agreement, Hearst/ABC Limitada
will hold 4,628,538 Shares representing 2.35% (rounded to the second
decimal) of the voting capital stock of the Company; and
each of the following persons holds one Share in accordance with
Clause 11.5:
Victor Civita;
Jose Augusto Pinto Moreira;
Valter Pasquini;
Robert Hefley Blocker;
Peter John Trevor Grant Anderson;
John Peter Harper;
Francisco S.C. Pinheiro;
Giancarlo Francesco Civita;
Sergio Vladimirschi, Jr.;
Viviane Vladimirschi;
Jose L.S. Freire; Nina Farina;
Fatima Ahmad Ali;
Jorge Fernando Koury Lopes;
Naum Rotenberg; Altamira Boscali; and
Rogerio Cruz Themudo Lessa.
3.3 For purposes of this Agreement, Hearst/ABC Limitada shall not be
a Stockholder, and shall not have the benefit of any of the rights
granted by, or be subject to any of the obligations imposed by, this
Agreement until it purchases Shares pursuant to the HC Stock
Purchase Agreement or otherwise. Until such time as Hearst/ABC
Limitada becomes a Stockholder, all references to the Investor
Entities throughout this Agreement shall refer solely to Hearst/ABC
Video.
Clause 4. TRANSFER OF SHARES
4.1 (i) No Stockholder may sell or in any way transfer to third parties or
to other Stockholders, whether signatories or not to this Agreement,
any Shares held by such Stockholder, in whole or in part, (a) unless
permitted by applicable
<PAGE>
12
law and (b) except as specifically provided in Clauses 4.8 and 4.11
hereof, without first offering them to the Company and to all other
Stockholders (other than Stockholders that are Affiliates of the
offering Stockholder), who shall have the right to accept such offer
for the acquisition thereof. Such offer shall be effected in
compliance with the procedure set forth in this Clause 4.
(ii) No Stockholder, other than Falcon or any Affiliate of Falcon that is
then a Stockholder (to which this restriction shall not apply),
shall permit any holder of an equity interest in such Stockholder or
any holder of an equity interest in any Stockholder Parent Company
of such Stockholder to sell directly or indirectly or in any way
transfer to third parties or to other Stockholders, whether
signatories or not to this Agreement, any equity interest in such
Stockholder or Stockholder Parent Company, (a) unless permitted by
applicable law and (b) except as specifically provided in Clauses
4.8 and 4.11 hereof, without first offering such equity interest to
the Company and to all other Stockholders (other than Stockholders
that are Affiliates of the offering Stockholder), who shall have the
right to accept such offer for the acquisition thereof. Such offer
shall be effected in compliance with the procedure set forth in this
Clause 4. For purposes of this Clause 4 only, any such equity
interest shall be referred to as Shares.
(iii) Neither HC Entity nor any Affiliate of them that is a Stockholder
shall permit any person who is a Controlling Stockholder of either
HC Entity or such Affiliate to sell or in any way transfer any
equity interest (the "Controlling Transfer") in any other
Controlling Stockholder of either HC Entity or such Affiliate if
such transfer would result in The Chase Manhattan Corporation or any
successor thereto no longer being a Controlling Stockholder of such
other person unless (a) such other person is a Stockholder Parent
Company with respect to either HC Entity or such Affiliate, or (b)
the selling person first offers to the Company and all other
Stockholders (other than the HC Entities and such Affiliates), all
of either, at the discretion of the selling person, (1) the Shares
held by the HC Entities or such Affiliates or (2) the equity
interests (the "Offered Interests") in (x) any entity (or entities)
that is (or are) controlled by such other person and is (or are)
then a Stockholder or (y) any entity that is a Stockholder Parent
Company with respect to such Stockholder(s). For purposes of this
Clause 4.1(iii) only, the Proposed Price shall equal 100% of the
Event Put Price of such Shares or, if Offered Interests are offered,
of all Shares held by any Stockholder of which such person referred
to in sub-clause (x) or (y) is a Controlling Stockholder, such Event
Put Price being determined according to the procedures set forth in
Clause 6, mutatis mutandis, except as modified in this Clause
4.1(iii). Such offer shall be effected in compliance with the
procedures set forth in this Clause 4, except that for purposes of
this Clause 4 only, (a) if Offered Interests are offered,
<PAGE>
13
the Offered Interests shall be treated as if they were Shares for
all purposes other than the calculation of the Proposed Price
therefor, (b) the Transfer Notice shall, in lieu of the Terms of
Offer, describe the Shares or the Offered Interests, as the case may
be, and include the name of the appraiser for purposes of item (a)
in Clause 6.3 and provide the Event Put Price calculated according
to the method contemplated in item (b) of Clause 6.3, (c) the time
period in Clauses 4.3 to 4.5 shall run from the date the Event Put
Price calculated according to the method contemplated in item (a) of
Clause 6.3 is finally determined, and (d) replacing Clause 4.5 with
the following: If after the 21 (twenty-one) Business Day period
referred to in Clause 4.3 above has elapsed, none of the Company or
the other Stockholders has exercised its right to accept the Terms
of Offer to purchase all of the Shares or the Offered Interests, as
the case may be, then the selling person may effect the Controlling
Transfer to any person during the six subsequent months, at the
price and other terms of such selling person's choice.
(iv) If a sale or transfer of an equity interest in an HC Entity or any
of their Affiliates that are then Stockholders (or in any
Stockholder Parent Company of an HC Entity or any such Affiliates)
results in The Chase Manhattan Corporation, or any successor
thereto, no longer being a Controlling Stockholder of the HC
Entities or such Affiliates thereof (or such Stockholder Parent
Company thereof), then the HC Entities and such Affiliates (1) shall
forfeit immediately all rights granted under this Agreement to the
HC Entities and such Affiliates that would not be transferable with
the Shares owned by the HC Entities or such Affiliates, and shall
immediately cease to be bound by all of their obligations under this
Agreement that would not be transferred with the Shares owned by
them (including the obligations in connection with the HC Call
Option), in each case as if a transfer of such Shares had occurred
by the HC Entities or such Affiliates, and (2) shall forfeit
immediately all rights to indemnification under Clauses 7.3(a) and
(b) of the Old Stock Purchase Agreement and Clause 6.3 of the Stock
Purchase Agreement other than in respect of claims for
indemnification that are then pending.
4.2 The offer referred to in this Clause shall be effected by means of written
notices (each, a "Transfer Notice") to be delivered to the Chairman of the
Board and to each other Stockholder (not including Stockholders that are
Affiliates of the offering Stockholder) containing the following
information: (i) the number of Shares offered for sale, (ii) their type
and class, (iii) a proposed price (the "Proposed Price") in cash expressed
in U.S. Dollars, and, if applicable and known to the offering Stockholder,
any non-cash consideration and the value thereof in cash expressed in U.S.
Dollars, (iv) the other material conditions (other than the form of
consideration to be paid for such Shares) of the proposed sale or
transfer, and (v) if the offering Stockholder is Falcon, the Investor
Entities, Abrilcap or an Affiliate of any of them,
<PAGE>
14
a list of potential purchasers of such Shares (the "Potential Purchasers")
(collectively, the "Terms of Offer").
4.3 During the 21 (twenty-one) Business Days following the receipt of a
Transfer Notice, the Company or such other Stockholders, as the case may
be, shall inform the offering Stockholder in writing of its or their
decision(s) as to whether to exercise the right to accept the Terms of
Offer.
(i) At any time during such 21 (twenty-one) Business Day period, such
other Stockholders (acting unanimously) shall be entitled to make a
counter-offer for all such offered Shares which the offering
Stockholder may, but shall not be required to, accept.
(ii) Any exercise of the right to accept the Terms of Offer by the
Company and/or any of the Stockholders, as applicable, shall be for
the acquisition of the entire amount of the offered Shares.
(iii) Once the Terms of Offer are accepted by the Company and/or the
Stockholders, as applicable, or such counter-offer is accepted by
the offering Stockholder, the offered Shares shall be acquired in
accordance with Clause 4.7 hereof and/or such counter-offer, as
applicable, and transferred to the Company and/or to the other
Stockholders no more than 40 Business Days from the date of the
receipt by the offering Stockholder of notice from the Company
and/or the other Stockholders informing of its or their decision to
exercise their right to accept the Terms of Offer or the date of
receipt of the offering Stockholder's notice of acceptance of such
counter-offer, as the case may be.
4.4 The Chairman of the Board shall promptly call a meeting of the Board for a
date not more than 14 Business Days after receipt of a Transfer Notice for
the purpose of considering whether the Company should, (i) in the event
that the offering Stockholder is Falcon, the Investor Entities, Abrilcap
or an Affiliate of any of them, approve any or all of the Potential
Purchasers listed in such Terms of Offer, and (ii) in any case, exercise
its right to accept the Terms of Offer. In the event that the offering
Stockholder is Falcon, the Investor Entities, Abrilcap or an Affiliate of
any of them, the decision identified in sub-clause (i) above shall be
taken first and shall, subject to applicable quorum requirements, be by
majority vote of the Board excluding the directors appointed by the
offering Stockholder and its Affiliates. Each Stockholder entitled, alone
or with its Affiliates, to appoint a member of the Board hereby agrees to
cause such member (a) not to vote against a Potential Purchaser unless the
Potential Purchaser (1) is of undesirable character, (2) lacks financial
capacity, (3) competes with the Company or its Subsidiaries in Brazil or
(4) the nature of the Potential Purchaser would provoke a change of the
business practices of the Company and (b) in any case to provide an
explanation at such meeting of any vote against a Potential Purchaser. Any
disapproval by the Board of
<PAGE>
15
a Potential Purchaser shall be considered a binding veto and the proposed
sale of Shares may not be made to such vetoed party. If the Board
disapproves of all of the Potential Purchasers, the offering Stockholder
may withdraw the Transfer Notice at any time prior to the transfer of the
offered Shares. The decision identified in sub-clause (ii) above shall be
taken by unanimous vote of all directors other than the directors
appointed by the offering Stockholder and its Affiliates and the
independent director.
(i) The Company shall have priority over the other Stockholders in the
acquisition of the offered Shares.
(ii) If the Company does not exercise its right to accept the Terms of
Offer, the offered Shares shall be apportioned to the other
Stockholders who wish to participate in the exercise of the right to
accept the Terms of Offer according to the ratios of their
respective equity interests in the Company on the date of such
acquisition (each participating Stockholder's share of such right,
as so determined, its "Pro Rata Share"). For purposes of
establishing such ratio, the equity held by the offering
Stockholder, its Affiliates and Stockholders who do not wish to
participate shall be excluded.
(iii) In the event that a Foreign Stockholder is not permitted to purchase
all or any portion of such Foreign Stockholder's Pro Rata Share of
such Shares being offered for purchase due to Brazilian legal
restrictions upon foreign ownership or other Brazilian legal
limitations, such Foreign Stockholder may designate a third party to
make such purchase, provided that such third party agrees to execute
this Agreement and to become bound by the terms hereof and that: (a)
such third party is identified in a notice given to each other
Stockholder (not including the offering Stockholder, its Affiliates,
the affected Foreign Stockholder and its Affiliates) within 5 (five)
Business Days after receipt of the related Transfer Notice, and (b)
each such Stockholder shall have approved such third party in
writing, such approval not to be unreasonably withheld.
4.5 If, after the 21 (twenty-one) Business Day period referred to in Clause
4.3 above has elapsed, none of the Company or the other Stockholders has
exercised its or their right to accept the Terms of Offer to purchase all
of the offered Shares, then the offering Stockholder may sell the offered
Shares to any person; provided, however, that each of the following
conditions is complied with: (i) all such offered Shares must be sold
simultaneously during the six subsequent months; (ii) if the offering
Stockholder is Falcon, the Investor Entities, Abrilcap or an Affiliate of
any of them, then such Shares must be sold to a Potential Purchaser that
has not been vetoed in accordance with Clause 4.4; (iii) the provisions of
Clause 4.9 below must becomplied with; (iv) the consideration for the sale
of such Shares must have an aggregate fair value equal to at least ninety
percent (90%) of the Proposed Price,
<PAGE>
16
and the sale must be upon other conditions not substantially more
favorable to the purchaser than the conditions set forth in the Terms of
Offer; and (v) promptly after the consummation of such sale, the offering
Stockholder must provide all of the other Stockholders with a notice
containing a description of the sales price for such Shares, the form of
consideration paid and all other material terms of such sale.
4.6 After the six month term referred to in the previous Clause has elapsed
without a sale having taken place, if the offering Stockholder wishes
again to dispose of or transfer its Shares, it shall be subject to the
procedure set forth herein.
4.7 To exercise their right to accept the Terms of Offer provided for in this
Clause 4, the Company and/or the Stockholders, as the case may be, wishing
to exercise such right collectively must offer to purchase all the offered
Shares in accordance with the Terms of Offer and must consummate such
purchase within the time period set forth in Clause 4.3(iii), unless the
offering Stockholder has agreed to a counter-offer which contains other
terms and conditions. In the event that the acquiring Stockholder is
Harpia or Curupira or an Affiliate thereof, they may exercise such right
only for the maximum amount of Shares permitted by applicable laws, rules
and regulations then in force. If the right to accept the Terms of Offer
is sought to be exercised by other Stockholders, the number of Shares to
be purchased by Harpia, Curupira and their Affiliates shall be limited to
the lesser of such permitted amount and their Pro Rata Share.
4.8 (i) Neither the Company nor the other Stockholders shall be entitled to
the right provided in this Clause 4 in relation to (A) sales,
transfers and assignments of Shares effected by any Stockholder to:
(a) any entity, other than a partnership, in which the transferring
or assigning Stockholder directly or indirectly owns or controls a
majority of the voting capital or equivalent ownership interest, or
any partnership in which the transferring or assigning Stockholder
both (1) is, directly or through another Affiliate, a general
partner, and (2) owns, directly or indirectly, a majority of the
economic interest (any such entity or partnership, for purposes of
this Clause 4.8, a "subsidiary"); or (b) any entity that directly,
or indirectly through one or more subsidiaries, owns or controls the
majority of the voting capital stock or equivalent ownership
interest of the assigning Stockholder (any such entity, for purposes
of this Clause 4.8, a "holding company"); or (c) any entity that is
a subsidiary of any of such Stockholder's holding companies; or (d)
in the case of Mr. Civita, any of the following individuals: Edgard
de Silvio Faria, Angelo Silvio Rossi, Maria Ines Romana Rossi,
Giancarlo Francesco Civita, Victor Civita and Roberta Anamaria
Civita; or (e) in the case of the Investor Entities, Hearst Parent
or CCABC Parent, any of Hearst, CCABC or any subsidiary or holding
company of Hearst or CCABC (collectively, "Affiliates"), or (B)
sales, transfers and assignments of any equity interest in a
Stockholder, a Stockholder Parent Company or a Controlling
Stockholder of such Stockholder to any person that, immediately
prior to such sale, transfer or assignment, was an Affiliate of such
<PAGE>
17
Stockholder or a Person that had as a Controlling Stockholder any of
such Stockholder's Controlling Stockholders.
(ii) In addition, any Stockholder may permit any of its Affiliates to
purchase any of the Shares such Stockholder would itself be
permitted to purchase upon its exercise of the right to accept the
Terms of Offer. Each Stockholder that transfers Shares to an
Affiliate and each Stockholder that causes an Affiliate to purchase
Shares in exercise of the right to accept the Terms of Offer under
this Clause 4.8 hereby agrees with each other Stockholder that such
transferred Shares shall at all times be held by an Affiliate of
such transferring Stockholder, unless transferred to another person
(other than an Affiliate of such transferring party) pursuant to the
provisions of this Clause 4. Each Stockholder hereby undertakes to
cause its Affiliates that are, from time to time, Stockholders, to
act in compliance with the terms of this Clause 4.8.
4.9 Notwithstanding any provision to the contrary herein, any transfer or
assignment of Shares (or any right to acquire Shares under Clause 4.8) by
any form to a person that is not a signatory of this Agreement (including
to an Affiliate), shall be valid and effective only if the transferee or
assignee or acquiror fully and without restrictions becomes a party to
this Agreement, all as if it had been an original party hereto, and each
Stockholder agrees not to transfer Shares by any means whatsoever unless
such transfer is permitted by applicable law; provided, however that this
Clause 4.9 shall not apply to a transfer described in Clauses 4.1(ii) or
(iii) above.
4.10 Except with the consent of all other Stockholders of the Company, no
Stockholder shall create any liens or encumbrances on the Shares or
otherwise enter into any agreement or arrangement which in any way limits
or imposes restrictions on the free ownership of the Shares. Transfers of
Shares or of securities convertible into Shares or, further, the creation
of any lien or encumbrance upon them in contravention of the provisions of
this Agreement shall not be valid, and the Company shall refrain from
registering them on its stock transfer books.
4.11 The provisions of this Clause 4 shall not apply to transfers of Shares
that are the subject of the HC Put Option (as defined in Clause 6.1
below), the Falcon Event Put Option (as defined Clause 7.1 below), the
Falcon Time Put Option (as defined in Clause 7.1 below), the Investor Put
Option (as defined in Clause 7A.1 below), the Call Options, any of the put
rights granted in the Abril Agreement or the Option Agreement or to the
Shares referred to in Clause 11.5. Further, the provisions of this Clause
4 shall not apply to any transfer that any Stockholder may be entitled to
make pursuant to Clause 4.8 or 17 hereof, to Shares which are sold in a
public registration pursuant to Clause 18 hereof, or to the Shares subject
to the Put Option granted under the Amended and Restated Option Agreement
dated as of the date
<PAGE>
18
hereof among Abril S.A., Harpia and Curupira (the "Option Agreement") or
to transfers of Shares pursuant to the Abril Agreement. The Company and
the Stockholders acknowledge that, pursuant to the terms of the Option
Agreement, Harpia, Curupira and their Affiliates that are from time to
time Stockholders may assign some or all of their option rights, subject
to some or all of their obligations, under the Option Agreement to any
other Stockholder or group of Stockholders that are Affiliates (other than
Mr. Civita, Abrilcap and any Affiliates thereof) which have received, by
transfer from Harpia, Curupira or any Affiliate thereof, at least five
percent (5%) of the Company's voting Shares.
Clause 5. NEW ISSUANCES OF SHARES
5.1 The Stockholders shall have preference over all other persons or entities
to subscribe for new issuances of capital stock by the Company in the
proportion which the Shares they hold bear to all Shares subject to this
Agreement (such preference rights in new capital increases being
hereinafter referred to as "Subscription Rights"). New issuances of
capital stock by the Company shall be effected in proportion to the
existing classes and series of the Company's outstanding capital stock,
and each Stockholder may exercise its Subscription Rights only with
respect to Shares identical to those already owned by it.
5.2 (i) The transfer by any Stockholder of its Subscription Rights shall be
subject (except for any transfer to an Affiliate of such
Stockholder), to the requirement that such Subscription Rights first
be offered to the other Stockholders (other than Stockholders that
are Affiliates of the offering Stockholder). Such a transfer must be
effected in accordance with the following terms: (a) within ten (10)
Business Days from the date on which the Stockholders authorize, by
resolution, the issuance of additional capital stock by the Company,
the offering Stockholder shall give notice (a "Subscription Transfer
Notice") to all such other Stockholders, containing the number of
Shares that are the subject of the Subscription Rights being
offered, a proposed price (the "Proposed Subscription Price") in
cash expressed in U.S. Dollars, the other material conditions of the
proposed sale and, if the offering Stockholder is Falcon, the
Investor Entities, Abrilcap or an Affiliate of any of them, a list
of potential purchasers of such Subscription Rights (the "Potential
Subscription Purchasers"); (b) if the offering Stockholder is
Falcon, the Investor Entities, Abrilcap or an Affiliate of any of
them, no more than five Business Days after receipt of the
Subscription Transfer Notice, the offeree Stockholders representing
a majority of the Company's voting capital stock not held by the
offering Stockholder and its Affiliates, by notice to the offering
Stockholder, may disapprove any of the Potential Subscription
Purchasers, which disapproval shall not be unreasonable and shall be
explained in such notice; (c) no more than seven Business Days after
receipt of the Subscription Transfer Notice,
<PAGE>
19
the other Stockholders may exercise the right to acquire such
Subscription Rights, on the basis of the ratio of their respective
interest in the equity capital of the Company on the date of such
offer (excluding, for the purposes of verification of such ratio,
the equity held by the offering Stockholder and its Affiliates), for
the price and on the other material conditions described in the
Subscription Transfer Notice; and (d) no more than three Business
Days after the election is made by the offeree Stockholders to
acquire such Subscription Rights, the acquisition of all offered
Subscription Rights shall occur. Once the 7-day period set forth in
(c) has elapsed without the Stockholders who received the offer
having given notice that they will exercise their rights to acquire
such Subscription Rights, such rights may be assigned to any person
or entity up to and including the date on which the exercise period
for the Subscription Rights terminates; provided, however, that each
of the following conditions shall have been complied with: (1) all
of such Subscription Rights must be assigned to the same person or
entity; (2) if the offering Stockholder is Falcon, the Investor
Entities, Abrilcap or an Affiliate of any of them, then such
Subscription Rights must be sold to a Potential Subscription
Purchaser that has not been vetoed in accordance with this
paragraph; (3) the provisions of Clause 5.3 below shall have been
complied with; (4) the consideration for the sale of such
Subscription Rights must have an aggregate fair value equal to at
least the Proposed Subscription Price, and the assignment must be
consummated upon other conditions not substantially more favorable
to the assignee than the conditions set forth in the Subscription
Transfer Notice; and (5) promptly after the consummation of such
assignment, the offering Stockholder shall have provided all of the
other Stockholders with a notice containing a description of the
sale price for such Subscription Rights, the form of consideration
paid and all other material terms of such assignment.
(ii) Notwithstanding the foregoing, in the event that any Foreign
Stockholder is not permitted to purchase all or any portion of such
Foreign Stockholder's Pro Rata Share of such Subscription Rights
being offered for purchase due to Brazilian legal restrictions upon
foreign ownership or other Brazilian legal limitations, such Foreign
Stockholder may designate a third party to take such purchase,
provided that (a) such third party is identified in a notice given
to each other Stockholder within two Business Days after receipt of
the related Subscription Transfer Notice, and (b) each such
Stockholder shall have approved such third party in writing, such
approval not to be unreasonably withheld.
5.3 Notwithstanding any Provision to the contrary herein, any transfer or
assignment of Subscription Rights by any form to a person that is not a
signatory of this Agreement, including to an Affiliate, shall be valid and
effective only if the
<PAGE>
20
transferee or assignee fully and without restrictions becomes a party to
this Agreement, all as if it had been an original party hereto.
5.4 After the date on which the exercise period of Subscription Rights
expires, the remaining Shares which have not been subscribed for in the
exercise of such Subscription Rights or by the third party assignees of
such Subscription Rights as provided for in Clauses 5.2 and 5.3 above,
shall be offered to the other Stockholders pro rata according to the
amounts subscribed for by them as of such date. In the event that the
other Stockholders do not wish to subscribe for the remaining Shares, they
may, irrespective of the vote or consent of the Stockholder who did not
exercise its Subscription Rights, elect to cancel the Shares which have
not been subscribed for.
5.5 Each Stockholder agrees not to transfer any Subscription Rights unless
such transfer is permitted by applicable law.
Clause 6. HARPIA AND CURUPIRA PUT OPTION
6.1 So long as the Shares owned by the HC Entities are not publicly
registered, listed or traded (other than pursuant to (x) a registration
initiated by the Company pursuant to Clause 13.1(ii) hereof to satisfy its
indemnification obligations as described therein, (y) a registration
initiated pursuant to Clause 18.1 hereof or (z) the exercise of its
piggyback registration rights pursuant to Clause 18.2 hereof) and Harpia
or Curupira and their Affiliates, considered together, at such time hold
at least five percent (5%) of the Company's voting Shares, or any other
Stockholder or group of Stockholders that are Affiliates, other than Mr.
Civita, Abrilcap and any Affiliates thereof) which have received, by
transfer from Harpia, Curupira or any Affiliate thereof, and at such time
hold, at least five percent (5%) of the Company's voting Shares, then upon
the occurrence of an HC Triggering Event (as defined in Clause 6.2 below),
and during the continuance thereof as described in the last paragraph of
Clause 6.2 below, Harpia, Curupira, and their Affiliates, or such other
Stockholder or Stockholders, as the case may be (the "HC Put Party"),
shall be entitled to demand that the Company buy, in whole or in part, the
Shares subscribed for by Harpia or Curupira pursuant to the Subscription
Agreement then held by the HC Put Party (the Shares designated as being
subject to such exercise of the HC Put Option are referred to as the "HC
Put Shares") at the Event Put Price (as defined below), on the terms and
conditions set forth in this Clause 6 (the "HC Put Option"). The rights of
any HC Put Party under this Clause 6 are in addition to any other rights,
remedies or actions which may be available to it hereunder, under any
other agreement or by operation of law, except that the HC Put Option
shall not be exercisable with respect to any HC Triggering Event (as
defined below) for which Harpia, Curupira and their Affiliates shall have
received indemnification in full for all amounts claimed and owing under
Clause 7.3(a) or (b) of the Old Stock Purchase
6.2 "HC Triggering Event" means any of the following events:
<PAGE>
21
Agreement and, to the extent applicable, Sections 6.3(h) and (i) of the
Stock Purchase Agreement.
(i) Any date upon which either (a) Harpia's, Curupira's or their
Affiliates' investment in the Shares exceeds the amounts allowed
under legal restrictions to which it or any of its Affiliates is
subject, or otherwise Harpia, Curupira or their Affiliates are no
longer allowed to hold such Shares, under any law, rule or
regulation applicable to it or any of its Affiliates or (b) legal
restrictions are imposed on Harpia, Curupira or other Affiliates,
that may turn the title of such Shares or a portion thereof illegal
or unduly burdensome in the context of applicable banking law or
regulation;
(ii) Any breach or violation by Mr. Civita or Abrilcap, any of their
respective Affiliates or the Company of any representation,
warranty, covenant or duty made or owed (a) by the Company, Mr.
Civita or Abrilcap or any of their respective Affiliates to Harpia
or Curupira or any of their respective Affiliates pursuant to this
Agreement, the Old Stock Purchase Agreement or the Stock Purchase
Agreement, (b) by any party thereto, pursuant to the Service
Agreement (including the powers of attorney in connection therewith)
or (c) by Abril S.A., pursuant to the Abril Credit Agreement;
provided, that in the case of (1) breaches or defaults of Clause
14.2 hereof, no HC Triggering Event shall occur unless such breach
or default is not cured on or before the 30th (thirtieth) Business
Day following such breach or default; and (2) any breach or
violation of a representation or warranty contained in Clause 3 or 4
of the Old Stock Purchase Agreement that is curable, no HC
Triggering Event shall occur if such breach or violation is cured in
full within 60 days after it occurred;
(iii) Mr. Civita ceases, in a transaction not approved in writing by all
Stockholders who then are entitled to the veto rights set forth in
Clause 13.1 hereof, to: (a) directly or indirectly hold voting
Shares of the Company representing more than 31.258% of the voting
Shares of the Company, (b) directly or indirectly control the voting
of voting Shares of the Company held by his Affiliates representing
more than 50% (fifty percent) of the Voting Shares of the Company,
or (c) directly or indirectly hold 31.258% of the Company's total
capital stock, whether voting or nonvoting; provided that in the
event of Mr. Civita's death, there shall be no HC Triggering Event
unless and until the individuals listed in the definition of
Affiliates herein (together with Mr. Civita's estate) cease,
directly or indirectly, to hold more than: (1) 50% of the voting
Shares of the Company and (2) 31.258% of the Company's total capital
stock, whether voting or nonvoting;
<PAGE>
22
(iv) The Service Agreement ceases for any reason to be valid and
effective or its challenged as to its validity and effectiveness by
any of the parties thereto, Mr. Civita or Abrilcap or any Affiliate
of any of them;
(v) If (a) in the case of any of the License Holders other than Abril
S.A., at any time when it holds any license or permit which is the
subject of the Service Agreement or any license, permit or asset
that is part of the Business, or (b) in the case of Abril S.A., at
any time, such License Holder or Abril S.A. is liquidated or
dissolved or makes or files voluntarily, or has filed against it
involuntarily any petition in bankruptcy; or
(vi) The giving of a Falcon Put Notice or an Investor Put Notice
hereunder except with respect to the Falcon Triggering Event listed
in Clause 7.2(i) or (ii) or the Investor Triggering Event listed in
Clause 7A.2(i).
Any HC Triggering Event listed in sub-clauses (ii) through (vi) shall
continue until the earlier of (x) the first anniversary of receipt by each
HC Put Party of notice from the Company, Mr. Civita or Abrilcap, as the
case may be, stating that an HC Triggering Event has occurred and
providing a detailed description thereof or (y) to the extent curable, the
cure of the event which gave rise to the HC Triggering Event or, with
respect to clause (vi), the withdrawal of a Falcon Put Notice or an
Investor Put Notice (which withdrawal shall not prejudice any right of the
HC Put Parties to exercise an HC Put Option pursuant to clauses (ii)
through (v) above), provided that an HC Triggering Event may not be
terminated pursuant to clause (y) above more than twice, and once an HC
Put Party has given an HC Put Notice, the HC Triggering Event may not be
terminated pursuant to clause (y) above. The HC Triggering Event listed in
sub-clause (i) shall continue only for as long as the events described
therein continue.
6.3 The price of Shares (the "Event Put Price") subject to the HC Put Option
shall be equal to (i) the fraction represented by the number of HC Put
Shares divided by the total number of issued and outstanding Shares of the
Company, multiplied by (ii) the higher value of the business of the
Company and its Subsidiaries obtained with the application of the
following methods:
(a) Fair Market Method: The fair market value of the business of the
Company and its Subsidiaries shall be determined by an independent
recognized valuation expert paid for by the Company and/or the HC
Put Party in accordance with the procedure set out below in this
Clause 6. The valuation will be determined assuming that such
business is sold to an independent third party as a going concern
with no discount for minority ownership or non-liquidity of any
assets or interests held by the Company or its Subsidiaries and on
the assumption that the Company and its Subsidiaries have and will
continue to have unrestricted use of licenses, permits and other
rights which they hold directly or which are the subject of
<PAGE>
23
the Services Agreement; provided that, to the extent that capital
stock of the Company is publicly traded on a national securities
market and if there is an active and viable trading market in such
capital stock, as reasonably determined by the appraiser, the
appraiser may consider the trading price of such capital stock as a
reference point in the methodology of its consideration of the fair
market value of the business of the Company and its Subsidiaries,
but such public market price shall not be determinative of said fair
market value, it being the intent of the parties that such valuation
of the Company and its Subsidiaries shall be made using the private
market value of the sale of the business of the Company and its
Subsidiaries determined as set forth above.
(b) Earnings Multiple Method: The earnings multiple method of valuing
the business of the Company and its Subsidiaries uses the sum of
Clause (1) and Clause (2), defined as follows: Clause 1 shall be
defined as the difference between (A) the product of twelve (12)
times Earnings (as defined below) for the most recently completed
quarter multiplied by four and (B) the sum of interest-bearing
senior debt and subordinated debt, including any accrued interest
thereon, and preferred stock, as reflected on the balance sheet of
the Company as of the end of the most recently completed quarter.
Clause 2 shall be defined as non-operating assets and excess cash as
reflected on the balance sheet of the Company as of the end of the
most recently completed quarter. The earnings multiple method shall
be calculated on the most recent quarterly report of the Company as
reviewed by its auditors and reconciled with U.S. generally accepted
accounting principles ("U.S. GAAP").
"Earnings", for this purpose, shall be defined as earnings before
interest, taxes, depreciation and amortization of the Company and
its Subsidiaries, determined in accordance with U.S. GAAP, adjusted
for non-cash gains and losses, and extraordinary items.
Each of the valuations referred to in this Clause 6.3 shall be
expressed in U.S. Dollars according to the foreign exchange
conversion rate from Brazilian currency used in the Company's
financial statements for the most recently completed fiscal quarter.
6.4 At any time when an HC Triggering Event shall have occurred and be
continuing, any HC Put Party shall be entitled to deliver written notice
(each, an "HC Put Notice") to each of the Stockholders (except the HC Put
Party and its Affiliates) and the Chairman of the Board. Such notice shall
include the name of the appraiser the HC Put Party intends to propose for
the purposes of item (a) in Clause 6.3 above, the number of HC Put Shares
which are the subject of the HC Put Notice, as well as the HC Put Price
calculated according to the method contemplated in item (b) of the same
Clause 6.3 above. In the event the HC Put Notice is given at a time when
<PAGE>
24
there is more than one potential HC Put Party, such other HC Put Party
shall have five (5) Business Days to join the potential exercise of the HC
Put Option by giving written notice to each person that was required to
receive the related HC Put Notice, in which case the term HC Put Party
shall be deemed to include such other HC Put Party, which shall be deemed
to accept selection of an appraiser by the HC Put Party that gave the HC
Put Notice. Thereafter, such parties shall be required to act unanimously
except in exercising the HC Put Option pursuant to Clause 6.9 below.
Neither the election of a potential HC Put Party under this Clause 6.4 not
to join an HC Put Party that gave an HC Put Notice nor the election by any
HC Put Party not to exercise the HC Put Option after an HC Put Notice has
been given shall waive any rights to give an HC Put Notice or exercise the
HC Put option at any later time in accordance with this Clause 6.
6.5 No longer than five (5) Business Days from the receipt by the Chairman of
the HC Put Notice, the Board shall inform, in writing, the HC Put Party
and the other Stockholders whether it accepts the appraiser proposed by
the HC Put Party in such notice. If the Board rejects the appraiser
proposed by the HC Put Party it shall, in the same notice, propose an
appraiser acceptable to it. The HC Put Party shall have five (5) Business
Days to inform, in writing, the Board and the other Stockholders whether
it accepts the appraiser proposed by the Board. If the HC Put Party
accepts the appraiser proposed by the Board, such appraiser shall be
promptly retained by the Company to proceed with the appraisal provided
for in item (a) of Clause 6.3. In the event the HC Put Party does not
accept the appraiser proposed by the Board, the appraiser originally
proposed by the HC Put Party and the appraiser proposed by the Board shall
have ten (10) Business Days from the rejection informed by the HC Put
Party to jointly and irrespective of acceptance by the HC Put Party or the
Board, suggest a third appraiser (the "Third Appraiser") who will be
promptly retained by the Company to proceed with the appraisal under
reference. Subject to Clause 6.6 below, all costs and expenses incurred in
the performance of the appraisal shall be borne (i) by the HC Put Party if
such appraisal is performed by the appraiser proposed by it; (ii) by the
Company if performed by the appraiser proposed by its Board; and equally
borne by the HC Put Party and the Company if performed by the Third
Appraiser. All decisions of the Board regarding selection of an appraiser
for purposes of computing the HC Put Price shall be taken by a majority of
the directors not appointed by any HC Put Party or its Affiliates.
6.6 If the Board or the appraiser proposed by it do not comply with the
procedure set forth in the previous Clause, the HC Put Party shall retain
the appraiser proposed in its HC Put Notice, and the Company shall
reimburse the HC Put Party for the costs and expenses incurred in the
performance of the appraisal promptly after required upon presentation of
the respective evidencing documents. In the event there shall be costs or
expenses of an appraiser retained under this Clause 6.6 and it is finally
determined or the HC Put Party concedes that no Triggering Event occurred,
then all costs and expenses shall be for the account of the HC Put Party.
<PAGE>
25
6.7 The appraiser shall have no longer than 45 (forty-five) calendar days from
its appointment to notify the Board and the HC Put Party in writing of the
result of the appraisal accomplished based on the criteria set forth in
item (a) of Clause 6.3 above, as of the date on which the appraisal is
delivered and expressed in U.S. Dollars according to the conversion
criteria referred to in Clause 6.4 above, which result shall be considered
final and shall not be challenged by any party hereto.
6.8 The Company undertakes to, and the Stockholders agree to cause the Company
to, cooperate fully so that the appraisal provided for in Clause 6.3 above
or in the Option Agreement be effected within the term established therein
and the Company shall deliver all the information and documents requested
by the appraiser for the purposes of this Clause.
6.9 Any participating HC Put Party shall be entitled to exercise the HC Put
Option by giving written notice to the Board and each Stockholder within
10 days following receipt of the appraiser's notice referred to in Clause
6.7 above. If the HC Put Option is so exercised, by 11:30 a.m. on the 45th
day (the "Date of the HC Put Payment") from the date the result of the
appraisal mentioned in Clause 6.3 above is delivered, or if such day is
not a Business Day, on the next following Business Day, the Company shall
pay the Event Put Price for the HC Put Shares to the HC Put Party in Reais
Equivalent on the Date of the HC Put Payment, and the HC Put Party shall
transfer to the Company the HC Put Shares subject to the HC Put Option,
free and clear of all liens, claims, charges, restrictions and
encumbrances caused by or suffered to exist by any HC Put Party or its
Affiliates, other than as provided in this Agreement. Any election by an
HC Put Party not to exercise the HC Put Option shall not waive its right
to give any HC Put Notice or exercise the HC Put Option on the basis
thereof at any time (subject to the time limit in Clause 6.2 above)
thereafter.
6.10 Upon the occurrence of an HC Triggering Event under Clause 6.2(i) above,
related to any U.S. legal restrictions and if there shall occur a Put
Postponement (as defined in Clause 9 below), the HC Put Parties shall
consult with Mr. Civita and Abrilcap concerning the exercise of their
rights available under Clause 9.3 below to convert their HC Put Shares to
Special Preferred Shares (as defined in Clause 9.3 below); provided,
however, that any failure so to consult shall not affect the HC Put
Parties' rights hereunder or subject the HC Put Parties to any claims for
breach of contract or any other damages.
6.11 In the event that any HC Put Party exercises any HC Put Option
contemplated by this Clause 6, prior to the purchase by the Company of the
HC Put Shares as described below, the Stockholders, other than the HC Put
Parties and their Affiliates, shall be entitled, but not obligated, to
purchase such number of HC Put Shares at the Participant Purchase Price as
is designated by the Participating Stockholder(s) by delivering a written
notice to such effect to the Company and each of the Stockholders (except
the Participating Stockholder and its Affiliates) within 10
<PAGE>
26
days following receipt of such HC Put Notice; provided that if a
Stockholder exercises such option, then (i) subject to clause (iv) below,
the Company shall only be obligated to purchase those HC Put Shares not so
purchased by the Participating Stockholder(s) at a price equal to the
Event Put Price minus the aggregate of the Participant Purchase Price(s),
(ii) if the Participating Stockholder(s) in the aggregate elect to
purchase more than the total number of HC Put Shares being offered, then
each Participating Stockholder shall be entitled to purchase that number
of HC Put Shares equal to the product of (A) the total number of HC Put
Shares times (B) a fraction, the numerator of which is that number of HC
Put Shares which such Participating Stockholder elected to purchase and
the denominator of which is the total number of HC Put Shares which all
Participating Stockholders elected to purchase, (iii) the closing of the
purchase of such HC Put Shares by the Participating Stockholder(s) shall
occur on the Date of the HC Put Payment, at which time each Participating
Stockholder shall pay its Participant Purchase Price in Reais Equivalent,
and the HC Put Party shall transfer to each Participating Stockholder the
HC Put Shares that such Participating Stockholder is purchasing, free and
clear of all liens, claims, charges, restrictions and encumbrances caused
by or suffered to exist by the HC Put Party or its Affiliates, other than
as provided in this Agreement and (iv) if any Participating Stockholder
does not satisfy its obligation to acquire its portion of the HC Put
Shares, the Company shall be required to do so at such closing.
6.12 Other than as set forth in Clause 6.11 above, nothing in this Clause 6
shall confer any rights upon any person other than the HC Put Parties and
nothing in this Clause 6 shall impose any obligations on any person other
than the HC Put Parties and the Company.
Clause 7. FALCON'S PUT OPTIONS
7.1 (i) Unless (a) the Shares owned by Falcon or its Affiliates shall have
been publicly registered, listed or traded (other than pursuant to
(x) a registration initiated by the Company pursuant to Clause
13.1(ii) hereof to satisfy its indemnification obligations as
described therein, (y) (1) with respect to a Falcon Time Put Option,
a registration initiated by a Stockholder other than Falcon or its
Affiliates pursuant to Clause 18.1 hereof and (2) with respect to a
Falcon Event Put Option, a registration initiated pursuant to Clause
18.1 hereof or (z) the existence of its piggyback registration
rights pursuant to Clause 18.2 hereof), (b) at the time of the
exercise of the Falcon Put Option both (1) at least 50% of the
initial aggregate ownership interests of the initial equity holders
(the "Falcon Parent Investors") of Falcon International
Communications LLC ("Falcon Parent") (such initial ownership
interests and initial equity holders calculated after Falcon parent
shall have been fully organized and the initial issuance of
ownership interests to investors other than Hellman & Friedman
Capital Partners III,
<PAGE>
27
L.P. ("Hellman & Friedman") and/or entities related thereto shall
have been completed) shall then have become publicly registered,
listed or traded and shall be freely tradeable without any
restrictions imposed by applicable securities laws, and (2) at least
50% of all of the ownership interests of Falcon Parent shall then
have become publicly traded or (c) Falcon together with its
Affiliates at such time collectively hold less than 5% (five
percent) of the Company's voting Shares, then upon the occurrence of
a Falcon Triggering Event (as defined below in Clause 7.2) and
during the continuance thereof as described in the last paragraph of
Clause 7.2 below, Falcon and its Affiliates shall be entitled to
demand that the Company buy:
(A) in the case of a Falcon Triggering Event referred to in Clause
7.2(i) below, all but not less than all of the Shares acquired
by Falcon pursuant to the Old Stock Purchase Agreement then
held by Falcon and its Affiliates (as used with respect to the
Falcon Time Put Option, the "Falcon Put Shares") at the Time
Put Price, on the terms and conditions set forth in this
Clause 7 (such option being hereinafter referred to as the
"Falcon Time Put Option"), or
(B) in the case of all other Falcon Triggering Events, all or a
portion of the Shares acquired by Falcon pursuant to the Old
Stock Purchase Agreement then held by Falcon and its
Affiliates or transferees described in Clause 7.1(ii) below
(as used with respect to the Falcon Event Put Option, the
number of Shares designated as being subject to such exercise
of the Falcon Event Put Option are referred to as the "Falcon
Put Shares") at the Event Put Price, on the terms and
conditions set forth in this Clause 7 (such option hereinafter
referred to as the "Falcon Event Put Option"), except that the
Falcon Event Put Option shall not be exercisable with respect
to any Falcon Triggering Event for which Falcon and its
Affiliates shall have received indemnification in full for all
amounts claimed and owing under Section 7.3(a) or (b) of the
Old Stock Purchase Agreement and, to the extent applicable,
Sections 6.3(h) and (i) of the Stock Purchase Agreement.
Falcon hereby agrees, promptly after completion of the initial
issuance of ownership interests in Falcon Parent to investors other
than Hellman & Friedman and/or entities related thereto, to provide
the Board with a list of the Falcon Parent Investors.
(ii) No Stockholder other than Falcon or a Stockholder that is an
Affiliate of Falcon shall be entitled to exercise the Falcon Time
Put Option. Notwithstanding Clause 7.1(i)(b) or (c) above, any
Stockholder or group of
<PAGE>
28
Stockholders that are Affiliates (other than Mr. Civita, Abrilcap
and any Affiliates thereof) which have received, by transfer from
Falcon or any Affiliate thereof, and at such time hold, at least 5%
(five percent) of the Company's voting Shares, shall be entitled to
exercise the Falcon Event Put Option in respect of their Falcon Put
Shares. Any person entitled to exercise a Falcon Time Put Option or
a Falcon Event Put Option at a particular time shall be a "Falcon
Put Party" at such time with respect to such option.
(iii) Except as stated in Clause 7.1(i)(B) above (where Falcon and its
Affiliates have received indemnification in full), the rights of any
Falcon Put Party under this Clause 7 are in addition to any other
rights, remedies or actions which may be available to them
hereunder, under any other agreement or by operation of law.
7.2 "Falcon Triggering Event" means any of the following events:
(i) Any date between September 22, 2002 and September 22, 2005;
(ii) Any date upon which either: (a) Falcon's or its Affiliates,
investment in the Shares exceeds the amounts allowed under legal
restrictions to which it or any of its Affiliates is subject, or
otherwise Falcon or any of its Affiliates is no longer allowed to
hold such Shares, under any law, rule or regulation applicable to it
or any of its Affiliates, or (b) legal restrictions are imposed on
Falcon or its Affiliates that may turn the title of such Shares or a
portion thereof illegal;
(iii) Any breach or violation by Mr. Civita or Abrilcap, any of their
respective Affiliates or the Company, of any representation,
warranty, covenant or duty made or owed (a) by the Company, Mr.
Civita or Abrilcap or any of their respective Affiliates to Falcon
or any of its Affiliates pursuant to this Agreement, the Old Stock
Purchase Agreement or the Stock Purchase Agreement, (b) by any party
thereto, pursuant to the Service Agreement (including the powers of
attorney in connection therewith) or (c) by Abril S.A., pursuant to
the Abril Credit Agreement; provided, that in the case of (1)
breaches or defaults of Clause 14.2 hereof, no Falcon Triggering
Event shall occur unless such breach or default is not cured on or
before the 30th (thirtieth) Business Day following such breach or
default, and (2) any breach or violation of a representation or
warranty contained in Article 3 or 4 of the Old Stock Purchase
Agreement that is curable, no Falcon Triggering Event shall occur if
such breach or violation is cured in full within 60 days after it
occurred;
(iv) Mr. Civita ceases, in a transaction not approved in writing by all
Stockholders who then are entitled to the veto rights set forth in
<PAGE>
29
Clause 13.1 hereof, to: (a) directly or indirectly hold voting
Shares of the Company representing more than 31.258% of the voting
Shares of the Company, (b) directly or indirectly control the voting
of voting Shares of the Company held by his Affiliates representing
more than 50% (fifty percent) of the voting Shares of the Company,
or (c) directly or indirectly hold 31.258% of the Company's total
capital stock, whether voting or nonvoting; provided that in the
event of Mr. Civita's death, there shall be no Falcon Triggering
Event unless and until the individuals listed in the definition of
Affiliates herein (together with Mr. Civita's estate) cease,
directly or indirectly, to hold more than: (i) 50% of the voting
Shares of the Company and (2) 31.258% of the Company's total capital
stock, whether voting or nonvoting,
(v) The Service Agreement ceases for any reason to be valid and
effective or is challenged as to its validity and effectiveness by
any of the parties thereto, Mr. Civita or Abrilcap or any Affiliate
of any of them;
(vi) If (a) in the case of any of the License Holders other than Abril
S.A., at any time when it holds any license or permit which is the
subject of the Service Agreement or any license, permit or asset
that is part of the Business, or (b) in the case of Abril S.A., at
any time, such License Holder or Abril S.A. is liquidated or
dissolved or makes or files voluntarily, or has filed against it
involuntarily any petition in bankruptcy; or
(vii) The giving of an HC Put Notice or an Investor Put Notice hereunder
except with respect to the HC Triggering Event listed in Clause
6.2(i) or the Investor Triggering Event listed in Clause 7A.2(i).
Any Falcon Triggering Event listed in sub-clauses (iii) through (vii)
above shall continue until the earlier of (x) the first anniversary of
receipt by each Falcon Put Party of notice from the Company, Mr. Civita or
Abrilcap, as the case may be, stating that a Falcon Triggering Event has
occurred and providing a detailed description thereof or (y) to the extent
curable, the cure of the event which gave rise to the Falcon Triggering
Event or, with respect to clause (vii), the withdrawal of an HC Put Notice
or an Investor Put Notice (which withdrawal shall not prejudice any right
of the Falcon Put Parties to exercise a Falcon Put Option pursuant to
clauses (iii) through (vi) above), provided that a Falcon Triggering Event
may not be terminated pursuant to clause (y) above more than twice, and
once a Falcon Put Party has given a Falcon Put Notice, the Falcon
Triggering Event may not be terminated pursuant to clause (y) above. The
Falcon Triggering Event listed in (a) sub-clause (i) above shall continue
for the duration described therein and (b) sub-clause (ii) above shall
continue only for as long as the event described therein continues.
<PAGE>
30
7.3 (i) The price of the Falcon Put Shares subject to the Falcon Time Put
Option (the "Time Put Price") shall correspond to the calculation of
the price of the Shares using the fair market value of the Company
and its Subsidiaries as determined according to Clause 6.3(a) above
only and including the last paragraph of Clause 6.3 (except that for
this purpose the term HC Put Party in such Clause shall mean Falcon
Put Party) and the Falcon Time Put option shall be triggered and
exercised according to Clauses 6.4 through 6.11 above (except that
for these purposes (a) the terms HC Put Option, HC Put Party, HC Put
Notice, Event Put Price, HC Put Shares, HC Triggering Event and Date
of the HC Put Payment shall mean, respectively, Falcon Time Put
option, Falcon Put Party, Falcon Put Notice, Time Put Price, Falcon
Put Shares, Falcon Triggering Event and Date of the Falcon Put
Payment, as appropriate; (b) the Falcon Put Notice shall not contain
any entry relating to Clause 6.3(b); and (c) payment as set forth in
Clause 6.9 above shall be subject to the provisions of Clause 9.7
below). For provisions regarding payment settlement (in lieu of the
payment and settlement provisions set forth in Clause 6.9 above but
not other provisions thereof) of the Falcon Time Put Option, see
Clauses 9.7 to 9.10 below. In addition, the related Falcon Put
Notice shall contain a certification that the Falcon Put Party is
eligible to trigger the Falcon Time Put Option because the
circumstances referred to in Clause 7.1(i)(b) above have not
occurred.
(ii) Notwithstanding the provisions of Clause 6.9 above to the effect
that election not to exercise put rights at a particular time does
not waive future rights of a put party to commence the put process
or ultimately exercise such rights, in the case of the Falcon Time
Put Option, (a) the Falcon Put Parties shall be limited to 4 (four)
Falcon Put Notices; (b) if the Falcon Time Put Option is not
exercised on the basis of the fourth such Falcon Put Notice in
respect of the Falcon Time Put Option, the Falcon Time Put Option
shall expire and (c) in the event two or more Falcon Put Notices in
respect of the Falcon Time Put Option are given within a one-year
period, the Falcon Put Parties shall be responsible to pay all of
the costs of the appraiser retained in connection with the
determination of the Time Put Price in respect of the second or more
of such Falcon Put Notices.
7.4 The price of the Falcon Put Shares subject to the Falcon Event Put Option
shall be the Event Put Price as determined according to Clause 6.3(a) or
(b) above and including the last paragraph of Clause 6.3 above (except
that for this purpose the term HC Put Party in such Clause shall mean
Falcon Put Party), and the Falcon Event Put Option shall be triggered and
exercised according to Clauses 6.4 through 6.11 above (except that for
these purposes the terms HC Put Option, HC Put Party, HC Put Notice, HC
Put Shares, HC Triggering Event and Date of the HC Put Payment shall mean,
respectively, Falcon Event Put Option, Falcon Put Party, Falcon Put
Notice, Falcon Put Shares, Falcon Triggering Event and Date of the Falcon
Put Payment, as appropriate). In addition, the related Falcon Put Notice
<PAGE>
31
shall contain a certification that the Falcon Put Party (other than a
transferee pursuant to Clause 7.1(ii) above that is not an Affiliate of
Falcon, which shall not be required to provide such certification) is
eligible to trigger the Falcon Event Put Option because the circumstances
referred to in Clause 7.1(i)(b) above have not occurred.
7.5 In the event that any Falcon Put Party exercises any Falcon Event Put
Option contemplated by this Clause 7, prior to the purchase by the Company
of the Falcon Put Shares as described below, the Stockholders, other than
the Falcon Put Parties and their Affiliates, shall be entitled, but not
obligated, to purchase such number of Falcon Put Shares at the Participant
Purchase Price as is designated by the Participating Stockholder(s) by
delivering a written notice to such effect to the Company and each of the
Stockholders (except the Participating Stockholder and its Affiliates)
within 10 days following receipt of such Falcon Put Notice; provided that
if a Stockholder exercises such option, then (i) subject to clause (iv)
below, the Company shall only be obligated to purchase those Falcon Put
Shares not so purchased by the Participating Stockholder(s) at a price
equal to the Event Put Price minus the aggregate of the Participant
Purchase Price(s), (ii) if the Participating Stockholder(s) in the
aggregate elect to purchase more than the total number of Falcon Put
Shares being offered, then each Participating Stockholder shall be
entitled to purchase that number of Falcon Put Shares equal to the product
of (A) the total number of Falcon Put Shares times (B) a fraction, the
numerator of which is that number of Falcon Put Shares which such
Participating Stockholder elected to purchase and the denominator of which
is the total number of Falcon Put Shares which all Participating
Stockholders elected to purchase, (iii) the closing of the purchase of
such Falcon Put Shares by the Participating Stockholder(s) shall occur on
the Date of the Falcon Put Payment, at which time each Participating
Stockholder shall pay its Participant Purchase Price in Reais Equivalent,
and the Falcon Put Party shall transfer to each Participating Stockholder
the Falcon Put Shares that such Participating Stockholder is purchasing,
free and clear of all liens, claims, charges, restrictions and
encumbrances caused by or suffered to exist by the Falcon Put Party or its
Affiliates, other than as provided in this Agreement and (iv) if any
Participating Stockholder does not satisfy its obligation to acquire its
portion of the Falcon Put Shares, the Company shall be required to do so
at such closing.
Clause 7A. THE INVESTOR ENTITIES' PUT OPTION
7A.1 So long as the Shares owned by the Investor Entities are not publicly
registered, listed or traded (other than pursuant to (x) a registration
initiated by the Company pursuant to Clause 13.1(ii) hereof to satisfy its
indemnification obligations as described therein, (y) a registration
initiated pursuant to Clause 18.1 hereof or (z) the exercise of its
piggyback registration rights pursuant to Clause 18.2 hereof) and the
Investor Entities and their Affiliates, considered together, at such time
hold at least 5% (five percent) of the Company's voting shares, or any
other Stockholder or
<PAGE>
32
group of Stockholders that are Affiliates (other than Mr. Civita, Abrilcap
and any Affiliates thereof) which have received, by transfer from the
Investor Entities or any Affiliate thereof, and at such time hold at least
5% (five percent) of the Company's voting Shares, then upon the occurrence
of an Investor Triggering Event (as defined in Clause 7A.2 below), and
during the continuance thereof as described in the last paragraph of
Clause 7A.2 below, the Investor Entities and their Affiliates, or such
other Stockholder or Stockholders, as the case may be (the "Investor Put
Party"), shall be entitled to demand that the Company buy, in whole or in
part, the Shares purchased by the Investor Entities pursuant to the Stock
Purchase Agreement or the stock purchase agreement among Hearst/ABC
Limitada, Harpia and Curupira (the "HC Stock Purchase Agreement") then
held by the Investor Put Party (the number of Shares designated as being
subject to such exercise of the Investor Put Option are referred to as the
"Investor Put Shares"), at the Event Put Price, on the terms and
conditions set forth in this Clause 7A (the "Investor Put Option"). The
rights of any Investor Put Party under this Clause 7A are in addition to
any other rights, remedies or actions which may be available to it
hereunder, under any other agreement or by operation of law, except that
the Investor Put Option shall not be exercisable with respect to any
Investor Triggering Event for which the Investor Entities and their
Affiliates shall have received indemnification in full for all amounts
claimed and owing under Clause 6.3(a) or (b) of the Stock Purchase
Agreement.
7A.2 "Investor Triggering Event" means any of the following events:
(i) Any date upon which either: (a) the Investor Entities' or their
Affiliates' investment in the Shares exceeds the amounts allowed
under legal restrictions to which it or any of its Affiliates is
subject, or otherwise the Investor Entities or any of their
Affiliates is no longer allowed to hold such Shares, under any law,
rule or regulation applicable to it or any of its Affiliates, or (b)
legal restrictions are imposed on the Investor Entities or their
Affiliates that may turn the title of such Shares or a portion
thereof illegal;
(ii) Any breach or violation by Mr. Civita or Abrilcap, any of their
respective Affiliates or the Company, of any representation,
warranty, covenant or duty made or owed (a) by the Company, Mr.
Civita or Abrilcap or any of their respective Affiliates to the
Investor Entities or any of their Affiliates pursuant to this
Agreement or the Stock Purchase Agreement, (b) by any party thereto,
pursuant to the Service Agreement (including the powers of attorney
in connection therewith) or (c) by Abril S.A., pursuant to the Abril
Credit Agreement; provided, that in the case of (1) breaches or
defaults under Clause 14.2 hereof, no Investor Triggering Event
shall occur unless such breach or default is not cured on or before
the 30th (thirtieth) Business Day following such breach or default,
and (2) any breach or violation of a representation or warranty
contained in Clause 3 or 4 of the Stock Purchase
<PAGE>
33
Agreement that is curable, no Investor Triggering Event shall occur
if such breach or violation is cured in full within 60 days after it
occurred;
(iii) Mr. Civita ceases, in a transaction not approved in writing by all
Stockholders who then are entitled to the veto rights set forth in
Clause 13.1 hereof, to: (a) directly or indirectly hold voting
Shares of the Company representing more than 31.258% of the voting
Shares of the Company, (b) directly or indirectly control the voting
of voting Shares of the Company held by his Affiliates representing
more than 50% (fifty percent) of the voting Shares of the Company,
or (c) directly or indirectly hold 31.258% of the Company's total
capital stock, whether voting or nonvoting; provided that in the
event of Mr. Civita's death, there shall be no Investor Triggering
Event unless and until the individuals listed in the definition of
Affiliates herein (together with Mr. Civita's estate) cease,
directly or indirectly, to hold more than: (1) 50% of the voting
Shares of the Company and (2) 31.258% of the Company's total capital
stock, whether voting or nonvoting;
(iv) The Service Agreement ceases for any reason to be valid and
effective or is challenged as to its validity and effectiveness by
any of the parties thereto, Mr. Civita or Abrilcap or any Affiliate
of any of them;
(v) If (a) in the case of any of the License Holders other than Abril
S.A., at any time when it holds any license or permit which is the
subject of the Service Agreement or any license, permit or asset
that is part of the Business, or (b) in the case of Abril S.A., at
any time, such License Holder or Abril S.A. is liquidated or
dissolved or makes or files voluntarily, or has filed against it
involuntarily any petition in bankruptcy; or
(vi) The giving of an HC Put Notice or a Falcon Put Notice hereunder
except with respect to the HC Triggering Event listed in Clause
6.2(i) or the Falcon Triggering Event listed in Clause 7.2(i) or
(ii).
Any Investor Triggering Event listed in sub-clauses (ii) through (vi)
above shall continue until the earlier of (x) the first anniversary of
receipt by each Investor Put Party of notice from the Company, Mr. Civita
or Abrilcap, as the case may be, stating that an Investor Triggering Event
has occurred and providing a detailed description thereof or (y) to the
extent curable, the cure of the event which gave rise to the Investor
Triggering Event or, with respect to clause (vi), the withdrawal of an HC
Put Notice or a Falcon Put Notice (which withdrawal shall not prejudice
any right of the Investor Put Parties to exercise an Investor Put Option
pursuant to clauses (ii) through (v) above), provided that an Investor
Triggering Event may not be terminated pursuant to clause (y) above more
than twice, and once an Investor Put Party has given an Investor Put
Notice, the Investor Triggering Event may not be terminated pursuant to
clause (y) above. The Investor Triggering Event
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34
described in sub-clause (i) above shall continue only for as long the
event described therein continues.
7A.3 The price of the Investor Put Shares subject to the Investor Put Option
shall be the Event Put Price as determined according to Clause 6.3 (a) or
(b) above and including the last paragraph of Clause 6.3 (except that for
this purpose the term HC Put Party in such Clause means Investor Put
Party), and the Investor Put Option shall be triggered and exercised,
according to Clauses 6.4 through 6.11 above (except that for these
purposes the terms HC Put Option, HC Put Party, HC Put Notice, HC Put
Shares, HC Triggering Event and Date of the HC Put Payment shall mean,
respectively, Investor Put Option, Investor Put Party, Investor Put
Notice, Investor Put Shares, Investor Triggering Event and Date of the
Investor Put Payment, as appropriate).
7A.4 In the event that any Investor Put Party exercises any Investor Put Option
contemplated by this Clause 7A, prior to the purchase by the Company of
the Investor Put Shares as described below, the Stockholders, other than
the Investor Put Parties and their Affiliates, shall be entitled, but not
obligated, to purchase such number of Investor Put Shares at the
Participant Purchase Price as is designated by the Participating
Stockholder(s) by delivering a written notice to such effect to the
Company and each of the Stockholders (except the Participating Stockholder
and its Affiliates) within 10 days following receipt of such Investor Put
Notice; provided that if a Stockholder exercises such option, then (i)
subject to clause (iv) below, the Company shall only be obligated to
purchase those Investor Put Shares not so purchased by the Participating
Stockholder(s) at a price equal to the Event Put Price minus the aggregate
of the Participant Purchase Price(s), (ii) if the Participating
Stockholder(s) in the aggregate elect to purchase more than the total
number of Investor Put Shares being offered, then each Participating
Stockholder shall be entitled to purchase that number of Investor Put
Shares equal to the product of (A) the total number of Investor Put Shares
times (B) a fraction, the numerator of which is that number of Investor
Put Shares which such Participating Stockholder elected to purchase and
the denominator of which is the total number of Investor Put Shares which
all Participating Stockholders elected to purchase, (iii) the closing of
the purchase of such Investor Put Shares by the Participating
Stockholder(s) shall occur on the Date of the Investor Put Payment, at
which time each Participating Stockholder shall pay its Participant
Purchase Price in Reais Equivalent, and the Investor Put Party shall
transfer to each Participating Stockholder the Investor Put Shares that
such Participating Stockholder is purchasing, free and clear of all liens,
claims, charges, restrictions and encumbrances caused by or suffered to
exist by the Investor Put Party or its Affiliates, other than as provided
in this Agreement and (iv) if any Participating Stockholder does not
satisfy its obligation to acquire its portion of the Investor Put Shares,
the Company shall be required to do so at such closing.
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35
Clause 8. PUT COORDINATION
8.1 [HC TRIGGERS; EFFECT ON INVESTOR ENTITIES & FALCON] In the event that any
HC Put Notice is given, and either an Investor Triggering Event or a
Falcon Triggering Event, as appropriate, has also occurred and is
continuing, any Investor Put Party may (but shall not be required to)
trigger the Investor Put Option (but not the exercise thereof, which
exercise shall be subject to the applicable provisions hereof) and any
Falcon Put Party may (but shall not be required to) trigger the Falcon
Event Put Option (but not the exercise thereof, which exercise shall be
subject to the applicable provisions hereof) simultaneously with such
trigger of the HC Put Option by giving an Investor Put Notice or a Falcon
Put Notice, as the case may be, no later than 10 (ten) Business Days after
its receipt of such HC Put Notice, to all persons required to receive such
Investor Put Notice or Falcon Put Notice.
8.2 [FALCON TRIGGERS; EFFECT ON HC AND INVESTOR ENTITIES] In the event that
any Falcon Put Notice is given with respect to a Falcon Event Put Option
and either an HC Triggering Event or an Investor Triggering Event, as
appropriate, has occurred and is continuing, any HC Put Party may (but
shall not be required to) trigger the HC Put Option (but not the exercise
thereof, which exercise shall be subject to the applicable provisions
hereof) and any Investor Put Party may (but shall not be required to)
trigger the Investor Put Option (but not the exercise thereof, which
exercise shall be subject to the applicable provisions hereof)
simultaneously with such trigger of the Falcon Event Put Option by giving
an HC Put Notice or an Investor Put Notice, as the case may be, no later
than 10 (ten) Business Days after its receipt of such Falcon Put Notice,
to all persons required to receive such HC Put Notice or Investor Put
Notice.
8.3 [INVESTOR ENTITIES TRIGGERS; EFFECT ON HC AND FALCON] In the event that
any Investor Put Notice is given with respect to the Investor Put Options
and an HC Triggering Event or a Falcon Triggering Event, as appropriate,
has occurred and is continuing, any HC Put Party may (but shall not be
required to) trigger the HC Put Option (but not the exercise thereof,
which exercise shall be subject to the applicable provisions hereof) and
any Falcon Put Party may (but shall not be required to) trigger the Falcon
Event Put Option (but not the exercise thereof, which exercise shall be
subject to the applicable provisions hereof) simultaneously with such
trigger of the Investor Put Option by giving an HC Put Notice or a Falcon
Put Notice, as the case may be, no later than 10 (ten) Business Days after
its receipt of such Investor Put Notice, to all persons required to
receive such HC Put Notice or Falcon Put Notice.
8.4 (A) [NON-EXERCISE NOT A WAIVER] Any election by an HC Put Party not to
trigger the HC Put Option simultaneously with the Falcon Event Put Option
or Investor Put Option, or not to exercise the HC Put Option for any
reason, shall not waive any right of any HC Put Party to trigger or
exercise the HC Put Option at a
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36
later date, in accordance with Clause 6 above. Any election by an Investor
Put Party not to trigger the Investor Put Option simultaneously with the
HC Put Option or Falcon Event Put Option, or not to exercise the Investor
Put Option for any reason, shall not waive any right of any Investor Put
Party to trigger or exercise the Investor Put Option at a later date, in
accordance with Clause 7A above. Any election by a Falcon Put Party not to
trigger the Falcon Event Put Option simultaneously with the HC Put Option
or Investor Put Option, or not to exercise the Falcon Event Put Option for
any reason, shall not waive any right of any Falcon Put Party to trigger
or exercise the Falcon Event Put Option at a later date, in accordance
with Clause 7 above.
(B) [PRIORITY, POSS. PRORATION OF PUT RIGHTS] Unless the HC Put Option,
the Investor Put Option and/or the Falcon Event Put Option are triggered
simultaneously as contemplated by Clauses 8.1, 8.2 and/or 8.3 above, the
respective HC Put Parties, the Investor Put Parties and the Falcon Put
Parties shall have priority as against the Company in the order that the
HC Put Options, the Investor Put Options and/or the Falcon Event Put
Options are exercised. If such options are triggered simultaneously and
subsequently exercised, the HC Put Parties, the Investor Put Parties and
the Falcon Put Parties shall be entitled to payment pro rata, in the
proportion that the aggregate amount of each party's put price bears to
the aggregate put price for all such parties. To the extent that any HC
Put Party, Investor Put Party or Falcon Put Party receives a payment in
respect of its Put Shares which is disproportionately greater than the
payments received by other parties who have simultaneously triggered their
options, such party shall pay to such other parties an amount necessary to
cause all such parties to receive their proportionate share of the
aggregate payments made to all such parties.
8.5 [APPRAISAL FEE SHARING] In the event the HC Put Option, the Investor Put
Option and/or the Falcon Event Put Option are exercised simultaneously as
contemplated by Clauses 8.1, 8.2 and/or 8.3 above, the put party that
first gives its put notice shall control all decisions of the HC Put
Parties, the Investor Put Parties and the Falcon Put Parties as to the
appraisers required to determine fair market value of the Shares, but the
HC Put Parties, the Investor Put Parties and the Falcon Put Parties shall
equally prorate any appraisal costs not borne by the Company.
Clause 9. PUT POSTPONEMENT
9.1 In the event that on the Date of the HC Put Payment, the Date of the
Investor Put Payment, or the Date of the Falcon Put Payment with respect
to any Falcon Event Put Option, as the case may be (the "Date of the Event
Put Payment"), by reason of inadequate retained earnings or reserves
pursuant to Article 30 of Law No. 6.404/76, the Company is unable to
purchase the Shares subject to the HC Put Option, the Investor Put Option
or the Falcon Event Put Option, as the case may be (the "Event Put"), in
whole or in part, and in the event that the HC Put Party, the
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37
Investor Put Party or the Falcon Put Party, as the case may be (the "Event
Put Party"), does not expressly waive its Event Put (provided that any
such waiver shall be without prejudice to the right of the Event Put Party
to reinstate such Event Put Option in accordance with Clause 6, 7 or 7A
above, as applicable), the Company shall establish, in writing, the amount
in U.S. Dollars corresponding to the Event Put Price of Shares not
acquired on the Date of the Event Put Payment as verified pursuant to
Clause 6, 7 or 7A above, which shall not be subject to any variation
(except foreign exchange variation), irrespective of the Company's
operating results or the value of the Shares after the Date of the Event
Put Payment, and the closing date of the Event Put with respect to such
remaining Shares shall be extended pursuant to this Clause ("Put
Postponement"). This Clause 9.1 shall not limit or be interpreted as
limiting the Company's obligation under the Event Put to buy the maximum
possible amount of Shares, including on the Date of the Event Put Payment.
9.2 In the event of a Put Postponement, the Company shall continue to use its
best efforts to increase its ability to legally purchase the remaining
Shares subject to the Event Put, pursuant to its terms, including by
obtaining credit and/or the necessary consent of its creditors, if
applicable. The Event Put Price of each Share to be purchased shall be
paid to the Event Put Party in Reais Equivalent on the date of such
payment.
9.3 Any Shares not purchased by the Company on the Date of the Event Put
Payment may be converted by the Event Put Party, at its exclusive
discretion, into classes of the Company's Preferred Shares ("Special
Preferred Shares") entitled to a minimum fixed and cumulative dividend to
be determined on the basis of the aggregate Event Put Price for such
unpurchased Shares, multiplied by the one-year LIBOR rate as quoted by the
London branch of The Chase Manhattan Bank, N.A. prevailing on the Date of
the Event Put Payment, plus 4% per annum ("Cumulative Dividends"), payable
semiannually from the Date of the Event Put Payment through the date such
Special Preferred Shares are purchased by the Company pursuant to the
Event Put. The Event Put Party shall be entitled to elect, in its sole
discretion, to receive shares of voting (the "Preferred Voting Shares") or
non-voting Special Preferred Shares, or any combination thereof. For
purposes of this Agreement and the Company's By- Laws, the Preferred
Voting Shares shall be deemed to be included in the definition of "Shares"
and all of the rights of the Stockholders hereunder with respect to the
Shares held by them shall continue so long as they hold the Preferred
Voting Shares.
9.4 The Stockholders undertake to exercise the voting rights of their Shares
in order to amend the Company's By-Laws so as to create the Special
Preferred Shares whenever so required according to provisions set forth
herein.
9.5 In addition to the Cumulative Dividends, the Special Preferred Shares
shall be entitled to any minimum dividend
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38
required by law to be paid by the Company ("Mandatory Dividend").
9.6 After the payment of the Cumulative Dividend and of the Mandatory
Dividend, any remaining profit or reserve (other than mandatory legal
reserves) verified by the Company shall be used to buy the highest
possible amount of Shares (including the Special Preferred Shares) subject
to the Event Put Option. All dividend payments and all other distributions
to Stockholders and all redemptions or repurchases of any capital stock
from any holder of capital stock in the Company, with the exception of the
Cumulative Dividend on Special Preferred Shares then outstanding and of
the Mandatory Dividend, are and shall be expressly subject and subordinate
to the acquisition of all of the Shares subject to the Event Put in the
event they have not been purchased from the Event Put Party. All
Cumulative Dividends, and all repurchases of Shares (including the Special
Preferred Stock) subject to the Event Put Option, shall be made on a
pro-rata basis in favor of all Stockholders that exercised an Event Put
simultaneously under Clause 8.1 or 8.2 or 8.3 above; otherwise, the rights
of any Event Put Parties under this Clause 9 and under any Special
Preferred Shares issued hereunder shall be ranked according to the
respective Dates of the Event Put Payment on which such rights arose.
9.7 (i) In the event a Falcon Put Notice in respect of the Falcon Time Put
Option has been delivered, and, pursuant to Clauses 7.3 and 6.9
above, Falcon has decided to exercise the Falcon Time Put Option,
then, during the 30-day period immediately following receipt of the
appraiser's notice referred to in Clause 6.7 above (the "Time Put
Decision Period"), the Company shall, by action of a majority of the
members of its Board not appointed by any Falcon Put Party or its
Affiliates, make the following determinations in sequence, promptly
(but in any event within the Time Put Decision Period) notify the
Falcon Put Parties of such determinations and take the following
actions as determined thereby:
(a) If the Company, acting in good faith and in a commercially
reasonable manner, determines that it has cash available
which, together with borrowings available to the Company on
commercially reasonable terms, is sufficient to pay the entire
Time Put Price, then the Company shall pay the Time Put Price
to the Falcon Put Parties by 11:30 a.m. on the 90th day after
the end of the Time Put Decision Period, in cash in Reais
Equivalent on such day of payment, and the Falcon Put Parties
shall transfer to the Company all of the Falcon Put Shares
free and clear of all liens, claims, charges, restrictions and
encumbrances caused by or suffered to exist by any Falcon Put
Party or its Affiliates, other than as provided in this
Agreement; provided it is understood that the Company shall be
subject to an obligation to use its best efforts to obtain any
necessary borrowings on a commercially reasonable basis to
satisfy
<PAGE>
39
the Falcon Time Put Option in cash on the Date of the Falcon
Put Payment; provided, however, that if on such 90th day, the
Company is unable to satisfy the cash payment required
hereunder, the provisions of Clause 9.7(ii) shall be
applicable;
(b) if after use of the efforts described in (a) above the Company
determines that such cash and borrowings described in (a)
above are not available but instead determines, acting in good
faith and in a commercially reasonable manner, that it will
have cash available which, together with borrowings available
to the Company on commercially reasonable terms, will be
sufficient to pay the Time Put Price in three installments as
described in Clause 9.8 below, then the Company and the Falcon
Put Parties shall take the actions described in Clause 9.8
below, it being understood and agreed that the Company shall
be subject to an obligation to use its best efforts to obtain
any necessary borrowings on a commercially reasonable basis to
satisfy all such installments; and
(c) if the Company, acting in good faith and in a commercially
reasonable manner, determines that such cash and borrowings
described in (a) and (b) above are not available, then the
Company and the Falcon Put Parties shall take the actions
described in Clause 9.9 below.
(ii) If, at the end of the 90-day period referred to in Clause 9.7(i)(a),
the Company, after having used its best efforts to obtain any necessary
borrowings on a commercially reasonable basis to satisfy the entire Time
Put Price, is unable to pay the entire Time Put Price, the Company shall,
on such 90th day, be entitled to and shall elect one of the alternatives
set forth in Clause 9.7(i)(b) or (c) above, and in such event the parties
shall be governed by the procedures set forth in Clause 9.8 or 9.9 below,
as the case may be, depending upon the alternative elected, and the other
applicable provisions of this Agreement.
9.8 (i) In case of a determination described in Clause 9.7(i)(b) above or
where such alternative is chosen pursuant to Clause 9.7(ii) above,
the Falcon Put Parties shall transfer to the Company their Falcon
Put Shares (the "Total Time Put Shares"), free and clear of all
liens, claims, charges, restrictions and encumbrances caused by or
suffered to exist by any Falcon Put Party or its Affiliates, other
than as provided in this Agreement, at the times and under the
circumstances as described in this Clause 9.8 and shall retain all
rights they may have, and continue to be subject to all obligations,
under this Agreement based on their stockholdings until such
transfers are completed in accordance with the terms hereof, subject
to the provisions of Clause 9.12 below. On the first anniversary of
the Company's receipt of
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40
the related Falcon Put Notice, the Company shall pay 1/3 (one-third)
of the Time Put Price, in Reais Equivalent on such day and the
Falcon Put Parties shall transfer to the Company 1/3 (one-third) of
the Total Time Put Shares, free and clear of all liens, claims,
charges, restrictions, and encumbrances caused by or suffered to
exist by any Falcon Put Party or its Affiliates, other than as
provided in this Agreement. The Falcon Put Parties and the Company
shall cause the same appraiser that determined the Time Put Price to
make a second determination of the Time Put Price, but recalculated
and valued as of such first anniversary of the Company's receipt of
the related Falcon Put Notice and delivered to the Board within 45
(forty-five) days thereof. On the second anniversary of the
Company's receipt of the related Falcon Put Notice, the Company
shall pay 1/3 (one-third) of such Time Put Price, as recalculated as
of the first anniversary thereof, in Reais Equivalent on such second
anniversary, and the Falcon Put Parties shall transfer to the
Company 1/3 (one-third) of the Total Time Put Shares, free and clear
of all liens, claims, charges, restrictions, and encumbrances caused
by or suffered to exist by any Falcon Put Party or its Affiliates,
other than as provided in this Agreement. The Falcon Put Parties and
the Company shall cause the same appraiser that determined the first
two Time Put Prices to make a third determination of the Time Put
Price, but recalculated and valued as of such second anniversary of
the Company's receipt of the related Falcon Put Notice and delivered
to the Board within 45 (forty-five) days thereof. On the third
anniversary of the Company's receipt of the related Falcon Put
Notice, the Company shall pay 1/3 (one-third) of such Time Put
Price, as recalculated as of the second anniversary thereof, in
Reais Equivalent on such third anniversary, and the Falcon Put
Parties shall transfer to the Company 1/3 (one-third) of the Total
Time Put Shares, free and clear of all liens, claims, charges,
restrictions, and encumbrances caused by or suffered to exist by any
Falcon Put Party or its Affiliates, other than as provided in this
Agreement.
(ii) In the event that after using its best efforts to obtain sufficient
cash and/or borrowings on commercially reasonable terms to satisfy
its payment obligations under paragraph (i) above on such first or
second anniversary, the Company shall not have available cash or
borrowings on commercially reasonable terms available to meet its
payment obligations under paragraph (i) above on such first or
second anniversary, then the Company shall, against transfer to it
of 1/3 (one-third) of the Total Time Put Shares, free and clear of
all liens, claims, charges, restrictions, and encumbrances caused by
or suffered to exist by any Falcon Put Party or its Affiliates,
other than as provided in this Agreement, issue on such date a
promissory note or promissory notes, denominated in U.S. Dollars, to
the Falcon Put Parties, in the aggregate principal amount equal to
its payment obligation on such anniversary prior to conversion to
Reais Equivalent and on the other terms described in Clause 9.10
below.
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41
9.9 In case of a determination described in Clause 9.7 (i)(c) above, not later
than 11:30 a.m. on the 15th day after the end of the Time Put Decision
Period, each of the Falcon Put Parties shall transfer to the Company all
of their Falcon Put Shares, free and clear of all liens, claims, charges,
restrictions, and encumbrances caused by or suffered to exist by any
Falcon Put Party or its Affiliates, other than as provided in this
Agreement, against issuance by the Company on such date of a promissory
note or promissory notes, denominated in U.S. Dollars, to the Falcon Put
Parties, in the aggregate principal amount equal to the Time Put Price and
on the other terms described in Clause 9.10 below. In the case of a
determination described in Clause 9.7(ii) above to elect the alternative
described in Clause 9.7(i)(c) above, no later than 11:30 a.m. on the 90th
day after the end of the Time Put Decision Period, each of the Falcon Put
Parties shall transfer to the Company all of its Falcon Put Shares, free
and clear of all liens, claims, charges, restrictions, and encumbrances
caused by or suffered to exist by any Falcon Put Party or its Affiliates,
other than as provided in this Agreement, against issuance by the Company
on such date of a promissory note or promissory notes, denominated in U.S.
Dollars, to the Falcon Put Parties, in the aggregate principal amount
equal to the Time Put Price and on the other terms described in Clause
9.10 below.
9.10 All promissory notes referred to in Clauses 9.8 and 9.9 above shall have
the following terms and shall also be subject to the provisions of Clause
9.11 below: (i) all such promissory notes shall be notas promissorias and
shall be accompanied by an agreement setting forth all terms relating
thereto; (ii) all such promissory notes shall mature on the third
anniversary of the Company's receipt of the related Falcon Put Notice;
(iii) principal shall be payable at maturity subject to optional
prepayment and the mandatory prepayments described below; (iv) interest
from the date of issuance on the unpaid principal amount shall be payable
quarterly in arrears at a fixed rate of interest equal at the time of
issuance of such notes to the interest rate on U.S. Treasury obligations
of similar maturity, plus a spread taking into account the type of
obligor, the Company's creditworthiness and Brazilian risk; provided that
if the parties cannot agree on the above rate it will be decided by such
third party investment banker as may be mutually agreed by both parties;
(v) such notes shall be full recourse to the Company and shall be secured
by the pledge, in the case of notes described in Clause 9.8 below, of the
related 1/3 (one-third) of the Total Time Put Shares, and in the case of
those described in Clause 9.9 above, of all the related Falcon Put Shares;
(vi) while any notes described in Clause 9.8 or 9.9 above remain
outstanding, the Company shall not pay any dividends or other
distributions, or make any redemptions or repurchases whatsoever on or
relating to any of its capital stock, except for those required by law,
but shall continue to pay all Cumulative Dividends on then outstanding
Special Preferred Shares; (vii) while any notes described in Clause 9.8
above only remain outstanding, the Company shall, subject to the
repurchases of Special Preferred Shares then outstanding provided for in
Clause 9.6 above, use all excess cash to prepay such notes in whole or in
part on a quarterly basis; (viii) in the case of notes described in Clause
9.8 above issued on such first anniversary, to the extent the Company has
cash and borrowings available
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42
to meet its payment obligations on such second anniversary, such cash and
borrowings shall be applied first to prepay such note to the fullest
extent possible before meeting such other payment obligations; (ix) the
Company will be required to use its best efforts on a continuing basis to
obtain borrowings on a commercially reasonable basis to satisfy to the
fullest extent possible and as soon as possible any promissory notes
issued pursuant to Clauses 9.8 or 9.9 above; and (x) such other terms and
conditions as are normal and customary in international capital markets
and transactions of this nature, including, without limitation, defaults
and acceleration for failure to pay interest and restrictions on related
party transactions shall be included in such notes and/or the related
agreements.
9.11 (i) Notwithstanding anything to the contrary contained herein, to the
extent the Company fails to perform any of its obligations under the
promissory notes referred to in Clause 9.8 or 9.9 above or the
related agreements, including payment of interest currently, the
Falcon Put Parties shall have ail rights and remedies available
hereunder, under the promissory notes or as provided by law or
equity.
(ii) If, at the end of the 90-day period referred to in Clause 9.7(i)(a)
above, the Company has not paid the entire Time Put Price in cash,
then, notwithstanding the Company's election of one of the
alternatives specified in Clause 9.7(ii) above, and notwithstanding
the provisions of Clause 4 hereof, the Falcon Put Parties shall be
free for a period of six months after such date (but in any event
not exceeding one year from the date of the Falcon Put Notice), to
sell all of the Falcon Put Shares hereunder free of any of the right
of first offer restrictions set forth in Clause 4 hereof or any
other provision hereof, and the purchaser of such Shares shall be
entitled to all of the rights and obligations of the Falcon Put
Parties hereunder; provided, that the Falcon Put Parties may not
sell the Falcon Put Shares to any person included in the list of
categories of disqualified purchasers, which list shall be provided
by the Company within the 90-day period referred to in Clause
9.7(i)(a) above and shall be reasonable and only include persons
such as direct competitors or undesirable persons. In the event of
such sale, (a) if any promissory notes have been issued, upon
consummation of such sale, the promissory notes shall be cancelled
and neither the Company nor the Falcon Put Parties shall have any
claim against the other for any deficiency between the amount of the
sale price and the amount of the Note; and (b) immediately prior to
the consummation of such sale, any Shares that the Falcon Put
Parties have transferred to the Company in connection with its
exercise of one of the alternatives shall be returned and/or
re-issued, as appropriate, to the Falcon Put Parties, and shall be
duly and validly issued and authorized, fully paid and
non-assessable, and shall be free of any pre- emptive rights or any
liens, claims, charges, restrictions or encumbrances caused by or
suffered to exist by the Company or its Affiliates, other than as
provided in this Agreement.
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(iii) Without limiting the foregoing, and notwithstanding the provisions
of Clause 4 hereof or any other provision hereof, if the Company
defaults on any payment (whether of principal, interest or
otherwise) under any promissory note issued under Clause 9.8 or 9.9
above or any related agreement, and within six months of such
default such default has not been cured in full, then in either case
the Falcon Put Parties shall be free to sell all or any portion of
the Falcon Put Shares hereunder (or subject to the pledge), free of
any of the right of first offer restrictions set forth in Clause 4
hereof or any other provision hereof, and the purchaser of such
Shares shall be entitled to all of the rights and obligations of the
Falcon Put Parties hereunder; provided, that the Falcon Put Parties
may not sell the Falcon Put Shares to any person included in the
list of categories of disqualified purchasers, which list shall be
provided by the Company at the time of the issuance of the notes and
shall be reasonable and only include persons such as direct
competitors or undesirable persons.
9.12 In the event that any action by the Company for the purpose of permitting
the Company to meet any of its payment obligations to the Falcon Put
Parties under any of Clauses 9.7 through 9.9 above would otherwise require
a vote at a general meeting of the Company or of the Board,
notwithstanding anything herein to the contrary, none of the Falcon Put
Parties shall be entitled to a veto through holdings of Shares or through
any director they may have appointed, and any such vote, for purposes of
quorum and voting, shall be taken exclusive of the Falcon Put Parties'
holdings of Shares and the participation of any director appointed by
them, and the Falcon Put Parties hereby agree to waive any preemptive
rights they may have with respect to any such action by the Company.
Clause 10. CALL OPTIONS
10.1 So long as the Shares owned by Harpia or Curupira or their Affiliates are
not publicly registered, listed or traded (other than pursuant to a
registration initiated by the HC Entities or their Affiliates) and in any
case not earlier than July 22, 2000, Harpia and Curupira grant and give
Mr. Civita, Abrilcap, and the Affiliates of each (other than the Company
and any Subsidiary thereof) that are then Stockholders (the "Call
Purchaser") an option to acquire (the "HC Call Option"), and so long as
the Shares owned by Falcon or its Affiliates are not publicly registered,
listed or traded (other than pursuant to a registration initiated by
Falcon or its Affiliates) and in any case not earlier than September 22,
2003, Falcon grants and gives the Call Purchaser an option to acquire (the
"Falcon Call Option" and, together with the HC Call Option, as the case
may be, the "Call Option"), in each case under the conditions set forth in
this Clause, all of the Shares (and not a portion thereof) held by Harpia
and Curupira and their Affiliates or Falcon and its Affiliates, as the
case may be (the "Call Seller"), on the date of the exercise of the Call
Option. Subject to Section 10.3(ii) below, the Call Options are personal
to Mr. Civita and Abrilcap
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44
and their Affiliates that are from time to time Stockholders, and shall
not be transferred in any case to third parties. The only Shares subject
to the Call Options are (i) Shares held by Harpia, Curupira and their
Affiliates at the time a Call Notice (as defined below) is given to them
with respect to the HC Call Option, and (ii) Shares held by Falcon and its
Affiliates at the time a Call Notice is given to them with respect to the
Falcon Call Option; no other Shares shall be subject to any Call Option.
10.2 At any time permitted by Clause 10.1 above, the Call Purchaser shall be
entitled to deliver written notice (a "Call Notice") to each Call Seller
and, in the case of the HC Call Option, to Falcon and the Investor
Entities and each of their respective Affiliates that are then
Stockholders and in the case of a Falcon Call Notice, to the HC Entities
and the Investor Entities and their Affiliates that are then Stockholders.
Upon the delivery of the Call Notice, the Call Purchaser shall be entitled
to demand that the Call Seller transfer all its Shares, free and clear of
any liens, claims, charges, restrictions or encumbrances caused by or
suffered to exist by the Call Seller or its Affiliates, other than as
provided in this Agreement, to the Call Purchaser or as the Call Purchaser
may direct, as provided for herein, against payment of the Call Price, as
defined below.
10.3 (i) The Call Purchaser shall be entitled to exercise the Call Option by
giving a Call Notice to each Call Seller (and to the other
Stockholders), within 10 (ten) days following the date on which the
Call Price has been ascertained. if the Call Option is so exercised,
on the third Business Day following such exercise (the "Date of
Transfer"), the Call Seller shall transfer, against the payment of
the Call Price, all Shares, free and clear of all liens, claims,
charges, restrictions and encumbrances caused by or suffered to
exist by the Call Seller or its Affiliates, other than as provided
in this Agreement, owned by it to Abrilcap, or such other person(s)
as Abrilcap shall have directed not less than 2 (two) Business Days
prior to the Date of Transfer, by means of the execution of the
proper entry of the Transfers of Nominative Shares Book of the
Company. Any election by the Call Purchaser not to exercise a Call
Option shall not waive its right to give any Call Notice or exercise
a Call Option at any time thereafter, except that in respect of the
Falcon Call Option, the Call Purchaser may not issue more than one
Call Notice in any given calendar year.
(ii) To determine the Call Price, the terms and conditions established in
Clause 6 above shall be applicable in the case of the HC Call Option
and the terms and conditions established in Clause 7.3 above shall
be applicable in the case of the Falcon Call Option, in each case
mutatis mutandis. For so long as (x) the Investor Entities, Falcon
or the Affiliates of any of them holding any voting Shares of the
Company, each such holder shall have the right, by notice to
Abrilcap within ten (10) Business Days after receipt of a Call
Notice with respect to an HC Call Option, to participate with the
Call
<PAGE>
45
Purchaser in the exercise of such HC Call Option in the proportion
that its Shares bear to the Shares then held by Mr. Civita, Abrilcap
and their Affiliates and (y) the Investor Entities or their
Affiliates holding any voting shares of the Company, each such
holder shall have the right, by notice to Abrilcap within ten (10)
Business Days after receipt of a Call Notice with respect to a
Falcon Call Option, to participate with the Call Purchaser in the
exercise of such Falcon Call Option in the proportion that its
Shares bear to the Shares then held by Mr. Civita, Abrilcap and
their Affiliates; provided, however, that (a) the Investor Entities,
Falcon and the Affiliates of any of them shall be bound by all
decisions of Mr. Civita, Abrilcap and their Affiliates with respect
to any appraiser involved in ascertaining the Call Price for such HC
Call Option or Falcon Call Option, as the case may be, (b) with
respect to any such appraiser's costs that would otherwise be borne
by Mr. Civita, Abrilcap or their Affiliates, the Investor Entities,
Falcon and the Affiliates of any of them shall bear their
aforementioned proportion, as applicable, (c) no election by the
Investor Entities, Falcon or the Affiliates of any of them to
participate in the exercise of such HC Call Option shall in any way
affect the rights of Harpia, Curupira or their Affiliates against
Mr. Civita, Abrilcap or their Affiliates with respect thereto and
(iv) no election by the Investor Entities or their Affiliates to
participate in the exercise of such Falcon Call Option shall in any
way affect the rights of Falcon or its Affiliates against Mr.
Civita, Abrilcap or their Affiliates with respect thereto.
10.4 The purchase price of Shares acquired by the Call Purchasers as a result
of the exercise of the Call Option is herein referred to as the "Call
Price". The Call Price for the HC Call Option shall correspond to:
================================================================================
DATE OF EXERCISE OF THE CALL CALL PRICE
OPTION
- --------------------------------------------------------------------------------
From July 22, 2000 to July 21, 2001 110% of the HC Put Price
- --------------------------------------------------------------------------------
From July 22, 2001 to July 21, 2002 105% of the HC Put Price
- --------------------------------------------------------------------------------
On or after July 22, 2002 100% of the HC Put Price
================================================================================
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46
The Call Price for the Falcon Call Option shall correspond to:
================================================================================
DATE OF EXERCISE OF THE CALL CALL PRICE
OPTION
- --------------------------------------------------------------------------------
From September 22, 2003 to September 21, 2004 110% of the Falcon Time Put Price
- --------------------------------------------------------------------------------
From September 22, 2004 to September 21, 2005 105% of the Falcon Time Put Price
- --------------------------------------------------------------------------------
On or after September 22, 2005 100% of the Falcon Time Put Price
================================================================================
10.5 The Call Price, calculated in U.S. Dollars pursuant to the preceding
Clause, shall be paid on the Date of Transfer concurrently with the
transfer of the applicable Call Seller's Shares, free and clear of all
liens, claims, charges, restrictions and encumbrances caused by or
suffered to exist by the Call Seller or its Affiliates, other than as
provided in this Agreement, to the Call Purchaser or as it may direct, in
Reais Equivalent on the Date of Transfer. The transfer of Shares and the
payment of the Call Price shall take place at the head office of the
Company, at 11:30 a.m., on the Date of Transfer.
10.6 In the event that within the 12-month period after payment of the Call
Price to a Call Seller, 5% (five percent) or more of the voting Shares of
the Company are sold, or any of the Company's Shares are placed in the
market by a public offering, such Call Seller shall receive an amount
equal to the excess, on a per-share basis, of the price that such Call
Seller would have received if its Shares had been included in such sale or
public offering at the price obtained in such sale or public offering over
the Call Price. If the Investor Entities, Falcon or the Affiliates of any
of them have elected to participate in the HC Call Option pursuant to
Clause 10.3 above, any such party shall reimburse the Call Purchaser for
its proportionate share of any such excess paid to the Call Seller.
10.7 For so long as CCABC Partner or any of its Affiliates is a Stockholder or
a holder of equity interests in any Investor Entity, in the event that (x)
unless and until Disney becomes a Controlling Stockholder of CCABC, CCABC,
or (y) from and after Disney becoming a Controlling Stockholder of CCABC,
at least one of CCABC or Disney, is not the Controlling Stockholder of (A)
CCABC Partner or (B) any Affiliate of CCABC Partner that is then a
Stockholder or a holder of an equity interest in any Investor Entity that
is then a Stockholder, then (i) unless all of the equity interests which
have been transferred and give rise to the Call Option set forth in this
Clause 10.7 have been offered according to the procedures set forth in
Clause 4 above, each of the Call Purchaser, the H/C Entities and Falcon
will have a Call Option with respect to all of the Shares held by the
Investor Entities, CCABC Partner, any of CCABC Partner's Affiliates or any
Stockholder in which CCABC Partner or any of its Affiliates holds any
equity, exercisable for six months
<PAGE>
47
following the discovery by the Call Purchaser, the H/C Entities or Falcon
of such event and otherwise in accordance with the procedures set forth in
this Clause 10 (except that (a) the Call Price for purposes of this Clause
10.7 shall correspond to the calculation of the price of the Shares using
the fair market value of the Company and its Subsidiaries as determined
according to Clause 6.3(a) only and including the last paragraph of Clause
6.3 and (b) any of the Call Purchaser, the H/C Entities or Falcon may
initiate such Call Option by the delivery of a Call Notice), and (ii)
whether or not such equity interests have been offered in accordance with
the procedures in Clause 4 hereof or such Call Option is exercised, the
Investor Entities, CCABC Partner, any of CCABC Partner's Affiliates and
any Stockholder in which CCABC Partner or any of its Affiliates holds any
equity, upon such cessation (1) shall immediately forfeit all rights
granted under this Agreement to the Investor Entities and such Affiliates
that would not be transferable with the Shares owned by the Investor
Entities or such Affiliates, and shall immediately cease to be bound by
all of their obligations under this Agreement that would not be
transferred with the Shares owned by them, in each case as if a transfer
of such Shares had occurred by the Investor Entities or such Affiliates
and (2) shall immediately forfeit all rights to indemnification under
Clause 6.3 of the Stock Purchase Agreement other than in respect of claims
for indemnification that are then pending. Notwithstanding the foregoing,
the provisions of this Clause 10.7 shall not apply to any transfer of any
equity interest in any Investor Entity, CCABC Partner, any of CCABC
Partner's Affiliates or any Stockholder in which CCABC Partner or any of
its Affiliates holds any equity, to any Affiliate.
10.8 For so long as Hearst Partner or any of its Affiliates is a Stockholder or
a holder of equity interests in any Investor Entity, in the event that
Hearst is not the Controlling Stockholder of (A) Hearst Partner or (B) any
Affiliate of Hearst Partner that is then a Stockholder or a holder of an
equity interest in any Investor Entity that is then a Stockholder, then
(i) unless all of the equity interests which have been transferred and
give rise to the Call Option set forth in this Clause 10.8 have been
offered according to the procedures set forth in Clause 4 above, each of
the Call Purchaser, the H/C Entities and Falcon will have a Call Option
with respect to all of the Shares held by the Investor Entities, Hearst
Partner, any of Hearst Partner's Affiliates or any Stockholder in which
Hearst Partner or any of its Affiliates holds any equity, exercisable for
six months following the discovery by the Call Purchaser, the H/C Entities
or Falcon of such event and otherwise in accordance with the procedures
set forth in this Clause 10 (except that (a) the Call Price for purposes
of this Clause 10.8 shall correspond to the calculation of the price of
the Shares using the fair market value of the Company and its Subsidiaries
as determined according to Clause 6.3(a) only and including the last
paragraph of Clause 6.3 and (b) any of the Call Purchaser, the H/C
Entities or Falcon may initiate such Call Option by the delivery of a Call
Notice), and (ii) whether or not such equity interests have been offered
in accordance with the procedures in Clause 4 hereof or such Call Option
is exercised, the Investor Entities, Hearst Partner, any of Hearst
Partner's Affiliates and any Stockholder in which Hearst Partner or any of
its Affiliates holds any equity, upon
<PAGE>
48
such cessation (1) shall immediately forfeit all rights granted under this
Agreement to the Investor Entities and such Affiliates that would not be
transferable with the Shares owned by the Investor Entities or such
Affiliates, and shall immediately cease to be bound by all of their
obligations under this Agreement that would not be transferred with the
Shares owned by them, in each case as if a transfer of such Shares had
occurred by the Investor Entities or such Affiliates and (2) shall
immediately forfeit all rights to indemnification under Clause 6.3 of the
Stock Purchase Agreement other than in respect of claims for
indemnification that are then pending. Notwithstanding the foregoing, the
provisions of this Clause 10.8 shall not apply to any transfer of any
equity interest in any Investor Entity, Hearst Partner, any of Hearst
Partner's Affiliates or any Stockholder in which Hearst Partner or any of
its Affiliates holds any equity, to any Affiliate.
10.9 For so long as Hearst Partner or any of its Affiliates or CCABC Partner or
any of its Affiliates hold equity interests in an Investor Entity or other
jointly held entity (whether between Hearst Partner or any of its
Affiliates and CCABC Partner or any of its Affiliates or with another
third party) that is then a Stockholder, in the event that (x) unless and
until Disney becomes a Controlling Stockholder of CCABC, CCABC, or (y)
from and after Disney becoming a Controlling Stockholder of CCABC, at
least one of CCABC or Disney, on the one hand, and Hearst on the other
hand, either individually or jointly is or are not the Controlling
Stockholder of such jointly held Investor Entity or other jointly held
entity, then (i) unless all of the equity interests which have been
transferred and give rise to the Call Option set forth in this Clause 10.9
have been offered according to the procedures set forth in Clause 4 above,
each of the Call Purchaser, the H/C Entities and Falcon will have a Call
Option with respect to all of the Shares held by such Investor Entity or
other jointly held entity, exercisable for six months following the
discovery by the Call Purchaser, the H/C Entities or Falcon of such event
and otherwise in accordance with the procedures set forth in this Clause
10 (except that (a) the Call Price for purposes of this Clause 10.9 shall
correspond to the calculation of the price of the Shares using the fair
market value of the Company and its Subsidiaries as determined according
to Clause 6.3(a) only and including the last paragraph of Clause 6.3 and
(b) any of the Call Purchaser, the H/C Entities or Falcon may initiate
such Call Option by the delivery of a Call Notice), and (ii) whether or
not such equity interests have been offered in accordance with the
procedures in Clause 4 hereof or such Call Option is exercised, upon such
cessation such Investor Entity or other jointly held entity (1) shall
immediately forfeit all rights granted under this Agreement to such
Investor Entity or other jointly held entity that would not be
transferable with the Shares owned by such Investor Entity or other
jointly held entity, and shall immediately cease to be bound by all of its
obligations under this Agreement that would not be transferred with the
Shares owned by it, in each case as if a transfer of such Shares had
occurred by such Investor Entity or other jointly held entity and (2)
shall immediately forfeit all rights to indemnification under Clause 6.3
of the Stock Purchase Agreement other than in respect of claims for
indemnification that are then pending. Notwithstanding the foregoing, the
provisions
<PAGE>
49
of this Clause 10.9 shall not apply to any transfer of any equity interest
in such Investor Entity or other jointly held entity to any Affiliate.
10.10 (i) Subject to Clause 10.10(ii) below, for so long as Falcon or any of
its Affiliates is a Stockholder, in the event that (a) after the
Funding Date, at least one of Falcon Parent or an Affiliate thereof
is not the Controlling Stockholder of any of Falcon or any Affiliate
of Falcon or Falcon Parent that is then a Stockholder, or (b) equity
interests in Falcon or any Affiliate of Falcon or Falcon Parent that
is then a Stockholder (or in any Stockholder Parent Company of
Falcon or any such Affiliate) are sold or transferred to persons
other than Institutional Investors (or to individuals providing
services as employees and consultants to Falcon or Falcon Parent or
their Affiliates or to an employee plan for their benefit), then (i)
unless all of the equity interests which have been transferred and
give rise to the Call Option set forth in this Clause 10.10 have
been offered according to the procedures set forth in Clause 4 above
(although neither Falcon nor Falcon Parent is required to offer such
equity interests pursuant to such clause, they may elect to do so),
each of the Call Purchaser, the H/C Entities and the Investor
Entities will have a Call Option with respect to all of the Shares
held by Falcon or any Affiliates of Falcon exercisable for six
months following the discovery by the Call Purchaser, the H/C
Entities or the investor Entities of such event and otherwise
according to the procedures set forth in this Clause 10 (except that
(a) the Call Price for purposes of this Clause 10.10 shall
correspond to the calculation of the price of the Shares using the
fair market value of the Company and its Subsidiaries determined
according to Clause 6.3(a) only and including the last paragraph of
Clause 6.3 and (b) any of the Call Purchaser, the H/C Entities or
the Investor Entities may initiate such Call Option by the delivery
of a Call Notice), and (ii) whether or not such equity interests
have been offered in accordance with the procedures in Clause 4
hereof or such Call Option is exercised, Falcon and any of its
Affiliates (1) shall immediately forfeit all rights granted under
this Agreement to Falcon and such Affiliates that would not be
transferable with the Shares owned by Falcon or such Affiliates, and
shall immediately cease to be bound by all of their obligations
under this Agreement that would not be transferred with the Shares
owned by them (including the obligations in connection with the
Falcon Call Option), in each case as if a transfer of such Shares
had occurred by Falcon or such Affiliates and (2) shall immediately
forfeit all rights to indemnification under Clauses 7.3(a) and (b)
of the Old Stock Purchase Agreement and Clause 6.3 of the Stock
Purchase Agreement other than in respect of claims for
indemnification that are then pending, and upon such a forfeiture,
the Shares held by Falcon and such Affiliates shall no longer be
subject to the Falcon Call Option.
<PAGE>
50
(ii) Notwithstanding Clause 10.10(i) above, the other Stockholders
referred to in Clause 10.10(i) above shall not be entitled to the
right provided therein (and neither Falcon nor any of its Affiliates
that are then Stockholders shall forfeit any of the rights referred
to therein) in relation to any of the following sales, transfers or
assignments of equity interests (a) in Falcon or Falcon Parent made
on or before June 5, 1996 (or such earlier date as Falcon provides
the Board with a list of Falcon Parent Investors as provided in
Clause 7.1(i) above) (such date, the "Funding Date"), provided that
any such sale, transfer or assignment is made either to (x) an
Institutional Investor or individuals (or an employee plan for such
individuals) providing services, as employees or consultants, to
Falcon, Falcon Parent or their Affiliates, (y) Falcon Parent, or (z)
any other person, provided that on the Funding Date not more than
25% of the total equity interests in Falcon and in Falcon Parent are
held by persons other than Falcon Parent or Institutional Investors
or the individuals or plans referred to above, (b) in connection
with a Public Offering of interests in Falcon or Falcon Parent,
provided that any Falcon Parent Investor or combination thereof
remains in control of Falcon and/or Falcon Parent, as applicable,
following such Public Offering, (c) in Falcon Parent made after the
Funding Date, provided that on the Funding Date, no more than 25% of
the total equity interests in Falcon Parent are owned by persons
other than Institutional Investors or the individuals or plans
referred to above and on such date Falcon Parent is not a
Stockholder Parent Company of Falcon, (d) in Falcon or a Stockholder
Parent Company of Falcon provided that following such transfer or
assignment not more than 25% of the total equity interests in Falcon
or such Stockholder Parent Company are held by persons other than
Falcon Parent (or an Affiliate thereof), Institutional Investors or
the individuals or plans referred to above, or (e) in any of Falcon,
any of Falcon's Affiliates or any Stockholder in which Falcon or any
of its Affiliates holds any equity, to any Affiliate.
10.11 In the event that any sale or transfer described in Clauses 4.1(ii) or
(iii) occurs in violation thereof, each of the Stockholders, other than
the Stockholder which violated such Clauses and its Affiliates which are
then Stockholders, will have a Call Option with respect to all of the
Shares held by the violating Stockholder and its Affiliates which are then
Stockholders, exercisable for six months following the discovery by the
other Stockholders of such event and otherwise in accordance with the
procedures set forth in this Clause 10 (except that (a) the Call Price for
purposes of this Clause 10.11 shall correspond to the calculation of the
price of the Shares using the fair market value of the Company and its
Subsidiaries as determined according to Clause 6.3(a) only and including
the last paragraph of Clause 6.3 and (b) any of the Stockholders who are
granted such Call Option may initiate such Call Option by the delivery of
a Call Notice), and (ii) whether or not such Call Option is exercised,
upon such violation the violating Stockholder and its Affiliates which are
then Stockholders (1) shall immediately forfeit all rights granted under
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51
this Agreement to the violating Stockholder and such Affiliates that would
not be transferable with the Shares owned by the violating Stockholder or
such Affiliates, and shall immediately cease to be bound by all of their
obligations under this Agreement that would not be transferred with the
Shares owned by them, in each case as if a transfer of such Shares had
occurred by the violating Stockholder or such Affiliates and (2) shall
immediately forfeit all rights to indemnification under Clauses 7.3(a) and
(b) of the Old Stock Purchase Agreement and Clause 6.3 of the Stock
Purchase Agreement other than in respect of claims for indemnification
that are then pending.
10.12 In the event that Mr. Civita ceases to be the Controlling Stockholder of
any of his Affiliates which are then Abrilcap and such Affiliates shall
Stockholders, then immediately forfeit all rights granted under this
Agreement to Abrilcap and its Affiliates that would not be transferable
with the Shares owned by Abrilcap or such Affiliates if a transfer of such
Shares had occurred by Abrilcap or such Affiliates; provided that in the
event of Mr. Civita's death, there shall be no such forfeiture of rights
unless and until the individuals listed in the definition of Affiliates
herein (together with Mr. Civita's estate) cease, directly or indirectly,
to hold more than: (1) 50% of the voting Shares of the Company and (2)
31.258% of the Company's total capital stock, whether voting or nonvoting.
10.13 Notwithstanding the other provisions of this Clause 10, neither of the
Call Options may be exercised at any time after an HC Put Notice or a
Falcon Put Notice has been given until either (i) the corresponding HC Put
Option, Falcon Time Put Option or Falcon Event Put Option has been
exercised (and in the event of exercise, the Call Option shall be
terminated) or (ii) the exercise period for such option terminates without
such option being exercised.
Clause 11. THE COMPANY'S BOARD OF DIRECTORS
11.1 The Board shall be composed of 11 (eleven) effective members and 11
(eleven) alternate members.
(i) Harpia and Curupira acting together shall be entitled to appoint one
effective member and his respective alternate member of the Board so
long as Harpia, Curupira or any of their Affiliates, jointly hold at
least 5% (five percent) of the issued and outstanding voting Shares
of the Company.
(ii) Falcon shall be entitled to appoint two of the effective members and
two of the alternate members of the Board so long as it (considered
together with its Affiliates) holds at least 13% (thirteen percent)
of the issued and outstanding voting Shares of the Company, and (1)
one effective member and (1) one alternate member of the Board if
the percentage of such shares held by Falcon (considered together
with its Affiliates), is less than 13%
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52
(thirteen percent) but at least 6% (six percent) of the issued and
outstanding voting Shares.
(iii) Mr. Civita and Abrilcap acting together shall be entitled to appoint
five of the effective members and five of the alternate members of
the Board so long as they and their Affiliates jointly hold a
majority of the issued and outstanding voting Shares of the Company.
(iv) The Investor Entities acting together shall be entitled to appoint
two of the effective members and two of the alternate members of the
Board so long as they (considered together with their Affiliates)
jointly hold at least 13% (thirteen percent) of the issued and
outstanding voting Shares of the Company, and one effective member
and one alternate member of the Board if the percentage of such
shares jointly held by the Investor Entities (considered together
with their Affiliates) is less than 13% (thirteen percent) but at
least 6% (six percent) of the issued and outstanding voting Shares
of the Company.
(v) One of the effective members and one of the alternate members of the
Board shall at all times be independent of each of the Stockholders.
For so long as they and their Affiliates jointly hold a majority of
the voting Shares of the Company, Mr. Civita and Abrilcap acting
together shall be entitled to nominate such member(s), who shall be
subject to the approval of each of the other Stockholders that then
are entitled to appoint a director in its own right.
(vi) In the event that Harpia and Curupira (considered together with
their Affiliates) lose their right to appoint an effective and an
alternate member of the Board due to a decrease in the percentage of
Shares they hold, or either Falcon (considered together with its
Affiliates) or the Investor Entities (considered together with their
Affiliates) loses the right to elect one or two effective and
alternate members of the Board due to a decrease in the percentage
of Shares held by either of them, or Mr. Civita and Abrilcap
(considered together with their Affiliates) lose their right to
appoint five effective and alternate members of the Board due to a
decrease in the percentage of Shares they (considered together with
their Affiliates) hold, then such members shall be required promptly
to resign and thereafter such member or members of the Board shall
be elected by the Stockholders at a general meeting.
(vii) The foregoing rights with respect to appointment, nomination and
approval of members of the Board are personal to Harpia and
Curupira, Falcon, the Investor Entities, Mr. Civita and Abrilcap and
their respective Affiliates that are from time to time Stockholders,
and may not be transferred under any circumstances to third parties.
<PAGE>
53
11.2 The Stockholders undertake to exercise their voting rights so that such
effective members and alternates are elected in accordance with Clause
11.1 above.
11.3 The Stockholders hereby undertake to use their best efforts so that the
effective members appointed by them or their respective alternate members
are present at all meetings of the Board and the boards of directors of
any of its Subsidiaries. In the event of absence or impediment of any of
the effective members, such member shall be mandatorily substituted by his
alternate member who shall vote on behalf of the effective member as if he
was present at the meeting.
11.4 In the event of resignation or permanent impediment of any member during
the term of office to which he was elected, his substitute shall, subject
to Clause 11.1(vi) above, be appointed by the Stockholders that had
appointed the replaced member.
11.5 In accordance with the requirements of Brazilian law, each Stockholder
shall assign and transfer one Share of which it is the owner to each
effective and each alternate member appointed by it pursuant to this
Clause 11.5. The Shares assigned to the members of the Board shall be
considered, for the purposes hereof, as the property of the Stockholder
which had assigned them. Each Stockholder agrees to obtain or has obtained
from each Board member appointed by it the full power to exercise the
voting right attached to such assigned Shares, as well as the power to
transfer such Shares to itself in the event that the assigned member
ceases, for any reason, to be a Board member.
11.6 The term of office of the members of the Board shall be 2 (two) years, and
the term of each director shall be automatically extended until his duly
elected successor takes office. Indefinite re-election of directors shall
be permitted subject to the provisions of the Company's By-Laws.
Clause 12. RESOLUTIONS OF THE BOARD OF DIRECTORS AND STOCKHOLDERS
12.1 All resolutions of the Board shall be taken by the quorums and majorities
required by Brazilian law, except for the additional requirements
specified herein. For so long as Harpia, Curupira and their Affiliates
(considered together) are entitled to appoint at least one member of the
Board in accordance with the provisions of Clause 11.1 above, the
following matters shall require, for their approval, the affirmative vote
of such member; for so long as Falcon and its Affiliates (considered
together) are entitled to appoint at least one member of the Board in
accordance with the provisions of Clause 11.1 above, the following matters
shall require, for their approval, the affirmative vote of such member;
and for so long as the Investor Entities and their Affiliates (considered
together) are entitled to appoint at least one member of the Board in
accordance with the provisions of Clause 11.1 above, the following matters
shall require, for their approval, the affirmative vote of such member; in
each case, such
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54
member by himself or represented pursuant to Article 14 of the Company's
By-Laws, except that, in each case, the matters set forth in clause (vii)
below shall require for their approval the vote set forth in that clause:
(i) the acquisition or subscription by the Company or any Subsidiary
thereof of an ownership interest in other companies (except for
those acquired or subscribed in non-permanent character according to
ordinary cash management practices);
(ii) any acquisitions or dispositions of or liens, charges or
encumbrances on equity in other companies, and any acquisitions or
dispositions of, or liens, charges or encumbrances on, real
properties, equipment, trademarks, patents, licenses and franchises
or other similar assets and rights, except for: (a) acquisitions,
dispositions, liens, charges or encumbrances in the ordinary course
of business of the Company and its Subsidiaries, (b) acquisitions
outside the ordinary course of the business of the Company and its
Subsidiaries aggregating less than US$500,000 (or the Reais
Equivalent thereof) in any calendar year, (c) dispositions outside
the ordinary course of the business of the Company and its
Subsidiaries aggregating less than US$500,000 (or the Reais
Equivalent thereof) in any calendar year and (d) liens, charges and
encumbrances outside the ordinary course of the business of the
Company and its Subsidiaries aggregating less than US$500,000 (or
the Reais Equivalent thereof) in any calendar year;
(iii) the incurrence of any indebtedness of the Company or any Subsidiary
thereof, or the guarantee of any indebtedness of any other person or
entity, with a maturity of less than 365 days but in excess of the
Reais Equivalent to US$1,000,000 outstanding aggregate amount for
all such indebtedness;
(iv) the incurrence of any indebtedness of the Company or any Subsidiary
thereof or the guarantee of any indebtedness of any other person or
entity, with a maturity equal to or longer than 365 (three hundred
sixty-five) days, except trade indebtedness incurred in the ordinary
course of the business of the Company and its Subsidiaries in a
single transaction or series of related transactions with an
aggregate value of less than US$500,000;
(v) the making of loans or advance payments by the Company or any
Subsidiary thereof (but not including loans or advances made by the
Company to its Subsidiaries, by its Subsidiaries to the Company or
between Subsidiaries of the Company) except for loans or advances to
members of the Board, officers or employees in the ordinary course
of the business of the Company and its Subsidiaries;
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55
(vi) the issuance by the Company or any Subsidiary thereof of
non-financial guarantees of any nature, except non-financial
guarantees totaling, singly or in the aggregate, the Reais
Equivalent to US$100,000 or less;
(vii) any transactions or agreements, or modifications or termination of,
or waivers of rights or defaults under existing agreements, between
the Company or any Subsidiary of the Company on the one hand, and
any Stockholder or Affiliate of such Stockholder on the other hand,
unless a majority of the members of the Company's Board of
Directors, exclusive of the independent director referred to in
Clause 11.1(v) (but only in the case of a transaction involving Mr.
Civita, Abrilcap or their Affiliates other than the Company and its
Subsidiaries) and any directors appointed by the Stockholder who has
a direct or indirect interest in such action, determines that such
action is on an arms-length basis and on terms that would be
obtained with an independent third party; and
(viii) any modification or termination of the Services Agreement and any
waiver of rights or waiver of any default thereunder.
12.2 The Stockholders, by a majority vote, subject to the voting rights of
Falcon and the Investor Entities or their Affiliates set forth below,
shall approve the annual Business Plans for the Company and its
Subsidiaries collectively no later than 30 (thirty) days prior to the end
of each prior fiscal year; provided that with respect to the Business Plan
for the Company and its Subsidiaries for 1996, such Business Plan shall be
presented to the Stockholders no later than December 15, 1995 and approved
no later than January 31, 1996. Business Plans shall include the annual
budget for the Company for the fiscal year in question. The Company hereby
agrees to conduct its business at all times in accordance with its
Business Plan then in effect. For so long as the Investor Entities
(together with their Affiliates) maintain no less than 8% (eight percent)
of the issued and outstanding voting Shares, resolutions of the
Stockholders approving Business Plans may be approved by the Stockholders
only with the affirmative vote of the Investor Entities or their
Affiliates who hold Shares from time to time. For so long as Falcon
(together with its Affiliates) maintains no less than 8% (eight percent)
of the issued and outstanding voting Shares, resolutions of the
Stockholders approving Business Plans may be approved by the Stockholders
only with the affirmative vote of Falcon or its Affiliates who hold Shares
from time to time.
(i) In the event that the Stockholders are unable to approve an annual
Business Plan for any fiscal year, for any reason whatsoever, the
Business Plan for such year shall be the same as the Business Plan
for the prior year, except that the budget for each operating
expense item in the Business Plan of such prior year shall be
increased by 10% (ten percent); provided, that (x) until such time
as the Stockholders approve the Business Plan for 1996, or (y) in
the event the Stockholders are unable to approve the Business Plan
for
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56
1996, the Business Plan for 1996 shall be the same as the draft
Business Plan for 1996 as circulated to the Stockholders.
(ii) Amendments or modifications to Business Plans may be approved by the
Stockholders. For so long as the Investor Entities (together with
their Affiliates) maintain no less than 8% (eight percent) of the
issued and outstanding voting Shares, resolutions of the
Stockholders approving amendments or modifications to Business
Plans, including approval of unbudgeted capital expenditures, may be
approved by the Stockholders only with the affirmative vote of the
Investor Entities or their Affiliates who hold Shares from time to
time. For so long as Falcon (together with its Affiliates) maintains
no less than 8% (eight percent) of the issued and outstanding voting
Shares, resolutions of the Stockholders approving amendments or
modifications to Business Plans, including approval of unbudgeted
capital expenditures, may be approved by the Stockholders only with
the affirmative vote of Falcon or its Affiliates who hold Shares
from time to time.
(iii) The Business Plan of the Company for the calendar year 1995 in
effect at the Closing shall be considered approved by the
Investor Entities and Falcon and may be amended only in
accordance with the terms of sub-part (ii) above.
(iv) Transferees of Shares of the Investor Entities and/or their
Affiliates shall, provided the transfers of Shares are accomplished
in compliance with the terms of this Agreement, acquire the rights
of the Investor Entities and their Affiliates as set out in this
Clause 12.2 provided such transferees (together with their
Affiliates) acquire, from time to time, no less than 8% (eight
percent) of the issued and outstanding voting Shares of the Company;
and such transferees shall maintain such rights under this Clause
12.2 for so long as such transferees maintain no less than 8% (eight
percent) of the issued and outstanding voting Shares of the Company.
Transferees of Shares of Falcon and/or its Affiliates shall not
acquire the rights of Falcon and its Affiliates as set out in this
Clause 12.2.
12.3 (i) [INVESTOR ENTITIES ALONE] For so long as the Investor Entities'
holdings (together with their Affiliates) aggregate at least 8% (eight
percent) of the issued and outstanding voting Shares:
(a) the Company and its Subsidiaries may enter into, modify or amend
contracts involving rights and/or obligations in excess of the Reais
Equivalent of US$1,000,000 only after such contract, amendment or
modification has been approved by the Investor Entities or their
Affiliates;
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57
(b) Any purchaser of Shares or Subscription Rights proposed by Falcon,
the Investor Entities, Abrilcap or an Affiliate of any of them
pursuant to Clause 4.2(v) or 5.2(i) above shall only be approved if
such proposed purchaser has been approved by the Board with the
affirmative vote of at least one member appointed by the Investor
Entities or their Affiliates, by himself or represented pursuant to
Article 14 of the Company's By-Laws; provided that such approval by
a member appointed by the Investor Entities shall only be withheld
if the proposed purchaser (1) is of undesirable character, (2) lacks
financial capacity, (3) competes with the Company or its
Subsidiaries in Brazil or (4) the nature of the purchaser would
provoke a change of the business practices of the Company; and
(c) Neither the Company nor any of its Subsidiaries may introduce any
new programming service, or make any material decision concerning
relevant characteristics of an existing programming service,
particularly in its overall format or content without approval of
such introduction or decision by the Board with the affirmative vote
of at least one member appointed by the Investor Entities or their
Affiliates, by himself or represented Pursuant to Article 14 of the
Company's By-Laws; provided that the refusal of such a member to
vote affirmatively may not be and shall not be exercised to block
programming competitive to that of the Investor Entities, Hearst,
CCABC or their respective Subsidiaries or to require selection of
programming of the Investor Entities or any of their Affiliates, and
provided further that when such a member refuses to vote
affirmatively, a reason shall be given for such refusal.
Transferees of Shares of the Investor Entities and/or their Affiliates, shall,
provided the transfers of Shares are accomplished in compliance with the terms
of this Agreement, acquire the rights of the Investor Entities and their
Affiliates as set out in Clause 12.3(i)(a), provided such transferees (together
with their Affiliates) acquire, from time to time, no less than 8% (eight
percent) of the voting Shares of the Company, and such transferees shall
maintain such rights under Clause 12.3(i)(a) for so long as such transferees
maintain no less than 8% (eight percent) of the voting Shares of the Company.
Transferees of Shares of the Investor Entities and/or their Affiliates shall not
acquire the rights of the Investor Entities and their Affiliates as set out in
Clauses 12.3(i)(b) and (c).
(ii) [FALCON ALONE] For so long as Falcon's holdings (together with its
Affiliates) aggregate at least 8% (eight percent) of the issued and
outstanding voting stock of the Company:
(a) the Company and its Subsidiaries may enter into, modify or amend
contracts involving rights and/or obligations in excess of the Reais
Equivalent of US$1,000,000 only after such contract, amendment or
modification has been approved by Falcon or its Affiliates who hold
Shares from time to time; and
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58
(b) Any purchaser of Shares or Subscription Rights proposed by Falcon,
the Investor Entities, Abrilcap or an Affiliate of any of them
pursuant to Clause 4.2(v) or 5.2(i) above shall only be approved if
such proposed purchaser has been approved by the Board with the
affirmative vote of at least one member appointed by Falcon or its
Affiliates who hold Shares from time to time, by himself or
represented pursuant to Article 14 of the Company's By- Laws;
provided that such approval shall only be withheld if the proposed
purchaser (1) is of undesirable character, (2) lacks financial
capacity, (3) competes with the Company or its Subsidiaries in
Brazil or (4) the nature of the purchaser would provoke a change of
the business practices of the Company.
Transferees of Shares of Falcon and/or its Affiliates shall not acquire
the rights of Falcon and its Affiliates as set out in this Clause
12.3(ii).
(iii) [INVESTOR ENTITIES/FALCON/HC ENTITIES] For so long as each of the
Investor Entities, considered together, Falcon, and the HC Entities,
considered together (and their respective Affiliates) (each referred
to as a "Shareholder Group") owns at least 8% of the issued and
outstanding voting Shares of the Company, the following matters
shall require the affirmative vote of at least two of the
Shareholder Groups, and if there are two or fewer Shareholder Groups
each owning at least 8% of the issued and outstanding voting Shares
of the Company, then such matters shall require the affirmative vote
of each such Shareholder Group other than the HC Entities
Shareholder Group:
(a) the settlement or initiation of any litigation or
administrative proceeding involving an amount in excess of the
Reais Equivalent of $500,000 (five hundred thousand dollars)
or where the result could have a material adverse affect on
the business and operation of the Company;
(b) the hiring, renewal, or termination of the Chief Executive
Officer, Chief Operating Officer and Chief Financial Officer
of the Company (including setting compensation for such
officers); and
(c) any amendment to or waiver of the dividend policy set forth in
Clause 16.4 hereof.
Transferees of Shares of a Shareholder Group shall, provided the transfers
of Shares are accomplished in compliance with the terms of this Agreement,
acquire the rights of such Shareholder Group as set out in Clause
12.3(iii)(c), provided such transferees (together with their Affiliates)
acquire, from time to time, no less than 8% (eight percent) of the voting
Shares of the Company, and such transferees shall
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59
maintain such rights under Clause 12.3(iii)(c) for so long as such
transferees maintain no less than 8% (eight percent) of the voting Shares
of the Company. Transferees of Shares of a Shareholder Group shall not
acquire the rights of such Shareholder Group as set out in Clauses
12.3(iii)(a) and (b).
12.4 The Shareholder Group(s) which own at least 8% of the issued and
outstanding voting Shares of the Company, acting unanimously, may require
the Company to draw funds under the Abril Credit Agreement in the amount
so requested by such Shareholder Group(s), for purposes of funding
customary business operations of the Company and/or capital expenditures
of the Company as contemplated by the Business Plan, subject to the terms
of the Abril Credit Agreement.
Clause 13. GENERAL MEETING RESOLUTIONS
13.1 Resolutions of the Stockholders taken at General Meetings shall be taken
by the quorum and majorities required by Brazilian law, with the exception
of the following actions, which actions may not be taken by the Company
without the approval of (i) Harpia, Curupira and their Affiliates for so
long as their holdings aggregate at least 8% (eight percent) of the issued
and outstanding voting Shares; (ii) the Investor Entities and their
Affiliates, for so long as its or their holdings aggregate at least 8%
(eight percent) of the issued and outstanding voting Shares; and (iii)
Falcon and its Affiliates, for so long as its or their holdings aggregate
at least 8% (eight percent) of the issued and outstanding voting Shares:
(i) any restructuring, corporate reorganization, merger, consolidation,
amalgamation, spin-off, liquidation, dissolution, stock split,
division, combination or consolidation of assets of the Company or
its Subsidiaries;
(ii) the commencement of any public offering of Shares of the Company,
other than a public offering of Shares of the Company by one or more
Stockholders pursuant to Clause 18.1 below, or any issuance or
resale by the Company or its Subsidiaries of any Share Equivalents
or securities, including but without limitation, debentures,
warrants, founders' shares, options to buy or subscribe for shares
and other similar rights other than the Special Preferred Shares in
connection with a Put Postponement, provided that if the Company
proposes to effect any of the foregoing on commercially reasonable
terms for purposes of satisfying its indemnification obligations to
the Stockholders under the Old Stock Purchase Agreement or the Stock
Purchase Agreement after the Company has determined acting in a
commercially reasonable manner that it is not able to satisfy such
obligations through borrowings available to the Company on
commercially reasonable terms, and such registration would not
prejudice the Stockholders' rights under this Agreement or the
rights to indemnification under the Stock Purchase Agreement or the
Old Stock Purchase Agreement
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60
or the rights of Harpia, Curupira or any of their Affiliates or
transferees under the Option Agreement, the Stockholders will not
unreasonably withhold their consent thereto;
(iii) any purchase or redemption by the Company or its Subsidiaries of
Shares except as provided by the HC Put Option, the Investor Put
Option, the Falcon Event Put Option or the Falcon Time Put Option;
(iv) any change in the business conducted by the Company or its
Subsidiaries from the Business;
(v) amendment of the By-Laws of the Company or its Subsidiaries as in
force on the date of this Agreement; and
(vi) establishment of any business or Subsidiary in the United States of
America.
13.2 Transferees of Shares of Harpia, Curupira and/or their Affiliates shall,
provided the transfers of Shares are accomplished in compliance with the
terms of this Agreement, acquire the rights of Harpia, Curupira and their
Affiliates as set out in Clause 13.1 above provided such transferees
(together with their Affiliates) acquire, from time to time, no less than
8% (eight percent) of the voting Shares of the Company; and such
transferees shall maintain such rights under Clause 13.1 above for so long
as such transferees maintain no less than 8% (eight percent) of the voting
Shares of the Company.
13.3 Transferees of Shares of the Investor Entities and/or their Affiliates
shall, provided the transfers of Shares are accomplished in compliance
with the terms of this Agreement, acquire the rights of the Investor
Entities and their Affiliates as set out in Clause 13.1 above provided
such transferees (together with their Affiliates) acquire, from time to
time, no less than 8% (eight percent) of the voting Shares of the Company;
and such transferees shall maintain such rights under Clause 13.1 above
for so long as such transferees maintain no less than 8% (eight percent)
of the voting Shares of the Company.
13.4 Transferees of Shares of Falcon and/or its Affiliates shall, provided the
transfers of Shares are accomplished in compliance with the terms of this
Agreement, acquire the rights of Falcon and its Affiliates as set out in
Clause 13.1 above provided such transferees (together with their
Affiliates) acquire, from time to time, no less than 8% (eight percent) of
the voting Shares of the Company; and such transferees shall maintain such
rights under Clause 13.1 above for so long as such transferees maintain no
less than 8% (eight percent) of the voting Shares of the Company.
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61
Clause 14. RIGHT TO ATTENDANCE, TO INFORMATION AND TO INSPECTION
14.1 The Stockholders shall have attendance rights at meetings of the Board and
General Meetings of the Company and of its Subsidiaries. The Company
agrees promptly to review the constitutive documents of each of the
Subsidiaries and to cause them to be changed, as necessary, to conform to
the provisions of Clauses 12 and 13 above. Without prejudice to
formalities set forth by law and in the Company's By-Laws, the Company's
General Meetings and meetings of the Board shall be called upon written
notice (unless waived in writing) sent to each Stockholder at least 10
(ten) Business Days in advance, which shall (unless waived in writing)
include the matters to be discussed. Resolutions taken in connection with
matters not expressly referred to in the notice calling such meeting shall
not be valid. Regardless of the formalities provided for in this Clause
14.1, the General Meeting and the meeting at which all the Stockholders
and Board members, respectively, are present shall be considered regular.
14.2 The Company shall give and send the following information and documents
relating to the Company and its Subsidiaries to (i) Harpia, Curupira and
their Affiliates, so long as Harpia, Curupira and their Affiliates have,
collectively, 5% (five percent) of the issued and outstanding voting
Shares, (ii) the Investor Entities and their Affiliates, so long as the
Investor Entities and their Affiliates hold 6% (six percent) of the voting
Shares, and (iii) Falcon and its Affiliates, so long as Falcon and its
Affiliates hold 6% (six percent) of the issued and outstanding voting
Shares (provided that if either Harpia, Curupira or any Affiliate thereof,
the Investor Entities or any Affiliate thereof or Falcon or any Affiliates
thereof holds any Shares, the Company shall give and send items (i), (ii)
and (iii) below to such Stockholder):
(i) English and Portuguese versions of quarterly unaudited financial
statements prepared in accordance with (a) U.S. GAAP applied
consistently with the past practice of the Company and (b) generally
accepted accounting principles in Brazil ("Brazilian GAAP")
consistently applied with the past practice of the Company and
annual audited U.S. GAAP financial statements and audited Brazilian
GAAP financial statements, in each case consistently applied with
the past practice of the Company;
(ii) copies of all representations, applications and reports, if any,
filed with any stock exchange or securities and exchange commission;
(iii) copies of all financial statements, reports, vote representations
and other communications delivered to any Stockholder of the Company
and/or its Subsidiaries, other than those identified in clause (iv)
below;
(iv) monthly management reports comparing actual results to budget, which
shall include English and Portuguese versions of monthly unaudited
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62
financial statements prepared in accordance with (a) U.S. GAAP
applied consistently with the past practice of the Company and (b)
Brazilian GAAP consistently applied with the past practice of the
Company;
(v) English and Portuguese versions of budgets, forecasts, segment or
product reports or other information reports prepared by or for
managers of the Company or of its Subsidiaries, including ten-year
projections to be delivered not later than January 31 of each year,
in each case expressed in U.S. Dollars;
(vi) copies of the minutes of all general meetings of Stockholders,
meetings of the Board and of the Board of Officers of the Company
and its Subsidiaries;
(vii) copies of all information relating to legal matters from which
potential liabilities outside the ordinary course of the business of
the Company and its Subsidiaries may result to the Company or to its
Subsidiaries;
(viii) copies of all information relating to regulatory matters which may
affect the licenses, permits, operations or Business of the Company
and its Subsidiaries;
(ix) copies of all information relating to technical and operational
matters that may have a material adverse effect on the business
condition (financial or otherwise), operations, prospects,
properties, assets or liabilities of the Company and its
Subsidiaries; (x) copies of all information relating to the
insurance coverage of the Company and its Subsidiaries;
(xi) copies of all information relating to the Company's Subsidiaries and
which are sent to members of the Board of Directors of such
Subsidiaries; and
(xii) such other information as Harpia, Curupira, the Investor Entities or
Falcon may reasonably request.
Such information rights are personal to Harpia and Curupira, the Investor
Entities and Falcon, and their respective Affiliates that are from time to
time Stockholders, and shall not be transferred in any case to third
parties, except in the case of the right to receive items (i), (ii) and
(iii), which shall be transferable provided the transferees (together with
their Affiliates) (a) of Harpia and Curupira and their Affiliates acquire,
from time to time, and continue to hold, no less than 5% (five percent) of
the Company's voting Shares, or (b) of the Investor Entities or Falcon or
their Affiliates acquire, from time to time, and continue to hold, no less
than 6% (six percent) of the Company's voting Shares.
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In the event Harpia or Curupira or any of Harpia's or Curupira's
Affiliates is or becomes a creditor to the Company or to the Company's
Affiliates, Harpia and Curupira and their respective Affiliates shall be
entitled to exchange information available to them as the Company's
Stockholder with the corresponding credit areas, notwithstanding any
contrary provision determining confidentiality obligations herein or in
other documents.
14.3 The Company shall, upon reasonable notice during normal business hours,
permit each Stockholder and its agents, including counsel, to inspect its
properties, examine its books and records and to discuss with management
the business and affairs of the Company and its Subsidiaries.
Clause 15. ADVISORY BOARD
15.1 In addition to the Board, the Company shall have an Advisory Board
(Conselho Consultivo). The Advisory Board shall advise the Stockholders
and the Board with respect to the business of the Company, in accordance
with applicable laws, the Company's By-laws and this Agreement.
15.2 The Advisory Board shall consist of 11 (eleven) members, who may, but need
not be, residents of Brazil, and who may, but need not be, Stockholders.
15.3 The Stockholders shall elect the members of the Advisory Board at a
general meeting of stockholders. The Stockholders undertake to exercise
their voting rights in favor of the effective members and alternates
nominated in accordance with the terms of Clause 11.1 above.
15.4 The term of office of the members of the Advisory Board shall be 2 (two)
years, and in respect of each member shall be automatically extended until
his duly elected successor takes office. Indefinite re-election of members
of the Advisory Board shall be permitted.
15.5 The Advisory Board shall maintain a Book of Minutes to record its
deliberations.
15.6 Each member of the Advisory Board may have an alternate, who shall be
elected in the same manner as the principal member. The alternates shall
substitute their respective principal members in the absence or incapacity
of the principal member. If there is a vacancy in the Advisory Board for
which no alternate has been elected, the Stockholders shall elect a new
member within 30 (thirty) days after the vacancy; and the Stockholder who
appointed and elected the member to be replaced shall appoint the new
member.
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15.7 The Stockholders shall cause the Company to pay for or reimburse, as the
case may be, the members of the Advisory Board (or their respective
alternates) for all reasonable travel and accommodation expenses they
incur in order to convene.
15.8 The Advisory Board shall hold an ordinary meeting at the end of each
period of three months and a special meeting whenever called by any two
members of the Advisory Board by means of a fifteen day prior notice to
all Advisory Board members, which notice period may be waived by consent
of all Advisory Board members, or which consent shall be deemed
automatically waived if all Advisory Board members attend the meeting.
15.9 Any member of the Advisory Board may authorize another member, by letter,
facsimile, telegram or telex, to represent him or her at any meeting of
the Advisory Board, either to constitute a quorum or for the taking of a
vote. Similarly, members may vote by letter, facsimile, telegram or telex
received at the Company's head office by the scheduled time for the
meeting.
15.10 The presence of at least six members, either in person, by proxy, or by
submitting a vote in writing before the meeting shall constitute a quorum
for the holding of a valid meeting of the Advisory Board.
15.11 The Advisory Board shall be consulted on any such matters as the Board or
the Stockholders may refer to the Advisory Board. The Board may not
delegate to the Advisory Board any of the Board's authority to make any
decision on behalf of the Company.
15.12 Resolutions of the Advisory Board shall require the affirmative vote of at
least six of its Members.
Clause 16. STOCKHOLDERS' AND THE COMPANY'S OTHER COVENANTS
16.1 The Stockholders undertake to cause the Company and its Subsidiaries, and
the Company undertakes for itself and its Subsidiaries to:
(i) retain as their regular auditors an independent auditing company
which is internationally renowned for expertise in international
transactions and commercial/corporate relationships, is able to
render services both in Portuguese and English language, and is able
to reconcile Brazilian GAAP with U.S. GAAP;
(ii) retain as their regular legal counsel an independent law firm which
is internationally renowned for expertise in international
transactions and commercial/corporate relationships, and is able to
render services both in the Portuguese and English languages; and
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(iii) hold stockholders meetings at least annually.
16.2 (i) In the event that the independent auditors of the Company are to be
changed and the new firm of auditors is not any of the firms listed
in the following sentence (or any successor to any of such firms),
then appointment of the new firm of auditors shall be subject to the
approval of the Investor Entities for so long as the Investor
Entities and their Affiliates collectively hold at least 8% (eight
percent) of the issued and outstanding voting Shares of the Company.
The pre-approved firms of independent auditors are: Coopers &
Lybrand, Price Waterhouse, KPMG-Peat Marwick, Deloitte Touche &
Ross, Arthur Andersen, Ernst & Young, or the respective Brazilian
associated branches thereof. Transferees of Shares of the Investor
Entities and/or their Affiliates who hold at least 8% (eight
percent) of the issued and outstanding voting Shares, shall,
provided the transfers of Shares are accomplished in compliance with
the terms of this Agreement, acquire the rights of the Investor
Entities and their Affiliates as set out in this Clause 16.2(i).
(ii) In the event that the independent auditors of the Company are to be
changed and the new firm of auditors is not any of the firms listed
in the following sentence (or any successor to any of such firms),
then appointment of the new firm of auditors shall be subject to the
approval of Falcon for so long as Falcon and its Affiliates
collectively hold at least 8% (eight percent) of the issued and
outstanding voting Shares of the Company. The pre- approved firms of
independent auditors are: Coopers & Lybrand, Price Waterhouse,
KPMG-Peat Marwick, Deloitte Touche & Ross, Arthur Andersen, Ernst &
Young, or the respective Brazilian associated branches thereof.
16.3 The Stockholders shall use their best efforts, upon the request of Harpia,
Curupira, Falcon or the Investor Entities or any of their Affiliates, to
make such amendments to this Agreement and the By-Laws of the Company as
may be necessary to enable Harpia, Curupira, Falcon, the Investor Entities
or any of their Affiliates to comply with any legal restrictions on its
ownership of stock or rights under this Agreement, or to make such
restrictions less burdensome, provided that the rights of the other
Stockholders are not materially adversely affected by such amendments.
16.4 Unless amended or waived in accordance with Clause 12.3(iii)(c) hereof,
during each calendar year or within 3 (three) months thereafter, the
Company shall, with respect to its operations for such year, and to the
extent it has funds legally available therefor, pay dividends to holders
of its Shares, which dividends shall in the aggregate not be less than the
"net cash flow" of the Company and its Subsidiaries during such year,
provided that there shall first be made a provision for projected cash
requirements of the Company and its Subsidiaries as reflected in the
Business Plan for such fiscal year for the subsequent (12) twelve month
period.
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Notwithstanding the foregoing, the Stockholders agree that, except as
expressly provided in Clauses 9.3 or 9.5 above, the Company shall
distribute not less than 25% (twenty-five percent) of its net consolidated
profits as defined in the Brazilian corporation law.
Clause 17. TAG ALONG RIGHTS
17.1 If Abrilcap or Mr. Civita or any Affiliate of either shall sell, exchange
or otherwise transfer any Shares to a person that is not one of their
Affiliates, by private sale (subject in each case to the provisions of
Clause 4 above), such selling, exchanging or transferring Stockholder
shall give at least 21 (twenty-one) Business Days' prior notice, setting
forth in such notice the same information as would be required in a
Transfer Notice as described in Clause 4.2 above, to Harpia, Curupira,
Falcon, the Investor Entities and the respective Affiliates of each that
are Stockholders, who shall be entitled simultaneously with any sale,
exchange or transfer by such selling, exchanging or transferring
Stockholder to sell, exchange or transfer a ratable portion of their
Shares and require that such third party purchaser acquire or require the
selling, exchanging or transferring Stockholder to acquire such Shares,
all at the same price and on the same other terms; provided, however, that
notwithstanding the foregoing, Stockholders other than the selling,
exchanging or transferring Stockholder and its Affiliates shall not be
required to accept joint and several liability with respect to
representations, warranties or covenants (including indemnification
obligations) of other Stockholders, it being agreed that any agreement
relating to such sale, exchange or transfer shall provide that the
liability of such other Stockholder in connection with such sale, exchange
or transfer shall be several only and shall not in any event exceed either
such Stockholder's pro rata share of any liability or such Stockholder's
proceeds from such sale. Any sale, exchange or transfer shall be made in a
manner that does not discriminate in any adverse manner against other
Stockholders as compared to the selling, exchanging or transferring
Stockholder. Compliance with the provisions of this Clause 17.1 shall be a
condition precedent to a sale of Shares by any Stockholder whose Shares
are subject to this Clause 17.1.
17.2 At any time until July 22, 1998, if the investor Entities or any Affiliate
thereof shall sell, exchange or otherwise transfer any Shares to a person
that is not one of their Affiliates by private sale (subject in each case
to the provisions of Clause 4 above), the Investor Entities and any such
Affiliate shall give at least 21 (twenty-one) Business Days' prior notice,
setting forth in such notice the same information as would be required in
a Transfer Notice as described in Clause 4.2 above, to Harpia and Curupira
and their Affiliates that are Stockholders who shall be entitled
simultaneously with any sale, exchange or transfer by the Investor
Entities or any such Affiliate to sell, exchange or transfer a ratable
portion of their collective Shares and require that such third party
purchaser acquire or require the Investor Entities and/or their Affiliate
to acquire such Shares, all at the same price and on the same
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67
other terms; provided, however, that notwithstanding the foregoing, Harpia
and Curupira and their Affiliates shall not be required to accept joint
and several liability with the Investor Entities and their Affiliates with
respect to representations, warranties or covenants (including
indemnification obligations) of the Investor Entities and their
Affiliates, it being agreed that any agreement relating to such sale,
exchange or transfer shall provide that the liability of Harpia and
Curupira and their Affiliates in connection with such sale, exchange or
transfer shall be several only in relation to the Investor Entities and
their Affiliates and shall not in any event exceed either Harpia's,
Curupira's or their Affiliate's pro rata share of any liability or their
proceeds from such sale. Any sale, exchange or transfer shall be made in a
manner that does not discriminate in any adverse manner against Harpia,
Curupira and/or their Affiliates as compared to the Investor Entities and
their Affiliates. Compliance with the provisions of this Clause 17.2 shall
be a condition precedent to a sale of Shares by any Stockholder whose
Shares are subject to this Clause 17.2.
17.3 At any time until July 22, 1998, if Falcon or any Affiliate thereof shall
sell, exchange or otherwise transfer any Shares to a person that is not
one of their Affiliates by private sale (subject in each case to the
provisions of Clause 4 above), Falcon and any such Affiliate shall give at
least 21 (twenty-one) Business Days' prior notice, setting forth in such
notice the same information as would be required in a Transfer Notice as
described in Clause 4.2 above, to Harpia and Curupira and their affiliates
that are Stockholders who shall be entitled simultaneously with any sale,
exchange or transfer by Falcon or any such Affiliate to sell, exchange or
transfer a ratable portion of their collective Shares and require that
such third party purchaser acquire or require Falcon and/or its Affiliates
to acquire such Shares, all at the same price and on the same other terms;
provided, however, that notwithstanding the foregoing, Harpia and Curupira
and their Affiliates shall not be required to accept joint and several
liability with Falcon and its Affiliates with respect to representations,
warranties or covenants (including indemnification obligations) of Falcon
and its Affiliates, it being agreed that any agreement relating to such
sale, exchange or transfer shall provide that the liability of Harpia and
Curupira and their Affiliates in connection with such sale, exchange or
transfer shall be several only in relation to Falcon and its Affiliates
and shall not in any event exceed either Harpia's, Curupira's or their
Affiliate's pro rata share of any liability or their proceeds from such
sale. Any sale, exchange or transfer shall be made in a manner that does
not discriminate in any adverse manner against Harpia, Curupira and/or
their Affiliates as compared to Falcon and its Affiliates. Compliance with
the provisions of this Clause 17.3 shall be a condition precedent to a
sale of Shares by any Stockholder whose Shares are subject to Clause 17.3.
17.4 The rights set out in Clause 17.1 hereof shall be acquired by transferees
of any Shares of Harpia, Curupira and their Affiliates provided such
transfers of Shares to such transferee are made in accordance with the
provisions of this Agreement. The rights of Harpia, Curupira and their
Affiliates set out in Clauses 17.2 and 17.3 above are personal and shall
not be transferable with such person's Shares. The
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rights set out in Clause 17.1 above shall be acquired by transferees of
Shares of the Investor Entities, Falcon and the Affiliates of any of them
provided such transfers of Shares to such transferee are made in
accordance with the provisions of this Agreement and provided further that
the transferee acquires (together with its Affiliates) at least 4% (four
percent) of the Company's issued and outstanding voting Shares from time
to time. No such third party transferee of Shares from the Investor
Entities, Falcon or the Affiliates of any of them will be subject to tag
along obligations under this Clause 17.
Clause 18. REGISTRATION RIGHTS
18.1 (i) [DEMAND] (a) Subject to the conditions set forth in this
Agreement, at any time after the second anniversary of this Agreement, the
Investor Entities, considered together, the HC Entities, considered
together, or Falcon may request that the Company effect the registration
of any or all of the Shares held by the requesting Stockholder or any of
its Affiliates (the "Subject Shares") in accordance with the terms hereof.
Notwithstanding the foregoing, the Company shall not effect (1) more than
one registration requested by a Stockholder or any of its Affiliates
pursuant to this Clause 18.1 in any 12 month period, (2) more than three
registrations requested by a Stockholder or any of its Affiliates pursuant
to this Clause 18.1 in total, or (3) a registration requested by a
Stockholder pursuant to this Clause 18.1 for less than 50% of the
aggregate Shares held by such Stockholder and its Affiliates with respect
to the initial effective demand registration for such Stockholder and its
Affiliates, or less than the lesser of 4,500,000 Shares or 100% of the
aggregate Shares held by such Stockholder and its Affiliates with respect
to a subsequent request for registration. Such request will specify (x)
the number of Subject Shares proposed to be sold, (y) the jurisdiction in
which the Subject Shares are to be distributed and (z) the intended method
of distribution.
(b) Notwithstanding clause (a) above but subject to clause (c)
below, it is the agreement of the parties that the exercise by a
Stockholder of its rights set forth in clause (a) above and the
registration and/or offering of its Subject Shares will not adversely
impair or invalidate this Stockholders Agreement or the Option Agreement
or any of the rights of the other Stockholders hereunder or thereunder
(other than with respect to the Subject Shares that are registered and
publicly sold, which Subject Shares shall not be entitled to any of the
benefits provided by, or be subject to the obligations imposed by, this
Stockholders Agreement) and, in any case, would not legally prohibit the
exercise of the put rights set forth in this Stockholders Agreement or the
Option Agreement. If any Stockholder asserts in writing to the Company and
the other Stockholders within forty-five (45) days of receipt of a request
pursuant to clause (a) above that the registration and/or offering of the
requesting Stockholder's Subject Shares would have such an effect, then
each of the Stockholders and the Company shall negotiate in good faith and
on an expedited basis to implement a structure and/or amendment to this
Agreement and the
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69
Company which would permit the requesting Stockholder to effect such a
registration and offering without adversely impairing or invalidating this
Stockholders Agreement or the Option Agreement or the rights of the other
Stockholders hereunder or thereunder and, in any case, without legally
prohibiting the exercise of the put rights set forth in this Stockholders
Agreement or the Option Agreement. During such good faith negotiations,
the Company and the Stockholders shall use commercially reasonable efforts
to amend the provisions of this Agreement in order to (i) preserve the put
rights of the Stockholders hereunder and under the Option Agreement
without adverse change and the other rights of the Stockholders hereunder
in substantially the form they exist on the date hereof and (ii) permit
the Company to effect the registration of the requesting Stockholder's
Subject Shares. Without limiting the foregoing, the parties hereto hereby
agree that any amendment to this Agreement to effect the following shall
not adversely impair or invalidate their rights hereunder, which
amendments may include (i) the expansion of the Board to accommodate any
director that the holder of any Subject Share may be entitled to elect
under Brazilian law, provided that (x) such expansion does not impair the
veto and supermajority voting rights granted to the Stockholders hereunder
and (y) after such expansion, if they have maintained their right to
appoint Board members as provided under Clause 11.1(iii) hereof, Mr.
Civita and Abrilcap shall be entitled to appoint such number of members of
the expanded Board such that such members, together with the independent
director nominated by Mr. Civita and Abrilcap, shall constitute a majority
of the members of the Board, and (ii) the elimination of any right of the
Company to purchase Shares pursuant to Clause 4 hereof to the extent such
purchase would not be permitted under Brazilian law for a company with
publicly registered and/or traded shares. If the parties are unable to
agree upon the implementation of such a structure and/or the adoption of
such an amendment pursuant to the standards set forth above, the
requesting Stockholder may conclusively resolve any such dispute in its
favor by (i) obtaining approval from the appropriate regulatory authority
that the existence of this Stockholders Agreement and the Option Agreement
and the rights of the other Stockholders hereunder and thereunder would be
valid and enforceable in all respects after the consummation of the
registration and offering pursuant to the restructuring and/or amendment
hereof agreed to above or (ii) the delivery to the Company and such other
Stockholders of an executed opinion from any of the law firms listed in
Exhibit A hereto, provided that such firm does not, and has not,
represented the requesting Stockholder in connection with its investment
in the Company, other than for purposes of obtaining the opinion
contemplated by this Clause 18.1(i)(b) (or such other law firm as shall be
reasonably acceptable to the parties), in substantially the form attached
hereto as Exhibit B, which opinion shall (x) pursuant to the Terms of
Demand attached thereto, at the time of the delivery of the opinion
accurately describe the proposed terms of the public offering, including
any proposed conversion of capital stock, and (y) be required to be
restated as of and at the time of the public offering of the requesting
Stockholder's Subject Shares on the basis of the offering documents, if
any, in lieu of the Terms of Demand, as a condition to the consummation of
the public offering; provided, however, that if a
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Stockholder is not able to deliver such an opinion with respect to the
registration and offering of Shares, but would be able to deliver such
opinion with respect to the registration and offering of a different class
of capital stock of the Company, upon the request of the Stockholder
exercising its rights pursuant to clause (a) above, the Company (subject
to applicable law) shall be required to convert, effective upon
consummation of the public offering, such number of Shares of such
Stockholder as such Stockholder shall request into an equivalent amount of
such other class of capital stock of the Company, provided that such
conversion may only take place if (A) it would not adversely impair or
invalidate this Stockholders Agreement or the Option Agreement or the
rights of the other Stockholders hereunder or thereunder and, in any case,
would not legally prohibit the exercise of the put rights set forth in
this Stockholders Agreement or the Option Agreement and (B) the rights of
such class would be substantially equivalent to and/or less favorable than
the rights associated with the Shares (such as voting or governance
rights, rights to distributions upon liquidation, preference as to
dividends or otherwise), such that they would simply represent a class
convertible for registration, the other Stockholders shall reasonably
cooperate with respect to such conversion, and for purposes of this Clause
18.1, the shares of such other class of capital stock of the Company held
by the Stockholder shall be deemed to be Subject Shares.
(c) If, pursuant to clause (b) above, a good faith dispute exists
and the requesting Stockholder is not able to obtain the regulatory
approval or opinion described above, the Company shall not effect the
requested registration. Notwithstanding the foregoing, if any of the
Investor Entities or their Affiliates is the requesting Stockholder and in
accordance with the terms of clause (b) above such requesting Stockholder
is able to conclusively resolve after the restructuring and/or amendment
agreed to above are effected (i.e., conclusively resolve by opinion or
ruling as provided in (b) above), that this Stockholders Agreement, the
Option Agreement and the rights of the other Stockholders would only be
impaired or invalidated with respect to the exercise of the HC Put Option,
the Falcon Time Put Option, the Falcon Event Put Option and/or the
Investor Put Option, then such requesting Stockholder shall provide the
Company, the other Stockholders and Abril S.A. with notice to such effect,
the Company shall effect the requested registration and the Company shall
be relieved from its obligations set forth in this Stockholders Agreement
with respect to the HC Put Option, the Falcon Time Put Option, the Falcon
Event Put Option and/or the Investor Put Option, as applicable, so long as
the Abril Agreement is at that time valid and enforceable.
(ii) [FILING; EFFECTIVENESS] (a) Upon receipt of a request as
contemplated in the preceding paragraph, the Company and the requesting
Stockholder shall consult with the other Stockholders for a period of 45
days regarding the proposed registration of the Subject Shares. Unless the
requesting Stockholder specifies in writing otherwise, upon the conclusion
of such consultation period, but subject to Clause 18.1(b) above, the
Company shall use its best efforts to effect such a registration as soon
as practicable and in any event shall file within 90
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71
days of the conclusion of such consultation period (the "Target Filing
Date") a registration statement (the "Demand Registration Statement")
under the securities laws of the jurisdiction(s) designated by the
requesting Stockholder and on the form designated by the requesting
Stockholder covering the Subject Shares and use its best efforts to (1)
cause such Demand Registration Statement to be declared effective by the
U.S. Securities and Exchange Commission (the "Commission") and under such
other securities or blue sky laws of such jurisdictions in the United
States as the requesting Stockholder may reasonably request (provided that
the Company shall not be required to qualify generally to do business in
any such jurisdiction where it would not otherwise be required to qualify,
subject itself to taxation in any such jurisdiction or consent to general
service of process in any such jurisdiction), if registration is sought in
the United States, or the analogous governmental agencies and/or
securities market authorities of the relevant jurisdiction, if
registration is sought outside the United States, for such Subject Shares
as soon as practicable thereafter and in any event within 60 days of
filing such Demand Registration Statement (the "Target Effective Date")
and (2) keep the Demand Registration Statement continuously effective
until the date on which the requesting Stockholder no longer holds any
Shares registered under the Demand Registration Statement (such period,
the "Target Effective Period"). If a Stockholder requests a registration
to be made at the same time for the same number of Subject Shares in more
than one jurisdiction, such request shall be treated as one registration
for purposes of Clauses 18.1(i)(a)(1) and (2). Notwithstanding the
foregoing, (x) if the Company shall furnish to the Stockholder a
certificate signed by its Chairman or President stating that in his good
faith judgment it would be detrimental or otherwise disadvantageous to the
Company or its Stockholders for such a Demand Registration Statement to be
filed as expeditiously as practicable, the Company shall have a period of
not more than 90 days after delivery of such a certificate within which to
file such Demand Registration Statement, and (y) the Company shall not be
obligated to file a registration statement pursuant to this Clause 18.1
during the 90 day period following the effectiveness of any registration
statement filed by the Company in connection with an underwritten primary
offering of its securities. If the managing underwriter selected by the
requesting Stockholder (or by the Company in accordance with the terms of
Clause 18.1(iv) below) determines (upon request of the Company or any
Stockholder) that any of the provisions of this Clause 18.1(ii) are not
customary in transactions of this nature (including the time periods set
forth in this Clause 18.1(ii)(a) being unreasonably long or short), then
such provisions shall be modified in accordance with the determination of
such managing underwriter.
(b) The Company agrees, if necessary, to supplement or amend the
Demand Registration Statement, as required by the registration form used
by the Company for such Demand Registration Statement or by applicable
securities laws and regulations or as requested (which request shall
result in the filing of a supplement or amendment) by the requesting
Stockholder (but only to the extent that such request relates to
information with respect to the requesting Stockholder), and
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the Company agrees to furnish to the requesting Stockholder, its counsel
and any managing underwriter, such number of copies of the Demand
Registration Statement and any such supplement(s) or amendment(s) thereto
(in each case including all exhibits thereto and documents incorporated by
reference therein) and the prospectus included therein as the requesting
Stockholder or its underwriter(s) may reasonably request prior to the use
or filing of the same with the Commission or analogous governmental agency
and/or securities market authorities and during the period in which the
Company is required to cause the Demand Registration Statement to remain
effective. The requesting Stockholder shall be permitted to withdraw all
or any part of the Subject Shares from a Demand Registration Statement at
any time prior to the effective date of such Demand Registration Statement
(regardless of whether one or more Stockholders have elected to exercise
their "piggyback" registration rights pursuant to Clause 18.2 below, and
if all of the Subject Shares are so withdrawn, such registration shall be
terminated with respect to the Stockholders exercising their "piggyback"
registration rights unless one or more of such Stockholders elects to
exercise its "demand" registration rights with respect to such
registration). Notwithstanding such a withdrawal by a requesting
Stockholder, such request shall be treated as a registration for purposes
of Clauses 18.1(i)(a)(1) and (2) if the requesting Stockholder (x)
withdraws less than all of the Subject Shares, or (y) withdraws all of the
Subject Shares after the conclusion of the consultation period described
in Clause 18.1(ii)(a) above for any reason other than a material adverse
change in the Company or its Subsidiaries or in market conditions from the
time of the request made for registration.
(c) The Company will enter into customary agreements and take such
other actions as are reasonably required in order to expedite or
facilitate the sale of the Subject Shares. In connection therewith, the
Company will furnish to the requesting Stockholder and each of its
managing underwriter(s) a signed counterpart, addressed to the requesting
Stockholder and such underwriter(s), of (i) an opinion or opinions of
counsel to the Company and (ii) a comfort letter or comfort letters from
the Company's independent public accountants, each in customary form and
covering such matters of the type customarily covered by opinions or
comfort letters, as the case may be, as the requesting Stockholder or such
underwriter(s) reasonably requests.
(iii) [EFFECTIVE REGISTRATION] A registration will not be deemed to
have been effected as a Demand Registration unless the Demand Registration
Statement with respect thereto has been declared effective by the
Commission or analogous governmental agency and/or securities market
authorities and the Company has complied in all material respects with its
obligations under this Agreement with respect thereto; provided, however,
that if after it has been declared effective, the offering of the Subject
Shares pursuant to a Demand Registration Statement is interfered with by
any stop order, injunction or other order or requirement of the Commission
or any other governmental agency or court and/or securities market
authorities, such Demand Registration Statement will be deemed
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not to have become effective during the period of such interference until
the offering of the Subject Shares pursuant to such Demand Registration
Statement may legally resume. If a registration requested pursuant to this
Clause 18.1 is deemed not to have been effected, then the Company shall
continue to be obligated to effect a registration pursuant to this Clause
18.1.
(iv) [SELECTION OF UNDERWRITER] If the requesting Stockholder so
elects, the offering of the Subject Shares pursuant to a Demand
Registration Statement shall be in the form of an underwritten offering.
If it so elects, the requesting Stockholder shall select one or more
nationally recognized firms of investment bankers to act as the managing
underwriter or underwriters in connection with such offering; provided
that such selection shall be subject to the consent of the Company, which
consent shall not be unreasonably withheld. If the requesting Stockholder
does not select a managing underwriter in connection with such offering,
the Company may select one or more nationally recognized firms of
investment bankers to act as the managing underwriter or underwriters in
connection with such offering; provided that such selection shall be
subject to the consent of the requesting Stockholder, which consent shall
not be unreasonably withheld.
(v) [INDEMNIFICATION]
(a) (BY THE COMPANY] The Company will indemnify and hold harmless each
participating Stockholder and each underwriter of the Subject Shares
being sold by such Stockholder, and each controlling person of such
Stockholder and underwriter, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material
fact contained or incorporated by reference in any registration
statement relating to such Subject Shares or any preliminary or
final prospectus included therein (or in any related registration
statement, notification or the like) or any omission (or alleged
omission) to state or incorporate by reference therein a material
fact required to be stated or incorporated by reference therein or
necessary to make the statements made or incorporated by reference
therein, in light of the circumstances under which they were made,
not misleading, or any violation by the Company of any rule or
regulation promulgated under the Securities Act applicable to the
Company and relating to action or inaction required of the Company
in connection with any such registration, qualification or
compliance, and the Company will reimburse each such Stockholder and
each such underwriter and controlling person for any legal or any
other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action and
will enter into an indemnification agreement with each such
Stockholder and underwriter containing customary provisions,
including provisions for contribution, as any Stockholder
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or underwriter shall reasonably request; provided, however, that the
Company will not be liable to such Stockholder or underwriter in any
such case to the extent that any such claim, loss, damage or
liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by
such Stockholder or underwriter, respectively, and stated to be
specifically for use therein.
(b) (BY THE STOCKHOLDERS] Each participating Stockholder shall indemnify
and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement and each person,
if any, who controls the Company within the meaning of Section 5 of
the U.S. Securities Act of 1933, as amended (the "Securities Act")
or any other applicable securities laws, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out
of or based on any untrue statement (or alleged untrue statement) of
a material fact contained or incorporated by reference in any
registration statement relating to such Stockholder's Shares or any
preliminary or final prospectus included therein (or in any related
registration statement, notification or the like) or any omission
(or alleged omission) to state or incorporate by reference therein a
material fact required to be stated or incorporated by reference
therein or necessary to make the statements made or incorporated by
reference therein, in light of the circumstances under which they
were made, not misleading, and such participating Stockholder will
reimburse the Company and each such director, officer or controlling
person for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss,
damage, liability or action and will enter into an indemnification
agreement with the Company and each participating Stockholder
containing customary provisions, including provisions for
contribution, as the Company or each such Stockholder shall
reasonably request; provided, however, that no Stockholder will be
liable in any such case except to the extent that any claim, loss,
damage or liability arises out of or is based on any untrue
statement or omission based upon written information furnished to
the Company by such Stockholder and stated to be specifically for
use therein; and provided, further, that no Stockholder will be
liable under this subsection for any losses, costs, damages or
expenses exceeding in the aggregate the proceeds to such Stockholder
in such offering.
(c) [OTHER INDEMNIFICATION] Indemnification similar to that specified in
the preceding paragraphs of this Clause 18.1 (with appropriate
modifications) shall be given by the Company and each participating
Stockholder with respect to any required registration or other
qualification of securities under any federal or state law or
regulation of governmental authority other than the Securities Act.
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(d) If any claim or proceeding (herein, the "Claim") is hereafter made
or instituted which might result in a right to indemnification
hereunder, the party seeking indemnification (the "Indemnified
Party") may make a demand for indemnification hereunder by giving
written notice to the party from whom indemnification is sought (the
"Indemnifying Party"), stating in reasonable detail the nature of
the Claim so far as known to it. Such notice shall be given within a
reasonable time after the Indemnified Party shall become aware of
the Claim. The Indemnified Party shall permit the Indemnifying Party
to assume the defense of any such Claim or any litigation resulting
therefrom (and to prosecute by way of counterclaim or complaint any
claim arising out of or relating to such Claim), provided that
counsel selected to conduct the defense of such Claim or litigation
shall be reasonably satisfactory to the Indemnified Party. After
such assumption of the defense by the Indemnifying Party, the
Indemnifying Party shall not be liable under this Clause 18.1 for
any legal or other expenses subsequently incurred by the Indemnified
Party in connection with such defense, other than reasonable costs
of investigation, but the Indemnified Party may participate in such
defense at its expense. The refusal so to permit the Indemnifying
Party to assume such defense by such counsel shall relieve the
Indemnifying Party of its indemnification obligations hereunder in
respect of such Claim. No settlement of any Claim or litigation
defended by the Indemnified Party shall be made without the express
written consent of the Indemnifying Party, which consent shall not
be unreasonably withheld. The Indemnifying Party shall not, except
with the written consent of the Indemnified Party, consent to entry
of any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or
plaintiff to the Indemnified Party of an unconditional release from
all liability in respect of such Claim or litigation.
(e) If the indemnity and reimbursement obligation provided for in this
Clause 18.1 is unavailable or insufficient to hold harmless an
Indemnified Party in respect of any Claim referred to therein, then
(unless, and except to the extent that, such unavailability or
insufficiency results from defenses or limitations provided by this
Clause 18.1) the Indemnifying Party shall contribute to the amount
paid or payable by the Indemnified Party as a result of such Claim
in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party on the one hand and the Indemnified Party
on the other hand in connection with statements or omissions which
resulted in such Claim, as well as any other relevant equitable
considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the
Indemnifying Party or the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The
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76
parties hereto agree that it would not be just and equitable if
contributions pursuant to this paragraph were to be determined by
pro rata allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in the
first sentence of this paragraph. The amount paid by an Indemnified
Party as a result of the Claims referred to in this Clause 18.1
shall be deemed to include any legal and other expenses reasonably
incurred by such Indemnified Party in connection with investigating
or defending any Claim which is the subject of this Clause 18.1.
(vi) [SPECIFIC PERFORMANCE] The Company and each of the Stockholders
acknowledges that a breach of the Company's obligations relating to
registration rights requested pursuant to Clause 18.1(i) will cause
irreparable harm to the requesting Stockholder, and any Stockholder
which exercises its rights under Clause 18.2 above, that will be
difficult to quantify and for which money damages would be
inadequate. As a result, the Company agrees that, in the event of
such a breach or threat of such a breach, the requesting or
piggybacking Stockholder may, in addition to any other legal or
equitable remedies it may have, enforce its rights by an action for
specific performance (to the extent permitted by applicable law),
without the necessity of posting a bond.
18.2 [PIGGYBACK] If the Company at any time proposes for any reason to publicly
register or list any Shares under the securities laws of any jurisdiction,
it shall promptly give written notice to each Stockholder of its intention
so to register such shares, and by such notice shall offer to each such
Stockholder (other than Abrilcap and its Affiliates which are then
Stockholders) the opportunity to register or list such number of Shares as
each such Stockholder may request in writing within 20 (twenty) Business
Days after receipt of such notice from the Company, specifying the number
of Shares proposed to be included in such registration or listing. Upon
receipt of such written request, the Company shall cause all such Shares
to be included in such registration or listing on the same terms and
conditions as the Shares otherwise being sold pursuant to such
registration or listing, and such Stockholder shall be entitled to such
documents and information as is described in Clause 18.1(b) above.
Notwithstanding the foregoing, if the managing underwriter(s) of an
offering delivers a written opinion to the Company that the size of the
offering is such that the success of the offering would be materially and
adversely affected, then the amount of Subject Shares to be offered for
the account of any Stockholder pursuant to this Clause 18.2 shall be
reduced to the extent necessary to reduce the total amount of securities
to be included in such offering to the amount recommended by such managing
underwriter(s); provided that if securities are being offered for the
account of more than one Stockholder pursuant to this Clause 18.2, then
the proportion by which the amount of the securities intended to be
offered for the account of any Stockholder pursuant to this Clause 18.2 is
reduced shall not exceed the proportion by which the amount of securities
intended
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77
to be offered for the account of any other Stockholder pursuant to this
Clause 18.2 is reduced. For purposes of this Clause 18.2, if the Company
proposes to convert Shares to a different class of capital stock of the
Company and to publicly register or list such different class of capital
stock, then subject to Clause 18.1(b) above, each Stockholder shall have
the right to convert its Shares into an equivalent amount of such
different class of capital stock, and for purposes of this Clause 18.2,
the shares of such other class of capital stock of the Company held by the
Stockholder shall be deemed to be Shares.
18.3 [REGISTRATION EXPENSES] Any and all expenses whatsoever incident to the
Company's performance of or compliance with this Clause 18 shall be borne
by the Company whether or not the offering of Shares to which such
expenses relate is consummated; provided, however, that the Company shall
not be required to bear underwriting discounts and commissions or transfer
taxes, if any, relating to the sale or disposition of Shares, and the
Company shall only be obligated to pay for the fees and expenses of
counsel and independent certified public accountants for the Company.
18.4 Transferees of Shares from a Stockholder shall not acquire the rights of
the transferring Stockholder as set out in this Clause 18; provided that
all transferees of Shares from a Stockholder who are Affiliates of such
Stockholder shall acquire, if such transfers are accomplished in
compliance with the terms of this Agreement, the rights and obligations of
such Stockholder as set forth in this Clause 18.
Clause 19. NON-COMPETE PROVISIONS
19.1 (i) For the benefit of Abrilcap and Mr. Civita and their Affiliates
(other than the Company and its Subsidiaries) only, Harpia and
Curupira hereby agree on behalf of themselves, The Chase Manhattan
Corporation and its direct and other indirect majority-owned
subsidiaries (collectively, "Chase") that, for so long as Harpia and
Curupira, together with their Affiliates, hold at least 5% (five
percent) of the issued and outstanding voting Shares, none of
Harpia, Curupira, any Affiliate of either, or (to the extent Harpia,
Curupira or any Affiliate thereof that is a Stockholder remains an
Affiliate of Chase or any successor thereto) Chase shall, except
through the Company, hold more than 10% (ten percent) of the total
equity of any business organization that engages directly, nor more
than 50% (fifty percent) of the voting equity of any business
organization that engages indirectly through one or more
subsidiaries or other business organizations, in the Business in
Brazil; provided, however, that the covenants set forth in this
Clause 19.1 shall not apply (i) to any equity acquired by Chase or
any successor thereto, as a result of (a) the merger of Chase or any
such successor with Chemical Banking Corporation or any other Person
(a "Merger Party") who directly or indirectly holds such equity at
the time such merger is consummated (the
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78
"Merger Date"), or (b) the statutory, contractual, preemptive or
other rights that such Merger Party or any Affiliate thereof may
have, as of the Merger Date, to acquire such equity or to exchange
securities for such equity, regardless of whether such rights are
contingent or vested or inchoate or fixed as of the Merger Date, or
(ii) from and after the Merger Date, to any Person that engages
primarily in venture capital or merchant banking activities
(including, to the extent such covenants might otherwise apply,
Chemical Venture Partners) or to any equity for which any such
Person (or its personnel) has functional management responsibility,
regardless of where such equity is booked.
(ii) The parties hereto recognize that Chase may provide various
financial services to individuals, corporations and other entities
that may be engaged or that may intend to engage, directly or
indirectly, in the Business, including but not limited to: (a)
conducting or participating in the sale, placement or underwriting
of securities for such individuals or entities, (b) providing loans
or other credit arrangements to such individuals or entities, which
loans or arrangements may be secured by, among other things, the
pledge to Chase of voting or other securities, and Chase may receive
fees in connection with such loans or arrangements which may include
stock, warrants or other equity securities, (c) engaging in
fiduciary or other relationships whereby Chase may control or
exercise voting power over securities of various entities and (d)
providing financial advice and other commercial and investment
banking services, and further recognize that none of these
activities shall constitute a violation of this Clause 19 nor shall
any equity securities acquired by Chase in connection with any of
these activities count towards the percentages set forth in the
first sentence of this Clause 19. In particular, nothing in this
Clause 19 shall prohibit Chase from exercising its rights with
respect to any securities pledged for its benefit or foreclosing on,
receiving in compromise of obligations, holding or otherwise dealing
with any such securities, or exercising its rights as a creditor of
any person, including without limitation by receiving equity
securities in compromise of obligations or in a bankruptcy,
insolvency, receivership or similar proceeding or as part of a
workout or other restructuring of debt, and in such case, such
equity securities shall not count towards the percentages set forth
in the first sentence of this Clause 19.
19.2 For the benefit of Harpia, Curupira and their Affiliates so long as they
collectively own 5% (five percent) or more of the issued and outstanding
voting Shares, Mr. Civita and Abrilcap agree on behalf of themselves and
their Affiliates that, except through the Company (and, to the extent
necessary to comply with the provisions hereof and of the Old Stock
Purchase Agreement and the Service Agreement, the License Holders),
neither of them nor any person directly or indirectly controlled by either
of them shall, in any geographic area, directly or
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79
indirectly engage in any business, or be interested (whether as a
principal, stockholder, lender, employee, officer, director, partner,
venturer, advisor, consultant or otherwise) in any business organization
that engages in any business, substantially of the same type as the
Business or as any business the Company or any Subsidiary may conduct.
Without limiting the foregoing provisions hereof, except to the extent
expressly set forth herein, Mr. Civita and Abrilcap agree that they shall
not directly or indirectly through any Affiliate (except for the Company
and its Subsidiaries), engage in or be interested in (whether as a
principal, stockholder, lender, employee, officer, director, partner,
venturer, advisor, consultant or otherwise) in the telephony business.
Notwithstanding the foregoing sentence, however, so long as it does not
create or pose a conflict of interest with the business of the Company
and/or its Subsidiaries, Mr. Civita and Abrilcap may, directly or through
Affiliates, hold passive, minority, or noncontrolling interests in persons
engaged in telephony; provided that in the event such interest does create
or pose a conflict of interest with the business of the Company and/or its
Subsidiaries, Mr. Civita and Abrilcap shall, as soon as practicable,
effect one of the following alternatives, at their option: (i) merge such
interest into the Business of the Company and its Subsidiaries (subject to
compliance with the provisions of Clauses 12 and 13 above); (ii) sell,
transfer, or otherwise dispose of such interest; or (iii) transfer such
interest to a "blind trust" or equivalent device under Brazilian law,
pursuant to which Mr. Civita shall have solely an economic interest, but
pursuant to which he will receive no information regarding such interest
and shall have no decision making role with respect thereto.
19.3 For so long as Falcon, together with its Affiliates, owns 2% (two percent)
or more of the issued and outstanding voting Shares, Falcon hereby agrees
for the benefit of Abrilcap and Mr. Civita and their Affiliates (other
than the Company and its Subsidiaries) only that, except through the
Company, neither it nor any of its Affiliates shall within the territory
of the Federative Republic of Brazil (i) directly or indirectly engage in
the Business, or (ii) be interested (whether as a principal, stockholder,
lender, employee, officer, director, partner, venturer, advisor,
consultant or otherwise) in any business organization that engages
primarily in the Business within the territory of the Federative Republic
of Brazil or any business conducted primarily within the Federative
Republic of Brazil that is either substantially of the same type as the
Business or any other business the Company or any Subsidiary may conduct
or that is otherwise competitive with any business that the Company or any
Subsidiary may conduct; provided, however, that nothing in this Clause
19.3 shall prohibit Falcon or any Affiliate thereof from owning less than
5% (five percent) of the voting capital or total capital stock or other
ownership interest of any public company which it does not control.
19.4 For so long as Falcon, together with its Affiliates, owns 2% (two percent)
or more of the issued and outstanding voting Shares, Falcon hereby agrees
for the benefit of Abrilcap and Mr. Civita and their Affiliates (other
than the Company and its Subsidiaries) that neither it nor any of its
Affiliates shall directly or indirectly own
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80
or control a majority of the voting equity of any business organization
other than a partnership, or directly or indirectly act as a general
partner of any partnership, that engages primarily in any business
relating to pay television delivered by KU-band satellite distribution in
any of the countries of South America, Central America, in the Caribbean
Sea, or the United States of Mexico (including countries that become
sovereign in the current territory of the aforesaid countries).
19.5 For so long as Falcon, together with its Affiliates, owns 2% (two percent)
or more of the issued and outstanding voting Shares or the Investor
Entities, together with their Affiliates, owns 2% (two percent) or more of
the issued and outstanding voting Shares, Abrilcap and Mr. Civita hereby
agree for the benefit of Falcon or the Investor Entities, as the case may
be, in each case on behalf of themselves and their Affiliates, that,
except through the Company (and, to the extent necessary to comply with
the provisions hereof and of the Stock Purchase Agreement and the Services
Agreement, neither of them nor any person directly or indirectly
controlled by either of them or under common control with either of them
shall, within the territory of the Federative Republic of Brazil directly
or indirectly engage in the Business, or be interested (whether as a
principal, stockholder, lender, employee, officer, director, partner,
venturer, advisor, consultant or otherwise) in any business organization
that engages in any business that is either substantially of the same type
as the Business or any other business the Company or any Subsidiary
conducts or that is otherwise competitive with any business that the
Company or any Subsidiary may conduct. Without limiting the foregoing
provisions hereof, except to the extent expressly set forth herein, Mr.
Civita and Abrilcap agree that they shall not directly or indirectly
through any Affiliate (except for the Company and its Subsidiaries),
engage in or be interested in (whether as a principal, stockholder,
lender, employee, officer, director, partner, venturer, advisor,
consultant or otherwise) in the telephony business. Notwithstanding the
foregoing sentence, however, so long as it does not create or pose a
conflict of interest with the business of the Company and/or its
Subsidiaries, Mr. Civita and Abrilcap may, directly or through Affiliates,
hold passive, minority, or non-controlling interests in persons engaged in
telephony; provided that in the event such interest does create or pose a
conflict of interest with the business of the Company and/or its
Subsidiaries, Mr. Civita and Abrilcap shall, as soon as practicable,
effect one of the following alternatives, at their option: (i) merge such
interest into the Business of the Company and its Subsidiaries (subject to
compliance with the provisions of Clauses 12 and 13); (ii) sell, transfer,
or otherwise dispose of such interest; or (iii) transfer such interest to
a "blind trust" or equivalent device under Brazilian law, pursuant to
which Mr. Civita shall have solely an economic interest, but pursuant to
which he will receive no information regarding such interest and shall
have no decision making role with respect thereto.
19.6 Except through their respective investments in Tevecap, for so long as
Falcon, together with its Affiliates, owns 2% (two percent) or more of the
issued and outstanding voting Shares or the Investor Entities, together
with their Affiliates, owns 2% (two percent) or more of the issued and
outstanding voting Shares,
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81
Abrilcap and Mr. Civita hereby agree for the benefit of Falcon or the
Investor Entities, as the case may be, in each case on behalf of
themselves and their Affiliates that neither of them nor any person
directly or indirectly controlled by either of them shall, in any of the
countries of South America, Central America, in the Caribbean Sea, or the
United States of Mexico (including countries that become sovereign in the
current territory of the aforesaid countries), directly or indirectly
engage in any business, or be interested (whether as a principal,
stockholder, lender, employee, officer, director, partner, venturer,
advisor, consultant or otherwise) in any business organization that
engages in any business relating to pay television delivered by KU-band
satellite distribution.
19.7 The Investor Entities hereby agree on behalf of (a) themselves, (b) Hearst
and Hearst's Subsidiaries, but only for so long as Hearst, directly or
through the Investor Entities or Affiliates of the Investor Entities, owns
2% (two percent) or more of the issued and outstanding voting Shares and
(c) CCABC and CCABC's Subsidiaries, but only for so long as CCABC,
directly or through the Investor Entities or Affiliates of the Investor
Entities, owns 2% (two percent) or more of the issued and outstanding
voting Shares, for the benefit of Abrilcap and Mr. Civita and their
Affiliates, that none of the parties listed in clauses (a), (b), or (c)
above, to the extent applicable, shall own an interest in any entity
principally engaged in the business of non- standard television general
entertainment service and the ownership and operation of facilities
related thereto which competes with the Company in Brazil, except for
interests representing not more than 10% of the total equity of such an
entity, it being understood that nothing contained herein shall prohibit
the Investor Entities, Hearst, CCABC or any of their Subsidiaries from
engaging in any activity in which they are currently engaged or from
acquiring an interest in Galaxy Latin America. The parties hereto
expressly acknowledge and agree that nothing in this Agreement or any
other agreement entered into in connection with the Investor Entities'
purchase of Shares (this Agreement and such other agreements collectively,
"Excluded Agreements") shall be deemed to apply to any entity controlling
CCABC. In particular, but without limiting the foregoing, the parties
expressly acknowledge and agree that a transaction is pending between
CCABC and The Walt Disney Company ("Disney") and, should such transaction
be consummated, no provision of any Excluded Agreement shall apply to
Disney or any of its Subsidiaries, other than CCABC and its Subsidiaries.
However, if Disney or any of its Subsidiaries transfers any of its
business operations to a CCABC Subsidiary after the consummation of the
pending transaction, the provisions of the Excluded Agreements shall not
apply to any such CCABC Subsidiary. Similarly, the provisions of the
Excluded Agreements shall not apply to Disney and its Subsidiaries
notwithstanding any transfers of businesses from CCABC and its
Subsidiaries to Disney and its Subsidiaries. Further, the parties
expressly acknowledge and agree that ESPN, Inc. (and/or affiliates
thereof) are currently parties to various agreements with the Company
(and/or Affiliates thereof) relating to the establishment and management
of the ESPN Brazil programming service (the "ESPN Brazil Agreements") and
that the ESPN Brazil Agreements shall not be subject to, or
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82
affected in any way by, any term of any Excluded Agreement and that, if
any conflict exists between any ESPN Brazil Agreement and any Excluded
Agreement, the terms of such ESPN Brazil Agreement shall govern. In
addition, the parties expressly acknowledge and agree that no provisions
of any Excluded Agreement shall apply to the activities of the following
persons, except for activities not within the ordinary course of business
of such persons as determined in good faith by the governing bodies of
such persons: The A&E Television Networks, Lifetime and ESPN, Inc.
19.8 Transferees of Shares of Falcon and its Affiliates shall acquire the
rights of Falcon and its Affiliates set out in Clauses 19.5 and 19.6
above, and shall become bound by the same obligations as Falcon and its
Affiliates set out in Clauses 19.3 and 19.4 above, provided such
transferees (together with their Affiliates) acquire, from time to time,
and continue to hold, no less than 5% (five percent) of the voting Shares
of the Company. Transferees of Shares of the Investor Entities and their
Affiliates shall acquire the rights of the Investor Entities and their
Affiliates set out in Clauses 19.5 and 19.6 above, and shall become bound
by the same obligations as the Investor Entities and their Affiliates set
out in Clause 19.7 above, provided such transferees (together with their
Affiliates) acquire, from time to time, and continue to hold, no less than
5% (five percent) of the issued and outstanding voting Shares of the
Company. No other rights or obligations of any other party under this
Clause 19 shall be transferable.
Clause 20. CONFIDENTIALITY
Each of the Stockholders and the Company agrees that it will not, without
the mutual agreement of all parties to this Agreement, disclose to any
third party any information reasonably designated by the Company as
confidential and obtained in connection with this Agreement, except to the
extent that: (i) such disclosure is required by applicable law, regulation
or legal process; (ii) such information becomes publicly known other than
as a result of any breach by any of the parties hereto of its obligations
set forth in this Clause 20; (iii) such disclosure is requested or
required by any bank or other regulatory authority having jurisdiction
over such party hereto; (iv) such disclosure is to such Stockholder's
Affiliates or to the officers, directors, employees, auditors and
professional advisors of such Stockholder and its Affiliates who, in each
case, have a need to know such information; or (v) such disclosure is to
such Stockholder's partners (or stockholders that are not Affiliates of
such Stockholder) or, if required to obtain credit or pursuant to an
executed credit agreement or similar document, to any financial
institution lender to such Stockholder or its Affiliates or, in the case
of Falcon, to the owners from time to time of any equity interest in
Falcon Parent (each such person to whom a Stockholder is permitted to
disclose such confidential
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83
information under this subclause (vi) above being referred to as a
"Permitted Disclosee"); provided, however, that to the extent a
Stockholder discloses such confidential information to a Permitted
Disclosee and such Permitted Disclosee discloses such confidential
information otherwise than as permitted by this Clause 20, such
Stockholder shall be responsible for such disclosure as if it had itself
breached this Clause 20 and shall be liable to the Company for any damage
arising from such wrongful disclosure.
Clause 21. DURATION OF THE AGREEMENT
21.1 This Agreement shall take effect as of the date hereof and shall remain in
effect for a period of 25 (twenty-five) years from such date.
21.2 In the event that no Stockholder informs to the others upon written notice
of its lack of interest in extending this Agreement beyond such initial
term of 25 (twenty-five) years or any subsequent term, at least 4 (four)
months in advance, this Agreement shall continually extend for successive
two year periods.
Clause 22. MISCELLANEOUS PROVISIONS
22.1 This Agreement is irrevocable and shall be binding on the Stockholders and
the Company and their heirs and successors and assigns for all purposes.
The Company, the Stockholders and their heirs or successors or assigns
shall fully comply with the obligations undertaken herein, including,
without limitation, voting their respective Shares in strict compliance
with provisions herein. The parties hereto are aware that their respective
obligations as set out herein are subject to specific enforcement,
pursuant to applicable law.
22.2 All notifications, communications and notices required or permitted
pursuant to this Agreement shall be effected in writing and delivered to
each party through facsimile, telex or registered letter, return receipt
requested, as follows:
If to Mr. Civita:
Av. Otaviano Alves de Lima, 4400
02901-000 (Freguesia do O) Sao Paulo, SP
Fax: (011) 875-9456
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84
If to Abrilcap:
Av. Otaviano Alves de Lima, 4400
02901-000 (Freguesia do O) Sao Paulo, SP
Fax: (011) 875-9456
Attn: Mr. Jose Augusto Pinto Moreira
If to Harpia or Curupira:
c/o Chase Manhattan Overseas Banking Corporation
802 Delaware Avenue - 13th Floor
Wilmington, Delaware 19801 - U.S.A.
Fax: (302) 429-0456
Attn: Mr. Warren Leonard
with a copy to:
The Chase Manhattan Bank, N.A.
Media and Telecommunications
One Chase Manhattan Plaza, 4th Floor
New York, New York 10081 - U.S.A.
Fax: (212) 552-0259
Attn: Mr. Fernando J. Viana
If to Falcon:
c/o Hellman & Friedman Capital Partners III, L.P.
One Maritime Plaza, 12th Floor
San Francisco, California 94111 - U.S.A.
Fax: (415) 788-0176
Attn: Mr. Joseph Niehaus
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85
with a copy to
Falcon International Communications LLC
10900 Wilshire Boulevard
Los Angeles, California 90024 - U.S.A.
Fax: (310) 824-4824
Attn: Mr. Stanley Iskowitch
If to the Company:
Av. Otaviano Alves de Lima, 4400
02901-000 (Freguesia do O) Sao Paulo, SP
Telex: (011) 22115
Fax: (011) 875-9456
Attn: Mr. Jose Augusto Pinto Moreira
If to the Investor Entities:
The Hearst Corporation
959 8th Avenue
New York, New York 10019
Attention: Victor F. Ganzi, Esq.
Fax: (212) 246-3630
Attn: Mr. Ray Joslin
Fax: (212) 245-2306
Capital Cities/ABC, Inc.
77 West 66th Street
New York, New York 10023
Attn: Larry M. Loeb, Esq.
Fax: (212) 456-6565
with copies to:
Capital Cities/ABC, Inc.
77 West 66th Street
New York, New York 10023
Attn: Jerry Sullivan
Fax: (212) 456-7570
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86
22.3 Clause Headings and other headings herein contained are simply for
reference purposes, and shall not affect the meaning or construction
thereof.
22.4 Except for the Option Agreement, the Abril Agreement and the two letter
agreements dated of even date herewith among the parties hereto, this
Stockholders Agreement constitutes the entire agreement among the parties
hereto respecting the matters described herein and supersedes all prior
agreements and undertakings, oral or written, among the parties hereto
with respect to the subject matter hereof.
22.5 No amendment to this Agreement shall be valid unless it is made in writing
and signed by all parties hereto.
22.6 No term or toleration granted by any of the parties to the others, in
relation to the terms of this Agreement, shall affect in any way this
Agreement or any of the rights and obligations of the parties, except in
strict compliance with the terms of the granted toleration.
22.7 This Agreement shall be filed at the Company's head office pursuant to and
for the purposes of Article 118 of Law No. 6.404, of 12.15.76. the
Company's Registered Share Registrar, on the margin of the Share
registration, and the certificates representing the Shares, if issued,
shall bear the following text: "The voting and transfer rights inherent to
the shares of stock represented by this Certificate (or registry),
including the creation of any lien for any purpose, is bound and subject
to the Stockholders Agreement dated December 6, 1995."
22.8 This Agreement shall be governed and construed in accordance with the laws
of the Federative Republic of Brazil.
22.9 Each of the parties hereto irrevocably agrees that any action or
proceeding against it arising out of this Agreement may be brought (i) in
a New York State Court sitting in the City of New York, or the United
States District Court for the Southern District of New York (or, if such
courts do not have subject matter jurisdiction over such dispute, in any
other state or federal court located in the State of New York),
preserving, however, all rights of removal to a federal court under 28
U.S.C. Section 1441 or (ii) the Courts of the City of Sao Paulo, State of
Sao Paulo. The foregoing submission to jurisdiction shall be deemed
non-exclusive and shall not prevent any party from instituting any action
or proceeding in any other court of competent Jurisdiction.
Until this Agreement shall have terminated:
(i) each of the Company, Mr. Civita and Abrilcap does hereby irrevocably
designate, appoint and empower CT Corporation System, with offices
currently at 1633 Broadway, New York, NY 10019, as its lawful agent
to
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87
receive for and on its behalf service of process in the State of New
York in any such proceedings;
(ii) each of Harpia and Curupira does hereby irrevocably designate,
appoint and empower The Chase Manhattan Bank, N.A., or any successor
thereto, with offices currently at 1 Chase Manhattan Plaza, New
York, NY 10081, Attention: Fernando Viana, 4th Floor, as its lawful
agent to receive for and on its behalf service of process in the
State of New York in any such proceedings;
(iii) Falcon does hereby irrevocably designate, appoint and empower CT
Corporation System, with offices currently at 1633 Broadway, New
York, NY 10019, as its lawful agent to receive for and on its behalf
service of process in the State of New York in any such proceedings;
(iii) Hearst/ABC Limitada does hereby irrevocably designate, appoint and
empower The Hearst Corporation, with offices currently at 959 Eighth
Avenue, New York, New York 10019, Attention: General Counsel, as its
lawful agent to receive for and on its behalf service of process in
the State of New York in any such proceedings,
(iii) any service made on such agent or its successor shall be effective
when delivered regardless of whether notice thereof is given to the
affected party hereto;
(iv) if any person designated as an agent under this Clause 22.9 shall
cease to be located in the State of New York or shall no longer
serve as agent of a party hereto to receive service of process in
the State of New York, the party so affected shall be obligated to
ensure that an agent or successor agent is appointed and each of the
other parties is notified of the same in writing, service upon the
last designated agent shall be good and effective;
(v) the foregoing provisions hereof shall not affect or limit the right
of any party to, or prevent any party from, serving process in any
other manner permitted by applicable law; and (vi) the Company and
those Stockholders who have designated, appointed and empowered CT
Corporation System to act as its agent as described above shall
promptly (but in no event later than sixty (60) days from the date
hereof) deliver to the other Stockholders written confirmation from
CT Corporation System accepting such designation, appointment and
empowerment.
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88
IN WITNESS WHEREOF, the parties herein have executed this instrument in
five identical counterpart originals of equal content in the presence of the two
undersigned witnesses.
___________________________________
HARPIA HOLDINGS LIMITED
___________________________________
CURUPIRA HOLDINGS LIMITED
___________________________________
ROBERT CIVITA
___________________________________
ABRILCAP COMERCIO E PARTICIPACOES
LTDA.
___________________________________
TEVECAP S.A.
___________________________________
FALCON INTERNATIONAL
COMMUNICATIONS LTD.
HEARST/ABC VIDEO SERVICES II
By: Hearst Brazil, Inc., its partner
___________________________________
By: Brazil Cable Investments, Inc., its partner
___________________________________
TVA PARTICIPACOES LTDA.
By: Hearst Brazil, Inc., its partner
___________________________________
By: Brazil Cable Investments, Inc., its partner
___________________________________
<PAGE>
89
WITNESSES:
1.____________________
2.____________________
<PAGE>
FIRST AMENDMENT
This private instrument is executed on February 12, 1996, as a first
amendment to Tevecap S.A/'s Shareholders Agreement dated December 6, 1995 and
ratified on December 7, 1995, between Tevecap S.A., Robert Civita, Abrilcap
Comercio e Participacoes Ltda., Harpia Holdings Limited, Curupira Holdings
Limited, Falcon International Communications Ltd., Hearst/ABC Video Services II,
and TVA Participacoes Ltda., all of whose particulars are duly set forth in said
shareholders agreement (hereinafter simply called "Shareholders Agreement")
The parties hereto are parties to a private instrument of waiver and
agreement, dated February 12, 1996.
The parties have mutually agreed to amend, as indeed they have amended,
the Shareholders Agreement, under the following terms, to wit:
1. Capitalized terms used in this instrument, the definitions of which have not
been specifically given, shall have the same meaning given to them in the
Shareholders Agreement.
2. The parties hereby agree to amend the Shareholders Agreement as
follows:
2.1. As of the execution of this instrument and thereafter, the term
"Falcon" will mean Falcon International Communications (Bermuda), L.P., in view
of the fact that this company shall replace Falcon International Communications
Ltd. in the Shareholders Agreement and will undertake and succeed all the
obligations, duties and rights of Falcon International Communications Ltd.
arising from the Shareholders Agreement.
2.2. (a) Clause 1 of the Shareholders agreement is
hereby rectified in order to include the following definition:
"Falcon LLC" refers to Falcon International
Communications LLC.
(b) Clause 1 of the Shareholders Agreement is hereby rectified
in order to exclude in their entirety the definitions of "Institutional
Investor" and "Controlling Shareholding Corporation" and replace them by":
"Institutional Investor" means an institutional or
financial investor (such as a risk capital corporation or a risk
<PAGE>
capital investment fund, pension plan institution, financial or governmental or
similar institutions) which acquires or holds shares in Falcon, Falcon LLC or
the Falcon Controller (or any Affiliate of Falcon which is then a Shareholder)
mainly for investment purposes:
"Controlling Shareholding Corporation" means, as regards the
Shareholder, any person with (a) directly or indirectly, through one or more
subsidiaries, holds or controls the majority of the voting capital stock or
equivalent control of said Shareholder or is entitled to control said
Shareholder's management and (b) 50% or more of the market value of such
person's Fixed Assets consist, directly or through one or more subsidiaries, of
Shares held by said Shareholder or any other Shareholder of which said person is
a Controlling Shareholding Corporation; provided that (i) neither Falcon LLC nor
the Falcon Controller are deemed as a Controlling Shareholding Corporation of
Falcon after the Financing Date if, on such date, US$50,000,000 means less than
half of the total capital commitments (including contributions made previously)
undertaken by the Investors of the Falcon Controller in the Falcon Controller;
provided that, if after the Financing Date, Falcon LLC holds, directly or
indirectly, more than twenty percent (20%) of shares owned by Falcon (or any
other Falcon Affiliate is then a Shareholder), then, in such an event, Falcon
LLC will be deemed a Controlling Shareholding Corporation of said Shareholder,
should 50% or more of the market value of Falcon LLC's Fixed Assets consist of,
whether directly or indirectly through one or more subsidiaries, Shares held by
said Shareholder; and (ii) in no event, an investor in the Falcon Controller or
other holder of shares in Falcon LLC or in the Falcon Controller (or, as regards
such Investor of the Falcon Controller or other holder of shares, any person
described in clause (a) of this definition) is or is deemed to be a Controlling
Shareholding Corporation.
2.3. In Clause 4.8(i) of the Shareholders Agreement, a letter (f)
shall be included with the following wording, to wit:
"(f) in the event Falcon, Falcon LLC and the Falcon Controller
(or their Affiliates), to the extent that Falcon LLC and the Falcon Controller
(or their Affiliates) otherwise organize an Affiliate, under this Instrument;
provided that for the purposes of this Clause 4.8(i)(f), in the determination by
said parties of the organization of an Affiliate, such parties, together with
their Affiliates, may be considered severally or jointly, as regards the
decision for such determination; to exemplify the above, if one party is the
main partner of one corporation and the other party is the limited liability
partner and holds the majority of the economic interest in said corporation,
said entities may be considered jointly as
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<PAGE>
regards the determination as said parties being Affiliates, pursuant to this
Instrument,"
2.4. Clause 7.1 of the Shareholders Agreement is hereby rectified to
amend the definition of "Falcon Controller" from "Falcon International
Communications LLC" to "Falcon International Communications L.P."
2.5. Clause 10.10 of the Shareholders Agreement shall henceforth be
worded as follows, to wit:
10.10(i) Provided that pursuant to Clause 10.10(ii) below, as
long as Falcon or any of its Affiliates is a Shareholder, in the event that (a)
after the Initial Organization Date, as defined in the Private Instrument of
Waiver and Agreement (the "Financing Date"), at least one among the entities,
Falcon LLC, Falcon Controller or an Affiliate thereof is not a Controlling
Shareholder of any Falcon Entities or Falcon Affiliates, Falcon LLC or the
Falcon Controller which is then a Shareholder, or (b) interest in equity in
Falcon or in any Falcon Affiliate, Falcon LLC or the Falcon Controller which is
then a Shareholder (or in any Controlling Shareholding Corporation of Falcon or
its Affiliates) is sold or transferred to persons others than Institutional
Investors (or individuals performing services as employees and consultants for
Falcon, Falcon LLC or the Falcon Controller or their Affiliates or to a fund in
their own benefit), then (i) unless all the interests in equity which are
transferred and which result in the Purchase Option provided in this Clause
10.10 have been offered in accordance with the procedure provided in Clause 4
above (although neither Falcon nor Falcon LLC, nor the Falcon Controller are
bound to offer such interest in equity, pursuant to said clause, but might
decide to do so), each one among the Buyer in the Purchase Option, the H/C
Entities and the Investor Entities will have a Purchase Option as regards all of
the Shares held by Falcon or its Affiliates. Such Purchase Option may be
exercised for six months as of the determination by the Buyer in the Purchase
Option, the H/C Entities or the Investor Entities of such an event and otherwise
in accordance with provisions in this Clause 10 (except that (a) the Purchase
Option Price for the purpose of this Clause 10.10 will be the one corresponding
to the calculation of the price of the Shares, using the market value of the
Corporation and its subsidiaries, in accordance with the provisions of Clause
6.3(a) only and including the last paragraph of Clause 6.3 and (b) both the
Buyer in the Purchase Option, the H/C Entities or the Investor Entities may
start said Purchase Option by delivering a Purchase Option Notice) and (ii)
regardless of such interest in equity being or not offered pursuant to the
procedures set forth in Clause 4 or the Purchase Option being or not exercised,
Falcon and any of its Affiliates (1) will immediately lose all the rights
awarded by this Agreement to Falcon and its Affiliates,
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<PAGE>
which would not have been transferable with the Shares held by Falcon or its
Affiliates, and they shall immediately cease to be liable for the commitments
undertaken in this Agreement which would not have been transferable with the
Shares held by them (including the liabilities in connection with the Falcon
Purchase Option), in each case as if the transfer of such Shares had been made
by Falcon or its Affiliates and (2) will immediately lose all the rights to
indemnity under Clause 7.3(a) and (b) of the Old Share Purchase Agreement and
Clause 6.3 of the Share Purchase Agreement which are not related to indemnity
claims which are then pending, and at the time of such loss, the Shares held by
Falcon mad its Affiliates will no longer be subject to the Falcon Purchase
Option.
(ii) Notwithstanding the provisions of Clause 10.10(i) above, the
other shareholders mentioned in Clause 10.10 (i) above will not have the right
established in said Clause (and neither Falcon nor any of its Affiliates which
are then Shareholders will lose any of the rights set forth in said Clause) as
regards any of the following sales, transfers or assignments of interest in
equity (a) in connection with a Public Offer of interests in Falcon, Falcon LLC
or the Falcon Controller, provided Falcon LLC, any Investor of the Falcon
Controller, any initial share investor in Falcon LLC, or a combination of such
entities, remains under the control of Falcon, Falcon LLC and/or the Falcon
Controller, according to the case, after said Public Offer; (b) in Falcon LLC or
the Falcon Controller, made after the Financing Date; provided that should
Falcon LLC be a Controlling Shareholding Corporation at the time of such sale,
transfer or assignment, Clause 10.10(i) will be applicable to such sale,
transfer or assignment, unless another exception, pursuant to this clause 10.10
(ii) is applicable; (c) in Falcon or in a Falcon Controlling Shareholding
Corporation, provided that after such transfer or assignment, not more than 25%
of the entire interest in equity in Falcon or in said Controlling Shareholding
Corporation is held by persons which are not Falcon LLC (or its Affiliate), the
Falcon Controller (or its Affiliate), Institutional Investors, or individuals or
plans mentioned above, or (d) in Falcon, any Falcon Affiliate or any Shareholder
in which Falcon or its Affiliates hold any equity, for an Affiliate.
3. This instrument of amendment will be immediately enforced after the
occurrence of the following events: (i) execution of this instrument by all the
above named parties; and (ii) a notice sent by Falcon as regards the perfection
of the transfer of Falcon International Communications Ltd.'s shares to Falcon
International Communications (Bermuda), L.P.
4. All other clauses of the Shareholders Agreement which have not been
expressly amended by this instrument shall remain in full force.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this instrument in five (5)
counterparts, before the undersigned witnesses.
HARPIA HOLDINGS LIMITED
CURUPIRA HOLDINGS LIMITED
ROBERT CIVITA
ABRILCAP COMERCIO E PARTICIPACOES LTDA.
TEVECAP S.A.
FALCON INTERNATIONAL COMMUNICATIONS LTD.
FALCON INTERNATIONAL COMMUNICATIONS (BERMUDA), L.P.
HEARST/ABC VIDEO SERVICES II
By Hearst Brazil, Inc., its partner
By Brazil Cable Investments, Inc. its partner
TVA PARTICIPACOES LTDA.
By Hearst Brazil, Inc., its partner
By Brazil Cable Investments, Inc., its partner
Witnesses:
1.
2.
<PAGE>
AMENDMENT NO. 2
TO THE STOCKHOLDERS AGREEMENT
This Amendment No. 2, dated as of October 15, 1996 ("Amendment No. 2"), to
the Stockholders Agreement dated as of December 6, 1995, as amended by Amendment
No. 1 dated as of February 12, 1996 (as so amended, the "Stockholders
Agreement"), is made by and among:
1. TEVECAP S.A., a corporation organized under the laws of the Federative
Republic of Brazil, with its principal place of business in Sao Paulo, SP,
Brazil, at Rua do Rocio 313, Cj. 101 (parte) CGC MF Nr. 57.574.170/0001-05
(the "Company");
2. Mr. Robert Civita, a Brazilian citizen, married, editor, bearer of the ID
Card Nr. 1.666.785 and CPF Nr. 006.890.178-04, domiciled in Sao Paulo, SP,
Brazil, at Rua Escocia, 253, apt. 11, Brazil ("Mr. Civita");
3. ABRIL S.A., a corporation organized under the laws of the Federative
Republic of Brazil, with its principal place of business in Sao Paulo, SP,
Brazil, at Av. Otaviano Alves de Lima 4400, Sao Paulo, Brazil, CGC/MF Nr.
44.597.052/0001-62 ("Abril") (as successor in interest to Abrilcap
Comercio e Participacoes Ltda.);
4. HARPIA HOLDINGS LIMITED, a company duly organized and validly existing in
accordance with laws of the Cayman Islands, having its registered office
at c/o Maples & Calder, Attorneys-at-Law, P.O. Box 309, George Town, Grand
Cayman, Cayman Islands, British West Indies ("Harpia");
5. CURUPIRA HOLDINGS LIMITED, a company duly organized and validly existing
in accordance with the laws of the Cayman Islands, having its registered
office at c/o Maples & Calder, Attorneys-at-Law, P.O. Box 309, George
Town, Grand Cayman, Cayman Islands, British West Indies ("Curupira");
6. FALCON INTERNATIONAL COMMUNICATIONS (BERMUDA) L.P., a limited partnership
organized and validly existing in accordance with the laws of Bermuda,
having its registered office in Bermuda ("Falcon");
7. HEARST/ABC VIDEO SERVICES II, a general partnership organized under the
laws of Delaware, with its principal place of business at 959 Eighth
Avenue, New York, NY 10019 ("Hearst/ABC Video"); and
8. CABLE PARTICIPACOES LTDA. (formerly TVA PARTICIPACOES LTDA.), a limited
liability company organized under the laws of the Federative Republic of
Brazil, with its principal place of business in Sao Paulo, SP, Brazil Rua
do Rocio 313, CGC MF Nr. 00921404/0001-18 ("Hearst/ABC Limitada").
WHEREAS, the parties (including their respective nominees) are the holders
of 100% of the issued and outstanding capital stock of the Company;
<PAGE>
WHEREAS, the parties entered into the Stockholders Agreement governing
certain of their respective rights and obligations in the Company;
WHEREAS, the Company plans to issue high yield senior notes in the United
States in the principal amount of $225,000,000 (the "Notes");
WHEREAS, the Notes will be issued under an indenture (the "Indenture")
among the Company, the Company's subsidiaries named therein, The Chase Manhattan
Bank, as trustee, and Chase Manhattan Trust & Banking Co. (Japan) Ltd., as
paying agent;
WHEREAS, the Indenture will contain certain covenants relating to the
actions and conduct of the Company and the Company's subsidiaries;
WHEREAS, to provide for the issuance of the Notes, the undersigned parties
have agreed to amend the Stockholders Agreement in accordance with the terms
hereof.
NOW THEREFORE, the Stockholders, having resolved to amend the Stockholders
Agreement in accordance with the requirements of Article 118 of Law No. 6.404,
of December 15, 1976, other applicable legislation and the following terms and
conditions, hereby agree to amend the Stockholders Agreement as follows:
1. The following definitions shall be added to Section 1 of the Stockholders
Agreement:
"Indenture" shall mean the Indenture among the Company, the
Company's subsidiaries named therein, The Chase Manhattan Bank, as
trustee, and Chase Manhattan Trust & Banking Co. (Japan) Ltd., as
paying agent, to be entered into in connection with the issuance of
the Notes.
"Notes" shall mean $225,000,000 aggregate principal amount of senior
notes due 2004 to be issued by the Company pursuant to the
Indenture.
2. Each of Sections 6.1, 7.1(i) and 7A.1 shall be deleted and replaced by the
following:
6.1 So long as the Shares owned by the HC Entities are not publicly
registered, listed or traded (other than pursuant to (x) a
registration initiated by the Company pursuant to Clause 13.1(ii)
hereof to satisfy its indemnification obligations as described
therein, (y) a registration initiated pursuant to Clause 18.1 hereof
or (z) the exercise of its piggyback registration rights pursuant to
Clause 18.2 hereof) and Harpia or Curupira and their Affiliates,
considered together, at such time hold at least five percent (5%) of
the Company's voting Shares, or any other Stockholder or group of
Stockholders that are Affiliates (other than Mr. Civita, Abril and
any Affiliates thereof) which have received, by transfer from
Harpia, Curupira or any Affiliate thereof, and at such time hold, at
least five percent (5%) of the Company's voting Shares, then upon
the occurrence of an HC Triggering Event (as defined in Clause 6.2
below) , and during the continuance thereof as described in the last
paragraph of Clause 6.2 below, Harpia, Curupira, and their
Affiliates, or such other Stockholder or
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<PAGE>
Stockholders, as the case may be (the "HC Put Party"), shall be
entitled to demand that the Company buy, in whole or in part, the
Shares subscribed for by Harpia or Curupira pursuant to the
Subscription Agreement then held by the HC Put Party (the Shares
designated as being subject to such exercise of the HC Put Option
are referred to as the "HC Put Shares") at the Event Put Price (as
defined below), on the terms and conditions set forth in this Clause
6 (the "HC Put Option"); provided, however, that if the terms of the
Indenture set forth in the Section entitled "Limitation on
Restricted Payments," prohibit the Company from purchasing the HC
Put Shares, in whole or in part, the Company shall not be obligated
to purchase the HC Put Shares to the extent it is so restricted, but
the Company shall have the obligation, if so elected by the HC Put
Party as the Event Put Party as provided for in Clause 9.3 hereof,
to issue the Special Preferred Shares pursuant to Clause 9.3 hereof;
provided further, however, that the Company shall purchase the HC
Put Shares for cash: (i) if such purchase is not restricted by the
terms of the Indenture, (ii) to the fullest extent permitted under
the terms of the Indenture and (iii) as soon as such purchase is not
restricted by the terms of the Indenture. The rights of any HC Put
Party under this Clause 6 are in addition to any other rights,
remedies or actions which may be available to it hereunder, under
any other agreement or by operation of law, except that the HC Put
Option shall not be exercisable with respect to any HC Triggering
Event (as defined below) for which Harpia, Curupira and their
Affiliates shall have received indemnification in full for all
amounts claimed and owing under Clause 7.3(a) or (b) of the Old
Stock Agreement and, to the extent applicable, Sections 6.3(h) and
(i) of the Stock Purchase Agreement.
7.1(i) Unless
(a) the Shares owned by Falcon or its Affiliates shall have been
publicly registered, listed or traded (other than pursuant to:
(x) a registration initiated by the Company pursuant to Clause
13.1(ii) hereof to satisfy its indemnification obligations as
described therein, (y) (1) with respect to a Falcon Time Put
Option, a registration initiated by a Stockholder other than
Falcon or its Affiliates pursuant to Clause 18.1 hereof and
(2) with respect to a Falcon Event Put Option, a registration
initiated pursuant to Clause 18.1 hereof or (z) the exercise
of its piggyback registration rights pursuant to Clause 18.2
hereof),
(b) at the time of the exercise of the Falcon Put Option both (1)
at least 50% of the initial aggregate ownership interests of
the initial equity holders (the "Falcon Parent Investors") of
Falcon International Communications L.P. ("Falcon Parent")
(such initial ownership interests and initial equity holders
calculated after Falcon Parent shall have been fully organized
and the initial issuance of ownership interests to investors
other than Hellman & Friedman Capital Partners III, L.P.
("Hellman & Friedman") and/or entities related thereto shall
have been completed) shall then have become publicly
registered, listed or traded
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<PAGE>
and shall be freely tradable without any restrictions imposed
by applicable securities laws, and (2) at least 50% of all of
the ownership interests of Falcon Parent shall then have
become publicly traded or
(c) Falcon together with its Affiliates at such time collectively
hold less than 5% (five percent) of the Company's voting
Shares,
then upon the occurrence of a Falcon Triggering Event (as defined
below in Clause 7.2) and during the continuance thereof as described
in the last paragraph of Clause 7.2 below, Falcon and its Affiliates
shall be entitled to demand that the Company buy:
(A) in the case of a Falcon Triggering Event referred to in Clause
7.2(i) below, all but not less than all of the Shares acquired
by Falcon pursuant to the Old Stock Purchase Agreement then
held by Falcon and its Affiliates (as used with respect to the
Falcon Time Put Option, the "Falcon Put Shares") at the Time
Put Price, on the terms and conditions set forth in this
Clause 7 and Clause 9 (such option being hereinafter referred
to as the "Falcon Time Put Option"), or
(B) in the case of all other Falcon Triggering Events, all or a
portion of the Shares acquired by Falcon pursuant to the Old
Stock Purchase Agreement then held by Falcon and its
Affiliates or transferees described in Clause 7.1(ii) below
(as used with respect to the Falcon Event Put Option, the
number of Shares designated as being subject to such exercise
of the Falcon Event Put Option are referred to as the "Falcon
Put Shares") at the Event Put Price, on the terms and
conditions (including the proviso set forth below) set forth
in this Clause 7 and Clause 9 (such option hereinafter
referred to as the "Falcon Event Put Option"), except that the
Falcon Event Put Option shall not be exercisable with respect
to any Falcon Triggering Event for which Falcon and its
Affiliates shall have received indemnification in full for all
amounts claimed and owing under Section 7.3(a) or (b) of the
Old Stock Purchase Agreement and, to the extent applicable,
Sections 6.3 (h) and (i) of the Stock Purchase Agreement;
provided, however, that if the terms of the Indenture set forth in
the Section entitled "Limitation of Restricted Payments," thereof
prohibit the Company from purchasing the Falcon Put Shares that are
subject to a Falcon Event Put Option, in whole or in part, the
Company shall not be obligated to purchase the Falcon Put Shares to
the extent it is so restricted, but the Company shall have the
obligation, if so elected by Falcon as the Event Put Party as
provided for in Clause 9.3 hereof, to issue the Special Preferred
Shares pursuant to Clause 9.3 hereof; provided further, however,
that the Company shall purchase the Falcon Put Shares for cash: (i)
if such purchase is not restricted by the terms of the Indenture,
(ii) to the fullest extent permitted under the
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<PAGE>
terms of the Indenture and (iii) as soon as such purchase is not
restricted by the terms of the Indenture.
Falcon hereby agrees, promptly after completion of the initial
issuance of ownership interests in Falcon Parent to investors other
than Hellman & Friedman and/or entities related thereto, to provide
the Board with a list of the Falcon Parent Investors.
7A.1 So long as the Shares owned by the Investor Entities are not
publicly registered, listed or traded (other than pursuant to: (x) a
registration initiated by the Company pursuant to Clause 13.1(ii)
hereof to satisfy its indemnification obligations as described
therein, (y) a registration initiated pursuant to Clause 18.1 hereof
or (z) the exercise of its piggyback registration rights pursuant to
Clause 18.2 hereof) and the Investor Entities and their Affiliates,
considered together, at such time hold at least 5% (five percent) of
the Company's voting shares, or any other Stockholder or group of
Stockholders that are Affiliates (other than Mr. Civita, Abril and
any Affiliates thereof) which have received, by transfer from the
Investor Entities or any Affiliate thereof, and at such time hold at
least 5% (five percent) of the Company's voting Shares, then upon
the occurrence of an Investor Triggering Event (as defined in Clause
7A.2 below), and during the continuance thereof as described in the
last paragraph of Clause 7A.2 below, the Investor Entities and their
Affiliates, or such other Stockholder or Stockholders, as the case
may be (the "Investor Put Party"), shall be entitled to demand that
the Company buy, in whole or in part, the Shares purchased by the
Investor Entities pursuant to the Stock Purchase Agreement or the
stock purchase agreement among Hearst Limitada, Harpia and Curupira
(the "HC Stock Purchase Agreement") then held by the Investor Put
Party (the number of Shares designated as being subject to such
exercise of Put Option are referred to as the "Investor Put
Shares"), at the Event Put Price, on the terms and conditions set
forth in this Clause 7A (the "Investor Put Option"); provided,
however that if the terms of the Indenture set forth in the Section
entitled "Limitation of Restricted Payments," thereof prohibit the
Company from purchasing the Investor Put Shares, in whole or in
part, the Company shall not be obligated to purchase the Investor
Put Shares to the extent it is so restricted, but the Company shall
have the obligation, if so elected by the Investor Entities as the
Event Put Party as provided for in Clause 9.3 hereof, to issue the
Special Preferred Shares pursuant to Clause 9.3 hereof; provided
further, however, that the Company shall purchase the Investor Put
Shares for cash: (i) if such purchase is not restricted by the terms
of the Indenture, (ii) to the fullest extent permitted under the
terms of the Indenture and (iii) as soon as such payment is not
restricted by the terms of the Indenture. The rights of any Investor
Put Party under this Clause 7A are in addition to any other rights,
remedies or actions which may be available to it hereunder, under
any other agreement or by operation of law, except that the Investor
Put Option shall not be exercisable with respect to any Investor
Triggering Event for which the Investor Entities and their
Affiliates shall have received
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<PAGE>
indemnification in full for all amounts claimed and owing under
Clause 6.3(a) or (b) of the Stock Purchase Agreement.
3. Each of Sections 9.1, 9.2, 9.3, 9.5, 9.6 and 9.7 shall be deleted and
replaced by the following:
9.1 In the event that on the Date of the HC Put Payment, the Date of the
Investor Put Payment, or the Date of the Falcon Put Payment with
respect to any Falcon Event Put Option, as the case may be (the
"Date of the Event Put Payment"), by reason of inadequate retained
earnings or reserves pursuant to Article 30 of Law No. 6.404/76 or
by reason of a restriction set forth in the Indenture in the Section
entitled "Limitation on Restricted Payments", the Company is unable
to purchase the Shares subject to the HC Put Option, the Investor
Put Option or the Falcon Event Put Option, as the case may be (the
"Event Put"), in whole or in part, and in the event that the HC Put
Party, the Investor Put Party or the Falcon Put Party, as the case
may (the "Event Put Party"), does not expressly further waive its
Event Put (provided that any such waiver shall be without prejudice
to the right of the Event Put Party to reinstate such Event Put
Option in accordance with Clause 6, 7 or 7A above, as applicable),
the Company shall establish, in writing, the amount in U.S. Dollars
corresponding to the Event Put Price of Shares not acquired on the
Date of the Event Put Payment as verified pursuant to Clause 6, 7 or
7A above, which shall not be subject to any variation (except
foreign exchange variation), irrespective of the Company's operating
results or the value of the Shares after the Date of the Event Put
Payment, and the closing date of the Event Put with respect to such
remaining Shares shall be extended pursuant to this Clause ("Put
Postponement"). This Clause 9.1 shall not limit or be interpreted as
further limiting the Company's obligation (subject to the terms
hereof), under the Event Put to buy the maximum possible amount of
Shares, including on the Date of the Event Put Payment.
9.2 In the event of a Put Postponement, the Company shall continue to
use its best efforts to increase its ability, to legally purchase
the remaining Shares subject to the Event Put, pursuant to its
terms, and in each case subject to the restrictions set forth in the
Indenture in the Section entitled "Limitation on Restricted
Payments" and the Section entitled "Limitation on Indebtedness" for
so long as the Notes are outstanding, by obtaining credit and/or the
necessary consent of its creditors other than the holders of the
Notes or the trustee under the Indenture, if applicable. The Event
Put Price of each Share to be purchased shall be paid to the Event
Put Party in Reais Equivalent on the date of such payment.
9.3 Any Shares not purchased by the Company on the Date of the Event Put
Payment may be converted by the Event Put Party, at its exclusive
discretion, into classes of the Company's Preferred Shares ("Special
Preferred Shares") entitled to a minimum fixed and cumulative
dividend to be determined on the basis of the aggregate Event Put
Price for such unpurchased Shares, multiplied
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by the one-year LIBOR rate as quoted by the London branch of The
Chase Manhattan Bank prevailing on the Date of the Event Put
Payment, plus 4% per annum ("Cumulative Dividends"), payable
semiannually from the Date of the Event Put Payment through the date
such Special Preferred Shares are purchased by the Company pursuant
to the Event Put; provided, however, if due to restrictions set
forth in the Indenture in the Section entitled "Limitation on
Restricted Payments," the Company may not make payment of the
Cumulative Dividends at any time, the Company shall not be obligated
to make payment of such Cumulative Dividends to the extent
restricted by the terms of the Indenture; provided further however
that in such event, (i) such dividends shall continue to accumulate;
and (ii) the Company shall make payment of such dividends (including
any accumulated and unpaid dividends) as soon as permitted by
applicable law and as soon as such payment is not restricted by the
terms of the Indenture. The Event Put Party shall be entitled to
elect, in its sole discretion, to receive shares of voting (the
"Preferred Voting Shares") or non-voting Special Preferred Shares,
or any combination thereof. For purposes of this Agreement and the
Company's By-Laws, the Preferred Voting Shares shall be deemed to be
included in the definition of "Shares" and all of the rights of the
Stockholders hereunder with respect to the Shares held by them shall
continue so long as they hold the Preferred Voting Shares.
9.4 The Stockholders undertake to exercise the voting rights of their
Shares in order to amend the Company's By-Laws so as to create the
Special Preferred Shares whenever so required according to
provisions set forth herein.
9.5 In addition to the Cumulative Dividends, the Special Preferred
Shares shall be entitled to any minimum dividend required by law to
be paid by the Company ("Mandatory Dividend"), provided, however, if
due to restrictions set forth in the Indenture in the Section
entitled "Limitation on Restricted Payments," and in accordance with
the waiver set forth in Clause 16.4 hereof, the Company may not make
payment of the Mandatory Dividend in cash at any time, the Company
shall not be obligated to make payment of such Mandatory Dividend in
cash to the extent restricted by the terms of the Indenture;
provided further, however, that in such event, (i) such dividends
shall continue to accumulate; and (ii) the Company shall make
payment of such dividends (including any accumulated and unpaid
dividends) as soon as permitted by applicable law and as soon as
such payment is not restricted by the terms of the Indenture.
9.6 After the payment of the Cumulative Dividend and of the Mandatory
Dividend, any remaining profit or reserve (other than mandatory
legal reserves) verified by the Company shall be used to buy the
highest possible amount of Shares (including the Special Preferred
Shares) subject to the Event Put Option, provided, however, if due
to restrictions set forth in the Indenture in the Section entitled
"Limitation on Restricted Payments," the Company may not purchase
any shares pursuant to this Clause 9.6 at any time, the Company
-7-
<PAGE>
shall not be obligated to make such purchase, provided further,
however, that in such event the Company shall make such purchase as
soon as permitted by applicable law and as soon as not restricted by
the terms of the Indenture. All dividend payments and all other
distributions to Stockholders and all redemptions or repurchases of
any capital stock from any holder of capital stock in the Company,
with the exception of the Cumulative Dividend on Special Preferred
Shares then outstanding and of the Mandatory Dividend, are and shall
be expressly subject and subordinate to the acquisition of all of
the Shares subject to the Event Put in the event they have not been
purchased from the Event Put Party. All Cumulative Dividends, and
all repurchases of Shares (including the Special Preferred Shares)
subject to the Event Put Option, shall be made on a pro-rata basis
in favor of all Stockholders that exercised an Event Put
simultaneously under Clause 8.1 or 8.2 or 8.3 above; otherwise, the
rights of any Event Put Parties under this Clause 9 and under any
Special Preferred Shares issued hereunder shall be ranked according
to the respective Dates of the Event Put Payment on which such
rights arose.
9.7 (i) In the event a Falcon Put Notice in respect of the Falcon Time
Put Option has been delivered, and, pursuant to Clause 7.3 and 6.9
above, Falcon has decided to exercise the Falcon Time Put Option,
then, during the 30-day period immediately following receipt of the
appraiser's notice referred to in Clause 6.7 above (the "Time Put
Decision Period"), the Company shall, by action of a majority of the
members of its Board not appointed by any Falcon Put Party or its
Affiliates, make the following determinations in sequence, promptly
(but in any event within the Time Put Decision Period) notify the
Falcon Put Parties of such determinations and take the following
actions as determined thereby:
(a) If the Company, acting in good faith and in a commercially
reasonable manner, determines that it has, subject to the
restrictions set forth in the Indenture in Section entitled
"Limitation on Indebtedness", and subject to the restrictions
set forth in the Indenture in the Section entitled,
"Limitation on Restricted Payments," cash available which,
together with borrowings available to the Company on
commercially reasonable terms, is sufficient to pay the entire
Time Put Price, then the Company shall pay the Time Put Price
to the Falcon Put Parties by 11:30 a.m. on the 90th day after
the end of the Time Put Decision Period, in cash in Reais
Equivalent on such day of payment, and the Falcon Put Parties
shall transfer to the Company all of the Falcon Put Shares
free and clear of all liens, claims, charges, restrictions and
encumbrances caused by or suffered to exist by any Falcon Put
Party or its Affiliates, other than as provided in this
Agreement; provided it is understood that the Company shall be
subject to an obligation to use its best efforts, subject so
long as the Notes are outstanding to the restrictions set
forth in the Indenture in the Section entitled "Limitation on
Indebtedness," to obtain any necessary borrowings on a
commercially reasonable basis to satisfy the Falcon Time Put
Option in
-8-
<PAGE>
cash on the Date of the Falcon Put Payment; provided, however,
that if on such 90th day, the Company is unable to satisfy the
cash payment required hereunder, the provisions of Clause
9.7(ii) shall be applicable;
(b) If after use of the efforts described in (a) above the Company
determines that such cash and borrowings described in (a)
above are not available but instead determines, acting in good
faith, in a commercially reasonable manner and, for so long as
the Notes are outstanding, subject to the restrictions set
forth in the Indenture in the Section entitled "Limitation on
Restricted Payments," that it will have cash available which,
together with borrowings available to the Company on
commercially reasonable terms and, for so long as the Notes
are outstanding, in accordance with the restrictions set forth
in the Indenture in the Section entitled "Limitation on
Indebtedness" will be sufficient to pay the Time Put Price in
three installments as described in Clause 9.8 below, then the
Company and the Falcon Put Parties shall take the actions
described in Clause 9.8 below, it being understood and agreed
that the Company shall be subject to an obligation to use its
best efforts, subject for so long as the Notes are outstanding
to the restrictions set forth in the Indenture in the Section
entitled "Limitation on Indebtedness," to obtain any necessary
borrowings on a commercially reasonable basis to satisfy all
such installments; and
(c) if the Company, acting in good faith and in a commercially
reasonable manner, determines that such cash and borrowings
described in (a) and (b) above are not available, then the
Company and the Falcon Put Parties shall take the actions
described in Clause 9.9 below.
(ii) If, at the end of the 90-day period referred to in Clause 9.7(i)(a),
the Company, after having used its best efforts to obtain any
necessary borrowings on a commercially reasonable basis and for so
long as the Notes are outstanding in accordance with the
restrictions set forth in the Indenture in the Section entitled
"Limitation on Indebtedness," to satisfy the entire Time Put Price,
is unable to pay the entire Time Put Price, the Company shall, on
such 90th day, be entitled to and shall elect one of the
alternatives set forth in Clause 9.7(i)(b) or (c) above, and in such
event the parties shall be governed by the procedures set forth in
Clause 9.8 or 9.9 below, as the case may be, depending upon the
alternative elected, and the other applicable provisions of this
Agreement.
4. The following Clause 9.13 shall be added to the end of Clause 9:
9.13 Notwithstanding the provisions of Clauses 9.8 and 9.10 hereof, each
of the parties to the Stockholders Agreement agrees as follows:
-9-
<PAGE>
(i) If as a result of the restrictions set forth in the Indenture
in the Section entitled "Limitation on Restricted Payments,"
the Company is not able to make a cash payment required under
Clause 9.8(i) on the first or second anniversary of the
Company's receipt of the related Falcon Put Notice, the
Company shall not be required to make such payment in cash on
such dates, but shall be required to deliver the promissory
note or promissory notes referred to in Clause 9.8(ii). The
payment required on the third anniversary shall not be subject
to any restrictions.
(ii) If as a result of the restrictions set forth in the Indenture
in the Section entitled "Limitation on Restricted Payments,"
the Company is not able to make a cash interest payment
required under any promissory note or notes issued hereunder,
the Company shall not be required to make such cash payment at
such time; provided, however, that: (i) any accrued and unpaid
interest shall accumulate (and if necessary under applicable
law, be added to principal) and interest on such unpaid amount
shall be compounded quarterly and shall be paid in accordance
with the other provisions of the promissory notes applicable
to payment of interest; (ii) the Company shall make such
payments of interest as soon as permitted under the terms of
the Indenture or as soon as such payment is no longer
restricted under the terms of the Indenture; and (iii) all
accrued and unpaid interest shall be due and payable on the
maturity of the promissory notes and interest shall continue
to accrue until payment in full.
(iii) Payment of the principal and interest (without restricting
interest payments permitted under the terms of the Indenture),
on the promissory notes shall be subordinated to the prior
payment in full of the Notes, pursuant to language customary
in transactions of this nature and consistent with the terms
hereof, provided that nothing herein nor in such subordination
language shall affect the relative rights against the Company
of Falcon and creditors of the Company other than holders of
the Notes, or prevent Falcon from exercising all remedies
under the notes issued to Falcon pursuant to Clauses 9.8 or
9.9, and otherwise permitted by applicable law, on default
under any such notes, subject to the rights, if any, of the
holders of the Notes to receive payment in full on the Notes
prior to the payment of such principal and interest on such
promissory notes issued to Falcon.
(iv) In determining the interest rate on the promissory notes under
Clause 9.10 (iv)), including without limitation, the spread
referred to in Clause 9.10(iv), the subordination of payment
to the Notes and the other restrictions imposed pursuant to
the Indenture shall be taken into account.
(v) Except as expressly limited by the terms of this Stockholders
Agreement, as amended, all rights and remedies of Falcon in
respect of
-10-
<PAGE>
the Falcon Time Put as set forth in the Stockholders Agreement
shall remain unimpaired and unaffected by the Indenture. With
respect to any amendment, change or modification to the
Indenture or the Notes which requires the consent of the
Company the Company shall not provide such consent, unless (i)
Falcon, if Falcon, or any Affiliate thereof (other than Mr.
Civita, Abril and any Affiliates thereof) continues to own at
least 5% (five percent) of the Company's voting Shares, has
given prior written consent to such amendment, change or
modification and (ii) the Investor Entities, or any Affiliates
thereof (other than Mr. Civita, Abril and any Affiliate
thereof), continues to own at least 5% (five percent) of the
Company's voting Shares have given prior written consent to
such amendment, change or modification. The limitations agreed
to herein by Falcon and the Investor Entities shall apply only
to the Indenture and Notes and no other indebtedness of the
Company, including any refinancing, replacement or
substitution of the Notes.
5. Section 16.4 of the Stockholders Agreement shall be replaced by the
following:
16.4 (A) Unless amended or waived in accordance with Clause 12.3(iii)(c)
hereof, during each calendar year or within 3 (three) months
thereafter, the Company shall (subject to the other provisions of
Section 16.4 below), with respect to its operations for such year,
and to the extent it has funds legally available therefor, pay
dividends to the holders of its Shares, which dividends shall in the
aggregate not be less than the "net cash flow" of the Company and
its Subsidiaries during such year, provided that there shall first
be made a provision for projected cash requirements of the Company
and its Subsidiaries as reflected in the Business Plan for such
fiscal year for the subsequent (12) twelve month period.
Notwithstanding the foregoing, the Stockholders agree that, except
as expressly provided in Clauses 9.3 or 9.5 above or the terms of
Clause 16.4(B), the Company shall distribute not less than 25%
(twenty-five percent) of its net consolidated profits as defined in
the Brazilian corporation law.
(B) Notwithstanding the foregoing paragraph, the Company and the
Stockholders agree that the Company will distribute dividends in
accordance with the foregoing paragraph only if permitted in
accordance with the restrictions set forth in the Indenture in the
Section entitled "Limitation on Restricted Payments".
(C) If distribution of such dividends as contemplated by the first
paragraph hereof is restricted by the section of the Indenture
entitled "Limitation on Restricted Payments", the Company shall make
payment of such dividends (including any accumulated and unpaid
dividends) as soon as permitted by applicable law and as soon as
such payment is not restricted by the terms of the Indenture.
-11-
<PAGE>
(D) In addition, each Stockholder hereby agrees that it will not
exercise its voting rights or rights hereunder to receive dividends
required by Brazilian corporate law, provided, however that such
agreement shall cease to be effective on the earliest to occur of
(x) the date that shares of Stock of the Company are issued on a
Brazilian or United States securities exchange in connection with a
bona fide public offering of such shares or the date that any shares
of the capital stock of the Company are otherwise effectively listed
and traded on any Brazilian or United States securities exchange,
(y) the date that none of the Notes remain outstanding or (z) the
date that such agreement is no longer effective, enforceable or
legal under applicable Brazilian laws and regulations (including
without limitation any construction or interpretation thereof by
Comissao de Valores Mobiliarios, any court or any other governmental
authority); provided, further, that such agreement shall not affect
the Company's ability to pay, or the Stockholders, right to receive,
any other dividends to the extent such dividends are permitted by
the Indenture in the Section entitled "Limitation on Restricted
Payments."
(E) Further, the amount of any dividends required by applicable
Brazilian corporate law, which would otherwise have been paid but
for the agreement set forth herein shall accumulate and shall be
paid by the Company on the earliest to occur of the events described
in clauses (x), (y), and (z) above. For the avoidance of doubt, the
Stockholders hereby confirm that:
E POR ESTAREM ASSIM JUSTAS E CONTRATADAS, as partes, por seus respectivos
representantes devidamente autorizados, resolvem assinar este Aditamento na
primeira data acima escrita.
___________________________________
HARPIA HOLDINGS LIMITED
___________________________________
CURUPIRA HOLDINGS LIMITED
___________________________________
ROBERT CIVITA
___________________________________
ABRIL S.A.
-12-
<PAGE>
___________________________________
TEVECAP S.A.
___________________________________
FALCON COMMUNICATIONS
(BERMUDA) L.P.
___________________________________
HEARST/ABC VIDEO SERVICES II
By: Hearst Brazil, Inc., its partner
___________________________________
By: Brazil Cable Investments, Inc., its
partner
___________________________________
CABLE PARTICIPACOES LTDA.
By: Hearst Brazil, Inc., its partner
___________________________________
By: Brazil Cable Investments, Inc., its
partner
-13-
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES OF TEVECAP S.A.(1)
Company State of Incorporation
- ------- ----------------------
TVA Sistema de Televisao S.A. Brazil
TVA Communications, Ltd. British Virgin Islands
Galaxy Brasil S.A. Brazil
TVA Sul Participacoes S.A. Brazil
Commercial Cabo TV Sao Paulo Ltda. Brazil
TVA Parana Ltda.(2) Brazil
TVA Alpha Cabo Ltda.(2) Brazil
CCS Camboriu Cable Systems de
Telecommunicacoes Ltda.(2) Brazil
TCC TVA Cabo Ltda.(2) Brazil
TVA Sul Santa Catarina Ltda.(2) Brazil
TVA Foz do Iguacu Ltda.(2) Brazil
TVA TCG Sistema TV Brazil
TVA Communications Aruba N.V.(3) Aruba
T-Cap, Inc. Delaware
- ----------
(1) Omits certain entities that are not "significant subsidiaries" as such
term is defined in Rule 1-02(w) of Regulation S-X.
(2) Interest held through TVA Sul Participacoes S.A.
(3) Interest held through TVA Communications Ltd.
<PAGE>
[COOPERS & LYBRAND LETTERHEAD]
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form F-4 (File
No. 333-22267) of; (i) our report dated August 23, 1996 (except as to the
information presented in Notes 4, 20, 25 and 26, for which the date is
February 5, 1997) on our audit of the consolidated financial statements of
TEVECAP S.A. and subsidiaries; (ii) our report dated August 23, 1996 on our
audit of the financial statements of TVA Sistema de Televisao S.A.; (iii)
our report dated August 23, 1996 on our audit of the consolidated financial
statements of TVA Sul Participacoes S.A. and subsidiaries; and, (iv) our
reports dated March 31, 1997 on our audits of the Statements of Revenues and
Direct Operating Expenses of TVA Alfa Cabo Ltda., TCC TV a Cabo Ltda., CCS
Camboriu Cable System de Telecommunicacoes Ltda., TVA Sul Foz do Iguacu Ltda.,
and TVA Sul Santa Catarina Ltda. We also consent to the reference to our Firm
under the caption "Experts."
/s/ Coopers & Lybrand
- ------------------------------
Coopers & Lybrand
April 11, 1997
<PAGE>
Exhibit 25.1
Securities Act of 1933 File Number 333-5828
_________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) / /
__________________
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
13-4994650
(I.R.S. Employer Identification Number)
270 PARK AVENUE, NEW YORK, NEW YORK
(Address of principal executive offices)
10017
(Zip Code)
_______________
TEVECAP S.A.
(Exact name of obligor as specified in its charter)
THE FEDERATIVE REPUBLIC OF BRAZIL NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
RUA DO ROCIO, 313
SAO PAULO, SP BRAZIL
04552-904
(TELEPHONE 55-11-821-8550)
(Address, including zip code, and telephone number,
including area code of obligor's principal executive offices)
_________________________________________
12 5/8% SENIOR NOTES DUE 2004
(Title of the securities)
_________________________________________________________________________
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, State House, Albany, New York
12110.
Board of Governors of the Federal Reserve System, Washington,
D.C., 20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty
Street, New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
-2-
<PAGE>
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of Eligibility.
1. A copy of the Articles of Association of the Trustee as now in effect,
including the Organization Certificate and the Certificates of Amendment dated
February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated herein by reference).
2. A copy of the Certificate of Authority of the Trustee to commence
business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated herein by reference. On July 14,
1996, in connection with the merger of Chemical Bank and The Chase Manhattan
Bank (National Association), Chemical Bank, the surviving corporation, was
renamed The Chase Manhattan Bank.
3. None, authorization to exercise corporate trust powers being contained
in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing by-laws of the Trustee (see Exhibit 4 to Form
T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated herein by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act (see
Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank.
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
On July 14, 1996, in connection with the merger of Chemical Bank and The Chase
Manhattan Bank (National Association), Chemical Bank, the surviving corporation,
was renamed The Chase Manhattan Bank.
8. Not applicable.
9. Not applicable.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the ___ day of _________, 1997.
THE CHASE MANHATTAN BANK
By: Douglas Lavelle
Second Vice President
-4-
<PAGE>
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business June 30, 1996, in
accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
DOLLAR AMOUNTS
ASSETS IN MILLIONS
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin . . . . . . . . . . . . . . . . . . . $ 4,167
Interest-bearing balances . . . . . . . . . . . . . . . 5,094
Securities: . . . . . . . . . . . . . . . . . . . . . . .
Held to maturity securities. . . . . . . . . . . . . . . . 3,367
Available for sale securities. . . . . . . . . . . . . . . 27,786
Federal Funds sold and securities purchased under
agreements to resell in domestic offices of the
bank and of its Edge and Agreement subsidiaries,
and in IBF's:
Federal funds sold . . . . . . . . . . . . . . . . . . 7,204
Securities purchased under agreements to resell . . . . 136
Loans and lease financing receivables:
Loans and leases, net of unearned income. . . . $67,215
Less: Allowance for loan and lease losses . . . 1,768
Less: Allocated transfer risk reserve . . . . . 75
_________
Loans and leases, net of unearned income,
allowance, and reserve . . . . . . . . . . . . . . . . 65,372
Trading Assets . . . . . . . . . . . . . . . . . . . . . . 28,610
Premises and fixed assets (including capitalized
leases) . . . . . . . . . . . . . . . . . . . . . . . . 1,326
Other real estate owned . . . . . . . . . . . . . . . . . 26
Investments in unconsolidated subsidiaries and
associated companies. . . . . . . . . . . . . . . . . . 68
Customer's liability to this bank on acceptances
outstanding . . . . . . . . . . . . . . . . . . . . . . 995
Intangible assets . . . . . . . . . . . . . . . . . . . . 309
Other assets . . . . . . . . . . . . . . . . . . . . . . . 6,993
_________
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . $151,453
. . . . . . . . . . . . . . . . . . . . . . . . . . . . =========
<PAGE>
LIABILITIES
Deposits
In domestic offices . . . . . . . . . . . . . . . . . . $46,917
Noninterest-bearing . . . . . . . . . . . . . . $16,711
Interest-bearing . . . . . . . . . . . . . . . 30,206
_________
In foreign offices, Edge and Agreement subsidiaries,
and IBF's . . . . . . . . . . . . . . . . . . . . . . . 31,577
Noninterest-bearing . . . . . . . . . . . . . . .$ 2,197
Interest-bearing . . . . . . . . . . . . . . . . 29,380
_________
Federal funds purchased and securities sold under agree-
ments to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBF's
Federal funds purchased . . . . . . . . . . . . . . . . 12,155
Securities sold under agreements to repurchase . . . . 8,536
Demand notes issued to the U.S. Treasury . . . . . . . . . 1,000
Trading liabilities . . . . . . . . . . . . . . . . . . . 20,914
Other Borrowed money:
With a remaining maturity of one year or less . . . . . 10,018
With a remaining maturity of more than one year . . . . 192
Mortgage indebtedness and obligations under capitalized
leases . . . . . . . . . . . . . . . . . . . . . . . . 12
Bank's liability on acceptances executed and outstanding . 1,001
Subordinated notes and debentures . . . . . . . . . . . . 3,411
Other liabilities . . . . . . . . . . . . . . . . . . . . 8,091
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . 143,824
_________
EQUITY CAPITAL
Common stock . . . . . . . . . . . . . . . . . . . . . . . 620
Surplus . . . . . . . . . . . . . . . . . . . . . . . . .
4,664
Undivided profits and capital reserves . . . . . . . . . . 2,970
Net unrealized holding gains (Losses)
on available-for-sale securities . . . . . . . . . . . . . (633)
Cumulative foreign currency translation adjustments . . . 8
TOTAL EQUITY CAPITAL . . . . . . . . . . . . . . . . . . . 7,629
_________
TOTAL LIABILITIES, LIMITED-LIFE PREFERRED
STOCK AND EQUITY CAPITAL . . . . . . . . . . . . . . . $151,453
. . . . . . . . . . . . . . . . . . . . . . . . . . . . =========
I, Joseph L. Sclafani, S.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
WALTER V. SHIPLEY )
EDWARD D. MILLER ) DIRECTORS
THOMAS G. LABRECQUE )
<PAGE>
Exhibit 99.2
LETTER OF TRANSMITTAL
FOR TENDERS OF
$250,000,000 Aggregate Principal Amount of
125/8% Senior Notes due 2004
TEVECAP S.A.
Pursuant to the Prospectus
dated ________ __, 1997 of Tevecap S.A.
- --------------------------------------------------------------------------------
THE REGISTERED EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON THE EARLIER OF ________ __, 1997 (UNLESS EXTENDED) OR THE DATE ON WHICH
100% OF THE OLD NOTES AND THE SUBSIDIARY GUARANTEES (TOGETHER, THE "OLD
SECURITIES") ARE VALIDLY TENDERED AND NOT WITHDRAWN (THE "EXPIRATION
DATE"). TENDERED OLD SECURITIES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR
TO THE EXPIRATION DATE OF THE REGISTERED EXCHANGE OFFER.
- --------------------------------------------------------------------------------
Deliver to: The Chase Manhattan Bank, Exchange Agent:
By Mail, by Overnight Courier
or by Hand:
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
By Facsimile:
(212) 946-8177
Delivery of this instrument to an address other than as set forth above,
or transmission of instructions via facsimile other than as set forth above,
will not constitute a valid delivery.
<PAGE>
The undersigned (the "Holder") acknowledges that he or she has
received the Prospectus, dated ________ __, 1997 (the "Prospectus"), of Tevecap
S.A., a Brazilian corporation ("Tevecap"), and this Letter of Transmittal, which
may be amended from time to time (this "Letter"), which together constitute
Tevecap's offer (the "Registered Exchange Offer") to exchange an aggregate
principal amount of up to $250,000,000 of its 125/8% Senior Notes due 2004 (the
"Exchange Notes") together with the Subsidiary Guarantees (as defined in the
Prospectus and together with the Exchange Notes, the "Exchange Securities")
which have been registered under the Securities Act of 1933 (the "Securities
Act"), pursuant to a Registration Statement of which the Prospectus constitutes
a part, for a like principal amount of the issued and outstanding 125/8% Senior
Notes due 2004 (the "Old Notes") of which $250,000,000 aggregate principal
amount is outstanding, together with the Subsidiary Guarantees of the Old Notes
(such Subsidiary Guarantees with the Old Notes, the "Old Securities").
For each Old Note accepted for exchange, the Holder of such Old Note
will receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note. The New Notes will bear interest from the most recent date
to which interest has been paid on the Old Notes or, if no interest has been
paid on the Old Notes, from November 26, 1996. Registered holders of Exchange
Notes on the relevant record date for the first interest payment date following
the consummation of the Registered Exchange Offer will receive interest accruing
from the most recent date to which interest has been paid or, if no interest has
been paid, from November 26, 1996. Old Notes accepted for exchange will cease to
accrue interest from and after the date of consummation of the Registered
Exchange Offer. Holders of Old Notes whose Old Notes are accepted for exchange
will not receive any payment in respect of interest on such Old Notes otherwise
payable on any interest payment date the record date for which occurs on or
after consummation of the Registered Exchange Offer.
This Letter is to be used: (i) by all Holders who are not members of
the Automated Tender Offering Program ("ATOP") at the Depository Trust Company
("DTC"), (ii) by Holders who are ATOP members but choose not to use ATOP or
(iii) if the Old Securities are to be tendered in accordance with the guaranteed
delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 2 hereto. Delivery of
this Letter to DTC does not constitute delivery to the Exchange Agent.
Notwithstanding anything to the contrary in the Exchange and
Registration Rights Agreement, dated November 26, 1996, among Tevecap and the
initial purchasers of Old Securities (the "Exchange and Registration Rights
Agreement"), Tevecap will accept for exchange any and all Old Securities validly
tendered on or prior to 5:00 p.m., New York City time, on the earlier of
_________ __, 1997 (unless the Registered Exchange Offer is extended by Tevecap)
or the date on which 100% of the Old Securities are validly tendered and not
withdrawn (the "Expiration Date"). Tenders of Old Securities may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
IMPORTANT: HOLDERS WHO WISH TO TENDER OLD SECURITIES IN THE REGISTERED EXCHANGE
OFFER MUST COMPLETE THIS LETTER OF TRANSMITTAL AND TENDER THE OLD SECURITIES TO
THE EXCHANGE AGENT AND NOT TO TEVECAP.
The Exchange Offer is not conditioned upon any minimum principal
amount of Old Securities being tendered for exchange.
The Registered Exchange Offer is not being made to, nor will tenders
be accepted from or on behalf of, Holders of Old Securities in any jurisdiction
in which the making or acceptance of the Registered Exchange Offer would not be
in compliance with the laws of such jurisdiction.
-2-
<PAGE>
The instructions included with this Letter of Transmittal must be
followed in their entirety. Questions and request for assistance or for
additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address listed above.
-3-
<PAGE>
APPROPRIATE SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
The undersigned hereby tenders to Tevecap the principal amount of
Old Securities indicated below under "Description of Old Securities," in
accordance with and upon the terms and subject to the conditions set forth in
the Prospectus, receipt of which is hereby acknowledged, and in this Letter of
Transmittal, for the purpose of exchanging each $1,000 principal amount of Old
Notes and Subsidiary Guarantees designated herein held by the undersigned and
tendered hereby for $1,000 principal amount of the Exchange Notes and Subsidiary
Guarantees. Exchange Notes will be issued only in integral multiples of $1,000
to each tendering Holder of Old Securities whose Old Securities are accepted in
the Registered Exchange Offer. Holders may tender all or a portion of their Old
Securities pursuant to the Registered Exchange Offer.
Subject to, and effective upon, the acceptance for exchange of the
Old Securities tendered herewith in accordance with the terms of the Registered
Exchange Offer, the undersigned hereby sells, assigns and transfers to, or upon
the order of, Tevecap all right, title and interest in and to all such Old
Securities that are being tendered hereby and that are being accepted for
exchange pursuant to the Registered Exchange Offer. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent as the true and lawful
agent and attorney-in-fact of the undersigned (with full knowledge that the
Exchange Agent also acts as the agent of Tevecap), with respect to the Old
Securities tendered hereby and accepted for exchange pursuant to the Registered
Exchange Offer with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest) to deliver the Old
Securities tendered hereby to Tevecap (together with all accompanying evidences
of transfer and authenticity) for transfer or cancellation by Tevecap.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall not be affected by, and shall survive, the death or incapacity
of the undersigned and any obligation of the undersigned hereunder shall be
binding upon the heirs, executors, administrators, legal representatives,
successors and assigns of the undersigned. Any tender of Old Securities
hereunder may be withdrawn only in accordance with the procedures set forth in
"The Registered Exchange Offer-Withdrawal Rights" section of the Prospectus and
the instructions contained in this Letter of Transmittal. See Instruction 4
hereto.
The undersigned hereby represents and warrants that he or she has
full power and authority to tender, exchange, assign and transfer the Old
Securities tendered hereby and that Tevecap will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The undersigned will, upon
request, execute and deliver any additional documents deemed by Tevecap to be
necessary or desirable to complete the assignment and transfer of the Old
Securities tendered. The undersigned has read and agrees to all of the terms of
the Registered Exchange Offer.
The undersigned will, upon request, execute and deliver any
additional documents deemed by Tevecap to be necessary or desirable to complete
the sale, assignment and transfer of the Old Securities tendered hereby. All
authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Registered
Exchange Offer--Withdrawal Rights" section of the Prospectus and the
instructions contained in this Letter of Transmittal. See Instruction 4 hereto.
The name(s) and address(es) of the registered Holder(s) should be
printed herein under "Description of Old Securities" (unless a label setting
forth such information appears thereunder), exactly as they appear on the Old
Securities tendered hereby. The certificate number(s) and the principal amount
of Old Securities to which this Letter relates, together with the principal
amount of such Old Securities that the
-4-
<PAGE>
undersigned wishes to tender, should be indicated in the appropriate boxes
herein under "Description of Old Securities."
The undersigned agrees that acceptance of any tendered Old
Securities by Tevecap and the issuance of Exchange Securities in exchange
therefor shall constitute performance in full by Tevecap of its obligations
under the Exchange and Registration Rights Agreement and that, upon the issuance
of the Exchange Notes, Tevecap will have no further obligations or liabilities
thereunder.
The undersigned understands that the tender of Old Securities
pursuant to one of the procedures described in the Prospectus under "The
Registered Exchange Offer -- Exchange Offer Procedures" and the Instructions
hereto will constitute the tendering Holder's acceptance of the terms and the
conditions of the Registered Exchange Offer. The undersigned hereby represents
and warrants to Tevecap that the Exchange Securities to be acquired by such
Holder pursuant to the Registered Exchange Offer are being acquired in the
ordinary course of such Holder's business, that such Holder has no arrangement
or understanding with any person to participate in the distribution of the
Exchange Securities. Tevecap's acceptance of Old Securities for exchange
tendered pursuant to the Registered Exchange Offer will constitute a binding
agreement between the tendering Holder and Tevecap upon the terms and subject to
the conditions of the Registered Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT IT IS NOT
ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION OF THE EXCHANGE
SECURITIES.
The undersigned also acknowledges that this Registered Exchange
Offer is being made based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission") which lead Tevecap and the Subsidiary
Guarantors to believe that the Exchange Securities issued in exchange for the
Old Securities pursuant to the Registered Exchange Offer may be offered for
resale, resold and otherwise transferred by holders thereof (other than (i) a
broker-dealer who acquired the Old Securities as a result of market-making
activities or other trading activities, (ii) an Initial Purchaser who acquired
the Old Securities directly from Tevecap solely in order to resell pursuant to
Rule 144A of the Securities Act or any other available exemption under the
Securities Act, or (iii) a person that is an "affiliate" (as defined in Rule 405
of the Securities Act) of Tevecap), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Securities are acquired in the ordinary course of such holders'
business and such holders are not participating and have no arrangement or
understanding with any person to participate in the distribution of such
Exchange Securities. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Securities and has no arrangement or understanding to
participate in a distribution of Exchange Securities. If any holder is an
affiliate of Tevecap or is engaged in or has any arrangement or understanding
with respect to the distribution of the Exchange Securities to be acquired
pursuant to the Registered Exchange Offer, such holder (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act. If the undersigned is a broker-dealer that will receive Exchange Securities
for its own account in exchange of Old Securities, it represents that the Old
Securities to be exchanged for the Exchange Securities were acquired by it as a
result of market-making activities or other trading activities and acknowledges
that it will deliver a prospectus in connection with any resale of such Exchange
Securities. By so acknowledging and by delivering a Prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The undersigned understands that the Exchange Securities issued in
consideration of Old Securities accepted for exchange, and/or any principal
amount of Old Securities not tendered or not accepted for exchange, will only be
issued in the name of the Holder(s) appearing herein under "Description of Old
Securities." Unless otherwise indicated under "Special Delivery Instructions,"
please mail the Exchange Securities issued in consideration of Old Securities
accepted for exchange, and/or any principal amount of Old Securities not
tendered or not accepted for exchange (and accompanying documents, as
appropriate), to the
-5-
<PAGE>
Holder(s) at the address(es) appearing herein under "Description of Old
Securities." In the event that the Special Delivery Instructions are completed,
please mail the Exchange Securities issued in consideration of Old Securities
accepted for exchange, and/or any Old Securities for any principal amount not
tendered or not accepted for exchange, in the name of the Holder(s) appearing
herein under "Description of Old Securities," and send such Exchange Securities
and/or Old Securities to, the address(es) so indicated. Any transfer of Old
Securities to a different holder must be completed, according to the provisions
on transfer of Old Securities contained in the Indenture.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
SECURITIES" BELOW AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED
THE OLD SECURITIES AS SET FORTH IN SUCH BOX BELOW.
-6-
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions
of the Registered Exchange Offer
1. Guarantee of Signatures. Signatures on this Letter of Transmittal
or notice of withdrawal, as the case may be, must be guaranteed by an
institution which falls within the definition of "eligible guarantor
institution" contained in Rule 17Ad-15 as promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended
(hereinafter, an "Eligible Institution") unless (i) the Old Securities tendered
hereby are tendered by the Holder(s) of the Old Securities who has (have) not
completed the box entitled "Special Delivery Instructions" on this Letter of
Transmittal or (ii) the Old Securities are tendered for the account of an
Eligible Institution.
2. Delivery of this Letter of Transmittal and Old Securities;
Guaranteed Delivery Procedures. This Letter of Transmittal is to be used: (i) by
all Holders who are not ATOP members, (ii) by Holders who are ATOP members but
choose not to use ATOP or (iii) if the Old Securities are to be tendered in
accordance with the guaranteed delivery procedures set forth in the Prospectus
under "The Registered Exchange Offer--Guaranteed Delivery Procedures." To
validly tender Old Securities, a Holder must physically deliver a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) with
any required signature guarantees and all other required documents to the
Exchange Agent at its address set forth on the cover of this Letter of
Transmittal prior to the Expiration Date (as defined below) or the Holder must
properly complete and duly execute an ATOP ticket in accordance with DTC
procedures. Otherwise, the Holder must comply with the guaranteed delivery
procedures set forth in the next paragraph. Notwithstanding anything to the
contrary in the Exchange and Registration Rights Agreement, the term "Expiration
Date" means 5:00 p.m., New York City time, on the earlier of _________ __, 1997
(or such later date to which Tevecap may, in its sole discretion, extend the
Registered Exchange Offer) or the date on which 100% of the Old Securities are
validly tendered and not withdrawn. If this Registered Exchange Offer is
extended, the term "Expiration Date" shall mean the latest time and date to
which the Registered Exchange Offer is extended. Tevecap expressly reserves the
right, at any time or from time to time, to extend the period of time during
which the Exchange Offer is open by giving oral (confirmed in writing) or
written notice of such extension to the Exchange Agent and by making a public
announcement of such extension prior to 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
LETTERS OF TRANSMITTAL SHOULD NOT BE SENT TO TEVECAP OR TO DTC.
If a Holder of the Old Securities desires to tender such Old
Securities and time will not permit such Holder's required documents to reach
the Exchange Agent before the Expiration Date, a tender may be effected if (a)
the tender is made through an Eligible Institution, (b) on or prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) and Notice of Guaranteed Delivery (by telegram, facsimile transmission,
mail or hand delivery) setting forth the name and address of the Holder of the
Old Securities and the principal amount of Old Securities tendered, stating that
the tender is being made thereby and guaranteeing that within three New York
Stock Exchange trading days after the Expiration Date, any documents required by
the Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent; and (c) all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three New York Stock
Exchange trading days after the Expiration Date. See "The Registered Exchange
Offer--Guaranteed Delivery Procedures" as set forth in the Prospectus.
Only a Holder of Old Securities may tender Old Securities in the
Registered Exchange Offer. The term "Holder" as used herein with respect to the
Old Securities means any person in whose name Old Securities are registered on
the books of the Trustee. If the Letter of Transmittal or any Old Securities are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others
-7-
<PAGE>
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by Tevecap, proper evidence
satisfactory to Tevecap of their authority to so act must be so submitted.
Any beneficial Holder whose Old Securities are registered in the
name of his broker, dealer, commercial bank, trust company or other nominee and
who wishes to validly surrender those Old Securities in the Registered Exchange
Offer should contact such registered Holder promptly and instruct such
registered Holder to tender on his behalf. If such beneficial Holder wishes to
tender on his own behalf, such beneficial Holder must, prior to completing and
executing the Letter of Transmittal, make appropriate arrangements to register
ownership of the Old Notes in such beneficial holder's name. It is the
responsibility of the beneficial holder to register ownership in his own name if
he chooses to do so. The transfer of record ownership may take considerable
time.
The method of delivery of this Letter of Transmittal (or facsimile
hereof) and all other required documents is at the election and risk of the
exchanging Holder, but, except as otherwise provided below, the delivery will be
deemed made only when actually received or confirmed by the Exchange Agent. If
sent by mail, registered mail with return receipt requested, properly insured,
is recommended. In all cases, sufficient time should be allowed to assure timely
delivery to the Exchange Agent before the Expiration Date. No Letters of
Transmittal or Old Securities should be sent to Tevecap.
No alternative, conditional or contingent tenders will be accepted.
All tendering Holders, by execution of this Letter of Transmittal (or facsimile
hereof), waive any right to receive notice of acceptance of their Old Securities
for exchange.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and principal amount of the Old Securities to which this
Letter of Transmittal relates should be listed on a separate signed schedule
attached hereto.
4. Withdrawal of Tender. Tenders of Old Securities may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To be effective, a written or facsimile transmission notice of
withdrawal must (i) be received by the Exchange Agent at the address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date, (ii)
specify the name of the person having tendered the Old Securities to be
withdrawn, (iii) identify the Old Securities to be withdrawn and (iv) be (a)
signed by the Holder in the same manner as the original signature on the Letter
of Transmittal by which such Old Securities were tendered (including any
required signature guarantees) or (b) accompanied by evidence satisfactory to
Tevecap that the Holder withdrawing such tender has succeeded to beneficial
ownership of such Old Securities. If Old Securities have been tendered pursuant
to the ATOP procedure with DTC, any notice of withdrawal must otherwise comply
with the procedures of DTC. Old Securities properly withdrawn will thereafter be
deemed not validly tendered for purposes of the Registered Exchange Offer;
provided, however, that withdrawn Old Securities may be retendered by again
following one of the procedures described herein at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. All questions as to the validity,
form and eligibility (including time of receipt) of notice of withdrawal will be
determined by Tevecap, whose determinations will be final and binding on all
parties. Neither Tevecap, the Exchange Agent, nor any other person will be under
any duty to give notification of any defects or irregularities in any notice of
withdrawal or incur any liability for failure to give any such notification. The
Exchange Agent intends to use reasonable efforts to give notification of such
defects and irregularities.
5. Partial Tenders; Pro Rata Effect. Tenders of the Old Securities
will be accepted only in integral multiples of $1,000. If less than the entire
principal amount evidenced by any Old Securities is to be tendered, fill in the
principal amount that is to be tendered in the box entitled "Principal Amount
-8-
<PAGE>
Tendered" below. The entire principal amount of all Old Securities delivered to
the Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
6. Signatures on this Letter of Transmittal; Bond Powers and
Endorsements. If this Letter of Transmittal is signed by the registered
Holder(s) of the Old Securities tendered hereby, the signature must correspond
with the name as written on the face of the certificate representing such Old
Securities without alteration, enlargement or any change whatsoever.
If any of the Old Securities tendered hereby are owned of record by
two or more joint owners, all such owners must sign this Letter of Transmittal.
If any of the Old Securities tendered hereby are registered in
different names, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal and any necessary accompanying
documents as there are different registrations.
When this Letter of Transmittal is signed by the Holder(s) of Old
Securities listed and tendered hereby, no endorsements or separate bond powers
are required.
If this Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by Tevecap, proper evidence
satisfactory to Tevecap of their authority to so act must be submitted.
7. Special Delivery Instructions. Tendering Holders should indicate
in the applicable box the name and address to which Exchange Securities issued
in consideration of Old Securities accepted for exchange, or Old Securities for
principal amounts not exchanged or not tendered, are to be sent, if different
from the name and address of the person signing this Letter of Transmittal.
8. Transfer Taxes. Tevecap will pay all transfer taxes, if any,
applicable to the exchange of Old Securities pursuant to the Registered Exchange
Offer. If, however, Exchange Securities and/or substitute Old Securities for
principal amounts not exchanged are to be delivered to any person other than the
Holder of the Old Securities or if a transfer tax is imposed for any reason
other than the exchange of Old Securities pursuant to the Registered Exchange
Offer, the amount of any such transfer taxes (whether imposed on the registered
Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted, the amount of such transfer taxes will be billed directly to such
tendering Holder.
9. Irregularities. All questions as to validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Old
Securities will be resolved by Tevecap, in its sole discretion, whose
determination shall be final and binding. Tevecap reserves the absolute right to
reject any or all tenders of any particular Old Securities that are not in
proper form, or the acceptance of which would, in the opinion of Tevecap or its
counsel, be unlawful. Tevecap also reserves the absolute right to waive any
defect, irregularity or condition of tender with regard to any particular Old
Securities. Tevecap's interpretation of the terms of, and conditions to, the
Registered Exchange Offer (including the instructions herein) will be final and
binding. Unless waived, any defects or irregularities in connection with tenders
must be cured within such time as Tevecap shall determine. Neither Tevecap nor
the Exchange Agent shall be under any duty to give notification of defects in
such tenders or shall incur any liability for failure to give such notification.
The Exchange Agent intends to use reasonable efforts to give notification of
such defects and irregularities. Tenders of Old Securities will not be deemed to
have been made until all defects and irregularities have been cured or waived.
Any Old Securities received by the Exchange Agent that are not properly tendered
and as to which the irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holder, unless otherwise
provided by this Letter of Transmittal, as soon as practicable following the
Expiration Date.
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<PAGE>
10. Interest on Exchanged Old Notes. Holders whose Old Securities
are accepted for exchange will not receive accrued interest thereon on the date
of exchange. Instead, interest accruing from November 26, 1996 through the
Expiration Date will be payable on the Exchange Securities on May 26, 1997, in
accordance with the terms of the Exchange Securities. See "The Exchange
Offer--Interest on the Exchange Notes and "Description of Notes" sections of the
Prospectus.
11. Mutilated, Lost, Stolen or Destroyed Certificates. Holders whose
certificates for Old Securities have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF),
TOGETHER WITH ALL REQUIRED DOCUMENTS, OR A NOTICE OF GUARANTEED DELIVERY, MUST
BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under Federal income tax laws, a registered Holder of Old Securities
or Exchange Securities is required to provide the Trustee (as payer) with such
Holder's correct TIN on Substitute Form W-9 below or otherwise establish a basis
for exemption from backup withholding. If such Holder is an individual, the TIN
is his social security number. If the Trustee is not provided with the correct
TIN, a $50 penalty may be imposed by the Internal Revenue Service, and payments
made to such Holder with respect to Old Securities or Exchange Securities may be
subject to backup withholding.
Certain Holders (including, among others, all corporations and
certain foreign persons) are not subject to these backup withholding and
reporting requirements. Exempt Holders should indicate their exempt status on
Substitute Form W-9. A foreign person may qualify as an exempt recipient by
submitting to the Trustee a properly completed Internal Revenue Service Form
W-8, signed under penalties of perjury, attesting to that Holder's exempt
status. A Form W-8 can be obtained from the Trustee.
If backup withholding applies, the Trustee is required to withhold
31% of any payments made to the Holder or other payee. Backup withholding is not
an additional Federal income tax. Rather, the Federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
Purpose of Substitute Form W-9
To prevent backup withholding on payments made with respect to Old
Securities or Exchange Securities the Holder is required to provide the Trustee
with: (i) the Holder's correct TIN by completing the form below, certifying that
the TIN provided on Substitute Form W-9 is correct (or that such Holder is
awaiting a TIN) and that (A) such Holder is exempt from backup withholding, (B)
the Holder has not been notified by the Internal Revenue Service that the Holder
is subject to backup withholding as a result of failure to report all interest
or dividends or (C) the Internal Revenue Service has notified the Holder that
the Holder is no longer subject to backup withholding; and (ii) if applicable,
an adequate basis for exemption.
-10-
<PAGE>
PAYER'S NAME: THE CHASE MANHATTAN BANK
- --------------------------------------------------------------------------------
SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN IN
THE BOX AT RIGHT AND CERTIFY BY
SIGNING AND DATING BELOW Social Security Number
Form W-9
Department of the
Treasury-Internal OR______________________
Revenue Service Employer Identification Number
- --------------------------------------------------------------------------------
Part 2 - Certification - Under penalties of perjury, I certify
that:
Payee's Request (1) The number shown on this form is my correct Taxpayer
for Taxpayer Identification Number (or I am waiting for a Taxpayer number
Identification to be issued to me); and
Number ("TIN") (2) I am not subject to backup withholding because (i) I am
exempt from backup withholding, (ii) I have Number ("TIN") not
been notified by the Internal Revenue Service ("IRS") that I
am subject to backup withholding as a result of failure to
report all interest or dividends, or (iii) the IRS has
notified me that I am no longer subject to backup withholding.
Certificate instruction -- You must cross out item (2) in Part
2 above if you have been notified by the IRS that you are
subject to backup withholding because of under reporting
interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup
withholding you received another notification from the IRS
stating that you are no longer subject to backup withholding,
do not cross out item (2).
-------------------------------------------------------------------
Part 3
SIGNATURE..........DATE................., 1997
NAME (Please Print)..................... Awaiting TIN|_|
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
3 OF SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (i) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (ii) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within 60 days, 31% of all reportable
payments made to me thereafter will be withheld until I provide a number.
Signature...................................................Date...............
Name (Please Print)............................................................
- --------------------------------------------------------------------------------
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<PAGE>
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
================================================================================
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1 and 7)
To be completed ONLY if the Exchange Securities issued in consideration of Old
Securities exchanged, or certificates for Old Securities in a principal amount
not surrendered for exchange are to be mailed to someone other than the
undersigned or to the undersigned at an address other than that below.
Mail to:
Name:________________________________________________________________________
(Please Print)
Address:_____________________________________________________________________
(Zip Code)
================================================================================
DESCRIPTION OF OLD SECURITIES
(See Instructions 2 and 7)
================================================================================
Name(s) and Address(es) Certificate(s)
of Registered Holder(s) (Attach additional signed list, if necessary)
(Please fill in,
in blank)
- --------------------------------------------------------------------------------
-------------------------------------------------------------------------
Aggregate Principal
Amount of Old Principal Amount of Old
Certificate Securities Evidenced Securities Tendered** (must be
Number(s)* by Certificate(s) integral multiples of $1,000)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total
================================================================================
- ----------
* Need not be completed if Old Securities are being tendered by book-entry
transfer.
** Unless otherwise indicated, the entire principal amount of Old Securities
evidenced by any certificate will be deemed to have been tendered.
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<PAGE>
(Boxes below to be checked by Eligible Institutions only)
|_| CHECK HERE IF TENDERED OLD SECURITIES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
DTC Account Number
Transaction Code Number
|_| CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD SECURITIES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s)
Window Ticket Number (if any)
Date of Execution of Notice of Guaranteed Delivery
Name of Institution which Guaranteed Delivery
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution
DTC Account Number
Transaction Code Number
|_| CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD
SECURITIES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH
ABOVE.
|_| CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD SECURITIES FOR
ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name _______________________________________________________________________
Address _______________________________________________________________________
_______________________________________________________________________
-13-
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
WHETHER OR NOT OLD SECURITIES ARE BEING
PHYSICALLY TENDERED HEREBY
X __________________________________ _______________
X __________________________________ _______________
Signature(s) of Owner(s) Dated
of Authorized Signatory
Area Code and Telephone Number: ______________________________________
This box must be signed by registered holder(s) of Old Securities as their
name(s) appear(s) on certificate(s) for Old Securities hereby tendered or on a
security position listing, or by any person(s) authorized to become registered
holder(s) by endorsement and documents transmitted with this Letter (including
such opinions of counsel, certifications and other information as may be
required by Tevecap or the Trustee for the Old Securities to comply with the
restrictions on transfer applicable to the Old Securities). If signature is by
an attorney-in-fact, trustee, executor, administrator, guardian, officer or
other person acting in a fiduciary or representative capacity, such person must
set forth his or her full title below.
Name(s) ______________________________________________________________________
_______________________________________________________________________________
(Please Print)
Capacity (full title) _________________________________________________________
Address _______________________________________________________________________
_______________________________________________________________________________
(Include Zip Code)
Tax Identification or Social Security Number(s) _______________________________
_______________________________________________________________________________
Guarantee of Signature(s)
(See Instructions 1 and 6 to determine if required)
Authorized Signature __________________________________________________________
Name __________________________________________________________________________
Name of Firm __________________________________________________________________
Title _________________________________________________________________________
Address _______________________________________________________________________
Area Code and Telephone Number ________________________________________________
Dated _________________________________________________________________________
- -------------------------------------------------------------------------------
-14-
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payer.
Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
For this type Give the SOCIAL
of account: SECURITY number
of--
-------------------- ---------------------
1. Individual The individual
2. Two or more individuals The actual owner of the
(joint accounts) account or, if combined funds,
the first individual on the
accounts. (2)
3. Custodian account of a minor The minor(4)
(Uniform Gift to Minors Act)
4.a. The usual revocable savings The grantor-trustee
trust (grantor is also trustee)
b. So-called trust account that is The actual owner
not a legal or valid trust under
State law
5. Sole proprietorship The owner(1)
For this type Give the EMPLOYER
of account: IDENTIFICATION
number of--
-------------------- ------------------
6. Sole proprietorship The owner(1)
7. A valid trust, estate, or pension Legal entity(3)
[illegible]
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational or other
tax-exempt organization
10. Partnership The partnership
11. A broker or registerd nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State or
local government, school
district, or prison) that receives
agricultural program payments
- ----------
(1) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your SSN or EIN.
(2) List first and circle the name of the person whose number you furnish.
(3) List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the identifying number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
(4) Circle the minor's name and furnish the minor's social security number.
-15-
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
Obtaining a Number
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
Payees Exempt from Backup Withholding
The following is a list of payees exempt from backup withholding and for which
no information reporting is required. For interest and dividends, all listed
payees are exempt except item (9). For broker transactions, payees listed in
items (1) through (13) and a person registered under the Investment Advisers Act
of 1940 U.C. who regularly acts as a broker are exempt. Payments subject to
reporting under sections 6041 and 6041A are generally exempt from backup
withholding only if made to payees described in items (1) through (7), except a
corporation that provides medical and health care services or bills and collects
payments for such services is not exempt from backup withholding or information
reporting. Only payees described in items (2) through (6) are exempt from backup
withholding for barter exchange transactions, patronage dividends, and payments
by certain fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under section 501(a), or an individual
retirement plan or custodial account under section 403(b)(7).
(3) The United States or any agency or instrumentality thereof.
(4) A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
(5) A foreign government, a political subdivision of a foreign government, or
an agency or instrumentality thereof.
(6) An international organization or any agency or instrumentality thereof.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the U.S. or
a possession of the U.S.
(9) A futures commission merchant registered with the Commodity Futures Trading
Commission.
(10) A real estate investment trust.
(11) An entity registered at all times under the Investment Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed
in the most recent publication of the American Society of Corporate
Secretaries, Inc. Nominee List.
(15) An exempt charitable remainder trust, or a non-exempt trust described in
section 4947.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
o Payments to nonresident aliens subject to withholding under section 1441.
o Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
o Payments of patronage dividends not paid in money.
o Payments made by certain foreign organizations.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you
have not provided your correct taxpayer identification number to the payer.
o Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
o Payments described in section 6049(b)(5) to nonresident aliens.
o Payments on tax-free covenant bonds under section 1451.
o Payments made by certain foreign organizations.
Note: You may be subject to backup withholding if this interest is $60 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
o Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
o Payments described in section 6049(b)(5) to nonresident aliens.
o Payments on tax-free covenant bonds under section 1451.
o Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER. WRITE "EXEMPT" ON THE FACE OF THE FORM AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, royalties, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
Privacy Act Notice. Section 6109 requires most recipients of dividend, interest,
or other payments to give taxpayer identification numbers to payers who must
report the payments to IRS. IRS uses the numbers for identification purposes.
Payers must be given the numbers whether or not recipients are required to file
tax returns. Payers must generally withhold 31% of taxable interest, dividend,
and certain other payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number. If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments. If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) Civil Penalty for False Information with Respect to Withholding. If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT
OR THE INTERNAL REVENUE SERVICE.
-16-
<PAGE>
Exhibit 99.3
NOTICE OF GUARANTEED DELIVERY
for
TEVECAP S.A.
This Notice of Guaranteed Delivery, or one substantially equivalent to
this form, must be used to accept the Registered Exchange Offer (as defined
below) of Tevecap S.A. ("Tevecap") made pursuant to the Prospectus, dated
_______ __, 1997 (as the same may be amended or supplemented from time to time,
the "Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal") if the Letter of Transmittal and all other required documents
cannot be delivered or transmitted by facsimile transmission, mail or hand
delivery to The Chase Manhattan Bank (the "Exchange Agent") on or prior to 5:00
p.m., New York City time, on the Expiration Date (as defined in the Prospectus)
or the procedures for delivery by book-entry transfer cannot be completed on a
timely basis. See "The Registered Exchange Offer -- Guaranteed Delivery
Procedures" section in the Prospectus. The term "Old Notes" means Tevecap's
outstanding 12 5/8% Senior Notes due 2004, and the term "Old Securities" means
the Old Notes together with the Subsidiary Guarantees (as defined in the
Prospectus) of the Old Notes.
- --------------------------------------------------------------------------------
THE REGISTERED EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
THE EARLIER OF ________ __, 1997 (UNLESS EXTENDED) OR THE DATE ON WHICH 100% OF
THE OLD NOTES AND SUBSIDIARIES GUARANTEES (TOGETHER, THE "OLD SECURITIES") ARE
VALIDLY TENDERED AND NOT WITHDRAWN (THE "EXPIRATION DATE"). TENDERED OLD
SECURITIES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE OF
THE REGISTERED EXCHANGE OFFER.
- --------------------------------------------------------------------------------
Deliver to: The Chase Manhattan Bank, Exchange Agent:
By Hand, Mail or Overnight Courier:
The Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, New York 10001
By Facsimile:
(212) 946-8177
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID
DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Tevecap, upon the terms and conditions
set forth in the Prospectus and the Letter of Transmittal (which together
constitute the "Registered Exchange Offer"), receipt of which are hereby
acknowledged, the aggregate principal amount of Old Securities set forth below
pursuant to the guaranteed delivery procedure described in "The Registered
Exchange Offer -- Guaranteed Delivery Procedures" section in the Prospectus and
the Letter of Transmittal.
Principal Amount of Old Notes and
Subsidiary Guarantees Signature(s)__________________________
Tendered $ _______________ ______________________________________
Certificate Nos.
(if available) _______________ Please Print the Following Information
Names(s) of Registered Holders _______
______________________________________
Total Principal Amount
Represented by Old Notes and
Subsidiary Guarantees Address ______________________________
Certificate(s)_______________ ______________________________________
If Old Securities will be tendered by
book-entry transfer, provide the
following information:
Area Code and Telephone Number(s)
DTC Account Number __________ ______________________________________
Dated: __________, 1997
GUARANTEE
(Not to be Used for Signature Guarantee)
The undersigned, a firm or entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," hereby guarantees to deliver to the Exchange Agent, at its address
set forth above, either the Old Securities tendered hereby in proper form for
transfer, or confirmation of the book-entry transfer of such Old Securities
pursuant to the procedures for book-entry transfer set forth in the Prospectus,
in either case together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees, and
any other documents required by the Letter of Transmittal within three New York
Stock Exchange trading days after the date of execution of this Notice of
Guaranteed Delivery.
Name of Firm ________________ _________________________________________
(Authorized Signature)
Address______________________ Name ____________________________________
_____________________________ Date ____________________________________
Zip Code
Area Code and
Telephone Number ___________
<PAGE>
Exhibit 99.4
TEVECAP S.A.
Offer for all Outstanding
12 5/8% Senior Notes Due 2004 and Subsidiary Guarantees
in Exchange for Registered
12 5/8% Senior Notes due 2004 and Subsidiary Guarantees
- --------------------------------------------------------------------------------
THE REGISTERED EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
THE EARLIER OF _________ __, 1997 (UNLESS EXTENDED) OR THE DATE ON WHICH 100% OF
THE OLD SECURITIES AND SUBSIDIARY GUARANTEES (TOGETHER, THE "OLD NOTES") ARE
VALIDLY TENDERED AND NOT WITHDRAWN (THE "EXPIRATION DATE"). TENDERED OLD
SECURITIES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE OF
THE REGISTERED EXCHANGE OFFER.
- --------------------------------------------------------------------------------
To Our Clients:
Enclosed for your consideration is a Prospectus, dated ________ __, 1997
(as the same may be amended or supplemented from time to time, the
"Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Registered Exchange Offer") of
Tevecap S.A. (Tevecap) to exchange an aggregate principal amount of up to
$250,000,000 of its 12 5/8% Senior Notes Due 2004 and Subsidiary Guarantees (the
"Exchange Notes") together with the Subsidiary Guarantees (as defined in the
Prospectus and together with the Exchange Notes, the "Exchange Securities")
which have been registered under the Securities Act of 1933 pursuant to a
Registration Statement of which the Prospectus constitutes a part for a like
principal amount of its outstanding 12 5/8% Senior Notes due 2004 (the "Old
Notes") of which $250,000,000 aggregate principal amount is outstanding,
together with the Subsidiary Guarantees of the Old Notes (such Subsidiary
Guarantees together with the Old Notes, the "Old Securities") upon the terms and
subject to the conditions described in the Prospectus and the Letter of
Transmittal. The Exchange Securities are being offered to satisfy certain
obligations of Tevecap under the Purchase Agreement, dated as of November 21,
1996, between Tevecap, the Guarantors (as defined in the Prospectus) and the
initial purchasers of the Old Securities (the "Initial Purchasers") and the
Exchange and Registration Rights Agreement, dated November 26, 1996, among
Tevecap, the Guarantors and the Initial Purchasers.
Holders of Old Securities who cannot deliver all required documents to the
Exchange Agent on or prior to the Expiration Date (as defined below), or who
cannot complete the procedures for book-entry transfer on a timely basis, must
follow guaranteed delivery described in the Prospectus under "The Registered
Exchange Offer -- Guaranteed Delivery Procedures."
This material is being forwarded to you as the beneficial owner of the Old
Securities carried by us in your account but not registered in your name. A
tender of such Old Securities may only be made by us as the holder of record and
pursuant to your instructions.
Accordingly, we request instructions as to whether you wish us to tender
on your behalf the Old Securities held by us for your account, pursuant to the
terms and conditions set forth in the enclosed Prospectus and Letter of
Transmittal.
<PAGE>
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Securities on your behalf in accordance
with the provisions of the Registered Exchange Offer. The Registered Exchange
Offer will expire at 5:00 p.m., New York City time, on _________ __, 1997,
unless extended by Tevecap. Any Old Notes tendered pursuant to the Registered
Exchange Offer may be withdrawn at any time before the Expiration Date.
Your attention is directed to the following:
1. The Registered Exchange Offer is for any and all Old Securities.
2. Any transfer taxes incident to the transfer of Old Securities from the
holder to Tevecap will be paid by Tevecap, except as otherwise provided in
Instruction 9 of the Letter of Transmittal.
3. The Registered Exchange Offer expires at 5:00 p.m., New York City time,
on ________ __, 1997 (unless extended by Tevecap) or the date on which 100% of
the Old Securities are validly tendered and not withdrawn.
If you wish to have us tender your Old Securities, please so instruct us
by completing, executing and returning to us the instruction form on the back of
this letter. The Letter of Transmittal is furnished to you for informational
purposes only and may not be used directly by you to tender Old Securities held
by us and registered in our name for your account or benefit.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE REGISTERED EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Registered Exchange Offer made by
Tevecap S.A. with respect to its Old Securities.
This will instruct you to tender the Old Securities held by you for the
account of the undersigned, upon and subject to the terms and conditions set
forth in the Prospectus and the related Letter of Transmittal.
Please tender the Old Securities held by you for my account as indicated
below:
Aggregate Principal Amount of Old Notes with
Subsidiary Guarantees
--------------------------------------------
12 5/8% Senior Notes
Due 2004........................... ___________________________________________
o Please do not tender any Old
Securities held by you for my
account.
Dated: ____________________, 1997 ___________________________________________
___________________________________________
Signature(s)
___________________________________________
___________________________________________
___________________________________________
Please print name(s) here
___________________________________________
___________________________________________
Address(es)
___________________________________________
Area Code and Telephone Number
___________________________________________
Tax Identification or Social
Security No(s).
None of the Old Securities held by us for your account will be tendered
unless we receive written instructions from you to do so. Unless a specific
contrary instruction is given in the space provided, your signature(s) hereon
shall constitute an instruction to us to tender all the Old Securities held by
us for your account.
<PAGE>
Exhibit 99.5
TEVECAP S.A.
Offer for all Outstanding
12 5/8% Senior Notes due 2004 and Subsidiary Guarantees
in Exchange for Registered
12 5/8% Senior Notes due 2004 and Subsidiary Guarantees
- --------------------------------------------------------------------------------
THE REGISTERED EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
THE EARLIER OF ________ __, 1997 (UNLESS EXTENDED) OR THE DATE ON WHICH 100% OF
THE OLD NOTES AND SUBSIDIARY GUARANTEES (TOGETHER, THE "OLD SECURITIES") ARE
VALIDLY TENDERED AND NOT WITHDRAWN (THE "EXPIRATION DATE"). TENDERED OLD
SECURITIES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE OF
THE REGISTERED EXCHANGE OFFER.
- --------------------------------------------------------------------------------
To: Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Tevecap S.A. ("Tevecap") is offering, upon and subject to the terms and
conditions set forth in the Prospectus, dated _________ __, 1997 (as the same
may be amended or supplemented from time to time, the "Prospectus"), and the
enclosed Letter of Transmittal (the "Letter of Transmittal"), to exchange (the
"Registered Exchange Offer") an aggregate principal amount of up to $250,000,000
of its 12 5/8% Senior Notes Due 2004 (the "Exchange Notes") together with the
Subsidiary Guarantees of the Exchange Notes (as defined in the Prospectus and
together with the Exchange Notes, the "Exchange Securities") for a like
principal amount of its outstanding 12 5/8% Senior Notes Due 2004 (the "Old
Notes") together with the Subsidiary Guarantees of the Old Notes (such
Subsidiary Guarantees together with the Old Notes, the "Old Securities"). The
Exchange Securities are being offered to satisfy certain obligations of Tevecap
under the Purchase Agreement, dated as of November 21, 1996, between Tevecap,
the Guarantors (as defined in the Prospectus) and the initial purchasers of the
Old Notes (the "Initial Purchasers") and the Exchange and Registration Rights
Agreement, dated November 26, 1996, among Tevecap, the Guarantors and the
initial purchasers of the Old Securities.
We are requesting that you contact your clients for whom you hold Old
Securities registered in your name or in the name of your nominee regarding the
Registered Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Securities registered in your name or in the name
of your nominee, or who hold Old Securities registered in their own names, we
are enclosing the following documents:
1. Prospectus dated ________ __, 1997;
<PAGE>
2. The Letter of Transmittal for your use and for the information of your
clients, including Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9;
3. A Notice of Guaranteed Delivery to be used to accept the Registered
Exchange Offer if time will not permit all required documents to reach the
Exchange Agent (as defined below) prior to the Expiration Date (as defined
below) or if the procedures for book-entry transfer cannot be completed on a
timely basis;
4. A form of letter which may be sent to your clients for whose account
you hold Old Securities registered in your name or the name of your nominee,
with space provided for obtaining such clients' instructions with regard to the
Registered Exchange Offer;
5. Return envelopes addressed to The Chase Manhattan Bank, the Exchange
Agent (the "Exchange Agent") for the Old Securities.
Your prompt action is requested. The Registered Exchange Offer will expire
at 5:00 p.m., New York City time, on _________ __, 1997 (unless extended by the
Company) or the date on which 100% of the Old Securities are validly tendered
and not withdrawn (the "Expiration Date"). Old Securities tendered pursuant to
the Exchange Offer may be withdrawn, subject to the procedures described in the
Prospectus, at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To participate in the Registered Exchange Offer, a duly executed and
properly completed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees and any other required documents, should be sent
to the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
If holders of Old Securities wish to tender but time will not permit all
required documents to reach the Exchange Agent prior to the Expiration Date or
to comply with the book-entry transfer procedures on a timely basis, a tender
may be effected by following the guaranteed delivery procedures described in the
Prospectus under "The Registered Exchange Offer-- Guaranteed Delivery
Procedures."
Tevecap will, upon request, reimburse brokers, dealers, commercial banks
and trust companies for reasonable and necessary costs and expenses incurred by
them in forwarding the Prospectus and the related documents to the beneficial
owners of Old Securities held by them as nominee or in a fiduciary capacity.
Tevecap will pay or cause to be paid all stock transfer taxes applicable to the
exchange of Old Securities pursuant to the Registered Exchange Offer, except as
set forth in Instruction 9 of the Letter of Transmittal.
Any inquiries you may have with respect to the Registered Exchange Offer,
or requests for additional copies of the enclosed materials, should be directed
to The Chase Manhattan Bank, as the Exchange Agent for the Old Securities, at
its address set forth on the front of the Letter of Transmittal.
Very truly yours,
TEVECAP S.A.
-2-
<PAGE>
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN
THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
-3-
